Saturday, April 30, 2011

Michigan Economy Doing Better Than California?!

For the six months starting last August and continuing through March of this year, the jobless rate in Michigan has been lower than California's rate (see chart above).  That follows 88 straight months going back to March 2003 when Michigan's jobless rate was above California's.  How interesting that Michigan, the "basket-case" state with the highest jobless rate in the country during most of the last recession, now has a jobless rate almost two points below the "unionacracy" of California.  

And who would have thought we'd ever see this happening - some companies are now relocating from California to Michigan!  According to this report from Joe Vranich, 70 companies left California from January 1 through April 15 of this year, and the #3 destination behind Texas (14) and Arizona (6) was Michigan, with four relocations (tied with Nevada).  And just last Thursday an Irving-based company (Blackford Capital) announced that it's the fifth California company heading this year for greener and more business-friendly pastures in Grand Rapids, Michigan.  That's "disinvestment event #78" so far this year according to Vranich, who regularly tracks the companies moving out of California.  

Here's something else: According to current U-Haul rates, it's 35% more expensive to rent a one-way truck from Los Angeles to Grand Rapids ($2,673), than from Grand Rapids to Los Angeles ($1,980), implying a higher relative demand for trucks from California to Michigan than vice-versa, i.e., a net out-migration of people moving from California to Michigan. 

Friday, April 29, 2011

"Decline of Manufacturing" is Global Phenomenon: And Yet the World Is Much Better Off Because of It

The chart above shows manufacturing output as a share of GDP, for both the world and the U.S., using United Nations data for GDP and its components at current prices in U.S. dollars from 1970 to 2009.  We hear all the time from Donald Trump and others about the "decline of U.S. manufacturing," about how nothing is made here any more, and how everything that used to be made here is now made in China, etc.  An underlying assumption here is that if the manufacturing base is shrinking in the U.S., there is an offsetting manufacturing gain that is captured elsewhere in the world.  In reality, the decline in U.S. manufacturing as share of GDP is a really a global phenomenon as the entire world becomes increasingly a services-intensive economy.  

As a share of GDP, manufacturing has declined in most countries since the 1970s.  A few examples: Australia's manufacturing/GDP ratio went from 21.3% in 1970 to  9% in 2009, Brazil's ratio went from 24.6% to 13.3%, Canada's from 21.7% to 11.3%, Germany's from 35% to 19%, and Japan's from 35% to 20% (I'll maybe create a chart with a more complete list).  

Bottom Line: The complaints about the "decline in U.S. manufacturing" are really a somewhat misguided acknowledgment of the global shift in production that has taken place since we entered the Information Age with the commercial introduction of the microchip in 1971 and gradually left the Machine Age behind.  When we complain that "nothing is made here anymore," it's not so much that somebody else is making the stuff we used to make as it is the case that we (and others around the world) just don't need as much "stuff" any more in relation to the overall size of the economy.    

The standard of living around the world today, along with global wealth and prosperity, are all much, much higher today with manufacturing representing 16-17% of total world output compared to 1970, when it was almost twice as high at 26.7%. And for that progress, we should applaud, not complain.

Real Consumer Spending 1.7% Above Dec. 2007

The BEA released its report today on "Personal Income and Outlays" for March, here are some highlights:

1. Real personal consumption spending in March set a new monthly record of $9.5 trillion (2005 dollars) in March, which is 1.7% and $156 billion above the pre-recession peak of $9.355 trillion in December 2007.   

2. Both real disposable personal income and real personal consumer spending increased by 2.7% in March from a year earlier.  

3. Annual inflation for Personal Consumption Expenditures (PCE) was 1.8% in March, and only 0.9% for the PCE excluding food and energy.  

4. The personal savings rate in March held steady at 5.5%, the same as February, and down slightly from 5.9% in January. 

Thursday, April 28, 2011

QI: Exxon Paid Almost $1M per Hour in Income Taxes and Its Effective Tax Rate Was 42.3%

ExxonMobil reported its first quarter 2011 earnings today, which came in at $10.65 billion, an increase of 69% from the same quarter last year when it earned $6.3 billion.  While the huge earnings amount captured all of the media attention, several other items received much less attention (see chart above):

1. ExxonMobil paid $8 billion in income taxes to various governments in the first quarter, which is about $22 million in income taxes each day, or almost $1 million each hour.  

2. ExxonMobil spent $7.8 billion in the first quarter on capital equipment and exploration (73% of its after-tax earnings), or more than $21 million per day, which is an increase of 14% compared to the first quarter last year.  Over the next five years, the oil company plans to invest about $175 billion in capital equipment and exploration - that's equivalent to almost the entire GDP of the Philippines in 2010.  

3. Compared to the first quarter last year, ExxonMobil increased its output of oil and natural gas by 10%, and a large part of that increased output came from a 192% increase in natural gas production in the United States, thanks to new advanced drilling technologies like hydraulic fracturing.  While higher oil prices certainly played a major role in increasing Exxon's profits, the role of increased output shouldn't be ignored.  And we shouldn't forget that retail natural gas prices in the United States, adjusted for inflation, are the lowest now since December 2002, in large part due to increased domestic production from companies like Exxon. 

