Tuesday, August 07, 2012

$1.3B Greendoggle in Sen. Reid's Nevada: $4.6 Million per Job, and 4X the Cost of Fossil Fuels

LAS VEGAS (NEVADA JOURNAL) — "As U.S. Senate Majority Leader Harry Reid prepares to host his fifth annual National Clean Energy Summit on Aug. 7, a Nevada Journal examination of Nevada’s renewable energy sector shows that over $1.3 billion in federal taxpayer funds funneled into geothermal, solar and wind projects since 2009 has yielded and is projected to yield just 288 permanent, full-time jobs. That’s an initial cost of over $4.6 million per job.

Despite this, Sen. Reid continues to hype Nevada as the “Saudi Arabia of renewable energy,” even though the renewable energy subsidized with federal taxpayer dollars and mandated under Nevada’s Renewable Portfolio Standard costs consumers and NV Energy, Nevada’s publicly regulated utility company, up to four times as much as fossil fuels, such as natural gas.

Even with these government-granted advantages, the few clean-energy jobs in the state of Nevada are still precarious."

Read more here

June Job Openings Highest in Four Years

Highlights from today's Job Openings and Labor Turnover report from the BLS:

1. There were 3.76 million total job openings and 3.4 million private job openings on the last day of June, up from 3.65 million openings and 3.28 million, respectively, in May. The number of job openings has been steadily trending upward since the end of the recession in June 2009 (see top chart above).

2. Private job openings in June were at the highest level in more than four years, since May 2008, and total June job openings were the highest since July 2008. 

3. The overall number of seasonally adjusted job openings in June increased over the year by 16% and for total private openings by almost 17%.  Openings for government jobs fell by 12.8% over the year.

4. June job openings in the manufacturing sector were above 300,000 for the second time this year, a level of factory job openings not seen since 2007. 

5. In another sign that the labor market is slowly recovering, the number of private workers voluntarily quitting their jobs has been steadily increasing since the recession ended and been around the 2 million level for the last four months starting in March.  That's up by about 31% since the recession-related low of 1.51 million quits in September 2009.   

CoreLogic Home Price Indexes Increase in June for 4th/5th Month, With Highest Yearly Gains in 6 Yrs.

CoreLogic released its monthly report today on June home prices based on its Home Price Index (HPI), along with its new Pending HPI for July, with these highlights:

1. Home prices nationwide, including distressed sales, increased on a year-over-year basis by 2.5 percent in June 2012 compared to June 2011 (see top chart above). On a month-over-month basis, including distressed sales, home prices increased by 1.3 percent in June 2012 compared to May 2012. The June 2012 figures mark the fourth consecutive increase in home prices nationally on both a year-over-year and month-over-month basis.

2. Excluding distressed sales, home prices nationwide increased on a year-over-year basis by 3.2 percent in June 2012 compared to June 2011. On a month-over-month basis excluding distressed sales, home prices increased 2.0 percent in June 2012 compared to May 2012, the fifth consecutive month-over-month increase. Distressed sales include short sales and real estate owned (REO) transactions.

3. The CoreLogic Pending HPI indicates that July home prices, including distressed sales, will rise by at least 0.4 percent on a month-over-month basis from June 2012 and by 2.0 percent on a year-over-year basis from July 2011. Excluding distressed sales, July house prices are also poised to rise by 1.4 percent month-over-month from June 2012 and by 4.3 percent year-over-year from July 2011. The CoreLogic Pending HPI is a new and exclusive metric that provides the most current indication of trends in home prices. It is based on Multiple Listing Service (MLS) data that measure price changes in the most recent month.

4. “At the halfway point, 2012 is increasingly looking like the year that the residential housing market may have turned the corner,” said Anand Nallathambi, president and CEO of CoreLogic. “While first-half gains have given way to second-half declines over the past three years, we see encouraging signs that modest price gains are supportable across the country in the second-half of 2012.”

MP: A few more of my own highlights:

1. For CoreLogic's HPI excluding distressed sales, the 3.2% gain in June was the largest annual increase in six years, going back to the summer of 2006. 

2. For CoreLogic's combined HPI (including distressed sales), there were 15 states in June with 12-month increases of 4% or higher and 7 states with 12-month increases of 6% or more (see map above), led by Arizona (13.8%), Idaho (10.4%), South Dakota (10.1%), Utah (8.3%), Wyoming (7.7%), N. Dakota (6.3%) and Colorado (6.2%).

Bottom Line: With almost every new real estate report, evidence continues to accumulate that the housing market has passed the bottom and is in a new cycle of sustainable recovery.  Look for ongoing increases in home prices during the month of July, based on CoreLogic's Pending HPI estimate of a 4.3% gain, which would be the largest 12-month gain in more than six years. 

Natural Gas Production Sets New Records in May as Marcellus Shale Becomes Country's Top Producer

Updated EIA data on monthly natural gas production in the U.S. through May is displayed above, and shows that both "gross withdrawals" and "marketed production" of natural gas set new monthly all-time records on a 12-month moving average basis (to smooth out monthly variations).  Other highlights include:

1. Gross withdrawals of natural gas in May set a new record for the month of May, and were 4.4% above last year and 7.2% above last year for the January-May period. 

2. Marketed production of natural gas in May was 4.3% above last year, and it was also the highest-ever production level for the month of May, and 7.1% above last year for the January-May period.  

3. Over the last four years, both measures of natural gas production have increased by almost 20%.  

Where are the significant increases in natural gas production taking place? A lot of the increase is coming from the Marcellus Shale region, which is about to become the most productive natural gas field in the U.S., according to this new Associated Press report:
Though serious drilling began only five years ago, the sheer volume of Marcellus production suggests that in some ways there's no going back, even as New York debates whether to allow drilling in its portion of the shale, which also lies under large parts of Pennsylvania, West Virginia, and Ohio.

