Monday, May 07, 2012

Markets in Everything: Wantologists

NY Times -- "Originally intended to help business managers make purchasing decisions, wantology is the brainchild of Kevin Kreitman, an industrial engineer who set up a two-day class to train life coaches to apply this method to individuals in private life." 

HT: Mike LaFaive

Monday Night Links

1. The Eagle Ford shale formation will put out 500,000 barrels of crude oil a day by the end of the year, Valero Energy Chief Executive Officer Bill Klesse said after the company’s annual meeting in San Antonio. Producers have told him output from the South Texas formation may rise to 1 million barrels a day in the next few years. Production in 2011 averaged 60,000 barrels a day.

2.  North Dakota oil man Harold Hamm says that  “North Dakota Needs To Shake The Culture of Negativism" about its Bakken oil boom. 

3. A new cryogenic natural gas processing plant is in place in the Texas Eagle Ford shale, adding yet another tangible indicator of the shale boom in South Texas. Enterprise Products Partners is in the start-up process of the processing plant in Yoakum. The processing plant is designed to process up to 300 million cubic feet per day of natural gas and extract up to 37,000 barrels per day of natural gas liquids.

4. Marcellus shale gas wells in Pennsylvania generated about $3.5 billion in gross revenues for drillers in 2011, along with about $1.2 billion in West Virginia. But experts say that a sharp drop in wholesale prices over the last year means that in the future much more money will be made — and more jobs created —by petrochemical companies that process the gas into other industrial and consumer compounds.

Kathryn Klaber, president of the Marcellus Shale Coalition, said the current low natural gas prices benefit consumers throughout the state: “Every single Pennsylvanian has more money in their pocket today — to save, invest and help make ends meet — as a result of plentiful natural gas development from the Marcellus Shale."

5. China’s Purchasing Managers’ Index (PMI) rose 0.2 percentage points to 53.3 in April, above its level a year earlier. It was the index’s fifth straight monthly increase, indicating that the country’s economic activity is picking up steadily.  

6. Baker-Hughes reported last Friday that the share of rigs drilling for natural gas fell to 30.8% for the week ending May 4, the lowest share ever for natural gas since Baker-Hughes started tracking the oil/gas drilling split back in 1987.

 7.  After 154 years, Canada stopped producing pennies last week.

8.  The shale gas revolution is doing a lot more than just making renewables seem more expensive: it’s actually closing coal plants as well. That is, it is significantly reducing CO2 emissions.

Question: How Many Gallons of Gasoline Would it Take to Charge an iPhone?

"This may seem like a strange question to ask, considering iPhones obviously are charged with electricity, not gasoline. But the answer speaks to why gasoline and other liquid fuels will remain an important part of the energy mix in the future.

In ExxonMobil’s recently released Outlook for Energy, we predict that by 2040, about 90 percent of the global transportation fleet will still be powered by liquid petroleum fuels – that is, gasoline, diesel, and jet fuel. When asked why that’s the case, Bill Colton, ExxonMobil’s vice president for Corporate Strategic Planning, often starts the discussion using this fact to put it in perspective:

All of the energy concentrated in one gallon of gasoline is enough to charge an iPhone once a day for almost 20 years.

Clearly, there’s a lot of energy in a gallon of gasoline. And energy density is one of the key factors behind the reliability, affordability, versatility and convenience of any fuel. These are key elements that drive consumer choices today and will continue to drive consumer choices in the future."

~Ken Cohen writing on the Exxon Mobil blog on Dec. 14, 2011

MP: Despite Obama's dismissal of oil as the "fuel of the past," the scientific and economic realities are that fossil fuels will play an important role in our energy future and will be the "fuels of the future" for many generations to come.  

HT: Joe and Mark Lais

Update: Here's some independent analysis that supports XOM's claim that one gallon of gasoline can charge an iPhone for at least 20 years, maybe longer. 

April Employment Trends Index at 44-Month High

The Conference Board Employment Trends Index increased 0.8 percent in April to 108.04, up from the revised figure of 107.18 in March (see chart above).  The April figure is 7.1 percent higher than a year ago.

