Professor Mark J. Perry's Blog for Economics and Finance
Saturday, April 09, 2011
The Good News: Worker Productivity and Profits Per Workers Are At Record Highs. The Bad News: That Probably Means A Record Jobless Recovery
The top chart above shows that real GDP in the fourth quarter of 2010 was slightly higher (by 0.14%) than real output in the fourth quarter of 2007 when the recession started. But even though the economy has made a complete recovery from the Great Recession in terms of real economic output, the U.S. economy is producing more real GDP today than in 2007 with 7.3 million fewer private sector jobs. This current economic recovery is an amazing story of huge increases in worker productivity (producing more output today with 6.3% fewer private sector workers than in 2007) that might be unprecedented in U.S. history over any three year period of time, or in any post-recession period.
What does that surge in worker productivity mean for the bottom lines of American companies? The bottom chart above shows that real corporate profits per private sector job reached an all-time record historical high of $11,552 in the fourth quarter of 2010 (measured in 2010 dollars). That's 65% higher than the recession-low of about $7,000 per worker in fourth quarter of 2008 and 7.5% above the pre-recession high of $10,740 in 2006.
That's the good news about record-high worker productivity and the resulting record-high real corporate profits per private sector worker. The bad news is that these trends might translate into a record-length "jobless recovery," as U.S. companies have been able to expand output and profits to record levels, but with millions and millions of fewer workers. Taken together, these two trends might explain why many companies have been reluctant to hire back more workers - why increase the labor force when output and profits are at record-levels?
A recent AP news report discusses these trends:
Friday, April 08, 2011
Rising Supply, Advances in Drilling Technology and Conservation Will Counteract Rising Oil Prices
1. Basic economic theory tells us that one of the predictable consequences of resources becoming more expensive is that higher prices will stimulate discovery, exploration and greater production on the supply side. (Update: See "Peak Idiocy" here for a review of ECN 101 regarding energy prices.) And that's exactly what we're seeing now in Texas for oil and gas, according to today's WSJ article "Chevron Rekindles Old Texas Flame: High Oil Prices, New Technologies Once Again Make the Permian Basin a Popular Spot for Drilling," here's an excerpt:
Bottom Line: Due to: a) increased oil production in the U.S. and around the world and b) advanced drilling technologies on the supply side, along with c) increased conservation on the demand side, will all counteract and put some limits to how high oil and gas prices will rise.
Update: Another factor that will moderate rising oil/gas prices is the substitution effect of switching to other currently available alternative energy sources like natural gas, along with the increased incentive to develop new, alternative energy sources.
WSJ Interactive Map/Graphic of Global Int. Rates
Here's a really interesting interactive WSJ map/graphic of global central bank interest rates, on a monthly basis back to May 2004. If you watch the monthly time series, you'll see that the U.S. Fed started lowering interest rates in September 2007, about a year ahead of the interest rate cuts in Europe that started in October 2008. Now the ECB has moved ahead of the Fed by raising rates this month by a quarter point to 1.25%, thus the title of the front page story that the graphic accompanies: "Europe's Rate Rise Signals End of Cheap-Money Era."
Leading Economic Indexes Increase in Feb.
What's Your News IQ? Take the Test and Find Out
Take the new Pew Research Center News IQ test here.
Thursday, April 07, 2011
The Pandas Are "Made in China." So What Are They Doing at the Smithsonian's NATIONAL Zoo in DC?
"After the meeting with Sanders, Smithsonian officials said they would sell more American-made souvenirs and promised to devote one gift shop to American-made products. Sanders said, "It's a start."
Obviously, if that all seems like nonsensical nitwitery, it is. But then so is Bernie Sanders' "War on Chinese Bobbleheads."
Recovery Watch: Rail,Temp Help, Air Traffic All Up
1. The American Association of Railroads reported today that U.S. railroads originated 305,905 carloads for the week ending April 2, which was an increase of 5.7% from the comparable week last year, and is the highest level for carload rail traffic since late 2008 (see chart above). Intermodal rail containers increased to 234,208 trailers and containers last week, which was 19.4% above the same week last year.
The Wholesale Liquor Cartel Harms Consumers
Jobless Claims Remain Below 400,000 for 6th Week
The Department of Labor reported today that initial jobless claims fell by 10,000 for the week ending April 2, bringing the four-week moving average down by 5,750 to 389,500 (see chart). For the first time since July 2008, the four-week average for jobless claims has remained below the benchmark 400,000 level for six consecutive weeks, and provides additional evidence that conditions in the labor market are gradually improving.