In 2008, Marcellus production barely registered on national energy reports. In July, the combined output from Pennsylvania and West Virginia wells was about 7.4 billion cubic feet per day, according to Kyle Martinez, an analyst at Bentek Energy. That's more than double the 3.6 billion cubic feet from April, and represents more than 25 percent of national shale gas production.

That's neck and neck with production from the Haynesville region in Arkansas and Texas, but new drilling permits there have declined sharply.

The Powell Shale Digest, an industry newsletter based in Fort Worth, Texas, concluded that a recent report from the U.S. Energy Information Agency means "it is reasonable to assume" the Marcellus has or will soon pass Haynesville as the top producer. The Marcellus Shale is a gas-rich formation of rock thousands of feet below ground. Advances in drilling technology made the shale accessible, which led to a boom in production, jobs, and profits, and a drop in natural gas prices for consumers.
MP: At the same time that natural gas production continues to increase, spot prices are also rising, and natural gas is now selling at $3.20 per million BTUs, the highest level since November 2011.  The higher prices are likely reflecting higher demand from electric utilities and industrial customers, and will naturally support ongoing increases in natural gas production. 

Monday, August 06, 2012

Markets in Everything: Salt Gun for Shooting Flies

The original salt gun for shooting flies from Bug-a-Salt

HT: Robert Wright

Economist Paul McCracken, 1915-2012, R.I.P.

Economist Paul McCracken on his 95th birthday.
Legendary economist Paul W. McCracken died last Friday in Ann Arbor, Michigan at the age of 96.  In addition to being a professor of Business Administration, Economics, and Public Policy at the Ross School at The University of Michigan since 1948, Paul McCracken served as an economic adviser to Presidents Nixon (chair, Council of Economic Advisers), Eisenhower (member, Council of Economic Advisers), Kennedy (member, task force on the domestic economy) and Johnson (member, Commission on Budget Concepts) from the 1950s through the 1970s.  McCracken was associated with The American Enterprise Institute in Washington, D.C. and chaired AEI's Council of Academic Advisers in the 1980s and also served as interim president of the institute in 1986.

Here are some related links:

1.  Around the time of his 95th birthday in February 2011, I featured Paul McCracken on CD.  At the time, he was still keeping regular office hours at the University of Michigan at age 95!  I featured a quote from Professor McCracken explaining why he opposed President Nixon's "temporary, 90-day" wage and price controls in 1971, which ended up lasting until 1974:

"I thought price controls were a bad idea for a very simple reason. You couldn't look back into history and point to a success story."

That's some timeless economic logic from Professor McCracken that is still relevant today and should be more widely observed by politicians who advocate price controls like the minimum wage, ticket re-sales (Michigan politician wants to limit the markup on tickets sold on the secondary market t0 10% above face value), and rent control.

2. Paul McCracken's New York Times obituary.

3. Washington Post article on Paul McCracken.   

4. Notice from the Ross School of Business

5. Article in the Michigan Daily (student newspaper in Ann Arbor).

Note: Paul and I served together on the Mackinac Center for Public Policy's Board of Scholars for the last 15 years, and I was privileged to have met him several times and will fondly remember those encounters.  For a scholar of such impressive accomplishments, he was one of the most friendly, gracious and approachable people I have ever met.    

Sunday, August 05, 2012

Recent Readings from Five Different Economic and Financial Indicators Suggest No Signs of Recession

"The Aruoba-Diebold-Scotti (ADS) business conditions index is designed to track real business conditions at high frequency. Its underlying (seasonally adjusted) economic indicators (weekly initial jobless claims; monthly payroll employment, industrial production, personal income less transfer payments, manufacturing and trade sales; and quarterly real GDP) blend high- and low-frequency information and stock and flow data.

The average value of the ADS index is zero. Progressively bigger positive values indicate progressively better-than-average conditions, whereas progressively more negative values indicate progressively worse-than-average conditions. The ADS index may be used to compare business conditions at different times. A value of -3.0, for example, would indicate business conditions significantly worse than at any time in either the 1990-91 or the 2001 recession, during which the ADS index never dropped below -2.0."

MP: The chart above displays the daily ADS index from the beginning of 2000 through the end of July.  Recent values of the ADS business index are close to zero and have gradually been increasing from the recent lows in March.  This real-time measurement of business conditions is indicating no statistical evidence of a recession, and is in fact providing support for business conditions that are close to average.

Recent readings from other financial and economic indicators are also showing no evidence of  recessionary conditions in the U.S. economy including:

1. Bloomberg's "U.S. Financial Conditions Index" has been rising for the last year, indicating a gradual and ongoing improvement for the underlying conditions in the U.S. financial markets. 

2.  The Chicago Fed National Financial Conditions Risk Subindex is at the lowest (best) level in more than a year, and has been declining (improving) since the beginning of the year. 

3. The St. Louis Financial Stress Index has been trending downward (improving) since last October and is back to pre-recession 2007 levels.  

4. The Kansas City Financial Stress Index has been below zero for the last five months (a sign of low stress), and this measure of financial stress is also now back to pre-recession 2007 levels.    

Bottom Line: Where's the recession?  Surely there would be indications from at least one of these five measures of economic and financial conditions if the economy was weakening to the point that a recession was underway or pending?  All five indicators accurately signaled the last recession in 2007-2009, so they can't all be wrong this time, can they?

EIA Revises Estimates of America's Energy Bonanza: Record Increases in Proved Reserves of Oil and Gas

On Wednesday, the U.S. Energy Information Administration (EIA) updated its estimates of America's proved reserves of oil and natural gas for 2010.  Here's a summary of the key findings:

1. Proved reserves of both oil and natural gas in 2010 rose by the highest amounts ever recorded in the 35 years EIA has been estimating U.S. proved reserves.