“The growth in the Employment Trends Index in recent months is signaling moderate improvements in employment,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board. “We did not expect employment growth in December to February, averaging almost 250,000 a month, to continue. However, the disappointing job gain in April (115,000) is probably below the current trend and should pick up to about 150,000 - 175,000 jobs a month through the summer.”

April’s increase in the ETI was driven by positive contributions from five of the eight components. The improving indicators – beginning with the largest positive contributor – were Percentage of Firms with Positions Not Able to Fill Right Now, Percentage of Respondents Who Say They Find “Jobs Hard to Get,” Industrial Production, Number of Employees Hired by the Temporary-Help Industry and Real Manufacturing and Trade Sales. The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area. Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly."

MP: The Employment Trends Index in April was at the highest level in 44 months, since August 2008, and the 12-month gain of 7.1% last month was the highest annual increase in more than a year.  This is more evidence that the labor market is gradually healing, and we can expect improvements in employment going forward. 

Real Question: Are Corporations Economically Distinct from the People Who Comprise Them?

Mitt Romney in this video states that: "Corporations are people."

Barack Obama responded: “I don’t care how many times you try to explain it – Corporations aren’t people. People are people," getting huge applause from a crowd in Columbus, Ohio on Saturday.

In this video below from, economics professor Steve Horwitz answers the really important and relevant question: "Are corporations economically distinct from the people who comprise them?"

Demographics Account for 50% of Decline in LFPR

As an update to yesterday's post about the possible contribution of demographic effects on the recent decline in the U.S. Labor Force Participation Rate (see chart above), here are excerpts from two Federal Reserve research reports on the topic.

1. From the conclusion of "Interpreting the Recent Decline in Labor Force Participation," by Willem Van Zandweghe at the KC Fed (emphasis mine):

"The sharp decline of the LFPR since the onset of the recent recession is due to long-term shifts related to demographic trends and to the cyclical downturn in the labor market. A variety of evidence indicates that, on balance, trend factors account for about half of the decline in labor force participation from 2007 to 2011, with cyclical factors accounting for the other half."

2. From the conclusion of "Explaining the decline in the U.S. labor force participation rate," by Daniel Aaronson, Jonathan Davis and Luojia Hu of the Chicago Fed (emphasis mine):

"Labor force participation has fallen significantly over the past decade. At least some of this decline is due to the recent deep recession and lackluster recovery. Additionally, for quite some time, economists have forecasted that shifting demographics, particularly in the age structure of the population, would put downward pressure on labor force activity. We estimate that just under half of the decline in LFPR since 2000 is due to such factors. We expect these demographic patterns to continue for at least the next decade, and likely far beyond, as the large baby boom cohort continues the transition into retirement. Therefore, standard labor market measures used to compute gaps in resource utilization, such as the employment-to-population ratio and the LFPR, should reflect these long-running patterns."

Bottom Line: Both research reports come to the same conclusion that about half of the decline in the LFPR in recent years is due to long-term demographic trends and the other half of the decline is from the cyclical factors relating to the 2007-2009 recession.    

HT: Marmico

Phoenix-Area Home Prices Rise for Fourth Month

DQ News -- "Phoenix-area home sales dipped in March compared with a year earlier as buyers faced a dwindling supply of foreclosures and other sub-$100,000 properties on the market. With foreclosure resales at a nearly four-year low, the median sale price shot up 13.3% from March last year, marking the fourth consecutive month in which the median has risen year-over-year.

A total of 10,005 new and resale houses and condos closed escrow during March in the combined Maricopa-Pinal counties metro area. That was up 22.2 percent from the month before and down 2.7 percent from a year earlier.

The median price paid in March for all new and resale houses and condos sold in the Phoenix region was $135,900, which is the highest for any month since June 2010, when the median was $139,900. March's median rose 6.2% from the month before and rose 13.3% from a year earlier. The median's year-over-year increase in March followed annual gains of 7.5% in December last year and 6.7% in both January and February of this year. March's median stood 48.5% below the all-time peak of $264,100 in June 2006, but it was 14.8% above the median’s post-peak trough of $118,347 in August 2011."

