Monday, April 30, 2012

Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy

Daniel Gross, economics editor/columnist at Yahoo!Finance, has a new book coming out titled "Better, Stronger, Faster: The Myth of American Decline and the Rise of a New Economy," here's an excerpt that appears as the cover story in the current issue of Newseek: 

"The lows of March 2009 marked the beginning of an unexpected recovery—not the beginning of an era of irreversible stagnation. The U.S. economy went from shrinking at a 6.7 percent annual rate in the first quarter of 2009 to expanding at a 3.8 percent annual rate in the fourth quarter of that year—a turnaround unprecedented in modern history. The stock market has doubled since March 2009, while corporate profits and exports have surged to records. The U.S. economy has regained its 2007 peak, and is now growing at a 3 percent annual clip—a more rapid pace than any other developed economy. The crucible of the recession forged an economic structure that is more resistant to shocks than the brittle vessel that shattered in 2008. Meanwhile, Europe continues to grapple with insoluble banking and sovereign debt crises, and developing-economy juggernauts like China and Brazil are showing signs of cracking. 

It’s clear that the story of America’s recovery—unsatisfying and problematic as it has been—isn’t a Hollywood tale. Rather, it rests on an understanding of its core competencies and competitive advantages: attitudes and capabilities that, even in this age of globalization, remain unique. Contrary to the declinists’ view, global growth has not been a zero-sum game for America’s economy.

It’s easy to look at the record of the past few years and despair. The U.S. has a very long way to go to make up for lost ground in housing and, especially, in jobs. The resurgence of the corporate sector, which provides ample reason for optimism, hasn’t translated into new positions for the legions of unemployed. But here, too, there’s positive news. Since February 2010, the private sector, which accounts for 83 percent of all employment, has added nearly 4.1 million jobs, or about 160,000 per month. That’s not sufficient, but it’s a sign that the jobs machine is clearly working again. The public sector has been the sole source of job loss: austerity-minded government entities have cut a million jobs since 2010. But the sharp reductions have come to a halt. 

In the months since the Lehman debacle, the U.S. has no more lost its ability to grow and innovate than reality-TV producers have lost their ability to coax skanky behavior out of New Jersey’s youth. And despite all the headwinds, there’s no reason the expansion that started in July 2009 can’t go on as long as the previous three, which lasted 73 months, 120 months, and 92 months, respectively. When the definitive history of this period is written, it is possible—no, likely—that this post-bust era will go down not as a time of economic decline, but as one of regeneration."

Retail Gasoline Prices Have Been Falling for the Last 30 Days, Where's the Media Coverage?

Retail gas prices have been falling now for the last month, see chart above. And yet "rising gas prices" still seems to have much greater media coverage than "falling gas prices," according to a Google News Search for the last 30 days, by a ratio of about 50-to-1. 

Cheap Natural Gas Heralds an Energy Revolution That Will Displace Nuclear, Coal, Wind and Solar

Fred Singer writing for the Independent Institute:

"Consider the consequences of having huge quantities of cheap natural gas available. It will make new coal-fired power plants uneconomic, but it will also make new nuclear plants uneconomic. It is ironic that these two longed-for goals of radical environmentalists are being achieved simply through economics, without the need for any regulation. 

But it is ironic also that cheap gas will completely remove the need for electricity generated by solar or wind—much to the chagrin of environmental zealots. And all those folks hoping that energy prices would continue to rise and that electricity costs would “skyrocket” will be sorely disappointed."

MP:  The huge bonanza of cheap abundant natural gas is the most positive development in America's energy outlook in 50 years as Mort Zuckerman wrote in the WSJ last November, where he also suggested that a seismic shift in the energy landscape as large as the recent shale revolution is extremely rare.  One of the profound implications of the "shale gale" is that its remarkable abundance will displace not only coal and nuclear as energy sources, but also solar and wind energy as well, as Fred Singer points out.

Fortunately, "shale gas seemed to sneak up unannounced to the media and Beltway elites, even though people inside the gas industry realized several years ago what was rapidly taking place," according to AEI's Steve Hayward.  "One overlooked aspect of the current technology-driven fossil fuel energy boom going on in the U.S. right now is that if Washington had any premonition it was going to happen, it would surely have done something to stop it."

Update: The chart above shows natural gas production through February as reported today by the EIA.  On a 12-month moving average basis, natural gas production in February set another all-time record and went above 2.4 trillion cubic feet for the first time ever.  

HT: Warren Smith

Rust Belt Manufacturing Rebounds, and Leads the U.S. Economy and the Manufacturing Renaissance

The ChicagoFederal Reserve reported today that its Midwest Manufacturing Index was unchanged in March but remained at a three and-a-half year high of 92.2, and 8.6% above last March. Here are some highlights of manufacturing activity in the 7th Federal Reserve district covering Illinois, Indiana, Iowa, Michigan, and Wisconsin:

1. Manufacturing output in the Midwest region rose 8.6% from a year earlier in March, more than one-and-half times greater than the 5.0% increase in national manufacturing output over the same period (see chart).
2. Regional machinery output in March gained 10.4% from its year-earlier level, and double the 5.2% increase in machinery output at the national level. 

3. Regional steel output improved 11.2% from its March 2011 level, compared to an 8.1% increase in national steel output over that period.

4. The Midwest’s automotive output increased 14.2% in March from its year-ago level, compared to an 11.4% gain in national automotive output. 

MP: The manufacturing sector of the economy grew at 4.6% last year, or more than twice the 1.7% growth in real GDP, as American manufacturing remains at the forefront of the economic recovery as has been frequently reported here and elsewhere.  And given the growth in Midwest manufacturing activity over the last year (+8.6%) compared to output at the national level (5.0%) as reported today by the Chicago Fed, I think we can say that it's "Midwest manufacturing" that remains the forefront of the economic recovery.  The Rust Belt and its traditional industries like machinery, steel and motor vehicles are coming back. 

As was reported in Saturday's WSJ, "The U.S. economy is in the early stages of a long-term manufacturing renaissance," according a recent Bank of America report titled "An Industrial Revolution."  From the article:

"U.S. manufacturers are more competitive with global rivals than at any time in recent memory. Energy costs and other expenses are falling, manufacturers say. And U.S. workers' pay has become more competitive with foreign wages."

