Monday, July 19, 2010

Markets in Everything: Rent-A-Friend

Scott Rosenbaum, 30, has a database of 218,000 men and women who members of his site Rent a Friend can hire "to hang out with, go to a movie or restaurant with," or be "someone to show you around an unfamiliar town." The US-based site already has around 2,000 members, each paying up to $25 to access the site.

When they see a friend they like the look of, they can rent them for as little as $10 an hour. Rosenbaum said he wanted to "go a step back" from dating sites and offer a service that was, in the words of his website "strictly platonic." He told The Times: "No one was offering friendship."

The service is not just about getting people to meet up for a drink or a meal. It lists a host of diverse activities that members might like to hire friends for, including "teaching manners," "snowboarding," "family functions" and just "hanging out."


HT: Steve Bartin

Vogue's September Issue: +100 Ad Pages vs. 2009

Crain's New York -- "Luxury magazines, like the economy, are making a slow comeback. On Monday, Vogue magazine will announce ad-pages results for its all-important September issue, and industry insiders say that the fashion monthly will show a spike of 100 advertising pages, or 23% over a year ago, for a total of 529 (see chart above).

The relatively improved economic climate has been boosting numbers for Vogue's sister titles at Condé Nast, the most luxury-oriented of the major magazine publishers and the one that was hardest hit by the downturn. But even 23% growth for the September issue—in which designers and fashion companies display their next season's lineups—barely puts Vogue back in the league it was in a few years ago.

In 2007, the magazine carried a record 727 ad pages—and weighed in at four pounds nine ounces. In 2008, Vogue dropped 7% of its ad-weight, coming in at 674 pages."

Double Dip? Seven Reasons Why Not

From Lord Abbett's senior economist Milton Ezrati in today's WSJ:

"It seems these days that half the headlines in the financial media fear a double-dip recession, as do half the conversations on Wall Street. There certainly are risks, not least in Europe’s financial difficulties. But still, there are reasons to question such widespread concerns. History, after all, offers only one true double-dip experience, and that grew out of a policy error. More, the actual data on the economy fly in the face of such an outlook. Following are seven reasons to doubt the double-dip outlook."

The reasons include: Consumer spending is firm, housing data are misleading, business spending and exports are awfully strong for a dip, overall production is good, employment is not so threatening, financial markets are healthier than the headlines imply, and China continues to grow.

Read the rest here.

Exhibit A: Increased Worker Productivity

Watch an amazing video of robotic inventory and mobile fulfillment that triples worker productivity and reduces errors. See related CD post here on how increases in worker productivity have eliminated millions of manufacturing jobs.

Sunday, July 18, 2010

CA June Home Sales: Median Prices Rise for 8th Month, Foreclosure Sales Fall to 28-Month Low

Highlights from the DQNews report on June California home sales:

1. In June, 43,964 houses and condos were sold in California, which was an increase of 7.3% percent from May (40,965), and down by 0.50% from the 44,167 houses sold in June 2009 (see chart).

2. The median price for a California home sold in June was $270,000, up 9.8% from $246,000 in June 2009, and down by 2.9% from $278,000 in May (see chart).

3. The year-over-year increase in median home prices in June is the eighth month in a row of an increase (starting in November 2009, which likely marks the bottom for home prices in CA), following 27 months of year-over-year declines.

4. Of the homes sold in June, 34.7% were properties that had been foreclosed on during the past year, down from 35.4% in May and down from 45.6% in June of 2009 (see chart). The last time foreclosure resales were as low was in March 2008, 28 months ago.

Seattle Shipping Boom: +45% Gain YTD from 2009

The chart above shows monthly shipping volume (TEUs = twenty-foot equivalent units, data here) at the Port of Seattle (America's 10th largest port, and third largest port on the West Coast).  As might be expected, shipping at the Seattle port is dominated by trade with China, to the extent that more than half (56%) of the shipping volume (by dollar amount) is with China, and the almost $19 billion of shipping with China in 2009 was more than the value of shipping with the next 100 countries combined.   

Shipping volume for June (190,129 TEUs) was 49% above last year's shipping in June, and this follows year-to-year increases of 57.38% in May, 57.2% in April, 39.4% in March, 48.2% in February and 21.7% in January.  Year-to-date, shipping volume at the Seattle port is above last year by 45.2%.  At this pace, annual Seattle shipping in 2010 will likely exceed both last year's shipping volume of 1.58 million TEUs and the 1.70 million TEUs in 2008, and possibly even the 1.973 TEUs in 2007.    

Saturday, July 17, 2010

Increased Worker Productivity Has Destroyed Millions of Jobs, and We Should Be Grateful

Ron Bullock, chairman of Bison Gear & Engineering Corp, writing in the Washington Examiner:

"More effective foreign competition has led to increasing manufactured-goods trade deficits and the loss of 7 million U.S. manufacturing jobs since 1980."

Don Boudreaux responds:

"This account – repeated ad nauseam – would be more plausible if it were also the case that U.S. manufacturing output, during this same time, had declined. But this output rose. Manufacturing output today is nearly 100 percent higher than it was 30 years ago (see chart). Importantly, manufacturing output is up while manufacturing employment is down for a reason that is cause not for the pessimism that universally attends accounts such as Mr. Bullock‘s but rather for optimism. That reason is substantial growth in productivity, which is the only source of sustained and widespread prosperity."

