Saturday, July 31, 2010

Tax Cuts, Tax Hikes, It's All Relative

The changes in the income tax rates that took effect in 2001 and 2003 are referred to as the "Bush tax cuts," and you'll find more than one million results for a Google search of the phrase "Bush tax cuts."  Certainly, compared to the "Clinton tax hikes" that took effect in 1993 and raised the top marginal income rate to 39.6%, the reductions of the top tax rate to 38.6% in 2002 and 35% in 2003 were "tax cuts" (see chart above). 

But if you go back further and compare the Bush tax rates to the highest marginal tax rates under Bush, Sr. (31%) and Reagan (28%), couldn't the Bush II tax rates more accurately be referred to as the "Bush tax hikes"?  Of course, the tax rates were much higher before 1988, here's the full history back to 1913 in the chart below.  Compared to most of the tax rates between the 1930s and the 1980s, couldn't the Clinton tax rates also accurately be referred to as the "Clinton tax cuts"?  

More on the ADA’s 20th Anniversary

"In recent months a New Jersey jury ordered a rheumatologist to pay $400,000 for not providing a deaf patient with a sign language interpreter at his own expense; the Ninth Circuit ruled that the law may require movie theaters to provide captions and descriptions for blind or deaf viewers; a federal appeals court ruled that the nation’s paper currency unfairly discriminates against the disabled and must be redesigned (thus taking a different view from the National Federation of the Blind, which doesn’t think there’s a problem); a police dispatcher won a settlement in her lawsuit saying she was unfairly discriminated against because of her narcolepsy (tendency to fall asleep at inappropriate times); a large online tutoring service agreed to provide interpreters; miniature golf courses learned they will have to make 50 percent of their holes accessible to wheelchair users; and so forth."

From Cato's Walter Olson

Happy Birthday Milton Friedman, July 31

Classic 30-minute video of Milton Friedman in 1975 (transcript here) discussing the minimum wage, Social Security, politics, the Welfare State, doing good by spending other people's money, housing, rent control, government intervention and the Great Depression, collectivism, the free society, greed, private charity.

The Gradual Decline in Presidential Approval

The chart above displays the consensus of presidential approval/disapproval polls from Pollster, showing a new record -5% gap between average approval of 45.1% and an average disapproval of 50.1%. 

Friday, July 30, 2010

U.S. Economic Expansion Stronger Over Last 4 Quarters Than Following the Last Two Recessions

Today's GDP report from the BEA raised a lot of concerns about the economic recovery, based on headlines and reports like this:

1. Steep decline in GDP growth raises alarms,
2. US recovery loses steam,  
3. Double-dip feared as US economic growth loses pace, and
4. The closer you look at the GDP report, the uglier it gets, etc. 

But how does GDP growth in this recovery (assuming the recovery started in third quarter of 2009) over the last four quarters (1.6%, 5%, 3.7% and 2.4%) compare to output growth in the four quarters following the last two recessions in 1990-1991 and 2001?  Pretty good actually, see the graph above showing real GDP growth in the one-year periods (four quarters) following the last three recessions.

Sure, real GDP growth has slowed from 5% to 3.7% to 2.4% over the last three quarters, but following the 2001 recession real GDP slowed even more, from 3.5% to 2.1% to 2% to 0.1%.  And looking at the average growth over the four quarters following the last three recessions, the average 3.18% real GDP growth over the last year was higher than the 1.93% following the 2001 recession and higher than the 2.63% following the 1990-1991 recession.  Keep in mind that the economic recovery that started in 1991 was the longest (120 months) and strongest economic expansion in the history of the U.S.   

So what about a headline like "U.S. economic expansion stronger now than at the beginning of the last two recoveries?"

Thursday, July 29, 2010

From the "You Just Can't Make This Stuff Up" File: ADA vs. Chipotle; Happy 20th Birthday ADA

Washington Examiner, Investor's Business Daily, Cato InstituteSan Francisco Chronicle, and Reason.

