Tuesday, August 28, 2012

A New Era of Transformational Technology Is Here

A synopsis of the article in The American, "The Next Great Growth Cycle," by Mark P. Mills, CEO of the Digital Power Group and adjunct fellow of the Manhattan Institute:
Apple went public in December 1980. And there followed the longest run of economic growth in modern history, spanning five presidencies from Reagan through Clinton. Apple grew to become the world’s largest market cap company and a tech icon. 

According to today’s techno-pessimists (Tyler Cowen, Niall Ferguson and Jean Gimpel are cited in the article), nothing like that can happen again because technology and America have plateaued. Such naysayers, who flourish like mushrooms in the depths of economic recessions, have been wrong in every one of the 19 economic downturns we have experienced since 1912. And they’re wrong again. 

The techno-pessimists are innovation Malthusians cut from the same cloth as the resource Malthusians. Every time reality proves them wrong following each crisis, they say a variant of the same thing: I may have been wrong before, but I’m right this time. 

Technological innovation is pivotal to whether the American economy will experience prosperity growth again. In a world with a growing population but a tepidly expanding economic pie, we see shrunken expectations and a reversion to fighting over how to get one’s “fair share.” People lose faith that the pie will ever grow again; in essence, they lose faith in the future itself. Certainly there’s limited optimism today about technology’s future and what that might mean for the economy, jobs, debt, taxation, and fairness.

When it comes to predicting the future—especially of technology—with all due respect, one does not turn to historians or economists.  We are poised to enter a new era that will come from the convergence of three technological transformations that have already happened: Big Data, the Wireless Wired World, and Computational Manufacturing (3D printing). 

The emerging grand transformations—Big Data, Wireless Broadband, Computational Manufacturing—are all an integrated part of the next great cycle of the information economy. Returning to Drucker, the evidence that this transformation has already happened is visible in Census data. The share of our economy devoted to moving bits—ideas and information—is already much bigger than the share associated with moving people and stuff. 

Not only does the United States have the world’s most sophisticated and reliable (and low-cost) electric grid that is a vital infrastructure to fuel the information industries, but the United States also leads in the development of each of the core technological transformations. All things considered, there is every reason to be optimistic about our future. 

You can’t predict what company will be the next Apple—though investors try. But you can predict there will be another Apple-like company. And there will emerge an entirely new family of companies—and jobs, and growth—arising from the transformational technology changes already happening.

Location, Location, Location

1. Here's what you can get in Flint, Michigan for $395,000 (pictured above): A castle of a home. Quality stone construction with slate roof. New kitchen, excellent condition with 2 new boilers and central air. Grand halls with walnut floors, ornate plaster ceilings, 9 foot ceilings, towering circular foyer. Library, Morning Room, Sitting Room, 6 bedrooms, 8 bathrooms and a five-car garage on 2 acres.

Price per square foot: $65

2. Here's what you can get in Washington, D.C. for $395,000 (building pictured below): Spacious, 863 square feet, bright 1BR + den and 1 bath condo in The Cathedral Park. Beautiful wood floors, newer kitchen with granite counters, huge walk-in closet in bedroom with closet organizer, updated lighting and beautiful built-ins in LR.

Price per square foot: $458.


Michigan Economy Shifts Into High Gear: Economic Activity Index Rebounds to a Ten-Year High in July

Here's some extremely positive news about the Michigan economy, which would be consistent with recent reports about the rebound in Midwest manufacturing, and especially strong gains in Midwest automotive production:

Comerica Bank’s Michigan Economic Activity Index (a composite index based on 7 individual variables) increased 2.0 points in June, spiking to a level of 105.9. The June index reading is 46 points, or 77%, above the index cyclical low of 59.9 in mid-2009. The index has averaged 102 points over the first half of 2012, 11 points above the index average for all of 2011.

“The Michigan economy pushed further ahead in June, with our Michigan Economic Activity Index up strongly for the second month,” said Robert Dye, Chief Economist at Comerica Bank. “The rate of job creation has slowed over the first two quarters of the year as U.S. auto sales have plateaued around a 14 million unit annual sales rate in 2012. But outside of durable goods manufacturing, we are seeing ongoing gains. Housing markets statewide are improving as sales and prices increase. New home construction remains low, but is expected to increase to meet pent up demand.”

MP: The Michigan Economic Activity Index in July was at its highest level since 2002, ten years ago.  If we're in a recession, or on the edge of one, it sure isn't being reflected in the Michigan economy, which is doing better now than at any time during the last ten years, according to Comerica Bank's Michigan Economic Activity Index.  If we were close to a recession, wouldn't that blue line in the chart above be going down, and not sharply up? 

Related: Michigan statewide home sales in July were almost 14% ahead of last year, and year-to-date sales are 10.4% above last year.  Average home prices in July were 6.55% above a year ago, and year-to-date average prices are 4.83% ahead of last year. 

