Tuesday, August 24, 2010

Housing: The End of the Artificial Stimulus

The National Association of Realtors (NAR) reported today that existing homes sales in July of 3,830,000 units at a seasonally-adjusted annual rate was 27.2% below the sales level in June of 5,260,000 units, and 25.5% below last July, when 5,140,000 homes were sold.  Here are some of the reports and reactions:

1. LA Times -- "Many buyers who rushed to beat the April 30 deadline to sign a sales contract were closing their deals in May and June, helping to propel the market. With many of those deals now apparently closed, the market is faced with standing on its own.  Real estate experts said the tax credits led many buyers to speed up their plans to buy houses, boosting sales this spring, but sapping demand over the summer.

A few months ago "we were getting eight or nine offers on every property, and we knew that we would have a tremendous drop-off, because it was being artificially stimulated," said Gary K. Kruger, a real estate agent with HomeStar Real Estate Services in Hemet."

2. Lawrence Yun, NAR chief economist, said “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,” he said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs."

“Even with sales pausing for a few months, annual sales are expected to reach 5 million in 2010 because of healthy activity in the first half of the year. To place in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years."

3. Nigel Gault, IHS Global Insight: All of the action earlier this year appears to have been driven by the tax credit. … The underlying path of housing sales is not as disastrous as July’s number suggests – we are now undershooting, as sales that would have happened now were pulled forward by the tax credit. But a sustained upturn will depend on an improvement in the jobs market, which at the moment is slowing down rather than gathering pace."

Random Roundup

1. NY Times -- Some scholars are challenging the peer review monopoly and are instead using the Internet to "expose scholarly thinking to the swift collective judgment of a much broader interested audience."  (HT: Steve Bartin)

2. If all elite private universities enacted race-blind admissions, the percentage of Asian students would jump from 24 percent to 39 percent (similar to what they already are now at Caltech and Berkeley, two elite institutions with race-blind admissions; the former due to a belief in meritocracy, the latter due to Proposition 209).

3. Top 10 NBA Player Highlight Reels On Youtube

4. Tiger Woods and World's Top 10 Highest Divorce Settlements

5. Did Bully Boss Prompt Editor's Suicide at University of Virginia? Editor Made 18 Calls to University Before Committing Suicide

Leading Economic Indexes: 4 Up, 1 Down

Over the last week, the Conference Board reported increases in the June Leading Economic Indexes for China, Germany and Mexico, and an increase in the July Leading Economic Index for the U.SThe Leading Economic Index for France fell in June, the first decline in more than a year. 

ASA Staffing Index Reaches 97-Week High

The American Staffing Association (ASA) Staffing Index for temporary and contract employment activity reached a 97-week high of 95 for the week of August 9, the highest index level since a reading of 97 in the week of September 29, 2008 (see chart above, data here).

Compared to the same week last year, the latest ASA Staffing Index has improved by 26.7% for Week 33 (see bottom chart above). This marks the 17th week in a row with percentage gains above 20% compared to the same month in 2009, the 26th straight week of double-digit percent increases vs. 2009, and the 32th consecutive week for the ASA Index being above the same level in the previous year (every week this year).  The improvements this year follow 80 consecutive weeks of percentage declines in the weekly index that started in May 2008 and continued through the end of 2009.   

The ongoing improvements in the ASA Staffing Index in every single  week this year compared to 2009, along with the recent 97-week high in temporary help suggest that the labor market is gradually recovering from the recession, and the increases in demand for temporary and contract employment are a leading indicator of broader-based job gains in the months to come.   

Putting Tomatoes on the "Bathroom Scale"

A few days ago I quoted P.J. O'Rourke: "The free market is not an ideology or a creed or something we're supposed to take on faith, it's a measurement. It's a bathroom scale. I may hate what I see when I step on the bathroom scale, but I can't pass a law saying I weigh 160 pounds."

Steven Landsburg has a related post about how to correctly compare the total cost (including all energy costs) to a New Yorker of a locally-grown tomato from a lavishly heated greenhouse in the Hudson Valley and a tomato transported all the way from California. 

"How can we possibly gather enough information to compare the opportunity costs of land, fertilizers, equipment, workers, transportation and energy costs (among many others) and reach a conclusion about which tomato imposes the fewest costs on our neighbors?

Well, it turns out there’s actually a way to do that. You do it by looking at a single number that does an excellent job of reflecting all those costs. That number is known as the price of the tomato."

HT: Don Boudreaux

Monday, August 23, 2010

Shipping Boom = Rates Have Doubled Since 2009

Journal of Commerce -- "The Drewry Container Benchmark began tracking the average spot market freight rate from Hong Kong to Los Angeles in late December 2005 and hit its rock bottom at $871 per FEU (forty-foot equivalent units) from July 6 through Aug. 3, 2009. In contrast, a record high of $2,838 per FEU was recorded on Aug. 2 this year (see chart above). The Aug. 16 rate dropped $87 from the week before to $2,737 per FEU in only the second weekly rate decline since March 15.

MP: Compared to shipping rates last summer and fall of about $1,200 per FEU between Hong Kong and L.A., shipping costs have more than doubled to the record high of $2,838 in earlyAugust, before falling slightly to $2,737 last week.  Scott Grannis reported today that the Harpex Shipping Index (based on rates charged by container ships in the North Atlantic) has experienced a very similar increase over the last year (rates have more than doubled).  Given the ongoing boom in global shipping and the related rising rates (along with improvements in other economic indicators), there's nothing to suggest a slowdown in the global economic recovery, and certainly nothing to suggest a double-dip recession, as Scott points out.  

