CARPE DIEM Professor Mark J. Perry's Blog for Economics and Finance TUESDAY, AUGUST 31, 2010 Free Health Care And it's not in Canada or the U.K....it's right here in the United States. Posted 10:29 PM Post Link 13 Comments Global Economic Recovery Watch: India +8.8% Financial Times (free subscription required) -- "India’s economy grew a brisk 8.8 per cent from April to June, its fastest pace in two-and-a-half years, highlighting the strength of India’s economic recovery despite high inflation now acting as a drag on consumer spending. Growth during the first quarter of India’s April to March financial year accelerated from the 8.6 per cent last quarter, driven by robust manufacturing and services growth, and a pick-up in farm production." Posted 8:39 AM Post Link 9 Comments Case-Shiller Home Price Indexes Highest Since '08 New York, August 31, 2010 – "Data through June 2010, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, show that the U.S. National Home Price Index rose 4.4% in the second quarter of 2010, after having fallen 2.8% in the first quarter. Nationally, home prices are 3.6% above their year-earlier levels. In June, 17 of the 20 MSAs covered by S&P/Case-Shiller Home Price Indices and both monthly composites were up; and the two composites and 15 MSAs showed year-over-year gains. Housing prices have rebounded from crisis lows, but other recent housing indicators point to more ominous signals as tax incentives have ended and foreclosures continue. In June, the 10-City and 20-City Composites recorded annual returns of +5.0% and +4.2%, respectively." MP: Both the Composite-10 and Composite-20 Home Price Indexes reached their highest levels in June since December 2008. Posted 8:33 AM Post Link 34 Comments Buy Now or Wait? Check the Airfare Prediction Tool When booking air travel, the dilemma is often: should I buy now or wait later to try to get a better price? Now you've got some help. The Bing Travel Farecast provides a free airfare prediction tool that allows you to specify your travel dates and destinations, and you'll get a prediction of whether fares for your flight are rising or falling, so you can decide whether you should buy now or wait. From the Bing website: "According to a third-party audit of our predictive technology, we're about 75% accurate and on average, customers will save over $50 on a typical round-trip transaction." Here are details on Bing's predictive technology. Posted 8:10 AM Post Link 1 Comments ECON 101: The Answer to A Housing Recovery is Lower Prices, Not Incessant Government Tinkering "In order for the housing market to build a firm foundation that does not require government aid we will need to see a reduction in prices. Congress is currently discussing creative new ways to prop up this market. It should be plain as day at this juncture that the government cannot fix the housing market with their incessant fidgeting. The market needs to correct further before reaching a sustainable bottom. Lower prices will act as an automatic stabilizer by generating significant demand. At this point, more government intervention merely kicks the can down the road by pulling demand from the future. We can continue to deny the simple economics at work here, but at some point the market will prevail and prices will settle at a level that the market can absorb. In my opinion, the sooner this happens the sooner we can get on with the recovery process. Unfortunately, politicians have elections to win so they will continue to use their law degrees to attempt to change the laws of economics. It won’t work." ~The Pragmatist Capitalist writing in the Business Insider Posted 7:54 AM Post Link 4 Comments MONDAY, AUGUST 30, 2010 Global Recovery Still on Track, Despite Angst "At an annual Federal Reserve retreat, angst, not panic, was the order of the day among officials and economists chastened by a deep recession and a disappointing rebound. "We'll slog our way through this," said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, which sponsored the symposium, summing up two days of presentations, discussions, dinner-table conversation and hiking. Several foreign central bankers said they were struck by the unusual degree of pessimism they had witnessed in the U.S., a contrast to typical American optimism. "I can't wait to get back to my side of the world," said Alan Bollard, governor of the Reserve Bank of New Zealand. Growth in New Zealand, seen at around 3% this year and next, has been underpinned by strength in Australia and China." ~From today's WSJ article "Global Recovery Is Still Seen On Track, Despite the Angst" Posted 3:23 PM Post Link 1 Comments GSEs Prevented Private Secondary Market "A private secondary market for prime mortgages should have been a natural market development. Why did it never develop? The answer is obvious: no private entity could compete, or can now compete, with the government-granted advantages, and now the huge explicit subsidies, of the Government Sponsored Enterprises (GSEs). There can be no evolution of a private prime mortgage loan market while the GSEs make private competition impossible. The core issue about GSEs is this: You can be a private company, with market discipline; or you can be part of the government, with government discipline. But you can't be both." Read more of AEI's Alex Pollock's article "To Overhaul the GSEs, Divide Them into Three Parts" here. Posted 8:15 AM Post Link 32 Comments SUNDAY, AUGUST 29, 2010 Promoting Homeownership Is Not Only Un-American: It Contributed to the Housing Bubble From the Forbes.com article "The Un-American Dream": "For nearly a century it has been the policy of the U.S. government to increase American homeownership. Its efforts include (but aren't limited to) bouts of easy money from the Fed, the mortgage-interest deduction, the exclusion of capital gains on primary residence sales, direct and indirect subsidies from the Department of Housing and Urban Development, and artificial liquidity pumped into the mortgage market via government sponsored entities Fannie and Freddie. Policymakers assure us that the next generation of government housing programs will be "carefully designed" (bring on the next five-year plan, Comrade!). But the real question is why the government should be doing anything to promote homeownership. "I do believe in the American Dream," said President Bush in 2002. "Owning a home is a part of that dream, it just is. Right here in America, if you own your own home, you're realizing the American dream." Bush was echoing a theme that reaches back at least to Herbert Hoover: When the government encourages homeownership, the story goes, it strengthens individuals and communities and thereby fosters the American Dream. They're wrong. A government crusade to promote homeownership is un-American. America's distinction is that it was the first nation founded on the principle that you have a right to pursue your own happiness without government interference. But the government's homeownership crusade means it gets to decide how you