FDIC Quarterly Banking Report Suggests That U.S. Banks Have Returned to Pre-Recession Conditions

The FDIC released its Quarterly Banking Profile today for the second quarter, here are some highlights:

1. U.S. banks earned a total of $34.5 billion from April through June, a 20.7% increase compared to Q2 2011 (see chart above). Almost two out of every three (62.7%) of the 7,246 FDIC-insured banks reported higher earnings than a year ago. Only 10.9% were unprofitable, down from 15.7% in Q2 2011.  The increase in profits was the 12th consecutive year-over-year increase in quarterly net income for U.S. banks starting in Q3 2009, following ten consecutive decreases from Q1 2007 to Q2 2009. 

2. The $69.3 billion bank net income for the first half of 2012 was 21% above the same period last year, and highest profits for January-June since the $72.5 billion in 2007, five years go. 

3. Banks set aside $14.2 billion in provisions for loan losses in Q2, a 26.2% decline from Q2 2011, and is the smallest quarterly total in five years.

4. Net loan charge-offs (removed from balance sheet because of uncollectibility) totaled $20.5 billion in Q2, an $8.4 billion (29.1%) reduction from Q2 2011 and is the eighth consecutive quarter that charge-offs have declined from year-earlier levels and the lowest quarterly charge-off total since Q1 2008. All major loan categories posted lower charge-offs compared with a year ago.

5. Noncurrent loan balances (loans 90 days or more past due) declined for a ninth consecutive quarter, falling by $12.9 billion (4.2%). Noncurrent levels fell in all major loan categories.

6. The number of institutions on the FDIC’s “Problem List” fell for a fifth consecutive quarter, from 772 to 732. Total assets of “problem” institutions declined from $291 billion to $282 billion.

7. Fifteen banks failed during Q2 (following 16 failed banks in Q1) which is the lowest number of failed banks in a quarter since 12 banks failed in Q4 2008. 

MP: Overall, this is a very positive report for the financial conditions of U.S. banks in Q2: profits are strong (+20.7%), provisions for loan losses are at a 5-year low, net loan charge-offs fell by 29% in Q2 to a four-year low, noncurrent loans declined for the 9th quarter, the number of "problem banks" fell and the number of failed banks fell to a three- and-a-half year low.  Along with a gradually recovering overall economy, U.S. banks have gradually recovered and the financial health of the banking system has returned t0 pre-recession conditions. 

Increases in Case-Shiller Home Price Indexes for July and Second Quarter Set New Records

Here are some initial observations on today's report from S&P/Case-Shiller on its Home Price Indexes for July and Q2:

1. The 2.3% monthly increase in the Composite-20 Home Price Index in July was the highest monthly increase in the 12-year history of that index (it started in January 2000).

2. The 2.2% monthly increase in the Composite-10 Home Price Index in July matched the 2.2% increase in May, and marked the highest monthly increase in that index since June 2004, slightly more than eight years ago. 

3. The 6.9% increase in the quarterly Composite-US Home Price Index in the second quarter (compared to  Q1) was the highest quarterly increase in the 25-year history of that index going back to 1987.     

MP: More evidence that the U.S. housing market has passed the bottom and is now in a period of stabilization and recovery, hopefully one that is sustainable.   

Monday, August 27, 2012

Pew Research Calls It "Hollowing Out of the Middle Class," But 150 Americans Moved Up for Every 100 Who Moved Down Between 1971 and 2011

The Pew Research Center released a report last week titled “The Lost Decade of the Middle Class: Fewer, Poorer, Gloomier,” which starts out with this depressing introduction: 

“As the 2012 presidential candidates prepare their closing arguments to America’s middle class, they are courting a group that has endured a lost decade for economic well-being. Since 2000, the middle class has shrunk in size, fallen backward in income and wealth, and shed some—but by no means all—of its characteristic faith in the future.” 

And here’s the section titled “How Many Adults Are Middle Income?” from the full report (p. 65) which discusses the data in the top chart above: 

“The size of the middle-income tier varies over time because the incomes of individual households, in relation to the overall median, vary over time. In 2011, 50.7% of adults (ages 18 and older) lived in middle -income households (see top chart above). In number, that amounted to 117 million adults out of the U.S. household population of 231 million adults. The share of the U.S. adult population that lives in middle-income households has diminished over time. In 1971, 60.8% of adults lived in middle -income households, 10 percentage points more than in 2011 (see top chart). 

The shrinking, or hollowing out, of the middle –income tier has been accompanied by an increase in the shares of the adult population at the high and low ends of the income distribution and roughly equal shares have moved up or down. The share of the population in the upper-income tier has risen from 14% in 1971 to 20% in 2011. At the same time, the share in the lower-income tier grew from 25% in 1971 to 29% in 2011. Thus, from 1971 to 2011, the U.S. adult population has become more economically polarized with relatively more in the top and the bottom tiers, and fewer in the middle. 

The hollowing of the middle -income tier has been a steady and virtually uninterrupted process over the past four decades. Starting from 1970, every decade has ended with a smaller share in the middle -income tier and higher shares in the lower- and upper-income tiers. No single decade stands out as having energized the movement of people out of the middle.” 