April Job Gains Could Range from 15k to 215k

As Dennis Gartman reported in The Gartman Letter last Thursday, here's how the BLS describes in a Technical Note how sampling error affects the monthly estimates of changes in nonfarm employment levels (emphasis added):

"Statistics based on the household and establishment surveys are subject to both sampling and nonsampling error. When a sample rather than the entire population is surveyed, there is a chance that the sample estimates may differ from the "true" population values they represent. The exact difference, or sampling error, varies depending on the particular sample selected, and this variability is measured by the standard error of the estimate. There is about a 90-percent chance, or level of confidence, that an estimate based on a sample will differ by no more than 1.6 standard errors from the "true" population value because of sampling error. BLS analyses are generally conducted at the 90-percent level of confidence.

For example, the confidence interval for the monthly change in total nonfarm employment from the establishment survey is on the order of plus or minus 100,000. Suppose the estimate of nonfarm employment increases by 50,000 from one month to the next. The 90-percent confidence interval on the monthly change would range from -50,000 to +150,000 (50,000 +/- 100,000). These figures do not mean that the sample results are off by these magnitudes, but rather that there is about a 90-percent chance that the "true" over-the-month change lies within this interval. Since this range includes values of less than zero, we could not say with confidence that nonfarm employment had, in fact, increased that month. If, however, the reported nonfarm employment rise was 250,000, then all of the values within the 90-percent confidence interval would be greater than zero. In this case, it is likely (at least a 90-percent chance) that nonfarm employment had, in fact, risen that month."

MP: Last Friday, the BLS estimated a payroll job gain of 115,000 in April, but the actual employment gain could be anywhere between 15,000 and 215,000.   Dennis Gartman questions why we should pay attention to these employment reports when they have such a huge margin of sampling error?  

Sunday, May 06, 2012

Decline in Labor Force Participation Reflects Demographics, May Not Be as Bad as Reported

The data in the top two charts above, courtesy of Zero Hedge (linked at The Drudge Report today with the headline "Labor Force Participation Rate Lowest Since 1981"), have been getting a lot of attention.  Here's some recent commentary:

1. Tyler Durden at Zero Hedge: "It is just getting sad now. In April the number of people not in the labor force rose by a whopping 522,000 from 87,897,000 to 88,419,000 (see second chart above).  This is the highest on record. The flip side, and the reason why the unemployment dropped to 8.1% is that the labor force participation rate just dipped to a new 30-year low of 64.3% (see top chart above). 

2.  John Merline at IBD: "In April, the labor force was 365,000 smaller than it was in June 2009 — the month the economic recovery officially started. That's in stark contrast to every other post-World War II expansion, which saw the labor force climb by the millions at this point in their recoveries, even as unemployment rates were driven down. Combined with the growing working-age population, this has pushed the labor force participation rate — those working or looking for a job compared with the working-age population — down to 63.6% in April from 65.7% in mid-2009, and the lowest since 1981."

3.  Wall Street Journal: "The economy turned in another lackluster month for job creation in April, with 115,000 net new jobs, 130,000 in private business (less 15,000 fewer in government). The unemployment rate fell a tick to 8.1%, albeit mainly because the labor force shrank by 342,000. This relates to what is arguably the most troubling trend in the April jobs report, which is the continuing decline in the share of working-age Americans who are in the labor force.

The civilian labor participation rate, as it's known, fell again in April to 63.6%. That's the second decline in a row and the lowest rate since December 1981. That's right—more than 30 years ago, longer than Mark Zuckerberg has been alive. The nearby chart shows the disturbing round trip the workforce participation rate has taken since 1980 and the precipitous drop in the last three years."

MP:  Some comments:

1. An important point of clarification: The civilian labor force participation rate (LFPR) as calculated by the BLS is the Civilian Labor Force (employed + unemployed) divided by the Civilian Noninstitutional Population (16 years and over).  This can be verified by the current BLS employment report, which calculates the April Labor Force Participation Rate of 63.6% as 154,365 (labor force) DIVIDED BY 242,784,000 (the TOTAL ADULT POPULATION).  The total adult population is alternatively referred to as the "working-age population," which can sometimes includes the entire adult population and sometimes includes only those between the ages of 15-64 (see OECD definition here).  For the LFPR in the U.S., the calculation does include the entire adult population (including retirees), and not just those in the "working-age" range of 15-64 years old.