Why The Current Job Market Recovery Is Stronger Than You Think; Stronger Than Last Two Recessions

In its annual Labor Day outlook, global outplacement consultancy Challenger, Gray & Christmas reports that the U.S. job market is well on the road to recovery and is actually rebounding sooner and faster compared to the jobless recoveries that followed the previous two recessions (1990-1991 and 2001).  Here are some highlights:

1. At this point in the previous two recoveries – following the 1990-1991 and 2001 recessions – the job market was actually getting worse. Many people are so caught up looking at the weekly and monthly numbers, that they fail to look at the bigger trends, which indicate just how much the job market has improved over the last 12 months.  The statistics indicate that the job market has made great strides over the last 12 months and appears to be rebounding sooner compared to the previous two recessions.

2. Monthly job cuts have numbered fewer than 100,000 for 14 consecutive months, a streak that has not been achieved since 1999-2000.  The current 12-month moving average, which stands at 52,778 as of the end of July, is already well below the lowest annual average achieved during the last period of economic expansion, when the moving average bottomed out around 64,000 (see chart above). 

3. Job losses due to the recession turned to gains as of January 2010, with payrolls experiencing five consecutive months of net growth that saw more than one million new jobs added to the economy. The gains slowed in June and July as the government shed tens of thousands of temporary Census workers, resulting in overall total non-farm job losses of 352,000 over the two-month period. Despite those losses, payrolls have still seen net growth totaling 654,000 jobs so far this year, due in large part to steady job gains in the private sector. The private sector has had seven consecutive months of job gains, adding a net total of 630,000 new jobs to the economy since January 1.  While the payroll gains remain weak, they are occurring much sooner when compared to the 2001 recession, when it took 21 months before the economy began to add jobs on a consistent basis.

4. While the unemployment rate remains historically high and the decline is not occurring fast enough for most, it definitely appears to be heading in the right direction. If the economy were following the same pattern as the early 1990s recession or the 2001 recession, we would be facing another three to six months of rising unemployment.

5. When you look at any of the employment statistics on a month-to-month or week-to-week basis, there are going to be ups and downs; particularly at this stage of the recovery. However, when you look at the overall trend since June 2009, everything is headed in a positive direction.

6. Hiring will accelerate in the coming months, but not before employers maximize the productivity of their existing workers by adding new technology and increasing hours. In the meantime, the job market will remain fiercely competitive as the recently unemployed square off against the long-term unemployed as well as with job seekers re-entering the labor pool after abandoning it out of frustration.  Job seekers should view Labor Day as the beginning of the workplace New Year and make a resolution to abandon all passive job-search strategies for ones that are far more aggressive. 

Global Economic Recovery Watch: Surging Cargo Volume on Key N. America-Asia-Europe Routes

Journal of Commerce -- "Container ship charter rates are still climbing through the summer as ocean carriers compete for increasingly scarce tonnage to keep pace with surging cargo volume on key routes from Asia to North America and Europe.  Charter rates for ships that can carry 3,500 20-foot containers have more than tripled since the beginning of the year and are set to climb further as unexpectedly strong cargo demand is outstripping the supply of ships for hire and newly built vessels entering the market.

The broadly based rally has driven up the Association's ConTex index, which covers six ship sizes from 1,100 TEUs to 4,250 TEUs, to 583 from 532 at the end of June and 275 at the beginning of March. Ocean carriers' pursuit of chartered tonnage is driven by robust cargo growth on the export trades out of Asia to Europe and North America where most ships are sailing fully loaded with boxes.

Cargo volume on the Far East-U.S. trades grew 25.7 percent during the first three months of the new trans-Pacific contract season from May to July based on preliminary customs figures. Weekly capacity deployed on Far East-U.S. trades is already back to 2008 levels and is 12 percent above 2009 levels.

Container ship prices also are surging as carriers and charter ship-owners place orders for new ships and step up purchases of second hand tonnage."

The Most Energy Efficient Economy in History

The top chart shows that the U.S. had the most energy-efficient economy in history last year (data here), based on the amount of energy consumed to produce each real dollar of Gross Domestic Product (GDP). In 2009, it required only 7,290 BTUs of energy (petroleum, natural gas and other energy) to produce each real dollar of GDP, an all-time record low, and less than half the energy required in the mid-1970s to produce a dollar of output.

Just one example of many that contribute to the remarkable increases in energy efficiency over time is illustrated in the next graph showing energy consumption trends for household appliances from 1990 to 2009 (data purchased from the Association of Home Appliance Manufacturers). Since 1990, the energy consumption per unit for five of the most common household appliances has fallen so consistently over the last twenty years that today's household appliances use between 20% (air conditioner) and 73% less energy (clothes washer) than in 1990.

Using a slightly different measure of energy efficiency provided by the AHAM ("energy factor") that accounts for changes over time like the average tub volume of  clothes washers (27% larger today than in 1990), the next graph shows the dramatic improvements in the "energy factors" since 1980 - from between a 43% improvement in energy efficiency for the room air conditioner to more than 200% for the refrigerator.

Amazingly, the EIA report also showed that total U.S. energy consumption in 2009 (94.66 quadrillion BTUs) was less than the total energy consumed 12 years ago in 1997 (94.76 quadrillion BTUs). 