MP: Here’s a slightly different interpretation of the changing distribution of income in the U.S. between 1971 and 2011: 

1. In 1971, 86% of adult Americans were considered either lower-income or middle-income, and by 2011 only 80% of Americans were in those two income categories. At the same time, the percentage of “upper-income Americans” increased from 14% to 20%, reflecting significant upward income mobility during those 40 years as millions of Americans left the middle class for the upper-income group.  

2. Between 1971 and 2011, the share of adult Americans in the “middle class” decreased by ten percentage points from 61% to 51%. Of that 10% of American adults who left the middle class, 6% moved up to the “upper-income” category and 4% move down to the “lower-income” category. Alternatively, we could also say that 150 American adults moved up from the middle-class for every 100 adults who moved down from the middle-class between 1971 and 2011. Or we could say that in that 40-year period, it was 50% more likely that an American adult would move up from the middle class to the upper-income group than he or she would move down to the lower-income group. 

3. Using the numbers in the bottom chart we could also say that if the 1971 income distribution percentages (25.2%, 60.8% and 14%) hadn’t changed, then in 2011 there would have only been 32.35 million upper-income American adults (14% of 231.1 million) instead of the actual 46.31 million Americans in that category today (20% of 231.1 million). So instead of characterizing the shifting income trend as the “shrinking, or hollowing out, of the middle –income tier,” we could also characterize it as a period of significant upward mobility, during which an additional 14 million Americans moved into the upper-income tier. 

Of course, we could also say that if the 25.2% of American adults in the low-income group hadn’t increased to 29.3%, we would have about 9.5 million fewer lower-income American adults today. But like I mention above, about 50% more American adults moved up to the highest group than moved down to the lowest group. In other words, Pew’s statement that “roughly equal shares have moved up or down” isn’t really accurate (6% moving up is not roughly equal to 4% moving down). It would be more accurate to say that it was about 50% more likely that an American adult moved up from the middle class to the upper-income group than moved down from the middle class to the low-income group between 1971 and 2011. 

Bottom Line: Far from being gloomy, perhaps there’s a positive story here. A story that over the last forty years there has been significant movement by income category among American adults, as would be expected in a dynamic economy, with movement going in both directions. But on net, the changing income dynamics have been positive overall, with about 150 Americans moving up for every 100 Americans who moved down.

Chicago Fed: Midwest Manufacturing Grew 12.5% Over Last Year, vs. 5.2% for U.S. and 2.2% for GDP; Midwest Auto Output Is Above 2007 Levels

Midwest manufacturing is booming, especially autos.

The Chicago Federal Reserve reported today that its Midwest Manufacturing Index increased 1.8% in July from June to a four-year high, following a revised 0.9% monthly gain in June. On an annual basis, regional manufacturing activity in the 7th Federal Reserve district improved by 12.5% in July from a year earlier, more than twice the annual 5.2% increase in the national manufacturing component of industrial production through July (see chart above).  In comparison, the overall U.S. economy (real GDP) grew by only 2.2% from June 2011 to June 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 11.6% from its year-earlier level, compared to a 6.8% increase in machinery output at the national level. 

2. Regional steel output improved 8.1% from its July 2011 level, compared to a 5.2% increase in national steel output over that period.

3. The Midwest’s automotive output increased by an eye-popping 30% in July from a year ago, compared to a 15.7% gain in national automotive output.  The index reading of 102.6 for Midwest auto sector production in July was the highest level since May 2007 more than five years ago, and brings auto industry production in the Midwest to a level above pre-recession levels of auto production from 2005-2007 when the Midwest automotive index averaged 100.1 (see bottom chart above). 

MP: Midwest manufacturing output growth over the last year (12.5%) continues to lead national manufacturing output growth (5.2%), which continues to lead overall U.S. economic growth measured by real GDP (2.2%).  Today's Chicago Fed report provides further confirmation that U.S. manufacturing, especially factory activity in the Midwest region, remains at the forefront of the economic expansion measured by growth rates in real output.  And the Midwest's automotive sector has made a complete recovery from the 2007-2009 recession with automotive production now at a five-year high and above the pre-recession levels of 2007.  

Bottom Line: If the economy is in recession, or about to enter a recession, it's certainly not being reflected in any downturn in factory activity in America's manufacturing heartland, which is experiencing a manufacturing renaissance and does not appear to be anywhere close to being about to fall off a recessionary cliff.  

Sunday, August 26, 2012

Classic Milton Friedman on Equality vs. Liberty

"You can only aim at equality by giving some people the right to take things from others. What ultimately happens when you aim for equality is that A and B decide what C shall do for D; except that they take a little bit of a commission off on the way."

Intellectual Conformity 1, Intellectual Diversity 0

Harvard Professor Ruth Wisse explains in today's WSJ how intellectual diversity on college campuses has been replaced by intellectual conformism, aka political correctness: 

"The increased political conformism at universities may be traced in part to the redefinition of diversity that accompanied the introduction of group preferences, aka "affirmative action." Schools instituting this policy never acknowledged that it conflicted with competing commitments to equal consideration "irrespective of race, religion, or gender," or that at least half the country questioned its wisdom."

