Saturday, December 11, 2010

Back From Financial Ground Zero Two Years Ago

Below are charts of four different measures of financial stress and volatility, displayed over the last five years.  Taken together as a group, these four charts show that the overall conditions in the U.S. financial markets were at the worst levels in the fall of 2008, and they have now returned to their pre-recession levels of late 2007.  From the "financial ground zero" two years ago, the U.S. financial markets have made remarkable progress.    

Exhibit A.  The Kansas City Financial Stress Index:

Exhibit B. The St. Louis Financial Stress Index:
Exhibit C. The CBOE Volatility Index


Exhibit D. The Bloomberg U.S. Financial Conditions Index

Friday, December 10, 2010

Washing Windows Hanging Off a Rope; I Hope They Are Paid More Than Those Washing The Other Side

Here's one example of why men might earn more on average than women: they tend to far outnumber women in jobs that are very dangerous, and therefore highly-paid: coal mining, working on oil rigs, fishing, farming, logging, excavation, construction and window-washing, etc.  I took the picture above of two window-washers hanging off the AEI building today on ropes, with no obvious safety equipment other than the normal-size ropes attached to something on the top of the building (notice the ropes aren't even visible in the picture!), with no buckets, trays or harnesses to support them, and nothing below them except the sidewalk to stop a fall.  I'm pretty sure these guys make a higher wage than the maintenance workers who clean the same exact windows from the inside of the building.   

Of course, there's nothing that would prevent women from becoming outside window-washers, but there might be natural gender differences in preferences for work environments that would discourage most women from hanging off a rope 10 stories above the street. Perhaps men show greater tolerance than women for risky, physically demanding, dangerous work in extreme outdoor conditions, and women put a higher priority on office work environments that are low-risk, indoors, safe and pleasant.  Higher (lower) risk = higher (lower) wages, ceteris paribus, and women on average may be perfectly willing to accept lower wages for lower risk jobs, which would contribute to the wage gap.  

Here's BLS data showing that in 2009, 93% of all workplace fatalities were men, and here's data showing that 90% of all fatal motorcycle accidents in 2009 were men, so I don't think there's any question that men are significantly more risk-tolerant than women.  Any empirical study of wage differences by gender should control for risk and the probability of work-related injury or fatality, which I don't think usually happens. 

Gender Differences on the SAT Test Explained



My video above was featured today on The American Enterprise Institute's American.com website, inspired of course by the "text-to-movie" technology from the Xtranormal.com website that was used to make "Quantitative Easing Explained" (3.5 million views now on "the YouTube").    

The Worst People on Campus Are Those Who Don't Understand Economics But Write About It Anyway

This is from an editorial in the student newspaper at the University of Wisconsin, titled "The Worst People on Campus":

"Wisconsin had 5,800 student tickets to sell. They went up for purchase on uwbadgers.com at 9 p.m. Sunday and were sold out by 9:20 p.m. The 33 students named above (Note: their names were later removed) had the nerve to put their Rose Bowl tickets up for sale on Facebook Marketplace within two hours of tickets selling out. Face value was $150. Some were trying to get the tickets for more than $400 a pop.

Truly, there is a special place in Hell for people who buy Rose Bowl tickets with the sole intention of profiting from them. It is entirely unfair to those who actually love this football team and were counting on a cheap face value ticket in order to make the trip to Pasadena an economic reality."

This response is from ESPN sports writer Jemele Hill (and MSU grad) in her article titled "No Shame in Selling Wisconsin Tickets":

"If there's a special place in hell for someone who re-sells a ticket to a sporting event for more than face value, then hell is going to have an extensive waiting list. And I'd be on it. 

Admittedly, selling tickets for more than face value is a contentious issue among fans, but these sales are as ingrained in sports culture as hot dogs and beer.  If Wisconsin wanted to undermine this capitalistic ticket culture, all the athletic department had to do -- and The Badger Herald pointed this out -- was require that the students pick up their tickets in person at the Rose Bowl. But since there is no such requirement, what the students do with their tickets is fair game. 

Had Michigan State gone to the Rose Bowl this season, I couldn't imagine selling my Rose Bowl ticket if I were a student. Not even if I were offered double the price. But if you tripled it, I'd have to think about it." 

MP: I'm with Jemele on this one,  and I'm suspicious that she might have even taken Principles of Economics at MSU, whereas I predict Wisconsin editor-in-chief Kevin Bargnes (who wrote the editorial) hasn't yet been exposed to price theory?

Detroit's "Beautifully Broken" Feral Houses



A while back in the summer of 2009 a CD post featured the "feral houses of Detroit," described by the photographer as follows:

"I've seen "feral" used to describe dogs, cats, even goats. But I have wondered if it couldn't also be used to describe certain houses in Detroit. Abandoned houses are really no big deal here. Some estimate that there are as many as 10,000 abandoned structures at any given time, and that seems conservative. But for a few beautiful months during the summer, some of these houses become "feral" in every sense: they disappear behind ivy or the untended shrubs and trees planted generations ago to decorate their yards."