See previous CD post here.

Update: We did save some energy in 2009 because output (GDP) fell by 2.44 percent due to the recession, but energy consumption fell by about twice as much (4.81 percent) last year, which lowered energy consumption per dollar of real GDP for the 18th consecutive year to an all-time historical record low.

Sunday, August 22, 2010

Gridlock is Great for Stock Market Returns

"Since 1973, using the price of gold as a deflator (instead of the Consumer Price Index, which has suffered from style drift over the years) real, inflation-adjusted returns for the S&P 500 were a fabulous 15.3 percent gain in “gridlock” years, and a horrible 9.9 percent loss in years with unified government (see chart above). That’s a 25 percentage point difference.

The reason for this difference is simple: Unified governments spend far more, and more quickly, and expand regulation much more than split governments do. Programs sail through, the dollar is jeopardized, and investors seek real assets like gold to counteract the political risks of an activist government.

Based on the data, the ill effects of unified government apply to both Republican (a 7.7 percent loss) and Democrat (a loss of 11.5 percent) unified governments. The best was a split between a Republican Congress and Democratic President Clinton, which produced a whopping 32.8 percent real return.

President Reagan and a split Congress did pretty well too, with a 24.8 percent real return. Both President Reagan and Clinton did their best sustained work with a constraining Congress, or, to be more accurate, those Congresses did their best work with popular Presidents.

When it comes to split government and real returns, the right answer is “divided we stand, united we fall.”

~Eric Singer, one of the managers of the Congressional Effect Fund, the first mutual fund to explicitly seek to minimize investor exposure to potentially negative impact of new and proposed Congressional legislation on the broad stock market.

HT: Morganovich

Some Examples of the Unintended Consequences and Inefficiencies of Stimulus Spending

Some recent examples of the unintended consequences and inefficiencies of the $800 billion stimulus plan. 

1. Canada plans to close its side of a Saskatchewan-Montana border crossing that sees just five travelers per day — even as the U.S. side is undergoing an $8.5 million stimulus-funded upgrade. Canada’s decision to close the Big Beaver Port of Entry on April 1 underscores the criticism leveled against the U.S. government spending more than $23 million in Recovery Act funding to upgrade that and four other Montana border posts.  (HT: Roger Meiners)

2. Carleton Grange Pub in the Milwaukee area is closing on September 6 because of  the upcoming traffic and parking disruptions that will be caused by stimulus-funded road construction near the popular English-style pub.   (HT: Matt Peer)

3.  Stimulus-funded solar panels in Montana will generate "cheap electricity" at a very high cost, according to economist Roger Meiners writing in the Wall Street Journal

MP: The first problem with stimulus spending is that for the government to "stimulate" one sector of the economy with a government-subsidized project, the government has to "unstimulate" some other sectors of the economy by raising taxes, or by borrowing money that will mean higher taxes later.  The second problem is illustrated by the examples above: government stimulus projects are often wasteful and inefficient and impose unintended costs on the economy. 

Update: Real or Fake?

Intrade Odds Update: Gridlock in 2011

Current odds based on the last trade:

1. Republicans to control House: 70%

2. Democrats to control Senate: 66%

Saturday, August 21, 2010

Interesting Tattoo Facts

1. From MSNBC, the top ten most tattooed cities in America.  HT: Economix

2. According to this study, college students prefer tattooed professors.  HT: Freakonomics and Marginal Revolution. 

Markets In Everything: Ritual Animal Sacrifices

A business in Maryland caters to Muslim immigrants seeking to fulfill ritual animal sacrifices.

What does PETA say?

HT: Matt Bixler

Markets in Everything or Not: Buy 6, Get One Free

Giving away a free gallon of milk for every six purchased is illegal in Maine.  Guess who complained?  Find out here.

Adjusted Jobless Claims Update

It's been a few months since I featured this pair of charts above showing: a) jobless claims vs. the labor force, and b) jobless claims as a share of the labor force, both updated through July (BLS data here and here), and updated now with c) jobless claims as a share of civilian employment (see chart below).

The top chart shows why unadjusted jobless claims are meaningless: the size of the U.S. labor force has almost doubled over the last 42 years, from 77.57 million in 1968 to the current level of more than 153 million. The bottom chart shows jobless claims adjusted for the size of the U.S. labor force. Jobless claims averaged 458,250 in July, which is 0.2984% of the July labor force of 153,560,000, and is close to a 21-month low (lowest since August 2008). Jobless claims as a percent of the labor force have declined in 14 out of the last 16 months, starting in April 2009.

This measure of initial jobless claims, adjusted for the increasing size of the U.S. labor force over time, shows that jobless claims peaked during this recession above the levels of the last two recessions (1990-1991 and 2001), but were never anywhere close to the levels of the previous three recessions in the mid-1970s and early 1980s, and about the same as the 1969-1970 recession. The sharp reduction in adjusted jobless claims from the March 2009 high of 0.415% follows the same pattern of sharp reductions at the end of each of the last six recessions.

Bottom Line: Adjusted jobless claims in recent months are at about the exact same levels as during the last two post-recession expansions in 1992 and 2002 (see red line in the bottom graph). See update below, featuring jobless claims as a percent of civilian employment instead of the labor force.

Quote of the Day: Free Market is a Bathroom Scale

"The free market is not an ideology or a creed or something we're supposed to take on faith, it's a measurement. It's a bathroom scale. I may hate what I see when I step on the bathroom scale, but I can't pass a law saying I weigh 160 pounds. Authoritarian governments think they can pass that law—a law to change the measurement of things."

