Monday, December 19, 2011

The Dreadful Legacy of North Korean Dictator Kim Jong Il in One Satellite Picture and One Chart

This one picture above of the Korean peninsula does a pretty good job of capturing the legacy of Kim Jong Il by comparing electricity usage at night between North and South Korea.

Here's another comparison: The CIA estimates that North Korea's GDP per capita in 2009 was $1,800.  That's equivalent to the inflation-adjusted U.S. per capita GDP back in the year 1847, more than 150 years ago (see chart below).  And South Korea's per capita GDP of $30,000 is about 17 times higher than its neighbor to the north.   

Gingrich's Intrade Odds and Gallup Lead Collapse

In a huge reversal that has happened in just the last week, Gingrich's Intrade odds are down below 9% and Romney has surged back up to almost 70% (see chart above). 

Related from Gallup: "After enjoying 14- to 15-percentage-point leads over Mitt Romney in early December, Newt Gingrich is now statistically tied with Romney in national Republican preferences for the 2012 GOP presidential nomination: 26% for Gingrich vs. 24% for Romney. This follows a steady decline in support for Gingrich in the past 10 days."

Cafe Hayek Blog Closes Comments Section

In October 2007, Greg Mankiw closed the comments section on his blog with this message "Why Comments Are Gone."  

Now Don Boudreaux and Ross Roberts have just announced that they are indefinitely closing the comments section of Cafe Hayek, with this message "Comments to be Closed."   

In both cases, the economics bloggers expressed frustration with the lack of civility among some commenters, and the "e-food fights." I've also experienced those same frustrations, along with concerns about the additional time it takes to moderate some comments, check the spam filter on a daily basis to free some of the comments stuck there, etc.  But for now, the comments section on Carpe Diem will remain open! 

Sunday, December 18, 2011

Apple 1991 PowerBook 100 vs. 2011 MacBook

Here's a website with some great historical data on Apple products back to 1976, with specifications and retail prices. The laptop above is the 1991 PowerBook 100, which retailed for $2,500 ($4,150 in today's dollars), and had a processor speed of 16 MHz and disk space of 30 MB.  Today's MacBook Pro (picture below) is 125 times faster (2 GHz) and has almost 17,000 times more disk space (500 GB) and sells for $1,800.   

Margaret Thatcher Addresses Income Inequality

Meryl Streep was interviewed tonight on "60 Minutes" about her new leading role - as British Prime Minister Margaret Thatcher in the upcoming movie "The Iron Lady."  That reminded me of the classic video clip above of Margaret Thatcher's last House of Commons Speech on November 22, 1990, where she addresses income inequality and expresses her opposition to a single European currency.

Markets in Everything: Whipped Cream Vodka

And marshmallow-flavored vodka......

Saturday, December 17, 2011

Everything You Need to Know About Shale Gas

Business Insider -- "There has been a surge in domestic energy production in 2011, and a large part of it has been attributed to the shale boom. In fact, the U.S. has twice as much natural gas as Saudi Arabia has oil. Shale gas is touted as a cleaner form of energy, and with its contribution to the economy, those in favor of recovering these resources argue that it would cut American and global dependence on OPEC. 

Yet 'fracking,' a crucial part of shale gas extraction, is considered dangerous and many fear its impact on the environment. In the EU, member states are diverging significantly in national policy responses to shale gas regulation.

Where does shale come from? How can you cash-in on the shale boom? Why is fracking so controversial? A report from the U.K. think tank The Global Warming Policy Foundation, authored by Matt Ridley gives us a quick breakdown of everything you need to know about the shale gas market, check it out here."

HT: Lee Coppock via Craig Newmark

Intrade Odds Quickly Turn Against Newt

What a difference 4-5 days make....
After almost closing the gap about a week ago, the Intrade odds have turned against Newt, see chart above.  Current odds are 16.9% for Newt and 61.2% for Romney.

Friday, December 16, 2011

Holiday Shopping? Consider the Most Economically Efficient Gift of All: Cash, to Avoid Deadweight Loss

"I am not sure why people give each other store-bought gifts instead of cash, which is never the wrong size or color. Some say that we give gifts because it shows that we took the time to shop. But we could accomplish the same thing by giving the cash value of our shopping time, showing that we took the time to earn the money."

In the 1993 American Economic Review article "The Deadweight Loss of Christmas," Yale economist Joel Waldfogel estimated that holiday gift-giving destroys between 10% and a third of the value of gifts.  Reason? The best the gift-giver can do is to duplicate the choice the gift-recipient would have made on his or her own with the cash-equivalent of the gift.  In reality, it's much more likely that the recipient will be worse off with the gift chosen by the gift-giver than if the recipient had made his or her own choice with the cash.

In the Seinfeld episode above, Elaine takes the standard view and doesn't appreciate Jerry's gift of cash, even though he took the time to gift-wrap the cash.  

Markets in Everything: Mobile Cigar Lounge

"Today’s smoking bans may cramp some consumers’ style, but they’ve also launched a world of new business innovations. Now joining the ranks of ashvertising, social e-cigarettes and digitally enhanced packaging is CigaRv, a “Mobile Man Cave” on wheels that brings a cigar lounge to any event, regardless of local smoking laws (see photo above)."