should live, and stick-and-carrot you into living that way. Here's the real lesson: The American Dream is not some government-subsidized house foisted on you by George W. Bush or Barney Frank. It's the undiluted freedom to decide how you want to live--and, if you want to own a home, it's the freedom to work, save, establish credit, and earn one. In America, the government's job is to protect our freedom to pursue our values, not to dictate what our values are. Its homeownership policy should be the same as its toaster oven policy: laissez-faire. Government intervention in housing runs deep, and it can't be eliminated overnight. But the government should make its long-term goal to fully extricate itself from the housing market. It can then start gradually dismantling Fannie, Freddie, tax preferences for homeowners, and every other government housing program." MP: You can add the government's role in promoting fixed-rate 30-year mortgages, and subsidizing FHA mortgages that only require a 3.5% down payment to the list of policies that the government has used to increase homeownership. The chart above shows how the political promotion of homeownership in the U.S. may have contributed to the housing bubble. The blue line is the quarterly homeownership rate from the Census Bureau (data here) going back to 1991, which went from 64% in the early 1990s to a record high of more than 69% in 2004. During that same time period, the Federal Housing Finance Agency's (FHFA) Home Price Index (data here) doubled from 100 in 1991 to 200 in 2005, before reaching a peak of more than 222 at the height of the real estate bubble in 2007. In the aftermath of the real estate bubble's crash, the homeownership rate has fallen to a 10-year low of 66.9% (QII 2010) and the FHFA home price has fallen back to 2004 levels. Promoting homeownership is not only un-American, but it helped create an unsustainable real estate bubble, which turned the "American dream" into an "American nightmare" for millions of Americans by turning "good renters into terrible homeowners." Posted 1:53 PM Post Link 21 Comments Lessons on Trade, U.S. Manufacturing from Chile 1. WEST CHESTER, PA — "With the world captivated by the plight of 33 Chilean miners trapped in a mine more than 2,300 feet below the surface, a local manufacturer of drill rigs is involved in the rescue effort. Schramm Inc. is a major manufacturer of drill rigs and the manufacturer of the particular rig — the T685 — that reached the trapped miners a few days ago. There are 40-plus Schramm drill rigs in Chile right now, said Edward Breiner, president and CEO of Schramm, in an interview Friday." 2. MILWAUKEE, WI -- "If not for a tiny camera system developed by Aries Industries of Waukesha, the families and rescuers of 33 trapped Chilean miners might not have caught a glimpse of their loved ones. Aries manufactures pipeline inspection and rehabilitation equipment for water, wastewater, natural gas, oil and disaster recovery services. The company manufactures a camera system that has been used many times in coal mine disasters in this country and was available to Chilean rescuers." A few points: 1. Chile has achieved a great deal of economic success in the last twenty years, largely because it has pursued free market policies that include very open free trade policies. The OECD recognized Chile's economic success last December by inviting it to be the first South American country to join the club of developed countries, see CD post here. With a more protectionist approach to trade with high tariffs, Chile may not have had access to the drill rigs and camera systems manufactured in the U.S. that are now helping in the rescue of the 33 miners. 2. We hear a lot of news about the "death of American manufacturing sector," the "loss of millions of manufacturing jobs," and how this will contribute to some permanent decline in the U.S. economy. And yet the data show that manufacturing output was reaching historical all-time record highs before a sharp recession-related decline, and manufacturing output is gradually increasing and will probably be at record levels again within a few years (see CD posts here, here, and here). The manufacturers highlighted here are probably just two examples of the thousands of successful American manufacturers that are world-leaders in high-tech manufacturing equipment. HT: Colin Grabow Posted 8:33 AM Post Link 131 Comments SATURDAY, AUGUST 28, 2010 Quote of the Day on the "Two Americas" "Few Californians in the private sector have $1 million in savings, but that's effectively the retirement account they guarantee to public employees who opt to retire at age 55 and are entitled to a monthly, inflation-protected check of $3,000 for the rest of their lives." ~Arnold Schwarzenegger in yesterday's WSJ Posted 9:42 AM Post Link 12 Comments Record-High Corporate Profits in QII: The Mother's Milk of Stocks, Business Success and Job Creation The chart above shows quarterly "Corporate Profits After Tax with Inventory Valuation Adjustment and Capital Consumption Adjustment" (BEA data here) from 1990 to 2010 (inspired by Scott Grannis's recent post). The red line represents profits in nominal dollars (billions) and the blue line represents inflation-adjusted profits using the Business Sector: Implicit Price Deflator (data here). Comments: 1. Nominal corporate profits in the second quarter reached almost $1.2 trillion, which is an all-time record high, and 54.5% above the recent bottom of $774.6 billion in the fourth quarter of 2008. 2. Nominal corporate profits have now doubled in less than ten years, from $600 billion at the end of 2001 to the current level of $1.2 trillion. The S&P 500 Index is actually lower now (1047) than at the end of 2001 (1148). 3. Quarterly profits have been growing at an average annual rate of 30% over the last six quarters, which would suggest that the equity market is extremely undervalued (see Scott Grannis' comments here). 4. On an inflation-adjusted basis, real corporate profits are slightly below the $1.2 trillion record in 2006, but 53% above the QIV bottom. 5. For either measure of corporate profits, it's clear that there has been a complete V-shaped recovery from the 2007-2009 recession, and the record-high profits would be completely inconsistent with any chance of a double-dip recession. 