Tuesday, April 19, 2011

Significant Increases in Income Inequality for MLB

New York Yankees Salaries, 1988 vs. 2011

 Salaries19881988 Salaries in 2011 Dollars     2011
Ratio High/Low29.929.977.3
Gini Coefficient0.4590.636
Share of Payroll
Top 10%28.5%39.2%
Top 20%49.7%61.9%
Top 50%80.1%93.9%

The salary data displayed in the table above for the New York Yankees from 1988 and 2011 are from the USA Today Salaries Database.  By every possible measure (ratio of high:low salary, Gini coefficient, and shares of total payroll going to the  top 10%, 20% and 50% of players) income inequality has increased significantly for the baseball players employed by the New York Yankees between 1988 and 2011, and I suspect these huge increases in income inequality would be the same for other MLB teams, and for all players in MLB as a group.  And yet the typical pro baseball player is doing much better today than in 1988 because the mean and median salaries have increased dramatically, as has the salary of the lowest-paid Yankee, despite the huge increase in income inequality.  

What can we learn from this? 

The lesson from MLB  is that rising income inequality over time, whether it’s in professional sports or in society as a whole, can be a natural and expected outcome of competitive labor markets and the expanded opportunities that come from larger and increasingly competitive global markets. And those same competitive forces that lead to greater income inequality in both the MLB and the overall economy over time also usually help to make all MLB players and all Americans better off year after year, just not at exactly the same rate.

Ticketmaster to Start Dynamic Ticket Pricing

"Ticketmaster will begin pricing events based on consumer demand in a drive to take revenue from resellers and boost overall sales. Clients including sports teams, music acts and promoters will be able to adjust ticket prices based on how well the event is selling. 

The world’s biggest concert- promoter and ticketing company is partnering with Los Angeles- based MarketShare to provide the so-called dynamic pricing. The system lets venue owners target the markups that brokers charge for top events and sell more tickets for less-popular acts. Dynamic pricing will reduce scalping, freeing-up more tickets for consumers, the company said."

MP: So now Ticketmaster, venues, and bands and their promoters are acknowledging that it was under their control all along to reduce, minimize or even completely prevent ticket scalping by simply pricing and supplying tickets according to market forces.  It's only because venues, bands and their promoters have regularly under-supplied tickets at below-market prices relative to fan demand that a secondary market has flourished, with concert tickets frequently being sold above face value.

As Paul mentions in the comments below, when a band has a show that is sold-out, they can simply add more shows to increase the supply of tickets to meet the demand of their fans.  Greedy ticket brokers ("scalpers") have taken all of the blame for the secondary ticket market, when the real blame should be directed towards the non-market-based, anti-fan behavior of bands and their promoters, who frequently under-supply the number of tickets their fans want to buy.  They then play to sold-out shows, which creates the secondary market for tickets to those shows, but only because there is excess demand that the band failed to meet.        

Update: To paraphrase/quote NormanB in the comments, "The degree to which scalpers can make money is directly related to the: a) under-pricing and b) under-supplying of the tickets in the first place."  Since the: a) price and b) supply of tickets is under the direct control of the bands and their promoters/managers, they're the ones responsible for creating the secondary market.

Public Opinion: More Favor Drilling, Legalizing Pot

New CNN public opinion polls show that: 

1. The percentage of Americans favoring increased drilling for oil and gas offshore in U.S. waters has increased significantly since last year, with 45% of respondents now strongly in favor of increased offshore drilling, compared to only 26% in June 2010.

2. The percentage of Americans favoring legalization of marijuana is now 41%, compared to 34% in 2002 and only 18% in 1986.

Zillow Home Value Data Now Available for Feb.

Zillow.com released housing price data today with home values through February, see the graph above of Zillow's monthly U.S. Home Value Index back to January 1996 (you can also get price data and graphs for more than 100 metro areas, and all states).   According to Zillow, its Home Value Index is calculated as the median value (Zestimate) of all homes in a particular geographic area, and for the national index shown above, the housing price data are weighted according to population in each area.

The median Zillow price in February 2011 of $170,000 was the lowest since June 2003, more than 7 and a-half-years ago, and is 29% below the $240,000 peak Zillow median home price in May 2006.  For an estimate (or "Zestimate") of your home's value, go here and type in your address. Warning: You might be depressed, I know I was, but maybe that's because my home is in Michigan. 

"A Testament to the Resilience of Markets": World Stock Market Capitalization Doubles in Two Years

The Paris-based World Federation of Exchanges, an association of  52 regulated stock market exchanges around the world, recently released data on the world stock market capitalization, which increased to $57.8 trillion in March.  That was a 39-month high for world equity values and the highest level since December 2007 when the U.S. recession started.  Compared to the cyclical low of $26.6 trillion two years ago in February 2009, the total world stock market capitalization has more than doubled to the current level of almost $58 trillion.  From the all-time high of $63 trillion in October 2007, the value of world equity markets is currently about 8% below that pre-crisis peak, or about $5 trillion in dollars.

See a related post here from Scott Grannis, "The $29 Trillion Recovery," where he comments:

"It is a testament to the resilience of markets, risk-takers, and workers that the global market economy has not collapsed under the weight of the fiscal and monetary policy errors that contributed to this extraordinary volatility. There are still plenty of problems left to deal with, but the recovery to date inspires hope that the problems can be overcome with time."