HT: Curtis Purington

Heavy Metal, Made in the USA Is Coming Back

From the article by Joel Kotkin "Heavy Metal Is Back: The Best Cities For Industrial Manufacturing," in New Geography:

"For a generation American manufacturing has been widely seen as a “declining sport.” Yet its demise has been largely overplayed. Despite the many jobs this sector has lost in the past generation, manufacturing remains remarkably resilient, with a global market share similar to that of the 1970s.

More recently, the U.S. industrial base has been on a powerful upswing, with employment climbing steadily since 2009. Boosted by productivity gains and higher costs in competitors, including China, U.S. manufacturing exports have grown at their fastest rate since the late 1980s. In 2011 American manufacturing continued to expand, while Germany, Japan and Brazil all weakened in this vital sector.

This shift towards domestic energy augurs well for a huge and economically beneficial shift in America’s longer term economic prospects. Cheap natural gas, for example, makes petrochemical production in America more competitive than anyone could have imagined a decade ago. Linkages with Mexico in terms of energy as well as autos has made Texas the nation’s primary export super-power, with current shipment 15% to 20% above pre-crisis levels.

Already the boom in natural gas has sparked a considerable industrial rebound in parts of eastern Ohio including the building of a new $650 million steel plant for gas pipes in the Youngstown area. Karen Wright, whose Ariel Corporation sells compressors used in gas plants, has added more than 300 positions in the past two years. “There’s a huge amount of drilling throughout the Midwest,” Wright says. “This is a game changer.”

But the industrial rebound is not only about energy. Another critical factor is rising wages in East Asia, including China. Increasingly, American-based manufacturing is in a favored position as a lower-cost producer. Concerns over “knock offs” and lack of patent protection in China may also spark a growing “Made in the USA” trend."

HT: Steve Bartin

Nat Gas Drops in Price, Thanks to Abundant Supply

One interesting factoid from today's CPI report:

The item in Table A with the largest monthly decrease from October to November was the 4.4% decrease for piped natural gas (that compares to a 2.9% monthly drop in gasoline prices), and it's the only item that has fallen in price over the last 12 months (-1.3% vs. a 19.7% increase in gasoline from November 2010 to November 2011).  

Welcome to the shale gas revolution, where thanks to modern, advanced drilling technologies, we've become the "Saudi Arabia of Natural Gas," which translates into lower prices for U.S consumers.

Amid the Gloom, U.S. Economy Quietly Improves

"Despite all the negative news, there are signs the U.S. economy is doing better than at any point since 2007, with moderate growth of about 2 percent, savings and consumer sentiment up, and unemployment still high but stagnant.

Still, insofar as our national conversation of how we are doing is shaped by these statistics, it is striking how at odds they are with the tone. The numbers are OK and getting better. The national discussions is grim and getting grimmer.

It is easy to come up with reasons why the stream of better news about our economic system has failed to dispel the widespread sense that all is not well and getting worse. But more interesting is that in spite of how gloomy we seem to be, the vast majority are simply going about their lives and plugging away at their hopes and dreams with less bitterness and less edge than the frantic tones of the media and the harsh patois of political discussion."

~Zachary Karabell writing in The Daily Beast 

HT: Warren Smith

Thursday, December 15, 2011

Cheap Abundant Shale Gas Could Help Spark a U.S. Manufacturing Renaissance, and Create 1m Jobs

PricewaterhouseCoopers -- "The abundance of shale gas resources may spark a U.S. manufacturing renaissance with economic benefits that include cost savings, greater investments to expand U.S. manufacturing facilities and increased levels of employment, according to a new report released today by PwC titled, “Shale Gas: A renaissance in US manufacturing?” To achieve these results, however, PwC says that manufacturers must help manage the environmental, regulatory and tax concerns created by shale gas resources.

“An underappreciated part of the shale gas story is the substantial cost benefits that could become available to manufacturers based upon estimates of future natural gas prices as more shale gas is recovered,” said Bob McCutcheon, U.S. industrial products leader, PwC. He continued, “In fact, the number of U.S. chemicals, metals and industrial manufacturing companies that disclosed shale gas potential and its impact so far in 2011 easily surpassed that of the last three years combined, indicating this is of growing importance in the outlook of U.S. manufacturers. The significant uptick in shale gas commentary among the manufacturing community reflects the positive influence that shale gas is having from investment, operational and demand standpoints.”

“Lower natural gas prices resulting from incremental shale gas production have the potential to add over one million manufacturing jobs in the U.S. by 2025. The expectation of the new shale gas resource providing a significant long-term boost to move the U.S. manufacturing employment needle shines a light across the nation amid the current labor market woes,” added McCutcheon."

MP: The chart above displays the monthly inflation-adjusted price of natural gas back to 1997, and shows that the real spot price of gas is currently selling at close to a ten-year low, and is 70-80% below the peaks in 2001, 2006 and 2009.  Additionally, gas prices over the last two years have been more stable than any two-year period since the late 1990s; so gas prices are not only close to historic lows adjusted for inflation, but are more stable than in more than a decade.  It's the fact that gas prices are now both low and stable that makes it such an attractive source of energy for American manufacturers.  

This is more evidence that the shale revolution in America is creating: a) thousands of direct jobs in the exploration, drilling, processing and delivery of natural gas, b) thousands of indirect jobs in the supply chain for drilling and exploration (fracking sand, pipes, drilling equipment, etc.), c) thousands of indirect jobs in other support industries (housing, retail, education, transportation, etc.), and d) and now maybe a million indirect manufacturing jobs as a result of lower energy costs.  

Drill, drill, drill.... you know the drill..... 