6. Larry Kudlow has frequently reminded us that corporate profits are the "mother’s milk of stocks, business success, and job creation." In that case, the record-high profits of American companies suggests that the U.S. economy is doing better than the "economic hypochondriacs" keep telling us, and we could be poised for an economic boom for stocks, businesses and job creation. Posted 7:22 AM Post Link 43 Comments FRIDAY, AUGUST 27, 2010 Obama Is Gradually Losing Independent Voters When Obama took office in January 2009, only about 15% of independent voters disapproved of Obama according to Pollster.com's consensus of about ten different polls, but that percentage has gradually risen over the last 20 months, and now 54.5% of independent voters disapprove of the president. Over the same period, the percent of independent voters who approve of Obama has fallen from 62% to 38.7%. Posted 5:24 PM Post Link 6 Comments The Onion Uncovers a New Form of Test Bias Are Standardized Tests Biased Against Students Who Don't Give A Shit? Click on the arrow above to start video. Posted 2:58 PM Post Link 3 Comments Economic Hypochondria VIDEO: The Economy's Not Sick, Says Brian Wesbury--Everyone Just Says It Is Click on the arrow above to start video. Posted 2:27 PM Post Link 5 Comments Consumption, Investment and Trade Are All Up Here's a breakdown of the percent changes in the components of real GDP for the second quarter (from Table 1 of today's BEA report): 1. Personal consumption expenditures (PCE): 2.0% in QII, matching the growth rate of personal consumption spending in third quarter of 2009, and the highest growth rate in PCE since the 2.4% rate in the first quarter of 2007. The 2% growth in PCE follows increases over the previous three quarters of 2.0%, 0.9% and 1.9%, which marks the first period of four consecutive quarterly increases since 2007 (QI to QIV), and follows four straight quarterly decreases from QIII 2008 to QII 2009. 2. Gross Private Domestic Investment: 25.0% in QII, which was the fourth consecutive quarterly increase in investment, following double-digit increases of 29.1% in the first quarter, 26.7% in QIV 2009, and 11.8% in QIII 2009. The four consecutive quarterly increases over the last year follows eight consecutive quarterly decreases from QIII 2007 to QII 2009. The average quarterly growth in investment spending of 23.15% over the last four quarters is the highest annual average since 1987. 3. Exports: 9.1% in QII, following increases of 11.4% (Q1 2010), 24.4% (QIV 2009) and 12.2% (QIII 2009), for an average growth rate over the last year of 14.3%, which is the highest annual average since 1996. The positive increases in exports over the last four quarters follows four quarters of negative growth from QIII 2008 to QII 2009. 4. Imports: 32.4% in QII, the highest quarterly growth in imports since 1975, and the fourth consecutive quarterly increase (11.2% in Q1, and 4.9% and 21.9% in QIV and QIII 2009) following four straight quarterly decreases. The average quarterly increase of the last year of 17.6% is the highest since 1984. Bottom Line: Except for the fact that we subtract imports from exports to calculate GDP, the growth rates above in private sector activity (consumption, investments, and international trade) in the second quarter of this year, and over the last four quarters, suggest that the economy may be in better shape than indicated by the 1.6% growth in real GDP. Posted 10:15 AM Post Link 16 Comments Buying Votes in Arkansas With Our Money Intrade contract for Blanche Lincoln to win, odds now at 5.5%, down from 70% a year ago (click to enlarge): From today's Wall Street Journal: "Arkansas Senator Blanche Lincoln is down 20 points in the polls, but the Democrat is apparently going to go down swinging—with $1.5 billion of your money. She is the spending problem, in profile. Last year heavy rain damaged cotton and rice crops across the South. The 2008 farm bill, passed by a Democratic Congress, created the Supplemental Revenue Assistance Program (SURE) to aid farmers hit by such weather-related disasters. The admirable intent was to stop farm-state Senators from looting the Treasury after every early frost or the like. To qualify for SURE funds, farmers are now required to buy crop insurance (federally subsidized to the tune of about $6 billion a year) and to have lost more than 30% of their crop value. Mrs. Lincoln wants to pull an end run around this law and make Arkansas farmers eligible for retroactive taxpayer payments. The payments would be made even if the recipients didn't buy crop insurance and even if their damages were as little as 5%. Most small businesses in America suffered far more than a 5% fall in revenues during the recession, but few are getting six-figure handouts from Uncle Sam. Rice and cotton prices have recovered nicely this year in any event. Nearly 200 Arkansas farms and 100 Louisiana farms will get a check for $100,000 or more, and the 10% richest farmers will get almost two-thirds of the money. One of the few federal programs the Obama administration has said it wants to eliminate is farm subsidies to wealthy farmers -- unless, apparently, the money goes to the state of an endangered Democratic Senator." Thanks to Bob Wright. Posted 8:21 AM Post Link 8 Comments THURSDAY, AUGUST 26, 2010 Markets in Everything: Fantasy Sports Insurance Now available for the 2010 NFL season - disability insurance for fantasy players. Featured last year on CD. Posted 2:10 PM Post Link 4 Comments Weekly Intermodal Rail Volume Sets 2010 Record WASHINGTON, D.C. – Aug. 26, 2010 – "The Association of American Railroads (AAR) today reported rail intermodal volume on U.S. railroads for the week ending Aug. 21, 2010 set a new 2010 record for the second consecutive week, with 236,404 total trailers and containers (see top chart), up 22.4 percent from the same week in 2009 (see bottom chart), and up 2.6 percent compared with 2008. Weekly container volume, a subset of intermodal, was the highest on record, also for the second consecutive week, up 24.2 percent compared with the same week in 2009, and up 11.5 percent with the same week in 2008. Trailer volume, the other subset of intermodal, rose 12.4 percent last week compared with the same week in 2009, but fell 30.5 percent compared with 2008. Carload traffic continued moderate weekly gains, with U.S. railroads originating 296,634 carloads for the week (see top chart), up 6.2 percent compared with the same week in 2009 (see top chart), but down 11 percent from the same week in 2008." Bottom Line: As I reported last week, Warren Buffett's favorite economic indicator continued to show signs of improvement again in this week's report from the AAR on rail traffic. Based on the volume of raw materials, natural resources, lumber, coal, grains, chemicals, metals, motor vehicles and paper products moving around the country by rail, the economic picture continues to get a little brighter almost every week. Posted 1:57 PM Post Link 4 Comments WEDNESDAY, AUGUST 25, 2010 The Case for Optimism and 20 Charts to Prove It From today's Wall Street Journal article "The Case for Optimism" by Ross Devol, executive director of economic research at the Milken Institute: "There's a point at which pessimism becomes a self-fulfilling prophesy, scaring businesses away from investing or hiring. The dark tone of today's discourse is at risk of doing just that. The Milken Institute's new study, "From Recession to Recovery: Analyzing America's Return to Growth" is based on extensive and dispassionate econometric analysis. It concludes that the U.S. economy remains more flexible and resilient—and has more underlying momentum—than is generally acknowledged. In fact, our projections show cause for measured