At a more recent post that featured the photos above from the summer of 2010, the photographer (who is self-described as one of "two yuppies raising their kids in the most dangerous city in America") added this:

"I like the idea of the feral as something "beautifully broken." A lot of people responded to the photos posted last summer by saying there was no beauty in these houses, only sadness. But with nature taking over these structures, they share a certain picturesque quality with the ancient ruins that have been appreciated throughout modern history."

Some of these photos are for sale here and here, so I guess this post could have been titled "Markets in Everything: Feral Detroit House Photos." 

Thursday, December 09, 2010

NY Fed Model: 1-in-70 Chance of 2011 Double-Dip

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" this week with treasury yield data through November 2010, and the Fed's recession probability forecast through November 2011. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (2.76% in November) and 3-month Treasury bills (0.14%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here).

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 37-42% (see chart above), and has been declining since then in almost every month.  For November 2010, the recession probability is only 0.40% and for November of next year the recession probability is slightly higher, but still far less than 2% (1.42%). According to the NY Fed Treasury Spread model, the chance of a double-dip recession through November of next year is less than 1 out of 70.


November State Revenues Coming in Strong

Reflecting increased economic activity, the following states are reporting higher tax revenues for the month of November:

1. Missouri - Total November tax collections were up 3.3% from November 2009, largely because of a 19.2% increase in sales tax revenue compared to last year

2. Texas collected 8.7% more sales tax in November, marking the eighth month in a row that receipts were higher than last year. 

3. Tennessee - State tax revenue grew 3.4% in November compared to the year before for the eighth consecutive month, leading state officials to believe Tennessee’s economy is “slowly recovering.”

4.  Arkansas - November gross receipts collections totaled $168.7 million, up 8.3% above November 2009. The collections, which reflect taxes on October sales, have seen increases for eight consecutive months.

5. Iowa - State tax collections are returning to normal growth levels, providing evidence that Iowa is recovering from the effects of a national recession that caused state revenues to nose dive and forced budget upheaval in previous fiscal years. State tax collections grew by 5.7% in November. 

6. Massachusetts revenues continued to climb in November with the state pulling in $1.43 billion in tax receipts — an increase of nearly 11% from November of last year.

U.S. Vehicle Market is Coming Back to Life; Nov. Manheim Used Vehicle Index Hits a Record High

From today's Washington Times (thanks to Steve Bartin for sending the link):
In Germany, Mercedes Benz and BMW — both heavy seasonal advertisers this year — have shortened holiday breaks for autoworkers in response to the demand for sales. Audi, the luxury side of automaker Volkswagen, also plans to gear up production this month.

"When you see the luxury segment start to recover, it's a good sign for the rest of the economy," said Peter De Lorenzo, a Detroit-area auto analyst who operates the website autoextremist.com. "In general, the auto industry is definitely on an upward trajectory," he added. "The luxury automakers, who took a big hit the last couple of years, are definitely showing signs of rebounding. It is probably a sign that the economy is not going to go gangbusters overnight, but is going to improve with slow and steady progress."
Later in the article:
"Whether the year-end deals are a bargain for consumers is another matter. Edmunds.com, a Web-based consumer auto site, found that despite the heavy advertising and glossy commercials, the average incentive spending per car rose only $31 between October and November, when the holiday discounts were supposed to be kicking in. The average incentive per car in November was actually down $255 compared with November 2009, when auto dealers were desperate to lure any shoppers to the showroom."
With consumers coming back to auto dealers' showrooms in recent months (there was a 17.5% increase in November sales vs. last year that followed strong double-digit sales gains in both September and October), the strong demand has allowed automakers to cut back on discounting and incentives, which then results in the following:  

The Manheim Used Vehicle Index increased in November for the third straight month and brought the index up to a new record high level of 124.3 last month, rising a full 26 points above the all-time historical low of 98.0 in December of 2008 (see nearby chart). 

From Manheim's report:

"The real restraint on wholesale pricing is that imposed by the dealer’s ability to pass on cost increases. That restraint has yet to appear. Dealer margins have held steady and, with better financing and insurance opportunities, used vehicle profits for many dealers have risen to record levels."

Bottom Line: New car sales have gotten much stronger this year with double-digit gains in 9 out of the last 11 months, and the higher-end luxury segment of the car market is showing renewed signs of strength at year end.  The rebounding demand for new vehicles is apparently happening without the aggressive pricing and incentives that were much more common last year, which has also led to a strengthening of the pricing in the used vehicle market.  In sum, the consumer demand is coming back for new and used cars, even at higher prices, which has translated into rising profitability for car dealers and automakers, and an industry that has come back to life.    