MP: The graphs above tell the story. U.S. Manufacturing output has more than doubled since 1975 (data here) while manufacturing employment has decreased by about 8 million jobs (data here), resulting in more than a three-fold increase in worker productivity (output per worker) since the 1970s. Therefore, it's the dramatic increase in the productivity of American workers that helps explain the loss of millions of manufacturing jobs, and this a a cause for optimism, not pessimism, as Don points out.

Just like we should celebrate, not mourn, the loss of millions of farm jobs due to the ongoing and significant increases in worker productivity that reduced farming jobs as a share of total jobs from 90% in the 1700s to the current level of only about 2.6% (see chart below, data here), we should also celebrate the loss of millions of factory jobs due to dramatic increases in worker productivity. Any time we can get more output with fewer workers, whether it's farming or manufacturing, it's a sure sign of economic progress and a rising standard of living.

Friday, July 16, 2010

2,319 Page Dodd-Frank Bill aka The “Lawyers’ and Consultants’ Full Employment Act of 2010"

Now that Congress has passed the “Dodd-Frank Wall Street Reform and Consumer Protection Act,” it might be a good time to compare the 2,319-page financial reform bill (245 pages longer than the healthcare bill) to the previous bills listed below (and see graph above) that are considered among the most consequential legislative acts for banking and finance.

1. Federal Reserve Act (1913) - 31 pages.

2. Glass-Steagall Act (1933) – 37 pages.

3. Interstate Banking Efficiency Act (1994) – 61 pages.

4. Gramm-Leach-Bliley Act (1999) – 145 pages.

5. Sarbanes-Oxley Act (2002) – 66 pages.

Read more here at The Enterprise Blog.

Thursday, July 15, 2010

What's Your Political News IQ?

Take the latest Pew Research Center News Quiz

Markets in Everything: Currency Design, Part II

"India has finally got a symbol for the Rupee and joined a select club of countries whose currencies have an unique identity (see graphic above). The Union Cabinet on Thursday approved the design, which includes both the Devnagiri 'Ra' and the Roman capital 'R' and has two parallel lines running at the top. The parallel lines symbolise the equal to sign.

The symbol selected has been designed by an Indian Institute of Technology postgraduate D Udaya Kumar and was selected from among five short listed symbols."
See CD post here from March 2009 about the contest for the rupee symbol, with a $5,000 prize to the winner, almost 5 times India's per-capita GDP of $1,031 in 2009 ($2,941 on a Purchaing Power Parity basis, which takes into account the relative cost of living). 
HT: Sanil Kori

New Jobless Claims Fall to Lowest Level Since 2008

WASHINGTON – "New applications for unemployment benefits fell sharply last week as General Motors and other manufacturers skipped their usual summer shutdowns.  The Labor Department said Thursday that new claims dropped by 29,000 to 429,000, the lowest level since August 2008 (see chart above).  It was the second straight week that initial claims dropped sharply and the third drop in the last four weeks. Claims fell by 17,000 in the previous week."

MP: The two-week drop of -46,000 initial jobless claims was the largest in a year, and brought the new claims number to 429,000, the lowest level since the week ending August 23, 2008. 

Wednesday, July 14, 2010

Monster Employment Index Europe: 16-Month High

European Online Recruitment Activity Reaches 16-month high, Reports Monster Employment Index

June 2010 Index Highlights:

1. The Monster Employment Index Europe reported two percent increase in online worker demand in June, with job opportunities up 12 percent year-on-year

2. Online job availability increased the most in production, manufacturing, maintenance and repair, from both a monthly and annual perspective

3. Germany registered the sharpest monthly increase among major countries, while Sweden continued to exhibit the most positive long-term trend

4. June marked the fifth consecutive month of expansion in online job opportunities,  suggesting the overall industry is on a path of gradual recovery. This is also reflected in the accelerated rate of annual growth compared to the previous month.

5. Job opportunities are now up 12 percent compared to June 2009 and their highest level since February 2009.

One Way to Find Rent-Controlled Apartments in Manhattan: Follow the Obituaries

Jessica Hagy.

Blog's About "Everything"

1. The "Blog" of "Unnecessary" Quotation Marks.

2. The blog of unnecessary apostrophe's, i.e. "apostrophe abuse."

Record High North Dakota Oil Production in May

Following an ongoing pattern, North Dakota continued to set more new records in May for monthly oil production (data here), see previous CD post here. The following are new, all-time record highs set in May:

Daily Oil Production: 296,423 barrels in May; 4.23% increase from April, 43.85% increase from May 2009, 89.5% increase from May 2008.

Total Monthly Production: 9,189,101 barrels in May, the first time that monthly production topped 9 million barrels.  Amazingly, oil production in North Dakota has doubled in just the last two years. 

Do They Have This in Canada or UK?

Cyrus Massoumi, CEO & Founder of ZocDoc:

"After I ruptured my eardrum on a flight, I couldn't find a doctor for 3 days. I knew that there had to be an easier way for patients to find doctors. That was when I had the idea for ZocDoc."

From TechCrunch:

"ZocDoc automates a task that can be incredibly frustrating and time-consuming for consumers. ZocDoc allows users to book their doctor appointments online, even for same-day appointments (around 40% of ZocDoc users schedule same-day appointments). Patients can see real-time availability of doctors in their area, confirm who accepts their insurance plan and read feedback and reviews of doctors from other patients.

