Saturday, March 26, 2011

How to Increase New Home Prices by $4,000 in CA

California building code amendments now require every single-family home and duplex built anywhere in the state to be equipped with a fire sprinkler system. Builders say it will add $4,000 to the price of a house.

The Price of Taxing the Rich

From the WSJ article "The Price of Taxing the Rich":

"Nearly half of California's income taxes before the recession came from the top 1% of earners: households that took in more than $490,000 a year. High earners, it turns out, have especially volatile incomes—their earnings fell by more than twice as much as the rest of the population's during the recession. When they crashed, they took California's finances down with them.

New York, New Jersey, Connecticut and Illinois—states that are the most heavily reliant on the taxes of the wealthy (see chart above)—are now among those with the biggest budget holes. A large population of rich residents was a blessing during the boom, showering states with billions in tax revenue. But it became a curse as their incomes collapsed with financial markets.

Arriving at a time of greatly increased public spending, this reversal highlights the dependence of the states on the outsize incomes of the wealthy. The result for state finances and budgets has been extreme volatility."

Here's a related item:

"In a letter sent March 21 to Gov. Pat Quinn, Caterpillar chief executive officer Doug Oberhelman said officials in at least four other states have approached the company about relocating since Illinois raised its income tax in January."

"I want to stay here. But as the leader of this business, I have to do what's right for Caterpillar when making decisions about where to invest," Oberhelman wrote in the letter obtained Friday by the Lee Enterprises Springfield bureau. "The direction that this state is headed in is not favorable to business and I'd like to work with you to change that."
 

HTs: Pete Friedlander and Steve Bartin

Friday, March 25, 2011

Japan Earthquake: Two Weeks Later

Collected here are recent images from northeastern Japan, 14 days after it was rocked by disaster on a historic scale.

HT: Tim Harford

Reason.tv Interview with Walter Williams



HT: Chris Coyne at the Coordination Problem blog

Real GDP Sets Record, Highest Gain Since 2005

On an annual basis, real GDP grew by 2.9% in 2010, the highest annual gain since a 3.05% increase in 2005, according to today's BEA report.  In dollars, real GDP in 2010 was $13.248 trillion, which set a new annual record for U.S. output, surpassing the $13.228 trillion levels in 2007 and 2008. 

Using Google for Flu Trends, Gathering Intelligence

NPR - "Back in 2009, during the swine flu epidemic in the U.S., Google launched Google Flu Trends (see chart above). The National Institutes of Health found it helped them track outbreaks of the disease. It turns out that when people started to feel feverish and nauseous, they would go to Google to check out their symptoms. While it wasn't a perfect indicator, Google Flu Trends often beat government predictions about flu outbreaks by a week or more."

The article and NPR radio segment "A New Tool For U.S. Intelligence: Google?" goes on to report that Google trends is being used to gather intelligence, understand the mood of a country, and help predict political unrest.  

Real After-Tax Profits Reach New Record High in Q4

U.S. corporate profits reached a new record high in the fourth quarter 2010 at $1.25 trillion (at an annual rate), after taxes and adjustments for inventory valuation and capital consumption (see graph above, data here), according to today's BEA report.  Compared to the third quarter, corporate profits increased by $39.5 billion last quarter, and that makes eight straight quarterly gains in profits going back to the first quarter of 2009.  From the cyclical bottom of $774 billion of profits in the fourth quarter of 2008, profits for U.S. companies have rebounded by 61.5%, and by $476 billion.

Adjusted for inflation (using the Business Sector Deflator), real corporate profits in the fourth  quarter 2010 rose above the previous all-time record high of $1.229 trillion Q3 2006 to reach a new record high of $1.25 trillion (see red line in graph above).

Thursday, March 24, 2011

Chart: Detroit Population Lowest Since 1910

The population of Detroit in 2010 at 713,777 is the lowest since 1910 when the population was 466,000. 

Quotes of the Day: Economics and Politics

1. "Economists are often asked to predict what the economy is going to do. But economic predictions require predicting what politicians are going to do-- and nothing is more unpredictable."

2. “The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

~Thomas Sowell

NYC Taxi Medallions Approach $1 Million!!

The price of a New York City taxi medallion (the "priciest piece of aluminum in NYC") that allows a corporate owner to operate a single taxi in the Big Apple is approaching $1 million. 

According to the New York City Taxi and Limousine Commission, four corporate taxi medallions sold in February at an average price of $950,000, setting a new all-time high record (see chart above).  Twenty individual taxi medallions were sold in February at an average price of "only" $641,000, which also sets a new record high for that category.

See previous CD posts on taxi medallions and the NYC "taxi cartel" here and here.  

The New Affirmative Action.... for White Males?

From Andrew Ferguson, writing in the Weekly Standard, "The Quotas Everyone Ignores: Why universities are quietly favoring white males once again":

"After a half-century of battles over racial and gender preferences for URMs (admissions-speak for “underrepresented minorities,” a term that has traditionally comprised nearly anyone who isn’t a white male), colleges and universities have boldly embarked on a policy of affirmative action preferences for .  .  . white males. It’s like old times. 

Few admissions deans like to talk about their latest innovation in recruitment, understandably enough. Less understandably, the United States Commission on Civil Rights decided earlier this month it didn’t want to talk about it either. And even harder to figure, women’s rights organizations are staying mum too.

