Global Stock Markets Increase By 26% in 2010

The World Federation of Exchanges reported this week that the total value of equities trading on the world's major stock exchanges reached $54.9 trillion in December, the highest world stock market capitalization since May 2008 (see chart above).  During 2010 the world stock market value increased by 26%, or by $11.3 trillion over the 12-month period, from $43.6 trillion in December 2009. From the February 2009 cyclical low of $26.6 trillion, world equity values have more than doubled, and have gained back about $28.3 trillion of the $36.4 trillion lost during 2008 because of the global financial crisis.   

Further evidence of a global stock market recovery is shown in the chart below of the daily MSCI World Stock Market Index, which closed yesterday at 1308, the highest closing value since early September 2008.

Retail Sales Set New Record in Dec. of $381B

The Census Bureau reported today that U.S. consumers set a new all-time monthly record by spending $380.9 billion on retail and food services in December of last year.  Without adjusting for inflation, this was the first time since the recession started in December 2007 that consumer spending has surpassed the pre-recession, previous record-high retail sales volume of of $380.0 billion set back in November 2007.  The highest-ever retail spending amount in December was almost 8% higher than the year-earlier level, and spending in every category except department stores registered annual gains last month, with especially strong gains in sporting goods (7.1%), motor vehicles and parts (14.2%), building materials (13.1%), and clothing (7.4%).  The 12-month retail sales total through December 2010 of $4.405 trillion was 6.6% ahead of the previous year's total.

For additional commentary see First Trust and Scott Grannis. 

Other recent positive economic news includes:

1. The Port of Los Angeles reported the 11th straight monthly increase in December for total shipping volume at the port on a year-over-year basis.  The 8.82% increase in December's shipping from its year-ago level help to boost shipping activity for all of 2010 by 16% compared to the previous year. 

2. Rail traffic for the first week of the year continued last year's ongoing trend of weekly gains in the amount of freight moving around the country, according to yesterday's report from the American Association of Railroads. Carloads were up by 20.1% and intermodal units by 8.6% for the week ending January 8.  

3. The November Leading Economic Indicators increased for both Korea and China.  

America's Ridiculously Large $15T Economy

The Economist has a great interactive map that compares the economic output of American states to the economic output (GDP) of entire countries, which helps put the ridiculously large U.S. economy (GDP of about $15,000,000,000,000) into perspective.  The map also compares the population of U.S. states to comparable countries.  I featured a similar map on CD back in 2007, but it wasn't interactive. 

HT: Robert Kuehl

U.S. is Still the World's #1 Manufacturer

We hear a lot about the "decline of U.S. manufacturing" (84,000 Google hits) or even more drastically, about "the death of American manufacturing" (15,400 Google hits).

The chart above shows the U.S. share of world manufacturing output, annually from 1970 to 2009, based on data from the United Nations.  There has been a recent decline in America's share of world manufacturing output, from 25.3% a decade ago in 1999 to 16.82% in 2008, but note several important facts about the chart:

1. The U.S. share of world manufacturing output was amazingly constant between 1970 and the early part of this decade, and as recently as 2006 was above 20%.  It sure seems like we've been hearing about the "decline of U.S. manufacturing" for the last several decades or longer, when the factual evidence suggests that it's actually only a very recent phenomenon - and that's only when measured by our share of rising global manufacturing output.  Given the recent phenomenal economic and manufacturing growth in places like China, Brazil, India, Russia, and Korea, among others, it would only make sense that our share of world factory output has declined in recent years (but notice it did jump up a bit 2009). 

2. In terms of the total amount of manufacturing produced in a year, the United States still leads the world in annual manufacturing, see chart below for the 2009 rankings of the top seven countries in the world for factory output.
   

In 2009, the United States produced almost 14% more manufacturing output than second place China, and produced almost as much ($2,334 billion) as Japan, Germany, Italy, France and the U.K. combined ($2,762 billion). 

3. Although it's true that the U.S. has lost more than 7 million manufacturing jobs, from an employment level of more than 19 million manufacturing jobs in the late 1970s to fewer than 12 million jobs today, that's happened at the same time that U.S. manufacturing output has continued to expand and grow.  In 2009, the U.S. produced more manufacturing output, $2.334 trillion, than ever before in history (nominal dollars), see chart: 

Bottom Line: The many stories about the "death of America's manufacturing sector" have been greatly exaggerated.