November Exports from L.A. Port Set New Record

The number of loaded export containers leaving the Los Angeles Port in November for overseas destinations reached a record high of 195,877 TEUs (20-foot equivalent units), beating the previous record of 193,547 TEUs in October (see chart above).  November exports this year are running 15% ahead of the same month last year, and above the previous month by 1.2%. Loaded import containers in October were 6.2% above the year earlier level. 

Bottom Line: Global demand for U.S. exports shipped from America's busiest container seaport has never been higher than last month, reflecting the ongoing worldwide economic growth.  Scott Grannis posted about this earlier today and shows graphically that monthly container exports from Los Angeles correlate very closely over time with total U.S. exports, but are released about a month earlier than international trade data from the BEA.  In about a month when the next trade data are released, we can look for a strong increase in November merchandise exports from the U.S.  

Thursday's Economic Data

1. 30-year mortgage rates fell to a new record low this week of 3.94%, along with a new record low for 15-year rates at 3.21%. 

2.  The Empire State Manufacturing Survey for manufacturing activity showed a strong improvement in December. The general business conditions index for New York State rose nine points to 9.5, the highest level since last May.

3. The Philadelphia Fed's index of manufacturing activity for that region remained positive for the third consecutive month and increased from 3.6 in November to 10.3 in December, the highest level since last April.  

4.  The Association of American Railroads reported gains in weekly rail traffic for the week ending December 10, with carloads up by 3.7 percent compared with the same week last year and intermodal volume up 3 percent over last year. 

Weekly Jobless Claims Fall to 3.5 Year Low

The Department of Labor reported today that seasonally-adjusted jobless claims fell to 366,000 for the week ending December 10, which is the lowest level since May 2008, three and-a-half years ago.  That was far below the increase to 390,000 claims that was expected by the market consensus, and another indication that the sub-par labor market is gradually improving.  The four-week moving average for weekly claims fell to 387,750, the lowest level since July 2008 (see chart above).

Wednesday, December 14, 2011

Japanese Automakers Employ 407,000 Americans at 63 Facilities and Hundreds of Auto Dealerships

Japan's automakers employ 407,000 Americans at these 29 plants and 34 R&D and design centers.
1. Japanese automakers like Toyota, Honda, and Nissan are responsible for more than 407,000 jobs in the U.S.  The vast majority of employees are those working at Japanese auto dealerships in the U.S., but Japanese automakers employ 50,000 American workers at 29 American vehicle, engine and parts plants, and another 4,000 at 34 major R&D and design centers, reflecting $34 billion of investment in the U.S.

2. Japanese makers are producing most of the cars they sell in America in North America -- 68% altogether.

3. Exported vehicles from Japanese plants in the U.S. last year increased to more than 145,000, up from 94,000 in 2009.  With a strong yen today, the trend will continue, and will be be supplemented by new exports of U.S.-built Toyotas to South Korea following the recent ratification of the free trade agreement.  

Those are some of the facts highlighted by USAToday based on a  Japanese Automobile Manufacturers Association report being released this week.

HT: Robert Kuehl

Carlson School of Management Flash Mob

The Carlson School of Management at the University of Minnesota received a surprise visit from a saxophonist...and nearly 300 of his friends from the University of Minnesota's School of Music this November.

HT: Kurt Barker

Why Not Make It A Green Holiday? Give a Climate-Friendly Green Gift of Carbon Offsets This Year

"Santa knows that flying around the world and making millions of gifts uses a lot of energy, which contributes to climate change. At, you can give a gift this year that reduces the carbon footprint of someone you care about. Your donation supports projects that help the climate by reducing carbon emissions."  

Just kidding of course.........

Markets in Everything: Private SF Chefs for Hire

Bloomberg -- "Kitchit is a new website that connects picky diners and party planners with cooks. Visitors to the site choose from a selection of chefs in their area‚ ranging from freelance spice-rub specialists to master chefs at Michelin star-rated restaurants, and provide the location, date, number of guests, and how much they would like to pay. A chef who agrees to the details does the shopping and prep work and shows up ready to cook, serve, and clean. Kitchit takes a cut of 10 percent to 20 percent of the price.

Kitchit opened for business this fall, offering more than 20 chefs in the San Francisco Bay area for personalized dinners, cocktail parties, and cooking lessons. The cost typically runs from $25 a person for large events with basic menus to as much as $200 a person for six-course meals including linens, flower arrangements, and wine pairings. Over the next year the company plans to expand to New York, Los Angeles, Washington, Chicago, and Boston." 

HT: Norman Berger

Household Debt Ratios Are Lowest Since 1993-94

The chart above shows the ongoing de-leveraging of U.S. households based on new data released yesterday by the Federal Reserve.

In the third quarter of 2011, household debt service for required payments on outstanding mortgage and consumer debt as a share of disposable personal income fell to 11.09%, the lowest ratio since the fourth quarter of 1994; and the ratio for all household financial obligations (adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance and property tax payments to the debt service ratio) remained at 16.15% (same as Q2), the lowest ratio since the fourth quarter of 1993. 

Let that be a lesson for the U.S. Congress.....

Quote of the Day: The Case for Newt

"The case for Newt is that he's nothing like that guy who used to be governor of Massachusetts. The case for Romney is very similar."

~Current issue of National Review (page 6)

North Dakota's Airports Are Booming, Thanks to the Explosive Growth in the Bakken Oil Patch

Grand Forks Herald -- "Minot’s airport has moved ahead of Grand Forks International Airport this year as the third largest in the state, according to a new report from the state’s Aeronautics Commission.