Since the early 1980s, when a brief period of parity was reached after generations of male dominance, more girls than boys have applied to college each year (MP:..and graduated, see chart above); in 2011, 60 percent of college applicants will be women. Girls—sorry, fellas—are by any objective measure more attractive applicants than boys, with higher average GPAs and test scores. They have fewer behavioral problems. They write better application essays. They have a wider range of extracurricular interests. They clean up better for interviews. 

On any fairly balanced scale, the acceptance rate for women at selective colleges should be far higher than for men. Instead it’s the other way around.  William and Mary, for instance, accepted 40 percent of the boys who applied in 2006 and only 26 percent of the girls. The reason is “affirmative action,” sometimes called preferences, sometimes called quotas—though never publicly."

HT: Steve Bartin

Prospects for Future Econ. Growth Remain Positive

Leading economic indexes for January increased in France (0.9%), Germany (0.4%) and Australia (0.1%), according to releases from the Conference Board over the last week.  These increases in leading economic indexes follow recent reports of increases in the leading indexes of Spain, U.K., China, Korea, Japan and U.S. 

Wednesday, March 23, 2011

Despite Recent "He-Covery," It's Still a Mancession



Diane Sawyer in the ABC report above: "There's a new chapter in this very serious battle of the sexes. In this fragile recovery the race is on for jobs and it's all heating up, and one gender is not just winning, it's overwhelming."  The report then goes on to highlight the "he-covery" of men getting all of the new jobs being created during the recovery.  

From January 2010 to February 2011, it's true men have gained jobs and female employment has remained flat (see chart below).  During that period, about 90% of the new 1.2 million payroll jobs have gone to men.  But that's only part of the "jobs by gender" story. 


Here's the part of the "battle of the sexes" that got left out of the story:  If you go all the way back to when employment levels peaked at about 138 million payroll jobs in January 2008, here's the gender breakdown:

1. Male employment is down by 4,932,000 jobs since the January 2008 peak, compared to female employment being 2.549 million jobs below the peak.  Therefore, we can say that for every 100 jobs lost by women since the start of the recession, men have lost 193.5 jobs

2. On a percentage basis, men have suffered about 66% of the recession-related job losses, and women only 34%.

Bottom Line: Despite the fact that the jobs gained in 2010 did favor men during what is being called the "he-covery/mancovery," it's still very much of a "mancession" once we account for all of the jobs gained and lost since the start of the recession.   

Markets in Everything: Merchandise Taxis

The nation's first "Store to Door" Merchandise Taxi:
Taxis have been taking people from place to place for decades. Get It Home Merchandise Taxi is a curb side pick up and drop off service. Initially conceptualized to assist customers who make retail purchases they want to get home right away and cannot fit into their car. The MERCHANDISE TAXI's versatility has grown to suit its customer's imagination!

HT: Matt Bixler

6th Edition of Mankiw: Tiger's Out, Tom Brady's In

In the new 6th edition of Greg Mankiw's economics textbook, Tiger Woods has been replaced with Tom Brady for the section above on opportunity cost titled: "Should Tiger Woods Mow His Own Lawn?"  Here's an ABC News report and video.

Made on Earth: Global Output and Trade Both Reach New Record All-Time High Levels in January

In post titled "Made on Earth," Don Boudreaux links to a FT.com editorial "Manufacturing is All Over the Place," here's a key point: 

"The challenge for economists is even more profound. In the old days, they typically measured the output of an economy by watching where goods were “made”; but which country should claim the “value” for an iPhone (or an Italian suit or an American Girl doll)? Where does the real “output” come, in a world where companies can shift profits around? 

Indeed, such is the complexity that Pascal Lamy, the head of the World Trade Organization, recently voiced the seemingly heretical idea that economists should stop paying so much attention to “import” and “export” statistics. Thus, instead of trying to measure what is now “made in America” – or “China” – what economists should do is focus on the global economy as a whole, he insists. “It no longer makes sense to think of trade in terms of ‘them’ and ‘us’,” he argues; 20th-century-style trade statistics can be too arbitrary in the 21st-century world."

Don also links to Cato's Dan Ikeson's study "Made on Earth: How Global Economic Integration Renders Trade Policy Obsolete." 

With that background in mind, today's report on world trade and world output from the CPB Netherlands Bureau for Economic Policy Analysis seems especially timely.  Here are some highlights:

1. World trade reached a new all-time high record level in January (index = 166.2), surpassing the previous record in December (164.1), which was the first month that world trade exceeded the pre-recession level of 163.5 in April of 2008 (see chart above).  

2. World trade in January was 12% above its year-ago level, and marked the 13th consecutive month of double-digit annual growth starting in January of last year.

3. For the ninth straight month starting last May, world industrial output reached another new all-time record high level in January at 141.4.  Compared to a year ago, world output has increased 7.6%, and is now 5.2% above the previous cyclical high of 134.4 in March 2008.  

4. For almost two years, global output has increased in almost every month compared to the previous month, with only one month of output decline since March 2009. 

MP: Based on the ongoing and solid improvements in both global trade and world output, especially the fact that both global production and trade are at all-time historical highs, I think we can safely say that the world economy has made a complete recovery from the global slowdown in 2008 and 2009.  We can also now safely say that the global economy is in a new cycle of economic growth and expansion.  To paraphrase Warren Buffet, "The world economy's best days lie ahead."  

And as I have advocated before for the U.S., I agree with Pascal Lamy that we should pay less attention to import and export trade statistics, and more attention to total trade volumes, and that should apply to both the U.S. and world economies.  