UCLA Commerce Index Hits 30-Month High in Dec.

Here's another pretty new index for Carpe Diem, I've only reported on this once before, it's the Ceridian-UCLA Pulse of Commerce Index," here's a description: 

"The Ceridian-UCLA Pulse of Commerce Index (PCI) by UCLA Anderson School of Management is based on real-time fuel consumption data for over the road trucking and serves as an indicator of the current state and possible future direction of the U.S. economy. By tracking the volume and location of diesel fuel being purchased, the index closely monitors the over the road movement of produce, raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers."

From today's report on the December PCI:

"The Ceridian-UCLA Pulse of Commerce Index (PCI), a real-time measure of the flow of goods to U.S. factories, retailers and consumers, surged 2.4 percent in December and pushed the PCI above its previous 2010 peak established in May. This performance, combined with November’s 0.4 percent increase, was enough to offset three previous consecutive months of decline.

“The latest PCI data further evidences the positive economic sentiment felt since the start of the New Year,” explained Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “However, we have not entirely escaped the summer doldrums as the three-month moving average is still below its July 2010 level.”

On a year-over-year basis, the PCI increased 4.1 percent in December, in line with the November and October year-over-year comparisons. Importantly, growth in December comes on top of a very strong year-ago performance whereas the previous eleven months of year-over-year growth in 2010 were up against relatively weak prior year comparisons. It should be noted, however, that the 4.1 percent growth figure is only slightly higher than the 3 percent growth characteristic of a normal economy."

MP: The PCI reached a 30-month high in December at 111.87, the highest index level since June 2008, providing additional evidence of an ongoing economic expansion and recovery. 

Total U.S. Trade Reaches Two-Year High in Nov.; Get Ready for "Blowout Real GDP Growth" for Q4

According to today'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 $357.6 billion in November, the highest level in more than two years.   Total trade in November was the highest level of total U.S. trade since October 2008, and is more than $100 billion and 45.4% above the April 2009 cyclical low of $246 billion (see chart above).  This also makes the fourth consecutive month of total international trade above the $350 billion level in December 2007, when the recession started.

Further, the combined international trade volume for U.S. buyers and sellers has increased in 14 out of the last 18 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.

First Trust economists Brian Wesbury and Bob Stein are now predicting that net exports alone in the fourth quarter will add more than three percentage points to real GDP growth, resulting in a "blowout real GDP report of 5% to 6%" for QIV 2010. 

Markets in Everything: Foreclosure Exorcisms

Wall Street Journal -- The foreclosure crisis has helped resurrect an ancient tradition: the house cleansing. Buyers are turning to witches, psychics, priests and feng shui consultants, among others, to bless or exorcise dwellings.Sellers, too, are adopting the trend to help move a property stuck on the market. 

In recent months, foreclosure and other distressed sales have represented about a third of all home sales, according to the National Association of Realtors. With so many foreclosures riddling the market, some buyers find that a coat of paint is hardly enough to rid a house of its creepy quotient. 

"It's not entities or ghosts that we're dealing with anymore," says Julie Belmont, a so-called intuitive who works in Orange County, Calif., where 40% of home sales last year were distress sales. "With foreclosures, a lot of it is energy imprints from past discussions, arguments, money problems. All of that is absorbed by the house."

KC Financial Stress Index: A Return to Normalcy

The Kansas City Federal Reserve Bank calculates and reports a monthly "Financial Stress Index" (KCFSI), and it's being featured here on Carpe Diem for the first time (see chart above, data here).  The index is described here by the K.C. Fed: 

"The KCFSI is a monthly composite index of 11 variables reflecting stress in the U.S. financial system. These variables fall into two broad categories--average yield spreads, and measures based on the actual or expected behavior of asset prices. The index is calculated using the principal components procedure. Under this procedure, the coefficients of the 11 variables are chosen so that the index explains the maximum possible amount of total variation in the variables from February 1990 through the current month.

A positive value of the KCSFI indicates that financial stress is above the long-run average, while a negative value signifies that financial stress is below the long-run average." 