The explosive growth in the Oil Patch the past three years is a main cause for the increase at Minot, Williston and Dickinson and it’s causing lots of planning for expansion at those airports. The number of passenger boardings in Minot as of Nov. 30 was 134,789, up 67.2 percent, compared to 104,990 in Grand Forks, up 0.04 percent.

Boardings at all of North Dakota’s commercial airports so far this year are up 8.3 percent to 787,738, bolstered by a record November at seven of the eight largest commercial airports in the state. For the third consecutive year, the state has had more airport boardings than the total population. Last month, seven airports had record months, and every airport is at or near record annual boardings."

MP: Drill, drill, drill = jobs, jobs, jobs in ND, and not just oil jobs, but jobs in the state's booming airline industry as well.  

Markets in Everything: Butter on eBay for Norway

Here's an eBay listing for 1.5 kg of butter (about 3.3 pounds) to be shipped from Germany to Norway for $67 plus $21.50 shipping.  Buyer is responsible for Norway's import duty of about $4.25 per kg. ($6.38 total), for a total cost of about $95 for 3.3 pounds of butter, or about $29 per pound.  And shipping takes 7-8 days, so the Norwegians better order soon to get their German butter in time for holiday baking.  

Here's another listing, this one is from the Netherlands offering to ship 1.5 kg of butter to Norway for $70, plus $21.50 for shipping. 

And here's a price-gouging American who wants $85 per pound!

HT: Don

China: One of Our Best Export Customers

Exports to China have doubled over the last 5 years (compared to a 37% gain for all exports since 2006)

From Cato's Dan Griswold:

"China remains a bright spot in U.S. trade, despite the complaints of politicians in Washington. U.S. exports to China continue to grow more rapidly than exports to the rest of the world. Since China joined the World Trade Organization 10 years ago this month, U.S. exports of goods to China have grown five-fold, while they have not quite doubled to the rest of the world.

China is the only major market where U.S. exports have consistently grown above the 15 percent annual rate needed to double every five years. The compound growth rate of U.S. goods exports to China since its entry into the WTO has been 18.1 percent, compared to 6.8 percent to the rest of the world. China is now the third largest foreign market for U.S. goods. Yet a large contingent in Congress wants to slap tariffs on Chinese imports because of its currency practices that supposedly hinder U.S. exports.

In the business world, picking a needless trade fight with one of your best customers would be the height of folly. For many members of Congress, it has become an urgent item on their legislative agenda."

HT: Don Boudreaux

Tuesday, December 13, 2011

In Butter-Crazed Norway: Empty Shelves, Shortages

As a result of the perfect storm of: a) a craze for a popular "fat-rich, low-carb" weight-loss diet, b)  a shortage of animal feed that caused a drop in milk production, c) a butter monopoly that controls 90 per cent of the butter supply and d) is protected from foreign competition by trade barriers that prohibit imports from European countries, there is now a butter shortage in Norway as the festive baking season approaches.  

According to this news report "Supermarket shelves in Norway have been stripped bare of butter after its people ate their way through the nation's entire stockpile."

Thanks to several CD readers who reported on this story. 

Payments for a New House Have Never Been Lower

The chart above shows another measure of housing affordability over time by displaying the monthly mortgage payments (adjusted for inflation) for a median-priced new home (Census data here) financed at the prevailing 30-year mortgage rate in each month back to January 1978, assuming a 20% down payment.  Payments today for a $212,300 median-price new home purchased in October with a 20% down payment and a 4.07% fixed-rate 30-year mortgage would be $817.71, the lowest in the history of this series back to 1978.  It's only been since 2009 that payments have remained mostly below $1,000 per month, and the October payment is about 38% below the average of $1,375 per month over the last 33 years. 

The incredible housing affordability today, at least for middle-income, first-time home buyers, seems to be an under-reported and under-appreciated story.  As I reported previously, I'm suggesting that the incredible affordability of housing has to counteract and offset some of the "gloom and doom" about younger generations being worse off than their parents, stagnating income, increasing income inequality, the necessity of a dual-earner household to survive financially and the dangers of inflation.   

Update: The chart below shows monthly payments under two assumptions: a) median-priced new home with 20% down ($42,460), and b) a new home purchased at 50% of median-price, 3% down payment (about $3,000).  The outcome and trend is the same: the lowest inflation-adjusted monthly payments in history.

Markets in Everything: English Butlers in China

Bloomberg -- "English butlers, synonymous with Reginald Jeeves in the novels of P.G. Wodehouse, are answering more calls from super-rich Chinese and Russian clients as wealth shifts between east and west.

The Guild of Professional English Butlers has trained 20 percent more butlers this year than last, placing them with clients as soon as they are ready, according to Robert Watson, head of the firm in southern England, last week. The number of domestic staff registered with Greycoat Placements has trebled over the past three years, Managing Director Debbie Salter said."

“Demand is outstripping supply,” Watson said. “We deal with people who often are cash rich and time poor. The credit crunch did affect things for a time, but before you get rid of the butler, get rid of the Ferrari.”

HT: Mike W.

Government Licensing Gone Wild: Institute for Justice Fights for Tour Guides in New Orleans

"In New Orleans, it is a crime to charge people for a talking tour without first getting permission from the government. City officials require every tour guide to pass a history exam, undergo a drug test and an FBI criminal background check every two years merely for speaking. People who give tours without a license face fines up to $300 per occurrence and five months in jail.