The service currently offers patients more than 1 million available appointments across 20 specialties. The company has launched regional sites in New York, Washington DC, Chicago, and most recently San Francisco."

NY Fed Model: No Chance of a Double-Dip in 2011

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" today with treasury yield data through June 2010, and the Fed's recession probability forecast through June 2011 (see top chart above). The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (3.2% in June) and 3-month Treasury bills (0.12% in June) to calculate the probability of a U.S. recession up to twelve months ahead (see details here) using the spread between those two yields (3.08% in June, see bottom chart above). 

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month. For June 2010, the recession probability is only 0.06% and by a year from now in June of next year the recession probability is only slightly higher, at only 0.18% (less than 1/5 of 1%).

According to the NY Fed Treasury Spread model, the chances of a double-dip recession through the middle of next year are essentially zero, see earlier CD post here

LA Port Shipping Boom: Highest June on Record

I reported yesterday that international trade reached a 19-month high in May, and today's report from the Port of Los Angeles provides additional statistical evidence of an ongoing boom in international trade activity.  Shipping volume reached a 22-month high in June of  730,318 TEUs, the highest monthly shipping activity since August of 2008 (see chart above), and 32.38% above June last year.  On a year-to-date basis, shipping activity at the LA Port is up by 15%. Other highlights include:

•Strengthening of the overall trade environment.

•Imports were up 32%, Exports were up 12%, empty containers were up 53%, overall up by 32% for month of June, YTD up 15%

•Vessel services were upsized to handle the surge of volume

•Carriers are bringing back peak season services – six more vessel arrivals over June 2009

•Vessels are arriving close to full capacity

•Large amount of empty container returns to Asia as a result of higher import volumes and to replenish the shortage of empty equipment in Asia    

•For the month of June, this year sets an all-time record high 

Double-Dippers Are All Wet: Towel Off Already

According to Arturo Estrella, professor of economics and department head at Rensselaer Polytechnic Institute:

Recession watch: Probability of recession for June 2011, based on the yield curve, is 0.2% (see chart above, data here). Probability has been higher than 30% before every recession since 1967.

Professor Estrella is featured in this Bloomberg article "Double-Dippers Are All Wet Ignoring Yield Curve":

"The yield curve has inverted prior to all of the last seven recessions, with no false signals since 1967, according to Estrella, whose website provides all kinds of research and data for the uninitiated.

Estrella uses the monthly average spread between the 3- month Treasury bill and the 10-year Treasury note to filter out the noise. The lead time between the appearance of a negative monthly spread and recession can be anywhere from three to 18 months. In the most recent instance, the spread turned negative in July 2006, and the U.S. economy slipped into recession in December 2007, according to the National Bureau of Economic Research, the official arbiter of the business cycle.

Slowdown, yes; recession, no. That’s the message of the yield curve. Its track record is impeccable. It beats forecasters, econometric models, even the Fed, which seems to resist the inherent message in the spread.  For all those double-dippers still splashing around in the pool, it’s time to get out, towel off and learn to love a slow recovery."

HT: Larry Kudlow

Tuesday, July 13, 2010

June So. California Home Sales Highest Since 2006

DQNews---"Southern California’s housing market continued its slow crawl toward normalcy in June as sales volume rose and the median price slipped back a notch from May, but remained 13 percent higher than a year ago. Red-hot, fire-sale deals continued to give way to mere bargains in the lower- cost inland markets where first-time buyers and investors have competed fiercely.  Highlights include:

1. A total of 23,871 new and resale homes were sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was up 7.2 percent from 22,270 in May, and up 2.6 percent from 23,262 for June 2009 (see chart).

2. The sales count was the highest since July last year when 24,104 homes were sold. It was the strongest month of June since 2006 when 31,602 homes sold. The average June since 1988 has had 28,086 sales.

3. The median price paid for a Southland home was $300,000 last month. That was down 1.6 percent from $305,000 in May, and up 13.2 percent from $265,000 for June 2009 (see chart). The low point of the current cycle was $247,000 in April 2009, the high point was $505,000 in mid 2007.

4. Foreclosure resales accounted for 33.0 percent of the resale market last month, down from 33.9 percent in May, and down from 45.3 percent a year ago (see chart). The all-time high was February 2009 at 56.7 percent."

MP: More evidence of a continuing recovery in the California real estate market with June sales exceeding both May 2010 and June 2009 and reaching a four-year high for June, median home prices are above a year ago by 13.2%, and ongoing declines in foreclosures as a share of total sales.  Record-low mortgage rates likely also played a role, and will continue to support the real estate recovery in Southern California.  

What About "Farm Subsidy Inequality"?

Many people get upset about income inequality, and for example the fact that the top 1% earned almost 23% of total income in 2007 (see table above, IRS data here).  But not too many people seem to get very upset about the fact that "farm subsidy inequality" is even greater, see the table above (data here). 

For example the top 10% earned about 48% of all income in 2007, but the top 10% of the recipients of farm subsidies received 74% of all subsidies between 1995 and 2009 (an average of $445,000 per recipient).  For just the year 2009, the top 10% of recipients received a little less, 61% of the total, averaging about $48,000 per recipient.  Where's the outrage about "farm subsidy inequality?" 

The U.S. Trade Surplus With China: Farm Products

From today's Financial Times (free subscription may be required):

"As U.S. politicians lose sleep over the trade deficit with China and the dollar-renminbi exchange rate, American farmers are eyeing a record $14 billion in exports there this year. The U.S. had a $4 billion trade surplus in agricultural products with China in the first four months of 2010, helping shave the total deficit to $71 billion in the period.