According to Reuters:
Wednesday, April 06, 2011
CHART: International Public Opinion on Capitalism
The chart above is from today's online version of The Economist, showing an international comparison of public opinion on the free market, with some interesting results:
1. Brazil ranks #1 for responding "strongly agree" that the free-market system is the best, and Germany ranks #1 for "strongly or somewhat agree."
2. Germany, Brazil, China and Italy are rank higher than the U.S. for the top two most favorable responses.
3. Citizens of Germany and Italy view free-markets more favorably than the Brits, and a lot more favorably than the French.
4. Japan ranks lowest for the most favorable response (strongly agree).
Chart of the the Day: Real Gold Prices, 1970-2011
Record-high gold prices have been in the news lately, here's an example of a new story today from Bloomberg titled "Gold Advances to Record for Second Day":
The chart above (click to enlarge) displays real, inflation-adjusted gold prices back to 1970 (data are from Global Financial Data, paid subscription required), and shows that the real price of gold peaked on January 21, 1980 at a closing price of $892.10 per ounce in current dollars, but that's more than $2,500 per ounce in today's dollars. Compared to that peak real price, the price of gold today at $1,462.30 per ounce is 42.5% below the 1980 peak.
If You Subsidize Something, You Get More of It
P.J. O’Rourke: "Atlas Shrugged. And So Did I"
It’s easy to make fun of Rand for being a simplistic philosopher, bombastic writer and—I’m just saying—crazy old bat. But the 20th century was no joke. A hundred years, from Bolsheviks to Al Qaeda, were spent proving Ayn Rand right."
Blog Stats: 159 Million
According to BlogPulse, there are more than 159 million blogs, and 68,825 new blogs have been created in just the last 24 hours.
Natural Gas Prices Fall to Lowest Levels Since 2002
While rising oil and gas prices have captured all of the media attention lately, there’s another energy story about falling prices that has gone largely unreported. According to data released last week by the Department of Energy, natural gas prices for residential consumers fell to a seven-year low in January of $9.80 per 1,000 cubic feet. When adjusted for inflation, American consumers haven’t had cheaper natural gas since December 2002, more than nine years ago (see top chart above, data here). The bottom chart above shows a similar price decline for commercial customers, who paid less for natural gas in January this year (adjusted for inflation) than in any month since November 2002 (data here).
About 25% of energy in the U.S. comes from natural gas, so the falling prices for this energy source should offset some of the rising costs of oil and gas, and also act to offset some of the overall inflationary pressures. Read more here at The Enterprise Blog.
If You Tax Something, You Get Less of It
From the Boston Globe:
5 Reasons to Be Bullish About America in Long Run
1) The United States is the home of the entrepreneur.
2) The United States is the most open/flexible society the world has ever seen.
3) The brightest minds from around the world dream of coming to the United States.
4) English is the universal language.
5) Americanization remains a powerful and growing – though resented – economic and social trend throughout the world. (To quote the advertising/marketing giant WPP Group’s CEO, Sir Martin Sorrell, “Globalization is a misnomer. The better word is Americanization.”)
~Jeffrey Saut via Real Clear Markets
Tuesday, April 05, 2011
NY Fed Model: 1-in-232 Chance of 2012 Double-Dip
The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" yesterday with treasury yield data through March 2011, and the Fed's recession probability forecast through March 2012. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (3.41% in March) and 3-month Treasury bills (0.10%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here).
The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 37-42% (see chart above), and has been declining since then in almost every month. For March 2011, the recession probability is only 0.26% and for March of next year the recession probability is slightly higher at 0.43%. According to the NY Fed Treasury Spread model, the chances of a double-dip recession through March of next year is less than one-in-200.
Paul Ryan's Plan for a Debt-Free Nation
Paul Ryan (R-Wisconsin) presented his "Path to Prosperity" budget plan today at AEI, here's the full text of his talk, here's his WSJ editorial today, here's the link to the video, and here's the full 73-page plan.
Americans for Tax Reform prepared the chart above to compare Ryan's budget to the Simpson-Bowles (Obama) commission (and the Coburn-Chambliss “Gang of Six” which is introducing legislation modeled after Simpson-Bowles).