The First Amendment does not allow the government to be in the business of deciding who is—and who is not—allowed to speak about various topics. That is why four New Orleans tour guides have joined with the Institute for Justice in a federal lawsuit seeking to secure their free speech rights (see video above)."

Housing Affordability is Now at a Record High. Does That Counteract Any of the Stagnation Narrative?

The chart above shows the National Association of Realtors' monthly housing affordability index back to January of 1981 (data here).  The historical trend over the last 30 years is pretty striking for several reasons:

1. In the 1981-1982 period when the 30-year mortgage rate was peaking at record highs of 16-18%, the housing affordability index was about 65, meaning that the typical American family was only earning 65% of the income necessary to qualify for a 30-year mortgage to purchase a median-price home (with 20% down payment).

2. As interest rates fell through the 1980s, housing became more affordable and the index rose above 100 by the mid-1980s, and has remained above 100 since then. 

3. From the early 1990s through about 2005, the affordability index was pretty stable in the 120-140 range, until the housing bubble came along and inflated home prices, which lowered the affordability index down to 101 by July 2006. 

4. Over the last five years or so, the housing affordability index has nearly doubled to 197.8 in October of this year, reaching the highest level in the history of the index, and maybe the highest level ever? Amazingly, the typical American family in October had almost twice the amount of income necessary to purchase the median-priced home. 

What, if any, are the implications of housing affordability being at the highest level in history?  It's true that not everybody will benefit from this historic affordability, but many Americans will, especially first-time home buyers.  Here are some thoughts:

1. We keep hearing about stagnating income, rapacious income inequality, the disappearance or difficulties of the struggling middle-class, and how younger generations today will be worse off economically than their parents, how a household today needs to have both parents working full-time to survive financially, etc.

2. For CPI calculations, the BLS weights shelter as about one-third of consumer expenditures (32%), which is the category with the highest weight, and much higher than food (15%), clothing (3.6%), transportation (17%), medical care (6.6%), recreation (6.3%), and education (6.4%), etc.  

3. Given the facts that: a) housing/shelter is the greatest single expense for American households by far, and b) housing affordability is at an all-time historical high, doesn't that have to transfer into a huge increase in the standard of living for many Americans, especially younger, first-time, middle-class home buyers? 

For example, doesn't the fact that the typical household now has almost twice the income necessary to qualify to buy a median-priced home contradict the common narrative that it takes two adults working full-time today to support a household, whereas in the past it only took one full-time earner?  Making the two-earner case would have been much easier 30 years ago when housing affordability was below 100.  

Further, when a household's main monthly expense is now the most affordable in history, doesn't that translate into a huge increase in household purchasing power, even if wages are stagnant? Of course, one could argue that current homeowners don't necessarily benefit from record-high affordability, but there are still millions of young Americans who have been benefiting and will continue to benefit if affordability remains high.  

Bottom Line: Doesn't historically high housing affordability at least partially offset some of the narrative of stagnating income, the shrinking middle-class, and how younger generations today will be worse off economically than their parents, and how struggling household today needs to have both parents working full-time to survive financially, etc.? 

There may not have been any generation in history that has faced such incredibly affordable home ownership, especially when a young couple is buying a first home to get started in life, invest in a home, and raise a family.  At least in terms of housing affordability, young, middle-class Americans have never had it this good. 

Update 1: One of the most popular forms of mortgage financing for homes are FHA loans that are still being offered with only 3-5% down payments.  In markets like Las Vegas, FHA-financing represents 38.4% for all home purchase loans, so there does appear to be lots of financing available for first-time home buyers, with very low down payments, to take advantage of the record high affordability. 

Update 2: The chart below is from ADS Analytics and provides an alternative measure of housing affordability - the median mortgage payment as a share of income - which is at the lowest level (most affordable) level in the history of this series.  Therefore, the current median mortgage payment as a share of income, at about 14%, is less than half of the peaks close to 30% in 1988 and 2007, and maybe about 10% lower than what looks to be the historical average of about 24% (using an "eyeball" estimate).  This measure of housing affordability seems to support my case above, which is that the increased affordability of housing (for at least some Americans, especially first-time home buyers) has offset some of the income stagnation over the last several decades, as the lower housing costs act like an increase in household income.   

Chart of the Day: Govt Spending vs. Unemployment

The chart above is from Scott Grannis, who explains:

"This chart (inspired by Brian Wesbury) again bears repeating, since it lends support to claims by the anti-Keynesians (of which I am one) that the biggest factor that has worked to slow economic growth in recent years is the huge increase in federal spending. Instead of "stimulating" the economy, enormous increases—in both nominal and relative terms—in federal spending have ended up "stimulating" the unemployment rate more than anything else. 

The reason? The public sector spends money much less efficiently than the private sector. And when you consider that over 70% of federal spending takes the form of "payments to individuals" (i.e., transfer payments), and that this has been the most rapidly growing portion of total spending, and you understand Milton Friedman's assertion that you don't spend other people's money on yourself nearly as carefully and efficiently as you spend your own money on yourself, then it becomes easier to understand. The vast bulk of government spending these days boils down to transferring money from those who are working and producing the most, to those that are working and producing the least, and that is not a prescription for a strongly growing economy."