2. One reason that the LFPR can be going down over time is that the civilian population can be increasing relative to the labor force, and that's exactly what has been happening to the Male Labor Force Participation Rate, since at least 1948 (see third chart above).  From a post-war high of 87.4% in 1949, the male LFPR has been consistently declining and reached a low of 70% in April.  Perhaps the decline accelerated in recent years, and the graph would indicate that's the case, but the decline in male LFPR is part of long-term, secular demographic trend that has been going on since the 1940s, and has been declining even during all economic expansions since WWII. Reason? Increasing life expectancy over time will lead to increases in the adult population relative to men in the labor force.  

3. As the bottom chart helps illustrate, the dramatic increase in female LFPR from 50% to 60% between 1980 and 2000 more than offset the 2.5% decline in male LFPR during that period, from 77.5% to 75%, causing the overall LFPR to increase.  The female LFPR peaked at 60.3% in 2000, and was starting to decline slightly even during the 2002-2007 expansion, again probably because of increased life expectancy leading to greater increases in population relative to the labor force.  

4. The third chart also shows that the "sad trend" since 2007 of those counted as "not in the labor force" referred to by Zero Hedge is really just a continuation of a long-term demographic trend going back to at least 1975 (first year BLS has data available).   Again, this is probably just a statistical reality resulting from increased life expectancy and an aging population.  

Bottom Line: The overall LFPR was in decline after peaking in 2000 reflecting long-term demographic trends even during the expansion of 2002-2007, and probably would have continued to decline even without the Great Recession.  Although it's certainly likely that the Great Recession accelerated the decline since 2007, it's important to realize with increased life expectancy, we can expect continued increases over time in those counted as "not in the labor force" and a continuation of the decline in the LFPR that started in 2000.

Milton Friedman - The Free Lunch Myth

Saturday, May 05, 2012

Energy-Related Prosperity in North Dakota

FARGO — "Thanks to strong growth in the agriculture and mining industries — particularly oil and gas production — North Dakota’s per-capita personal income has risen more than 78 percent since 2000, according to statistics released Friday by the federal government and the state Department of Commerce. That’s more than double the 37.4 percent increase in per-capita income seen nationally, the U.S. Bureau of Economic Analysis reported.

Per-capita personal income in North Dakota in 2011 was $45,747, an increase of $20,155 since 2000, when per-capita personal income was $25,592, the BEA reported.  North Dakota’s average growth in per-capita personal income between 2001 and 2011 was 5.6 percent, while the national average was 2.9 percent."

MP: North Dakota's growth in personal income per capita of 78.75% between 2000 and 2011 was the highest for any U.S. state, but was just behind the 80.6% growth in per-capita income in Washington, D.C.   What's the lesson here?  Maybe that even an abundance of natural resources and oil prosperity in North Dakota can't generate increases in personal income like the federal government in D.C.? 

HT: Kevin Burhart

Update: Here's a post from Rob Port with further details on North Dakota's increase in personal income, including the state map below showing where the largest increases have been by county.

Friday, May 04, 2012

Markets in Everything: Binge Drinking Machine

"A new gadget is designed to get people drunk INSTANTLY. The makers claim, however, that the 'harm' is limited, because you sober up equally rapidly. The alcohol is delivered via an aerosol spray, so people feel briefly drunk, then sober up."

HT: Robert Kuehl

Friday Morning Links

1.  Oregon veneer plant has a significant pickup in hiring. There's a new optimism in the Northwest veneer and plywood industry that hasn't been there for 3 years.