From last week's press release about the December KCSFI: 

"The Kansas City Financial Stress Index (KCFSI) was -0.28 in December, down moderately from -0.12 in November. With the decrease, the index remained below its long-run average of zero and moved near its low for the year, reached in March." 

MP: As the chart shows, the KCFSI has now been below zero for the last two months, and was negative for six months in 2010 (March, April, August, September, November and December).  The December 2010 index reading of -0.28 was the lowest index level since July 2007, and the KCFSI has now returned to its pre-recession level, indicating the financial stress of the recession and financial crisis is becoming a fading memory.  From the KCFSI peak of 5.5 in October 2008 ("financial ground zero") we've made a lot of progress, and we've returned to a new period of below-average financial stress in the U.S. economy, i.e. a return to "normalcy" (see below).    

Although Scott Grannis was commenting today about the VIX peaking in October 2008, he could have just as easily been talking about the KCFSI, which peaked in the same month: 

"The near-collapse of the global financial industry in late 2008 sent a tsunami of fear throughout the global financial markets and temporarily paralyzed global economies. Activity in many areas ground to a halt as consumers hoarded cash, institutional investors scrambled to sell risky assets, and everyone tried to deleverage. Fear was the common denominator, as captured by the VIX Index (the implied volatility of equity options), and it peaked in late October 2008. 

Two years ago the financial markets were priced to an "end-of-the-world-as-we-know-it" scenario. Today financial markets are beginning to realize that a return to "normalcy" is possible and within reach. We should all breathe a great sigh of relief."

Economic Freedom is Advancing Around the World

The Heritage Foundation and WSJ released the 2011 Index of Economic Freedom today.  Here's the Top Ten (U.S. ranks #9, with a slight drop from last year's index level).  From the Executive Summary:

"Economic freedom advanced this year, regaining much of the momentum lost during the fiscal crisis and global recession. Many governments around the world have rededicated themselves to fiscal soundness, openness and reform, and the majority of countries are once again on a positive path to greater freedom."

Photos: Detroit in Ruins

Some awesome pictures of abandoned buildings in Detroit, by photographer Geoffrey George.

HT: Coyote Blog

See related CD post here on Detroit's "feral houses."

Federal Tax Revenues Rising: 23% for Individuals

From today's (tomorrow?) Wall Street Journal (1/12/2011):

"It hasn't received much, if any, media attention, but there's some good budget news to report for a change. Federal tax revenues are rising briskly again, which should allow progress against deficits if the politicians can control their spending appetites.

The Congressional Budget Office reported last week that federal tax receipts climbed in December by $18 billion, following somewhat smaller gains in the previous two months. For the first quarter of fiscal 2011, revenues have climbed by $44 billion, or nearly 9%, to $531 billion. Especially encouraging is that these revenue gains came predominantly from individual income taxes, which rose 23% in the first three months to $256 billion (see chart above). Individual tax receipts continued to fall in 2010 even as corporate receipts rose, so the current increase is a sign that wages and bonuses are rising again for workers who have a job. 

If Republicans in Congress can whittle away at spending while the economy throws off more revenue, the deficit should begin to decline again after the record chasms under Nancy Pelosi's Democrats. The keys are to cut spending and keep growth alive."

Thanks to Bob Wright for the tip. 

Update: Many states are also reporting rising tax revenues in December including Oklahoma, Kentucky, Nebraska, Georgia, Arkansas, and Massachusetts, 

Medical School Acceptance Rates, 2008-2010

The chart above (click to enlarge) is an update of this CD post from last summer, showing medical school acceptance rates for Asians, whites, Hispanics and blacks based on data from the Association of American Medical Colleges for the years 2008-2010 (aggregated).

For 2010, the average GPA of students applying to medical schools was 3.53 and the average total MCAT score was 28.3, and those averages are highlighted above in blue.  Therefore, the chart above shows the acceptance rates for students applying to medical schools with average GPAs and MCAT scores, and the acceptance rates for those students with slightly higher and slightly lower than average GPAs and test scores.  In other words, this selected sample displayed above would represent students in the middle range of the distribution of those applying to medical school.  Here are some observations:

1. For those students applying to medical school with average GPAs and MCAT scores, black applicants are almost three times more likely to be admitted than their Asian counterparts, and more than twice as likely than their white counterparts.  