The U.S. is the world’s largest exporter of soybeans and cotton, commodities for which China is the world’s top importer. Exports “exploded” after China’s 2001 accession to the World Trade Organisation, says the US Department of Agriculture. Growing livestock and textile industries have stoked demand for animal feed and fibres.

“It’s huge,” says Randy Mann, who cultivates corn, soybeans and wheat on 2,500 acres (1,000 hectares) in Kentucky and chairs a trade and international affairs committee of the American Soybean Association. “Probably a third of the price on the Chicago Board of Trade is related to the soybean market in China. That’s the impact it can have.” Soybean prices have doubled in a decade to $10 a bushel."

How Bad Would European Socialism Really Be?

Perhaps this is heresy to even ask this, but suppose we moved in the direction of greater European-style socialism - how bad would that really be?

According to IMF data for 2009 (available here), GDP per capita for the U.S. and some European countries are as follows (PPP values in parentheses):

1. Luxembourg: $104,512 ($78,395)
2. Norway: $79,085 ($52,561)
3. Switzerland: $67,560 ($43,007)
4. Denmark: $56,115 ($35,757)
5. Ireland: $51,356 ($39,468)
6. Netherlands: $48,223 ($39,938)
7. U.S.A.: $46,381
8. Austria: $45,989 ($38,939(
9. Finland: $44,492 ($33,556)
10. Sweden: $43,986 ($35,965)
11. Belgium: $43,533 ($35,422)
12. France: $42,747 ($33,679)

Maybe another way of looking at this is that free market capitalism is so strong and creates so much wealth, prosperity and abundance, that even European-style socialism isn't enough to really impede the wealth-creating process?  Even with European-style socialism, there are six European countries that have higher per-capita GDP than the U.S. and another five that aren't far behind us (Update: using PPP per-capita GDP above, the comparison changes significantly), so perhaps Jet USA in the cartoon above would fly right through the clouds of European socialism, and barely even slow down?      

Comments welcome. 

ASA Staffing Index Level 28.5% Above Last Year

The weekly American Association Staffing Index for temporary help and contract work continues to show strong gains compared to the same month in the previous year, and the index has increased in every week this year vs. 2009.  For the last eleven weeks (starting April 19) the weekly gains have been above 20%, and for the last 20 weeks (starting Feb. 15) the gains have been above 10%.  Compared to last year, the ASA Index was 28.5% higher during the 27th week of this year (June 28-July 4 this year). 

U.S. Trade Reaches 19-Month High of $314b in May

The BEA released monthly data today on U.S. International Trade for May (link), and reported that "Total May exports of $152.3 billion and imports of $194.5 billion resulted in a goods and services deficit of $42.3 billion, up from $40.3 billion in April, revised.  May exports were $3.5 billion more than April exports of $148.7 billion. May imports were $5.5 billion more than April imports of $189.0 billion."

Total trade (exports + imports) reached a 19-month high of $314 billion in May, the highest level since October 2008, and 27.5% above the April 2009 low of $246 billion (see chart above).  Further, international trade volume has increased in 10 out of the last 13 months, providing further evidence that the economy started on a recovery path last summer and continues to make solid gains almost every month.    

"Money Laundering" in Zimbabwe: Literally

"Zimbabwe's coalition government officially declared the U.S. dollar legal tender last year to eradicate world record inflation of billions of percent in the local Zimbabwe dollar as the economy collapsed. $1 bills are essential currency in Zimbabwe and putting them through the washing machine is the only way to ensure they remain hygenic. 

Low denomination U.S. bank notes change hands until they fall apart, and the bills are routinely carried in underwear and shoes through crime-ridden slums. Some have become almost too smelly to handle, so Zimbabweans have taken to putting their $1 bills through a spin cycle and hanging them up to dry with clothes pins."


Monday, July 12, 2010

Bolt Won't Return to High-Tax UK Until 2012

UK Telegraph -- "Organizers of next month's Aviva London Grand Prix at Crystal Palace had hoped to stage the first 100 meters head-to-head of the season between Bolt, Tyson Gay and Asafa Powell but the triple Olympic champion is set to shun the meeting because it would expose him to a huge tax bill. Unless the tax rules are relaxed, athletics administrators fear British fans will be denied the chance to see the sport's biggest star in action again until he returns to the capital in two years' time to defend his Olympic titles.

Since April, foreign sports stars competing in Britain are liable for a top rate of income tax of 50 percent but, controversially, the tax is charged not just on the money they earn in Britain but on a proportion of their worldwide sponsorship income."

MP: See previous CD posts on how high taxes drive highly-paid professional athletes away here, here, and here, illustrating the basic economic principle that "if you tax something, you get less of it."

HT: Kyle Stingily

Dallas Morning News Editorial Writer Coined the Term "Right to Work" on Labor Day in 1941

Dallas Morning News editorial writer William Ruggles (pictured above) "thought every American had a right to work. He used those words in an editorial on September 1, 1941 (Labor Day) asking for a 22nd amendment to the U.S. Constitutional guaranteeing the right to work with or without union membership. In so doing, he coined a phrase and sparked a movement that would change the labor landscape in America," according to a recent story in the Dallas Morning News as part of its 125th anniversary celebration.   Here are some excerpts from the article:

“The answer seemed to me to be an amendment to the federal Constitution that would be so clear and unequivocal that no jurist could argue against its meaning,” Ruggles said later. Texas passed its right-to-work law in 1947.