2. Las Vegas-area home sales rose to the highest level for the month of March in 6 years. 

3. Former Walmart Associate: I Worked at Walmart for Two Years and I Actually Really Liked It.

4.  Private Buses Will Now Need a Permit To Drive Into New York City.

5. Hyundai to hire 877 workers and add a third shift at its Montgomery, Alabama plant for Sonata and Elantra production.

6. Some Housing Markets Are Rebounding, Phoenix Home Prices in March Were Up 20% Over Last Year, 6% vs. February.

Manufacturing Job Gains Continue to Lead

Here are some highlights from today's BLS employment release:

1. Manufacturing employment increased by 16,000 in April, following gains of 37,000 in March, 31,000 in February and 52,000 in January, for a year-to-date factory job gain of 136,000.

2. More than 17% of U.S. job growth this year has been in manufacturing, even though that sector represents less than 9% of total payrolls. 

3. The jobless rate for the manufacturing sector fell from 7.6% in March to 6.9% in April (not seasonally adjusted - NSA, see Table A-14 in today's report), which was the lowest rate since October 2008, and marked the 11th straight month that the manufacturing jobless rate was below the national average (7.7% in April, NSA).

MP: The chart above displays the percentage employment gains since January 2010 for: a) manufacturing and b) total payroll employment, showing the 4.27% increase in factory jobs compared to the 2.87% increase in overall payrolls.  American manufacturing has made a strong comeback over the last several years, with an increase in factory employment of 489,000 jobs since 2010, and has brought the once-dismissed industrial sector to the forefront of the economic expansion.

"If I Wanted America to Fail" Video Goes Viral

This video from has gone viral with almost 2 million views on YouTube.  The video and one of its creators, Ryan Houck, were featured last night on John Stossel's program:

Markets in Everything: Professional Hitchhikers

"Jakarta's carpooling laws were meant to ease traffic jams. Instead, they have spawned an industry of professional hitchhikers who help drivers comply with highway rules -- for a fee. Hundreds of men, women and children line the main arteries of the Indonesian capital every weekday, offering to ride in private vehicles during rush hours, when cars are obliged to carry at least three passengers on key stretches.

The "jockeys" -- as they are known -- do not stick out their thumbs like typical hitchhikers around the world. Here, one finger signifies a jockey working solo, while two offers a pair, usually a mother with a child in tow. In a country where millions are struggling to climb out of poverty and into an expanding middle class the jockeys -- who charge about a dollar a ride -- have turned their services into a career."

HT: Matthew Lesich

Thursday, May 03, 2012

Cartoon of the Day

CME Chairman Defends Speculators

"When the Dow goes above 13,000, Google goes above $600 per share and everybody celebrates, who do you think did that? The U.S. equity market is 100% speculators."

~CME Executive Chairman Terry Duffy

Wednesday, May 02, 2012

Tire Tariffs Cost $1B and $900k Per Job in 2011

From the introduction of the research article "US Tire Tariffs: Saving Few Jobs at High Cost" by Gary Clyde Hufbauer and Sean Lowry of the Peterson Institute for International Economics (emphasis mine):

"In his 2012 State of the Union address, President Obama claimed that “over a thousand Americans are working today because we stopped a surge in Chinese tires.” The tire tariff case, decided by the president in September 2009, exemplifies his efforts to get China to “play by the rules” and serves as a plank in his larger platform of insourcing jobs to America.

However, our analysis shows that, even on very generous assumptions about the effectiveness of the tariffs, the initiative saved a maximum of 1,200 jobs. Our analysis also shows that American buyers of car and truck tires pay a hefty price for this exercise of trade protection. According to our calculations, explained in this policy brief, the total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1228 billion in 2011. The cost per job saved (a maximum of 1,200 jobs by our calculations) was at least $900,000 in that year (see table above). Only a very small fraction of this bloated figure reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home.

The additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment in the retail industry. On balance, it seems likely that tire protectionism cost the US economy around 2,570 jobs, when losses in the retail sector are offset against gains in tire manufacturing. Adding further to the loss column, China retaliated by imposing antidumping duties on US exports of chicken parts, costing that industry around $1 billion in sales."

MP: The authors point out "While this figure ($900,000 per job saved) seems extravagant, it is consistent with prior research. Studies repeatedly show that the consumer cost of trade protection typically exceeds, by a wide margin, any reasonable estimate of what a normal jobs program might cost."  In other words, it would cost the economy much less overall to not impose the tire tariffs and instead direct compensation towards workers in the tire industry in some other way.