2. For students applying to medical school with slightly below average GPAs of 3.20-3.40 and slightly below average MCAT scores of 24-26, black applicants are more than 8 times as likely to be admitted as Asians, and more than 5 times as likely as whites. 

Bottom Line: There are apparently ongoing affirmative action policies for admission to U.S. medical schools that favor blacks and Hispanics over Asian and white students.  For example, a black applicant with average grades and a below average MCAT score is slightly more likely to be admitted to medical school (78.1%) than an Asian student with both higher than average grades and higher than average MCAT score (73.7%).  Further, an Hispanic student with a below average GPA and a below average MCAT score is only slightly less likely to be admitted to medical school (38.3%) than a white student with both above average GPA and MCAT score (40.3%). 

Miscellaneous Links

1. Offshore Gold Rush: "AngloGold Ashanti and De Beers, two of the world’s largest metals and minerals mining companies, are searching for gold deposits under the Atlantic sea.  Both companies are currently carrying out lots of research into the technical feasibilities of carrying out gold exploration under the seas." Just as Julian Simon and ECON 101 would have predicted - higher commodity prices stimulate exploration and discovery, often then leading to greater supply and lower prices, i.e. high prices today frequently lead to lower prices tomorrow. 

2. The Monster Employment Index Europe showed that online recruitment in Europe increased 22% in December.

3. Book review in today's WSJ of Amy Chua's book "Battle Hymn of the Tiger Mother," featured recently on CD (generating 56 comments so far). 

4. Roads battered by heavy truck traffic in western North Dakota's oil country are hampering development and driving up shipping costs, but hey, they've got a $1 billion surplus. (HT: Buddy Pacifico)

N.D. Tops 350,000 Bbls/Day, Could Double by 2015

North Dakota pumped another record amount of oil in November, at an average daily rate of 355,038 barrels, which is double the amount of oil produced as recently as the summer of 2008, and 44% higher than a year ago (data here).  Experts predict that production could double to 700,000 barrels per day within four to seven years in the Peace Garden State, which would put North Dakota ahead of both Alaska and California, and second only to Texas in oil production for American states. 

Markets in Everything: Traffic Jam Rescue

BEIJING - "With more Chinese people getting behind the wheel every day, traffic jams are a major headache in most cities but the gridlock has become an opportunity for some entrepreneurs who are offering an escape route - for a price.  Drivers who get stuck in traffic in some cities can now get on their mobile phones and call for a substitute to take their cars to their destinations while the frustrated drivers are whisked away on the back of a motorcycle."

HT: Economix

The Flat Earth Society: Economist Version

From Investor's Business Daily last week, an editorial by Rick Berman of the Employment Policies Institute:

"Liberal advocacy groups who argue in favor of a higher minimum wage have a tough job: Faced with mountains of data countering their argument that wage mandates don't cost jobs, they struggle to find their intellectual footing.

They often display a Potemkin village of 665 economists who subscribe to a theory that suggests labor costs don't factor into hiring decisions. First compiled and promoted by the union-backed Economic Policy Institute, this list of 665 economists is the default appeal to authority the pro-hike activist groups rely on. The list was even inserted into the Congressional Record by Congressman George Miller, D-Calif., during the last debate over raising the federal minimum wage.

Most recently, the list was cited in a report released jointly by the Fiscal Policy Institute and the National Employment Law Project arguing in favor of a new wage mandate in New York City.  An examination of the list by the Employment Policies Institute (EPI) reveals that many of the "experts" supporting wage hikes don't specialize in labor economics. Some aren't even economists at all.

Berman concludes:

You can believe decades of consensus. Or you can choose to believe the 665 "experts" who say that the minimum wage has no impact on employment. As the White Queen said to Alice, "Why, sometimes I've believed as many as six impossible things before breakfast."

The Logical Conclusion of Protectionism

From Don Boudreaux:

Reductios work so well when arguing against proponents of economic nationalism (that is, “protectionists”) because, economically and morally speaking, there is absolutely no difference between Suzy trading with Joe her next-door neighbor and Suzy trading with Jose in Mexico, Josef in Austria, or Javu in China.  None.

So when any protectionist argues, based on reason X, for restrictions on trade drawn along national political borders, it’s always enlightening to apply the same argument X to trade restrictions drawn more locally – even as locally as the individual.