Small Monthly Gain, But New Record-High for Retail

The Census Bureau reported today that monthly retail sales increased by 0.2% in November, which was the sixth straight monthly increase in consumer spending, but it was the smallest gain in five months, and less than the 0.6% gain predicted by the consensus forecast.  Even with the smaller-than-expected gain, U.S. consumers still set a new all-time monthly record by spending almost $400 billion on retail and food services in November. 

Retail spending in November was 6.7% higher than the year-earlier level, and spending in every category except department stores (-3.0%) registered annual gains last month, with especially strong gains in auto sales (+7.5%), miscellaneous stores (+7.7%), gasoline stations (12.9%) and nonstore retailers (+13.9%).   Excluding gasoline sales, retail sales increased by 6% on an annual basis. 

Read news reports here from AP and Bloomberg.

Monday, December 12, 2011

Pension News: DC Double Dipping and $174k at 59

1. Double Dipping in DC -- "More than two dozen retired police officers who were rehired by the District, including the chief of the police agency that protects government buildings, have been improperly paid both a full pension and full salary for several years even though the D.C. Code prohibits that, according to city documents and interviews with officials. For retired cops, firefighters, and teachers who return to the city workforce, city law requires that their salaries be offset by their pensions. 

HR Director Shawn Stokes says she asked her staff to identify whether any retired, then rehired, employees were double dipping improperly. So far, her staff has identified 25 retired MPD officers who have come back to work for the city and drawn both a full salary and a full pension. The city’s records don’t make it easy to identify double dippers: “It could be more,” said Stokes."

2. CNBC -- "After nearly 40 years in California public education, Patrick Godwin spends his retirement days relatively free of financial concerns, after he retired last July at age 59 with a pension paying $174,308 a year for the rest of his life

Such guaranteed pensions for relatively youthful government retirees — paid in similar fashion to millions nationwide — are contributing to nationwide friction with the public sector workers. They have access to attractive defined-benefit pensions and retiree health care coverage that most private sector workers no longer do.

Experts say eligible retirement ages have fallen over the past two decades for many reasons, including contract agreements between states and government labor unions that lowered retirement ages in lieu of raising pay." 

MP: Must be nice when your pension puts you comfortably in the richest "top 5%" ($154,000 minimum income in 2009 according to IRS data,or the top 8% according to this WSJ website) of Americans.... in retirement... for not working!  And the substitution of lower retirement ages for higher pay, when both aren't possible, illustrates just one example of the excess that motivated Wisconsin to end most collective bargaining for unionized public employees.

(Thanks to Bob Wright for the second article.)

U.S. Manufacturing Profits Remain Strong in Q3; Manufacturing Continues to Outpace the Economy

The Census Bureau reported today on third quarter financial results for the U.S. manufacturing sector, with the following highlights:

After-tax profits for U.S. manufacturing corporations were just short of $150 billion during the July-September period this year.  Profits for Q3 fell by 4.5% from Q2, but were 20.4% ahead of the same quarter last year, and were the second-highest quarterly profit total for U.S. manufacturers in history (see chart above). Compared to the $118.6 billion in profits for Q4 2007 when the recession started, manufacturing profits are now 26% above that pre-recession level. 

The record profitability of the U.S. manufacturing corporations in recent quarters is just one of several economic indicators that put America's industrial sector directly at the forefront of the economic recovery.  For example:

1. The 20.4% increase in manufacturing profits over the last four quarters through Q3 is more than four times greater than the 6.5% increase in profits after-tax for all U.S. corporations during that time period.  

2. While real GDP has increased by only 1.5% during the most recent four quarter period from 2010 Q3 to 2011 Q3, the manufacturing component of U.S. industrial production grew at almost three times that rate (4.22%) from September 2010 to September 2011.

3. Over the most recent 12-month period from November 2010 to November 2011, manufacturing employment grew by 1.90%, compared to the 1.33% growth in total payroll employment over that same period.   

4. For the last six months, the jobless rate for manufacturing has been below the national average, and is currently at 7.7% and a full half-point below the U.S. average of 8.2% (not seasonally adjusted). 

By all relevant measures of economic performance: growth in profits, output gains, employment growth, and unemployment rates, American manufacturing remains the "shining star" of the U.S. economy. 

Markets in Everything: eBay of Lawyering

The Tax Prof blog features a Chronicle of Higher Education story (paid subscription required) about Shpoonkle,  a "matchmaking Web site where recent law graduates could hone their legal skills by bidding alongside other lawyers for clients seeking affordable counsel." Shpoonkle operates as "a reverse-auction site where potential clients describe legal problems and lawyers bid to see who can solve them for the lowest price."

Lawyer Scott Greenfield is not a Shpoonkle ("the eBay of lawyering") fan  and writes on his Simple Justice blog: "The name is absolutely awful.  The concept far worse."

Sunday, December 11, 2011

America's New Energy Security from Tight Oil

Daniel Yergin in Monday's WSJ, "America's New Energy Security":

"Every president since Richard Nixon has called for energy independence. Nevertheless, U.S. reliance on imported oil long seemed to be headed in only one direction—up—and that pointed to inevitably increasing dependence on the huge resources of the Middle East.

No longer. U.S. petroleum imports, on a net basis, reached their peak—60%—of domestic consumption in 2005. Since then, they have been going in the other direction. They are now down to 45.6% (see chart above, data here).

The big surprise is onshore [production], where the United States is experiencing an oil boom. The reason is the sudden appearance of a new source, "tight oil," which is extracted from dense rocks. For years, tight oil has been a very marginal business. In 2000, it was only about 200,000 barrels per day, 3% of total output. Today it is about a million barrels per day. By the end of the decade it could reach three million barrels per day, over half of current domestic crude oil production.