In fact, it would have been cheaper to just idle the 1,200 tire workers and pay them their full salary, of let's say $75,000 per year, than to impose tariffs that cost the economy almost $1 million per worker.  This is a good example of why economists don't as a group support trade protection and instead favor free trade: the total costs of protectionism always outweigh the total benefits to the  protected industry, resulting in a net loss and making the overall economy worse off, not better off. 

HT: Gene Hayward

Population Distribution by Age, 1950-2050

Click for larger image and higher quality.
Watch the U.S. "population distribution by age" change over time in 5-year intervals from 1950 to 2050 in the animated graphic above, from the Calculated Risk blog.  At around the year 2035, the age distribution will make it obvious why the Social Security System is headed for insolvency. 

Shale Revolution Links

1. Ukraine has fields of shale rocks that the U.S. Geological Survey estimates will hold enough gas to fire the eastern European nation for 100 years or more. Royal Dutch Shell, Exxon Mobil, and Chevron -- three of the world’s four largest oil companies -- bid last week for Ukrainian exploration rights.

2. Royal Dutch Shell is in the preliminary stages of feasibility and design work on a potentially huge, $10 billion, 2 million gallon per day Gas-to-Liquids (GTL) facility in Louisiana, using abundant natural gas feedstock. This development is important for several reasons:  it validates the long-range forecast of persistently high volumes of economical natural gas.  Since the plant would not enter production until 2014 at the earliest, a gigantic, experienced GTL and gas producer must be confident that natural gas prices will remain a relative bargain, and that this will continue for a long time into the life of the plant.

3. Britain may have enough offshore shale gas to catapult it into the top ranks of global producers, energy experts now believe, and while production costs are still very high, new U.S. technology should eventually make reserves commercially viable.

4. Houston-based Cheniere Energy is one of a number of companies that plan to export surplus U.S. gas. For global energy markets, that is a change of potentially huge proportions.  This development could recast a world gas trade long dominated by a handful of energy superpowers – countries including Russia, Qatar and Algeria.

It is difficult to exaggerate the significance of this shift and its consequences for the business model of the big gas suppliers.  Not only will US exports be cheap – they could also be plentiful. Eight projects with a total export capacity of 120m tonnes a year have been proposed, according to Wood Mackenzie, a consultancy. If all are approved and built, the US could become one of the world’s biggest LNG producers.

HT: Jon Murphy

Cleveland Fed Estimate of 10-Yr. Inflation: 1.47%

The Cleveland Fed reported back in mid-April that its latest estimate of 10-year expected inflation remains low, at only 1.47% for April, see chart above. In other words, the public currently expects the inflation rate to be less than 2% on average over the next decade.  Still no sign at all of any pending inflationary pressures according to this measure.

Social Security vs. Private Retirement

In the video above from Professor Antony Davies points out that even a retirement plan that forced workers to invest their Social Security payroll taxes only in Treasury bills would generate 17% more in retirement benefits than the current system, which is also subject to change by Congress at any time.   

Embracing the Shale Revolution: Let's Export

America's Shale Gale

From my editorial in today's The Hill:

If there is one conclusion that should be drawn from the boom in U.S. natural gas production, it is that supplies are so abundant that it makes economic sense to export some of our gas to countries overseas. No one could have imagined that possibility even a few years ago when the United States was actually importing natural gas, with much of it arriving on LNG tanker ships.

Today America is almost completely self-sufficient in natural gas. In fact, we produce more gas than we can use, and soon we will not have enough room to store the surplus gas.  Even now, some of the gas produced as a byproduct of oil drilling must be burned off or “flared” as a waste product until customers can be found to buy it. 

Yet there are those in Congress who oppose plans to export natural gas because they are concerned that U.S. consumers and businesses would wind up having to pay higher prices for gas. Proposed legislation has been introduced to ban gas exports. Such fears are overblown. Natural gas reserves are so abundant we would be foolish not to export some of the gas. There is plenty of gas in the United States to meet domestic demand and support exports at the same time.