"The 9th U.S. Circuit Court of Appeals ruled this week that customers in wheelchairs are being denied the full "Chipotle experience" of watching their food being prepared because Chipotle's 45-inch counters are too high."

LAX Freight Traffic Back to Pre-Recession Level

According to data from Los Angeles World Airports (LAX), air freight cargo at LAX reached a 30-month high in May of 168,297 tons, the highest freight volume since November 2007, the month before the recession officially started.  Air freight at LAX decreased slightly in June to 163,959 tons, but that was still a 19.2% improvement from a year earlier.  Compared to the recent bottom of 113,205 tons in February 2009, freight traffic at LAX has rebounded by 45%. Freight volumes in each of the last three months (April, May and June) have been the highest volumes for those months since 2007, which provides evidence of a complete recovery for LAX freight to pre-recession levels.

Passenger traffic at LAX in June was 4% above last year, and was the tenth month in a row that passenger traffic increased compared to a year earlier.    

Further highlights from today's LAX press release include:

1. Total passengers during the first six months of 2010 rose 4.9% compared to the same period last year, reflecting a 3.4% growth in domestic passengers and a 9% percent increase in international travellers. 

2. Air cargo tonnage also increased 24.8% to 941,238 tons during the first six months of this year, from 754,022 tons during the same period in 2009. Air mail tonnage rose 19.1% to 34,032 tons from 28,577 tons in 2009. Freight is up 25.1% to 907,206 tons this year from 725,445 tons in 2009.

“Since late last year we have seen a slow increase in passenger volume due to some improvement in the economy further assisted by added service on existing routes from several of the domestic and international airlines, and the introduction of new flights in June by Alitalia to Rome,” said Gina Marie Lindsey, executive director of LAX. “The next several months will confirm the extent to which recent upward movement in traffic is the foundation of a sustained pattern.”

Warren Buffett's Favorite Economic Indicator - Weekly Rail Traffic - Maintains Steady Pace

WASHINGTON, D.C. – July 29, 2010 – "The Association of American Railroads today reported that rail traffic continues to maintain a steady pace with U.S. railroads originating 286,854 carloads for the week ending July 24, 2010, up 4.7 percent compared with the same week in 2009, but down 13.5 percent from pre-recession levels in 2008.

Intermodal traffic totaled 230,443 trailers and containers, up 19.2 percent from the same week a year ago and down only 2.1 percent compared with 2008. Compared with the same week in 2009, container volume increased 21.1 percent and trailer volume rose 9.3 percent. Compared with the same week in 2008, container volume increased 6.4 percent and trailer volume dropped 33.4 percent.

Fifteen of the 19 carload commodity groups increased from the comparable week in 2009. Those groups posting the most significant gains were metallic ores, up 56.3 percent; metals and products, up 31.2 percent; motor vehicles and equipment, up 29 percent; and farm products excluding grain, up 25.8 percent. Farm products excluding grain, up 5.6 percent, was the only commodity group to post an increase over 2008 levels."

Americans Cut Back on Visits to the Doctor, But Increase Visits to Retail Health Clinics by 36%

From today's WSJ article "Americans Cut Back on Visits to Doctor":
Insured Americans are using fewer medical services, raising questions about whether patients are consuming less health care as they pick up a greater share of the costs. Doctor visits have declined each month this year, including a 7.6% drop in May 2010 from May 2009.

The drop in usage is showing up as health-care companies report financial results. Insurers, lab-testing companies, hospitals and doctor-billing concerns say that patient visits, drug prescriptions and procedures were down in the second quarter from year-ago levels.

"People just aren't using health-care like they have," said Wayne DeVeydt, WellPoint Inc.'s chief financial officer, in an interview Wednesday. "Utilization is lower than we expected, and it's unusual."
Well, maybe it's not really so unusual based on this report "MinuteClinic visits up 36% in Q2":
Fewer physician visits have contributed to a lift in visits to MinuteClinic as patients look for convenient and cost-effective access to healthcare services.