Although that constitutional guarantee never materialized, 22 states enacted legislation patterned after the editorial. These laws prohibit agreements between trade unions and employers that make membership and payment of union dues or fees a requirement of employment even if the company is operating under union-negotiated bargaining agreements. 

Love them or hate them, economists, historians and lawyers agree that right-to-work laws were the leading factor in the Sun Belt’s success. “Economic growth in places like Georgia and Texas was driven by the combination of the right to work and the cost of labor,” says Al Niemi, dean of the Cox School of Business at Southern Methodist University. “Since the right to work dictated the cost of labor, right to work was the single most important driver.”

HT: Jeff Perry

Dodd-Frank Cave to Hollywood: No Movie Futures

LA Times (June 14, 2010) -- "Box- office futures have passed a final regulatory hurdle, clearing the way for the first bets to be placed in the near future, and overcoming objections by Hollywood that sought to block it. In a 3-2 vote, the Commodity Futures Trading Commission on Monday afternoon approved a contract created by the company Media Derivatives that would allow traders to bet on the gross receipts that a movie pulls in during its opening weekend.

The idea of betting on future box-office receipts has faced vociferous opposition from the movie industry, led by the Motion Picture Assn. of America, which has said that the contracts would be vulnerable to manipulation and could even hurt how movies perform in theaters.

The decision Monday could still be counteracted by legislation that seeks to ban any trading in box-office futures. The Senate has approved such legislation, but it would need to be approved by the House of Representatives to make it into the final financial reform bill."

The Wrap (July 1, 2010) -- "Hollywood Stock Exchange ( laid off the majority of its staff on Thursday, TheWrap has learned.  The move comes as HSX's parent company Cantor Fitzgerald's long-gestating plans to sell shares of box-office earnings hit a legislative roadblock last week.

Bowing to pressure from big studios, the House of Representatives and Senate have included a ban on movie box-office futures trading in their proposed financial reform legislation. On Monday, shortly after getting federal approval for Cantor's trading plan, exchange president Richard Jaycobs admitted that congressional action will prevent the company from moving forward."

Wheat Subsidies: A Scam for the Ages

A great example from today's The Gartman Letter about how government agricultural subsidies generate significant and costly economic distortions and inefficiencies: 

"One of the axioms of economics is the simple notion that if you subsidize the production of anything you are going to get more of it… and usually more of it than you need. Our favorite example of that was back in the 1970s and 1980s when the US government subsidized durum wheat production in the Dakotas primarily. We got more durum wheat than we could use, so we had to subsidize the export of that wheat to Italy primarily.

Italian pasta makers gladly took the subsidized overproduction at newly subsidized prices that were below the world price of that wheat, and produced wonderful pastas that they exported to the US. The US pasta producers protested and got the government to put a tariff on the imported pasta! In other words, American tax payers “paid” to have too much wheat grown; “paid” again to have that excess wheat exported and “paid” again to buy the pasta they cherished from the Italian pasta producers… and all along the way there were more and more government employees needed to supervise each level of subsidies and tariffs. It was a wonder to behold! It was a scam for the ages."

Dennis then uses this example to ask "how anyone could be surprised to find that new home sales have fallen off the edge of a precipice in recent months following the “incentives” for buying new homes put into effect late last year and expiring several months ago this year?"

Update: Wheat farmers continue to receive very generous subsidies, more than $30 billion has been paid out between 1995 and 2009 to more than a million farmers, see data here and here.  More than $2 billion has been paid out in each of the last two years (2008 and 2009). 

Sunday, July 11, 2010

BDI Weakens; Other Shipping Measures Are Strong

I have had some repeated requests from some loyal CD readers to get an update on the Baltic Dry Index (you can always go here on your own any time you need your "BDI fix"), which has been in decline for the last month after reaching a YTD high in late May (see chart above).  Dennis Gartman addressed this recent decline in the BDI in his newsletter on July 8, where he quoted Julian Jessop, Chief Economist of Capital Economics:

"The BDI is a composite measure of the cost of hiring a ship to transport dry bulk commodities such as grains, coal and metal ores. It is therefore understandable that the near -50% fall in the index since late May is attracting plenty of attention. However, there are two reasons to be wary of making big calls on commodities (or anything else) on the basis of the BDI. For a start, fluctuations in the index could be driven by changes in the supply of shipping as well as in the underlying demand for commodities transported by sea. For example, a fall in the BDI could reflect an increase in the number of ships available to carry dry commodities (either new-builds or conversions from other uses, such as tankers. Similarly, the BDI might be distorted by temporary port closures, changes in the cost of fuel and insurance, and many other factors."

Dennis Gartman then added, "We shall accept it for perhaps half of the decline. We might even willingly accept it for two thirds of the decline, but there is more at work here than a mere increase in supply. Demand too must be weak, and it is this weakness that has our attention."

Other shipping statistics that measure physical volumes (TEUs) rather than shipping rates have been showing positive increases in recent months, see CD posts here for the port of Los Angeles and here for the port of Seattle. Also Scott Grannis has reported recently on the ongoing strength in the HARPEX Shipping Index.  As Dennis Gartman suggests, we should definitely pay attention to the BDI if it continues to weaken, but we should also pay attention to the other indicators of shipping activity, many of which continue to show signs of strength, including the HARPEX, rail traffic, LA Port shipping volume, Seattle Port shipping, and U.S. trucking tonnage.  