Oct. LAX Passenger and Freight Demand Improved

Just under 5 million passengers (4,988,085) traveled through Los Angeles World Airports (LAX) in October, which was 4.75% higher than the passenger count in the same month a year earlier, and 6.5% above passenger traffic in October of 2008.  For the month of October, traffic this year was just slightly below the pre-recession level of 5,070,042 in 2007.  Passenger demand for both domestic and international flights at LAX in October was above last year's levels, by 5.42% and 2.92% respectively.  Year-to-date (YTD), passenger traffic at LAX is running 4.35% higher than last year.

Air cargo at LAX came close to reaching a three-year high in October at 169,315 tons, which was 6.4% above last October, and the highest monthly freight volume since November 2007 (see chart above).  For the YTD, air cargo at LAX is above last year by 19.6%, mostly due to strong double-digit gains from January through August. 

Reflecting the economic recovery underway, passenger and freight traffic at America's 3rd busiest airport registered solid gains both in the month of October and for the first 10 months of 2010.  

Weekly Jobless Claims Fall to New 27-Month Low

The Department of Labor reported today that the four-week average of initial unemployment claims fell to 427,500 for the week ending December 4, which is the lowest level since the first week of August 2008, more than two years ago (see chart above).  The number of workers continuing to receive jobless benefits fell to 4,226,000 on a four-week average basis for the week ending November 27, the lowest level for that count since early December 2008.

The drop in claims was the fifth consecutive weekly decline in the four-week average, which has also declined in 7 out of the last 8 weeks, and 13 out of the last 15 weeks,  so the trend in jobless claims is definitely on a downward path as the labor market gradually recovers.    

Wednesday, December 08, 2010

Markets in Everything: Pre-Paid Lab Tests; It's Like Using Amazon.com to Buy Your Lab Tests

(CNN) -- Day after demoralizing day, Dr. Doug Lefton watched uninsured patients leave his office needing laboratory tests but unlikely to have them done because of the cost. So the Fairlawn, Ohio, family physician decided to do something about it. Working with other doctors and an online marketer, Lefton devised a way to slash the cost of lab tests not only for his patients but for almost anyone, anywhere. 

Working with the Summit County Medical Society, Lefton struck a deal with LabCorp, one of the largest testing companies in the country, and PrePaidLab. The arrangement allows patients to get lab tests done for a small fraction of the normal cost, simply by ordering them through the medical society's website.  People who would ordinarily not be able to afford lab work are paying almost identical the amount the government pays for Medicaid. 

"The prices are spectacularly low for something you can get on the market yourself," says Tom Patton, CEO of PrePaidLab, an online marketer of lab tests. For example, a lipid panel (cholesterol test) can cost as much as $148 for an uninsured person. The same test is available for less than $18 through the site."

Here's how it works: Patients needing lab work can go to the medical society's website and click on the big yellow box in the middle of the page. From there they choose the tests their doctor says they need, give the doctor's fax number, pay with a credit card and print out the order. They then take the order to any LabCorp location in 47 states and have the work done. Results are sent securely to the patient and the doctor, often within 24 hours.

"It's like using Amazon.com to buy your lab tests," Lefton said.

HT: Daniel Sellers

Mike Mandel and The Jobs Opening Paradox

The chart above shows that job openings have been increasing nicely since the recession ended, according to two different measures, one from the BLS (job openings) and another from the Conference Board (online advertised vacancies).  In contrast, the unemployment rate has barely moved from its peak a year ago of 10.1%. What's going on here?  

Mike Mandel offers three possible explanations for why the jobless rate hasn't improved much, despite the significant, ongoing improvements in job openings: Mismatch, offshoring, and lags.  

1. Mismatch says that companies would like to hire, but can’t find the right people. 

2. Offshoring says that companies have openings, but they are filling them overseas. 

3. Lag would say that companies have openings, but it’s taking them time to pull the trigger, given the overall uncertainty.

I’m going to vote for a combination of offshoring and lag. I’m sure that some job openings are going overseas. But the statistics also suggest that hiring pressure is building up in some sectors of the economy. If that’s so, 2011 may be a better year for the labor market than people expect."

MP: After looking at jobless rates by educational attainment, I would offer some support for the mismatch explanation for the following reason: the jobless rates for the highest and least educated workers have continued to rise and reached all-time highs in November.

1. The jobless rate for workers with less than a high school degree was 15.7% in November, the highest in BLS history back to 1992 for this data series.