optimism: A return to modest but sustainable growth is close at hand. America's businesses are capable of navigating around policy uncertainty and the twists and turns of a volatile global economy. While slow private-sector job growth is to be expected in the early stages of a recovery, the U.S. should add 1.5 million jobs in 2010, 3.1 million in 2011, and 2.6 million in 2012. That will translate into real GDP growth of 3.3% in 2010, 3.7% in 2011, and 3.8% in 2012. In this pessimistic climate, this forecast will likely be considered contrarian. So why is our economic outlook more sanguine than the current consensus? For one, robust (albeit moderating) economic growth in developing countries, particularly in Asia, will provide support for U.S. exports. Look no further than Caterpillar, which reported a doubling of its earnings in the second quarter of 2010 and whose product line is sold out for the rest of the year." Read the rest of the article here. See related excellent post today from Scott Grannis: "20 Bullish Charts." Posted 6:30 PM Post Link 38 Comments More on Global Shipping Boom. What Double-Dip? 1. "Georgia's Port of Savannah reported the busiest month for container shipments in its history in July, with 251,126 20-foot equivalent units moving through the port in an accelerating shipping recovery. The 20.7 percent year-to-year increase marked the eighth straight month of double-digit growth in volume at the Georgia Ports Authority’s Savannah terminals." 2. "Container volume at the Port of Charleston increased 26 percent in July over the same month last year, giving the port its strongest month since October 2008." Posted 4:37 PM Post Link 3 Comments Truck Tonnage Index Increases for 8th Month ARLINGTON, VA — "The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 1.5% in July, although June’s reduction was revised from 1.4% to 1.6%. The latest improvement raised the SA index from 108.3 (2000=100) in June to 110 in July. Compared with July 2009, SA tonnage climbed 7.4%, which matched June’s increase and was the eighth consecutive year-over-year gain (see chart above). Year-to-date, tonnage is up 6.7% compared with the same period in 2009. ATA Chief Economist Bob Costello said that July’s data didn’t change his outlook for subdued tonnage growth in the months ahead, stating, “The economy is slowing and truck freight tonnage has essentially gone sideways since April 2010.” Nevertheless, Costello believes that tonnage will post moderate gains, on average, for the second half of the year. “After accounting for the reduction in supply over the last few years, even small gains in tonnage will have a larger impact on the industry than in past.” MP: Compared to last year, the July index this year is up by 7.4% but down by 5.3% compared to the index level of 116.2 in July 2008. However, in July 2007 before the recession officially started, the ATA's Truck Tonnage Index was just slightly higher, at 110.9, than the index reading last month. Posted 4:19 PM Post Link 2 Comments International Air Travel Shows Continuing Strength in July; Volumes are Above Pre-Recession Levels Updated Graph (back to 2007) Sydney - "The International Air Transport Association (IATA) announced international scheduled traffic statistics for July which showed continued strengthening of demand for both passenger and cargo traffic. Compared to July 2009, international passenger demand was up 9.2% while international scheduled freight traffic showed a 22.7% improvement (see chart above). These year-on-year comparisons for July were less than the June growth data showing 11.6% and 26.6% increases for passenger and cargo traffic, respectively. The apparent slowdown was entirely due to the fact that by July 2009 traffic was already starting to recover. After adjusting for seasonality, the improvement in demand was faster month-to-month in July than it was in June." Other highlights include: 1. July global passenger traffic was 3% higher than the pre-crisis levels of early 2008. 2. July global cargo demand was 4% higher than pre-crisis levels in early 2008. 3. Year-to-date global freight volume is 27.5% higher than 2009. 4. During the second half of 2009, demand was rebounding at an annualized rate of 12% for passenger and 28% for cargo. In the year to July, the annualized growth rates had dropped to 8% for passenger and 17% for air freight. However, this is still considerably above the industry’s traditional 6% growth trend. MP: International air travel (passenger and freight volumes) are both above the pre-crisis levels in early 2008, and the annualized growth rates (8% for passengers and 17% for freight) of 6%. Posted 7:27 AM Post Link 26 Comments Is War Between Generations Inevitable? What About a War Between The Sexes? From the 2001 study "Is War Between Generations Inevitable?" by economists Jagadeesh Gokhal of the Cleveland Fed and Laurence J. Kotlikoff of Boston University: "Seniors today will receive far more benefits from government transfer programs (programs that redistribute resources among groups) than their share of the national tax burden. On average: 1. A male reaching 65 years of age today can expect to receive $71,000 more in government transfer benefits (of all kinds at both the federal and state levels, but mainly from Social Security and Medicare) than he will pay in taxes (of all kinds at both the federal and state levels) before he dies. 2. A 65-year-old female can expect a net gain of more than twice that amount; she can expect $163,000 more in benefits than she will pay in taxes. A far different picture confronts people entering the labor market today. In general, they will pay far more in taxes than they will receive from transfer programs, and any expansion of elderly entitlements will make things worse. For example: 3. A 20-year-old female can expect to pay $92,000 more in taxes than she will receive in transfer benefits over her lifetime. 4. The future looks more than three times as bleak for her male cohort, who can expect to pay $312,000 more in taxes than he will ever receive in benefits." HT: Walter Williams MP: We've got quite a gender gap here! On average, 65-year old men today will receive only 43.6% of the net benefits that women receive, and young men today can expect a net tax burden over their lifetimes that will be 3.4 times greater than for women. Posted 7:13 AM Post Link 10 Comments TUESDAY, AUGUST 24, 2010 Housing: The End of the Artificial Stimulus The National Association of Realtors (NAR) reported today that existing homes sales in July of 3,830,000 units at a seasonally-adjusted annual rate was 27.2% below the sales level in June of 5,260,000 units, and 25.5% below last July, when 5,140,000 homes were sold. Here are some of the reports and reactions: 1. LA Times -- "Many buyers who rushed to beat the April 30 deadline to sign a sales contract were closing their deals in May and June, helping to propel the market. With many of those deals now apparently closed, the market is faced with standing on its own. Real estate experts said the tax credits led many buyers to speed up their plans to buy houses, boosting sales this spring, but sapping demand over the summer. A few months ago "we were getting eight or nine offers on every property, and we knew that we would have a tremendous drop-off, because it was being artificially stimulated," said Gary K. Kruger, a real estate agent with HomeStar Real Estate Services in Hemet." 