4. Dwarfing Exxon's first quarter profits of $10.65 billion, are the total taxes paid or collected around the world by Exxon from January to March, which totaled to$26.2 billion and include:  a) $8 billion in income taxes, b) $10.3 billion in sales-based taxes, and c) $10.3 billion for all other taxes including property taxes, etc.

5. Exxon Mobil paid $8 billion in income taxes in the first quarter on $18.9 billion of income, which translates into a 42.3% effective income tax rate on its income.  And yet according to Obama and others, oil companies "aren't paying their fair share of taxes," and should be taxed more? 

6. The 6.1% average profit margin for Exxon's industry "Major Integrated Oil and Gas" ranks #112 among all industries for the most recent quarter (data here), so if Obama wants to target "excessive" corporate profits, there are many other industries much more profitable than the oil and gas industry.  For example, the surge in commodity prices has resulted in "windfall profit" margins of 31% for the silver industry, 23% for the copper industry and 19.8% for the gold industry.  Internet providers are capturing 23% in profit margins, cigarette companies more than 21% and periodical publishers are earning a whopping 51.6% profit margin, so perhaps those would be ripe targets for Obama's new lust to confiscate "windfall profits."  

QI PCE Core Inflation Close to 50-Year Low of 0.9%

According to today's BEA report, the annual inflation rate for Personal Consumption Expenditures (PCE) for the first quarter of 2011 is 1.6%, well below (less than half) of the average 3.6% rate back to 1960 (see top chart above).  Annual inflation for the PCE Index less food and energy is 0.90% for the first quarter, just slightly higher than the 0.8% in QIV 2010, which was 0.8% (see bottom chart above).  The only two quarters in more than fifty years going back to 1960 when the core PCE Inflation was less than 1% were the last two quarters.  

So I ask: Where's the inflation? It's sure not showing up yet in PCE inflation, and core PCE is suggesting deflationary, not inflationary, pressure.  

War on Walmart: Who's Afraid of Cheap Groceries?

Good Question About Oil Traders

WSJ -- At Mr. Obama's request, the Justice Department announced Thursday that it has created a task force to investigate the oil and gas markets, a move some Democrats in Congress have advocated. "The attorney general is putting together a team whose job it is to root out any cases of fraud or manipulation in the oil markets that might affect gas prices, and that includes the role of traders and speculators," Mr. Obama said during a town hall event at a renewable energy company in Nevada. "We're going to make sure that nobody's taking advantage of American consumers for their own short-term gains."

WSJ Letter to the Editor from John Malgar -- "The challenge for investigators isn't proving that traders drove up oil prices. The real puzzle is, why did these public enemies suddenly have a change of heart during 2008 and drive prices down?"  

See chart above showing gas prices falling from $4.12 per gallon to $1.61 in 2008.

Introducing the ADS Business Conditions Index

Every time I think I'm aware of all of the economic indicators available, I find a new one.  This time it's the Philadelphia Federal Reserve's Aruoba-Diebold-Scotti Business Conditions Index, which was featured in this WSJ article on Tuesday:

"This index, which we will henceforth refer to as the ADS, takes in a variety of economic data, mashes it all together and comes out with an up-to-the-minute reading on the economy at least once a week. It saves common investors like us a lot of hard work trying to grapple with the individual pieces. The input data includes a composite of quarterly output data, unemployment indicators, industrial production, personal income less transfer payments, manufacturing/trade sales and gross-domestic-product growth.

The economic whizzes at the Philly Fed use a filter to help smooth the data so that the impact of less-frequent data, such as the GDP growth figures, blends seamlessly with more-frequent data, such as weekly new claims for unemployment insurance. The ADS looks at the entire economy, not just the Philly Fed's district. Additionally, because the ADS is updated so frequently, it's a real-time read on the economy that analysts don't have to wait a long time for, unlike the quarterly read on GDP."

MP: The ADS Index was updated today based on today's first quarter real GDP and jobless claims reports, and is displayed above on a daily basis back to 2000.  As the graph shows, the ADS Index tracked the last two recessions very closely, and a chart available here back to 1960 shows that the index has accurately tracked almost all recessions over the last 50 years.  And looking at the chart above, it appears that the economic expansion over the last two years is slightly stronger than the 2002-2003 expansion following the 2001 recession according to the ADS Index. I'll add this index to the indicators that I follow on a regular basis. 

HT: Mike LaFaive

The Era of Cheap, Abundant Natural Gas is Here

Simply put, the era of cheap and abundant natural gas has begun. The price of natural gas is now less than one-quarter that of oil on an energy equivalent basis. Indeed, it has fallen more than 25 percent over the past three years. When adjusted for inflation, American consumers haven't had cheaper natural gas since December 2002 (see chart). 

The success of horizontal hydraulic fracturing of shale gas and the profound importance of natural gas on America's energy future can't be minimized any longer. The surging supply of domestically-produced shale gas in the last few years provides overwhelming evidence that the U.S. has enough natural gas to easily meet demand well into the next century.

~From my editorial in today's Detroit News

New Econ Rap Video: Keynes vs. Hayek Round Two

You Can't "Give Back" Unless You've First Taken It

"The Ritz-Carlton Give Back Getaways voluntourism program offers our guests an exceptional opportunity to combine volunteer work with travel and give back to the community in a way that is meaningful to them and to the lives of others."