Tuesday, March 22, 2011

Quote of the Day: The Real Class War Today

"Many of the protesters [in Michigan and Wisconsin] seem to think the war is between rich and poor," says Michael LaFaive of the Midland, Michigan-based Mackinac Center for Public Policy. "But the real class war today is between government and the people who pay for it. And the government's been winning."


Leave Your Lights On This Saturday: Earth Hour Celebrates Ignorance, Poverty and Backwardness

"Earth Hour 2011 will take place this Saturday 26 March at 8.30PM (local time). This Earth Hour we want you to go beyond the hour, so after the lights go back on think about what else you can do to make a difference. Together our actions add up.

Earth Hour has done a lot to raise awareness of sustainability issues. But there’s more to it than switching off lights for one hour once a year. It’s all about giving people a voice and working together to create a better future for our planet."

Canadian economist Ross McKitrick responds:

"I abhor Earth Hour. Abundant, cheap electricity has been the greatest source of human liberation in the 20th century. Every material social advance in the 20th century depended on the proliferation of inexpensive and reliable electricity. 

Giving women the freedom to work outside the home depended on the availability of electrical appliances that free up time from domestic chores. Getting children out of menial labour and into schools depended on the same thing, as well as the ability to provide safe indoor lighting for reading. 

Development and provision of modern health care without electricity is absolutely impossible. The expansion of our food supply, and the promotion of hygiene and nutrition, depended on being able to irrigate fields, cook and refrigerate foods, and have a steady indoor supply of hot water. Many of the world’s poor suffer brutal environmental conditions in their own homes because of the necessity of cooking over indoor fires that burn twigs and dung. This causes local deforestation and the proliferation of smoke- and parasite-related lung diseases.

Anyone who wants to see local conditions improve in the third world should realize the importance of access to cheap electricity from fossil-fuel based power generating stations. After all, that’s how the west developed. The whole mentality around Earth Hour demonizes electricity. I cannot do that, instead I celebrate it and all that it has provided for humanity. 

Earth Hour celebrates ignorance, poverty and backwardness. By repudiating the greatest engine of liberation it becomes an hour devoted to anti-humanism. It encourages the sanctimonious gesture of turning off trivial appliances for a trivial amount of time, in deference to some ill-defined abstraction called “the Earth,” all the while hypocritically retaining the real benefits of continuous, reliable electricity. 

People who see virtue in doing without electricity should shut off their fridge, stove, microwave, computer, water heater, lights, TV and all other appliances for a month, not an hour. And pop down to the cardiac unit at the hospital and shut the power off there too. 

I don’t want to go back to nature. Travel to a zone hit by earthquakes, floods and hurricanes to see what it’s like to go back to nature. For humans, living in “nature” meant a short life span marked by violence, disease and ignorance. People who work for the end of poverty and relief from disease are fighting against nature. I hope they leave their lights on."

HT: Pete Friedlander

WOW! 12-Year old Jazz Guitarist, Andreas Varady



Monday, March 21, 2011

U.S. Has Most Progressive Tax System for OECD-24


B. Percentage shares of richest 10%
1. Share of taxes of the richest 10%2. Share of market income of the richest 10%3. Ratio of shares for richest 10%  (1/2)
Australia36.828.61.29
Austria28.526.11.1
Belgium25.427.10.94
Canada35.829.31.22
Czech Republic34.329.41.17
Denmark26.225.71.02
Finland32.326.91.2
France2825.51.1
Germany31.229.21.07
Iceland21.6240.9
Ireland39.130.91.26
Italy42.235.81.18
Japan28.528.11.01
Korea27.423.41.17
Luxembourg30.326.41.15
Netherlands35.227.51.28
New Zealand35.930.31.19
Norway27.428.90.95
Poland28.333.90.84
Slovak Republic32281.14
Sweden26.726.61
Switzerland20.923.50.89
United Kingdom38.632.31.2
United States45.133.51.35
OECD-2431.628.41.11


The table above is from Scott Hodge at The Tax Foundation and shows:

"The share of taxes paid by the richest 10 percent of households, the share of all market income earned by that group, and the ratio of what that 10 percent of households pays in taxes versus what they earn as a share of the nation's income.

The table then adjusts for the underlying allocation of income by showing the ratio of income taxes paid to the share of income earned by the top decile in each country. The ratio for U.S. households is 1.35, far greater than the ratio of taxes to income in any other country. Even in the three countries with a comparable distribution of income, the ratio of taxes to income was less, 1.18 in Italy, 0.84 in Poland, and 1.20 in the U.K.

Interestingly, countries with top personal income tax rates that are higher than in the U.S., such as Germany, France, or Sweden, have ratios that are closer to 1 to 1. Meaning, the share of the tax burden paid by the richest decile in those countries is roughly equal to their share of the nation's income. By contrast, we prefer to have the wealthiest households in this country pay a share of the tax burden that is one-third greater than their share of the nation's income."

Tech Trends

1. The book market is changing (more "creative destruction"), as ebook sales are growing exponentially and traditional book sales are in decline: 

"The Association of American Publishers recently released figures for the past year ending in January 2011, and the results are startling: eBooks have taken off in a large way, with sales of eBooks from various book stores doubling year-over-year from January 2010; close to 115%. The report also cast gloom over sales of traditional paper books, which declined approximately 30% over the same period. Hardcover sales were the biggest loss, dropping over 11% from January 2010 to January 2011."


Greatest Reduction in World Poverty Ever in History: Isn't Free Trade Partly Responsible?