In his talk today, Paul Ryan quoted a famous American president:
"The lessons of history, confirmed by the evidence immediately before me, show conclusively that continued dependence upon relief induces a spiritual and moral disintegration fundamentally destructive to the national fiber. To dole out relief in this way is to administer a narcotic, a subtle destroyer of the human spirit. It is inimical to the dictates of sound policy. It is in violation of the traditions of America."
And Rep. Ryan concluded his talk by saying:
Two Americas: Public vs. Private Employees
1. "If you want to understand better why so many states—from New York to Wisconsin to California—are teetering on the brink of bankruptcy, consider this 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). 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 (see chart above).
The report, which focused on 14 municipalities, found that city and town workers typically pay only $11 to see their primary care physician, half the amount typically paid by workers in the state, federal, and private sectors." (HT: Steve Bartin)
$11 for an office visits, that's "almost free," so it's no wonder medical costs are so high for city workers, they probably go to the doctor every time they have a mild cold.
Monday, April 04, 2011
Employment Trends Index Increases for 6th Month
Cartel Nation: Barriers to Entry Stunt Job Growth
HT: Instapundit via Newsalert
MIT's BPP Monthly Inflation Rate Has Been Falling
I'm not sure what's going on here, or if this means anything, but the monthly inflation measure from the MIT Billion Prices Project has been falling steadily since mid-February, see chart above. From the recent peak of 0.82% on February 18, the monthly BPP inflation rate has fallen almost in half, to 0.48% as of April 3, 2011.
Jobs, Jobs, Jobs, Jobs
Random Monday Links
1. Gloom and doom from Robert Reich: "The Truth About the Economy that Nobody In Washington Or On Wall Street Will Admit: We’re Heading Back Toward a Double Dip."
3. The Mackinac Center reports that Michigan’s recent economic revival of late can be traced in part to two little-known sources – China and Saudi Arabia. Michigan’s international exports increased 36.3% from 2009 to 2010, the third-largest increase in the nation.
4. Daniel Yergen writes in the WSJ on the promise of shale gas: "Estimates of the entire natural-gas resource base, taking shale gas into account, are now as high as 2,500 trillion cubic feet, with a further 500 trillion cubic feet in Canada. That amounts to a more than 100-year supply of natural gas."
6. Cuban blogger Yoani Sanchez meets Jimmy Carter in Havana.
7. Market-driven concierge medicine is expanding significantly, but its spread could worsen the shortage of primary care doctors when Obamacare brings in more than 30 million newly insured patients. (Thanks to Steve Bartin.)
Sunday, April 03, 2011
Another Name for "Trade Deficit" is "Capital Account Surplus," Balance of Payments Always = 0
A Fraudulent "Ph.D" in California With Politically Correct Results Keeps His Job, While A Real UCLA Ph.D. Scientist Gets Fired For Dissenting
The California Air Resources Board (CARB) claims that diesel particulates, a type of pollution emitted from buses and trucks, contributes to 2,000 premature deaths in California each year.
And what happened to the fraudulent "Doctor" Tran? He got a 60-day suspension and a demotion, but still works as an air pollution specialist for the state of California despite his record of fraudulent misrepresentation of his academic credentials.
Bottom Line: In California, it's more important that your scientific results are politically correct than scientifically accurate, and as long as your results are politically correct, it doesn't matter if you've fraudulently misrepresented your credentials.
Quotes from Yesterday's Wall Street Journal
Markets In Everything: Princess Boot Camp
Ms. Jerramy Fine, 33, the American founder of Princess Prep, says that "It gives girls the ability to know that they can be in any situation - whether it's with the queen, their parents, their teacher, a friend – and know that they're behaving the right way. And I think that's important, royalty or no royalty."
Don Boudreaux: Don't Fear the Trade Deficit
"To lament an American trade deficit, is to lament the fact that foreigners are investing in America. And that seems very odd."
Snarky Fashion Rant: Guys Wearing Shorts in Winter
Maybe this is something like the retarded fashion practice of wearing a baseball cap backwards, where the thinking must be something like this: "It doesn't make any logical or rational sense to wear a baseball cap backwards (or wear shorts in the middle of winter), and in fact it's somewhat retarded. But maybe it's so goofy and retarded, that if enough people start doing it, it will somehow be perceived as being cool and fashionable, instead of being nonsensical and stupid."
Help me out here, has anybody else noticed this?