"Have you taken something that doesn’t belong to you?  If so, by all means give it back! If, though, you’ve not taken anything that doesn’t belong to you, you possess nothing that you can give back.

Being a profitable corporation, you certainly possess something that you can give; and I genuinely applaud the generosity that prompts you, your employees, and your customers to give.  Please, though, unless your profits are the product of dishonest deals or theft, please drop the rhetoric of “giving back.”  

This sort of talk implies that you possess something that isn’t rightfully yours.  It fuels the common misapprehension that corporate profits are either ill-gotten gains or, at best, wealth subtracted from that of other persons. Your profits aren’t pirated booty; they’re legitimate earnings."

In a related editorial last summer Kim Dennis responded this way in the WSJ to the successful businessmen like Bill Gates and Warren Buffet who often feel obligated to "give back":

"Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable."

Wednesday, April 27, 2011

EIA: Gas Prices Will Peak in June, and Then Fall

According to the EIA (data here), real gas prices will peak in June of this year at $3.90 per gallon, and then start gradually falling, reaching $3.60 per gallon by December of next year.  Of course, a lot could happen over the next year, but the current EIA estimate is that gas prices will peak within a few months and gradually decline over the next 20 months. 

University Administrators Will Outnumber College Faculty by 2014; It's Already A Reality at UM-Flint

According to Malcom Harris writing in n+1:

"And while the proportion of tenure-track teaching faculty has dwindled, the number of managers has skyrocketed in both relative and absolute terms. If current trends continue, the Department of Education estimates that by 2014 there will be more administrators than instructors at American four-year nonprofit colleges. A bigger administration also consumes a larger portion of available funds, so it’s unsurprising that budget shares for instruction and student services have dipped over the past fifteen years."

MP: Hey, where I teach (University of Michigan-Flint), we're way ahead of the national trend - the administrative/professional ranks outnumbered the full-time faculty (tenured, tenure-track and full-time instructors/lecturers) years ago, starting in 2005 (see chart above).  

World Stock Markets Rally to 33-Month High

The MSCI World Stock Market Index closed today at 1,371.4, reaching the highest level since July 30, 2008, almost 33 months ago.  Compared to the cyclical low of 697.5 in early March 2009, the MSCI World Stock Index has almost doubled over the last two years.  The year-to-date return for the world index is 7%, and the one-year return is 14%.  Welcome to the 2001 bull market rally for world stocks.

Gasoline Taxes Per Gallon Are Almost 7 Times ExxonMobil's Profit: 48 cents vs. 7 cents for QI

The map above from API shows gasoline taxes by state (combined local, state and federal), which range from a low of 26.4 cents per gallon in Alaska to a high of of 66.1 cents per gallon in California, averaging 48.1 cents per gallon across all states. How does that compare to oil company industry profits per gallon?

According to this post on Exxon Mobil's Perspective Blog , "For every gallon of gasoline, diesel or finished products we manufactured and sold in the United States in the last three months of 2010, we earned a little more than 2 cents per gallon. That’s not a typo. Two cents."

Update: ExxonMobil is now reporting that for its retail gasoline operations in the U.S., it made an average profit of 7 cents per gallon during the first quarter of 2011. 

The chart below shows the difference graphically:

Homeownership Rate Falls to 1998 Level; Gov't. Created An Unsustainable "Homeownership Bubble"

The homeownership rate in the U.S. fell in the first quarter of 2011 to 66.4%, according to data released today by the Census Bureau.  That was the lowest homeownership rate in slightly more than 12 years, since the 66.4% rate in the fourth quarter of 1998, and it looks like it will probably continue to fall in the coming years.  

Conclusion: The political obsession with homeownership raised homeownership in the short run to an artificial and unsustainable level of 69% by 2006, but failed in the long run to stimulate homeownership at a sustainable level, and in the process government policy turned good renters into bad homeowners, created a housing bubble, waves of foreclosures, and a subsequent housing meltdown and financial crisis. In other words, the chart illustrates how government policies (monetary, mortgage market, GSEs, CRA, affordable housing, etc.) created an unsustainable "homeownership bubble."

Geography: One Subject Where Boys Are Ahead So That Gender Disparity Must Prove Discrimination

As I reported in February, Minot State University professor emeritus Eric Clausen has been battling the National Geographic Society in federal court over his claims that the national contest discriminates against girls because virtually no girls have won the national title, and it looks likely that that trend will continue this year. 

The 2011 National Geographic Bee Finals will be held in Washington, D.C. May 24-25, and the competition will once again be dominated by boys, judging by the names of the 54 finalists from the 50 states, Atlantic Territories, Department of Defense Schools, the District of Columbia and the Pacific Territories.  It's a little hard to determine gender by some of the names, but it looks like at least 90% of the finalists this year are boys. 

Thanks to Grace Nunez for pointing this out.

Trivia of the Day: State Mottoes

Mottoes of the 50 States. 22 are in Latin, one is in Greek (California: "Eureka"), one is in Italian (Maryland), one in French (Minnesota), one in Native American (Washington), one in Hawaiin (Hawaii), and the rest are in English.