Ian Fletcher claims here that "Free Trade Isn't Helping World Poverty," and Don Boudreaux responds here.  Here's some related research:

From a 2009 NBER working paper "Parametric Estimations of the World Distribution of Income," by Maxim Pinkovskiy and Xavier Sala-i-Martin (Columbia University):

Abstract: We use a parametric method to estimate the income distribution for 191 countries between 1970 and 2006. We estimate the World Distribution of Income and estimate poverty rates, poverty counts and various measures of income inequality and welfare. Using the official $1/day line, we estimate that world poverty rates have fallen by 80% from 0.268 in 1970 to 0.054 in 2006 (see chart above). The corresponding total number of poor has fallen from 403 million in 1970 to 152 million in 2006. Our estimates of the global poverty count in 2006 are much smaller than found by other researchers. We also find similar reductions in poverty if we use other poverty lines. We find that various measures of global inequality have declined substantially and measures of global welfare increased by somewhere between 128% and 145%. We analyze poverty in various regions.

MP: The bottom chart above shows poverty rates for the five regions analyzed in the paper, with some pretty amazing results for East Asia (includes mainland China, Taiwan and S. Korea), which in 1960 had the highest regional poverty rate in the world by far, at 58.8%, compared to 39.9% for Africa, 11.6% for Latin America, 8.4% for MENA (Middle East, N. Africa) and South Asia (20.1%). In the 36-year period between 1970 and 2006, the poverty rate in East Asia fell to only 1.7% by 2006, which was below any of the other four regions: Africa (31.8%), Latin America (3.1%), MENA (5.2%) and South Asia (2.6%).

Both graphs are based on a poverty measure of $1/day, but the authors obtain similar results using four other measures of poverty from $2 to $10 per day, both for the overall reduction in world poverty (top graph) and the regional differences (bottom graph).

Bottom Line: Assuming these estimates are accurate, the 80% reduction in poverty between 1970 and 2006 has to be the greatest reduction in world poverty in such a short time span in the history of the world, and the 97% reduction in East Asia has to be the most significant improvement in regional standard of living in history as well. The authors don't explore the reasons for the record reduction in world poverty, but some likely candidates might be: globalization, market-based reforms, liberalization, Information Age technology, productivity gains in agriculture, the collapse of central planning in China and India, etc.

Saturday, March 19, 2011

Chart of the Day: Deaths per Energy Source

Data in the chart above are from the Next Big Future blog.

Schumpeterian Gales of Creative Destruction: 10 Dying U.S. Industries on the Verge of Extinction

From the Special Report "Dying Industries" from IBISWorld:

"While the U.S. economy is headed further into recovery, not every industry is performing well. Industries go through life cycles, and largely speaking, these are growth, maturity and decline. Even in a recovery, declining industries continue to underperform, and within IBISWorld’s database of close to 700 industries, about 200 are in their decline phase. Of these 200, IBISWorld has identified 10 industries that may be on the verge of extinction in the United States:

1. Wired Telecommunications Carriers 
2. Mills 
3. Newspaper Publishing  
4. Apparel Manufacturing 
5. DVD, Game & Video Rental  
6. Manufactured Home Dealers 
7. Video Postproduction Services 
8. Record Stores 
9. Photofinishing 
10. Formal Wear & Costume Rental 

Friday, March 18, 2011

Lots of Snow in Minneapolis: 73 Inches

Minneapolis has had 73 inches of snow this winter, the second snowiest winter since 1891.

Exhibit A: Car buried in snow at Ron's Auto Repair at the corner of 38th Street and 37th Avenue South:


Great CPI Graph from WSJ


Great graph above that accompanies a story in today's WSJ on yesterday's CPI report.  The width of the bars represent the weights of different components in the CPI, and the height of the bars represent inflation rates (blue) or deflation rates (red) over the 12-month period ending in February 2011.  Obviously, gasoline prices have risen the most over the last year (almost 20%), but rent and the cost of home ownership have remained fairly flat, and some prices are showing deflation: phone services, video and audio, apparel and data technology.  


Interestingly, the CPI category "food at home" has gone up by 2.85% from Feb. 2009-Feb. 2010, but the category "food away from home" has only gone up by 1.56% over the same period.  Maybe that's because restaurants and fast food outlets have been reluctant to raise prices during what might be viewed as a "fragile recovery," and they have absorbed some of the wholesale food price increases.  Just one example: McDonald's still has maintained its Dollar Menu for the last several years without raising prices. 

More Amazing Before and After Photos of Japan

Before and after satellite photos of Japan, from the NY Times.

HT: Ryan Stinson

The Dangerous Downsides of Government Subsidies

From today's WSJ, a quote from law professor Glenn Reynolds that originally appeared on his InstaPundit blog:

"The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle-class people go to college and own homes, then surely if more people go to college and own homes, we'll have more middle-class people. But homeownership and college aren't causes of middle-class status, they're markers for possessing the kinds of traits—self-discipline, the ability to defer gratification, etc.—that let you enter, and stay, in the middle class. Subsidizing the markers doesn't produce the traits; if anything, it undermines them."

MP: Another downside of government subsidies for middle class markers like homeownership and higher education is that those subsidies have distorted those markets and help fuel housing and college tuition bubbles, see chart above.     

Posted at 30,000 feet on a Delta flight to Minneapolis-St. Paul.  

Manufacturing Fetishists and the Worrying Class

Don Boudreaux highlights an excellent BBC article about the manufacturing fetish of the "Worrying Class":

"The Worrying Class in developed countries laments: "We don't make anything any more." They fear that, as more people find employment in services, their nation loses the ability to provide for itself and gives up the "good jobs" which sustain the middle class. 