Homeownership Rate Falls to a 16-Year Low in Q1 as "Homeownership Bubble" Continues to Deflate

The homeownership rate in the U.S. fell in the first quarter of 2012 to 65.4% (see chart above), according to data released today by the Census Bureau.  That was the lowest homeownership rate in 16 years, since the 65.1% rate in the first quarter of 1996, and it looks like it will probably continue falling in the future.  

Conclusion: The political obsession with homeownership starting in the mid-1990s raised the homeownership rate from below 64% in 1994 to an artificial level above 69% by 2004, but failed in the long run to create a homeownership rate that was sustainable in the long run.  In the process, government policy turned good renters into bad homeowners, created a housing bubble, waves of foreclosures, and a subsequent housing meltdown and financial crisis. In other words, the chart illustrates how government policies (monetary, mortgage market, GSEs, CRA, affordable housing, etc.) created an unsustainable "homeownership bubble" that continues to deflate.  

Update: The Census also reported today that the "rental vacancy rate" fell to a decade-low level of 8.8% in March, the lowest vacancy rate since 2002.  This is further evidence that large sections of the U.S. population are moving away from owning a home and towards renting, as the U.S. becomes more and more of a "Rental Nation." 

March Restaurant Performance Index and Census Retail Sales Data Signal Ongoing Improvements

"Driven by solid same-store sales and traffic results and an increasingly bullish outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) matched its post-recession high in March. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 102.2 in March, up 0.3 percent from February and equaling its post-recession high that was previously reached in December 2011 (see chart above). In addition, the RPI stood above 100 for the fifth consecutive month in March, which signifies expansion in the index of key industry indicators.

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 102.4 in March – up 0.4 percent from February and the strongest level in 15 months. March also represented the seventh consecutive month that the Expectations Index stood above 100.

Fifty-six percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, up from 49 percent last month and the strongest level in more than four years."

MP: Further evidence of an improving outlook for U.S. restaurants is provided by Census data showing that sales for "Food Services and Drinking Places" were up by 6.6% in March from a year earlier, following a 9.3% increase in February.  After being flat in 2008 and 2009, sales at "food services and drinking places" are now about 16% above the June 2009 level when the recession officially ended.

Moreover, the retail sales at "Full Service Restaurants" were up by 13.6% year-over-year in February following a 10.75% increase in January. The relevant data suggest that the restaurant industry has made a full recovery from the recession and is now operating back above pre-recession levels. 

Phoenix Real Estate Market is Booming: Multiple Offers within Days, Shortage of Houses for Buyers

From the Arizona Republic:

"Home prices are surging in metro Phoenix, climbing 8 percent in March alone and 20 percent in the past 12 months. The median price of a house in the region climbed to $134,900, according to a new report from the W. P. Carey School of Business at Arizona State University.

Mike Orr, Director of the Center for Real Estate Theory at ASU, doesn't expect home prices to continue to climb as fast as they did in March over the next few months. But he projects metro Phoenix's housing appreciation for 2012 to reach 25 percent by September. Orr credits the turnaround to steep drops in foreclosures and in the number of homes for sale, coupled with an increase in sales.

Fewer foreclosures means fewer inexpensive homes for buyers. The number of homes taken back by lenders in metro Phoenix is down 60 percent from March 2011. Housing inventory has dropped steadily during the past year because of a record number of investors snapping up properties out of foreclosure. Home sales are up 35 percent from a year ago as more regular buyers have joined investors in the mix.

"Prices have begun to rise at a fast pace, and bargains are no longer plentiful," Orr said. "Most homes that are priced well are attracting multiple offers within a couple of days, and many are exceeding the asking price."

March's price increase was the sixth in a row for Phoenix's housing market. Most real-estate analysts say the streak of rising home prices, along with slower foreclosures, is proof a housing recovery is under way. A growing number of national real-estate analysts say metro Phoenix is leading the U.S.' housing market's recovery.

Foreclosures are down, and so are the sales of lender-owned homes. Since March 2012, the number of foreclosures resold by lenders has plummeted 61 percent. At the same time, regular sales, new-home sales, investor purchases and short sales have climbed. All those types of transactions have higher median prices.

The number of houses on the market across the Phoenix area is down 64 percent from March 2011. Frustrated real-estate agents have buyers ready to sign contracts but can't find houses for them."

HT: Paul

Online Job Demand Improves in April and the Supply/Demand Ratio is Lowest Since Fall 2008

From today's Conference Board report on online labor demand:

"Online advertised vacancies rose 90,900 in April to 4,760,500, according to The Conference Board Help Wanted OnLin (HWOL) Data Series released today (see chart above). The April rise is the fifth consecutive monthly rise and has led to the series’ highest level to date. The Supply/Demand rate stands at 2.7 unemployed for every vacancy, and the number of unemployed was 8 million above the number of advertised vacancies.

“Labor demand continues its five-month upward trend, which has averaged about 113,000 vacancies per month,” said June Shelp, Vice President at The Conference Board. “This is welcome news for unemployed workers or those looking to change jobs.” In another positive development, labor demand in two of the traditional white-collar office professions — Legal and Office and Administrative Support — has picked up this year. Legal professions, in which demand dropped sharply in 2011, grew by 5,600 (26 percent) since January while demand for Office and administrative workers rose 71,100, (17 percent)."

MP: Both total online job vacancies (4.76 million) and new ads (3.11 million) are now well above their pre-recession levels (see chart above); total ads by 6% and new ads by 20% above 2007 peak levels.  Nationally, there are 12.673 million unemployed and 4.669 million online job vacancies for a Supply/Demand ratio of 2.71, which was the third month in a row below 3.0, and the lowest since the fall of 2008, more than three years ago. Interestingly, the number of unemployed workers in booming North Dakota (11,800) is less than the number of advertised vacancies (14,400), for an eye-popping Supply/Demand rate of only 0.82.  