HT: Alex Pollock

Census Bureau Report: More Than 6 in 10 Advanced Degree Holders Between Ages 25-29 Are Women

From yesterday's Census report on educational attainment, the chart above shows the college degree gap in favor of women for all levels of higher education for age group between 25-29.  More than 60% of advanced degrees are now held by women for that age group, up by more than three percentage points from the 58.2% reported by Census for 2009.  For African-Americans ages 25-29,  there are 239 women holding advanced degrees for every 100 men with graduate degrees (70.5% female vs. 29.5% male).   

Read more at The Enterprise Blog

Manufacturing Leads the U.S. Economic Recovery

New orders for manufactured durable goods in the U.S. rose to a 30-month high in March of $208.37 billion, according to today's report from the Census Bureau.  That was the highest volume of orders in a single month since September 2008, two and-a-half years ago, and was 10.5% above the level a year ago, and 2.5% above orders in February.  For the first quarter of 2011, durable goods orders were the highest on a quarterly basis since the third quarter of 2008, and above the same quarter last year by 8.75%.  

According to the Federal Reserve's data on industrial production, manufacturing output grew in the first quarter of this year at an annualized rate of 9% (about four times greater than the overall economy), and durable manufacturing grew at an annualized rate of 16%, so along with today's Census report, it's clear that the U.S. manufacturing sector continues to lead the economic recovery as the "shining star" of the U.S. economy.   

In other manufacturing news today, the Chicago Federal Reserve reported strong growth in manufacturing output in the Midwest region, with a 12.5% increase in March from a year earlier.

Gross Hypocrisy: Trump Clothing Made in China

At the same time Trump tells Americans to buy less "crap" from China...... 
From Salon -- "Donald Trump has emerged in recent years as the nation's foremost China basher, going after the Asian superpower for undervaluing its currency and for taking American manufacturing and jobs. So it's at least ironic -- and at most an example of gross hypocrisy -- that Trump's own line of men's wear, the Donald J. Trump Signature Collection, is manufactured in China (see photo above from a Macy's in Manhattan)."

Tuesday, April 26, 2011

Another Educational Milestone for Women: They Now Hold More Total Graduate Degrees Than Men

The Census Bureau released its annual report today on educational attainment in the United States for 2010 (here's the press release, here are the tables). In another educational milestone for women, they now hold more advanced degrees (Master's, Professional [medical, law and dental] and Doctoral) than men for the first time in history (see chart above).  

A decade ago, 55.4% of all advanced degrees were held by men and 45.6% by women, meaning that there were 124 men with advanced degrees for every 100 women.  But over the last ten years, the number of advanced degrees earned by women increased by 58%, or more than twice the 26% increase for men.  That disproportionately large increase in women earning graduate degrees since 2000 brought the total number of female advanced degree holders in 2010 to 10,685,000 surpassing the number of men holding graduate degrees (10,562,000) for the first time ever.  

Here's an AP story on today's Census Bureau release, and I'll have another post shortly about some other highlights of the report.  

Update: The numbers quoted in the original post were off by 1,000, and those errors have been corrected and appear in bold above.

Rules of Gramar: Insterments of White Opresion?

"After spending four depressing days this month at a meeting of 3,000 writing teachers in Atlanta, I can tell you that their parent group, the Conference on College Composition and Communication, is not really interested  in teaching students to write and communicate clearly.  The group’s agenda, clear to me after sampling as many of the meeting’s 500 panels as I could, is devoted to disparaging grammar, logic, reason, evidence and fairness as instruments of white oppression. They believe rules of grammar discriminate against “marginalized” groups and restrict self-expression."

Recovery Watch: Leading Indexes and Shipping Rise

1. Leading economic indexes for February increased in Spain (0.1%), China (0.3%) and France (0.5%).

2. In shipping news for March, the Port of Galveston reported its highest monthly tonnage in 11 years, container volume handled by the Port of Charleston increased 5.7% from a year earlier, and the volume of containers handled by the Port of Savannah increased 4.5% in from the same month last year.

On Behalf of African Hairbraiders, The Institute for Justice Goes Up Against Utah's Cosmetology Cartel

"The Constitution protects the right to earn an honest living without arbitrary and unreasonable government interference.But if you want to braid hair for a living in Utah, you must submit yourself to a completely irrational licensing scheme to get permission from the government before you are allowed to work. No one should have to hire a lawyer or lobbyist just to braid hair.  The right to earn an honest living is an essential part of our nation’s promise of opportunity."

Note: The Institute for Justice has successfully challenged state cosmetology regulations in 7 states on behalf of hairbraiders, and has never lost a case.  Hopefully, the state of Utah will be victory #8 for IJ.  

Monday, April 25, 2011

Monday Map: State Income Tax Rates

Following last Monday's state sales tax map, here's the Tax Foundation's state income tax rate map for 2011 (click to enlarge). 

P.J. O'Rourke: Irish Setter Dad

I just wasn’t cut out to be a Chinese Tiger Mom. I’m more of an Irish Setter Dad. Here are some of the things my daughters, Muffin and Poppet, and my son, Buster, were never allowed to do:

• go to Mass naked
• attend a sleepover at Charlie Sheen’s house
• mix Daddy a martini using sweet vermouth
• play the violin within earshot of me

Have you ever heard a kid learning to play the violin? A cat in the microwave is nothing to it. And let me add an addendum to the things my children were never allowed to do​—​put a cat in the microwave. I’m not saying it didn’t happen; I’m just saying they weren’t allowed to do it.