2. Technological advances in drilling and higher prices contributed to gains in reserves. The expanding application of horizontal drilling and hydraulic fracturing in shale and other "tight" formations, the same technologies that spurred substantial gains in natural gas proved reserves in recent years, played a key role. Further, rising oil and natural gas prices between 2009 and 2010 likely provided incentives to explore and develop more resources. 

3. Oil proved reserves rose 12.8% to 25.2 billion barrels in 2010, marking the second consecutive annual increase and the highest volume since 1991 (see chart above). 

4. Natural gas proved reserves (estimated as "wet" natural gas, including natural gas plant liquids) increased by 11.9% in 2010 to a record-high 317.6 trillion cubic feet (Tcf), the twelfth consecutive annual increase, and the first year U.S. proved reserves for natural gas surpassed 300 Tcf (see chart above).

5. Proved reserves reflect volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.   

John Hanger provides this commentary on the EIA report:

"Most impressively, proved gas reserves in 2010 were up 50% compared to the 2005 number or the 1980 number.  That's right, our proved gas reserves are 50% higher in 2010 than 30 years ago, despite using a lot of gas during that 30 year period.

Indeed, during the last 30 years, the country consumed more than double the amount of our 1980 proved gas reserve number. How could that be? Exploration and production activities are never ending. They keep filling the U.S. natural gas cup that has never emptied and is now overflowing.

So our proved reserves of natural gas have gone up for 12 straight years, increased during 2010 by the highest amount in 35 years, and are 50% higher than in 2005 or 1980." 

MP: The EIA's significant upward revisions for proved reserves of U.S. oil and gas provide more evidence that America's job-creating, game-changing, economic-stimulating energy bonanza just keeps getting better and better all the time.

As Walter Russell Mead wrote recently:

"Nature — or perhaps Nature’s God — seems to love mocking pundits. Just when the entire punditocracy, it sometimes seemed, had bought into the “American decline” meme, Europe collapsed and huge energy reserves were discovered underneath the United States. The “special providence” that observers have from time to time discerned in America’s progress through history doesn’t seem to be quite finished with us yet."

The Real Internet Came from Spontaneous Order

From a 1998 article in The Freeman by Andrew Morris:
The Internet today bears little resemblance either to what the government wanted to build or to what it actually built. The innovations in networking that produced today’s Net occurred as much despite government funding as because of it. If anything, therefore, the Internet represents the success of spontaneous ordering over central planning, not the successful design of a new technology by the state.

Today’s Internet is the embodiment of a spontaneous order in many ways. No agency or board controls it. No central planner decides how it will operate. It ignores national borders. It has changed the world.

Yet a few years ago, little of what we know today as the Internet existed: no bookstores, no Web pages, little public access beyond academic institutions. Before the Internet, there was ARPANET—the Advanced Research Projects Agency Network—a U.S. Department of Defense (DOD) network that is often described as the forerunner of today’s Internet. The ARPANET connection is thus the source of the “we wouldn’t have it without the government” story.

Unlike the mythical Internet that sprang forth from the ARPANET, the real Internet grew out of a spontaneous ordering process of the interactions of millions of individual users. The uses we make of the Internet were unimaginable to the researchers and scientists who created the networking protocols and hardware advances we rely on today. Far from being the result of the government’s “strategic” investment in the original Defense Department networks, today’s Internet developed at most accidentally from and often in spite of those investments. The explosive growth in commerce, for example, became possible only when the government’s ban on commercial use of the networks it financed was lifted.

Moreover, the “strategic” nature of the early investment in networking is a myth. No one consciously created the Internet. While an international network of networks undoubtedly would look different today had ARPANET never existed, there is also little doubt that packet-switching and e-mail would have evolved anyway. Dedicated, motivated people with a need to communicate—for commercial and noncommercial purposes—would have surely seen to it.
HT: John Stossel via Warren Smith

Saturday, August 04, 2012

North Dakota: America's "Economic Miracle State"

The Philadelphia Federal Reserve recently released June Coincident Economic Activity Indexes for all 50 states, along with a national coincident economic activity index.  These indexes are based on four economic indicators: a) nonfarm payroll employment, b) the unemployment rate, c) average hours worked in manufacturing, and d) wages and salaries.

The chart above displays the indexes for North Dakota and the United States over the last ten years, showing that the economic activity in North Dakota is completely "off the charts," along with the state's oil production and oil jobs, which are also showing explosive growth and driving economic growth in the "miracle state."  Even the "worst recession since the Great Depression" barely affected the shale oil-based economic activity in the Peace Garden State, and the June coincident index is 25% above the pre-recession level and almost 11% above a year ago.  Meanwhile the coincident economic activity index for the overall U.S. economy fell about 10.5% during the Great Recession and is now still less than 1% above the previous peak in early 2008.

The Philadelphia Fed also recently released its "State Leading Indexes" for the month of June, which "predict the six-month growth rate of the state’s coincident index. In addition to the coincident index, the models include other variables that lead the economy: state-level housing permits (1 to 4 units), state initial unemployment insurance claims, delivery times from the Institute for Supply Management (ISM) manufacturing survey, and the interest rate spread between the 10-year Treasury bond and the 3-month Treasury bill." North Dakota's leading index for June predicts a 3.8% growth rate for the state's economy over the next six months, by far the highest expected growth rate among the 50 states (only No. 2 Ohio comes even close at 2.6%), and a rate of growth almost four times higher than the expected 1% at the national level.   

MP: The June coincident and leading indexes for the 50 states and the national economy provide additional support that North Dakota is the most economically successful state in the country thanks to its booming energy sector and pro-energy and pro-business policies - the "Dakota Model."  On every relevant measure of economic performance by state: job creation, unemployment rate, income growth, output growth, growth in oil production, tax revenue collected, construction activity, home foreclosure rates, housing prices, coincident and leading indexes, etc., the Peace Garden State leads the country and deserves the title of America's "miracle state." 