2. Lawrence Yun, NAR chief economist, said “Consumers rationally jumped into the market before the deadline for the home buyer tax credit expired. Since May, after the deadline, contract signings have been notably lower and a pause period for home sales is likely to last through September,” he said. “However, given the rock-bottom mortgage interest rates and historically high housing affordability conditions, the pace of a sales recovery could pick up quickly, provided the economy consistently adds jobs." “Even with sales pausing for a few months, annual sales are expected to reach 5 million in 2010 because of healthy activity in the first half of the year. To place in perspective, annual sales averaged 4.9 million in the past 20 years, and 4.4 million over the past 30 years." 3. Nigel Gault, IHS Global Insight: All of the action earlier this year appears to have been driven by the tax credit. … The underlying path of housing sales is not as disastrous as July’s number suggests – we are now undershooting, as sales that would have happened now were pulled forward by the tax credit. But a sustained upturn will depend on an improvement in the jobs market, which at the moment is slowing down rather than gathering pace." Posted 5:01 PM Post Link 19 Comments Random Roundup 1. NY Times -- Some scholars are challenging the peer review monopoly and are instead using the Internet to "expose scholarly thinking to the swift collective judgment of a much broader interested audience." (HT: Steve Bartin) 2. If all elite private universities enacted race-blind admissions, the percentage of Asian students would jump from 24 percent to 39 percent (similar to what they already are now at Caltech and Berkeley, two elite institutions with race-blind admissions; the former due to a belief in meritocracy, the latter due to Proposition 209). 3. Top 10 NBA Player Highlight Reels On Youtube 4. Tiger Woods and World's Top 10 Highest Divorce Settlements 5. Did Bully Boss Prompt Editor's Suicide at University of Virginia? Editor Made 18 Calls to University Before Committing Suicide Posted 3:57 PM Post Link 1 Comments Leading Economic Indexes: 4 Up, 1 Down Over the last week, the Conference Board reported increases in the June Leading Economic Indexes for China, Germany and Mexico, and an increase in the July Leading Economic Index for the U.S. The Leading Economic Index for France fell in June, the first decline in more than a year. Posted 1:25 PM Post Link 3 Comments ASA Staffing Index Reaches 97-Week High The American Staffing Association (ASA) Staffing Index for temporary and contract employment activity reached a 97-week high of 95 for the week of August 9, the highest index level since a reading of 97 in the week of September 29, 2008 (see chart above, data here). Compared to the same week last year, the latest ASA Staffing Index has improved by 26.7% for Week 33 (see bottom chart above). This marks the 17th week in a row with percentage gains above 20% compared to the same month in 2009, the 26th straight week of double-digit percent increases vs. 2009, and the 32th consecutive week for the ASA Index being above the same level in the previous year (every week this year). The improvements this year follow 80 consecutive weeks of percentage declines in the weekly index that started in May 2008 and continued through the end of 2009. The ongoing improvements in the ASA Staffing Index in every single week this year compared to 2009, along with the recent 97-week high in temporary help suggest that the labor market is gradually recovering from the recession, and the increases in demand for temporary and contract employment are a leading indicator of broader-based job gains in the months to come. Posted 1:15 PM Post Link 5 Comments Putting Tomatoes on the "Bathroom Scale" A few days ago I quoted P.J. O'Rourke: "The free market is not an ideology or a creed or something we're supposed to take on faith, it's a measurement. It's a bathroom scale. I may hate what I see when I step on the bathroom scale, but I can't pass a law saying I weigh 160 pounds." Steven Landsburg has a related post about how to correctly compare the total cost (including all energy costs) to a New Yorker of a locally-grown tomato from a lavishly heated greenhouse in the Hudson Valley and a tomato transported all the way from California. "How can we possibly gather enough information to compare the opportunity costs of land, fertilizers, equipment, workers, transportation and energy costs (among many others) and reach a conclusion about which tomato imposes the fewest costs on our neighbors? Well, it turns out there’s actually a way to do that. You do it by looking at a single number that does an excellent job of reflecting all those costs. That number is known as the price of the tomato." HT: Don Boudreaux Posted 8:13 AM Post Link 18 Comments MONDAY, AUGUST 23, 2010 Shipping Boom = Rates Have Doubled Since 2009 Journal of Commerce -- "The Drewry Container Benchmark began tracking the average spot market freight rate from Hong Kong to Los Angeles in late December 2005 and hit its rock bottom at $871 per FEU (forty-foot equivalent units) from July 6 through Aug. 3, 2009. In contrast, a record high of $2,838 per FEU was recorded on Aug. 2 this year (see chart above). The Aug. 16 rate dropped $87 from the week before to $2,737 per FEU in only the second weekly rate decline since March 15. MP: Compared to shipping rates last summer and fall of about $1,200 per FEU between Hong Kong and L.A., shipping costs have more than doubled to the record high of $2,838 in earlyAugust, before falling slightly to $2,737 last week. Scott Grannis reported today that the Harpex Shipping Index (based on rates charged by container ships in the North Atlantic) has experienced a very similar increase over the last year (rates have more than doubled). Given the ongoing boom in global shipping and the related rising rates (along with improvements in other economic indicators), there's nothing to suggest a slowdown in the global economic recovery, and certainly nothing to suggest a double-dip recession, as Scott points out. Posted 4:47 PM Post Link 0 Comments Why The Current Job Market Recovery Is Stronger Than You Think; Stronger Than Last Two Recessions In its annual Labor Day outlook, global outplacement consultancy Challenger, Gray & Christmas reports that the U.S. job market is well on the road to recovery and is actually rebounding sooner and faster compared to the jobless recoveries that followed the previous two recessions (1990-1991 and 2001). Here are some highlights: 1. At this point in the previous two recoveries – following the 1990-1991 and 2001 recessions – the job market was actually getting worse. Many people are so caught up looking at the weekly and monthly numbers, that they fail to look at the bigger trends, which indicate just how much the job market has improved over the last 12 months. The statistics indicate that the job market has made great strides over the last 12 months and appears to be rebounding sooner compared to the previous two recessions. 