2. The jobless rate for workers with a bachelor's degree or higher reached an all-time record high of 5.1% in November.    

On the other hand, the jobless rate for workers with a high school degree has fallen by almost one percentage point from its 10.9% peak to 10% in November, and the rate for those with an associate's degree has fallen almost a half percentage point from its peak of 9.1% to 8.7%.  This might suggest some mismatch in the labor market between the education requirements of job openings and the educational attainment of job candidates? 

Further, there are sectors like construction that still has a stubbornly high jobless rate of 18.8% and leisure and hospitality that has a jobless rate of 12.4%, and there are probably very few of those jobs that are being offshored. In contrast, the jobless rate in the manufacturing sector, maybe the sector most likely to have jobs outsourced, has come down to 9.9% in November, just slightly higher than the 9.3% rate overall (not seasonally adjusted).

In any case, I do agree with Mike that there are many indications that 2011 might be a better year for the U.S. labor market than many people are probably expecting.

Update 1: Thanks to Morganovich for pointing out in the comments section a fourth explanation - the troubles in the housing market make workers less mobile than in past post-recession periods, which would be a variation of the mismatch explanation.  And yes, it would be interesting to see a geographical overlay of job openings and unemployment rates.

Update 2: Thanks to Westywildcat and Scott Lincicome for another explanation, or variation of the mismatch theory: The historically unprecedented 99 weeks of government unemployment insurance benefits, which would create disincentives to work even though job openings are available and increasing. 

Probably The Best Feedback a Teacher Can Get

From one of my students after a recent MBA economics class: 

"I learned a great deal in your class, and had a lot of my assumptions challenged. Thanks for giving my brain a wedgie."

Cartoon of the Day

The latest from IBD's Mike Ramirez

HT: Newmark's Door via Lee Coppock

Job Openings Rise to Two-Year High in October

The BLS reported yesterday that job openings rose to 3,362,000 in October, which was the highest level since August 2008, more than two years ago.  Compared to the cyclical low of 2,338,000 in July of last year, job openings have risen by more than one million and by 44% through October of this year. 

Although the ongoing increase in job openings hasn't translated yet into a lower unemployment rate (see chart above), it's another sign that conditions in the labor market are gradually improving and headed in the right direction. 

Incentives Matter: The Speed Camera Lottery



From Wired: "As well as ticketing you when you run through a speed-radar too fast, the “Speed Camera Lottery” in Sweden also notices you when you come in at or under the speed-limit. It then automatically enters you in a lottery. And here’s the really smart part: the prizes come from the fines paid by speeders."

Average speed before the experiment: 32 km/hour

Average speed after the experiment: 25 km/hour

Watch video above for the full story.

Tuesday, December 07, 2010

Employment Trends Index Gains in November

Yesterday the Conference Board released its latest Employment Trends Index, and reported that the labor market index increased by 1.4 points in November and is now 9.3% above the level a year ago (see chart above).  The Employment Trends Index is a composite of eight labor-market variables and is considered to be a leading indicator for trends in labor market conditions and total nonfarm employment.  In November, 7 of the 8 components improved (Initial Claims for Unemployment Insurance, Percentage of Firms With Positions Not Able to Fill Right Now, Number of Temporary Employees, Part-Time Workers for Economic Reasons, Job Openings, Industrial Production and Real Manufacturing and Trade Sales), which helped drive the index to its highest level in two years. 

Gad Levanon, Associate Director, Macroeconomic Research at The Conference Board said: 

“The disappointing employment numbers released last Friday are at odds with most of the leading indicators included in the Employment Trends Index. While we are not expecting economic activity or employment to grow rapidly anytime soon, we do expect employment to continue to moderately increase, following the trend of recent months.”

MP: The Employment Trends Index has had a pretty accurate track record of predicting past trends in payroll employment back to 1973. In that case, the ongoing gains in the index predict that we can look for gradual improvements in labor market conditions. 

Monday, December 06, 2010

Perfect SAT Scores: Male vs. Female for 2010

Perfect scores by gender for the 2010 SAT tests for mathematics, critical reading and writing

Government Website Promotes "3% or Less" Down

Here's a brochure titled "How to Buy a Home With a Low Down Payment: A Consumer’s Guide to Owning a Home with Less Than Three Percent Down," which was developed by the Mortgage Insurance Companies of America in cooperation with the Extension Service of the U.S. Department of Agriculture, and appears on this government (GSA) website.

“Many people mistakenly believe that you have to come up with a down payment equal to 20 percent of the price of a home. In fact, home loans with down payments of less than 20 percent are becoming increasingly popular. They are called “low down payment mortgages." This is good news for the millions of home buyers who are finding it difficult to save a large down payment, especially for their first house. More and more borrowers are taking advantage of low down payment mortgages and becoming homeowners with less than three percent down."  

Q: Isn't that exactly the kind of mortgage lending that helped cause the housing bubble? 

HT: Joy Pavelski