The dramatic increase in tight oil has been made possible by the same technology combo, hydraulic fracturing and horizontal drilling, that created the "shale gale"—the explosive growth in natural gas production from shale rock.

Just a few years ago the expectation was that the U.S. would be importing large volumes of natural gas and becoming heavily dependent on world markets—and spending upward of $100 billion a year for those imports. Now people, including President Obama, talk about a hundred-year supply of domestic natural gas. Shale gas has also proved to be a job creator—over 600,000 jobs.

Oil extracted from shale also means lower imports, a lower bill for these imports, and substantial job creation. Thanks to tight oil, North Dakota is now America's fourth largest oil-producing state after Texas, Alaska and California. It may well move up to third or even second place (MP: This will likely happen within the next few months).

The shift in oil sources means the global supply system will become more resilient, our energy supplies will become more secure, and the nation will have more flexibility in dealing with crises. It would also mean that economic benefits—in terms of jobs, manufacturing and services—would register on the ground in North America.

The most recent United Nations report on Iran's nuclear program, along with the call by French President Nicolas Sarkozy for an embargo on oil imports from Iran and possible sanctions on Iran's central bank, have raised the stakes. The Iranians have responded by again brandishing the threat to close the Strait of Hormuz, and by ransacking the British Embassy in Tehran.

Thus, over the next few years, new supply in North America becomes all the more important as a potential offset to rising tensions with Iran in the global oil balance. This gives new urgency to assuring that North America's oil resources are developed to what is now their much-greater potential."

INTRADE ODDS: Newt Closes in on Mitt

Current Intrade odds have Romney's chances down to 40.2% and Gingrich's chances up to 36.5%, which is the smallest-ever Romney-Gingrich gap at 3.7%.

Sunday Links

1. There have been 1,500 accidents and incidents on U.K. wind farms, including 4 deaths, according to The Telegraph.

2. Rising wage pressures are moving from China to Vietnam, as Japanese companies that built plants in Vietnam to take advantage of low wages are finding the country is no longer such a cheap and abundant source of labor, according to the Japan Times.

3. West Virginia University has found a profitable way to curb excessive binge drinking and alcohol-related arrests at home football games: sell beer at concession stands

4.  Penelope Trunk says "Stop Telling Women To Do Startups." People are pretty good at making choices for themselves. Men can stay home. Women can do startups. The thing is, most don’t want to. And that’s okay. Men and women are different.  So what?

New Holiday Shopping Destination: Pawn Shops

1. Minneapolis Star Tribune - "A New Day for Pawn Shops": Fueled by the popularity of reality TV shows, pawnshops are becoming popular destinations for holiday shoppers.

2. CBS Detroit --"Is The Pawn Shop The New Spot For Holiday Shopping?"

3. -- "Holiday Shopping: Pawn Shops Are Hot Spots"

Saturday, December 10, 2011

New York Federal Reserve Recession Model: Only 1-in-32 Chance of Double-Dip Recession in 2012

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" last week with treasury yield data through November 2011, and the Fed's recession probability forecast through November 2012 (see chart above). The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (2.01% in November) and 3-month Treasury bills (0.01%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here) using the spread between those two yields (1.42% in November).

According to the NY Fed's Treasury Spread model (data here) the chances of a double-dip recession through November of next year are 3.6%, or only a one-in-28 chance.

Interactive Guide/Map for the Republican Race

From The Economist:

"Our interactive map provides the latest polling data for the Republican candidates, showing who is leading the race in each state and the date of the polls. It includes a drop-down election calendar containing all the key dates, and as the primaries progress we will update the figures for each presidential hopeful as they move towards securing the nomination as the Republican Party’s candidate of choice. Once a state has voted, we will enter all the results on the map. You can also watch this space for any important developments in the race."

Here are the current polling results from the first four primary states, showing a strong lead for Gingrich in Iowa, South Carolina and Florida, and nationally as well:

Iowa (December 6) - Gingrich: 33%, Romney: 20%

New Hampshire (December 6) - Romney 35%, Gingrich: 26%

South Carolina (December 6) - Gingrich: 43%, Romney 20%

Florida (December 8) - Gingrich: 35%, Romney: 22%

National Average (December 7) - Gingrich: 33%, Romney: 21.3%

Markets in Everything: Smart Phone Ultrasound

Frustrated Ohio Construction Co. Tries to Expand, But Runs Into Problems Hiring New Workers

Don Harrison, the owner of Harrison Construction company in Marietta, Ohio, tried to expand his booming construction business by hiring 12 new workers so that he could accept more new contracts.  He explains his situation below:

"Last year the demand for our construction services, to our delight was "going through the roof," to a point where we were turning down more work than we were accepting. We were frustrated that we could not be available to the potential new clients who were calling on us and simultaneously excited that this was happening to our company.  Since unemployment was in double digits, I decided we would grow, and work to sign up as much as 40% more in total contracts by hiring up to 12 additional full time employees.  Basically we would take advantage of our good fortune and put a small portion of our community back to work."

But Mr. Harrison ran into some major problems hiring new workers. Reasons? Find out here.