~P.J. O'Rourke quoted in today's WSJ

Exhibit A: The minimum wage law.  A teenager with no work experience steps on a "bathroom scale" that accurately and truthfully measures the market value of  unskilled labor, and the scale says "$5.00 per hour."  Politicians pass minimum wage legislation to rig the "bathroom scale" of labor value to instead produce an inaccurate, false inflated reading of "$7.25 per hour."  And they then seem puzzled that more than one out of every four teenagers who is looking for a job is unable to find one, but that's what happens when you "rig" the "bathroom scale."      

Friday, August 20, 2010

Traffic Volume Reaches 21-Month High in June

The Federal Highway Administration reported today that travel on all roads and streets in the U.S. increased by +1.3% in June 2010 compared to the same month last year.  Total travel for the month of June was an estimated 263.9 billion vehicle miles, the highest travel volume for the month of June since 2007.  On a moving 12-month total basis, the annual vehicle-distance traveled through June was 2,981 billion miles, the highest 12-month total since September 2008, 21 months ago (see chart above). 

Following a sharp decline in traffic volume that coincided almost perfectly with the recession that started in December 2007 and most likely ended in June 2009 (see shaded area in chart), the economic recovery that started sometime last summer has been accompanied by a gradual increase in traffic volume as both personal and commercial travel on U.S. roads and highways have rebounded.    

Entrepreneurs Can Make a Greater Contribution to Society Through Business Than Charity

From today's WSJ editorial page "Gates and Buffett Take the Pledge" by Kimberly Dennis: 

"Bill Gates and Warren Buffett announced this month that 40 of America's richest people have agreed to sign a "Giving Pledge" to donate at least half of their wealth to charity. With a collective net worth said to total $230 billion, that promise translates to at least $115 billion. It's an impressive number. Yet some—including Messrs. Gates and Buffett—say it isn't enough. Perhaps it's actually too much: the wealthy may help humanity more as businessmen and women than as philanthropists.

Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable.

Even if Mr. Gates makes progress in achieving his ambitious philanthropic objectives—eradicating disease, reducing global poverty, and improving educational quality—these accomplishments are unlikely to match what he achieved by giving us the amazing capability we literally have at our fingertips to access and spread information. The very doctors and scientists who may develop cures for diseases like malaria will rely on the tools Microsoft supplies to conduct their research. Had Mr. Gates decided to step down from his company and turn to philanthropy sooner than he did, they might have fewer such tools.

Let's hope the philanthropy of those who do sign the Giving Pledge achieves great things. But let's not fool ourselves into thinking that businessmen are likely to achieve more by giving their money away than they have by making it in the first place."

From the NBER paper "Schumpeterian Profits in the American Economy: Theory and Measurement" by William Norhaus:

"The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. We first show the underlying equations for Schumpeterian profits and then estimate the value of these profits for the non-farm business economy.

We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers. For the entire postwar period and for the nonfarm business sector, innovators are able to capture about 2.2% of the total surplus from innovation."

MP: In other words, it’s very likely that the total value created for society by Bill Gates’ innovative activities, including starting Microsoft, far exceeds his own personal wealth, so he has already given back billions of dollars worth of value to society, and should feel no need to give anything more back. In fact, a stronger case could be made that consumers have exploited Bill Gates, than the opposite. If the Nordhaus analysis accurately applies to Bill Gates, almost 98% of the social returns from the value of Microsoft products have already been captured by consumers around the world, which greatly exceeds the personal fortune of Bill Gates. And the contribution to society from Bill Gates’ capitalist activities will likely far exceed the contribution to society of his charitable giving.

Thursday, August 19, 2010

Hotel Occupancy on the Rise

1) Sacramento, 2) San Francisco, 3) South Carolina, 4) Charleston, 5) South Florida, 6) Houston, 7) Orlando, 8) Hawaii, 9)NYC and 10) Canada.

1) The Recession Saved 874 Lives in 2009; 2) Would 2,000 Female Deaths Be Worth It for Pay Equity?

In June, the Bureau of Labor Statistics (BLS) released its annual study "Highlights of Women’s Earnings in 2009" and opened 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."

Today the BLS released its annual report on "Fatal Occupational Injuries in 2009" with the following highlights:

1. A preliminary total of 4,340 fatal work injuries were recorded in the United States in 2009, down from a final count of 5,214 fatal work injuries in 2008. The 2009 total represents the smallest annual preliminary total since the Census of Fatal Occupational Injuries (CFOI) program was first conducted in 1992.

2. Economic factors played a major role in the fatal work injury decrease in 2009. Total hours worked fell by 6 percent in 2009 following a 1 percent decline in 2008, and some industries that have historically accounted for a significant share of fatal work injuries, such as construction, experienced even larger declines in employment or hours worked.

3. Fatal work injuries in the private construction sector declined by 16 percent in 2009 following the decline of 19 percent in 2008.

4. Of the 4,340 occupational fatalities in 2009, male deaths represented 92.9% of the total (4,021) and female deaths represented 7.1% (309) of the total.  Expressed as a ratio, there were more than 13 job-related deaths for men in 2009 for woman who died in a job-related accident. 

