Saturday, December 18, 2010

Markets in Everything: Private Car Network

From the Uber website:

"Request a car by telling Uber where you are. Text us your address, or use our iPhone or Android apps to set your pickup location on a map. Uber will send the nearest driver to pick you up, and text message you an estimated arrival time. Cars usually arrive within 5-10 minutes.  Your licensed professional driver will park curbside in a sleek black car. Uber will text you again when the car arrives.  Hop in the car, tell the driver your destination and you'll be on your way."

It seems like a variation of Zipcar, since you register in advance with Uber, and your credit card on file gets charged automatically for each ride, and no cash is necessary.

Obviously, the taxi monopoly in some cities like San Francisco is not happy about the competition from Uber (formerly called UberCab), and they got the San Francisco Metro Transit Authority (SFMTA) and the Public Utilities Commission of California to issue a cease and desist order against the startup in October.

According to this report:

"Despite the cease-and-desist order, Uber CEO Ryan Graves says his company never shut down or stopped service, and has been working with the SFMTA to address each violation, beginning with the obvious company name change. In San Francisco, only permitted taxis can advertise themselves as taxis or cabs, including having those words in the company name. Hence the name change from UberCab to just Uber.

Since there's a 10-year waiting list to get one of those coveted taxi medallions in San Francisco, I can see why cab drivers would be threatened by the service and worried that it would take away potential revenue. While that remains to be seen, the technology has been a boon to another segment: livery drivers. Graves says that his application and platform has enabled private car companies to increase revenue, add more cars, and hire more drivers.

The chilly reception from start-up-friendly San Francisco local government was a good learning experience as Uber looks to expand next year to other cities, and is already eyeing New York City as its next potential target."

HT: Ryan S.

Friday, December 17, 2010

Leading Index: The Expansion Is Gaining Momentum

The Conference Board reported today the Leading Economic Index (LEI) for the U.S. increased in November for the fifth straight month, and for the 19th month out of the last 20 months going back to April 2009 as the recession was coming to an end and the LEI turned up (see chart above).  Economists at the Conference Board made the following statements:

Ataman Ozyildirim: “November’s sharp increase in the LEI, the fifth consecutive gain, is an early sign that the expansion is gaining momentum and spreading. Nearly all components rose in November. Continuing strength in financial indicators is now joined by gains in manufacturing and consumer expectations, but housing remains weak.” 

Ken Goldstein: “The U.S. economy is showing some sparks of life in late 2010. Overall, the indicators point to a mild pickup after a slow winter. Looking further out, possible clouds on the medium term horizon include weaknesses in housing and employment.”

During the last week the Conference Board also reported positive increases in the October LEIs for the U.K, Korea and China, and a decrease for Spain.

Unintended Consequences of Cigarette Taxes

 
Watch the video above from the Mackinac Center for Public Policy to find out how high and differential state cigarette taxes lead to smuggling, violence, counterfeit cigarettes, and many of the same unintended consequences as Prohibition against alcohol created in the 1920s and early 1930s. Read more here.

Weekly Rail Traffic Continues to Improve vs. 2009

The volume of U.S. rail traffic continues to register improvements over last year according to the American Association of Railroads, which reported yesterday that rail carloads for the week ending December 11 were above the same week last year by 10.2%, and intermodal trailers and containers were up by 14.1% (see graph above).  Intermodal rail traffic has increased every week this year compared to 2009, and carload volume has increased every week since February (except for a holiday-related decrease in July).  Year-to-date volumes for both measures of rail activity are above last year, by 14.3% for intermodal units and 7.1% for carloads.  For rail carloads, all 19 commodity groups have registered gains year-to-date vs. 2009, with strong gains for metallic ores (92.5%), metals (46.4%), coke (23.2%), and motor vehicles (18.5%). 

Judging by Warren Buffett's single most favorite economic indicator (weekly rail traffic), the U.S. economy continues to gain strength, as the volume of raw materials, natural resources, lumber, coal, grains, chemicals, metals, motor vehicles and paper products moving around the country by rail improves weekly. 

Thursday, December 16, 2010

Coming Tomorrow: Mackinac Center for Public Policy Cigarette Taxes and Smuggling Study

State cigarette excise taxes vary around the country from a low of 17 cents per pack in Missouri to a whopping $4.35 per pack in New York (see map above, data here). Add another $1.50 per pack in New York city taxes, and a pack of Marlboros in Manhattan can now cost as much as $14, according to this recent New York Post article.  As you might expect, those prohibitively high taxes have fueled a huge black market in New York, and the Post reported that "Illegal cigarettes are pouring into neighborhood bodegas by the truckload from neighboring Indian reservations, lower-tax states in the South and even as far away as China."