"Recent reports by IMS have indicated that fewer people are visiting doctors. We see this data on the fourth quarter versus the first quarter of this year, and we are expecting to see the same in the second quarter," said Tom Ryan, chairman and CEO of CVS Caremark. "Patients are visiting fewer primary care doctors and specialists. Obviously, the sluggish economy and continued high unemployment has impacted peoples' ability to afford physician visits."

Clearly, this trend, coupled with MinuteClinic's expansion of service offerings and increased awareness, has helped drive the MinuteClinic business, as people in need of convenient and affordable health care take advantage of MinuteClinic's portfolio of roughly 500 clinics in 25 states and the District of Columbia.

MinuteClinic visits rose 36% during the second quarter. "We believe that MinuteClinic's strong growth reflects our expansion of services and the improved awareness around our clinical offerings," Ryan said.
Bottom Line: Consumers aren't necessarily consuming less health care like the WSJ suggests; rather, they are shifting their demand for health care away from expensive, conventional physician offices with limited hours to affordable and convenient retail clinics.  Especially when consumers are spending their own out-of-pocket money for health care and they have a choice, they prefer market-driven, consumer-driven options like affordable, convenient retail clinics over conventional physician offices.

Cartoon of the Day

Gary Varvel.  

Wednesday, July 28, 2010

Global Economy's Remarkable Recovery: World Trade Projected to Expand by 8.1% This Year

Excerpts from a bullish report on world trade and global shipping from IHS Global Insight (Press Release here and Executive Summary here):

"Global trade along virtually every trade route has shown a remarkable recovery from the 2007–09 recession.  Despite some commentators' views that global trade volumes would not recover to their earlier levels before 2013 at the earliest, we are seeing what appears to be a sustained recovery in trade since late 2009 through at least the middle of 2010.

International trade volumes are forecasted to increase in line with the recovery in demand. World trade by all modes (airborne, seaborne, and overland) declined 7.2% in 2009. As the economy improves through the middle of 2010, total world trade is forecasted to grow 8.1%, followed by 6.9% growth in 2011.

Containerized trade volumes at the global level are forecast to reach nearly 10.0 percent, with a slightly stronger recovery – 10.6 percent -- on the mainline East-West trade lanes in 2010, before slowing over the next two years. While trade growth is projected into 2011 and beyond, the pace is expected to be slower than in 2010. However, 2010 and 2011 will be banner years relative to the hardship the container industry faced in 2008 and 2009 with 3% and -8% growth on TEU volumes, respectively.

Dry bulk commodity shipment tonnage, which includes grain, iron ore, and coal, will increase 10.3 percent in 2010 and 8.7 percent in 2011."

Kerry Was Right: Dodging Yacht Tax Was Rational

Jeff Jacoby comes to John Kerry's defense....

"No one should be taking pride or pleasure in having railroaded Kerry into forking over $500,000 he likely never owed. I’m no fan of the senator, but he showed good sense in seeking to keep his taxes low. If only he would do the same for the rest of us."

Mpls. Orthopedics Clinics Battle It Out; Consumer-Driven Health Care That's "Better, Faster, Cheaper"

From the Mpls.-St. Paul StarTribune:

"For years, anybody who pulled, twisted, sprained or broke some part of their body would show up at the emergency room.  There, they'd often wait hours as more critical cases -- heart attacks or strokes -- leapfrogged ahead in line.

Then they'd go home with an appointment to come back and see an orthopedic surgeon anytime from three days to three weeks out.

In 2005, TRIA Orthopaedic Center in Bloomington, MN pioneered the idea of a free-standing orthopedic facility, with day surgery, clinic and physical therapy space, as well as the ability to do medical research. The goal was "better, faster, cheaper," said Dr. Marc Swiontkowski, one of the physician founders.

TRIA, which lost money in its early years but is now profitable, also introduced early on the idea of a walk-in acute injury clinic. It recently expanded its evening and weekend hours for the clinic to cater to injured high-school athletes and weekend warriors. The acute injury clinic has seen more than 12,000 patients so far this year -- 2,100 of them in June alone. Knee pain is the most common complaint, followed by foot and ankle pain." 