Amy Chua, I’ve got bad news. “A” students work for “B” students. Or not even. A businessman friend of mine corrected me. “No, P. J.,” he said, “ ‘B’ students work for ‘C’ students. ‘A’ students teach.” 

~P.J. O'Rourke in the Weekly Standard

1979-2007: Rich Got Richer, Poor Got Richer

WASHINGTON – "Today, the Employment Policies Institute (EPI) announced the publication of new research by economists Dr. Richard V. Burkhauser of Cornell University, Dr. Jeff Larrimore of the Joint Committee on Taxation and Dr. Kosali Simon of Indiana University, the results of which appear in the most recent issue of the Journal of Policy Analysis and Management (link fixed).

In his recent speech on deficit reduction, President Obama defended his support of higher taxes on wealthy Americans by echoing a widely-held view that the rich are getting richer while the poor and middle class are falling behind. But Burkhauser et al. find that this popular notion is mistaken; in reality, growth in after-tax household income has been substantial across the entire income distribution over the last thirty years (see table above).

“By leaving out additional sources of income – like fringe benefits or employer-provided health insurance – past studies have dramatically understated American households’ access to after-tax resources.” said Dr. Burkhauser. “What we found is that the rich did get richer over the last 30 years, but so did the middle class, the working class and the poorest.”

By taking into account previously unmeasured shifts in household size and the tax units in them, the taxes and transfers of government, and the increasing importance of fringe benefits, the research shows a picture of growth that spans all income groups.

Burkhauser continued: “For instance, the conventional wisdom holds that the poorest households saw their income shrink by a third over the last three decades. But accounting for income transfers and the value of fringe benefits, this research shows that the bottom 20 percent of households actually experienced after-tax income growth of more than 26 percent.”

Burkhauser concluded: “This isn’t a zero sum game, where one group wins at the expense of others. The growth in productivity of Americans in the top twenty percent of tax units increased the size of the economic pie sufficiently to register major gains across the entire distribution of after-tax income.”

Steel Production, Shipments Rebound

1. Crude Steel Production Rises in March -- "World crude steel production for the 64 countries reporting to the World Steel Association was 129 million metric tons in March 2011 and 372 million metric tons for the first quarter 2011. This is 7% higher than March 2010 and 8.8 % higher than the first quarter 2010.

2. Chinese To Build $1Billion Steel Plant in Texas -- The building of the steel plant in the U.S. is a strategy to avoid U.S. imposed anti-dumping duties of 32% and 98% on imports of Chinese steel pipe products.

3. Steel Leads Recovery at Antwerp Port --  First quarter 2011 volumes have improved over 2010 results at the port of Antwerp, particularly in breakbulk cargoes, hit hardest by the global recession. The best performer in this segment was steel, which rose 41.8% to 1.9 million metric tons.

Service Sector Inflation Remains Mild

According to BEA data, the U.S. economy has increasingly become more and more of a service economy (see top chart above).  In the early 1950s, less than half of the national output took place in the private services-producing sector of the economy, and more than 40% in the private goods-producing sector.  Now more than 2 out of every three dollars of GDP is produced by private service industries in the U.S. (legal, financial, management, administrative, technical, scientific, publishing, information technology, etc.), and the share of value added by private goods-producing industries has fallen to 17.7%, or less than half its share fifty years ago.  

CNBC reported last week:

"The annual change in prices for data processing, recreation, lodging, medical services and tuition are all showing a downward trend, according to David Rosenberg’s analysis of the government’s CPI data.

With all the hubbub about $100 oil, surging food prices, along with the comparisons to the 1970s, Rosenberg, who is chief economist and strategist at Gluskin Sheff, is trying to make the point that the U.S. is now primarily a service economy, with these industries accounting for much of our employment and two-thirds of our spending (see top chart above).

“Service sector inflation is now running at historical lows of little more than one percent, and here we are about to enter the third year of a statistical economic recovery,” said Rosenberg, formerly the economist at Merrill Lynch where he made his name by going against the perma-bullish Wall Street crowd (see bottom chart above). “Service sector inflation used to be sticky, because this area of the economy years ago was dominated by unions, was protected by entry barriers, and did not face much in the way of competitive pressures. The times have changed,” wrote Rosenberg in a note to clients Tuesday.

“Commodity-based economies have a serious inflation problem because food and energy are so crucial to that smokestack, low-income model,” said Steve Cortes of Veracruz LLC. “But in a services-based economy like the U.S., many areas are outright deflating, like technology — and many more key areas churning sideways: professional services, brokerage of all kinds, hotels.  Inflationary periods like the 1970s start with wage inflation, which is sorely missing from this recovery.”

Indeed, Rosenberg found there is an 88 percent correlation between wages and inflation —and wages today, adjusted for productivity gains, are declining on an annual basis. Don’t look for that to change any time soon with unemployment still above 8 percent. Maybe that’s why the Federal Reserve says it has a dual mandate of stable prices and full employment."

MP: I've made some of these same points before.  In the inflationary 1970s, almost every measure of prices was increasing: food, energy, core inflation, wages, services, interest rates, etc.  We now have a wide mix of inflationary, deflationary and flat inflationary forces, along with decelerating wage increases and low interest rates, and that's not a formula that results in overall inflationary pressures.  At least not yet.  And since inflation for services has been below 2% for almost two years now, there's not inflationary pressure there.     