The Most Prolific Consumer Device on the Planet

BBC -- "More than a billion mobile phone connections have been added to the global tally in just 18 months, and there are now more than five billion connections worldwide - which is three times as many phones as personal computers.

In the UK in 1987, when the first mobile companies launched, an industry insider predicted a maximum of 10,000 phones.  Now 30 million phones are sold every year in the UK."

Saturday, July 10, 2010

Recession Frequency Was Much Higher Pre-1990

There have been a lot of comparisons of the most recent recession to the Great Depression and to previous post-WWII recessions, for example see the Minneapolis Federal Reserve's website on The Recession and Recovery in Perspective.  While most comparisons have been between the length and severity of the 2007-2009 recession to previous individual recessions, what has received considerably less attention is the frequency of recessions over various periods of time.  That is, it's not only the length and severity of individual recessions that is important, but it's also important how frequently recessions occur over periods like 8, 10 and 12 year periods. 

The top chart above shows the frequency and duration of the 12 recessions since WWII, according to the NBER.  Using "inter-ocular least squares analysis" (i.e. "eyeballing" the data), it seems pretty clear that recessions were much more frequent in the: a) mid-1940s to early 1960s period, and b) early 1970s to early 1980s period, than in the post-1982 period.  Maybe one of the reasons the most recent recession seems particularly severe is that we "got spoiled" in the 25-year period between 1983 and 2007, when the economy was in recession only 6.3% of the time, compared to the previous 25-year period when the economy was in recession 23% of the time from 1958 to 1982. 

The next three charts show the percentage of months in recession over: a) rolling 8-year periods, b) rolling 10-year periods, and c) rolling 12-year periods.  Over the most recent 8-year period (July 2002 to June 2010), the economy has been in recession 20% of the time, down from 25% a year ago.  In contrast, the economy was in recession 20% or higher during 62% of the 8-years rolling periods between 1953 and 1989.  Similar patterns emerge for the 10-year and 12-year rolling periods: the economy was in recession much more frequently between the 1950s and 1990 compared to the post-1990 period, and we definitely got "spoiled" in the 1990s and 2000s, with long periods of time during which the economy was expanding, not contracting. 

For example, over 12-year periods, the economy was in recession for only 6.25% of the time for more than half of the 1990s and  half of the 2000s, representing the longest periods of ongoing economic expansion since WWII. So not only has the most recent recession been less severe than some of the previous recessions by certain measures like the maximum unemployment rate, but the recession frequency during the most recent 8-, 10- and 12-year periods has been much lower than the pre-1990 period.  

Bottom Line: It could be a lot worse, and in fact when it comes to the frequency of recessions, it was a lot worse in much of the 1950s, 1960s, 1970s and 1980s than recently in the 1990s and 2000s.

U-Haul Index: LeBron's Not the Only One Leaving

One-way rental rates for a 26-foot U-Haul truck on August 4, 2010:

Miami, FL to Cleveland, OH: $1,000
Cleveland, OH to Miami, FL: $1,457
Premium to leave Ohio: 45.7%

Orlando, FL to Cleveland, OH: $834
Cleveland, OH to Orlando, FL: $1,301
Premium to leave Ohio: 56%

Tampa, FL to Cleveland, OH: $917
Cleveland, OH to Tampa, FL: $,1379
Premium to leave Ohio: 50.4%

Assuming that one-way U-Haul rates are based on relative demand, there are lot more people and trucks leaving Ohio for Florida than vice-versa, resulting in large premiums to rent trucks going to Florida and large discounts for trucks going to Ohio. 

Section 342 of the Dodd-Frank Bill Will Impose Gender and Racial Quotas on the Financial Industry; Even Though the House Committee is 82% Male, and the Senate Committe is 96% Male, 100% White

Here's something that has great potential to ruin your day, from Diana Furchtgott-Roth:

"Section 342 of the Dodd-Frank financial regulation bill declares that race and gender employment ratios, if not quotas, must be observed by private financial institutions that do business with the government. In a major power grab, the new law inserts race and gender quotas into America's financial industry.

In addition to this bill's well-publicized plans to establish over a dozen new financial regulatory offices, Section 342 sets up at least 20 Offices of Minority and Women Inclusion. This has had no coverage by the news media and has large implications.

The Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks, the Board of Governors of the Fed, the National Credit Union Administration, the Comptroller of the Currency, the Securities and Exchange Commission, the new Consumer Financial Protection Bureau...all would get their own Office of Minority and Women Inclusion.

Each office would have its own director and staff to develop policies promoting equal employment opportunities and racial, ethnic, and gender diversity of not just the agency's workforce, but also the workforces of its contractors and sub-contractors.

What would be the mission of this new corps of Federal monitors? The Dodd-Frank bill sets it forth succinctly and simply - all too simply. The mission, it says, is to assure "to the maximum extent possible the fair inclusion" of women and minorities, individually and through businesses they own, in the activities of the agencies, including contracting.

Lest there be any narrow interpretation of Congress's intent, either by agencies or eventually by the courts, the bill specifies that the "fair" employment test shall apply to "financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants and providers of legal services." That last would appear to rope in law firms working for financial entities.