In a study to be released tomorrow by the Midland (MI)-based Mackinac Center for Public Policy on cigarette smuggling rates for 47 of the contiguous states, Director of Fiscal Policy Mike LaFaive and co-author of the study, estimates that 47.5% of cigarettes purchased in the state of New York during 2009 were smuggled.  And that was before the $4.35 per pack tax went into effect in July. According to the Mackinac Center research, the top five states for cigarette smuggling in 2009 were:

Arizona (51.8 percent);
New York (47.5 percent);
Rhode Island (40.5 percent);
New Mexico (37.2 percent); and
California (36.3 percent).
  
Arizona's high smuggling rate can be explained by recent tax hikes there and its proximity to Mexico.  Rhode Island's third place smuggling rank is likely due to its $3.46 per pack cigarette tax in 2010, second only to New York.  

The new study is an update of the Mackinac Center's 2006 study "Cigarette Taxes and Smuggling: A Statistical Analysis and Historical Review, which estimated cigarette smuggling by state and documented how smuggling undermines the two major reasons that states raise cigarette taxes: to decrease smoking for health reasons, and to increase state tax revenue. 

More details to follow once the new report is released publicly tomorrow. 

LA Port Export Volume Highest Ever for November

The Port of Los Angeles released container statistics today for November, and one of the highlights of the report is that the number of loaded outbound containers (exports) in November at 170,319 TEUs (twenty-foot equivalents) was the third highest monthly total on record, the highest monthly volume since August 2008, and the highest-ever export container count for the month of November in history.  Compared to the pre-recession level of 145,227 TEUs in November 2007, export volume this year was 17.3% higher for the same month.

Overall shipping for the month of November at the Los Angeles port (666,970 TEUs) was 15% above last year's level, and year-to-date shipping volume has improved by 16.7% from 2009.

The "Economics of Seinfeld" Website, Updated



Back in October, a CD post featured the website "The Economics of Seinfeld," which features dozens of Seinfeld episodes that are identified for highlighting specific economic principles like price ceilings, incentives, imperfect information, moral hazard, marginal analysis, cost-benefit analysis, game theory, arbitrage (the famous "Bottle Deposit" episode, featured above), free entry and exit, etc. 


The website has now been updated, with video clips from the Seinfeld show that are now available directly on the website (www.yadayadayadaecon.com), and can be used by economics professors as a teaching supplement for their classes. 

Students Should be Free to Choose: The Case Against Required Foreign Language in College

"According to a recent article in the New York Times, liberal arts colleges are dropping their foreign language requirement because of budget cuts. Recession or not, that's good news.

All that French, Spanish and German makes it harder for liberal arts students to study science, business and economics. All of which would be a lot more useful than learning to parse verbs in a language they have no intention of speaking once they leave college. Don't get me wrong. I'm all for the study of foreign languages. Students should be able to choose from a variety of languages at every university. The key word being choose."

~ Jim Sollisch, creative director at Marcus Thomas LLC, writing in today's WSJ

Christmas Card from the U.S. Labor Market: Initial Jobless Claims Fall for 6th Week to 27-Month Low

The Department of Labor today reported that seasonally-adjusted, initial unemployment claims fell by 3,000 for the week ending December 11, and the four-week moving average decreased by 5,250.  This was the sixth straight weekly decline in the moving average measure of jobless claims, bringing it down to 422,750 claims, the lowest level since the first week of August 2008, more than 27 months ago (see chart).  This ongoing downward trend in jobless claims over the last two years provides more evidence that the U.S. labor market is gradually improving.  

Most economic indicators (retail sales, industrial production, consumer and business confidence, leading economic indicator, rail traffic, state tax collections, personal income, international trade, global growth, etc.) are now pointing to increasing economic vibrancy that is gaining momentum, and we can look forward to the best retail holiday shopping season in three years, and  the strongest economy next year since 2007.

Wednesday, December 15, 2010

iPhone Added $2Billion to Trade Deficit w/China

Turn over your iPhone and you'll see that it's "assembled in China." But that doesn’t mean that most of the profits or revenue go there. In fact, only about $6.54 (a little more than than 1%) of the full $600 retail price of an iPhone goes to China and more than 60% goes directly to Apple and other American companies (see chart above), according to a "teardown report" by iSuppli that was featured in a July New York Times article.  It also doesn't mean that your purchase of an iPhone contributed very much to the U.S. trade deficit, even though that's what the government trade statistics tell us.