HT: Bob Wright

Cellphone Economics: Free Markets Spread Wealth

New York Times — "It’s not quite the stuff of bragging rights, but Arkansas and Mississippi find themselves at the top of a new state ranking: They have the highest concentrations of people in the nation who have abandoned landlines in favor of cellular phones. At the other extreme? People in Rhode Island, Connecticut and New Jersey are still holding on to their landlines, and they have the lowest concentrations of people whose homes use only cellphones. 

According to Stephen Blumberg, the researcher who conducted the study, nearly 40 percent of all adults living in poverty use only cellphones, compared with about 21 percent of adults with higher incomes. There appear to be many reasons for this. Cellular phones have become more affordable. The barrier to owning one is lower with pay-as-you-go plans. Some states allow subsidies for low-income residents to be applied to wireless bills. And increasingly, those who cannot afford both types of phones choose their cellular phone."

James Taranto comments in the WSJ:

"Once again, a landline telephone--or, as it used to be called, "a telephone"--is a symbol of wealth. Between the olden days of 1990 and today, we've heard endless complaints, including in the Times, about rising "income inequality." In a strange twist, we've even ended up with a president who has said he would like to "spread the wealth around" by heavily taxing the "rich" and increasing handouts to the "poor." The story of the cellphone shows how a free economy spreads wealth. In actual material terms, the "poor" get richer as the rich also get richer."

MP: The chart above shows the dramatic 40% decline in the CPI for cell phone services that is the driving force in the significant increase in cell phone affordability, which was led to the widespread adoption of this new technology by America's poor.  Thanks to James Taranto for pointing to a great example of how competitive free markets help "spread the wealth."

Walmart "Gets Served" By DC Community Group

Washington Business Journal -- "Walmart foes on Thursday released a massive list of demands they expect the world's largest retailer to accept, in a legally binding contract, before locating in the District (it plans to open four D.C. stores by 2013). The stipulations run the gamut from a living wage ($12.50 an hour) to transit benefits ($50 per employee per month) to parking minimums (up to 2.5 free or low-cost spaces per 1,000 square feet of building space)."  Other demands include:
  • Employ at least 65 percent of its D.C. employees on a full-time basis.
  • Not ask job applicants about previous criminal convictions.
  • Use project labor agreements to construct its stores.
  • Fund all infrastructure improvements made necessary by its stores.
  • Provide free shuttle transportation to and from the nearest Metro station to each D.C. store every 10 minutes.
  • Commit to traffic alleviation studies.
  • Provide up to 2.5 free or low-priced parking spaces per 1,000 square feet of building space.
  • Provide secure, accessible bicycle parking, car sharing and bike sharing for workers and shoppers.
  • Not sell firearms or ammunition.
  • Employ no less than two off-duty D.C. police officers on its premises at all times.
  • Abide by a "code of conduct with regard to its employees' freedom to choose a voice on the job without interference."
  • Fund workforce training programs for D.C. residents, and use training programs as its primary avenue for hiring D.C. residents.
  • Hire at least 40 percent of its employees at each store from the ward in which the store is located.
  • Make "ongoing contributions to a fund managed by a council of community stakeholders" that will provide incentives and support to local small businesses.
  • Make ongoing payments for community funds controlled by "community advisory councils" for education and faith-based programs.
MP: It sure seems like Walmart always gets singled out, and the community groups never place similar demands on Home Depot, Target, or McDonald's?  

HT: Colin Grabow

Sunday, April 24, 2011

Obama Re-Election Odds Trending Down, But > 50%

Obama's re-election odds have fallen to 58% on, the lowest level since early January, and down from the nearly 65% peak around March 1 (see chart above, click to enlarge). 

Washington Job-Destroying Hubris Gone Wild

Can Washington bureaucrats force a private company like Boeing to build a factory in the forced-union state of Washington (or move it there now?), even though Boeing's new factory in right-to-work South Carolina is nearly complete and it's hired more than 1,000 new employees? Members of President Obama's National Labor Relations Board are trying.
Read about it here in the Washington Examiner

HT: Matt B.  

The College Class of 2011: Hiring, Salaries Up

News about the College Class of 2011:

1. Chicago Sun-Times -- "Job postings and recruitment activity are up at Chicago area college campuses this year, and employers nationally say they plan to boost hiring — more evidence of a slowly recovering but still highly competitive job market.  Employers will hire 19 percent more new college graduates nationally this year than they did in 2010, according to a survey released this month by the National Association of Colleges and Employers. This is the first time since 2007 the NACE survey has revealed a double-digit increase in spring hiring projections." (HT: Steve Bartin)

2. NACE -- "The good news continues to roll in for the Class of 2011 as results from NACE’s Spring 2011 Salary Survey show that the average salary offer to all Class of 2011 graduates now stands at $50,462, which is up 5.9 percent over the overall average of $47,673 to Class of 2010 graduates."

3. The chart above shows the gender breakdown for college graduates this year, and the projected breakdown for the Class of 2020, according to data from the Department of Education.