2. Monthly job cuts have numbered fewer than 100,000 for 14 consecutive months, a streak that has not been achieved since 1999-2000. The current 12-month moving average, which stands at 52,778 as of the end of July, is already well below the lowest annual average achieved during the last period of economic expansion, when the moving average bottomed out around 64,000 (see chart above). 3. Job losses due to the recession turned to gains as of January 2010, with payrolls experiencing five consecutive months of net growth that saw more than one million new jobs added to the economy. The gains slowed in June and July as the government shed tens of thousands of temporary Census workers, resulting in overall total non-farm job losses of 352,000 over the two-month period. Despite those losses, payrolls have still seen net growth totaling 654,000 jobs so far this year, due in large part to steady job gains in the private sector. The private sector has had seven consecutive months of job gains, adding a net total of 630,000 new jobs to the economy since January 1. While the payroll gains remain weak, they are occurring much sooner when compared to the 2001 recession, when it took 21 months before the economy began to add jobs on a consistent basis. 4. While the unemployment rate remains historically high and the decline is not occurring fast enough for most, it definitely appears to be heading in the right direction. If the economy were following the same pattern as the early 1990s recession or the 2001 recession, we would be facing another three to six months of rising unemployment. 5. When you look at any of the employment statistics on a month-to-month or week-to-week basis, there are going to be ups and downs; particularly at this stage of the recovery. However, when you look at the overall trend since June 2009, everything is headed in a positive direction. 6. Hiring will accelerate in the coming months, but not before employers maximize the productivity of their existing workers by adding new technology and increasing hours. In the meantime, the job market will remain fiercely competitive as the recently unemployed square off against the long-term unemployed as well as with job seekers re-entering the labor pool after abandoning it out of frustration. Job seekers should view Labor Day as the beginning of the workplace New Year and make a resolution to abandon all passive job-search strategies for ones that are far more aggressive. Posted 4:20 PM Post Link 12 Comments Global Economic Recovery Watch: Surging Cargo Volume on Key N. America-Asia-Europe Routes Journal of Commerce -- "Container ship charter rates are still climbing through the summer as ocean carriers compete for increasingly scarce tonnage to keep pace with surging cargo volume on key routes from Asia to North America and Europe. Charter rates for ships that can carry 3,500 20-foot containers have more than tripled since the beginning of the year and are set to climb further as unexpectedly strong cargo demand is outstripping the supply of ships for hire and newly built vessels entering the market. The broadly based rally has driven up the Association's ConTex index, which covers six ship sizes from 1,100 TEUs to 4,250 TEUs, to 583 from 532 at the end of June and 275 at the beginning of March. Ocean carriers' pursuit of chartered tonnage is driven by robust cargo growth on the export trades out of Asia to Europe and North America where most ships are sailing fully loaded with boxes. Cargo volume on the Far East-U.S. trades grew 25.7 percent during the first three months of the new trans-Pacific contract season from May to July based on preliminary customs figures. Weekly capacity deployed on Far East-U.S. trades is already back to 2008 levels and is 12 percent above 2009 levels. Container ship prices also are surging as carriers and charter ship-owners place orders for new ships and step up purchases of second hand tonnage." Posted 2:15 PM Post Link 1 Comments The Most Energy Efficient Economy in History The top chart shows that the U.S. had the most energy-efficient economy in history last year (data here), based on the amount of energy consumed to produce each real dollar of Gross Domestic Product (GDP). In 2009, it required only 7,290 BTUs of energy (petroleum, natural gas and other energy) to produce each real dollar of GDP, an all-time record low, and less than half the energy required in the mid-1970s to produce a dollar of output. Just one example of many that contribute to the remarkable increases in energy efficiency over time is illustrated in the next graph showing energy consumption trends for household appliances from 1990 to 2009 (data purchased from the Association of Home Appliance Manufacturers). Since 1990, the energy consumption per unit for five of the most common household appliances has fallen so consistently over the last twenty years that today's household appliances use between 20% (air conditioner) and 73% less energy (clothes washer) than in 1990. Using a slightly different measure of energy efficiency provided by the AHAM ("energy factor") that accounts for changes over time like the average tub volume of clothes washers (27% larger today than in 1990), the next graph shows the dramatic improvements in the "energy factors" since 1980 - from between a 43% improvement in energy efficiency for the room air conditioner to more than 200% for the refrigerator. Amazingly, the EIA report also showed that total U.S. energy consumption in 2009 (94.66 quadrillion BTUs) was less than the total energy consumed 12 years ago in 1997 (94.76 quadrillion BTUs). See previous CD post here. Update: We did save some energy in 2009 because output (GDP) fell by 2.44 percent due to the recession, but energy consumption fell by about twice as much (4.81 percent) last year, which lowered energy consumption per dollar of real GDP for the 18th consecutive year to an all-time historical record low. Posted 1:22 PM Post Link 10 Comments SUNDAY, AUGUST 22, 2010 Gridlock is Great for Stock Market Returns "Since 1973, using the price of gold as a deflator (instead of the Consumer Price Index, which has suffered from style drift over the years) real, inflation-adjusted returns for the S&P 500 were a fabulous 15.3 percent gain in “gridlock” years, and a horrible 9.9 percent loss in years with unified government (see chart above). That’s a 25 percentage point difference. The reason for this difference is simple: Unified governments spend far more, and more quickly, and expand regulation much more than split governments do. Programs sail through, the dollar