"In part the policy has become a joke, with claimants to 1/32nd Cherokee heritage gaining preferential treatment as minority hires. What is not a joke is that the meaning of "diversity" has shifted from the intellectual to the racial-ethnic sphere, foreclosing discussion of certain subjects like affirmative action, gender differences and everything considered politically incorrect."

"Thus, the current Guide to the First Year at Harvard alerts incoming students to orientation programs in diversity designed to build connections within and across "nationality, race, ethnicity, gender, sexual orientation, class, physical ability, and religion." Characteristically and tellingly absent from the list is political or intellectual diversity."

Update: Excellent comment by J. Storrs Hall, "I have a dream: that a day will come when academics value diversity in the content of our minds, and not the color of our skin...", which was featured here at Maggie's Farm

Energy Updates: Marcellus Shale Gas Production Doubles and the Shale Boom Spreads to Russia

1. The shale gas boom continues in Pennsylvania's Marcellus Shale region, with output doubling this year during the January-June period compared to the same period in 2011, and energy industry jobs in Pennsylvania increasing by 150% from 2009 to 2011.  Here are some details:
Despite low prices and a new tax on the industry, natural gas production in Pennsylvania has doubled in the past year. Drillers operating in Pennsylvania’s expansive Marcellus Shale gas field extracted 895 billion cubic feet of gas during the first six months of 2012, according to figures released by the state Department of Environmental Protection. That’s up from about 435 billion cubic feet during the same period in 2011 (see chart above).

The data are evidence that – despite near record-low prices for natural gas that have caused some companies to slow production and the creation of a new state tax on extracting natural gas – the Marcellus Shale boom is continuing in Pennsylvania.

Patrick Creighton, spokesman for the Marcellus Shale Coalition, an industry group, said the increased drilling was creating jobs, benefiting consumers with lower utility bills and helping the manufacturing sector. “These production reports are proof positive that … Marcellus Shale holds tremendous potential for decades to come,” he said.

The gas drilling industry supports more than 238,000 jobs in Pennsylvania, and has seen job growth jump by 150 percent for the three years ending in 2011. Job growth across all other sectors in the state declined for the same period, according to the state Department of Labor and Industry.
2. The horizontal drilling boom has spread to Russia, where its use is predicted to grow faster than in the United States, and is already driving a boom in shale oil and gas, according to this report in The Moscow Times.  Further, the article also mentions Russia's massive Bazhenov Formation, which could be the world's largest oil shale deposit ("80 times bigger than the Bakken") and is expected to be producing 1 million barrels per day by 2020.  

Peak what?

Cartoon of the Day: Green Jobs

By Lisa Benson.

More than a decade ago, Paul Gigot of the WSJ pointed out that "ethanol is produced by mixing corn with our tax dollars."  In that case, solar energy is produced by mixing sunlight with our tax dollars. 

Saturday, August 25, 2012

One-Year U.S. Stock Market Return = Almost 20%

Top 20 Stock Market Returns Over the Last Year
With all of the bad news coming out of Europe, and the ongoing gloom and doom in America with predictions of a pending double-dip recession, it might be counter-intuitive that some stock markets have actually registered impressive returns over the last year, see the table above of one-year returns based on MSCI data that includes both developed and emerging markets.  Denmark leads the list with a 26.1% return over the last year, and other European stock markets like Belgium (15.8%) and Ireland (13.3%) have achieved returns higher than the world average over the last year of 10%.  Of course one-year returns in markets like Greece (-52%), Portugal (-33%) and Spain (-24%) have been pretty dismal, but it's not like the entire continent is doing that poorly.  

Some of the Asian markets like the Philippines (18%), Thailand (11%) and Korea (9.8%) are doing quite well, and one-year returns in the U.S. of almost 20% (and 15.5% per year over the last two years and 11.4% per year over the last three years) place the U.S. as the No. 3 stock market in the world over the last year for this group.  And the one-year return in the U.S. over the last 12 months of almost 20% is almost three times the 7% average annual return over the last 60 years, and twice the world stock return over the last year of 10%. 

Note: The S&P500 is up by 19.8% over the last year and the NASDAQ has gained 24.4%.  

Update: The chart below shows corporate profits after tax (through Q1) and the S&P 500 Index (through August) over the last ten years (data here).  One of the main drivers of stock prices is corporate profits, and one of the main reasons stocks have gained almost 20% over the last year is probably because corporate profits are at record high levels (at least through Q1).  

Quotation of the Day: Pro-Business vs. Pro-Market

Why do you say that America’s political system is degenerating into crony capitalism?

There is not a well-understood distinction between being pro-business and being pro-market. Businessmen like free markets until they get into a market; once they are in it they want to block entry to others. Pro-marketeers want free markets at all times. The more conservative pro-marketeers are fearful of criticizing business, because they assume they will be seen as criticizing the free market. But we need to stand up and criticize business when business is not helping the cause of free markets.

In what way?

Take lobbying. Lobbying may once have been reactive but now it’s proactive—businessmen use it to shape policy and ask for tax advantages. This is corruptive of democracy.

Examples, please.