Casualty of the War on Drugs: Flash-Bang Grenade Burns Flesh Off Woman's Leg in Botched Drug Raid

StarTribune -- "The Minneapolis City Council approved a $1 million settlement Friday after a botched drug raid in 2010 in which an officer threw a "flash-bang" grenade into a south Minneapolis apartment burning the flesh off a woman's leg.The payout to Rickia Russell, who suffered permanent injuries, was the third largest payout for alleged Minneapolis police misconduct on record.

Flash grenades are intended to distract and intimidate, not to injure people, but during the raid the device rolled under the legs of Russell, who was seated on a sofa, and exploded. The police were looking that day for a drug dealer, narcotics and a firearm, but found nothing."

MP: When police SWAT teams smash down doors with battering rams without any warning, and then use flash-bang grenades to burn innocent victims and cause permanent injuries, is it any wonder they call it a "War on Drugs," aka the "War on Peaceful Americans Who Voluntarily Use Intoxicants Not Currently Approved of by the U.S. Government, Who Will Sometimes Break Into Houses of Suspected Users and Burn Flesh Off Their Legs."

Friday, December 09, 2011

Bank Business Loan Charge-Off Rates Returning to 2007 Levels, Bank Failures Lowest Since 2008

The two charts above provide some evidence that the U.S. banking sector is recovering from the effects of the Great Recession and financial crisis of 2008-2009. 

Charge-off rates for all commercial banks are displayed in the top chart, and show that:

a. Business loan charge-off rates, at 0.73% in Q3, are the lowest in 14 quarters (since 0.71% in 2008 Q1) and have now almost returned to the pre-recession levels. 

b. Real estate loan charge-off rates fell in Q3 for the seventh consecutive quarter to 1.41%, the lowest quarterly rate since 2008 Q3. 

Annual bank failures are displayed in the second chart and show that:

a. Bank failures through mid-November of this year are at 90 institutions, and will likely be the lowest since 2008, and down significantly from 157 last year, and 148 in 2009. 

b. Compared to the nearly 3,000 banks that failed during the S&L crisis, the 425 bank failures since 2008 are relatively small in comparison.  

Although there is more progress ahead necessary to completely restore the health of the U.S. banking system to its pre-recession level, there is lots of evidence that confirms that the worst is definitely behind us. 

Markets in Everything: Dog Poop Lottery

From The Inquisitr (ht: Mike W.):

"The Taiwanese city of New Taipei this week came up with a unique solution for cleaning their streets of dog feces, they launched a city wide lottery that everyone could participate in. City officials were able to collect 14,500 bags of dog poop from more than 4,000 people, removing half of the cities dog feces from streets and sidewalks.

For each bag turned over to the government a lottery ticket was awarded and eventually a 50-something woman claimed the top prize, a gold ingot worth $2,200.  Government officials also provided 85 other people with prizes ranging from smaller gold pieces to household appliances. This may be the first time that non-dog owners in the city weren’t complaining about other people’s dogs leaving messes in the middle of the cities streets."

MP: Good example of how "incentives matter."

Chart of the Day: Gas Prices Falling, Merry Xmas

At the national level, retail gas prices have fallen by 17% from the April high of about $4 per gallon to the current national average of about $3.28 (red line in chart above), according to price data from  In Albuquerque, New Mexico, gas prices have fallen about 25% from the April peak and are currently the lowest in the country at $2.80 per gallon (see blue line and national gas price heat map here).   

It's an early Christmas present for U.S. consumers, who save about $1.35 billion annually (updated, see below) for every one cent decrease in gas prices.

Update 1: Gasoline consumption is currently averaging about 377.1 million gallons per day, or 135,450,000,000 gallons per year, according to data from the EIA.  Each one cent per gallon change in gasoline prices would translate into an annual change of about $1.35 billion for total spending on gas. 

Update 2: The chart below displays retail gas prices over the last 12 months, and shows that gas prices have increased 10.5% over the last year.  But the point I was making above is that most people don't think about what they were paying at the pump a year ago, they think more about: a) what they were paying a month ago, two months ago, three months ago, last summer, etc., and b) the recent trend in prices.  Now that we're in the holiday shopping season, I predict that the fact that gas prices are at their lowest levels since last February, and trending downward, will boost many consumers' spirits!

IJ: 20 Years Litigating for Liberty

IJ: 20 years of trailblazing a unique brand of advocacy.

Thursday, December 08, 2011

2011: The Year in Photos from The Atlantic

Go here for Part 1, Part 2 and Part 3.

HT: Paul Kedrosky

Wikipedia Wants to Close the Gender Gap

Roughly 9 out of 10 Wikipedia contributors are male. The Wikimedia Foundation considers that to be a problem, and wants to change it

Nat Gas is King, Will be No. 2 Fuel for 2025

From today's WSJ article "Exxon Declares Gas is King":

"Natural gas will replace coal as the leading fuel for generating electricity in the U.S. by 2025, when it will also become the world's No. 2 overall fuel source thanks to its abundance and a drive for cleaner-burning energy, according to the latest long-term outlook from Exxon Mobil Corp.

Natural gas will overtake coal as the second-largest fuel source overall, ranking behind oil and powering everything from electrical plants to home-heating systems. But Exxon said coal use will continue to grow through 2025 around the world, primarily in developing nations such as China and India and the African continent, because economic growth will be fastest in emerging nations."

MP: The chart above (source) illustrates one of the reasons that the use of natural gas will continue to grow: it has a significant cost-advantage over other forms of energy.  Compared to natural gas, coal is 46% more expensive on an energy-equivalent basis, offshore wind is nearly four times more expensive, and some solar energy is almost five times more expensive.