Today's Conference Board report provides more evidence that the labor market is gradually recovering.  With the number of online job vacancies in April well above its pre-recession peak levels in 2007, we can expect increased hiring through the year and a lower jobless rate. 

Sunday, April 29, 2012

Improving Job Market Fuels Houston Housing Boom

From the  Houston Chronicle:

"Houston's economy is bolstering the region's new-home market. Areawide, builders sold 4,990 homes during the first three months of 2012. That's up 34% over the same period a year earlier, according to consulting firm Metrostudy. 

"At the core, it's jobs, jobs, jobs," said David Jarvis, director of Metrostudy in Houston. "It's put tremendous pressure on demand for housing."

Even if they're not all buying, more consumers are out shopping. In March, builders saw 17,681 potential homebuyers pass through new-home sales offices - a 21% improvement over the same period last year and the highest traffic count for a single month since 2008.

The number of homes under construction is as high as it was in early 2010 when the tax credit was encouraging consumers to become homeowners. And inventory is back to pre-downturn levels. Builders had 1,791 homes under construction in March, 20% more than the same month last year."

Huge Gender College Degree Gap for Class of 2012; Do We Really Need Hundreds of Women's Centers?

The chart above shows the huge college degree gap by gender for the Class of 2012 (data here).  Women will earn a disproportionate share of college degrees at every level of higher education this year, and the gender disparity is expected to increase over the next decade, so that by 2021 women will earn 148 college degrees for every 100 degrees earned by men, with especially huge gender imbalances for associate's degrees (179 women for every 100 men) and master's degrees (154 women for every 100 men).

And the huge gender inequity in higher education is nothing new, women have earned a majority of college degrees in every year since 1981, see chart below.  

Question: Gender equity for college degrees was achieved back in 1981 and women since then have earned an increasingly larger share of college degrees compared to men in almost every year, so that men have become the "second sex" in higher education.  Despite the huge and growing "degree gap" over the last 30 years in favor of women (140 women earning a college degree this year for every 100 men), there are almost 200 women's centers on college campuses around the country (list here), some receiving public funding, most with the stated goal of "promoting (or advocating) gender equity" and promoting "women's success." Here are some examples: 

The University of Minnesota's Women’s Center advances equity for women students, staff, faculty and alumnae across identities by increasing connections for women’s success, cultivating socially responsible leaders, and advocating for organizational culture change toward excellence for all.

The University of Virginia Women’s Center educates U.Va. students in how to create change in self, community, and the world by providing programs and services that advocate gender equity.

The Duke University Women’s Center is dedicated to helping every woman at Duke become self-assured with a kind of streetwise savvy that comes from actively engaging with the world. We welcome men and women alike who are committed to gender equity and social change.

The mission of the University of Idaho Women’s Center is to promote and advocate for gender equity on campus and in the community through programs and services that educate and support all individuals in building an inclusive and compassionate society. 

The University of North Carolina Women’s Center strives to be a leader on efforts and initiatives related to gender equity.

MP: Even though the publicly stated goal of almost every Women's Center is "gender equity," there seems to be a very selective concern about sex imbalances, with no concern at all about the gender inequities at every level of higher education favoring women to the point that men have clearly become the "second sex" in higher education.  


Rule A: Any outcome where women statistically represent less than 50% of a population is a case of gender inequity, sexism and discrimination that must be addressed with awareness, public funding for women's centers, legal action, regulation, legislation (Title IX), scholarships for women, etc. to correct the sex imbalances, with the ultimate goal being perfect statistical gender parity, i.e. gender equity.

Rule B: Any outcome where women represent more than 50% of a population (e.g. higher education at all levels: associate's, bachelor's, master's and doctor's degrees) isn't really gender inequity, or at least it is gender inequity that doesn't really count and can be completely ignored because that statistical gender disparity is a natural outcome of female superiority.  

 Bottom Line: Now that there's a huge college degree gap in favor of women and men have become the second sex in higher education, maybe it's time to stop funding hundreds of women's centers that promote a goal of gender equity that was achieved thirty years ago. 

The Political Obsession with College Education Has Created an Unsustainable College Tuition Bubble

From Jeff Jacoby in today's Boston Globe

"For decades, American politicians have waxed passionate on the need to put college within every family's reach. To ensure that anyone who wants to go to college will be able to foot the bill, Washington has showered hundreds of billions of dollars into student aid of all kinds -- grants and loans, subsidized work-study jobs, tax credits and deductions. Today, that shower has become a monsoon.

The College Board, which tracks each type of financial assistance in a comprehensive annual report, shows total federal aid soaring by more than $100 billion in the space of a single decade -- from $64 billion in 2000 to $169 billion in 2010. And what have we gotten for this vast investment in college affordability? Colleges that are more unaffordable than ever. Year in, year out, Washington bestows tuition aid on students and their families.

Year in, year out, the cost of tuition surges, galloping well ahead of inflation (see chart above). And year in, year out, politicians vie to outdo each other in promising still more public subsidies that will keep higher education within reach of all. Does it never occur to them that there might be a cause-and-effect relationship between the skyrocketing aid and the skyrocketing price of a college education? That all those grants and loans and tax credits aren't containing the fire, but fanning it?

Directly or indirectly, government loans and grants have led to massive tuition inflation (see chart). That has been a boon for colleges and universities, where budgets, payrolls, and amenities have grown amazingly lavish. And it has been a boon for politicians, Republicans and Democrats alike, who are happy to exploit anxiety over tuition to win votes.

But for students and their families, let alone for taxpayers who don't go to college, it has been a disaster. The more government has done to make higher education affordable, the more unaffordable it has become."

MP: The chart above shows that the rising costs of a college education (7.5% per year) have far outpaced rising medical costs (5.7%)  and housing prices (4.2%), and have risen annually at twice the average inflation rate (3.8%).  The graph also illustrates that the rising costs of college and the resulting college tuition bubble make rising U.S. home prices and the resulting housing bubble look relatively inconsequential by comparison.    

Spread the Wealth = Concentrate the Power

"When politicians say, "spread the wealth," translate that as "concentrate the power," because that is the only way they can spread the wealth. And once they get the power concentrated, they can do anything else they want to, as people have discovered -- often to their horror -- in countries around the world."