MP: In addition to seeing thousands of patients each month, TRIA is also now seeing something else - some new competition from Twin Cities Orthopedics, just opened a new facility in Edina, MN that offers same-day appointments and urgent care in the evenings and weekends.  Read more here about how market competition and consumer-driven health care can bring down costs, improve the quality of care, and dramatically increase convenience with evening and weekend hours.    

Funding Electric Vehicles is a Battery-Dead Idea

Can a bunch of technocrats in Washington really make better decisions than free consumers in the marketplace? No economic or scientific case exists for subsidizing the electric vehicle. The government should remain technology-neutral. Subsidies hinder the ability of free enterprise to innovate and develop other advanced auto technologies like the hydrogen fuel cell. The right way to create a diverse market for advanced technologies is to limit government involvement and introduce real tax reforms.

Government subsidies serve only to tilt the playing field and constrain the market's ability to operate. They are not in America's best interests.  Funding electric vehicles is a battery-dead idea.

~From my article in the Sacramento Bee

International Air Travel Shows Continuing Strength in June; Volumes are Above Pre-Recession Levels

Geneva - "The International Air Transport Association (IATA) announced today that international scheduled traffic statistics for June showed continued strong demand growth as the industry recovers from the impact of the global financial crisis. Compared to June 2009, international passenger demand was up 11.9% while international scheduled freight traffic showed a 26.5% improvement (see chart above)."  Other highlights include:

1. Passenger volumes are now 1-2% above the pre-recession peak in the first quarter of 2008.

2. Freight volumes remain 6% above the pre-recession peak in early 2008.

3. “The industry continues to recover faster than expected, but with sharp regional differences. Europe is recovering at half the speed of Asia with passenger growth of 7.8% compared to the 15.5% growth in Asia-Pacific,” said Giovanni Bisignani, IATA’s Director General and CEO. 

Outside of Europe, all regions reported double-digit growth in passenger traffic. “The question is how long can the industry maintain the double-digit momentum. Business confidence remains high and there is no indication that the recovery will stall any time soon. But, with government stimulus packages tailing off and restocking largely completed, we do expect some slowing over the months ahead,” said Bisignani.

MP: For both May and June, passenger and freight traffic have reached volumes that are above the pre-recession levels.  It's also interesting that the strongest improvements in both passenger and freight growth have been in Africa, Asia, the Middle East and Latin America, while growth in North America and Europe have lagged behind.   But it's good news that international air travel has rebounded strongly, and passenger travel and freight volumes are now both above their pre-recession peaks.   

Tuesday, July 27, 2010

Trucking Tonnage Falls in June But Remains 7.6% Above June Last Year

ARLINGTON, VA -- "The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 1.4 percent in June, although May’s reduction was revised from 0.6 percent to just 0.1 percent. May and June marked the first back-to-back contractions since March and April 2009. The latest reduction lowered the SA index from 110.1 (2000=100) in May to 108.5 in June (see chart above)."

On a 12-month basis, trucking activity looks a little better: 
"Compared with June 2009, SA tonnage climbed 7.6 percent, which was just below May’s 7.7 percent increase and the seventh consecutive year-over-year gain. Year-to-date, tonnage is up 6.6 percent compared with the same period in 2009."

MP: There have been some signs of a slowdown in the strength of the economic expansion in May and June (including the Richmond and Chicago Fed releases today on manufacturing activity in those regions), and the trucking tonnage index decrease in June probably helps to confirm that.  But we should also keep in mind that manufacturing has been leading the economic recovery, and some uneven "starts and stops" in the economic recovery are to be expected.   

Michigan Economic Activity Index; Fifth Straight Monthly Double-Digit Increase in June

"Comerica Bank’s Michigan Economic Activity Index rose one point in June, to a level of 84. June’s reading is up 13 points from the same period a year ago, marking the fifth consecutive double-digit increase in the Index, on a 12-month basis. Year-to-date, the Index is up nine points, or 12.4 percent, from the average for all of 2009. The May Index was unrevised from a level of 83."