Saturday, April 23, 2011

Why Do Air Traffic Controllers Fall Asleep on the Job? Because They Want a Three-Day Weekend

"For decades controllers themselves have had the last word on the schedules they work, and controllers and their union have fought to keep a "2-2-1 schedule" (known as "the rattler" because it comes back and bites the controllers) because it gives them a three-day weekend afterwards."

To Be PC, They're "Spring Spheres" NOT Easter Eggs

Responses to a Seattle public school policy requiring Easter eggs to instead be called "Spring Spheres" for a third grade class activity:

1. When the teacher said, "Oh look, spring spheres," the third graders said "Wow, Easter eggs."

2. Matt Gurney writing in Canada's National Post: "For this crime of extreme political correctness, let us all hope the school officials responsible receive a lump of carbon-based fuel in the cloth tube-sack they hang next to their December Light-Festooned Interior Coniferous Vegetation this Winter Holiday." ("Notable and Quotable" in today's WSJ).

3. No response yet from the White House about whether Monday's event will be re-named the "2011 White House Spring Sphere Roll," or whether the official souvenirs featuring the signatures of President and Michelle Obama will be re-named "Official White House Spring Spheres" (see photo above).

What's next for political correctness re-naming, will "Frosty the Snowman" become "Frosty the Snow Friend"?

Update: To be scientifically accurate, I think the correct term would be "Spring Prolate Spheroids." 

George Carlin on Environmentalism and Earth Day

George Carlin on "Saving the Planet" (some profanity).

Friday, April 22, 2011

Interesting Fact of the Day: We Walk Slower Now

"For years, traffic lights nationwide were timed to the stride of the average pedestrian, who covered 4 feet of ground per second, according to federal research carried out in the 1950s. A couple of years ago, however, the Federal Highway Administration urged traffic engineers to recalibrate to an average stride of 3.5 feet per second, after new research showed that Americans' average walking pace had slowed over the decades. That would give elderly walkers more time to cross safely."

Today Is Earth Day: What About a Capitalism Day?

From an Investor's Business Daily editorial on Earth Day in 2009, featured on Carpe Diem here (the IBD link no longer works):

"Of the estimated 1 billion people who will observe Earth Day worldwide this year, few will know about the progress that has been made. Fewer still will know how it was made. The media, uninterested in looking at the real story, will simply credit the environmental movement for the improvements.

Buried beneath all the badgering and fear-mongering about lavish Western lifestyles is a reality that the stuck-on-green left won't talk about and the average American isn't aware of: The world, especially in developed nations, is a cleaner — and greener — place than it was when the environmental movement began (the chart above shows the positive trends in air quality since 1980, data).

Topping the agenda of today's environmentalist groups is the pulling down of market economies, the raising up of central planning for egalitarian goals, forced lifestyle changes and the vilification — in hopes of the elimination — of signs of wealth.

None of these advance the planet's environmental health. But capitalism has. Through wealth generated by the free market, we have enough resources to move beyond the subsistence economies that damage the environment, enough disposable income to fund clean-up programs, enough wealth to scrub and polish industry.

Only in advanced economies can the technology needed to recycle hazardous waste or to replace dirty coal-fired power plants with cleaner gas or nuclear plants be developed. That technology cannot be produced in centrally planned economies where the profit motive is squelched and lives are marshalled by the state.

There's nothing wrong with setting aside a day to honor the Earth. In fairness, though, it should be complemented by Capitalism Day. It's important that the world be reminded of what has driven the environmental improvements since Earth Day began in 1970."

The Global Economy’s Remarkable Recovery

The CPB Netherlands Bureau for Economic Policy Analysis released its monthly report today on world trade and world industrial production for the month of February.  Here are some of the highlights:

1. World trade volume increased in February for the seventh consecutive month, bringing global trade to a new all-time record high (see chart).   This was also the third month in a row that world trade was above the previous peaks during early 2008 when the U.S. recession and financial crisis started spreading, causing world trade to drop by 20% in 2009.     

2. World trade in February was 10.5% above its year-ago level, and marked the 14th consecutive month of double-digit annual growth starting in December of 2009.  Compared to the cyclical high in April 2008, world trade volume has recovered to a level that is now 2 percent higher than its previous peak.  Compared to the cyclical low in May 2009, global trade has increased by 28% through February of this year. 

3. World industrial output was the same in February compared to January, but was above its year-ago level by 7.4%.  World output in the first two months of 2011 established a new, all-time record high level, which is 5.2% above the previous cyclical high of 134.4 in March 2008 (see chart above).   After falling by 12% during the global recession in 2008-2009, world output has increased by almost 20% during the last two years of a strong global rebound.  Global output has increased in almost every month compared to the previous month during the worldwide recovery that started in 2009, with only one month of decline in industrial output in the last two years. 

Bottom Line: Based on the ongoing and solid improvements in both international trade and world output, especially the fact that global trade and production are both at all-time historical highs, I think we can now say that the world economy has made a complete recovery from the financial crisis and global slowdown in 2008 and 2009.  The remarkable recovery in the global economy over the last few years is a testament to the ability of markets to recover from even a severe financial crisis and the worst economic slowdown in generations.  Even though there are still many uncertainties and headwinds moving forward, the strong world economic recovery so far is both remarkable and encouraging as we hopefully have entered a new period of global growth, expansion and prosperity. 