~Thomas Sowell 

Saturday, April 28, 2012

Charts of the Day: Oil-Gas Drilling Rig Split Now 68-32 and Net Oil Imports Are at a 20-Year Low

Baker Hughes reported yesterday that the share of U.S. rigs drilling for oil (gas) rose (fell) to an all-time high (low) this week since the oilfield service company starting keeping records back in 1987 (see top chart above, data here).  For the week ending April 27, the oil/gas split was 68.5% to 31.5%.  The pattern displayed in the chart of switching from drilling for gas to drilling for oil started about three years ago, and follows the pattern of rising oil prices and falling natural gas prices since 2009.

Accompanying the shift in the industry towards increased drilling for domestic oil, net oil imports keep falling, and reached the lowest level in the first three months of 2012 (43.4%) in 20 years, since 1992, see bottom chart above (data here).

Update: See new chart below showing the relationship between weekly oil prices and the weekly share of rigs drilling for oil since 2009 (correlation coefficient of 0.89):

Chesapeake CEO on U.S. Industrial Renaissance

"Natural gas is a feedstock in basically every industrial process, and the price of gas in the U.S. is a fraction of what it is in Europe or Asia.  This country has an incredible advantage headed its way as Asian labor costs rise, as the cost to transport goods from Asia to the U.S. rises, as oil prices rise, as American labor costs have stagnated or gone down in the last 10 years. We have a really wonderful opportunity to kick off an industrial renaissance in the U.S." 

 ~Chesapeake Energy CEO Aubrey McClendon in today's WSJ

Friday, April 27, 2012

The Wisdom of Milton Friedman

1. The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system.

2. With some notable exceptions, businessmen favor free enterprise in general but are opposed to it when it comes to themselves.

3. The free man will ask neither what his country can do for him nor what he can do for his country.

4. The case for prohibiting drugs is exactly as strong and as weak as the case for prohibiting people from overeating.
5. If you put the federal government in charge of the Sahara Desert (MP: Or domestic energy resources), in five years there’d be a shortage of sand (MP: Oil, and high oil prices).

6. Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.

~From "Remembering Milton" by Allen R. Sanderson, who reflects on the contributions of Milton Friedman on the 100th anniversary of his birth in 1912 and the 50th anniversary of the publication of Friedman's classic "Capitalism and Freedom."  

Chances of Getting a Kidney Are Now Less Than 20%, It's Time to Legalize Donor Compensation

National organ transplant data through the end of 2011 are now available from the U.S. Department of Health and Human Services, and the situation for those unfortunate patients on the waiting list for a kidney transplant has never been more grim.  Here are the depressing facts:

1. There were only 16,812 kidney transplant operations performed in 2011, which was fewer than the 16,899 transplants in 2010 and the 16,829 in 2009, and was even below the 17,094 operations performed in 2006.

2. While the number of kidney transplant operations has remained relatively flat since 2005, the number of registered patients on the waiting list continues to increase.  From about 65,000 registered patients in 2005, the waiting list for a kidney transplant has increased by 42% and by more than 27,000 patients to the current level of more than 92,000.

3. In 1988, there were fewer than two patients on the waiting list for a kidney for every transplant operation, and there are now 5.5 patients per operation.  In other words, patients on the waiting list in the late 1980s had more than a 50% chance of receiving a kidney, compared to patients today who have less than a one-in-five chance of receiving a kidney, and those chances keep diminishing every year.  

4. Based on data from the last few years, there will be about 5,000 registered candidates on the list who will die this year while waiting for a kidney, and another 2,000 who will be removed from the list because they are considered to be too sick to survive a kidney transplant operation.  

Bottom Line: The situation for those with renal failure waiting desperately to receive a kidney continues to worsen every year under the current policy that prohibits donor compensation.  The only realistic, long-term and truly compassionate solution to address America's worsening kidney shortage is to legalize some form of donor compensation.  

Williston, ND May Now Have Highest Wages in U.S.

Metro Area   Average Annual     
Williston, ND$70,000
San Francisco$64,820
Washington, D.C.$62,890
New York City $58,500
Los Angeles$51,600

From today's Williston (ND) Herald:

"Williston Economic Development’s deputy director has the daunting task of tracking job creation in the Williston area. Shawn Wenko says he likes to see how Williston compares to other cities in the state. And, it’s probably no big shock that Williston leads the state in job growth. Wenko says Williams County created over 12,000 jobs from January 2010 to September 2011.

“That number doesn’t surprise me. If we could have brought housing online faster it would probably be even more. The fourth quarter of 2011 will be faster.” During those same seven quarters Williams County also was number one in business creation - more than 400 new businesses were created.  Wenko says he doesn’t see any stoppage in the future. “It’s a reflection of the economic activity out here – we are number one in every area and it doesn’t look to slow down anytime soon. We will probably pull away even further from the other counties,” Wenko says.

Williams County also led the state in personal income increases at the end of the third quarter in 2011. The average weekly wage was nearly $1,400 in Williams County, just under $71,000 a year.

That’s higher than any other city in the state,” Wenko said."

MP: That might also be higher than any other city or metro area in the entire country, see chart above of average annual wages by metro area based on data from the BLS. So it's not just drill, drill, drill = jobs, jobs, jobs, it's also the case that drill, drill, drill = high-paying jobs, high-paying jobs, high-paying jobs. Note also that the jobless rate in Williston and Williams County is an eye-popping 0.9%. 

Apple Paid Half the Taxes of ExxonMobil in Q1 and Earned Four Times More Per Dollar of Sales

First Quarter 2012 ExxonMobil     Apple  
Revenue (Billions)$124.0$39.2
Income Taxes (billions)$7.7$3.9
Profits (billions)$9.5$11.6
Profit Margin (%)7.6%29.6%

First quarter financial results were reported this week by ExxonMobil and Apple, and a summary of some key statistics are displayed above.  Here's what will probably not be reported by the mainstream media:

1. ExxonMobil paid $7.7 billion in taxes in the first quarter of 2012, which was about double the amount of taxes paid by Apple - $3.9 billion.  