Monday, April 18, 2011

Vague Insider-Trading Rules Increase SEC Power

"For decades, the SEC has kept the insider-trading rules vague and undefined. This ambiguity increases the SEC's power and allows government lawyers to pick and choose among prosecution targets. Some, though by no means all, trading on the basis of informational advantage is and should be illegal. But the government should be compelled to provide clear guidance as to what constitutes illegal insider trading and what constitutes legitimate, albeit aggressive, research."

~Yale Law School Professor Jonathan Macey in the WSJ

Markets In Everything: Toys NOT Made in China

From the No More China Toys website

"In 2007, we walked through the toy department of big box retailers and could not find a toy produced outside of China. Gone were the wooden blocks, dolls and wooden trains we played with as children. These toys were replaced with cheap plastic toys that had character ties to movies and cereals. We then turned to the Internet and were frustrated by the lack of alternatives and lack of country of origin information. We experienced first hand the frustration and angst associated with taking away our child’s favorite toy that was recalled and we routinely threw away toys within a few days or weeks of purchase due to poor quality. These experiences led to the development of NMCtoys.com.

NONE of the toys found in NMCtoys.com are Made in China. When it comes to our own home we choose to keep Chinese Made Toys out of our children's hands."

Monday Map: State Sales Tax Rates

From the Tax Foundation

"The map above (click to enlarge) shows state sales tax rates as of January 1st of this year.  This includes only the statewide rate. Many cities and towns impose a local rate on top of the statewide rate, which is not reflected in these numbers."

Note: Sales tax rates range from a low 0% in Oregon, Montana, New Hampshire, and Delaware to a high of 8.25% in California.  

Heritage: An Open Letter to Paul Krugman

From "An Open Letter to Paul Krugman" from Bill Beach, Director of the Center for Data Analysis at the Heritage Foundation:

"Over the past two weeks, you have relentlessly engaged in dishonest, deceptive and factually incorrect critiques of Heritage’s recent analysis of the Ryan budget plan, and they need to be addressed. With all of the work good people of every political stripe need to be doing in Washington today, the last thing we all have time for is correcting your typically contrived commentary. But when The New York Times gives you such a platform to spread distortions, they necessitate a response.

New Chicago Fed Financial Conditions Index

The Chicago Federal Reserve Bank recently released a new index called the National Financial Conditions Index (NFCI), which "provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems.  The NFCI is a weighted average of a large number of variables (100 measures of financial activity(pdf)) each expressed relative to their sample averages and scaled by their sample standard deviations.  The NFCI is constructed to have an average value of zero and a standard deviation of one over a sample period extending back to 1973.  Positive values of the NFCI indicate financial conditions that are tighter than on average, while negative values indicate financial conditions that are looser than on average.

MP: Every Wednesday, the Chicago Fed will update the NFCI based on financial data through the previous week.  The chart above displays the NFCI on a weekly basis back to January of 2005, and shows that the index in the last several months has fallen back to levels not seen since the summer of 2007, well before the beginning of the recession.     

Rampant Yosemite Park Reservation Scalping

Sacramento Bee -- "Campsite reservations and permits to scale Half Dome have become such hot commodities that the National Park Service is scrambling to halt the auctioning of park access to the highest bidder. The flipping of reservations and permits in Yosemite – the third-most-visited national park – is so rampant on Internet sites like Craigslist that park officials are "becoming more aggressive" in trying to shut down these operators, said Yosemite spokesman Scott Gediman."

"We want to stop it as much as we can," he said. "It's not fair. These (reservations and permits) aren't intended to go into the after-market. But it's becoming more sophisticated. … People are finding ways to abuse the system."

Jesse Jackson Jr. Blames The iPad For Killing Jobs

On the House floor back in March, holding an Apple iPad and an Amazon Kindle, Rep. Jesse Jackson, Jr. proclaimed "Let me be clear about a few things. These devices are revolutionizing our country — and they will fundamentally alter how we will educate our children." Now it looks like Rep. Jackson has flipped, and is blaming the iPad for being a jobs-killer:

Here's a great quote about this from Jonah Goldberg, "It’s not often one hears the case for Luddism made with so much earnestness and, not coincidentally, ignorance," in a post on the Enterprise Blog appropriately titled "Somewhere Ned Ludd is Smiling."

Monday Links

1. The Lost Beatles Photos: Rare Shots From 1964-1966.

2. Sales tax receipts rise in metro Chicago, signaling retail revival.

3. There is an active trade for Apple’s latest gadgets in China, and it’s evident in long lines of Chinese camping overnight outside NYC Apple’s stores waiting to buy the products — originally made in China — to send them back to that country for resale. 
4. In a blind taste test, most people are unable to distinguish between expensive and cheap wine

5.  From a Princeton  University Working Paper: "When we adjust for unobserved student ability by controlling for the average SAT score of the colleges that students applied to, our estimates of the return to attending a highly selective college fall substantially and are generally indistinguishable from zero."

6. Detroit Moves Against Unions: "Detroit Mayor Dave Bing presented a $3.1 billion annual budget to City Council in which he proposed substantial cuts in city workers' health care and pensions to close an estimated $200 million budget gap."

Thanks to Steve Bartin, Paul Kedrosky, Ben Cunningham and Pete Friedlander. 

Sunday, April 17, 2011

All-Time Record Profits for Silicon Valley in 2010; There's A Renewed Level of Energy and Optimism

Mercury News --"Roaring back from the Great Recession, the 150 biggest public companies in Silicon Valley had their most profitable year in history in 2010, as their combined stock value climbed to the highest level since the Internet boom of 2000. Revenue and profits soared as consumers flocked to buy new handheld gadgets, while corporations and public agencies resumed buying hardware and software to handle a rising tide of digital data -- from emails, tweets and videos to all manner of online transactions and Internet search results.