is jeopardized, and investors seek real assets like gold to counteract the political risks of an activist government. Based on the data, the ill effects of unified government apply to both Republican (a 7.7 percent loss) and Democrat (a loss of 11.5 percent) unified governments. The best was a split between a Republican Congress and Democratic President Clinton, which produced a whopping 32.8 percent real return. President Reagan and a split Congress did pretty well too, with a 24.8 percent real return. Both President Reagan and Clinton did their best sustained work with a constraining Congress, or, to be more accurate, those Congresses did their best work with popular Presidents. When it comes to split government and real returns, the right answer is “divided we stand, united we fall.” ~Eric Singer, one of the managers of the Congressional Effect Fund, the first mutual fund to explicitly seek to minimize investor exposure to potentially negative impact of new and proposed Congressional legislation on the broad stock market. HT: Morganovich Posted 1:05 PM Post Link 29 Comments Some Examples of the Unintended Consequences and Inefficiencies of Stimulus Spending Some recent examples of the unintended consequences and inefficiencies of the $800 billion stimulus plan. 1. Canada plans to close its side of a Saskatchewan-Montana border crossing that sees just five travelers per day — even as the U.S. side is undergoing an $8.5 million stimulus-funded upgrade. Canada’s decision to close the Big Beaver Port of Entry on April 1 underscores the criticism leveled against the U.S. government spending more than $23 million in Recovery Act funding to upgrade that and four other Montana border posts. (HT: Roger Meiners) 2. Carleton Grange Pub in the Milwaukee area is closing on September 6 because of the upcoming traffic and parking disruptions that will be caused by stimulus-funded road construction near the popular English-style pub. (HT: Matt Peer) 3. Stimulus-funded solar panels in Montana will generate "cheap electricity" at a very high cost, according to economist Roger Meiners writing in the Wall Street Journal. MP: The first problem with stimulus spending is that for the government to "stimulate" one sector of the economy with a government-subsidized project, the government has to "unstimulate" some other sectors of the economy by raising taxes, or by borrowing money that will mean higher taxes later. The second problem is illustrated by the examples above: government stimulus projects are often wasteful and inefficient and impose unintended costs on the economy. Update: Real or Fake? Posted 9:08 AM Post Link 17 Comments Intrade Odds Update: Gridlock in 2011 Current odds based on the last trade: 1. Republicans to control House: 70% 2. Democrats to control Senate: 66% Posted 7:43 AM Post Link 1 Comments SATURDAY, AUGUST 21, 2010 Interesting Tattoo Facts 1. From MSNBC, the top ten most tattooed cities in America. HT: Economix 2. According to this study, college students prefer tattooed professors. HT: Freakonomics and Marginal Revolution. Posted 9:40 PM Post Link 6 Comments Markets In Everything: Ritual Animal Sacrifices A business in Maryland caters to Muslim immigrants seeking to fulfill ritual animal sacrifices. What does PETA say? HT: Matt Bixler Posted 12:32 PM Post Link 5 Comments Markets in Everything or Not: Buy 6, Get One Free Giving away a free gallon of milk for every six purchased is illegal in Maine. Guess who complained? Find out here. Posted 10:15 AM Post Link 10 Comments Adjusted Jobless Claims Update It's been a few months since I featured this pair of charts above showing: a) jobless claims vs. the labor force, and b) jobless claims as a share of the labor force, both updated through July (BLS data here and here), and updated now with c) jobless claims as a share of civilian employment (see chart below). The top chart shows why unadjusted jobless claims are meaningless: the size of the U.S. labor force has almost doubled over the last 42 years, from 77.57 million in 1968 to the current level of more than 153 million. The bottom chart shows jobless claims adjusted for the size of the U.S. labor force. Jobless claims averaged 458,250 in July, which is 0.2984% of the July labor force of 153,560,000, and is close to a 21-month low (lowest since August 2008). Jobless claims as a percent of the labor force have declined in 14 out of the last 16 months, starting in April 2009. This measure of initial jobless claims, adjusted for the increasing size of the U.S. labor force over time, shows that jobless claims peaked during this recession above the levels of the last two recessions (1990-1991 and 2001), but were never anywhere close to the levels of the previous three recessions in the mid-1970s and early 1980s, and about the same as the 1969-1970 recession. The sharp reduction in adjusted jobless claims from the March 2009 high of 0.415% follows the same pattern of sharp reductions at the end of each of the last six recessions. Bottom Line: Adjusted jobless claims in recent months are at about the exact same levels as during the last two post-recession expansions in 1992 and 2002 (see red line in the bottom graph). See update below, featuring jobless claims as a percent of civilian employment instead of the labor force. Posted 8:38 AM Post Link 8 Comments Quote of the Day: Free Market is a Bathroom Scale "The free market is not an ideology or a creed or something we're supposed to take on faith, it's a measurement. It's a bathroom scale. I may hate what I see when I step on the bathroom scale, but I can't pass a law saying I weigh 160 pounds. Authoritarian governments think they can pass that law—a law to change the measurement of things." ~P.J. O'Rourke quoted in today's WSJ Exhibit A: The minimum wage law. A teenager with no work experience steps on a "bathroom scale" that accurately and truthfully measures the market value of unskilled labor, and the scale says "$5.00 per hour." Politicians pass minimum wage legislation to rig the "bathroom scale" of labor value to instead produce an inaccurate, false inflated reading of "$7.25 per hour." And they then seem puzzled that more than one out of every four teenagers who is looking for a job is unable to find one, but that's what happens when you "rig" the "bathroom scale." Posted 7:17 AM Post Link 23 Comments FRIDAY, AUGUST 20, 2010 Traffic Volume Reaches 21-Month High in June The Federal Highway Administration reported today that travel on all roads and streets in the U.S. increased by +1.3% in June 2010 compared to the same month last year. Total travel for the month of June was an estimated 263.9 billion vehicle miles, the highest travel volume for the month of June since 2007. On a moving 12-month total basis, the annual vehicle-distance traveled through June was 2,981 billion miles, the highest 12-month total since September 2008, 21 months ago (see chart above). Following a sharp decline in traffic volume that coincided almost perfectly with the recession that started in December 2007 and most likely ended in June 2009 (see shaded area in chart), the economic recovery that started sometime last summer has been accompanied by a gradual increase in traffic volume as both personal and commercial travel on U.S. roads and highways have rebounded. Posted 9:15 PM Post Link 4 Comments Entrepreneurs Can Make a Greater Contribution to Society Through Business Than Charity From today's WSJ editorial page "Gates and Buffett Take the Pledge" by Kimberly Dennis: "Bill Gates and Warren Buffett announced this month that 40 of America's richest people have agreed to sign a "Giving Pledge" to donate at least half of their wealth to charity. With a collective net worth said to total $230 billion, that promise translates to at least $115 billion. It's an impressive number. Yet some—including Messrs. Gates and Buffett—say it isn't enough. Perhaps it's actually too much: the wealthy may help humanity more as businessmen and women than as philanthropists. 