TED Talk: Daphne Koller (Co-Founder of Coursera) on What We're Learning from Online Education

In the TED Talk above, Stanford professor Daphne Koller shares her excitement about making the college experience available to anyone through her startup, Coursera. With classes from 16 top colleges, Coursera is an innovative model for online learning. While top schools have been putting lectures online for years, Coursera's platform supports the other vital aspect of the classroom: tests and assignments that reinforce learning.

Markets in Everything: 3D Printed "Magic Arms"

From Venture Beat: "The heartwarming video above documents the story of a small child whose life has been radically changed for the better because of 3D printing technology.

Two-year-old Emma was born with a rare disease called arthrogryposis that makes it so she can’t raise her arms without assistance. Through the use of 3D printing, a Delaware hospital created a mobile plastic exoskeleton that now allows Emma to use her arms for many things.

3D printing ensures that a new exoskeleton can be created if Emma breaks or outgrows it. Emma is now on her second 3D-printed jacket and calls the device her “magic arms.”

The video was created by 3D printing business Stratasys, which recently merged with Objet in a $1.4 billion deal. A Stratasys 3D printer was used to create Emma’s jacket."

MP: The 3D printing revolution has just begun. We can expect hundreds and probably thousands of more examples like this in the future, as this amazing, innovative technology revolutionizes manufacturing and our entire world.   

Markets in Everything: A Private Lottery in Massachusetts for Skilled Gamblers

The Boston Globe reports on "A game with a windfall for a knowing few: High-rolling gamblers are exploiting a quirk in Cash WinFall, raking in huge profits every 3 months as the Lottery looks on":

"For a few days about every three months, Cash WinFall may be the most reliably lucrative lottery game in the country. Because of a quirk in the rules, when the jackpot reaches roughly $2 million and no one wins, payoffs for smaller prizes swell dramatically, which statisticians say practically assures a profit to anyone who buys at least $100,000 worth of tickets.

During these brief periods - “rolldown weeks’’ in gambling parlance - a tiny group of savvy bettors, among them highly trained computer scientists from MIT and Northeastern University, virtually take over the game. Just three groups, including the Selbees, claimed 1,105 of the 1,605 winning Cash WinFall tickets statewide after the rolldown week in May, according to lottery records. They also appear to have purchased about half the tickets, based on reports from the stores that the top gamblers frequent most.

"It’s a private lottery for skilled people,’’ said Secretary of State William Galvin."

HT: W.E. Heasley

Friday, August 03, 2012

From Today's Jobs Report: Demand for Temporary, Manufacturing, and Oil/Gas Jobs Remains Strong

From today's BLS Employment Situation report:

1. The number of "temporary help services jobs" increased by 14,100 in July to the highest employment level since January of 2008 when the recession was just getting started (see chart above).  This part of the labor market has now made almost a complete recovery from the effects of the recession, and suggests that the overall labor market will continue to gradually improve because the demand for temporary employment is generally considered to be a leading indicator of future, broader-based labor demand.  The increased hiring of temporary workers also suggests that many U.S. firms are probably cautiously hiring new workers on a temporary basis to meet increasing demand for output and production, and will gradually switch to more permanent hiring as the overall economy improves and uncertainty about future tax policy and pending fiscal issues are resolved.  

2. Manufacturing employment increased in July for the tenth consecutive month, which brings the total number of new manufacturing jobs added over the last year to 222,000, and the total number of new factory jobs created since 2010 to 524,000. 

3. For the tenth straight month, the manufacturing jobless rate in July (7.2%) was less than the national rate.  

4. "Oil and gas extraction" employment increased in July to the highest level in almost 24 years, since August 1988.  Compared to a year ago, the number of oil and gas jobs in the U.S. has increased by 11.6% and by 27.4% compared to the onset of the recession in December 2007.   

MP: Several of the bright spots in the labor market in July include strong demand for temporary workers, factory workers, and workers in the oil and gas industry. Here's some additional commentary on today's employment report:

Scott Grannis: "In any event, no matter how you slice and dice these numbers, jobs are growing and there is absolutely no sign of a recession." 

Brian Wesbury/First Trust: "But the lack of a very strong recovery doesn’t mean we’re not recovering at all. The unemployment rate is down 0.8 points from a year ago and we expect further modest improvement in the year ahead."

Thursday, August 02, 2012

Cartoon of the Day: Ethanol

Wednesday, August 01, 2012

More on Why So Many Empty Olympic Seats

A few days back, I suggested that maybe if the London police weren't arresting so many people for "ticket scalping," entering into voluntary ticket transactions, perhaps there wouldn't be so many empty seats at the Olympics.

Tim Worstall provides some related commentary in the The Daily Telegraph article titled "Of course there are empty Olympic seats: our Victorian government is arresting anyone who tries to sell them," here's an excerpt:

"Think it through for a moment. There are some people over here that have something they don't value, while there are other people over there who value those things highly. What we'd like is for those things, whatever they are, to move from those who assign little value to them to those who assign a higher value to them.

This is true of anything: this movement of resources from lower to higher valued uses is known as "creating wealth." It is the single most important contributor to the wealth of nations. It is known as "trade."

And our government, in its wisdom, has made it illegal for anyone to broker this increase in individual and national wealth, resulting in the TV cameras of the world panning across rows of empty seats."

11 Most Common Grammar Mistakes

Here's the link, and guess which one is #1 on the list?