Companies with a lot of money abroad sponsored a bill in 2004-2005 that allowed them to repatriate their profits at a low tax rate. Thus $1 produced $220 of tax savings. The Bush-approved drug and Medicare act was a huge bonanza for the drug industry. Their market value increased by several billion dollars when this was announced. I could continue.

~Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago’s Booth School of Business being interviewed in The Economist

Markets in Everything: Private Online DMV in CA

"Cartagz is licensed and bonded with the California Department of Motor Vehicles and we are officially authorized to perform a variety of DMV related transactions. Official CA DMV license stickers and registration cards are issued directly from our central office."

"Each month, thousands of Californians benefit from Cartagz.com’s higher level of customer service and efficiency. As California’s leading vehicle registration service, Cartagz.com helps people save time and avoid trips to the DMV through this unique and easy to use online service." 

Cartagz has experienced phenomenal growth since starting four years ago, with revenues growing from $137,000 in 2008 to more than $14 million last year.  

More Example's (!) of the Misuse of It's for Its

From the Web and the CD comment's section: 

1. Crony Capitalism at it's best! 

2. Hailing from Brooklyn, NY, the band is paving it's own unique path in the world. 

3. Reductio ad Absurdum is a legitimate technique for pushing an argument to it's logical limits and showing it to be absurd. 

4. I'll take the opportunity costs of shale gas over it's subsidized or less environmental alternatives. 

5. And it's sold, for it's "skin rejuvenating properties.” 

6. You actually made a case for it's existence. 

Remember the simple (maybe not) rule: It's is a contraction for "it is."

The Wacky Letter Version of an Arms Race?

Does anybody else find this to be as irritating as I do?  At websites like Ticketmaster and other online ticket sellers, you are required to perform a "word verification" procedure with "words" written in such wacky "letters" that it makes the "word" virtually unreadable, like in the examples above.  It sometimes takes three or four attempts for me to type a "word" correctly, and even then it seems like I am mostly just guessing, as if there might actually be multiple acceptable "words." 

There's actually a more technical term for trying to read unreadable wacky letters, it's called CAPTCHA (Completely Automated Public Turing test to tell Computers and Humans Apart) which is "a type of challenge-response test used in computing as an attempt to ensure that the response is generated by a person."

The "wacky word" verification known as CAPTCHA is therefore an attempt to stop ticket purchases using "ticket bot software" and verify that it's an actual person buying the ticket.  However, ticket software companies like TicketBots (available here for $990) claim their products have a "CAPTCHA bypass" feature to somehow get around the word verification requirement.  

So it must be like a "wacky letter" version of an "arms race," where Ticketmaster and other online ticket sellers try to stay one step ahead of the "CAPTCHA bypass" features of the bot software by making the letters wackier and wackier to the point that they are now mostly  unreadable?  And if the "CAPTCHA bypass" features of the bot software actually work, it appears that the bot software is winning the "wacky letter race."     

Comments welcome.   

Economics Blogosphere Transitions

1. In a post titled "My Last Post," blogging pioneer Arnold Kling announced yesterday that after blogging for more than ten years about economics at EconLog, he has stopped blogging and will switch to "writing in essay format."  

Arnold was one of the first economists to use the Internet for writing about economics starting back in December 1997.  Arnold started blogging on a regular basis in January 2002 when his blog was called Great Questions of Economics.  That would have been more than a year and a-half before the legendary economics blog Marginal Revolution started in August 2003 (according the MR archives).  Here's Arnold's first blog post on January 5, 2002 titled Science and Markets, and another one from January 2002 titled "Crony Capitalism."

By 2003, Arnold's website was called EconLog. From a January 2003 post titled "The Economics of Web Logs," Arnold wrote that "EconLog should be most helpful to others who share my interest in teaching economics and observing the use of economics in everyday issues of individual choice and public policy."

Arnold was later joined in 2005 by George Mason economist Bryan Caplan and in 2008 by economist David Henderson.  While economic blogs now are commonplace, they were in their infancy when Arnold started blogging more than a decade ago back in 2002, and we owe him greatly for paving the way for economics to be shared, taught and discussed using the Internet. 

In a testament to Arnold's influence, effectiveness, and popularity as an economist and blogger, read the many complimentary and positive comments that are pouring in below Arnold's last post from dozens of his fans.  Don Boudreaux comments that this is the "first bit of compelling evidence that I've encountered in favor of the great-stagnation thesis."  That statement pretty much sums it all up! Thanks to veteran blogger Arnold Kling for sharing his economic expertise, wisdom and insights with us for more than ten years in the blogosphere.

2. Hudson Institute economist Tim Kane and economist and Columbia Business School Dean Glenn Hubbard have recently launched Balanceofeconomics.com, a blog about America, world history, and the concept of economic power.

Friday, August 24, 2012

Car Sales in August Could Reach 4.5 Year High

Based on new vehicle sales during the first 16 selling days of this month, J.D. Power and Associates is predicting sales during the full month of August to increase by 20% over last year and reach the highest monthly sales of new vehicles since early 2008, more than four and one-half years ago.  Here's from the company's press release today:
The August new-vehicle selling rate is expected to be the highest monthly rate in more than four and one-half years, according to a monthly sales forecast developed by J.D. Power and Associates' Power Information Network and LMC Automotive.