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. Even if Mr. Gates makes progress in achieving his ambitious philanthropic objectives—eradicating disease, reducing global poverty, and improving educational quality—these accomplishments are unlikely to match what he achieved by giving us the amazing capability we literally have at our fingertips to access and spread information. The very doctors and scientists who may develop cures for diseases like malaria will rely on the tools Microsoft supplies to conduct their research. Had Mr. Gates decided to step down from his company and turn to philanthropy sooner than he did, they might have fewer such tools. Let's hope the philanthropy of those who do sign the Giving Pledge achieves great things. But let's not fool ourselves into thinking that businessmen are likely to achieve more by giving their money away than they have by making it in the first place." From the NBER paper "Schumpeterian Profits in the American Economy: Theory and Measurement" by William Norhaus: "The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. We first show the underlying equations for Schumpeterian profits and then estimate the value of these profits for the non-farm business economy. We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers. For the entire postwar period and for the nonfarm business sector, innovators are able to capture about 2.2% of the total surplus from innovation." MP: In other words, it’s very likely that the total value created for society by Bill Gates’ innovative activities, including starting Microsoft, far exceeds his own personal wealth, so he has already given back billions of dollars worth of value to society, and should feel no need to give anything more back. In fact, a stronger case could be made that consumers have exploited Bill Gates, than the opposite. If the Nordhaus analysis accurately applies to Bill Gates, almost 98% of the social returns from the value of Microsoft products have already been captured by consumers around the world, which greatly exceeds the personal fortune of Bill Gates. And the contribution to society from Bill Gates’ capitalist activities will likely far exceed the contribution to society of his charitable giving. Posted 8:41 AM Post Link 54 Comments THURSDAY, AUGUST 19, 2010 Hotel Occupancy on the Rise 1) Sacramento, 2) San Francisco, 3) South Carolina, 4) Charleston, 5) South Florida, 6) Houston, 7) Orlando, 8) Hawaii, 9)NYC and 10) Canada. Posted 11:03 PM Post Link 1 Comments 1) The Recession Saved 874 Lives in 2009; 2) Would 2,000 Female Deaths Be Worth It for Pay Equity? In June, the Bureau of Labor Statistics (BLS) released its annual study "Highlights of Women’s Earnings in 2009" and opened the report with the following statement: "In 2009, women who were full-time wage and salary workers had median weekly earnings of $657, or about 80 percent of the $819 median for their male counterparts." Today the BLS released its annual report on "Fatal Occupational Injuries in 2009" with the following highlights: 1. A preliminary total of 4,340 fatal work injuries were recorded in the United States in 2009, down from a final count of 5,214 fatal work injuries in 2008. The 2009 total represents the smallest annual preliminary total since the Census of Fatal Occupational Injuries (CFOI) program was first conducted in 1992. 2. Economic factors played a major role in the fatal work injury decrease in 2009. Total hours worked fell by 6 percent in 2009 following a 1 percent decline in 2008, and some industries that have historically accounted for a significant share of fatal work injuries, such as construction, experienced even larger declines in employment or hours worked. 3. Fatal work injuries in the private construction sector declined by 16 percent in 2009 following the decline of 19 percent in 2008. 4. Of the 4,340 occupational fatalities in 2009, male deaths represented 92.9% of the total (4,021) and female deaths represented 7.1% (309) of the total. Expressed as a ratio, there were more than 13 job-related deaths for men in 2009 for woman who died in a job-related accident. MP: 1. The economic slowdown in 2009, especially in the construction and manufacturing sectors, was largely responsible for reducing occupational deaths in 2009 by almost 900 American workers (874). 2. Given the huge disparity in occupational deaths by gender (13 men died on the job in 2009 for every 1 women), it should be clear that men and women in the labor force cannot accurately be described as "counterparts" (definition: "One that has the same functions and characteristics as another.") The huge male-female occupational death gap, which has persisted over many decades, has surprisingly received very little attention as one important factor that could explain some of the 80% female-male pay gap. To achieve greater female-male pay equity there would most likely have to be an increase in the number of women in higher-paying, but higher-risk occupations. That outcome will certainly reduce the gender pay gap, but it would come at a cost—significantly more fatal occupational deaths and injuries for women. Would closing the gender pay gap, if it also means closing the gender occupational death gap, really be worth it for women? To put it in perspective, perfect gender parity for occupational deaths in 2009 would have translated into more than 2,000 women dying on the job, instead of the actual number of women who died: 309. Would the higher risk of being injured or killed on the job really be worth the extra, high-risk pay for women? Do they really want to achieve "counterpart" status with men in occupational deaths? Probably not, but that's one of the reasons for the unadjusted, but persistent pay gap - the disproportionate number of men in higher-risk, higher-paying jobs (construction, farming, fishing, manufacturing, etc.) Posted 10:08 PM Post Link 3 Comments About Me Name: Mark J. Perry Location: Washington, D.C., United States Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C. 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