“Our Index ticked up for the second month in a row, to a level that matches the March cyclical peak,” said Dana Johnson, Chief Economist at Comerica Bank. “Continued strength in motor vehicle and steel production counteracted drags from housing and consumer spending. Paralleling the national recovery, production variables remain the key driver to the Michigan recovery, with housing and employment lagging. Broad-based moderate gains in the national economy over the second half of the year should help generate an increasingly widespread recovery in Michigan, including moderate job growth.”

MP: Even Michigan's economy is gradually coming back. 

ASA Staffing Index Shows Ongoing Strength: 28th Consecutive Weekly Gain vs. Same Week Last Year

After falling during the week of July 5 due to the Fourth of July holiday, the American Staffing Association (ASA) Staffing Index for temporary and contract employment activity rebounded for the week of July 12 to a level of 91, matching the recent 91 readings for the weeks of June 14 and June 21.  These recent readings of 91 for the ASA Staffing Index are the highest since October 2008, 20 months ago (see top chart above).  This marks the 13th week in a row with percentage gains above 20% compared to the same month in 2009, the 22nd straight week of double-digit percent increases vs. 2009, and the 28th consecutive week for the ASA being above the same level in the previous year (ever week this year).   

The ongoing gains in the ASA Staffing Index in every week this year shows that the demand for temporary and contract employment continues to strengthen, which should hopefully translate eventually into more broad-based, permanent job creation.

Early Signs of a Hotel Rebound

From today's NY Times:

"The hotel industry in the United States appears to be rebounding this summer, mainly because of strengthening business travel."  

Add this to Larry Kudlow's Optimism Checklist.

Shipping Rates for Hong Kong to LA Reach Five-Year Highs: Retailers Are Expecting Higher Sales

NY Times -- "Fighting for freight, retailers are outbidding each other to score scarce cargo space on ships, paying two to three times last year’s freight rates — in some cases, the highest rates in five years. And still, many are getting merchandise weeks late.

The fight for space means many retailers are expecting higher sales, which is a glimmer of good news. And air carriers are picking up some last-minute shipments from desperate retailers; FedEx reported on Monday that it expected increased earnings for its first quarter, ending next month.

The cost of shipping a 40-foot container from Hong Kong to Los Angeles without a contract, or the spot rate, was about $871 in July 2009, a five-year low. This month, that spot rate reached $2,624, a five-year high. That exceeded even the cost before the recession, which was about $2,000."

Case-Shiller Home Price Indexes Up in May

Standard and Poors -- The 10-City Case-Shiller Home Price Composite Index increased in May by 5.4% and the 20-City Composite Index increased by 4.6% compared to May 2009 (see chart above).  This marks the fourth consecutive monthly increase in the Case-Shiller Home Indexes compared to their year-ago levels, following more than three years (37 months) of consecutive monthly decreases. 

On a monthly basis, 19 of the 20 metro areas and both composite indexes increased in May from April,  by 1.2% for the Composite-10 index and 1.3% for the Composite-20 index.  Commentary from Standard and  Poors follows:

“While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level. The two Composites have improved between 5 and 6% since then, but this is no better than the improvement they had registered as of October 2009. The last seven months have basically been flat.”

“The May 2010 data for 15 of the 20 MSAs and the two Composites show an improvement in annual returns compared to April’s report. With the month-over-month data, while 19 of the 20 MSAs and the two Composites were positive, we are in a strong seasonal period for home prices, so that was largely expected. In addition, there may still be some residual impact from the homebuyers’ tax credit, since they affect any purchase that closes through June 30th 2010. We need to watch where the housing markets will go after these temporary stimuli go away. June’s existing and new home sales and housing starts data do not show much real improvement in those statistics either. It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy.”

Monday, July 26, 2010

Put Your Rally Caps Back On: FIve Reasons the Long-Term Bull Market Rally Will Resume

"Many are wondering whether the bull market is back on or this is just a bear market rally. I believe we could be at another quality buying opportunity, not nearly the extreme of 2009, but a great chance to pick up stocks on a 10% discount. Below are my five reasons for being bullish," continue reading here.