This latest attempt by Congress to dictate what "fair" employment means is likely to encourage administrators and managers, in government and in the private sector, to hire women and minorities for the sake of appearances, even if some new hires are less qualified than other applicants. The result is likely to be redundant hiring and a wasteful expansion of payroll overhead.

With the new financial regulation law, the federal government is moving from outlawing discrimination to setting up a system of quotas. Ultimately, the only way that financial firms doing business with the government would be able to comply with the law is by showing that a certain percentage of their workforce is female or minority.

The new Offices of Women and Minorities represent a major change in employment law by imposing gender and racial quotas on the financial industry. The issue deserves careful debate - rather than a few pages slipped into the financial regulation bill."

MP: As Thomas Sowell reminds us: If there is ever a contest to pick which word has done the most damage to people's thinking, and to actions to carry out that thinking, my nomination would be the word "fair."

Update: Gender composition of The House Committee on Financial Services, chaired by Barney Frank: 

Male: 81.7%
Female: 18.3% (only 13 female members out of 71)

Gender composition of the Senate Committee on Banking, Housing and Urban Affairs:

Male: 96% (all white)
Female: 4% (only one white female member out of 23)
Minorities: 0%

Friday, July 09, 2010

Markets in Everything: Dollars for Domains

The chart above shows the top ten highest reported domain sales in 2010, see the full list of the top 100 here

Here's a recent CNBC segment about the market for domain names:

Canada Recovers Almost All Jobs Lost in Recession

Statistics Canada -- "Employment rose by 93,000 in June, pushing the unemployment rate down 0.2 percentage points to 7.9%. This is the first time the rate has been below the 8% mark since January 2009.  Employment has been on an upward trend since July 2009, increasing by 403,000 (+2.4%). These gains offset nearly all the employment losses observed during the labour market downturn which began in the fall of 2008. The June unemployment rate, however, remained well above the October 2008 rate of 6.2%, due to a large increase in the number of people in the labour force over this period."

Chart of the Day: Real Gold Prices

Adjusted for inflation, the price of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce (in 2010 dollars). 

Chart of the Day: Net Interest Margin

The net interest margin for all U.S. banks of 3.82% in the first quarter of 2009 is the highest since the fourth quarter of 2002. 

Warren Buffett's Favorite Economic Indicator: Rail

In this CNBC interview, Warren Buffett was asked to identify the single most important economic statistic he would choose if he was stranded on a desert island for a month and could only get one set of economic numbers. Buffett reported that his favorite “desert island indicator” would be freight car loadings. 

The likely reason that Buffett is so fond of rail traffic as his “desert island indicator” is that it measures the amount of raw materials, inputs, and supplies moving around the country every week, and this should accurately predict the future direction of the overall economy. After all, the inputs transported by rail eventually get processed into inventory, final output, and goods for sale.

In that case, Buffett must be pretty pleased with yesterday's American Railroad Association’s (AAR’s) weekly report, which shows that rail traffic in the United States is booming.

Read more here at The Enterprise Blog.

OECD Leading Index Increases for 15th Month

Data released today from the OECD shows that its Composite Leading Indicator Index for 28 member OECD countries reached a 31-year high in May (see chart above, data here).  The OECD Composite Leading Indicators increased slightly in May to 103.7 from 103.6 in April, and reached the highest level in the index's history since March 1979.  The OECD Leading Index has now increased for 15 consecutive months, although the increase in May was the smallest monthly increase since the positive trend started in March of 2009. 

On an individual country basis, the May leading indexes were mixed, with about half of the countries registering slight decreases and the other half showing increases.  The United States leading index increased in May and reached the highest level since August 2007, and the major country groupings including the G7, NAFTA, and OECD Europe all increased in May.  Non-OECD countries were also mixed, with the indexes for Indonesia, Russia and South Africa increasing in May, and Brazil, China and India decreasing slightly. 

According to the OECD report, the "OECD composite leading indicators for May 2010 continue to point to an expansion but with stronger signals of a slowing pace of growth than in last month’s assessment."

Thursday, July 08, 2010

Most of the Gender Pay Gap Disappears After Controlling for Marriage and Having Children

The Department of Labor recently released its annual study Highlights of Women’s Earnings in 2009 and opens the report with the following statement:

"In 2009, women who were full-time wage and salary workers had median weekly earnings of $657, or about 80 percent of the $819 median for their male counterparts. In 1979, the first year for which comparable earnings data are available, women earned about 62 percent as much as men. After a gradual rise in the 1980s and 1990s, the women's-to-men's earnings ratio peaked at 81 percent in 2005 and 2006."

MP: Doesn't the BLS' use of the term "male counterparts" (Webster definition: "one remarkably similar to another") imply an "apples to apples" comparison between male and females workers, as if all relevant explanatory factors have been controlled for, i.e. the ceteris paribus condition has been imposed?

In the chart above, BLS data show that marriage and having children affect male and female earnings differently, so that men and women workers can't really be considered "counterparts" in a statistical sense, and any unadjusted comparisons would be comparing apples to oranges.  For example, single women earn about 95% of what men earn, but married women earn 75.6% of what married men earn (from Table 1), and married women with children between the ages of 6-17 earn 70.25% of their male "counterparts" (Table 8).  Also from Table 8, for the marital status that includes "never married, divorced, separated and widowed," and with "no children under 18 years old," women in that group make 96.3% of their "male counterparts." 

According to the BLS report, marriage and motherhood can explain a large portion of the gender pay gap.  