1. The economic slowdown in 2009, especially in the construction and manufacturing sectors, was largely responsible for reducing occupational deaths in 2009 by almost 900 American workers (874). 
2. Given the huge disparity in occupational deaths by gender (13 men died on the  job in 2009 for every 1 women), it should be clear that men and women in the labor force cannot accurately be described as "counterparts" (definition: "One that has the same functions and characteristics as another.")
The huge male-female occupational death gap, which has persisted over many decades, has surprisingly received very little attention as one important factor that could explain some of the 80% female-male pay gap. To achieve greater female-male pay equity there would most likely have to be an increase in the number of women in higher-paying, but higher-risk occupations. That outcome will certainly reduce the gender pay gap, but it would come at a cost—significantly more fatal occupational deaths and injuries for women.

Would closing the gender pay gap, if it also means closing the gender occupational death gap, really be worth it for women? To put it in perspective, perfect gender parity for occupational deaths in 2009 would have translated into more than 2,000 women dying on the job, instead of the actual number of women who died: 309. Would the higher risk of being injured or killed on the job really be worth the extra, high-risk pay for women?  Do they really want to achieve "counterpart" status with men in occupational deaths?  Probably not, but that's one of the reasons for the unadjusted, but persistent pay gap - the disproportionate number of men in higher-risk, higher-paying jobs (construction, farming, fishing, manufacturing, etc.)  

The Architecture Billing Index (Leading Indicator) Improves in July and In 5 Out of the Last 6 Months

The American Institute of Architects (AIA) released its monthly Architecture Billings Index (ABI) yesterday for July, which improved to 47.9 last month compared to June, and
marked the fifth monthly increase during the last six months.  Also, the July reading was almost the highest index level for the ABI since January 2008, second only to a 48.4 reading in April (see chart above).  According to the AIA:

"The Architecture Billings Index (ABI) is a diffusion index derived from the monthly Work-on-the-Boards survey, conducted by the AIA Economics & Market Research Group. The ABI serves as a leading economic indicator that leads nonresidential construction activity by approximately 9-12 months. The indexes are developed from the monthly Work-on-the-Boards survey panel where participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended. According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month."

MP: The ABI has shown steady improvements since the early 2009 bottom of 33.9 (the lowest-ever level since the ABI started in late 1995), and is now 14 full points higher at 47.9 in July.  The chart above also shows that the readings of the ABI in recent months (mid to high 40s) are now comparable to the post-2001 levels for the index of architecture billings following the last recession.  As a leading indicator of future commercial construction activity, the steady improvements in the ABI since early 2009 could indicate increases over the next year in nonresidential building.   

Refinancing Activity Hits 15-Month High As Mortgage Rates Fall to Historically Low Levels

Wall Street Journal -- "The much-anticipated rise in applications to refinance existing mortgages finally came through over the past week.  The Mortgage Bankers Association said Wednesday its refinancing index jumped 17% to 4676.70 in the week to Wednesday, soaring to the highest since May 2009. The rise contrasts with the four-week average of a 3.2% increase.

The sudden jump is a sign that mortgage rates—which clocked up record lows this week—have fallen far enough to encourage a new wave of refinancings from homeowners, many of whom obtained relatively low rates last year. The average rate for a 30-year home loan dropped to 4.4% last week, according to the latest Freddie Mac survey (see chart above).

A refinancing wave also could be a boon for the flailing U.S. economy. Economists at Morgan Stanley estimate that if 50% of mortgages in mortgage-backed bonds are refinanced, it would free up $46 billion a year for consumers. To put that in perspective, that is more money than the latest extension of unemployment benefits."

Weekly Rail Container Volume Highest on Record

WASHINGTON, D.C. – Aug. 19, 2010 – "The Association of American Railroads (AAR) today reported rail intermodal volume on U.S. railroads for the week ending Aug. 14, 2010 was the highest of 2010, with 233,767 total trailers and containers, up 20.8 percent from the same week in 2009, but down 1.4 percent compared with 2008 (see chart above). Weekly container volume, a subset of intermodal, was the highest on record up 22.4 percent compared with the same week in 2009, and up 6.4 percent with the same week in 2008. Trailer volume, the other subset of intermodal, rose 12.3 percent last week compared with the same week in 2009, but fell 31 percent compared with 2008.

Carload traffic continued moderate weekly gains, with U.S. railroads originating 295,948 carloads for the week, up 7.1 percent compared with the same week in 2009, but down 11.3 percent from the same week in 2008.

Sixteen of the 19 carload commodity groups increased from the comparable week in 2009. Those posting the most significant increases were metallic ores, up 65.4 percent; metals and metal products, up 38.8 percent; and farm products excluding grain, up 37.6 percent. Two commodity groups, farm products excluding grain and metallic ores, also posted increases over 2008."

Other highlights for Week 32 include:

1. Cumulative year-to-date rail freight volume in Canada is up by 15.2% compared to last year.

2. Cumulative year-to-date rail activity is by 31.7% for major Mexican railroads.  

3. Year-to-date rail freight volume for all major North America railroads is above last year's level by 14.5%.

Bottom Line: Warren Buffett's single most favorite economic indicator continued to show signs of improvement again in the most recent weekly report on rail traffic from the AAR.  Based on the volume of raw materials, natural resources, lumber, coal grain, chemicals, metals, motor vehicles and paper products moving around the country by rail, the economic picture continues to get a little brighter almost every week.   

Minnesota Under Attack From Sharia Law

HT: Mike Carlson

Research Assistants Bust Harvard Professor

"Ever since word got out that a prominent Harvard University researcher was on leave after an investigation into academic wrongdoing, a key question has remained unanswered: What, exactly, did he do?