Those trends drove tech sales and profits higher than they were before the downturn of 2008 and 2009. For companies on the Mercury News' SV150 list, combined sales for the past four quarters rose 20.3% from a year earlier. Combined profit skyrocketed 78.6%. The list comprises the 150 biggest public companies, measured by revenue, that are based in Silicon Valley.

Apple (AAPL) led the way in profit, posting a stunning $16.6 billion in net income from its iPads, iPhones and other stylish gadgets. All told, the SV150 companies had a net profit margin of 15.6 percent -- the richest margin, by far, since the Mercury News began tracking the SV150 in 1985. Investors, for the most part, liked what they saw: The combined stock market value of the SV150 hit $1.55 trillion on March 31, up 11.4 percent from a year earlier.

Companies from startups to giants are moving into social networking and mobile computing -- new technologies that are luring consumers and workers into spending more time online, creating more data and spurring more sales for Silicon Valley businesses.  These new technologies gained traction even in "the darkest period" of the recession, Accenture's John Walsh said. Now, they're part of what he called a renewed level of energy and optimism in Silicon Valley."

State and Local Government Workers Have Fallen to 2006-07 Levels, Thanks to the Great Recession

In a recent WSJ editorial "We've Become a Nation of Takers, Not Makers" Steve Moore points a rather depressing statistic:

"Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million, see chart above). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government."

But what's far less depressing is to notice the trends in employment:  The manufacturing sector has added almost 200,000 jobs over the last year, while total government employment has decreased by more 350,000 jobs over the last year.  Most of that reduction in government workforce has taken place at the local level, which has shed 259,000 jobs since March of 2010, bringing the total number of local government job in March (14.195 million) down to the lowest level since August 2006, more than four and-a-half years ago (see bottom chart above).

Similarly, the number of public-sector employees at the state level was the lowest in March (5.119 million) since August 2007, slightly more than three and-a-half years ago.  Although the federal government's workforce has fallen by 74,000 over the last year to 2.852 million, that's above the pre-recession level by 95,000.  That's understandable given the fact that states and local governments are burdened with greater fiscal constraints (like having to balance their budgets) than the federal government.  Fiscal belt-tightening and reductions in government employees happened only at the local and state, and not so much at the federal level. 

Overall, the reduction in state and local government employment levels to their 2006-2007 levels is hopefully part of a trend that will continue, and won't reverse. The reduction in the government workforce at the local and state level by almost 500,000 from their peaks in the summer of 2008 through March 2010 is the largest reduction in modern U.S. history, and greater (in absolute values) than the 333,000 decrease in state and local public employees over a comparable period in the early 1980s following the back-to-back recession of 1980 and 1981-1982.  We can thank the Great Recession for 2007-2009 for what is possibly the largest reduction in state and public employees ever before in history. 

Trend Toward Concierge Medicine + Obamacare With a Flat Supply of MDs = Pending Doc Shortage?

From today's Boston Globe (via Newsalert): "More Doctors Gravitate Toward Boutique Practice":

"Concierge medicine is expanding as more doctors — and patients — tire of assembly-line primary care, opting for something more personal, and pricey. Concierge doctors care for a small number of patients who agree to pay an annual fee on top of insurance — $1,500 to $1,800 — in return for fast, unlimited access to the physician and to extra services like a comprehensive wellness plan. Patients also enjoy more leisurely appointments than the 15-minute visits that are now standard for most primary care doctors.

The numbers are still very small — a survey commissioned by a congressional agency last year identified 756 concierge medical doctors in the United States, up from 146 in 2005. And Florida-based MDVIP, a company that helps physicians set up these practices, said it will add six new MDVIP doctors in the Boston area this year, increasing its physicians statewide to 16.

But even a tiny number of doctors leaving traditional offices for boutique practices — out of thousands of primary care physicians — is enough to make some health care industry leaders nervous. They worry that more doctors will follow as insurers and government payers cut fees and hem in providers with regulations. And when even one doctor makes the switch, there are substantial side effects, leaving hundreds of patients to scramble for a new physician."

MP: The chart above of medical school graduates (AAMC data here) on an annual basis back to 1980 shows why the trend toward concierge medicine might present some future problems for the health care industry and Obamacare: the number of medical school graduates has been flat for 30 years, while the U.S. population has increased by 37.4% from 226.45 million in 1980 to 311.256 million today.  As more physicians abandon high-volume, paperwork-intensive practices for low-volume concierge practices, and as more Americans are soon forced into Obamacare, where will the doctors come from?

Saturday, April 16, 2011

The Higher Education Bubble Explained

Created by John Warren.

Persistent Myths and Misconceptions About the CPI

From the 2008 BLS Study "Addressing Misconceptions About the Consumer Price Index" written by John Greenlees and Robert McClelland, research economists in the BLS Division of Price and Index Number Research:

"A number of longstanding myths regarding the Consumer Price Index and its methods of construction continue to circulate; this article attempts to address some of the misconceptions, with an eye toward increasing public understanding of this key economic indicator.

Within the past several years, commentary on the CPI has extended well beyond the circle of economists, statisticians, and public officials. The strongest criticism of BLS methodology has not been concentrated in a single profession, academic discipline, or political group, but comes instead from an array of investment advisers, bloggers, magazine writers, and others in the popular press. Also, whereas in the past the CPI frequently was held to be overstating inflation, recent criticism has focused on supposed downward biases."