A new reasearch paper calculates that because of the way trade statistics are calculated - the full value of an iPhone is considered an export to the U.S. from China by both countries, even though only about 1% of the value was created during the final assembly process in China -  just the iPhone alone added almost $2 billion to America's trade deficit with China in 2009. The authors find that if a "value-added approach" was used to calculate trade statistics, the iPhone would have instead generated a $48 million trade surplus for the U.S. in 2009, instead of the $1.9 billion trade deficit reported using the conventional methodology. 

See WSJ article here, which points out some political implications: 

"The new research adds to a growing technical debate about traditional trade statistics that could have big real-world consequences. Conventional trade figures are the basis for political battles waging in Washington and Brussels over what to do about China's currency policies and its allegedly unfair trading practices.  There's a growing belief that the practice of assuming every product shipped from one country is entirely produced by that country no longer reflects the complex reality of global commerce.
If trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half. That means that political tensions over trade deficits are probably larger than they should be."

Fascinating!

Markets in Everything: Lawsuit Futures

FOX NEWS -- "Some call it a disturbing trend.  Others call it a win-win for accident victims and low to middle-income families across America who might not otherwise be able to afford to seek justice in a court of law.

The issue is legal lending; to plaintiffs who don't have the money to pay for surgery related to a claim or pay their bills while their case is tied up in court, or to law firms who can't afford to hire expensive experts or survive a lengthy drawn-out battle with a corporate giant."

HT: Matt Bixler

Tuesday, December 14, 2010

IL: Highest Paid High School Teachers vs. Professors

Highest paid teachers in Illinois: High School vs. College, By Discipline
Subject
Illinois High Schools
Univ. of Illinois Main Campus
English$189,219 $163,000
French$173,000 $150,000
Physics$172,100 $240,000
Math$169,700 $185,000
Theater$167,500 $102,000
Political Science$166,410 $191,000
Music$165,400 $136,000

A recent post featured the highest-paid high school teachers in Illinois.  Here's an update, with a chart above that compares the highest paid high school teachers in Illinois to their highest paid Ph.D. counterparts in the same academic field at the main campus of the University of Illinois (salary database here).

In the case of some academic disciplines like English, French, theater and music, it looks there is much greater salary potential for high school teachers with a Master's degree than for college professors with a Ph.D., at least by comparing the highest paid teachers in each system.  If I can get average or median salaries for each level of education, I'll make that comparison in the future.   

Retail Sales Boost GDP Forecasts: 4.3% in QIV?

From today's WSJ: "Many economists are responding to today’s merry news on consumer spending by increasing their overall economic growth forecasts.

Morgan Stanley increased its forecast for fourth quarter growth to 4.3% from 4.2%.

J.P. Morgan, Credit Suisse, Royal Bank of Scotland and Barclays Capital each boosted their fourth-quarter projections a full percentage point on the retail data.

Some economists are even more optimistic. John Ryding and Conrad DeQuadros of RDQ Economics project fourth-quarter GDP will expand nearly 4%."

“The consumer appears to be alive and well and willing to open their pocketbooks wider,” they said.

Michael Feroli of J.P. Morgan Chase is encouraged that gains can continue into next year. “We think the strength in the consumer can be sustained: last week we revised up first half 2011 consumption growth on the expectation that the tax compromise goes through, boosting disposable incomes and spending. In part because of this, we look for first half GDP growth that is as good or better than the fourth quarter outcome,” he said. J.P. Morgan expects fourth-quarter growth to come in at 3.5%.


Living the Good Life Working A 9-Month "Year": 14,000 Illinois High School Teachers Make +$100k

ChampionNews is reporting that: 

"As Illinois citizens struggle with the severe economic downturn plaguing the state, Illinois public school employees enjoy another record year of salaries, fringe benefits and pensions. See "Top 100 High School Teachers Salaries" here," each making $144,000 per year or more, and averaging $158,432 (Source: Illinois State Board of Education).

Note that:

1. The highest-paid public school teacher in Illinois is a physical education teacher making $191,124 per year (I'm assuming this is a 9-month teaching "year").

2. Six of the top 12 highest-paid high school teachers in Illinois teach physical education, each making $170,000 or more. 

3. Six state employees teaching driver education make $150,000 or more. 

4. Six high school teachers make more than the Illinois Governor's salary of $177,500.

5. 14,048 Illinois high school teachers made salaries of $100,000 or more in 2010, which is up 13% over last year.