Tuesday, July 31, 2012

Quotation of the Day: Sports Socialism

"The Olympics are a giant exercise in sports socialism—or crony capitalism, if you prefer—where the profits are privatized and the costs socialized. The games never pay for themselves because they are designed not to. That’s because the International Olympic Committee (an opaque “nongovernmental” bureaucracy made up of fat cats from various countries) pockets most of the revenue from sponsorships and media rights (allegedly to promote global sports), requiring the host country to pay the bulk of the costs. Among the very few times the games haven’t left a city swimming in red ink was after the 1984 Los Angeles Olympics, when voters, having learned from Montreal’s experience, barred the use of public funds, forcing the IOC to use existing facilities and pick up most of the tab for new ones.

Even that’s far from fair. If anything, the Olympics should be compensating the host city for the hassle and inconvenience, not the other way around. The only reason they don’t is because the Cold War once stirred retrograde nationalistic passions, blinding the world to the ass-backwardness of the existing arrangement. Londoners are signaling that this can’t go on.

~Shikha Dalmia writing in Reason, "Why London Is Yawning Over the Olympics"

America's Energy Jackpot: Industrial Natural Gas Prices Fall to the Lowest Level in Recent History

The Department of Energy released its monthly update today on natural gas production and prices through May, and the chart above displays inflation-adjusted natural gas prices for commercial and industrial users.  By end user in May, industrial customers represented about 32% of natural gas consumption and electric power companies used almost half (49%) of the total natural gas consumed. Together, industrial and electric power customers consumed more than 81% of the total natural gas supplied in May.  The rest of the natural gas market is split between residential customers (10%) and commercial users (9%), with a small fraction (1/6 of 1%) going for vehicle fuel.  

On an inflation-adjusted basis, the prices paid by industrial users for natural gas in May were the lowest since at least January 2001, when the Department of Energy's monthly data series starts (see red line in chart).  The prices paid by electric power companies are almost identical to the prices for industrial users, so we can conclude that the users of more than 81% of the natural gas supplied in May (industrial customers and electric utilities) were paying the lowest, inflation-adjusted gas prices in at least a decade, and possibly longer. Prices paid in May ($2.94 per 1,000 cubic feet) were less than half the natural gas prices of two years ago in March 2010 ($6.31), and about one-quarter of the $13.62 price four years ago in July 2008.

Likewise, commercial customers are paying inflation-adjusted natural gas prices that are close to the lowest in recent history, and about half the 2008 price (see blue line in chart).    

These significant price declines for industrial, commercial and energy power users provide additional support for the claim that America really "hit the energy jackpot" with the "natural gas windfall," making it "one of the most important developments for the U.S. economy in the last 60 years," according to Martin Neil Baily and Philip Verleger in a recent CNN editorial, here's an excerpt:

"Cheap gas may not be enough to offset the drag of a slowing global economy this year, but it will boost long-term investment, help the beleaguered manufacturing sector and increase exports.

Building petrochemical plants could suddenly become attractive in the United States. Manufacturers will "reshore" production to take advantage of low natural gas and electricity prices. Energy costs will be lower for a long time, giving a competitive advantage to companies that invest in America, and also helping American consumers who get hit hard when energy prices spike.

After years of bad economic news, the natural gas windfall is very good news. Let's make the most of it." 

The falling natural gas prices also make the predictions in this December 2011 study by PriceWaterhouseCoopers, "Shale gas: A renaissance in US manufacturing?"all the more likely:
  • U.S. manufacturing companies (chemicals, metals and industrial) could employ approximately one million more workers by 2025 because of abundant, low-priced natural gas.
  • Lower feedstock and energy cost could help U.S. manufacturers reduce natural gas expenses by as much as $11.6 billion annually through 2025.
MP: As I have emphasized lately, America's ongoing shale-based energy revolution is one of the real bright spots in an otherwise somewhat gloomy economy, and provides one of the best reasons to be bullish about America's future.  The shale revolution is creating thousands of well-paying, shovel-ready jobs in Texas, North Dakota and Ohio, and thousands of indirect jobs in industries that support the shale boom (sand, drilling equipment, transportation, infrastructure, steel pipe, restaurants, etc.).  In addition, the abundant shale gas is driving down energy prices for industrial, commercial, residential and electricity-generating users, which frees up billions of dollars that can be spent on other goods and services throughout the economy, providing an energy-based stimulus to the economy.

Cheap natural gas is also translating into cheaper electricity rates, as low-cost natural gas displaces coal.  Further, cheap and abundant natural gas is sparking a manufacturing renaissance in energy-intensive industries like chemicals, fertilizers, and steel.  And unlike renewable energies like solar and wind, the natural gas boom is happening without any taxpayer-funded grants, subsidies, credits and loans.   Finally, we get an environmental bonus of lower CO2 emissions as natural gas replaces coal for electricity generation.  Sure seems like a win, win, win, win situation to me. 

Happy100th Birthday Milton Friedman!

Milton Friedman was born on this day, July 31, in 1912 and he would have been 100 years old today.  Unfortunately, Milton died on November 16, 2006 when he was 94 years old.  Coincidentally, that was just several months after the Carpe Diem blog started in September 2006.  A custom Google search of Carpe Diem reveals that "Milton Friedman" has "appeared" on this blog more than 1,200 times in the last six years, and his ideas, quotes and videos should be familiar to all regular CD visitors.  In contrast, I found 694 results for "Milton Friedman" on Marginal Revolution, 651 on Cafe Hayek and 258 on Greg Mankiw's blog

Since he's made such regular appearances here, I didn't feel that it was necessary to provide a special tribute for Milton Friedman's 100th birthday, except to provide some links below to others who have written today about Milton Friedman (here's his Wikipedia page):

1. Thomas Sowell writing in Investor's Business Daily, "On Milton Friedman's 100th Birthday, He's Needed More Than Ever."

2. Don Boudreaux in today's StarTribune "Milton Friedman -- a man of intellectual stature."

3. Chicago Tribune staff editorial, "Milton Friedman's Century," which concludes, "The world has changed immensely in the past 100 years. Thanks in part to Milton Friedman, many of the changes have been for the better."