August new-vehicle retail sales are projected to come in at 1,066,200 units, which represents a seasonally adjusted annualized rate (SAAR) of 12.3 million units (see chart above). The year-over-year growth rate in retail sales continues a double-digit trend for a fourth consecutive month. Retail transactions are the most accurate measurement of true underlying consumer demand for new vehicles.

"August continues this summer's trend of healthy growth in retail sales as dealers work to sell down inventory in time to make room for 2013 models," said John Humphrey, senior vice president of global automotive operations at J.D. Power and Associates. "To date, automakers have been diligent in better balancing production with demand, which has been critical to the improved financial performance for many brands.  Going forward, this discipline will be tested as demand looks to cool somewhat through the balance of the year."
MP: The expected strength in new vehicle sales this month is consistent with the facts that: a) rail shipments of motor vehicles year-to-date through mid-August are running 21% above last year, and b) motor vehicle assemblies in July of this year reached a five-year high of more than 11 million units at an annual rate, the highest since June 2007.  Despite the ongoing weaknesses in the labor market and an 8.3% jobless rate, we've been seeing offsetting strengths in new vehicle sales all year and now recently strengths developing in the U.S. housing market.  If new vehicles sales in August do come in at a four and a-half year high, it would be one more reason to doubt that the U.S. economy will fall into another recession this year.  

July Shipments of Durable Goods Set New Record

The Census Bureau reported today that both: a) new orders and b) actual shipments of manufactured durable goods showed strong monthly gains in July, increasing by 4.2% and 2.6% respectively compared to June.  New orders were boosted by strong demand for civilian aircraft in July, including an order for 260 airplanes from Boeing. On a year-to-date basis, durable goods orders are up 8.9% and shipments are up 7.5% from a year ago. 

New orders for durable manufactured goods in July, at $230.73 billion, were at the highest monthly level since February 2008, more than four years ago (blue line in chart).  Actual shipments of manufactured durable goods (electrical equipment, computers, appliances, cars, aircraft, machinery, fabricated metal products, transportation equipment) have increased in seven of the last eight months and reached a new record high of $231 billion in July (red line in chart).   

In news reports, some concern was expressed by the 3.4% decline in July orders for "non-defense capital goods orders excluding aircraft," following a 2.7% decline in June, because those orders are considered to be a measure of planned business spending.  However on a year-to-date basis through July, those orders are 3.6% above the same period last year.  Further, those orders of about $61.6 billion in July represent only about one-quarter (27%) of the total durable goods orders in July of $231 billion.    

Bottom Line: Today's report on the strong monthly and annual increases in both new orders and actual shipments of durable factory goods strengthens the case that American manufacturing continues to be one of the strongest sectors and main drivers of the economic recovery.  In addition to strong gains in manufacturing output reflected in today's Census report, the 524,000 jobs added to factory payrolls since 2010 represent more than 13% of the total increase in payroll jobs during that period, even though manufacturing jobs represent fewer than 9% of the total payroll jobs in the economy.  For both gains in output and gains in employment over the last few years, the manufacturing sector is leading the rest of the U.S. economy.  

Related: See Business Insider's chart below and article "America's Manufacturing Industry Is The Envy Of The World Right Now."

Thursday, August 23, 2012

When I Grow Up, I Want to Be a Crony

The path to success in America used to be the private sector, but what are our children learning today?
From the Crony Chronicles, the "cronyism resource." After all, why be a taxpayer, when you could be a tax spender?

2012 Drug War Killings Reach 45 This Week

The organization StoptheDrugWar.com tracks the number of Americans each year who are casualties of America's War on Drugs Peaceful Americans Who Use Intoxicants Not Currently Approved of by the Government, Who Might Break Into Your House and Kill You While Executing a Search Warrant if They Suspect You of Possessing or Distributing a Weed That Grows Naturally Everywhere and Was Smoked Regularly by President Obama. 

That's basically what happened to Wendell Allen, 20, of New Orleans, who was a small-time distributor of marijuana and was shot and killed during a drug raid in March by a police officer who was indicted this week on manslaughter charges.  Wendell Allen was unarmed and became this year's Drug War Casualty No. 15. 

More recently, an Iowa City man was shot and killed during an undercover drug operation this week, bringing the total number of Drug War Killings this year to 45.

Related: Roughly 48% of the inmates in federal prisons (almost 93,000) are serving jail sentences for drug offenses.  

HT: Jacob Sullum

CO2 Emissions at a 20-Year Low, Oceans of Natural Gas, Romney v. Obama, $1T Capex in 2012

Energy updates:

1. Investor's Business Daily ran an excellent editorial a few days ago on the "shockingly good news" that carbon emissions are now the lowest in 20 years, going all the way back to 1992 (see chart above, EIA data here), here's a slice:

"Carbon emissions in the U.S. have hit a 20-year low due to a supposedly environmentally unfriendly drilling technique that has created an abundance of cheap natural gas. The free market, it seems, does it better than the EPA."