HT: Steve Bartin at Newsalert

U.S. Consumers Are Back: Retail Sales Return to Pre-Recession Levels; Frugality Fatigue Is Over


The Census Bureau reported today that retail sales increased for the fifth straight month and reached $378.7 billion in November, the second highest monthly level in history (not adjusted for inflation) and the highest level since $379.9 billion in November 2007, the month before the recession started (see top chart above).  Compared to a year earlier, November retail sales increased 7.7%, following strong gains of 7.3% in October and 7.4% in September (see bottom chart above).  This marks the 13th consecutive month of annual gains in retail sales going back to November of 2009, following 14 months in a row of annual decreases.   

Compared to November of last year, all components and sub-components of retail sales have improved, led by strong gains in the sales of motor vehicles (12.5%), building materials (12.3%), sporting goods (12.3%), and clothing (7.5%). 

Bottom Line: Despite the ongoing weakness in the labor market and a stubbornly high jobless rate, the ongoing gains in retail sales suggest that the U.S. consumer is coming back as the economic recovery gains momentum by most indicators and measures.   As the WSJ reported recently, "After several years of relative thrift, consumers may be parting with their money more willingly simply due to pent-up demand, something industry watchers are calling "frugality fatigue."

Nov. Monster Employment Index Europe Up by 22%

From Monster Europe: "Online job demand remains elevated in comparison to the levels seen a year earlier. This, coupled with rising business and consumer confidence, as well as economic confidence, suggests that the overall hiring atmosphere across Europe is generally positive. Manufacturing and export activity across Europe continues to be a key driver in the rising levels of job opportunities across the continent, with both sectors reporting substantial growth over the past 12 months.

“Following significant growth over the past 10 months, recruitment activity held steady in November, with a number of sectors noting a typical slowdown in hiring as we approach the end of the year,” commented Andrea Bertone, head of Monster Europe. “Annual growth trends are still robust among most sectors, with production and exports continuing to lead the way. In addition, Europe’s largest economy, Germany, has seen a significant increase in job opportunities over the past 12 months, which should be encouraging for job seekers in the region.”

On an individual basis, Germany was especially strong:

"Online job opportunities across Germany reached their highest level since December 2008 and from an annual basis were up 32 percent compared to November 2009. The annual rate of growth accelerated in November compared to the previous month. This, coupled with external indicators, such as business confidence rising to a 19 year high, suggest the Germany economy is in a stable state of improvement."

Monday, December 13, 2010

Wide Awake During Heart Surgery Saves Costs

WSJ -- In Bangalore a heart operation performed with a patient wide awake can keep costs down and speed up recovery.

HT: Jory

U.S. Oil and Gas Reserves Increased Significantly in 2009 and N. Dakota Set Another Oil Record in Oct.

From the summary of the EIA report released last month on U.S. crude oil and natural gas reserves for 2009:

"Domestic proved reserves of oil and natural gas increased significantly in 2009. U.S. natural gas proved reserves increased by 11 percent in 2009 to 284 trillion cubic feet. This is their highest level since 1971, despite an approximate one-third decline in the prices used to assess economic viability for 2009 reserves as compared to the prices used in 2008. U.S. crude oil plus lease condensate proved reserves rose 9 percent to 22.3 billion barrels in 2009, regaining 1.8 billion barrels of the 2.3 billion barrel decline in 2008. These increases demonstrate the possibility of an expanding role for domestic natural gas and crude oil in meeting both current and projected U.S. energy demands."

The onshore Lower 48 States drove the overall increase in proved reserves. Technologies used to increase shale gas production have also boosted oil reserves, especially from the Bakken Formation in North Dakota and Montana. North Dakota recorded especially significant gains, up 83 percent over 2008, and now ranks behind only Texas, Alaska, California, and the Gulf of Mexico in proved reserves."

And here's some related news on oil production in North Dakota for the month of October (see chart above): 

North Dakota pumped another record amount of oil in the month of October, producing more than 10 million barrels in a single month for the third month in a row and beating the previous record set in September by 368,000 barrels (see chart above, data here). Compared to October of last year, North Dakota oil production has increased by 42.6%, and oil production in the Peace Garden State has doubled since July of 2008, just a little more than two years ago.  North Dakota's rich oil fields now produce 6% of America's domestic crude oil production, up from less than 2% in 2006 (data here).  

Partly because of its ongoing oil boom in the Bakken area, North Dakota continues to lead the nation with the lowest unemployment rate at 3.8% in October, almost 6 full percentage points below the nation's average 9.6% October rate. The oil boom has fueled an employment boom for oil workers in North Dakota (data here) - the number of oil-related jobs has grown from fewer than 4,000 at the beginning of 2005 to more than 9,000 in October of this year.