Exports will encourage increased domestic natural gas production – a boon for states looking for investments and jobs from the oil and gas industry. The shale revolution is transforming the world energy landscape and reshaping our energy future. It’s time to embrace its full economic potential by allowing exports of America’s abundant natural gas. 

Most Popular Baby Names Back to 1880 from SSA

Who knew? The Social Security Administration keeps track of the most popular baby names for every year back to 1880, see some examples above.

HT: Josh Barro 

Update: Here's a website that allows you to track the popularity of baby names over time, here's the graph for Tiffany, which peaked in about 1980 (see below).

Tuesday, May 01, 2012

For Every $1 Drop in Natural Gas Prices, Residential and Business Consumers Save $23 Billion Annually

Average natural gas price by user and total spending, 2008 vs. 2011
UserAvg. Price 2008  Spending 2008  (B)Avg. Price 2011Spending 2011 (B)Savings 2011 vs. 2008 (B)
Electric Power$9.65$64.35$5.49$38.16$26.19

Total, 2008$235.23BTotal, 2011 $151.29B$83.94B
Note: Prices are per 1,000 cubic feet. 

Question: How have falling natural gas prices translated into savings for residential, commercial and industrial consumers? 

Using data on natural gas consumption and prices from the EIA for the years 2008 and 2011, the table above shows in 2008 annual total spending on natural gas was about $235 billion for residential, commercial, industrial and  electric power customers, and by 2011, as a result of falling natural gas prices thanks to shale gas, total spending on natural gas had fallen to roughly $151 billion.  Falling gas prices resulted in savings of about $84 billion in 2011 compared to an alternative scenario where gas prices had remained at 2008 levels, which were also representative of gas prices in the previous years back to 2005.  Residential customers saved almost $17 billion in 2011 compared to 2008, commercial customers saved $10.5 billion, industrial consumers more than $30 billion and electric power companies more than $26 billion.  

Between 2008 and 2011, natural gas consumption was relatively flat for all users, so that the cost savings were entirely due to falling gas prices, and not decreased consumption.  For electric power companies, their usage actually increased by about 14% between 2008-2011, but that increased consumption was more than offset by a 43% reduction in the price they paid for natural gas.  

Based on the  historical consumption and price data, it's possible to make the following estimates of the annual savings on natural gas for every $1 reduction in the price of gas:

Residential consumers save $5 billion annually.

Commercial consumers save $3 billion annually.

Industrial consumers save $7 billion annually.

Electric power companies save almost $8 billion annually.  

Total savings of about $23 billion annually. 

Cartography of the Anthropocene

Mapping human influence on Planet Earth.

HT: Fred Dent

ASA Staffing Index At Same Levels as 2007-2008

The American Staffing Association reported today that its weekly Staffing Index of temporary and contract employment increased to a year-to-date high of 93 for the week ending April 22, which was 9.4% above the year-ago level, almost 15% above the same week two years ago, and 2.2% above the previous week this year. For Week 17, it was the highest reading since 2008 (see top chart above), and just one point below the 94 index level for the comparable week in pre-recessionary 2007.

As a leading indicator of future, broader-based employment levels, the upward trend in the ASA Staffing Index this year, and the fact that it's at comparable levels in 2007 and 2008 would suggest that improvements in labor market conditions will continue in the coming months.

Commercial Natural Gas Prices Drop to 12-Year Low in February, Saving Companies Billions of Dollars

According to data released this week by the EIA, the U.S. price of natural gas sold to commercial consumers fell in February to $7.97 per thousand cubic feet in February. The last time the price of commercial natural gas was below $8 was back in February 2003, and after adjusting for inflation, it's the lowest price since early 2000, 12 years ago.

In a December 2011 report “Shale Gas: A Renaissance in U.S. Manufacturing,” PriceWaterhouseCoppers (PwC) predicted that cheap natural gas will spark an energy-related manufacturing renaissance that has the potential to create one million new American manufacturing jobs by 2025. Further, PwC estimates that lower natural gas costs will generate cost savings of $11 billion annually for U.S. manufacturers, which will make them more competitive globally, and will contribute to greater profitability, increased investment in domestic production, and increased employment opportunities. 