An internal document, however, sheds light on what was going on in Mr. Hauser's lab. It tells the story of how research assistants became convinced that the professor was reporting bogus data and how he aggressively pushed back against those who questioned his findings or asked for verification."

Read more here in the Chronicle of Higher Education (subscription may be required). 

Business Loan Indicators Show Improvements in Q2

According to banking data released yesterday by the Federal Reserve, both delinquency rates and charge-off rates for business loans at all commercial banks continued to improve in the second quarter of 2010.  Charge-off rates fell for the third consecutive quarter to 1.71% during the April to June period, the lowest rate since the 1.84% rate in the first quarter of 2009; and delinquency rates for business loans fell for the second straight quarter to 3.71%, also at the lowest level since the first quarter of 2009. Both of these key banking indicators for commercial loan performance are down to levels comparable to the post-2001 recession, suggesting ongoing improvements in the business sector.   

Wednesday, August 18, 2010

West Coast Shipping Boom in July

Following recent posts on shipping booms in July at the Port of Los Angeles and Port of Seattle, here are two more:

1. Port of Long Beach.  July shipping increased 35.8% compared to last year, and YTD shipping is 22.3% ahead of last year.  

2. Port of Oakland. July shipping increased 16.3% compared to last year, and YTD activity is 16.3% ahead of last year.

Markets in Everything: Using Parking Lot Satellite Surveillance to Forecast Retail Sales

Lowe's Parking Lot
Target Parking Lot
"As part of a growing trend among hedge funds and Wall Street firms, Cold War-style satellite surveillance is being used to gather market-moving information.  The surveillance pictures are often provided by private- sector companies like DigitalGlobe in Colorado and GeoEye in Virginia, which build and launch satellites and take pictures for US government intelligence agency clients and private-sector satellite analysis firms.

That means there are two links in the chain before the satellite data gets to Wall Street—a satellite firm takes the pictures and sells them to an analysis firm, which scrutinizes the images and sells the aggregated data to hedge funds and Wall Street analysts.

UBS analyst Neil Currie had been looking at satellite data on Wal-Mart during each month of 2010, and he’d concluded that there was enough correlation between what he was seeing in the satellite pictures of Wal-Mart’s parking lots to the big-box chain’s quarterly earnings, that he was ready to incorporate that data into UBS’ report on Wal-Mart, which releases its earnings on Tuesday.

Currie purchased his analysis from a small two-year old Chicago-based firm called Remote Sensing Metrics LLC, which had scoured satellite images of more than 100 Wal-Mart stores chosen as a representative sample. By counting the cars in Wal-Mart’s parking lots month in and month out, Remote Sensing Metrics analysts were able to get a fix on the company’s customer flow. From there, they worked up a mathematical regression to come up with a prediction of the company’s quarterly revenue each month.

UBS predicts that Wal-Mart’s second quarter sales will be up from the first quarter, but down a percent against the same period a year ago. But the satellite analysts figure that the number will come in 0.7 percent higher—not lower—based on the traffic surge they saw in the parking lots."

Read more here.

Seattle Shipping Boom: +48% 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).  Shipping volume for July (219,349TEUs) was 61.7% above last year's shipping in July, and this follows year-to-year increases of 49% in June, 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 through July at the Seattle port is 47.9% above last year.  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.

Poster of the Day

Exhibit A: 28,000 deaths in Mexico related to the Drug War and organized crime.

Tuesday, August 17, 2010

Intrade Odds Above 60% for Reps to Take House

Intrade odds that the Republicans will control the House after the November elections have been trading above 60% for the last six days, and the current closing price is 64.7%. 

Real Compensation Increase from 2000 to 2009: Miltary (84%) vs. Federal (37%) vs. Private (9%)

"Rapidly rising pay and benefits in the armed forces have lifted many military towns into the ranks of the nation's most affluent communities, a USA TODAY analysis finds.

The hometown of the Marines' Camp Lejeune — Jacksonville, N.C. — soared to the nation's 32nd-highest income per person in 2009 among the 366 U.S. metropolitan areas, according to Bureau of Economic Analysis (BEA) data. In 2000, it had ranked 287th. The Jacksonville metropolitan area, with a population of 173,064, had the top income per person of any North Carolina community in 2009. In 2000, it ranked 13th of 14 metro areas in the state.

The USA TODAY analysis finds that 16 of the 20 metro areas rising the fastest in the per-capita income rankings since 2000 had military bases or one nearby.

What's driving the income growth: pay and benefits in the military have grown faster than those in any other part of the economy. Soldiers, sailors and Marines received average compensation of $122,263 per person in 2009, up from $58,545 in 2000 (see chart above). Military compensation — an average of $70,168 in pay and $52,095 in benefits — includes the value of housing, medical care, pensions, hazardous-duty incentives, enlistment bonuses and combat pay in war zones. More than 300 U.S. servicemembers have died this year in Iraq and Afghanistan.

After adjusting for inflation, military compensation rose 84% from 2000 through 2009. Compensation grew 37% for federal civilian workers and 9% for private-sector employees, the BEA reports (see chart below)."

HT: Newsalert

ND's Record-Setting Oil Production Fuels Economic Boom with Record Employment, 3.6% Jobless Rate

Following an ongoing pattern that I have been following all year, North Dakota set more new records in June for monthly oil production (see chart above, data here).