2. Apple earned $11.6 billion in profits during the first quarter, which was 22% more that ExxonMobil's $9.5 billion in profits. 

3. Apple earned $29.60 in profits for every $100 of sales in the first quarter, compared to ExxonMobil's earnings of only $7.60 per $100 in sales revenue, making Apple's profit margin almost four times greater than ExxonMobil's (29.6% vs. 7.6%). 

You probably also won't hear Nancy Pelosi calling for an end to Apple's tax cuts and tax subsidies as a way to finance the $6 billion it will cost to pay for a one-year extension of student loan subsidies.  And it's also unlikely that the Democrats will propose a "Reasonable Profits Board" to regulate the profits of Apple and other computer companies.  It's only Big Oil that gets constantly singled out for that kind of targeted "special" treatment.  Not to give any ideas to Pelosi and the Dems, but it looks like "Big Computer" might be a juicier target now than Big Oil.   

HT: Bob Loftus

Friday Afternoon Links

1. Stunned Home Buyers Find that Bidding Wars Are Back, As Housing Demands Picks Up After Long Six-Year Slump.
2.  Consumers Energy Reduces Natural Gas Prices for 1.7 Million Customers in Michigan to the Lowest Level Since 2003, Saving Consumers $130 Million Over Next Year.
3. Here's a 3-D Home Printer for $500. All you need to do is add a computer and you’ll be off printing almost any object that comes to mind. 
4.  Thanks to abundant and affordable supplies of shale gas, Pennsylvania is poised for a manufacturing renaissance that starts with the chemical industry and ripples through the state’s economy. 
5. ConocoPhillips CEO Jim Mulva says the company this year plans to drill 160 wells in the Eagle Ford shale in South Texas, 300 wells in the Permian Basin in West Texas and up to 30 wells in North Texas’ Barnett shale. “Everyone is going to have to cast aside the old thoughts and the old assumptions of domestic fossil fuels being in short supply,” he said. “That’s simply not the case anymore.”
6. A “perfect storm” of economic and regulatory factors is driving major United States utilities to rapidly switch from coal to natural gas as an electric power source, the top executive of one of the nation’s largest utilities said on Thursday.
7. Markets in Everything: Travel Dating (HT: Tyler)

Private Real GDP Grew at 3.4% in First Quarter, Twice the 1.76% Average Growth Rate Since 2000

The BEA reported today that the overall economy (real GDP) grew by 2.2% at an annual rate in the first quarter of 2012. However, the private components of GDP (personal consumption expenditures, gross private domestic investment, and net exports) grew by 3.4% from January-March, following a 4.6% increase in  Q4 2011 (see chart above). In contrast, there was a 3.1% decline in "government consumption expenditures and gross investment" in Q1, which created a drag on overall economic growth and brought real GDP growth down to 2.2%.  The decrease in government spending was driven by a 12.1% decline in first quarter spending on national defense and ongoing cuts in state and local government spending (-2.2% in Q1).   

The average growth rate in private real quarterly GDP since 2000 has been 1.76%, so the private sector of the U.S. economy expanded in the first quarter of 2012 at twice the average rate over the last 12 years (see chart).  And going back to 1947, private real GDP has grown at an average rate of 3.27% per quarter, so the expansion of private GDP in the first quarter is slightly above the long-term historical average.

Bottom Line: Perhaps today's GDP report is actually better than what is being reported, as the private sector of the U.S. economy grew at a rate slightly above the historical average, and twice the average rate since 2000.  

Thursday, April 26, 2012

Interesting Fact of the Day

In 1989, only 1 in 230 homebuyers bought a house with a down payment of 3% or less.  In 2003, the ratio was 1 in 7.  By 2007, it was 1 in 3.

Phenomenal Gains in Manufacturing Productivity

Today's factory workers produce more output in an hour than workers in the 1940s produced in a day.
The chart above shows annual real manufacturing output per worker from 1947-2011 using data released today by the BEA for GDP by industry, and data from the BLS on manufacturing employment. In 1950, the average U.S. factory worker produced $19,500 (in 2011 dollars) of output, and by 1976 the amount of output per worker had doubled to $38,500. Output per worker doubled again to $74,400 (in 2011 dollars) by 1997 (21 years later) and then doubled again to $152,800 by 2010, but it only took 13 years for the last doubling because worker productivity has been accelerating.  Last year, manufacturing output per worker increased to a new record high of $156,500 (see chart), and almost ten times the output per worker in 1947.  In other words, the average American factory worker today produces more output in an hour than his or her counterpart produced working almost a ten hour day in 1947 - and that's why we're producing record levels of output with fewer workers.   

This is an amazing story of huge increases in U.S. worker productivity in the manufacturing sector. In fact, the growth in manufacturing worker productivity more than doubled from 2.63% per year in the period between 1950 and mid-1970s to 5.42% annually between 1997 and 2011. Whereas it took 26 years for output per worker to double during the first period (1950-1976), it only took 13 years during the more recent period (1997-2010).

We are constantly inundated with bad news about the decline in the number of manufacturing jobs in the U.S., but we never hear the good news about why that is happening: Manufacturing workers in America keep getting more and more productive, which then allows us to produce more and more output over time, with fewer and fewer workers. That's a great story about an American industry that is healthy, successful and thriving, and not an industry in decline.

By continually increasing worker productivity and productive efficiency, the American manufacturing sector has been hugely successful at achieving one of the most important economic outcomes of being able to "produce more with less." In the process, those efficiency and productivity gains have helped conserve scarce resources, including human resources, more effectively than almost any other industry, except maybe farming. It's hard to overstate how much the efficiency gains achieved by U.S. manufacturing have contributed to the improvements in our standard of living by making manufactured goods more affordable over time. We should spend less time complaining about fewer workers in manufacturing, and more time celebrating the phenomenal gains in manufacturing worker productivity.

Update: The chart below shows annual real manufacturing output and annual manufacturing employment between 1947 and 2011.  Note that manufacturing employment dropped by one-third from 17.56 million jobs in 1998 to 11.52 million in 2010.  