Fritz Machlup said in class at NYU back in 1981 that arguments for protectionism, when followed through to their logical conclusion, always ‘prove’ that a person’s right hand should not trade with that person’s left hand."

Chinese Rote Repetition vs. American Self-Esteem

From the WSJ article "Why Chinese Mothers Are Superior" by Yale law professor Amy Chua:

"A lot of people wonder how Chinese parents raise such stereotypically successful kids. They wonder what these parents do to produce so many math whizzes and music prodigies, what it's like inside the family, and whether they could do it too. Well, I can tell them, because I've done it. Here are some things my daughters, Sophia and Louisa, were never allowed to do:

• attend a sleepover

• have a playdate

• be in a school play

• complain about not being in a school play

• watch TV or play computer games

• choose their own extracurricular activities

• get any grade less than an A

• not be the No. 1 student in every subject except gym and drama

• play any instrument other than the piano or violin

• not play the piano or violin.

What Chinese parents understand is that nothing is fun until you're good at it. To get good at anything you have to work, and children on their own never want to work, which is why it is crucial to override their preferences. This often requires fortitude on the part of the parents because the child will resist; things are always hardest at the beginning, which is where Western parents tend to give up. But if done properly, the Chinese strategy produces a virtuous circle. Tenacious practice, practice, practice is crucial for excellence; rote repetition is underrated in America. Once a child starts to excel at something—whether it's math, piano, pitching or ballet—he or she gets praise, admiration and satisfaction. This builds confidence and makes the once not-fun activity fun. This in turn makes it easier for the parent to get the child to work even more.

Western parents are extremely anxious about their children's self-esteem. They worry about how their children will feel if they fail at something, and they constantly try to reassure their children about how good they are notwithstanding a mediocre performance on a test or at a recital. In other words, Western parents are concerned about their children's psyches. Chinese parents aren't. They assume strength, not fragility, and as a result they behave very differently."

Impressive Improvement in Dec. Tax Revenues

(Reuters) - "Tax collections in most U.S. states continued to grow at the close of 2010 as employment conditions improved, a survey released on Thursday showed.

In December, 76 percent of the states surveyed by economic newsletter The Liscio Report met or exceeded their forecasted withheld income tax collections, up from 66 percent in November and in line with October. Also, 85 percent of the states said their collections had grown from December 2009."

Classic Milton Friedman: Free Trade, Protectionism

Milton Friedman gives a concise and lucid lecture in favor of international free trade at Utah State University in 1978.

International and Intranational Free Trade and Protectism, Are There Really Any Differences?

Here's an excerpt from an excellent post from Cafe Hayek's Don Boudreaux, arguing in favor of free trade, both international and intra-national, and against protectionism, both international and intra-national:

"If it’s true that theory and evidence in favor of protectionism are sufficiently strong to warrant economists abandoning their conclusion that free-trade policy is generally sound, then why shouldn’t economists — led by [free trade skeptic] Dani Rodrik — also start exploring the potential benefits of intra-national protectionism?  Surely a scholar not benighted with the free-trade "faith" ought to take seriously the possibility that, say, Tennesseeans could be made wealthier if their government in Nashville restricts their ability to trade with people in Kentucky, Texas, Rhode Island, and other states?

Indeed, such an objective scholar should be open also to the possibility that residents of Nashville can be made wealthier if their leaders restrict their ability to trade with people in Knoxville, Memphis, Chattanooga, and other locales in that state.

I suspect that if someone proposed to Dani Rodrik [or Ian Fletcher] that he explore the wealth-creating potential of state-level protectionism, he would refuse.  He would likely (and correctly) say that it’s ridiculous on its face to suppose that such protectionism would make the people of Tennessee as a group wealthier over time.  If my suspicion is correct, then to what would Rodrik himself attribute his out-of-hand dismissal of the notion that Tennessee tariffs might well make Tennesseeans richer?  

Would he realize to his chagrin that he is a benighted, faith-based non-scholar?  Or would he instead understand that the case for an extensive, market-driven division of labor is so strong — and that the political border that separates Tennessee from other states is so economically meaningless — that it would be as pointless for a serious economist to explore the economic potential of Tennessee protectionism as it would be for a serious oncologist to try to cure a patient of cancer by bleeding that patient with leeches."