Through October of this year, North Dakota has already produced more oil (91 million barrels) than all of last year (79.7 million barrels), and is on a pace to produce about 112 million barrels in 2010, which would be twice as much as 2008 (63 million barrels) and almost three times as much as 2007 (45 million barrels). 

KFC in Africa and How Imports Create U.S. Jobs

The WSJ had an interesting article last week about KFC's expansion in Africa ("KFC Savors Potential in Africa:Yum Brands Unit Plans to Double Number of Outlets on Continent, Where Middle Class Is Growing"), here are some quotes and observations:

1. "By 2014, the Louisville, Ky., restaurant-holding company expects to double its number of KFC outlets in Africa to 1,200 (see chart above). In the next four years, it aims to more than double its revenue on the continent to $2 billion.  "Africa wasn't even on our radar screen 10 years ago, but now we see it exploding with opportunity," says David Novak, Yum's chairman and chief executive officer."

2. "American restaurant companies and retailers have been moving into emerging markets as growth in the U.S. and other developed countries has slowed, and Africa is increasingly being added to the list."

3. "With more than 600 KFCs in South Africa now, the chicken chain has a 44% share of that country's $1.8 billion fast-food market, followed by South African chain Nando's, with 6%, and McDonald's and the local Chicken Licken, each with a 5% share."

MP: This example illustrates why the Obama administration's narrow focus on "doubling exports in the next five years to create U.S. jobs and combat high unemployment" is incomplete.  The U.S.-based KFC has significantly benefited from economic growth in China over the last five years, as it expanded its operations there to take advantage of a growing middle-class with the rising disposable income that allows consumers there to eat fast-food more often. Now the same trend of a growing middle-class in Africa will allow KFC to double its restaurants in Africa over the next four years, from 600 to 1,200 by 2014. 

And what is one source of the increased income in China and Africa that allows American companies like KFC and McDonald's to expand global operations, become potentially more profitable, and increase the number of jobs at their American headquarters as their global operations expand?  Exports from China and Africa to the U.S., or from our end: IMPORTS.  

It's those imports to the U.S. that provide foreigners the income they need to purchase our exports.  So instead of focusing so narrowly on half of the international trade equation and trying to expand exports, we should realize that increases in imports are a sign of economic vibrancy, and bestow significant benefits on American consumers and businesses, as well as provide foreigners with the resources to buy more of our exports.  

As I have pointed out in a previous post, why not have a goal of "doubling both exports AND imports" over the next five years? That would be a much more effective path to economic growth and job creation for all industries than an export-focused mercantilist program of job growth that would only benefit certain American industries. 

Why Not Double Imports or Just Total International Trade Over the Next Five Years to Create Jobs?

Huffington Post -- "Buoyed by strong demand from China and India, the U.S. trade deficit dropped to its lowest level in 9 months, as exports rose to their highest level in two years. These numbers should please the Obama Administration, who've set out to double exports over the next five years to combat high unemployment rates and encourage domestic manufacturers. Analysis by the Economics and Statistics Administration indicate that exports will this year support close to 9.4 million jobs, an increase from a 2009 estimate that put the number at 8.5 million." 

MP: Isn't there an underlying mercantilist, fixed-pie assumption here that exports create jobs, and imports destroy jobs? As the chart above shows, more than half of U.S. imports are inputs (industrial supplies, raw materials and capital goods) that were purchased this year by U.S. firms and will become part of some production process in the U.S. that will help support or create jobs in the U.S.  Why shouldn't we have a goal to double imports over the next five years, or simply to double international trade in general over the next five years (see post below)? 

Sunday, December 12, 2010

U.S. Trade Reaches Two-Year High in October

According to last week's BEA report, total U.S. trade with the rest of the world (sales of U.S. products to consumers and firms in other countries PLUS purchases of foreign production by American consumers and businesses) reached a two-year high of $356.1 billion in October.   This was the highest level of total trade since October 2008, and is more than $100 billion and 44.7% above the April 2009 cyclical low of $246 billion (see chart above).

Further, the combined international trade volume for U.S. buyers and sellers has increased in 13 out of the last 17 months (following ten consecutive declines), providing further evidence that the economy started on a recovery path last summer and continues to make solid gains almost every month. Both the sales of U.S. goods and services produced by American firms and sold to the rest of the world, and the purchases of foreign-produced goods and services by American consumers and firms, have been on an upward trend as the U.S. and global economies recover.