Obama Justice and Medical Marijuana

Glenn Greenwald writing in

"The same person who directed the DOJ to shield torturers and illegal government eavesdroppers from criminal investigation, and who voted to retroactively immunize the nation’s largest telecom giants when they got caught enabling criminal spying on Americans, and whose DOJ has failed to indict a single Wall Street executive in connection with the 2008 financial crisis or mortgage fraud scandal, suddenly discovers the imperatives of The Rule of Law when it comes to those, in accordance with state law, providing medical marijuana to sick people with a prescription."

If Separate, America's Manufacturing Sector Would Rank as the Tenth Largest Economy in the World

 Rank  Country GDP in 2011
Millions ($)
1United States $15,094,025
2China $7,298,147
3Japan $5,869,471
4Germany $3,577,031
5France $2,776,324
6Brazil $2,492,908
7United Kingdom $2,417,570
8Italy $2,198,730
9Russia $1,850,401
10U.S. Manufacturing$1,837,031
11Canada $1,736,869

The BEA released data today on "GDP by industry" for 2011, and reported that U.S. manufacturing output last year reached $1.837 trillion, which was a new record for current-dollar manufacturing output.  In constant dollars, last year's manufacturing output was just slightly below the record $1.856 trillion manufacturing value-added in 2007. 

If American manufacturing were counted as a separate economy, it would rank as the tenth largest national economy in the world, see chart above (IMF data here for GDP in 2011), with output just slightly below the entire economy of Russia and ahead of Canada's total GDP.  

Bottom Line:  American manufacturing is alive and well and poised for even greater growth in the future.  Flush with record-level profits, the manufacturing sector has never been financially healthier that it is today and the future of American manufacturing has never looked brighter. After years of negative reports about the decline of American manufacturing, it’s now time to recognize and celebrate a great turning point, as America’s industrial sector moves in a new direction that many are now calling a “manufacturing renaissance.”

Markets in Everything: Slugging Goes Digital

Slugging to work? There's an app for that.
The "slugs" (pictured above) are part of the informal Washington, D.C.-area commuting phenomenon in which drivers heading into the city pick up riders ("slugs") along Interstate 95 so they can take the faster, 3-person, high-occupancy lanes.  Here's a website,, with more information. 

The Washington Examiner reports today that "Slug lines are moving into the virtual age":

"Technology is helping companies and the government drag carpools -- and Washington's commuting slug lines -- into the 21st century. A new concept -- called real-time ridesharing -- allows riders to use a smartphone app to find all the drivers already heading their way and ask for a ride in exchange for gas money. And instead of handing over cash, riders can pay drivers online through one of the new websites targeting the commuter market., due to launch in the D.C. area this year, will use the new carpool techniques in combination with a website that lets riders and drivers view the other's online profile to help them choose people with whom they can share the commute."

Michigan's Economy Shifts Into High Gear: February Economic Activity Index Highest Since 2005

From Comerica Bank: "Michigan Economic Activity Index increased by four points in February, spiking to a level of 102. The February index level is 42 points, or 70 percent, above the index cyclical low of 60. February marks the highest index reading since April 2005 (see chart above). Year-to-date the index has averaged 100 points, nine points above the index average for all of 2011.

“Our Michigan Economic Activity Index has broken sharply higher, showing rapid gains in the Michigan economy in early 2012. We are seeing broad-based gains in economic activity, showing that the revitalization of the auto industry is having a fundamental positive impact on the state economy,” said Robert Dye, Chief Economist at Comerica Bank. “Threats to the Michigan economy are still visible in the form of challenging global macroeconomic conditions and expected cuts in federal defense spending. Recently softer U.S. economic data is not expected to significantly impair domestic auto sales.”

(Note: The Michigan Economic Activity Index consists of seven variables, as follows: nonfarm payrolls, exports, sales tax revenues, hotel occupancy rates, continuing claims for unemployment insurance, building permits, and motor vehicle production. All data are seasonally adjusted, as necessary, and indexed to a base year of 2004. Nominal values have
been converted to constant dollar values.)

Gas Prices Are Falling, But Media Has Had 65 Times Greater Coverage of Rising Prices Over Last Month?

The chart above from shows that the national average retail gas price has been falling slowly, but steadily over the last three weeks, from about $3.92 per gallon in early April to $3.82 today, which is a 2.5% decline.    

Where's the news coverage of falling gas prices?  There's almost none.  A Google News search for the phrase "falling gas prices" over the last month produced only 24 results, compared to 1,550 results for the phrase "rising gas prices," for a ratio of almost 65 news stories about rising gas prices for every one story about falling gas prices.  And that's during a 30-day period when gas prices have been falling, not rising!

This seems like a pretty convincing example of how the media gives much greater coverage to bad news than good news - "if it bleeds, it leads."  At least the attacks on oil speculators seems to have decreased significantly with the falling gas prices.   

Cartel-Buster Institute for Justice Goes Up Against the Portland Taxi Cartel with A Legal Challenge

Portland, Ore. -- "Can the government protect you from cheap fares and innovative service merely to shield politically connected businesses from competition? 

That is the question the Institute for Justice and its clients want answered in a federal lawsuit filed today in Portland, Ore, in the U.S. District Court for the District of Oregon. Their lawsuit challenges the constitutionality of Portland's limousine and sedan regulations, which punish small limo and sedan companies that offer discounted rides through online deal sites like 

In 2009, the city passed a law requiring a $50 minimum fare for limousine and sedan rides to or from Portland International Airport. The law imposes a city-wide minimum fare that requires limos and sedans to charge at least 35 percent more than what taxis would charge for the same route and imposes a minimum wait time of at least one hour before customers can be picked up. 

"These laws amount to nothing more than naked economic protectionism; they are designed to protect the profits of Portland's taxicab companies, and now they are being enforced at everyone else's expense," said Institute for Justice Attorney Wesley Hottot, which represents the plaintiffs. "Portland's minimum-fare law and minimum wait time have nothing to do with protecting the riding public. They have everything to do with protecting the city's taxicab companies from competition and driving up prices for consumers." 