2011 Startup Outlook Optimistic for Business/Hiring

Key Findings of the "Startup Outlook 2011" released today by Silicon Valley Bank:

The near-term business outlook for startups is optimistic.
  • Nearly one in four companies (23 percent) exceeded their 2010 revenue targets, up significantly from 2009 (15 percent).

  • Two in three executives say that business conditions in 2010 are better than they were last year, and three in four expect they will get even better in the coming 12 months.

  • The vast majority of surveyed companies (83 percent) plan to hire in the coming year, up from 73 percent a year ago (see chart above).

Because They're Not Spending Their Own Money, Patients Aren't Consumers, But They SHOULD Be

Paul Krugman argues in yesterday's NY Times that Patients Are Not Consumers (link is fixed now):

"How did it become normal, or for that matter even acceptable, to refer to medical patients as “consumers”? The relationship between patient and doctor used to be considered something special, almost sacred. Now politicians and supposed reformers talk about the act of receiving care as if it were no different from a commercial transaction, like buying a car — and their only complaint is that it isn’t commercial enough. What has gone wrong with us?

Medical care, after all, is an area in which crucial decisions — life and death decisions — must be made. Yet making such decisions intelligently requires a vast amount of specialized knowledge. Furthermore, those decisions often must be made under conditions in which the patient is incapacitated, under severe stress, or needs action immediately, with no time for discussion, let alone comparison shopping. 

That’s why we have medical ethics. That’s why doctors have traditionally both been viewed as something special and been expected to behave according to higher standards than the average professional. There’s a reason we have TV series about heroic doctors, while we don’t have TV series about heroic middle managers.

The idea that all this can be reduced to money — that doctors are just “providers” selling services to health care “consumers” — is, well, sickening. And the prevalence of this kind of language is a sign that something has gone very wrong not just with this discussion, but with our society’s values." 

MP: Krugman is correct that patients are not consumers, but for a completely different reason that Krugman misses entirely: Almost 90% of health care costs are paid with "other people's money" (insurance companies, government and employers, see chart above, data here), and only about 11% is paid "out of pocket" by patients.  So patients are no longer the "consumers" of health care, and they haven't been for a long time, because the "consumer" paying almost the entire cost of medical care is a third party.  Over time, the "consumer" paying the bill for health care services has gradually become third party payers, and the trends projected in the chart above indicate that it won't get any better in the future.

But Krugman seems to be arguing that regardless of who is paying for health care, "there’s something terribly wrong with the whole notion of patients as “consumers” and health care as simply a financial transaction." Krugman's further claims that “'Consumer-based' medicine has been a bust everywhere it has been tried."

Well, what about LASIK surgery, retail health clinics, concierge medicine, medical tourism and cosmetic surgery, to name just some of the successful "consumer-based" medical services?  

When we think about soaring health care costs in the United States, isn't one of the main reasons precisely because patients have NOT been treated as consumers spending their own money?  In that case, I think Krugman has it backwards.  If the goal is to control health care costs, that will never happen until patients are treated like consumers

Markets in Everything: $6,500 High-Tech Toilet

Kohler introduces Numi, the world's most advanced, high-tech toilet with a motion-activated lid and seat, an integrated air dryer, heated seat, deodorizer, feet warmer, and built-in speakers with pre-programmed audio, touch-screen remote control, etc.  

Maybe a potential market for these $6,500 toilets will be the swelling ranks of the rich in China.  

Thursday, April 21, 2011

108 Cents on the Dollar Isn't Fair

A few adjustment in today's NY Times editorial: "77 108 Cents on the Dollar Isn't Fair":

In a disappointing defeat for women men, Senate Republicans worked overtime in December to ensure that a measure addressing gender-based wage discrimination never reached the Senate floor where it likely would have passed by a sizable majority. Fortunately, supporters of the Paycheck Fairness Act have not given up.

Last week, Senators Harry Reid, the majority leader from Nevada, and Barbara Mikulski, a Maryland Democrat, reintroduced the bill. Representative Rosa DeLauro, a Democrat of Connecticut, has reintroduced the legislation in the House.

Women Men now make up almost more than half of the American work force, but, according to data compiled by the Census Bureau,
James Chung of Reach Advisors, who has spent more than a year analyzing data from the Census Bureau's American Community Survey, single, unmarried, childless full-time female employees still make, on average, only 77 cents $1.08 for every $1 earned by men in America's largest cities.

The bill, a much-needed updating and strengthening of the nation’s half-century-old Equal Pay Act, would enhance remedies for victims of gender-based wage discrimination, shield employees from retaliation for sharing salary information with co-workers and require employers to show that wage differences are job-related rather than sex-based, and justified by business necessity.

President Obama has pledged to “keep up the fight” to pass the bill. In a recent radio address, he explained that he takes the issue personally, “as the father of two daughters a man who wants to see his girls young boys grow up in a world where there are no limits to what they can achieve.”
Women Men around the country — from both parties — need to speak up. Lawmakers might think twice about refusing to act if they knew that female male voters were taking down the names of those who would rather please corporate interests than stand up for a woman’s man's right to earn equal pay for equal work.  For young, single, unmarried childless women to be now earning $1.08 for every $1.00 earned by their male counterparts clearly demonstrates that paychecks for men and women are not equal, and that's why we need the Paycheck Fairness Act.  Simply put, 108 cents on the dollar just isn't fair.