The drop in commercial natural gas prices to below $8 in February (and industrial prices, see update below), and to levels less than 50% of the spikes in 2005 and 2008 above $16, provides evidence that American manufacturers are saving billions of dollars collectively in energy costs as inflation-adjusted prices fall to 12-year lows. Thanks to having access to the world's cheapest natural gas, the U.S. has now emerged as one of the world’s lowest-cost manufacturing locations for producing chemicals, nitrogen fertilizers, ethylene, steel and iron. Welcome to the U.S. manufacturing renaissance, which has the potential to boost manufacturing employment by one million jobs by the middle of the next decade, according to PwC. 

Update: The chart below shows the monthly inflation-adjusted industrial price of natural gas, which was close to an 11-year low in February of $4.25 per thousand cubic feet.  Industrial users are currently paying a price that is about 42% below the $7.31 average between 2001-2012, and about 70% below the peak price in 2008 of almost $14 per mcf. 

ISM Report: Manufacturing Comeback Continues; Real GDP Growth in Q2 2012 Could Be Above 4%

From today's ISM report on U.S. manufacturing, which increased in April to a ten-month high of 54.8% from 53.4% in March, and was well above consensus expectations of 53%:

 "Economic activity in the manufacturing sector expanded in April for the 33rd consecutive month, and the overall economy grew for the 35th consecutive month.

According to Bradley J. Holcomb, chair of the Institute for Supply Management Manufacturing Business Survey Committee:

"The ISM Manufacturing Index (PMI) registered 54.8%, an increase of 1.4 percentage points from March's reading of 53.4%, indicating expansion in the manufacturing sector for the 33rd consecutive month. Sixteen of the 18 industries reflected overall growth in April, and the New Orders, Production and Employment Indexes all increased, indicating growth at faster rates than in March. The Prices Index for raw materials remained at 61 percent in April, the same rate as reported in March. Comments from the panel generally indicate stable to strong demand, with some concerns cited over increasing oil prices and European stability."

The past relationship between the PMI and the overall economy indicates that the average PMI for January through April (53.7%) corresponds to a 3.8% increase in real gross domestic product (GDP). In addition, if the PMI for April (54.8%) is annualized, it corresponds to a 4.1 percent increase in real GDP annually." 

MP: The ISM sub-indexes for production (13-month high), exports, new orders, and employment (10-month high) showed strong gains last month, and all four are listed as "growing faster" for April.  Likewise, the "overall economy" and "manufacturing sector" are both described by the ISM as "growing faster" for April, suggesting that economic growth will continue and possibly accelerate in the months ahead.  The above-expected strength in U.S. manufacturing activity according to today's ISM report provides additional support that America's industrial sector is at the forefront of the economic expansion.

Net Private Sector Job Gains Back to 2006 Levels

The BLS released its report today on Business Employment Dynamics with data through the third quarter of 2011 with the following highlights:

1. From June to September 2011 gross job gains from opening and expanding private sector establishments were 7.1 million, an increase of 166,000 jobs from the previous quarter. That was the largest quarterly increase in more than three years, since the second quarter of 2008.

2. Over this period, gross job losses from closing and contracting private sector establishments were 6.3 million, a decrease of 9,000 jobs from the previous quarter, and the lowest quarterly employment loss since the BLS started tracking these data in 2000.

3. The difference between the number of gross job gains and gross job losses yielded a net employment change of 753,000 jobs in the private sector during the third quarter of 2011. This is the largest net job gain since the first quarter of 2006 (see chart above).

4. By industry, every sector of the economy experienced net job gains in the third quarter with the exception of Utilities, which lost 1,000 jobs.  The construction sector had a net increase of 65,000 jobs in the third quarter of 2011, following a gain of 36,000 jobs in the  previous quarter, reversing jobs losses in previous quarters.

MP: With net private sector job gains in 2011 returning to pre-recession levels, it's another sign that the labor market is gradually improving and we expect those improvements to continue in the coming year.

Smackdown: Ron Paul vs. Paul Krugman

HT: Reason

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."