Conclusions from the paper about four CPI myths:  

1. It is a myth that the BLS reduced the growth rate of the CPI by assuming that hamburger is substituted for steak - it must be stated unequivocally that the BLS does not assume that consumers substitute hamburger for steak.

2. It is a myth that the use of hedonic quality adjustment has substantially reduced the growth rate of the CPI.  This myth represents a fundamental misunderstanding of the hedonic method, and it ignores the fact that the introduction of all hedonic quality adjustments since 1999 has had only a very small impact on the overall CPI.

3. It is a myth that the 1983 adoption of owner’s equivalent rent systematically reduced the growth rate of the CPI shelter index.

4. It is a myth that Social Security payments are updated by a CPI that does not include food or energy.

Each of the improvements made to the CPI over the years is based on sound economic theory and years of research by academicians and BLS economists. The methods continue to be reviewed by outside commissions and advisory panels, and they are widely used by statistical agencies of other nations.

On another note about general consumer confusion about inflation based on their frequent purchases of gas and food and infrequent purchases of most other components of the CPI:

"Many consumers feel that their personal inflation experiences are not reflected in the movements of the CPI-U. These experiences can actually be borne out because some consumers spend more than others on items with rapidly increasing prices. The CPI-U is constructed from expenditures averaged over many consumers; as a consequence, some consumers will face a lower rate of inflation than that indicated by the CPI-U, and others will face a higher rate of inflation.

Another reason for the potential difference between the CPI-U and a consumer’s experience of inflation is that the prices of many frequently purchased items, especially necessities such as food and gasoline, recently have been rising more rapidly than the CPI as a whole. Because theCPI is an average of the inflation rates of many different items, if some prices are growing more rapidly than the CPI, then other prices must be growing more slowly."

The BLS quotes David Leonhardt in the NY Times: "Price increases are simply more noticeable—more salient, as psychologists would say—than price decreases. Part of this comes from the notion of loss aversion: human beings dislike a loss more than they like a gain of equivalent size. You hate that ground chuck now costs $2.83 a pound, but you didn’t notice that oranges are 31 percent cheaper than they were a year ago."

(MP: To use a more recent example, how many consumers have noticed that eggs are 7.5% cheaper than a year ago?)
Conclusion from the BLS: "Finally, the CPI is not, and can never be, a perfect index. Moreover, all of the topics raised in the recent commentary on the CPI—including the methods for dealing with consumer substitution, quality change, and owner-occupied housing—are critically important to the accuracy of the index. The very existence of the CPI methodological changes discussed here attests to the fact that the BLS must always be working to enhance the index. The BLS benefits from the work of academics and others who identify ways in which the CPI can be improved. The BLS also benefits when the public understands how the CPI is constructed and what the index’s strengths and limitations are. It is hoped that this article will help increase that public understanding."  

MP: I believe that the BLS is conscientiously and objectively performing a very difficult and challenging job of calculating a consumer price index, despite conspiracy claims that the government is engaged in politically-motivated distortions of the CPI to either over-state or under-state "real" inflation to meet some political goals or objectives.  And compared to other countries around the world, I would suggest that the CPI calculated in the U.S. is probably the "gold standard" in terms of its reliability, consistency, transparency and its lack of politically-motivated distortions.   

Culinary Choice and Freedom: Keep Food Legal!

Keep Food Legal (KFL) is "the first and only nationwide membership organization devoted to culinary freedom," here are some of the organization's principles from its mission statement:

"We support the right of every American to grow, raise, produce, buy, sell, cook, and eat the foods of their own choosing. KFL’s mission is to promote goodwill, fellowship, and a sense of common purpose among those who grow, raise, cook, and sell food—and those who buy and eat it.

KFL will thrive and be a non-partisan force for culinary choice and freedom by coalescing the food community—food producers, farmers, food sellers, chefs, home cooks, diners, foodies, grocers, bar owners, and restaurateurs. 

KFL advocates abolishing all food-related government subsidies. Government subsidies distort prices and demand, cause environmental problems, and have played a large role in creating America’s obesity problem.

KFL will work to defeat food regulations and bans which limit our freedom to produce, cook, buy, and sell the foods we want. The government has no right to tell people what we can and can’t eat.

KFL will advocate at the federal, state, and local levels in favor of more food choices. It is not enough to oppose bad new laws. We will work—in legislatures and in the courts—to roll back bad ones already on the books."

Here's one example of the type of culinary freedom that KFL would probably support: the "underground night food raves" in San Francisco (pictured above), featured in the NY Times article "They Gather Secretly at Night, and Then They (Shhh!) Eat":

At this quasi-clandestine monthly event, a tribal gathering of young chefs, vendors and their iron-stomached followers are remaking the traditional farmers market as an indie food rave. In a sense it is civil disobedience on a paper plate

The underground market seeks to encourage food entrepreneurship by helping young vendors avoid roughly $1,000 a year in fees — including those for health permits and liability insurance — required by legitimate farmers markets. Here, where the food rave — call it a crave — was born, the market organizers sidestep city health inspections by operating as a private club, requiring that participants become “members” (free) and sign a disclaimer noting that food might not be prepared in a space that has been inspected.

Some see the growth of the underground markets as part of a high renaissance of awareness for a Fast Food Nation generation, with its antipathy for the industrial food machine. In the recesses of the markets, a certain self-expressive, do-it-yourself “craftness” flourishes.