Portland's Revenue Bureau recently targeted two limo and sedan companies— and Fiesta Limousine, both of which joined IJ to file suit against the city—for offering promotional fares on the daily deal website When the companies offered their customers $32 one-way trips to the airport, city enforcers immediately threatened them with a combined $895,000 in fines and suspension of their operating permits. The companies canceled the promotions and refunded their customers."

Watch video above for an overview of the case.  

MP: Kudos to the Institute for Justice for its ongoing "cartel busting" efforts on behalf of small business owners in America. There is probably no other organization anywhere in the entire world that is doing greater work defending small businesses and entrepreneurs against economic protectionism, empowering individuals to earn an honest living, and promoting economic and social justice.   

Wednesday, April 25, 2012

Gender-Wage Gap = Gender-Hours Gap

Manhattan Institute fellow Kay Hymowitz in today's WSJ:

"Most people have heard that full-time working American women earn only 77 cents for every dollar earned by men. Yet these numbers don't take into account the actual number of hours worked. And it turns out that women work fewer hours than men.

According to the Labor Department, almost 55% of workers logging more than 35 hours a week are men. In 2007, 25% of men working full-time jobs had workweeks of 41 or more hours, compared with 14% of female full-time workers. In other words, the famous gender-wage gap is to a considerable degree a gender-hours gap."

MP: When comparing wages between two groups, there's always that inconvenient, pesky "ceteris paribus" condition to consider, e.g. hours worked.  The gender activists always seem to want to go directly to "any disparity-proves-discrimination" dogma, without the inconvenience  of having to control for all of the relevant variables that explain differences in wages.        

Harvard Challenges Academic Publishing Cartel

The Guardian -- "Exasperated by rising subscription costs charged by academic publishers, Harvard University has encouraged its faculty members to make their research freely available through open access journals and to resign from publications that keep articles behind paywalls. A memo from Harvard Library to 2,100 teaching and research staff called for action after warning it could no longer afford the price hikes imposed by many large journal publishers, which bill the library $3.75m a year.

The extraordinary move thrusts one of the world's wealthiest and most prestigious institutions into the center of an increasingly fraught debate over access to the results of academic research, much of which is funded by the taxpayer. The outcome of Harvard's decision to take on the publishers will be watched closely by major universities around the world and is likely to prompt others to follow suit.

The memo from Harvard's faculty advisory council said major publishers had created an "untenable situation" at the university by making scholarly interaction "fiscally unsustainable" and "academically restrictive", while drawing profits of 35% or more. Prices for online access to articles from two major publishers have increased 145% over the past six years, with some journals costing as much as $40,000, the memo said.

More than 10,000 academics have already joined a boycott of Elsevier, the huge Dutch publisher, in protest at its journal pricing and access policies. Many university libraries pay more than half of their journal budgets to the publishers Elsevier, Springer and Wiley."

Gasoline-Futures Prices Tumble 16 Cents in Last Week, Due to Market Forces: Increased Oil Supply

Well now those greedy, market-destabilizing, market-manipulating speculators have changed course, and they're now driving gasoline futures prices down, see chart above from the CME.  From today's WSJ:

"U.S. gasoline-futures prices have dropped 16 cents a gallon over the past eight trading days, as more U.S. crude becomes available for refining into gasoline and fears about a shortage of refining capacity fade.

Helping to spur the downturn is the reversal of a pipeline's flow that will give refiners in the Gulf Coast region greater access to crude, the basic feedstock for gasoline. North Sea Brent crude, the European benchmark which holds sway over gasoline prices, already has fallen by more than $7 a barrel this month, partly on this development."

MP: In other words, the price of gasoline is actually being determined by market forces, specifically an increase in the supply of oil, and not by speculators.  

Wednesday Afternoon Links

1. US Steel Posts Q1 Profit on Lower Natural Gas Prices, Higher Steel Prices, Strong Sales from Auto and Oil Industries. 

2. Economic Optimism Increases Across Minnesota as 40% of Businesses Plan Increased Hiring in Q2 2012, Up from 39% in Q1 2012 and 29% in Q4 2011.

3. Ohio steel industry is expanding, led by a drilling boom in the gas and oil industry and strong demand for cars and light trucks.    

4. Nine project sponsors seeking Federal approval to export LNG produced from cheap, abundant domestic natural gas.

5. South Dakota prepares for an oil boom as the North Dakota oil boom moves south.

6.  WSJ: U.S. Manufacturers Regain Swagger as Earnings Topple Expectations.  

Manufacturing Doesn't Need Special Tax Treatment

Nobel economist Gary Becker on why special treatment for manufacturing is misguided:

"U.S. President Barack Obama, in his State of the Union address, advocated special tax breaks and support for the manufacturing sector. I do not see any more convincing case for subsidies to manufacturing than there was for the special treatment of agriculture during the long decline in farm employment. 

Most of the arguments made in support of privileges for manufacturing could be made for services and other sectors of the economy. For example, although certain manufacturing industries have had high rates of productivity advance, so too has mining, such as through the development of fracking techniques. The most important technological advance of the past several decades has been the computer and the Internet, for these gave birth to email, word processing, apps, online sales and social networks like Facebook and Twitter. 

Instead of singling out manufacturing for special privileges, the U.S. government should get behind certain general policies. High on the list would be raising the rate of growth of the American economy, for this will tend to create jobs in most sectors of the economy. More government support may be justified for basic research in science and other areas that would also benefit all sectors, not just manufacturing. Local and state governments, along perhaps with the federal government, could try to reduce the dismally high dropout rates from American high schools. Dropouts have trouble finding good jobs even in the best of times, and they suffer the most during recessions. 

Many other steps can be taken to help the American economy, especially by limiting the growth of entitlements and the federal budget. None of the steps to improve the economy involve favoring manufacturing employment and the manufacturing sector. The call by many for special treatment of manufacturing jobs is basically misguided." 

MP: Another reason that special treatment (e.g., tax breaks) for the manufacturing sector is misguided is that the industry earned record profits last year, see chart above.  When some industries like major integrated oil and gas earn record profits, there are calls in Washington for "windfall profits taxes," so the typical political logic would now be calling for higher taxes on manufacturers, not special tax breaks.  But then the term "political logic" is probably an oxymoron. 