They obsess about exports and trade imbalances while making a fetish of manufacturing and the blessings it brings to their country. But a quick look at the data shows that the developed world actually makes a great deal of stuff. The United States alone produces roughly 20% of all the world's manufactured goods. We may not make many toys or cell phones any more, but we do make most of the world's artificial knees and hips, medical scanners and jet aircraft. Those sound like good jobs to me.

Manufacturing fetishists also ignore the fact that many factory jobs were actually not very good jobs at all. Those jobs may have offered a fairly good wage for a low-skilled position, but they were dull, dirty, sometimes dangerous and had very little chance for advancement. The service jobs the worriers dismiss as "hamburger flipping" actually offer better wages, better working conditions and much greater opportunity than assembly line work.

I wonder how many of the worriers want their children to grow up to tighten bolts in a factory instead of going to university and getting a job in the service sector? The worrier's core error is the idea that manufacturing makes "real wealth" while service jobs only move things around. This is simply wrong. There's nothing less real about service jobs. Doctors, accountants and personal trainers create value for their customers just like auto workers do."

MP: We also need to update our outdated views about manufacturing jobs in an Information Age.  When many people think of manufacturing jobs, they think of Rust-belt factory jobs in the steel or auto industry that were common in the Machine Age.  But when the Information Age started in 1971 with the commercial introduction of the microchip, that all changed.  For example, here are some of the largest U.S. manufacturers, based on sales in 2010: Hewlett-Packard, IBM, Microsoft, Dell, Apple, Intel, Sun, Texas Instruments, and ADM.  Manufacturing today has gone high-tech. 


Thursday, March 17, 2011

Rail Traffic Continues Ongoing Weekly Gains

U.S. rail traffic continues to show consistent weekly gains, and the most recent week was no exception, here's from today's report from the American Association of Railroads:

March 17, 2011 – "The Association of American Railroads (AAR) today reported rail traffic gains for the week ending March 12, 2011, with U.S. railroads originating 292,164 carloads, up 1.3 percent compared with the same week last year. Intermodal volume for the week was also up, totaling 216,828 trailers and containers, up 6.5 percent compared with the same week in 2010."

MP: The chart above shows the consistent upward trend in both carloads and intermodal units over the last two years. The ongoing increases in shipping reflect the increasing demand for raw materials, inputs, supplies, grains, metals, chemicals, paper, lumber, iron, etc., which will contribute to future increases in final manufactured goods, real output growth, and job gains.   

Cleveland Fed Median CPI Inflation Only 1%

According to the Cleveland Fed's report today, its median CPI measure of prices increased by 1.0% at an annual rate in February over the same month last year (see chart above).  In contrast, the regular CPI increased by 2.1% over the last year (February 2010 to February 2011), according to the BLS report this morning

Historically, the median CPI has been 50% more accurate at gauging future inflation than the traditional CPI (based on the Cleveland Fed's research), and the median CPI from the Cleveland Fed is not yet showing any strong signs of inflationary pressures.  The most recent 12-month inflation rate of 1.0% based on the median CPI is still way below the 3.05% average inflation rate for that series going back to 1984. 

Socialist Rant on Why D.C. Doesn't Need Wal-Mart

The quote above is from the editorial "Walmart's Arrival a Bad Deal for District," which appears in the current edition of the Dupont Current (p. 11), a neighborhood paper in Washington, D.C. 

Q: Should those restrictions also apply to other retailers operating in DC like Target, McDonald's, Burger King, CVS Pharmacy, Barnes and Noble, Chipotle, Panera Bread, Home Depot, Starbucks, etc.? 

HT: Colin Grabow

Adjusted Jobless Claims Update: Good News


It's been awhile since I featured this pair of charts above showing: a) the number of jobless claims vs. the size of the U.S. labor force (top chart), and b) jobless claims as a share of the labor force (bottom chart), both updated through February (BLS data here and here). 

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 406,250 in February, which is 0.2651% of the February labor force of 153,246,000, and is a 2-1/2 year low (lowest since July 2008). Jobless claims as a percent of the labor force have declined the last 6 months in a row, and in 10 out of the last 12 months. Since the peak of 0.415% in March of 2009, adjusted claims have fallen consistently to the current level of 0.265%,

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 1992-1993 and 2002-2003 (see red line in the bottom graph), and suggest that conditions in the labor market are actually better than the unadjusted number would suggest.  See Scott Grannis' post today for a similar analysis. 

Coincident Economic Activity Indexes, By State

Coincident economic activity indexes for each U.S. state (and an index for the entire country) were updated today through January by the Philadelphia Fed, and are available online from the St. Louis Fed hereThe chart above compares the economic conditions in the U.S. to the economy of North Dakota. 

Description: "The Coincident Economic Activity Index includes four indicators: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing and wages and salaries. The trend for each state's index is set to match the trend for gross state product."

HT: CME Group via Twitter
 

Leading Economic Indexes Point to Future Growth

The Conference Board reported today that its Leading Economic Index (LEI) for the U.S. increased in February for the 23rd consecutive month (see chart above).  February's LEI, at 113.4, was 0.8% above January's index level, and follows a 0.1% increase in January, a 1.0% increase in December, and monthly increases in every month back to April 2009.

Says Ataman Ozyildirim, economist at The Conference Board: “With February’s large gain, the U.S. LEI returned to the strengthening upward trend that began last September. The LEI is pointing to an economic expansion that should gain more momentum in the coming months. In February, improvements in labor markets, financial components, and consumer expectations more than offset falling housing permits.”