According to a report earlier this year from Bloomberg, "Drilling advances are enabling producers to tap the Bakken, where rocks lack the porosity and permeability of conventional oil fields. The Bakken contributed to last year’s 7.5 percent gain in U.S. crude output, the biggest since 1955 and the first in 18 years. 

Output may reach 300,000 to 400,000 barrels a day by mid-2011 and stay at that level for 10 to 15 years, said Lynn Helms, director of the North Dakota Mineral Resources Department. The state’s previous estimate was 220,000 to 280,000. "

The following are new, all-time record highs set in June:

Daily Oil Production: Record high 315,282 barrels in June, which has already exceeded the previous forecast mentioned above that oil output in North Dakota would reach 300,000 in mid-2011; that's a 5.8% increase from May, a 46.6% increase from June 2009, and a 89.7% increase from June 2008.

Total Monthly Production: Record high 9,458,455 barrels in June, almost double the amount produced two years ago.

Number of Wells Producing: Record high 4,746 in June, 13.4% above last year.

Barrels per Well: Record high of 1,993 in June, 29.3% above last year.

Daily Oil Per Well: Record high of 66 barrels in June.

As a direct result of the oil boom, North Dakota's economy is booming as well, with the lowest state jobless rate in the country of 3.6% in June, and recent jobs gains that completely offset all of the jobs lost during the recession, bringing North Dakota's employment to a record high in June of 371,300 (see bottom chart above).    

Summer Salary Survey for the College Class of 2010

According to the National Association of Colleges and Employers (NACE) Summer Salary Survey for the college Class of 2010:

1. Engineering degrees account for four of the five most highly paid majors among the college Class of 2010.

2. Accounting services employers extended the greatest number of offers to this year’s crop of bachelor’s degree graduates, followed by engineering services and financial services

3. The overall starting salary offer to Class of 2010 bachelor’s degree graduates now stands at $48,661—down by 1.3% from an average salary of $49,307 posted last year at this time. 

Beloit College Mindset List for the Class of 2014

"Born when Ross Perot was warning about a giant sucking sound and Bill Clinton was apologizing for pain in his marriage, members of this fall’s entering college class of 2014 have emerged as a post-email generation for whom the digital world is routine and technology is just too slow. Each August since 1998, Beloit College has released the Beloit College Mindset List. It provides a look at the cultural touchstones that shape the lives of students entering college this fall."

This year's list includes 75 items, here's a sample:

1. Few in the class know how to write in cursive.

2. Email is just too slow, and they seldom if ever use snail mail.

3. Korean cars have always been a staple on American highways.

4. They never twisted the coiled handset wire aimlessly around their wrists while chatting on the phone.

5. The first computer they probably touched was an Apple II; it is now in a museum.

6. Once they got through security, going to the airport has always resembled going to the mall.

7. American companies have always done business in Vietnam.

8. Rock bands have always played at presidential inaugural parties.

9. The Post Office has always been going broke.

10. The nation has never approved of the job Congress is doing.

11. Honda has always been a major competitor on Memorial Day at Indianapolis.

Doubleheaders, Starting Times and Gender Equity

Inside Higher Ed -- "A sports conference that always scheduled weekday basketball doubleheaders in which women’s teams played the first game -- letting the men play in the later time slot -- has altered the practice, after an anonymous sex discrimination complaint charged that this made the women’s games appear to be a “warm-up” act for the men’s games.

Now, hoping to avoid possible gender equity suits, other athletic conferences are considering similar scheduling changes.  Last month, the Great Lakes Intercollegiate Athletics Conference announced that it would alternate from season to season the order in which men’s and women’s teams would play in doubleheaders. The men will play first this season, and the women will play first next season.

Dell Robinson, the conference commissioner, said the decision was made after the league received an inquiry in March from the U.S. Department of Education’s Office for Civil Rights. An anonymous complaint filed with the agency argued that the negative connotation conveyed by always having women’s teams play first in these doubleheaders was detrimental to women’s athletics."

Monday, August 16, 2010

China Might Be #2 by GDP, but It Ranks #99 for Per-Capita GDP Behind Jamaica, Belize and Namibia

According to a Bloomberg story today, "China surpassed Japan as the world’s second-largest economy last quarter, capping the nation’s three- decade rise from Communist isolation to emerging superpower. The country of 1.3 billion people will overtake the U.S., where annual GDP is about $14 trillion, as the world’s largest economy by 2027."

Adjusting for GDP (Purchasing Power Parity) on a per-capita basis, China (at $6,567) has a long way to go before it achieves "superpower" status, considering that it ranks #102 according to the CIA, #99 according to the IMF, and #92 according to the World Bank.  In fact, on a per-capita basis in 2009, China ranked behind Namibia, Jamaica, Belize, Thailand, El Salvador, and Albania.  And the last time the U.S. had per-capita GDP of $6,567 was back in 1932.

HT: Gene Hayward

More On Total Trade vs. Net Exports

I had a post last week about how trade gets reported: a) we treat exports as a positive contribution to the U.S. economy and imports as a negative contribution, and b) we never report the total amount of trade, but instead report the net difference between exports and imports, leading to analysis such as this from Vanguard:

"The economy continued to show signs of weakness in June as the U.S. trade deficit widened at an unprecedented pace." 