HT: Dan Greller

Tuesday, April 24, 2012

Another Reason Nat Gas is a Real Game-Changer: It Reduces Carbon Emissions by 300 Million Tons

I've written extensively over the last several years about how the shale gas revolution is transforming the U.S. economy in ways that would have been unimaginable a decade ago.  Descriptions of this revolution include:

Mort Zuckerman: "The good news is that the United States is at the center of a global energy revolution. Our development of innovative shale-gas technology offers the prospect of a huge bonanza of natural gas. It's the most positive event in the country's energy outlook in 50 years. This kind of seismic shift in the energy landscape is rare. 

Robin West, chairman and CEO of PFC Energy:"This shale gale, I describe it as the energy equivalent of the Berlin Wall coming down. This is a big deal."

Scott Grannis: "It's the most dramatic change that is happening beneath the surface of the U.S. economy today. As the rest of the world struggles with oil prices that are very expensive both nominally and in real terms, the U.S., thanks to new fracking technology, is enjoying natural gas prices that are plunging. Even as crude oil prices have surged over the past 13 years from $12/bbl to over $100, natural gas has dropped by an astounding 85% relative to crude oil. We've never seen anything like this.

The U.S. now enjoys an incredible energy price advantage that not only is transforming industries, but that should be an important source of growth for the entire economy. This could be the best reason to be bullish."

And we now have another reason to celebrate the game-changing effects of shale gas from John Hanger - it's good for the environment:

"Natural gas will cut U.S. carbon emissions by at least 300 million tons in 2012 alone. How much is 300 million tons? It is about equal to the entire annual carbon emissions of Pennsylvania or an amount a little less than 1% of annual global emissions. It's a lot. No single change in the energy marketplace [MP: or public policy] in the last decade has yielded more carbon reductions than the displacement of coal generation by natural gas.

The fact that the rise of natural gas has avoided more carbon than any other single change in the marketplace is proving inconvenient to those who bash gas. The rise of gas is also slashing sulfur dioxide, mercury, soot and other emissions that cause hundreds of thousands of illnesses each year. Ignoring these facts betrays our health, environment, and economy."

Traffic Volume Increases in Feb. for Third Month

Despite rising gas prices this year, overall traffic volume increased in both January by 1.6% and in February by 1.8%, compared to year-earlier levels, according to data released this week by the Federal Highway Administration. The 1.8% increase in February was the largest annual gain in monthly travel volume since October 2010.  Perhaps the increase in traffic volume was due to the mild winter weather this year, or maybe it reflects an economic recovery that is gradually gaining momentum?

CA Foreclosures in Q1 Lowest Since Q2 2007

DQ News --"The number of California homes entering the formal foreclosure process during the first quarter declined to its lowest level in almost five years, the result of a more stable economy and housing market, as well as policies that increasingly favor short sales.

A total of 56,258 Notices of Default (NODs) were recorded at county recorders offices during the first quarter of this year. That was down 8.5% from 61,517 for the prior three months, and down 17.6% from 68,239 in first-quarter 2011. Last quarter's tally of 56,258 NODs was the lowest since 53,943 NODs were recorded in second-quarter 2007. NOD filings peaked in first-quarter 2009 at 135,431.

"Prices peaked five years ago and then started to fall off a cliff. Foreclosure activity goes up when property values decline, and the worst of that decline was happening three years ago. Right now, property values in many areas appear flat," said John Walsh, DataQuick president.

"A few years back, there were some breathtakingly negative forecasts making the rounds regarding the foreclosure problem, some of which have played out, and some of which haven't. The 'shadow supply' has yet to result in a second huge wave of foreclosures. The 'reset problem' hasn't really materialized, largely because interest rates are resetting down, not up. And, remarkably, whole batches of presumed 'toxic' mortgages continue to perform. There's no doubt that housing, especially negative equity, is one of the biggest drags on a struggling economy, but it's not necessarily playing out the way some pundits thought," he said."

Quote of the Day

“No one has ever become rich by being a long-term bear on the fortunes of the United States, and I doubt that anyone will do so in the future. This is still the most flexible and innovative economy in the world.”

~Burton Malkiel

The Coming U.S. Shale-Based Economic Boom

Philip Verleger, visiting fellow at the Peterson Institute for International Economics, writing in today's Financial Times

"Today, few realize that the U.S. stands on the cusp of significant economic gains stimulated by low energy costs. Ten years from today, [we will] celebrate a decade of unexpected strong growth, and the credit will go to countrywide gains from the very low energy prices found only in the U.S.. Low-cost energy will have spawned an export surge in all sorts of goods, from chemicals to tires. Fracking and the other technologies that gave us low natural gas prices will have added more than 1 percent a year to U.S. growth. 

Four conditions will contribute permanently to a big improvement in the competitive position of the U.S. 

1. The U.S. has perfected a means of “manufacturing” natural gas from shale, in effect breaking the monopolistic control on hydrocarbon supply once enjoyed by the majors. 

2. This advantage gives manufacturing plants in the U.S. up to an 80 percent cost advantage over those operating in China, Japan, South Korea or European countries. 

3. U.S. financial markets (principally futures markets) enable producers and consumers to lock in profits for years ahead. Low cash prices now do not deter producers that sold today’s production a year ago at much higher and profitable prices. 

4. Competitive and open pipeline systems prevent any single large participant from denying these economic benefits to any producer or consumer. 

No country other than Canada enjoys U.S. competitive conditions. Nor will any other country probably enjoy them in the future. Recognizing this, groups such as Michelin and Shell intend to build plants in the U.S. to take advantage of the country’s permanently lower-cost energy supplies. Steel mills are also being planned. 

In short, low-cost energy provided primarily by shale gas production advances will almost certainly contribute to an investment boom across the U.S. economy. As a result of these circumstances, the benefits of low-cost energy supplies will spread throughout the U.S. economy, stimulating exports of goods and services and creating millions of jobs."