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."