Women Dominate Men in 7 of 10 Graduate Fields, and Women Are Gaining on Men in All 10 Fields

The table above displays data from The Council of Graduate Schools for the average annual growth in graduate school enrollment by gender over the ten year period from 1998-2008 for the ten main fields of graduate study.  The bottom table above displays data for graduate school enrollment by gender in 2008.  

Not only do women outnumber men in graduate school overall by a ratio of 143 females enrolled for every 100 males, but women outnumber men in 7 out of 10 graduate fields of study, and the annual growth in female graduate school enrollment from 1998-2008 is greater than the growth rate for men in all ten graduate fields of study.   Even in academic disciplines like engineering where women were underrepresented in 2008 in terms of graduate school enrollment, the number of women enrolled in graduate engineering programs has grown at more than twice the annual growth rate for men in engineering from 1998 to 2008.  More evidence that men have become the "second sex" in higher education. 

Global Economic Recovery Watch

1. Australia Leading and Coincident Indexes Improve in May -- "The Conference Board Leading Economic Index (LEI) for Australia increased 0.3 percent and The Conference Board Coincident Economic Index (CEI) increased 0.2 percent in May. The Conference Board LEI for Australia remains on a rising trend, which began in the middle of last year. However, its six-month growth rate has moderated in recent months. At the same time, The Conference Board CEI for Australia has continued to increase this year, and its six-month growth has been fairly stable. Taken together, the current behavior of the composite indexes suggests that the economic expansion is likely to continue, albeit at a modest pace in the near term."

2. Las Vegas June Home Sales Increase from May -- "A total of 5,397 new and resale houses and condos closed escrow in the Las Vegas-Paradise metro area in June, up 23.1 percent from May but down 2.2 percent from a year earlier.  The median price paid for all new and resale houses and condos sold in the Las Vegas metro area in June was $136,290, up 1.7 percent from $134,0000 in May and up 1 percent from $135,000 a year earlier.

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – fell to 46.4 percent of all resales in June, down from 49.5 percent in May and down from a near-record 70.0 percent a year ago.  Foreclosure resales have declined each month since they peaked at 73.7 percent in May of 2009. Last month’s figure was the lowest since foreclosure resales were 43.3 percent of the resale market in January 2008."

Euro Leading Index Remains on Upward Trend

BRUSSELS, July 26, 2010 -- "The Conference Board Leading Economic Index® (LEI) for the Euro Area increased 0.5 percent in June to 111.2 (2004 = 100), following a 0.3 percent decline in May and a 0.8 percent increase in April.

Said Jean-Claude Manini, The Conference Board senior economist for Europe: “After declining in May, the LEI for the Euro Area has picked up in June. While the recovery is unlikely to falter in the short-term, the pace of economic growth may ease somewhat. Confidence indicators have been the primary cause of the recent volatility in the LEI, which may affect the impact of austerity measures on growth in the Euro Area in the medium term.”

After increasing in June, The Conference Board LEI for the Euro Area is 16.4 percent above its March 2009 trough. Meanwhile, The Conference Board Coincident Economic Index® (CEI) for the Euro Area, which measures current economic activity, remained unchanged in June. The index stands at 102.4 (2004 = 100) according to preliminary estimates. It increased by 0.2 percent in May and decreased by 0.1 percent in April."

Sunday, July 25, 2010

M&A Activity in First Half 2010 Highest Since 2007

Star Tribune -- "After sputtering for more than a year amid the credit crisis and ensuing recession, the deals machine appears to be running once again. Mergers and acquisitions posted a fourth consecutive quarterly increase in the second quarter and deals in the first half of the year reached the highest level since 2007, an indication that more companies are increasing their confidence in the economy.  Nationally, there were 5,345 deals in the first half of the year, up 49 percent from the same period last year, according to research firm Dealogic (see chart above)."