4. Steve Moore in today's WSJ, "The Man Who Saved Capitalism," with a great quote from Harvard's Andrei Shleifer who describes 1980-2005 as "The Age of Milton Friedman," an era that "witnessed remarkable progress of mankind. As the world embraced free-market policies, living standards rose sharply while life expectancy, educational attainment, and democracy improved and absolute poverty declined."

5. Steve Hayward at Powerline, "Milton Friedman at 100."

6. My favorite Milton Friedman quotes.

7. And finally, an excellent summary of Milton Friedman's impact from a WSJ editorial after Friedman's death in 2006:  "Few people in human history have contributed more to the achievement of human freedom than Milton Friedman."

U.S. Restaurants Show Expansion Again in June

“Bolstered by stronger same-store sales and customer traffic levels, the National Restaurant Association’s Restaurant Performance Index (RPI) stood above 100 for the eighth consecutive month in June. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 101.4 in June, unchanged from May’s level (red line in chart). June represented the eighth consecutive month that the RPI remained above 100, 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 101.3 in June – down 0.7 percent from May and the third consecutive monthly decline (blue line in chart). Although June marked the tenth consecutive month that the Expectations Index stood above 100, it also represented the weakest level in seven months.”

MP: Both the RPI and the Expectations Index have remained above 101 for the last seven months, which is consistent with the levels for those two indexes back in the pre-recession time frame in late 2006 and early 2007.  This is one indication that the U.S. restaurant industry is operating at pre-recessionary levels.  

More evidence of an improving market for U.S. restaurants is provided by Census data showing that sales for "Food Services and Drinking Places" increased 6.3% in June from a year ago, following a 7.4% increase in May.  After being flat for most of 2008 and 2009, "Food Services and Drinking Places" sales activity in June of this year is 16.5% above the June level three years ago when the recession officially ended. Further, sales at "Full Service Restaurants" were up by 8.2% year-over-year in May (data not yet available for June) following a gain of 8.7% in April. 

Many of the key indicators suggest that the restaurant industry has gradually recovered from the effects of the 2008-2009 recession, and inflation-adjusted restaurant sales are now almost back to their pre-recession levels.  Regardless of how consumers answer confidence survey questions, the ongoing improvements in restaurant sales and the RPI so far this year would indicate that based on actual consumer spending at restaurants, consumer confidence is fairly high.

Monday, July 30, 2012

America's Energy Revolution Has Brought Lower Real Prices for Both Natural Gas and Electricity

One of the economic benefits of the shale gas revolution is the moderating effect that abundant, cheap shale gas has had on the price of electricity in the U.S. for all end-users: residential, commercial and industrial customers.  The indirect cost savings for electricity customers from cheap shale gas are in addition to the significant and direct cost savings from inflation-adjusted gas prices for residential, commercial, industrial customers and electric utilities that are the lowest in a decade, and have saved natural gas users $250 billion over just the last three years.   

The chart above shows average, annual, inflation-adjusted retail prices of electricity from 2001-2012 based on EIA data with the following results:

1. Residential consumers are paying an average price in 2012 (11.73 cents per kilowatt-hour) that is the lowest since 2007 (see blue line in chart). 

2. Commercial customers are paying an average price of 9.93 cents per kilowatt-hour of electricity this year, which is the lowest commercial price since 2004, and a price that is slightly lower than in 2001, 2002, and 2003 (see red line in chart).  

3. Industrial users are paying the lowest inflation-adjusted price for electricity this year (6.50 cents) than in any year since 2004, and the same real price as in 2001 (6.50 cents), 12 years ago.   

MP: The shale revolution gets at least part of the credit for bringing inflation-adjusted electricity prices down over the last several years, which have likely generated millions, if not billions, of dollars of savings for households, businesses and industry.  The American energy sector continues to be one of the brightest spots in the U.S. economy, and the shale revolution is at the forefront of that energy-driven stimulus to the economy.  America's energy revolution has brought thousands of new high-paying jobs in the oil and gas industry, stimulated thousands of indirect jobs in energy support industries like fracking sand, and generated billions of dollars of savings for customers from lowering prices of natural gas and electricity.    

Creative Destruction: Acoustic Pianos, R.I.P.

From yesterday's NY Times, comes an excellent illustration of the economic concept of "creative destruction," which has been described as the "accumulation and annihilation of wealth under capitalism."  In this example, it's the acoustic piano that is literally being annihilated in many cases, as older used pianos are increasingly being discarded in dumps around the country, or even burned for firewood.  As a pianist, piano technician, and owner of a 1918 Steinway Model O grand piano, it's kind of a sad, but inevitable ending for many magnificent instruments that were produced in large numbers by a  once-thriving American industry that supported hundreds of American piano manufacturers and more than a thousand piano brands, including many "stencil pianos" (different makes of pianos produced by the same factory).

Here's an excerpt of the article:

"In the late 19th and early 20th centuries, before radio and recordings, pianos were the main source of music, even entertainment, in the home. They were a middle-class must-have.
So from 1900 to 1930, the golden age of piano making, American factories churned out millions of them. Nearly 365,000 were sold at the peak, in 1910, according to the National Piano Manufacturers Association. (In 2011, 41,000 were sold, along with 120,000 digital pianos and 1.1 million keyboards, according to Music Trades magazine.) 

The average life span rarely exceeds 80 years, piano technicians say. That’s a lot of pianos now reaching the end of the line. 

The value of used pianos, especially uprights, has plummeted in recent years. So instead of selling them to a neighbor, donating them to a church or just passing them along to a relative, owners are far more likely to discard them, technicians, movers and dealers say. Piano movers are making regular runs to the dump, becoming adept at dismantling instruments, selling parts to artists, even burning them for firewood."