"Environmentalists find themselves between shale rock and a hard place after a little noticed technical report documented how the natural gas boom caused by the use of hydraulic fracturing, or fracking, has actually helped the environment in a major way while also creating jobs and economic growth."

"In the report, the U.S. Energy Information Agency, a part of the Energy Department, said that energy-related U.S. CO2 emissions for the first four months of this year fell to about 1992 levels. EIA estimates that full-year emissions will be the lowest since at least 1995. The untold story is that this has been achieved by the free market and private-sector technology, not government mandates."

"How ironic that those greedy energy companies and not government-backed green energy failures such as Solyndra and the Chevy Volt are both saving the earth and paving the way to genuine energy independence. Fracking will save the earth before anything like cap-and-trade or the Kyoto Protocol — an inconvenient truth indeed for environmentalists."

2. Robert Lenzner at Forbes summarizes the Top Ten Reasons to Love Natural Gas, here's the opening paragraph:

"Here is the most promising development in the American economy. Period! The discovery of oceans of natural gas in North America means a vastly cheaper source of energy, the creation of hundreds of thousands of new jobs, a meaningful reduction in global warming, a much diminished balance of payments deficit, a far stronger dollar, a jump in the profits of the electric utilities, who will then raise their cash dividend payouts, which will benefit widows and orphans as well as giant pension funds, and cause the gold bugs lasting anguish."

3.  the energy platforms of Obama and Romney are different, here's the bottom line:

"In reviewing the energy policy platforms of Romney and Obama, we see that Obama shows a distinct preference for a command-driven energy economy, while Romney strongly favors a freer, private-sector energy economy. Obama places far less emphasis on energy affordability and far more emphasis on greening the energy supply even though that raises costs. Finally, whereas Romney clearly has a goal of energy interdependence with Canada, Obama’s view of energy independence is more a “go it alone” approach, where pipelines to Canada need not apply."

4. Global oil and gas capital expenditures will break the $1 trillion barrier, according to a new report from natural resources experts Global Data, here's an excerpt:

"Increased activity in the Exploration and Production (E&P) sector will push oil and gas capital expenditure (capex) to an enormous $1,039 billion for 2012. We estimate that total oil and gas capex will increase 13.4% this year over the 2011 total of $916 billion, as oil companies intensify upstream operations across locations as diverse as offshore Brazil, the Gulf of Mexico and the Arctic Circle."
"Investor confidence in new upstream projects is being driven by the increasing number of oil and gas discoveries (242 last year alone), combined with consistently high oil prices and the arrival of new technologies that are giving the major firms access to deep offshore reserves that were previously technically and financially unviable."

"North America is expected to witness the highest capex, with $254 billion, or 24.5% of the 2012 global total. Compared to a global average capex growth rate of 13.4%, North America is expected to see growth of 15.7%. The increase of unconventional oil and gas activities, especially the continuing exploitation of shale oil and gas sites and the development of Canadian oil sands, are the major drivers for these investments."

2012: The Year of the Housing Recovery, Part II; "This Is What a Housing Recovery Looks Like"

There's more positive housing data coming out this week to support the growing consensus that we've passed the bottom and now have a solid, sustainable real estate recovery underway (see related CD post on Tuesday).  Here are some of those new data:

1.  The Federal Housing Finance Agency (FHFA) released its quarterly report today with U.S. home prices for the month of June and quarterly home prices for the second quarter, based on its House Price Indexes (HPIs) for houses financed or guaranteed by Fannie Mae or Freddie Mac. According to today's report, seasonally-adjusted home prices increased in June by 0.7% from May to an index level of 189.76, which was the highest monthly home price index since August 2010 (see red line in chart above).  The May-June increase in the HPI was the fifth back-to-back monthly price increase starting in February, and the first time since early 2006 of five consecutive monthly increases.   On an annual basis, the HPI in June was 3.6% above a year ago, and was the largest annual increase in almost six years, going back to September 2006.  Without seasonal adjustment, home prices increased by 1.2% from May-June and by 3.7% compared to a year ago (blue line in chart). 

2. On a quarterly basis, U.S. home prices increased during the second quarter by 1.8% from the previous quarter, and by 3.03% from a year ago.  The 1.8% increase in home prices was the largest quarterly gain since a 2.17% increase in Q4 2005, and the annual increase was the largest since a 3.12% gain in Q4 2006. 

3.  Earlier this week, leading real-estate information provider Zillow reported that U.S. home prices increased in July for the eighth consecutive month starting in December of last year, according to Zillow's Home Value Index based on 167 U.S. metro areas.  Zillow chief economist Stan Humphries reported on the Zillow blog that "Home values increased 0.5% to $151,600 from June to July, marking another month of healthy monthly appreciation. Compared to July 2011, home values are up by 1.2 percent, supported in many places by low for-sale inventory."  Home price increases in July were especially strong in Phoenix (2.2%), San Jose (1.2%), and San Francisco (1.2%).

4. According to Data Quick's weekly National Home Sales Snapshot (based on home sales in 98 of the top 100 U.S. metro areas representing two-third of U.S. home sales), national home sales over the last 30 days (218,318 transactions) were 10.4% above a year ago, and the median home sales price of $200,000 was 5.3% above the same period last year.    