Says Ken Goldstein, economist at The Conference Board: “Latest data point to an improving economy, one that will continue to gain strength through the summer. The economy continues to encounter strong headwinds. One headwind is the sharp rise in food and energy prices. Still, the way inflation will move is unclear, given the degree of slack in the overall economy, and especially in the labor market.”

MP: The increase in the U.S. LEI for February follows recent reports from the Conference Board that the January LEI increased in Spain (0.9%),  China (0.3%), U.K. (0.4%), Korea (1.3%), and Japan (1.3%). 

Jobless Claims Fall, Job Market Gradually Improving

The Department of Labor reported today that jobless claims (4-week average) fell last week to 386,250, the lowest level since the second week of July 2008, more than 2-1/2 years ago (see chart above).  From the Associated Press:

"The four-week average for claims dropped to 386,250. That was the lowest level since July 2008, providing evidence that the job market is on a more solid footing. The benefits report showed that the number of people receiving regular unemployment benefits fell by 80,000 to 3.71 million. That was the lowest level since the week of Sept. 27, 2008.

Companies are finally hiring more after months of sluggish job creation. Employers added 192,000 jobs in February, the biggest gain in nearly a year. The unemployment rate dropped to 8.9 percent, the lowest point since April 2009.

Stronger job growth was a major reason the Federal Reserve this week offered its most optimistic assessment of the economy since the recession ended. Fed policymakers said the recovery was on "firmer footing" and the jobs market was improving gradually."


The Cheapest Gas in the World: 12 Cents a Gallon

Gasoline in Venezuela costs about 12 cents a gallon, well below the $4 a gallon or more paid in most of the industrialized world, but those low prices are bankrupting the oil-driven economy. Read more here.

Wednesday, March 16, 2011

End Gov't. Subsidy of 30-Year Fixed-Rate Mortgages

From AEI's Ed Pinto, writing in today's Real Clear Markets:

"Given two spectacular failures of U.S. housing finance tied to the 30-year fixed-rate mortgage in the last 20 years (MP: The S&L crisis and the recent housing/financial meltdown), and the attendant cost to taxpayers of two massive bailouts, the housing industry should be required to show why it needs government support again.

History has shown--and simple economics would anticipate--that a government subsidy for a freely prepayable 30-year fixed-rate mortgage is not good policy. This subsidy causes most borrowers to choose the 30-year fixed-rate loan, since in general it offers a fixed low monthly payment with a government-subsidized free prepayment option. Supporters point to the apparent stability it provides to borrowers. This stability is akin to the eye of a hurricane."

MP: Ed points out that the 30-year fixed-rate mortgage would likely be offered by private lenders in a mortgage market that was not distorted by government policies and intervention. But those 30-year  mortgages would be priced accordingly, likely with higher interest rates than any other mortgage product, especially for mortgages with no pre-payment penalty.  For example, here's a schedule of mortgage options that might be offered today, based on true market rates:

1. 6.00% 30-year fixed-rate term with no prepayment fee
2.  5.625% 30-yr. fixed-rate term with a 3%-2%-1% prepayment fee
3. 5.375% 30-yr. amortization with 15-yr. fixed-rate term and 3%-2%-1% prepayment fee
4.  5.375% 15-year fixed-rate term with no prepayment fee
5. 5.125% 15-year fixed-rate term with a 3%-2%-1% prepayment fee
6. 5.00% 7-year ARM with 30-year amortization underwritten at fully indexed 7-year rate with no prepayment fee
7. 4.75% 7-year ARM with 30-year amortization underwritten at fully indexed 7-year rate with a 3%-2%-1% prepayment fee

Bottom Line: It's not that the 30-year fixed-rate mortgage is inherently bad, but it's the government support and subsidy of those mortgages that has distorted mortgage and housing markets, and contributed to two serious banking and financial crises. We shouldn't end the 30-year fixed-rate mortgage, but we should end the government support and subsidy of those mortgages.

North Dakota is America's Economic Superstar

From Dennis Cauchon at USAToday:

North Dakota, the state with the nation's lowest unemployment rate, capped a decade of economic prosperity with dramatic population growth in its biggest cities. The superstar of North Dakota is its economy. The state's unemployment rate hasn't touched 5% since 1987 (see chart above). The state's per capita income rose over the decade from 38th in the nation to 17th, the biggest advance of any state.

"We've had an absolutely stellar few years," says University of North Dakota economist David Flynn. "In all honesty, when you look ahead, we should continue to do well for quite a while."
North Dakota is enjoying an oil boom in the western part of the state, drawing workers from across the country. Williston, in oil country, grew 17.6% to 14,716. The oil windfall has created a $1 billion state budget surplus.

Agricultural — 90% of the state's area is used for farms and ranches — is productive and profitable, making the state a top exporter of wheat and other crops. Federal agriculture subsidies add nearly $1 billion a year. North Dakota is one of the few states to add manufacturing jobs over the decade. Bobcat, maker of farm and construction equipment, is headquartered in the state.

"We don't have big factories like Gary, Ind., or steel mills that are hard to retool," Flynn says. "We have smaller plants that are some of the most efficient in the world." When factories closed elsewhere, production was often moved to North Dakota."

U.S. Life Expectancy Rose to Record High in 2009

ATLANTA (AP) -- "U.S. life expectancy has hit another all-time high, rising to 78.2 years (see chart above). The estimate of 78 years and 2 months is for a baby born in 2009, and comes from a preliminary report released today by the Centers for Disease Control and Prevention.

About 2.4 million people died in the United States in 2009 - roughly 36,000 fewer deaths than the year before. Deaths were down for a range of causes, from heart disease to homicide, so experts don't believe there's one simple explanation for the increase in life expectancy. Better medical treatment, vaccination campaigns and public health measures against smoking are believed to be having an impact.

U.S. life expectancy has been generally increasing since at least the 1940s, though some years it held steady and a few times it temporarily dipped.


More good news from the report: The infant mortality rate hit a record low of 6.42 deaths per 1,000 live births, a drop of nearly 3 percent from 2008."

HT: Robert Kuehl

10-Year History of PPI Inflation: Is There a Case?

The BLS released data today on the Producer Price Index for February.  Looking at the 10-year history in the graph above of annual price increases for the major components of the Producer Price Index, it seems like it would be hard to make a really strong case for producer price inflation.  The crude material component of the PPI is falling, and the other components have turned up a little bit recently at annual rates, but are still below the levels in 2007, and about the same as in 2003, 2004, 2005 and 2006. 

The chart below for the overall PPI annual inflation rates over the last ten years shows a similar pattern: A slight increase in recent months for PPI inflation, but still below the levels in March, April and May, below the 2008-levels, and about the same as the 2004-2005 period.  And for the PPI level, 195.5 in February, that's still almost 5% below the peak of 205.5 in July 2008.  

Q: Based on the data, is there really a strong case for concern about rising PPI inflation?  

  

The Great Deflation: Computer Prices

Matt Yglesias posted yesterday about the "falling price of computer power" and highlighted the chart above from this website showing falling prices for Apple products over the last five years.  

The chart below shows the downward trend in computer prices over a longer period of time using the BLS series "CPI: Personal Computers and Peripheral Equipment" (data here).  Compared to the CPI for Personal Computers of  129.4 in January 2006 when the iMac above was selling for $1,299, the index value for the CPI in January 2011 was 43.6% lower  at 72.95.  That decline tracks pretty closely with the 36.2% drop in Apple prices over the same period, from $1,299 to $829.  

Over a longer period of time, like the full history of the CPI series for personal computers back to December 1997, personal computer prices have fallen by 93.5% (see chart below).  In other words, assuming that the CPI series accurately captures quality improvements, computer equipment that cost $1,000 in December 1997 could be purchased today for only $65.  Alternatively, as a very rough approximation, computer equipment purchased today for $1,000 would have cost $15,300 back in 1979. 
 
HT: Steve Bartin

Housing Affordability Reaches All-Time High in Jan.

Rising prices for oil, gas and food are making those items less affordable these days, but housing is a different story - there's probably never been a time when it's been more affordable than today.  Data from the National Association of Realtors show that its composite Housing Affordability Index reached an historical high of 191 in January of this year.  Thanks mostly to falling home prices, a family with the median income of $61,533 had almost twice (191%) the income needed ($32,208) to qualify for a 30-year, fixed-rate mortgage at 4.82% to purchase the median priced single-family home in January ($159,400), assuming a 20% down payment.    

Here's one way to see how affordable housing is today: In 2008, the monthly payment on the median-priced home then of $196,600, financed at the prevailing mortgage rate then of 6.15% with a 20% down payment would have been $958.19.  For today's median-priced home financed at 4.82% the monthly payment would be 30% less, at only $670.60.  Especially for first-time home buyers, housing has never been more affordable, and those $200-300 monthly savings compared to payments in 2008 will more than offset rising gas and food prices.  

Record-high housing affordability just doesn't seem consistent with the inflationary pressures that many seem concerned about, does it?  For example, the inflationary periods in the late 1970s and early 1980s were periods of rising home prices (double-digit increases for 11 consecutive quarters in the late 1970s) and rising mortgage rates (reaching 18.5% in 1981), and we've got almost just the opposite today. Rising and record-high housing affordability seems more consistent with deflation than inflation?

The New Equal Pay Day for Single Young Men

According to some research released last fall, there is now a "reverse gender wage gap" in favor of single, young (under the age of 30), childless female workers in America's large cities that is as high as 21% in Atlanta and 20% in Memphis.  Inspired by the National Committee on Pay Equity's "Equal Pay Day" for women, I am proposing a new "Equal Pay Day for Single Young Men." 

For example, the average single, young male in Memphis will have to work from January 1 of 2010 until today (March 16) this year to earn the same income as the average female in his peer group earned last year.  Find out more here at The Enterprise Blog.

Cheapest Houses in America/Detroit, Starting at $1

1. The 8 Cheapest Houses in America: "Today's dilemma: A sandwich or a house. They both cost $7." (Note: 5 of the 8 cheapest houses are in Michigan.)

2. Here are 32 homes in Detroit for $500 or less, including the one above for $1

HT: Greg Allar

Update: Here's a related article and another slide show about Detroit's abandoned homes.  (HT: Dn Quiggs)

Tuesday, March 15, 2011

Eminent Domain: Boxing Gym for Kids Fights Back



Video above is from the Institute for Justice with this background:

"A San Diego-area boxing gym that serves at-risk kids is showing what it takes to fight for what is right and to win. The Community Youth Athletic Center (CYAC) has had to endure a series of low blows by National City's local government in a case that time and again demonstrated how difficult it is for California property owners to defend themselves against tax-hungry governments and land-hungry developers bent on eminent domain for private gain."