Accompanying the article are the video above and this slideshow see first slide below).

Obama Opposes Min. Wage Increase in Samoa Due to Harmful Effects, Will He Do the Same for U.S.?

Both of these events took place last Thursday:

1.  PAGO PAGO, American Samoa — "President Obama has signed into law legislation to freeze American Samoa's minimum wage until 2015. The president signed the bill Thursday, which delays a 50-cent increase that would have gone into effect in September.

Minimum wage in American Samoa varies from $4.18 to $5.59 per hour, depending on the industry. The Fair Minimum Wage Act of 2007 provided for annual 50-cents per hour increases until the rate matched the rest of the U.S., where the minimum pay is $7.25 per hour.

Employers and a government financial report have suggested automatic increases were harming the U.S. territory's economy."

2. The Hill -- "Rep. George Miller (D-Calif.) and more than 100 of his House Democratic colleagues proposed legislation last Thursday that would boost the minimum wage over three years from $7.25 to just under $10 an hour.

Miller's Fair Minimum Wage Act, H.R. 6211, would increase the minimum wage by 85 cents a year for the next three years, then allow the final $9.80 an hour wage to rise with inflation."

MP: Just wondering, wouldn't the same economic reasoning, evidence, and analysis that motivated President Obama to sign legislation freezing the minimum wage because of its harmful effects on Samoa's economy also apply to the U.S.?  Can we count on President Obama to veto the "Minimum Wage Act" for the harmful effects it would have on the American economy?

Update:  From an AP report, "Congress is to be thanked for preventing further economic calamity in American Samoa and preventing continual increases to the minimum wage which would have led to additional layoffs in our fragile economy," said local Chamber of Commerce Chairman David Robinson."

Let me revise that just slightly:

 "Congress is to be thanked for preventing further economic calamity in American Samoa and preventing continual increases to the minimum wage which would have led to additional layoffs in our fragile economy," said local national Chamber of Commerce Chairman David Robinson Tom Donohue.

Chicago Fed: Midwest Manufacturing Grew 11% Over Last Year, vs. 5.6% for U.S., and 2.2% for GDP

The Chicago Federal Reserve reported today that its Midwest Manufacturing Index increased 1.1% in June compared to May, reversing most of the revised 1.4% monthly decline in May.  On an annual basis, regional manufacturing activity in the 7th Federal Reserve district improved by 11% in June from a year ago, about twice the annual 5.6% increase in the national manufacturing component of industrial production through June (see chart above).  In comparison, the overall U.S. economy (real GDP) grew by only 2.2% over the same period from Q2 2011 to Q2 2012. 
Here are some other highlights of manufacturing activity in the 7th Federal Reserve district that covers Illinois, Indiana, Iowa, Michigan, and Wisconsin:

1. Regional machinery output in April gained 12.2% from its year-earlier level, compared to a 7.3% increase in machinery output at the national level. 

2. Regional steel output improved 11.0% from its June 2011 level, compared to a 6.4% increase in national steel output over that period.

3. The Midwest’s automotive output increased by 21.9% in June from its year-ago level, compared to a 15.2% gain in national automotive output.  The index level of 95.8 for Midwest auto sector production in June marked the third straight month that auto manufacturing was above a reading of 95.  That was the first time since December 2007 to February 2008 that Midwest auto production was above an index level of 95 for three straight months, indicating that the auto industry in the Midwest is returning to its pre-recession level of production. 

MP: Midwest manufacturing output growth over the last year (11%) continues to lead national manufacturing output growth (5.6%), which continues to lead overall economic growth measured by real GDP (2.2%).  Today's Chicago Fed report suggests that U.S. manufacturing, especially in the Midwest, remains at the forefront of the economic recovery measured by growth rates in real output.  

Sunday, July 29, 2012

Oilman Harold Hamm on America's Premier State - North Dakota - And Its Very Bright Shale Future

America's premier state leads the country in "shovel-ready" jobs without any stimulus taxpayer money:

Oklahoma oilman Harold Hamm and his company Continental Resources have been an industry leader in: a) developing the energy-rich Bakken oil field, and b) introducing the advanced drilling technologies including hydraulic fracturing and horizontal drilling that have created an energy revolution here that is making the U.S. "the Saudi Arabia of oil and gas in the 21st century."

Here's an excerpt from Mr. Hamm's latest assessment of the "Bakken boom":

"A lot of good news has been coming out of North Dakota recently. Most notably, the Bakken oil field has helped North Dakota buck the national economic slump by creating new jobs and tax revenues. Thanks to the Bakken, North Dakota has the lowest unemployment rate and fastest-growing economy in the nation (see chart above comparing job growth in North Dakota to the job shrinkage nationally since December 2007). 

As the oil industry completes its infrastructure design phase and enters its full development phase in 2012 and 2013, there’s good news for residents, officials and community leaders in the oil communities experiencing this remarkable growth. Soon, nearly all of the infrastructure needed to develop the Bakken will be in place, and western North Dakota is settling into a period of steady growth.

We appreciate North Dakotans’ cooperation and patience in tackling the challenge of infrastructure in the Bakken. Now that the area of the oil field is defined, the objective going forward is to optimize production and improve efficiency over the lifespan of the field, which is projected to be longer than 30 years.

One of the great blessings of the Bakken is that it is being developed with modern technology. Horizontal drilling and Continental Resources’ EcoPad technology enable us to drill several wells from just one drilling pad, significantly reducing our footprint in the field. Yes, there will be thousands of new wells drilled in the Bakken, but that drilling activity will be spread out over the next 30 years using the most efficient and ecologically sound technology available.