Amateur cooks around the country are pushing to have the right to sell unlicensed goods directly to consumers. So-called “cottage food” laws that allow products considered nonhazardous, like pies and cookies, exist in 18 states, with five more considering similar legislation."

No Wage-Price Spiral if Wages Refuse to Spiral

In a recent CD post, I posed the question: "Can We Have Inflationary Pressures Building in the U.S. With Falling Home Prices and 2% Wage Increases?" I also recently observed on CD that "MIT's BPP Monthly Inflation Rate Has Been Falling."  Little did I know that I was apparently channeling Paul Krugman, or maybe he's channeling me now (kinda scary either way), because he makes the exact same two points on his blog today:

1. "I’ve taken to looking at the Billion Price Index, which looks a lot like the goods-only, but with much higher frequencies. And right now the BPP index is clearly indicating that the big price bump of early 2011 is fading away."

2. "And taking the longer perspective, you can’t have a wage-price spiral if wages refuse to spiral; and all indications are that wages are being held down by high unemployment, never mind gas and food prices (see chart above).  But there’s nothing here to suggest any reason to consider inflation a problem."

MP: Here are a couple of points about the graph above, showing annual wage increases in the BLS series "Average Hourly Earnings of Production and Nonsupervisory Employees: Total Private" (data here).  Krugman shows a graph of the same annual wage inflation data over a shorter period of time.  

1. There has been a downward trend in annual wage increases since 2007, when wages were increasing at an annual rate above 4%, compared to only 2% for the most recent 12-month period through March 2011.  

2. These are actual market-based hourly wages, and therefore not subject to the measurement issues that are frequently cited by those who think the CPI significantly overstates or understates actual inflation.   

3. The chart also shows that the inflationary episode of the 1970s and early 1980s in the U.S. was accompanied by rising wages which peaked out at an annual increase above 9% in 1981. Since wages are simply the price of labor, and because inflation is a general overall increase in prices in general and on average, it would follow that rising inflationary pressures would have to include rising inflationary wage increases, which we haven't seen yet, as Krugman observes.

As I concluded before: It would be historically unprecedented to start experiencing rising inflation in 2011 with stagnant wages, and unless and until we start seeing rising wages we might not see higher inflation this year.

The City That Outsourced Everything

From Reason.tv: "While cities across the country are cutting services, raising taxes and contemplating bankruptcy, something extraordinary is happening in a suburban community just north of Atlanta, Georgia.

Since incorporating in 2005, Sandy Springs has improved its services, invested tens of millions of dollars in infrastructure and kept taxes flat. And get this: Sandy Springs has no long-term liabilities. This is the story of Sandy Springs, Georgia—the city that outsourced everything."

Friday, April 15, 2011

Mpls. Expands Number of Food-Truck Vendors

The invasion of the food trucks comes to Minneapolis!
Minneapolis-St. Paul Business Journal -- "The Minneapolis City Council today approved the expansion of the number of food-truck vendors permitted in the city, while also allowing them to sell outside of downtown. Eleven vendors were allowed last year, and only within downtown.

In addition to sidewalks and private lots, the vendors now are allowed to sell food curbside at pre-approved locations, although they must pay appropriate parking-meter rates if they take up a parking spot. Also, vendors do not have to commit to a permanent location as they had to last year.

“It was a successful first year for mobile food vending in Minneapolis, and I’m hoping that this year is even more successful,” City Council Member Lisa Goodman said in a news release. “These changes are making it possible for more entrepreneurs to start mobile food businesses, while also bringing food trucks to more parts of the city and increasing the vitality of our neighborhoods and streets."

HT: Jeff Perry

Producer Price Food Inflation: Crude (High and Volatile) vs. Consumer Goods (Low and Stable)

The chart above shows the annual inflation rates for: a) crude foodstuffs and feedstuffs (e.g. wheat, corn, animals for slaughter, peanuts, cottonseed, and soybeans), and b) finished consumer foods (pasta products, processed meats, bakery products, fresh fruits and vegetables, tree nuts, and eggs), based on yesterday's BLS report on Producer Price Indexes through March.  I featured a similar chart back in February and it got a lot of attention and comments, so this is an update.

It's interesting to note the following:

1. Inflation for crude foodstuffs and feedstuffs is much more volatile (monthly standard deviation of almost 14% over the last ten years) than inflation for finished consumer foods (standard deviation of 3%). 

2. Double-digit inflation (0r deflation) rates in crude food items (like we've had for the last 9 months now starting last July) never translate into double-digit inflation (deflation) rates for finished consumer food products. 

3. The current 12-month inflation rate of 4.4% through March for finished consumer foods is only slightly higher than the 3% average over the last ten years (see red line above), and is lower than finished consumer food inflation last March of 6.6%

4. The average inflation rate for finished consumer foods over the last 12 months of 4.3% is lower than the 6.6% average during 2007 and the 6.8% average in 2008.   

MP: Perhaps this explains some of the disconnect between all of the news reports about rising wholesale and commodity food prices globally, and food inflation of less than 3% in the U.S. through March (2.9%), which is just slightly above the average over the last decade of 2.7%.

Food Truck Fiesta at Farragut Square in D.C.

There were 11 food trucks today at Farragut Square, including Sauca (my favorite), as well as DC Slices, Sol Mexican Grill and Austin Grill among others.  The website/blog Food Truck Fiesta has all of the details and daily maps of foot truck locations based on Twitter feeds. 

Financial Stress Index Back to Oct. 2007 Level

The St. Louis Federal Reserve updated its Financial Stress Index yesterday for the week ending April 8, see chart above (data here).  This index measure of the amount of financial stress affecting the markets (explanation here) based on 18 individual variables including seven different interest rates, six interest rate yield spreads, and five measures of market volatility.  According to the St. Louis Fed, each of the 18 component variables in the Financial Stress Index captures some aspect of financial stress in the markets, and the Financial Stress Index incorporates the 18 variables into a single, composite index measure that tracks the amount of overall financial stress in the markets.   

The chart above shows that the St. Louis Fed Financial Stress Index has now returned to the pre-recession, pre-financial crisis levels that prevailed back in the fall of 2007.  The reading for last week of -0.085 was the lowest stress index value since the second week of October 2007, and provides evidence that U.S. financial markets have made a complete recovery from the financial crisis in the fall of 2008 that drove the Stress Index to record high levels above 5.  

CPI Inflation Report and a 25-Year Perspective

The BLS released its Consumer Price Index report for March, with the following highlights:

1.The Consumer Price Index for All Urban Consumers increased 0.5 percent in March on a seasonally adjusted basis. Over the last 12 months, the all items index increased 2.7 percent.

2. The index for all items less food and energy rose 0.1 percent in March, a smaller increase than in the previous two months. The index for all items less food and energy has increased 1.2 percent over the last 12 months.

3. Over the last year, the energy component of the CPI increased by 15.5%, driven by a 27.5% increase in gasoline prices, but offset somewhat from a 5.5% decrease in natural gas prices.

4. Overall food prices increased by 2.9% on an annual basis, with the "food at home" component increasing by 3.6% and "food away from home" increasing only 1.9%, suggesting that restaurants are absorbing some of the food prices increases to stay competitive.

5. Apparel prices fell by -0.60% compared to last March, marking the 13th consecutive month that clothing prices have fallen on a year-over-year basis.  American consumers can thank globalization and trade for delivering the most affordable clothing in history - 50 years ago Americans spent 8% of their disposable income on clothing that was probably all "Made in the USA" and relatively expensive, and today they spend less than 3% of disposable income on low-cost clothing that is made all over the world.

MP: See the chart above for a 25-year historical view of annual inflation for both the CPI: All Items and core inflation.  Since 1985, the average annual inflation rate for both series is 2.9%, meaning that inflation today is below the 25-year average especially for core inflation at only 1.2%.  

Thursday, April 14, 2011

March Exports from LA Port Surge to Record High

The Port of Los Angeles released data today on March shipping volume, and the number of loaded outbound export containers in March surged to a new, all-time record high of 192,849 TEUs (20-foot-long cargo containers), far surpassing the previous record of 175,262 TEUs set back in August of 2008 (see chart above).  Total shipping volume at the Port of Los Angeles in March was 600,796 TEUs, which was the highest shipping activity for the month of March in four years, since the 629,000 TEUs in March of 2007 before the recession started. 

The export surge in March could be attributed to: a) the falling value of the U.S. dollar making American products more competitive in world markets, and b) the general economic worldwide recovery leading to increased demand for U.S. products overseas.  In either case, the BEA trade report for March should reflect a huge increase in U.S. exports, which would have a positive impact on first quarter GDP.  

California (-1.15m jobs) Goes On a Trade Mission To Beg Texas (+165k jobs) for Its Jobs Growth Recipe

Bloomberg -- "When California Lieutenant Governor Gavin Newsom begins meetings in Austin with Hardee’s hamburgers chief Andrew Puzder, local Chamber of Commerce Chairman Bobby Jenkins and Texas Governor Rick Perry, it’s because the most- populous state lingers in a funk, even as the U.S. pulls out of the deepest recession in half a century.

The world’s eighth-largest economy has lagged in job growth since California-based lenders such as Countrywide Financial Corp. led America into the housing bust. Unemployment in the state is 12.2 percent, more than a third higher than the national average. While signature industries such as technology, trade and tourism have rebounded, construction and government employment are weak or falling.

Newsom is one of two California Democrats in the talks starting today on how the Lone Star State created 165,000 jobs over the past three years, while California, with the country’s largest workforce, lost 1.15 million (see chart above)."

HT: Joe Vranich

Debunking the Mercantilist Trade Doctrine

The general public, politicians, the media, and even some economists have bought into a false mercantilist doctrine that: a) exports are good for the economy and b) imports are bad for the economy, which therefore implies that: c) trade deficits are bad for the economy and d) trade surpluses are good for the economy.  In a recent paper from the Cato Institute titled "The Trade-Balance Creed: Debunking the Belief that Imports and Trade Deficits Are a 'Drag on Growth,'" Daniel Griswold debunks that "consensus creed," here's a key excerpt:

"What the past 30 years show is that the U.S. economy exhibits no sign of suffering during periods when the trade deficit is expanding. To the contrary, the U.S. economy grew more than three times faster during periods when the trade deficit was expanding as a share of GDP compared to those in which it was shrinking (see chart above, click to enlarge):

1. Stocks, as represented by the Standard and Poor’s 500 Index, climbed an annualized average of 11 percent during periods when the trade deficit was “worsening,” compared to a less than 1 percent annual advance during periods when the deficit is “improving.”

2. Despite worries about the impact of the trade deficit on the U.S. industrial base, manufacturing output expanded a robust 5.2 percent a year during periods of rising deficits, in contrast to a 2.0 percent decline when the deficit was contracting.

3. Trade deficits are routinely blamed for job losses, yet civilian employment grew a healthy 1.4 percent annually during periods of rising trade deficits while job growth was virtually zero during those periods when the deficit was declining. Ditto for the unemployment rate. The jobless rate ticked down 0.4 percentage points per year on average when the trade deficit was on an upward trend, and jumped a painful 1.0 point per year when the trade deficit was shrinking. In four of the five periods in which imports did outpace exports, the unemployment rate fell, and in every period in which imports grew more slowly than exports, or fell more rapidly, the unemployment rate rose.

4. Although the creed would imply that declining deficits should accompany economic expansions, they are invariably linked with recessions. In fact, all three of the periods of declining trade deficits include the three most recent recessions. The Great Recession of 2008–09 coincided with the sharpest “improvement” in the trade deficit in the past 30 years. That is small comfort to the eight million Americans who lost their jobs during the recent downturn.

Here's Dan's conclusion: "The time to reform the prevailing doctrine of the trade balance is long overdue. The goal of U.S. trade policy should not be to maximize exports and minimize imports in a misbegotten quest for “balanced trade.” The goal should be to maximize the freedom of Americans to buy and sell in global markets for mutual gain, whatever the mix of goods, services, and assets we freely choose to trade."

Top Ten 2011 "American-Sourced" Content Cars

2011 NorthAmerican-Sourced Content
1.Dodge Avenger83%
2.Chrysler 20081%
3.Toyota Camry80%

Toyota Avalon80%

Honda Accord80%
4.Chevrolet Impala77%
5.Cadillac CTS76%

Buick Lucerne76%
6.Chevrolet Malibu75%

Chevrolet Corvette75%

Lincoln Town Car75%

Acura TL75%
7.Dodge Caliber73%

Chrysler 30073%
8.Dodge Charger70%

Dodge Challenger70%

Honda Civic70%
9.Chevrolet Camaro66%
10.Toyota Matrix65%

Cadillac STS65%

Cadillac CTS65%

Ford Taurus65%

Ford Mustang65%

Motor Trend -- "When “Made in America” is the most important consideration in purchasing a new car, consumers would be wise to head to a Dodge dealership and test drive an Avenger. That sedan, according to a 2011 report by the National Highway Traffic Safety Administration, has 83 percent of its parts content from the U.S. and Canada.

Above, we’ve compiled a list of the top cars with the most North American parts content list below comes from data required of automakers by law thanks to the American Automobile Labeling Act."

MP: When Cars.com compiles its list of "American-made" vehicles, it doesn't include parts from Canada as "domestic content," and the composition of the top ten is much different.  Last year, the Toyota Camry and Honda Accord took the top two places on Cars.com Top Ten 2010 domestic-parts content rankings, and together the two Japanese automakers captured five of the top 10 places.   

Even with this ranking that includes Canadian parts, it's interesting that the Toyota Camry and Honda Accord are far "more American" (80% domestic content) than American icons like the Ford Mustang, Cadillac STS and Cadillac CTS (only 65% domestic content). 

This does some serious damage to the protectionist, "Buy American" philosophy that motivates Americans to buy American-made products under the illusion that if you "buy American" products like Ford Mustangs your dollars will "stay in the country," and if you buy foreign-made products, or even products made in America by foreign automakers like Toyota or Honda, your dollars will "leave the country" for Japan.  

And if U.S. companies like Ford or GM finds it in their best economic interest to purchase 35% of their parts for Mustangs and Cadillacs from outside the U.S. and Canada, you should feel no guilt if you spend 35% of your money on products produced in China, Mexico or Brazil. 

HT: Jody Church

Thursday Links

1. No work yet in oil patch, but you’re hired. Canada’s oil patch is resorting to increasingly unusual measures to secure workers ahead of a coming labor shortage, with one company hiring engineers before work is available.

2. The latest victim of Mexico's War on Drugs in Mexico: the lime. (Thanks to Paul Kedrosky for these two items above.)

3. College librarians warm up to former enemy Wikipedia.  

4. South Korea's antidote to inflation: free text messages

5. Here's an antidote to the bone marrow shortage in the U.S.: Change the law and pay donors.  

Peter Thiel on the Higher Education Bubble

From a TechCrunch interview with  Peter Thiel (PayPal co-founder, hedge fund manager and venture capitalist) that starts with the warning: "This article will piss off a lot of you."

"For Thiel, the bubble that has taken the place of housing is the higher education bubble (see chart above). 

“A true bubble is when something is overvalued and intensely believed,” he says. “Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”

Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.
Like any good bubble, this belief– while rooted in truth– gets pushed to unhealthy levels. 

Thiel talks about consumption masquerading as investment during the housing bubble, as people would take out speculative interest-only loans to get a bigger house with a pool and tell themselves they were being frugal and saving for retirement. Similarly, the idea that attending Harvard is all about learning? Yeah. No one pays a quarter of a million dollars just to read Chaucer. The implicit promise is that you work hard to get there, and then you are set for life.  It can lead to an unhealthy sense of entitlement. “It’s what you’ve been told all your life, and it’s how schools rationalize a quarter of a million dollars in debt,” Thiel says.

Thiel isn’t totally alone in the first part of his education bubble assertion. It used to be a given that a college education was always worth the investment– even if you had to take out student loans to get one. But over the last year, as unemployment hovers around double digits, the cost of universities soars and kids graduate and move back home with their parents, the once-heretical question of whether education is worth the exorbitant price has started to be re-examined even by the most hard-core members of American intelligensia.

Making matters worse was a 2005 President George W. Bush decree that student loan debt is the one thing you can’t wriggle away from by declaring personal bankruptcy, says Thiel. “It’s actually worse than a bad mortgage,” he says. “You have to get rid of the future you wanted to pay off all the debt from the fancy school that was supposed to give you that future.”

Great TED Talk on Inspirational Leadership

Simon Sinek has a simple but powerful model for inspirational leadership all starting with a golden circle and the question “Why?” His examples include Apple, Martin Luther King, and the Wright brothers — and as a counterpoint Tivo, which (until a recent court victory that tripled its stock price) appeared to be struggling.

HT: Bob Wright

10-Year History of PPI Inflation Update

Based on today's PPI report from the BLS, the charts above are updated from last month's CD post on producer price inflation where I suggested that it's hard to make a strong case for producer price inflation when looking at a 10-year history of the PPI and its three main components.  

The 12-month inflation rate of the crude material component of the PPI has been trending downward, and is less than half of the rate compared to a year ago, and about one-third the peak for crude material inflation in 2008. The other main PPI components (intermediate goods and finished goods) have turned up a little bit recently at annual rates, but finished goods inflation is below its year-ago level, and both finished good and intermediate inflation rates are still below their levels in 2007, and about the same as their levels from mid-2002 to 2006. 

The bottom chart above for just 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 and April of last year, below the 2008-levels, and about the same as the 2004-2005 period.  And the PPI level of 199.1 in March is still 3.1% below the peak of 205.5 in July 2008.  

Update:  Brian Wesbury and Robert Stein present an opposing view, and make the case here for inflation:

"The inflation problem at the producer level continues to get worse. While headline producer price inflation fell short of consensus expectations in March, we would not call an increase of 0.7% good news. Prices are still up 5.8% in the past year and accelerating upward. In the past six months producer prices are up at a 10.9% annual rate; in the past three months they’re up at a 13% rate. Most of the gain in March was due to energy prices. 

But, while the Federal Reserve can still claim core inflation is low for consumers, core producer prices are accelerating, up 0.3% in March and up at a 4.2% annual rate in the past three months. Further up the production pipeline, core intermediate prices increased 0.9% in March and are up at a 9.8% annual pace in the past six months; core crude prices fell 2.3% in March but are still up at a 29.5% rate in the past six months. Based on these inflation signals and the current state of the economy, the Fed’s monetary policy is way too loose."

Wednesday, April 13, 2011

L.A. Crack Dealer on The Economics of Drugs

"Lots of economists write about the economics of illegal drugs. Here's a paper from a Harvard guy. Here's another co-authored by a couple Chicago guys. One thing missing from those papers: Actual drug dealers.

So for this podcast on NPR Planet Money, we run some economic theory by Freeway Rick Ross (pictured), who was one of the biggest crack dealers in LA in the '80s and '90s. He went to prison in '96, and was released on parole in '09."

March Pulse of Commerce Index At 32-Month High

"The Ceridian-UCLA Pulse of Commerce Index (PCI), a real-time measure of the flow of goods to U.S. factories, retailers and consumers, rose 2.7% on a seasonally and workday adjusted basis in March, more than offsetting the 0.3% decline in January and the 1.5% decline in February. On a quarter over quarter basis, the PCI is up 3.9% at an annualized rate, a welcome acceleration from the relatively weak growth of the PCI experienced in the second half of 2010.

“The PCI growth of 3.9% for the first quarter of 2011 is a middle-of the-road number, signaling that we are not in either one of the extremes. In other words, the recession is over, but we are not yet experiencing a robust recovery,” said Ed Leamer, chief PCI economist and director of the UCLA Anderson Forecast. “This means that for the coming quarter, the PCI is expecting GDP growth close to historically normal levels of around 3% and normal increases in payroll jobs at approximately 150,000 per month. The unemployment rate is likely to hold stubbornly to its current level but could be driven down by discouraged workers dropping out of the labor force.”

“We are more optimistic than last month, but are still targeting GDP growth of 3% for the first quarter of 2011, which remains at the low end of the range of expectations,” continued Leamer. “The outlook remains consistent with the PCI’s view of the fundamental health of the US economy over the past four months.”

Background: The PCI is based on real-time diesel fuel consumption data for over the road trucking and serves as an indicator of the state and possible future direction of the U.S. economy. By tracking the volume and location of fuel being purchased, the index closely monitors the over the road movement of raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers."

MP:  The PCI in March was the highest since June 2008, more than two and-a-half years ago, and is another sign that a V-shaped economic recovery is underway.  In another sign today of increased deliveries of raw materials and finished goods was a story about a new shortage of rail cars titled "Rail Woes Hit Auto Deliveries" in the WSJ, which reported that:

"As the U.S. economy contracted during the recession, railroad operators put hundreds of thousands of rail cars into storage and cut their staffs. Now that shipments of autos, coal and consumer goods are rising again, the nation's railroads don't have enough rolling stock for fast deliveries. The industry, which ran at slower speeds in the first quarter due to heavy snow storms, also was caught off guard by the quarter's 11.4% surge in automotive railcar demand as auto makers ramped up production. The shortage of freight cars has added anywhere from a few days to a few weeks to the time it takes for new cars to reach dealers, forcing auto makers to park finished vehicles near plants around the country."