Alternatively, it could be reported that imports in June exceeded $200 billion for the first time in 20 months, and import activity has improved in 8 out of the last 10 months (see top chart above).  Further, if you look at the composition of imports in the bottom chart, it seems strange to consider the increases in imports to be a "sign of weakness," because they contributed to a widening of the trade deficit in June. 

More than half of U.S. imports are inputs (industrial supplies, raw materials and capital goods) that were purchased by U.S. firms and will become part of some production process in the U.S.  In June, more than $110 billion was spent by American companies on foreign inputs, which seems to indicate a sign of strength and expansion, not weakness and contraction, no?  Likewise, if American consumers could afford to spend 29.2% more on foreign cars, food and clothing this June than last June, how is that a sign of "economic weakness."      

As I mentioned before, I think this obsession with the trade deficit and "net exports" can be traced to the fact that the calculation of Gross Domestic Product treats exports as positive and imports as negative, but maybe that's not the only way to measure economic performance.  Fisher Investments summarized it this way: "Focusing on net exports is simply wonky. We benefit in myriad ways from importing goods others make more cheaply and efficiently. Plus, increased imports is a sign of economic vibrance!"

America's Busiest Airports

Here are the top 10 U.S. Airports, ranked by January-May 2010 Total Scheduled Enplanements (domestic and international passengers), according to the Bureau of Transportation Statistics.

What is the busiest airport in the U.S.?  Hint: It's not even close, the #1 airport has 43% more traffic than the #2 airport.  Notice also that 8 out of the 10 busiest airports are in the South, and 7 out of 10 are in Right-to-work states. 

The Race Card is Maxed Out

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Race Card Is Maxed Out
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HT: Don Boudreaux

Sunday, August 15, 2010

Inflation Variability Reached All-Time High in 2009

There's been a lot of debate lately about inflation, and many conflicting opinions about whether we're headed for inflation or deflation.  The consensus among economists seems to be now leaning more towards pending deflation than inflation, and yet gold, the classic hedge against pending inflation, is still trading close to all-time historical highs of around $1200 per ounce, double the price four years ago and triple the price five years ago.  Between the summer of 2008 and the end of year, the monetary base doubled, and yet the annual CPI inflation rate was negative in most months in 2009 on an annual basis.  So there seems to be a lot of conflicting signals, and perhaps a breakdown of some of the traditional relationships regarding inflation and other key variables. 

Here's another twist to add to the inflation confusion - despite relatively low inflation in recent years, inflation variability is at an all-time high, another break from the traditional positive relationship between the level of inflation and level of inflation variability (or uncertainty).  That is, low inflation is usually associated with low inflation variability, and high inflation is associated with high levels of inflation variability.  

For example, the charts above show that the high levels of inflation in the 1970s and early 1980s (red lines) were associated with high levels of inflation variability (blue lines) and when inflation fell in the 1990s, it was accompanied by a fall in inflation variability.  But now in recent years, we are seeing historically high levels of inflation variability associated with relatively low levels of inflation.   

Note: In the top chart above, inflation uncertainty/variability (blue line) is measured with a GARCH (1,1) model and in the bottom chart inflation variability (blue line) is measured with a 12-month moving average of the standard deviation of the inflation rate.  The statistical details of how to measure a time series of inflation variability aren't as important as the fact that both of these measures of inflation variability show higher levels in recent years than the previous peaks in the 1970.   

So despite low levels of inflation over the last five years, inflation variability peaked in 2009 by both measures, and those historically high levels of variability might be adding to the confusion about whether we're headed for inflation or deflation.  And the high levels of inflation variability might be a result of the Fed's erratic, "stop-and-go" monetary policy over the last few years.         

Update: There is also some statistical support for a negative relationship between inflation variability and output growth, which could help explain why the economic recovery has been weak.  That is, higher inflation variability adversely affects economic performance and leads to lower economic growth for industrial production or real GDP, ceteris paribus.   

Cars Aren't Free, So Why is it Free to Park Them?

From Tyler Cowen in today's NY Times, "99 percent of all automobile trips in the United States end in a free parking space, rather than a parking space with a market price.

The question Tyler addresses is: If we don’t give away free cars or free gas, then why do we give away parking spaces for free?

Economics Goes to Hollywood

Watch the trailer above for "Freakonomics: The Movie," in theaters on October 1, but premiering on iTunes on September 3.

Saturday, August 14, 2010

Global Economic Recovery? Mercedes Sales Surge

Stuttgart, Germany -- "Sales at Mercedes-Benz continue to improve, rising by 17 percent in July. This marked the ninth month in a row that sales have increased at a double-digit rate. Global deliveries to customers amounted to 97,700 units last month (July 2009: 83,500). As a result, sales now total 654,400 units since the beginning of the year (January-July 2009: 566,600), representing an increase of 16 percent.

Mercedes-Benz made great gains in many automotive markets in July. The brand had its best month ever in China (incl. Hong Kong), where it sold 14,600 passenger vehicles (July 2009: 4,800), an increase of 205 percent compared to the same month last year. As a result, Mercedes-Benz remains the fastest-growing premium brand in China.

Mercedes-Benz achieved its biggest gains last month in the dynamically growing market of South Korea, where 1,300 customers bought a vehicle bearing the Mercedes star. This was five times the number sold in July of last year (plus 446 percent). Within the Asia/Pacific region, sales also rose substantially in Australia (plus 48 percent). Mercedes-Benz in July also achieved its best month ever in Russia (plus 116 percent). Record sales were posted as well in India (plus 142 percent) and Turkey (plus 155 percent)."