5.  Census reported today that sales of new single-family homes increased to a 372,000 seasonally-adjusted annual rate in July, beating the consensus forecast of 365,000.  July new home sales were 3.6% above the previous month, and 25.3% above July sales last year. 

6. The National Association of Realtors reported yesterday that existing-home sales in July were 10.4% above last year, while the national median existing-home price of $187,300 was up by 9.4% from a year ago. 

Regional and state home sales data continue to also show signs of a solid real estate recovery:

7. Florida home sales were up by 9.8% in July, the statewide median home sales price was up by 7.8% versus last year, and pending sales for existing single-family homes were up by a whopping 42% compared to July last year, so the sales gains should continue going forward.   

8. Houston home sales are exploding. Single-family home sales soared 27% in July from last year, while the median sales price rose 6.3% from a year ago to $170,000, matching Houston's all-time record high median price in June.  (Note: Houston is not included in the Case-Shiller Home Price Indexes, so the record home prices there will not be captured by the Case-Shiller index.) 

Bottom LineAs Brian Wesbury et al. pointed out today when summarizing some of the recent housing data, "This is what a housing recovery looks like."  I agree. When you've got ongoing, sustained increases in both home sales and median home prices (for both existing-homes and new homes), often at double-digit increases especially for home sales, continuing increases in pending home sales, low housing inventory levels, and historically low mortgage rates, you've got all of the necessary ingredients in place for a real "real estate recovery." 

Government Overreach: Good News, Bad News

Good News: City officials in Holland, Michigan will allow a 13-year-old to reopen his hot dog cart at a new legal location just two feet from the original illegal location.

Bad News: The owner of a small farm in Virginia faces thousands of dollars in fines for hosting a 10-year old's birthday party and selling her vegetables to consumers. 

The "Smokey Bear Effect": How Government Forest Takeover Has Led to More, Bigger and Hotter Fires

National Public Radio reports today on how the federal government's "takeover" of America's forests with the creation of the U.S. Forest Service in 1905 has led to more, not fewer, forest fires in the long run.  Among fire historians it's known as the "Smokey Bear Effect," thus the title of the segment "How The Smokey Bear Effect Led To Raging Wildfires," here's a slice: 
Scars from thousands of sections show how often fires burned in the Southwest. It was every five or 10 years, mostly — small fires that consumed grass and shrubs and small seedlings, but left the big Ponderosa pine and Douglas fir just fine. This was the norm. 

Then something happened. "Around 1890 or 1900, it stops," say tree ring expert Thomas Swetnam. "We call it the Smokey Bear effect."

Settlers brought livestock that ate the grass, so fires had little fuel. Then when the U.S. Forest Service was formed, its marching orders were "no fires." And it was the experts who approved the all-out ban on fires in the Southwest. They got it wrong.

That's the view of fire historian Stephen Pyne. "The irony here is that the argument for setting these areas aside as national forests and parks was, to a large extent, to protect them from fire," Pyne says. "Instead, over time they became the major habitat for free-burning fire."

So instead of a few dozen trees per acre, the Southwestern mountains of New Mexico, Arizona, Colorado and Utah are now choked with trees of all sizes, and grass and shrubs. Essentially, it's fuel. And now fires are burning bigger and hotter. They're not just damaging forests — they're wiping them out. Last year, more than 74,000 wildfires burned over 8.7 million acres in the U.S.
MP: Maybe there's a lesson here for government intervention in the economy?

Shale Oil: A Tremendous Development for U.S. Oil Production, Shovel-Ready Jobs, Economic Growth

Bloomberg -- "A boom in oil production from the shale formations of North Dakota and Texas has the U.S. on a course to cut its reliance on imported crude oil to about 42% this year, the lowest level in two decades. Dependence on crude purchased from foreign countries is on a pace to decline from last year, Adam Sieminski, the head of the U.S. Energy Information Administration, said during a Bloomberg Government lunch yesterday in Washington."

"Higher oil prices and an increased use of a drilling technique known as hydraulic fracturing has producers including Continental Resources Inc. (CLR), Marathon Oil Corp. (MRO) and Hess Corp. (HES) boosting production from oil-rich geologic formations. Hydraulic fracturing involves pumping millions of gallons of water into the ground to free oil and natural gas and has been widely used in shale-rock formations such as the Bakken of North Dakota and Eagle Ford in Texas."

“What’s happening in North Dakota, and in Texas, with Eagle Ford, Bakken formation in North Dakota, is a tremendous development for U.S. oil production and economic growth,” Sieminski said. 

"In 2011, the U.S. relied on imports for 44.8% of its petroleum consumption, down from 60.3% in 2005, according to EIA data (see chart above). This year, the country should end up at about 42%."

MP: The chart above shows net oil imports from 1992 to 2012 based on EIA data through June.  For the January-June period this year, net oil imports have fallen to an average of 42.2%, which is the lowest level since 40.7% in 1992, 20 years ago. In comparison, net oil imports during the first six months of 2011 were 46.8% and were 50.9% during that period in 2010.