LeBronomics: $12m in NY Taxes vs. $0 in Florida?

Business and Media Institute - "While sports reporters have sought agents and teammates for the inside scoop on where NBA superstar free agent LeBron James will sign, there’s another person who may know The King’s next move: his accountant."

Based on a $96 million, five-year contract, here's an estimate of what LeBron James would pay in state income taxes:

New York: $12.34 million

New Jersey: $10.32 million

Ohio: $5.69 million

Florida: $0.00

Update: It's actually a little more complicated, and here's a more thorough tax analysis by Aaron Merchak of The Tax Foundation, concluding that "Even though LeBron's salary would be $10,000 more per game if he stayed in Cleveland, he would be paying $12,500 more in taxes. The rest of the road games are pretty much a wash between the two cities. When playing in California, New York and other destinations, players from Ohio and Florida pay the same, the tax rate of the state they're visiting."

Weekly Rail Traffic Tops Same Weeks in 2008 and 2009; Highest Rail Traffic for Week 42 Since 2007

"The Association of American Railroads today reported that rail traffic for the week ending July 3, 2010 topped comparison weeks from both 2008 and 2009. Carloads were up 18.8 percent, at 286,777 cars, from the comparable week in 2009 (see chart above) and up 0.4 percent from the same week in 2008.

Intermodal traffic totaled 231,286 trailers and containers, the highest since week 42 of 2008. Volume was up 36.6 percent from a year ago (see chart above) and 19.1 percent from 2008. Container volume of 197,134 was the sixth highest week ever and the highest since week 39 of 2007. Compared with the same week in 2009, container volume gained 39.8 percent and trailer volume rose 20.9 percent. Compared with the same week in 2008, container volume increased 30.8 percent and trailer volume fell 21.3 percent."

MP: As the chart above illustrates, rail traffic has been improving all year, with positive gains in weekly traffic compared to 2009 in almost every week of 2010.  However, this week marks the first time that both carload volume and intermodal traffic were above the comparable weeks in both 2008 and 2009, bringing traffic for Week 42 to the highest levels since 2007.

IMF Forecasts Continuing Global Recovery in 2010

The IMF has updated its forecast for global GDP growth in 2010 and 2011 (see chart above, click to enlarge).  Compared to its April forecast, the IMF has made upward revisions to almost all of its forecasts for real output growth in 2010 (the only exceptions being downward revisions of -.01% for U.K. and France): world GDP growth for 2010 has been revised upward to 4.6%, which will be the highest annual growth rate since 2007, and far above the 3.2% average growth since 1980.  The upward revision of .40% for world GDP translates into an additional $220 billion of output that will be produced this year compared to the IMF's April forecast.   

China (10.5%, revised upward by .5%), India (9.4%, revised up by .6%) and Brazil (7.1%, revised up by 1.6%) are expected to lead the world in real output growth this year.  Real GDP growth in the U.S. was revised up by .20% to 3.3% for 2010, and revised up by .30% to 2.9% for 2011.

Basic Econ: To Stimulate One Group, You HAVE to De-Stimulate Some Other Group, Net Effect = 0

Art Laffer in today's WSJ "Unemployment Benefits Aren't Stimulus":

"When it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn't a "tooth fairy.” The government doesn't create resources, it redistributes them. For everyone who is given something there is someone who has that something taken away.

While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.

To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to the unemployed, then people who otherwise would have had those 10 apples now won't. The stimulus of 10 apples for the unemployed is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken.

Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial "toll for the troll." These massive inefficiencies could lead to lower output.

To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy.

But it doesn't stop there. While the income effects sum to zero, the substitution effects aggregate. The person from whom the unemployment funds are taken will find work less rewarding and will work less. The person who is given the unemployment benefits will also find work relatively less rewarding and will therefore work less. Both people in this two-person economy will be incentivized to work less. There will be less work and more unemployment.

Not only will increased unemployment benefits not stimulate the economy, they will at the same time lower the incentives for people to work by reducing the amount people are paid for working and increasing the amount people are paid for not working. It's pretty basic economics."

Wednesday, July 07, 2010

White Castle Has Offered Health Insurance To Its Workers Since 1924, But Obamacare May End That

White Castle has been offering health insurance to its workers in 1924, but Obamacare "will make it hard for the company to maintain its 421 restaurants, let alone create new jobs," says company spokesman Jamie Richardson in this Cleveland Plain Dealer article.

"The Columbus-based family owned restaurant chain - known for serving small square hamburgers called "sliders" – says a single provision in the bill will eat up roughly 55 percent of its yearly net income after 2014. Starting that year, the bill levies a $3,000-per-employee penalty on companies whose workers pay more than 9.5 percent of household income in premiums for company-provided insurance.  White Castle, which currently provides insurance to all of its full-time workers and picks up 70 to 89 percent of their premium costs, believes it will likely end up paying those penalties.

House Republican Leader John Boehner of Ohio, a vocal foe of the changes, says White Castle's analysis shows how the law's "job-crushing" impact will be most severe in lower-income areas, where jobs like those at White Castle are most needed. "The irony is that in the name of expanding health care coverage, the administration is making it harder than ever for unskilled workers to get started in the workforce," Boehner said in a missive on White Castle's plight.

White Castle is also examining whether it would make financial sense for the company to eliminate health insurance coverage altogether and have all its employees buy insurance on the federal exchange, says Richardson."

HT: Steve Bartin