Related article in Sports Illustrated:

"Carlos Barragan and his son Carlos Jr. don't torture dogs, don't inject 'roids and don't bet on sporting events they ref. They've never run from the law or the tax man or a grand jury. What they do run is a little boxing gym for kids in National City, Calif., between the Mexican border and the San Diego barrios.

So why is the city trying to shut them down?  Luxury condos, that's why."

Empire State Manufacturing Continues to Improve

NY Fed -- "The Empire State Manufacturing Survey indicates that conditions for New York manufacturers continued to improve in March. The general business conditions index inched up 2 points, to 17.5 (see chart above). The new orders and shipments indexes fell but remained above zero, while the unfilled orders index rose above zero for the first time in a year. Price indexes continued to climb, suggesting that price increases had accelerated. Employment indexes were positive and above their February levels, indicating that employment had expanded. Future indexes were little changed, as respondents continued to be strongly optimistic about the six month outlook, although future price indexes were sharply higher."

MP: The ongoing expansion of manufacturing activity in New York supports the notion that America's manufacturing sector continues to be the "shining star of the U.S. economic recovery," registering ongoing gains in output and employment.   

Jan. OECD Leading Index: Highest Level Since 2007

 
OECD (March 14) -- "Composite leading indicators (CLIs) for January 2011, designed to anticipate turning points in economic activity relative to trend, continue pointing to expansion in most OECD countries. The CLIs for Germany, Japan, and the United States continue pointing to robust expansion relative to trend. Signs of regained growth momentum characterise the CLIs for France and Canada. The CLI for the United Kingdom points to a slow but stable pace of expansion. The CLI for Italy continues pointing to a moderate downturn.

The CLIs for other major economies are little changed from last month’s assessment. The CLI for China continues pointing to the possibility of a moderate downturn. The CLI for Brazil remains near its long-term potential. The CLI for India continues pointing to a slowdown relative to trend and the CLI for Russia continues pointing to expansion."

MP: The January CLI reached 103.1, the highest level since May 2007 before the global economic slowdown.  Except for three monthly declines in May-July 2010, the CLI has been on a positive upward trend for almost two years now, since March 2009.  Compared to the cyclical low of 90.7 in February 2009, the CLI has increased by more than 12 points to 103.1 in January. 

Monday, March 14, 2011

Do We Need the 30-Year Fixed-Rate Mortgage?

That question is the title of a recent worker paper by Mercatus  Center economists Michael Lea and Anthony Sanders, and I think the simple answer is "No." 

The authors present evidence that the 30-year fixed-rate mortgage (FRM) is really a creation of U.S. government policy, and certainly wouldn't dominate the mortgage market without direct government support and intervention.  The authors write:

"The FRM has been supported by government policy since its introduction. FHA and later VA-insured mortgages were the dominant instruments until the 1960s. Rates were set administratively that made it difficult for non-insured loans to compete with government insured instruments. Federally insured savings-and-loan institutions were restricted to offering only fixed rate mortgages until 1980. The creation of Freddie Mac in 1970 was motivated in part to assist savings-and loans in managing the interest rate risk inherent with the FRM."

Later in the paper, they write:

"David Min, of the Center for American Progress, has written “the 30-year fixed-rate mortgage remains the gold standard for mortgages throughout the world, offering superior stability for both homeowners and financial systems.” If this is true why is the U.S. one of only two countries in the world with this instrument (only U.S. and Denmark have long-term, fixed-rate, no-penalty prepayable mortgages.)? And why is the U.S. the country most afflicted with a housing bust? Given the catastrophic condition of Fannie Mae and Freddie Mac, it is clear that the 30-year fixed-rate mortgage is outright dangerous and not a gold standard. Perhaps his musing should be rewritten to say “the 30-year fixed-rate mortgage remains the fool’s gold standard for mortgages throughout the United States, offering superior stability for some homeowners and potential catastrophe for U.S. and global financial systems.” 

What would the U.S. mortgage market look like without "government life-support" for the FRM?

"What would emerge as “standard” U.S.-mortgage instrument without the government support of the FRM? We think a rollover mortgage similar to that offered in Canada and several European countries is the likely candidate. This instrument offers short- to medium-term payment stability to borrowers. Borrowers can manage interest-rate risk by adjusting the fixed-rate term upon renewal. Min’s assertion that borrowers would be unable to refinance is not borne out by modern international experience. Borrowers could hedge the interest rate risk by locking in a forward rate in advance of renewal. German lenders offer
forward rates up to five years—certainly U.S. lenders with a deep derivative market could do the same. Alternatively, they can adjust the degree of risk by varying the length of the fixed-rate period.

A complete and robust housing-finance system should offer borrowers a menu of mortgage options—ranging from short-term ARMs for those borrowers who can handle payment change, to long-term FRMs for those borrowers who value payment stability. To assert that the FRM is the preferred alternative for most borrowers is naïve. Many borrowers have shorter-term time horizons and can handle some interest-rate risk. Min’s assertion that the switch to shorter duration instruments would lead to massive defaults if and when interest rates increase is not supported by international experience."

Related: In a recent post on the Enterprise Blog, AEI's Alex Pollock wrote about "The Dark Side of the 30-Year Fixed-Rate Mortgage," and I followed with "The Dark Side of the 30-Year Fixed-Rate Mortgage, Part II."  Like the Mercatus authors, I also point to Canada's system of 5-year mortgages, and note that Canada didn't have a single bank failure during our S&L crisis when 3,000 American banks failed (partly due to FRMs) and didn't have a single bank failure during our recent financial crisis.