In addition to using advanced technologies, the oil and gas industry is building permanent employee housing and installing new oil, gas and water lines this summer and beyond to reduce truck traffic on the roads. Through oil and gas taxes, the industry is also responsible for $1 out of every $4 of state revenue. Due to the dramatic increase in tax revenues, North Dakota is making unprecedented investments in infrastructure in this region. Last year, the Legislature approved $1 billion in improvements, including the expansion of highways, water treatment plants and sewer lines in oil and gas producing counties.

North Dakota has been blessed with an abundance of natural resources, including some of the richest agricultural land in the world and now the nation’s largest oil field discovery in more than 40 years. Adding the development of the Bakken to the arsenal of North Dakota’s resources has made North Dakota the premier state in America, lessening our dependence on foreign oil and, in fact, leading the way to achieving North American Energy Independence in the next decade.

I believe the best of the Bakken for North Dakota is yet to come – it’s going to be a bright future in the Peace Garden State."

Update: It's not just shale oil that is making North Dakota's energy future look brighter and brighter, but the state's shale gas production is expected to increase nearly sixfold by 2025, making North Dakota a major player in the U.S. market, according to a report released Wednesday.

Current Intrade Odds for Republican VP

Click to enlarge.

More Ticket Scalping = Fewer Empty Seats?

From a recent news report

"London's Metropolitan police said they had arrested 16 people since Friday for illegal reselling of Olympics tickets, as Games organizers said they were investigating why scores of seats were empty at some events yesterday."

MP: Well maybe if the London police weren't arresting people and restricting ticket sales in the secondary market, perhaps there wouldn't be so many empty seats? 

Big Screen Energy: Fracking Film Festival in D.C.

A few weeks ago, I attended the "Big Screen Energy: Fracking Film Festival" in Washington, D.C., where trailers for three energy documentary films were featured.  Those trailers appear below, and here's a fact-filled energy brochure that was available at the event.  Get some popcorn and enjoy the shows!

1. Truthland.  What are the facts behind oil and natural gas development in America today? One woman from rural Pennsylvania decided to find out — for her family, for her community, for herself. Hear what some of the experts she interviewed along her journey had to say.

2. Frack Nation is a feature documentary that will tell the truth about fracking for natural gas.

Part I:

Part II:

Part III:

Wisconsin's Sand Boom Brings Jobs, Prosperity

Leader-Telegram -- "A new industry continues to rise — quite literally — from the ground in west-central Wisconsin. Officials from 12 regional counties reported the area now has a total of 52 silica sand mines that are either operating or approved (see map above).

That's up 136 percent from 22 just a year ago and shows just how fast the sand storm is sweeping across west-central Wisconsin, which is home to plentiful deposits of a variety of sand prized in the rapidly growing energy extraction practice known as hydraulic fracturing, or "fracking." While some experts have been predicting a slowdown in the industry's dramatic rise from virtually nonexistent four years ago, county planners who deal with permits for the mines haven't noticed such a change.

"It's still a boom," said Kevin Lien, director of the Land Management Department in Trempealeau County, which leads the region with six operating mines, 10 more on the way and another five applications being considered next month.  Right behind are Barron and Chippewa counties, which both have eight operating or approved mines and two more that have been proposed.

"I don't know if it's peaking yet. We just received two more applications," said David Gifford, zoning administrator in Barron County, which had only one approved silica, or "frac," sand mine a year ago."

HT: Million Dollar Way

Saturday, July 28, 2012

"I, Pencil" Updated to 2012 Version "I, Smartphone"

The "I, Smartphone" video above is a modernized 21st century version of the classic essay "I, Pencil," written in 1958 by Leonard Reed, founder of  the Foundation for Economic Education, and explained below by Milton Friedman in about 1980. 

Maybe Private Sector is Doing Fine? Growth in Post Recession "Private GDP" (3%) is Above Average

 The chart above shows annualized growth rates for: a) the quarterly, non-government, private-sector components of real GDP (personal consumption expenditures, gross private domestic investment, and net exports), see blue bars in chart, and b) the quarterly component of real GDP for "government consumption expenditures and gross investment" (brown bars).

First Trust Portfolios (Brian Wesbury et al.) is the only organization I know that calculates and reports "private real GDP" on a regular basis, here's their most recent commentary: "We’ve been tracking real “private” GDP (real GDP excluding government purchases), which grew at a 2.2% annual rate in Q2 and is up 3.3% in the past year."

For Q2, "public sector GDP" decreased -1.44%, and it was the eighth straight quarter of negative growth for total government spending, averaging -2.88% per quarter over the last two years. In contrast, there have been 12 consecutive quarters of positive growth for private sector GDP averaging 3.07% per quarter in the three years since the recession ended, which is slightly higher than the 2.8% average growth rate in private real GDP over the last 25 years.  Most of the decline in government spending over the last few years has come from cuts in defense spending at the federal level, and ongoing cuts in government spending by local and state governments.     

So maybe it's true that the "private sector is doing fine" and most of the sub-par economic growth measured by real GDP is simply reflecting the decreases in government spending, and not weakness in the private sector?  In that case, maybe the sub-par recovery has some positive effects of shrinking government?  And why don't more economists, analysts, and reporters calculate and report private- and public-sector economic growth separately?

Comments welcome.

Update: See related post by Catherine Rampell at Economix Blog, "‘Big Government’ Isn’t So Big by Historical Standards. It’s Also Shrinking."

Libertarian Candidate Will End War on Drugs

In his new advertisement above, Libertarian presidential candidate Gary Johnson promises to end the "War on Drugs Peaceful Americans Who Choose to Voluntarily Use Intoxicants Not Currently Approved of By the Government," and says "The fact is, marijuana users are no more criminal than our commander-in-chief. So what's up Mr. President, it's OK for you to do it, but everybody else should be arrested and go to jail?"

Johnson's ad features the photo below from the Prohibition-era, back when beer was one of the intoxicants not approved of by the government: