Tuesday, June 09, 2009

Richmond Fed Rebound Suggests Econ. Recovery

RICHMOND FEDERAL RESERVE -- In May, the seasonally adjusted manufacturing index—our broadest measure of manufacturing activity—jumped to 4 from April’s reading of -9 (see chart above). Among the index’s components, shipments gained twelve points to 9, new orders rose twelve points to finish at 10, and the jobs index advanced fourteen points to end at -12.

MP: Signalling the end of the 2001 recession, the economy was in full recovery when the Richmond Fed Manufacturing Index was above zero by early 2002 (see chart above). The index is now above zero for the first time in more than a year, suggesting possibly that the Richmond Fed region, if not the rest of the country, is now in recovery.

5th Monthly Increase in Used Vehicle Value Index

MANHEIM CONSULTING -- May marked the fifth consecutive monthly increase in wholesale used vehicle prices on a mix, mileage, and seasonally adjusted basis (see charts above). The Manheim Used Vehicle Value Index now stands at 109.1, which resulted in the first year-over-gain in pricing since October 2007. May's rise in wholesale pricing was a result of continued favorable supply/demand forces, an improvement in consumer confidence, and better availability of retail financing. All of these forces will continue, or strengthen, in the months ahead.

The Conference Board's consumer confidence index posted large gains in both April and May, which brought the index back to its highest level since September of last year. Not unrelated, the Manheim Index also moved back to its highest level since September of 2008 (see chart below). Consumer confidence is an important indicator of the consumer's willingness to take on a big purchase such as a used vehicle. The consumer's ability to buy has been helped by the greater availability of retail financing. In particular, many lenders have been willing to advance larger loan amounts for a given vehicle.

Fear Index Drops to a 9-Month Low

The CBOE Volatility Index fell to almost a nine-month low today of 28.27, the lowest closing value since September 12, 2008.

Krugman: Economy is Stabilizing

June 8 (Bloomberg) -- The U.S. economy probably will emerge from the recession by September, Nobel Prize-winning economist Paul Krugman said.

“I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer,” he said in a lecture today at the London School of Economics. “Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilizing.”

HT: The Gartman Letter

Monday, June 08, 2009

Marketplace Commentary: End Buy American Rules

"Buy American" provisions might make sense politically, because they create huge political payoffs for elected officials who protect jobs in domestic industries. But, economically, "Buy American" rules, like all forms of trade protectionism, make no sense at all because they will ultimately destroy more American jobs than they save. If we want the U.S. and world economies to recover from the recession as quickly as possible, we should end the "Buy American" rules.

Check it out here.

Interactive Map: GM's Global Footprint

Great interactive map here from the Detroit News (HT to Dallas Walton) showing GM's plants and manufacturing employees, production and sales, as well as suppliers and retirees, in the United States and around the world.

Some interesting data from the map:

1. In Michigan there are 193,301 GM retirees and 46,467 active manufacturing workers, which is a ratio of more than 4 retirees per active worker. For Ohio, the ratio is more than 6 retirees per active worker, and in Indiana there are 8.6 retirees per active worker! Assuming that all of the retirees are receiving full pension benefits and lifetime health care coverage, it's pretty clear that GM's legacy costs are HUGE, and explain why the hourly cost per active worker in 2008 were $69 in full labor costs (including legacy costs).

As someone said recently, "GM has become a health care benefits management firm that sells cars for a loss as a side venture."

2. To put the decline in the number of GM manufacturing workers in perspective, consider that there are currently about 80,000 GM manufacturing workers in the entire U.S. In the 1970s, GM employed almost 85,000 workers in just one U.S. city: Flint, Michigan, "Vehicle City."

Government Motors: Quotes of the Day

The government that runs Amtrak (which has lost $23 billion, in today's dollars, just since 1990) vows to make GM efficient. But one reason Amtrak runs on red ink is that legislators treat it as their toy train set, preventing it from cutting egregiously unprofitable routes.

George Will

The Edsel was one of the biggest flops in the history of car making. Introduced with great fanfare by Ford in 1958, it had terrible sales and was junked after only three years. But if Congress had been running Ford, the Edsel would still be on the market.

Steve Chapman

Sunday, June 07, 2009

Education Pays: More Money, Less Unemployment

BLS Link.

More on the Great Mancession of 2008-2009

The chart above (click to enlarge) shows May unemployment rates by industry from the current BLS employment report (Table A-11), and employment by gender in selected industries. The chart helps explain the Great Mancession of 2008-2009 and the historically unprecedented male (10.5%) - female (8%) jobless rate gap of 2.5%.

Two of the hardest hit sectors in the current recession are construction (19.2% unemployment rate) and manufacturing (12.6% unemployment rate), both far above the 9.1% average jobless rate (from Table A-11), and those sectors are predominantly male industries: 97.5% of construction jobs in 2008 were held by males, and males held 70% of the manufacturing jobs (data here).

On the other hand, the growing education (74%) and health services (75%) sectors are predominantly female, and the government sector is 57% female; and those two industries have jobless rates far below average. The unemployment rate for education and health services workers (4.9%) is about half the average rate of 9.1%, and government workers enjoy a jobless rate (3.1%) that is about 1/3 of the average rate.

Saturday, June 06, 2009

Jobless Claims as Percent of Labor Force Falls for 2nd Month in a Row, First Time Since Early 2006

Using May employment data, the graph above shows Initial Jobless Claims as a Percent of the Labor Force (2005-2009) to reflect the May laborforce of 155,081,000, and the May average for initial unemployment claims (628,450 for the 4-week moving weekly average). That measure of the labor market conditions has now declined for two consecutive months for the first time in more than three years, since early 2006 (see shaded areas in chart above).

See related Scott Grannis post "The Job Storms Has Passed."

Larry Kudlow: The "Economic Man-Cession"

From last night's "The Kudlow Report" show on CNBC.

Retail Clinics Expand: Almost Everybody is Happy

LA TIMES -- Amid the economic downturn and slow growth for retail and outpatient medical care services, pharmacy giants Walgreen and CVS are rolling out new specialized services at their in-store clinics, going beyond treatment of routine maladies. Launched over the last four years to care for such simple ailments as ear and sinus infections, strep throat or pinkeye, retail clinic operators now are training nurses to do specialized injections for such chronic conditions as osteoporosis and asthma.

Retail clinics not only market themselves as a convenience, they also can be less expensive, providing a competitive threat to primary-care doctors and even specialists. Costs for services for those paying out of pocket at retail clinics generally run $55 to $75 compared with $100 or more for a visit to a primary-care physician.

Typically staffed by advanced-degree nurses known as practitioners, most of the nation's more than 1,100 retail health clinics are open seven days a week, with no appointment needed. The model has been greeted by health insurers, employers and consumer groups as one way to address the rising number of uninsured Americans, estimated at more than 46 million.

MP: There's only one group who is apparently not so happy about the expansion of retail clinics and the services they offer. Can you guess who? (Hint: Check the 8th paragraph of the story.)

Wal-Mart Exports Big-Box Concept to India, Russia

WALL STREET JOURNAL -- Wal-Mart Stores rolled out its deep-discount retailing formula in India, targeted at a more than $350 billion a year retail industry made up almost entirely of small merchants. Under Indian rules governing foreign retailers, Wal-Mart and its joint venture partner, Bharti Enterprises Ltd., can't sell directly to consumers but instead will operate a cash-and-carry business under the name Best Price Modern Wholesale, selling 10,000 products to licensed store owners, schools, hospitals, hotels and other institutions.

Will Russia be next?

Everyday Job Creator, Including 1,500 in Michigan

BENTONVILLE, Ark., June 4, 2009Walmart U.S. announced today that it will create more than 22,000 jobs in 2009 to staff new or expanded stores in the United States. The company is hiring for a number of positions including store management, pharmacists, human resource managers, customer service associates, cashiers and sales associates among others.

The company will create more than 1,000 jobs in several individual states. For example, the company will create approximately 1,300 jobs in Arizona; 1,000 jobs in California; 1,300 jobs in Florida; 1,500 jobs in Michigan; 1,200 jobs in New Jersey; 1,000 jobs in South Carolina; 1,200 jobs in Utah and 1,100 in Virginia.

“We are excited that during these economically challenging times Walmart is investing in Michigan by creating good paying jobs and offering benefits to their employees,” said Richard Studley, president and chief executive officer of the Michigan Chamber of Commerce. “The positive impact that these jobs will have on the families of the new employees and their communities cannot be overstated.”

Friday, June 05, 2009

Leaky Bucket Fiscal Policy

Wal-Mart and Chicago's South Side Food Desert

1. CHICAGO TRIBUNE -- Various surveys have shown the dearth of supermarkets in Chicago's poor neighborhoods and how the attendant health problems ripple through the state and city. But you don't need a survey to know there's a problem. Wander around parts of the South or West Sides. Look. People shop for meals in liquor stores and fast-food joints, in little shops where fresh means moldy tomatoes and tired meat.

Adults there are far likelier to have diabetes and hypertension. Children are likelier to be obese. People are job-starved too. Supermarkets would bring more than food.

2. CHICAGO TRIBUNE -- The effort to bring more grocery stores to low-income areas--so-called "food deserts"--would receive a shot in the arm from legislation passed this week by the Illinois General Assembly. The $3.1 billion public spending bill passed Monday includes $10 million for the Illinois Fresh Food Fund, money that would go to urban and rural neighborhoods with reduced access to healthier foods because they're underserved by supermarkets.

3. CHICAGO TRIBUNE -- Mayor Richard Daley contends there is no chance the latest effort to have a Wal-Mart built on Chicago’s South Side will succeed. Daley said Thursday that even though the store would generate tax revenue and create jobs for neighborhood residents, there aren’t enough votes in the City Council to pass the required redevelopment agreement.

Alderman Howard Brookins has tried for years to locate a Wal-Mart store in an industrial site being redeveloped into a shopping center. Currently, Wal-Mart operates a store on Chicago’s West Side. Opposition to Wal-Mart has come from labor unions, who claim the retailer does not pay workers adequately and skimps on benefits. Daley’s floor leader in the City Council, Alderman Pat O’Connor, says Brookins’ latest effort comes at a time the city is trying to keep peace with the unions.

MP: So Wal-Mart wants to build a store on the south side of Chicago in a "food desert," probably including a food supermarket with healthy foods in an area underserved by supermarkets, which would create hundreds of jobs, and I'm guessing that Wal-Mart is willing to do this without any government subsidies from the Illinois Fresh Food Fund, and its efforts are blocked by the unions. But how many supermarkets and jobs are unions providing on the south side of Chicago in the "food desert"? I'm guessing none.

Thanks to CD reader Steven Bridges for the links.

The Great Man-Cession of 2008-2009 Continues

The BLS data released today show that the 2.5% difference between the male unemployment rate (10.5%) and female unemployment (8%) in May is the highest male-female jobless rate gap in the history of BLS data back to 1948 (see chart above of the monthly unemployment rates since 2002; and the chart below of the DIFFERENCE between male and female jobless rates since 1948). Further, the 2.5% gap matches the largest gap in either direction; there was a 2.5% female-male jobless rate gap for several months in the mid-1960s and again in the mid-1970s (see chart below, the female jobless rate exceeds the male rate for observations below the red zero line).

The chart above showing the monthly male-female jobless rate gap back to January 1948, also displays the last 11 U.S. recessions (shaded areas) and suggests the following:

1. The current male-female jobless rate gap of 2.5% is truly unprecedented; there has never been such a huge gap between the unemployment rate for men and women in any previous recession, or any previous expansion.

2. In the last three U.S. recessions (1981-1982, 1990-1991 and 2001), the male jobless rate exceeded the female rate by about 1%, but nothing close to even approaching the current 2.5% male-female jobless rate gap.

3. In the other past recessions, there either wasn't much of a male-female jobless rate gap at all, or a jobless rate gap in favor of men, like during the two recessions of the 1970s when female unemployment rate exceeded male unemployment by about 2%. However, that 2% gap in favor of men was actually fairly typical during much of the period between the mid-1960s and late 1970s, recession or not.

Bottom Line: We are experiencing an unprecedented male recession during the current economic downturn, and the "Great Man-Cession" of 2008-2009 continues to worsen.

VW's Car Factory of the Future

HT: Gerry Knesek

Thursday, June 04, 2009

It's Tough For Some Single Guys in the Man-Cession: Chicks Don't Dig Unemployed Men

NEW YORKSean Hamilton considered stopping his search for that special someone when he lost his job in January. With 90 percent less income and no unemployment coming in, the 34-year-old IT professional couldn't really pay for a dinner date. And how would he explain his financial situation without coming across as a slacker?

"To speak plainly, chicks don't dig a broke guy," said the Dallas resident, now a part-time consultant. So he came up with a strategy: "I don't bring it up."

What Would Milton Friedman Say?


Humorous Quote of the Day

I blame feminism and Facebook for the death of the American automobile.

~P.J. O'Rourke on NPR

NY Fed Treasury Spread Model Suggests Economic Recovery Has Started, Recession Will End This Year

According to the New York Fed, "Research beginning in the late 1980s documents the empirical regularity that the slope of the yield curve is a reliable predictor of future real economic activity."

New York Fed just released its latest "Probability of U.S. Recession Predicted by Treasury Spread," with data through May 2009, and the Fed's recession probability forecast through May 2010 (see chart above, click to enlarge). The NY Fed's model uses the spread between 10-year and 3-month Treasury rates (currently at 3.11%) to calculate the probability of a recession in the United States twelve months ahead (see chart below of the Treasury spread, click to enlarge).

The Fed's data show that the recession probability peaked during the October 2007 to April 2008 period at around 35-40%, and has been declining since then in almost every month (see top chart above). For May 2009, the recession probability is only 1.54% and by May 2010 the recession probability is only .17%, the lowest level since June 2005.

Further, the Treasury spread has been above 2% for the last 15 months, a pattern consistent with the economic recoveries following the last six recessions (see chart above). The pattern of the recession probability index so far this year (going below double-digits and declining monthly) is very similar to the pattern starting in March 2002 that signalled the end of the 2001 recession (see chart below).

Bottom Line: Looking forward to next year, there is almost no chance that the recession will continue into 2010. Further, my reading of the New York Fed's Treasury spread model suggests that an economic recovery is probably already underway, and the Fed's model predicts the end of the recession in 2009.

Wednesday, June 03, 2009

US Financial Conditions Are Best In Almost 1 Year

The Bloomberg U.S. Financial Conditions Index "combines yield spreads and indices from the Money Markets, Equity Markets, and Bond Markets into a normalized index. The values of this index are z-scores, which represent the number of standard deviations that current financial conditions lie above or below the average of the 1992-June 2008 period."

MP: The chart above displays the Bloomberg U.S. Financial Conditions Index daily from May 1, 2008 through today (June 3, 2009), and shows that the index is approaching the same levels as June 2008. Based on this measure, financial conditions in the U.S. were at their worst and bottomed in October 2008, and have been improving steadily for the last 7 months. We're now getting back the same financial conditions that prevailed a year ago.

Emerging Markets: GM's Only Bright Spots Lately. They May Play An Important Role in GM's Future

NY TIMES -- As G.M. painfully restructures in the United States and Canada, and spins off its European business, the company’s operations in emerging markets like China, India and Brazil have survived, so far, virtually unscathed.

Unlike G.M.’s United States business, these operations have been growing. Sales increased 10% last year in Brazil, 9% in India and 6% in China. Recent numbers in some areas are even better — G.M.’s sales in the Asia Pacific region were up 44% in May compared with the year before.

Cheap labor in these markets helps to bolster profit margins, while millions of people who do not yet own a car make sales growth easy. Karl Slym, president and managing director of G.M. India, said he expected to add 50 dealers in India this year, stretching into the rural market.

Emerging markets have been the only bright spots at G.M. for some time. The North American and European businesses have racked up enormous losses — $14.1 billion from North America’s continuing operations before taxes in 2008. In Europe, G.M. lost $2.8 billion before taxes in 2008, but G.M.’s Latin American, African and Middle Eastern operations earned $1.3 billion before taxes in 2008, down slightly from the year before.

MP: Let's just hope that our "Buy American" policies don't backfire. GM's future profitability, like many other American companies, might rely pretty heavily on overseas markets to survive. Without the profitabilty of emerging markets (about $2.5 billion) over the last two years, GM would probably be in even worse shape today.

See related CD post above on "Buy American."

HT: Sanil Kori

NY Times: "Buy American" Is a Terrible Idea

It’s not surprising that Democrats in Congress could not resist adding a “Buy American” provision to the fiscal stimulus bill earlier this year. It might seem sensible (or at least politically useful) to ensure that taxpayer dollars would be used exclusively to support American jobs.

But as states and municipalities start spending stimulus money, the idea is starting to look as counterproductive as it should have looked from the beginning. It is sparking conflict with American allies and, rather than supporting employment at home, the “Buy American” effort could ultimately cost American jobs.

“Buy American” is a terrible idea. One that could make the global recession worse.

NY Times editorial

MP: Amen.

Price Discrimination: Fish, Eyeglasses, Airfares

In an NBER working paper "
A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market" two Brandeis University economists studied fish-purchasing patterns over 22 weeks and found that white customers usually pay five cents, and sometimes up to 10 cents, more than their Asian counterparts when buying a pound of whiting at the Fulton Fish Market in New York City.

Whenever a buyer approaches a fish stand, a fish dealer’s expert eye scans “his type” and evaluates his price elasticity. As a rule of thumb, Asian customers mean tougher haggling and lower prices; their white counterparts are a quicker sell, yielding higher profits for the vendor.

A firm engaged in price discrimination faces two practical problems. The first is the problem of distinguishing customers who will buy the good at a high price from those who will not.

One solution is said to be used by optometrists. When the customer asks how much a new pair of glasses will cost, the optometrist replies, "Forty dollars." If the customer does not flinch, the doctor adds "for the lenses." If the customer still does not flinch, he adds, "each."

~David Friedman's Price Theory textbook

Round trip airfares, Detroit to Jacksonville, Northwest Airlines:

Wed. July 22 to Wed. July 29, Saturday night stayover: $229

Wed. July 22 to Thurs. July 23, overnight: $469

Tuesday, June 02, 2009

Baltic Dry Index Advances 24 Straight Days in a Row, Rises Today By 11.5%, A 425 Point Gain

From last Wednesday:

BLOOMBERG -- The Baltic Dry Index, a measure of shipping costs for commodities, surpassed 3,000 points for the first time since October, buoyed by Chinese demand for iron ore. The index tracking transport costs on international trade routes rose 222 points, or 7.6%, to 3,164 points, according to the Baltic Exchange today. The measure posted an 18th straight gain, its longest advance in two years.

Such is demand that shippers “are almost pleading” to hire vessels, Stuart Rae, co-managing director of M2M Management Ltd., a hedge fund group that trades freight derivatives and operates carriers, said by phone today. The rally “is being driven by iron ore, by congestion in China, and by a lack” of ships available for hire in the Atlantic.

MP: Less than a week later, the Baltic Dry Index rose above 4,000 today for the first time since September 2008 (see chart above), and it has now posted its 24th consecutive daily gain. Today's 425 point gain represents a 11.5% one-day increase.

Historically High Housing Affordability, Low Mortgage Rates Boost Pending Real Estate Sales

WASHINGTON (MarketWatch) -- Pending sales of existing homes rose for the third month in a row in April, boosted by record-low mortgage rates and special incentives for first-time buyers, a real estate trade group reported Tuesday. The pending home sales index for April rose 6.7% after a 3.2% increase in March, the National Association of Realtors said. The index, based on sales contracts on existing homes, was 3.2% above April 2008.

With mortgage rates hovering near all-time lows, housing affordability has improved, said Lawrence Yun, chief economist for the NAR. Yun expects existing-home sales to rise about 17% by the end of the year to a seasonally adjusted annual rate of 5.48 million.

separate report on housing affordability recently released by the National Association of Realtors indicates that housing affordability remains at near-record levels (see chart above). In April, the Housing Affordability Index (HAI) increased to 174.8, up almost three full points from 171.9 in March, largely because of historically low mortgage rates of 4.96% (April average) and stable home prices and income levels. Except for the 176.9 index reading in January, April's affordability measure of 174.8 was at an all-time, historic record high.

An HAI of 174.8 would mean that the typical household earning the median family annual income of $60,927 in April would have 174.8% of the standard qualifying income level of $38,848 required to purchase a median-priced existing single-family house ($169,800) with a 20% down payment, financing the remaining 80% of the sales price with a 30-year fixed rate mortgage at the April average of 4.96% (monthly payment of $726 for principal and interest).

YTD Double-Digit Returns for Emerging Markets

The chart above shows the year-to-date returns for the emerging markets with double-digit stock market growth, from MSCI.

Women Now Dominate Higher Education at Every Degree Level; The Female-Male Degree Gap Grows

It's college graduation season, and according to data available from the U.S. Department of Education, an estimated 3,092,800 degrees will be granted this academic year (2008-2009) for Associate's degrees (714,000), Bachelor's degrees (1,585,000), Master's degrees (647,000), Professional degrees for MD, DDS and JD (91,000) and Doctor's degrees for Ph.D and Ed.D (55,800).

Of the more than 3 million college degrees for the Class of 2009, women will earn close to 60% of those degrees (1,849,200), or almost 149 degrees for every 100 degrees earned by men.

And it's now official: Women dominate men at every level of higher education, in terms of degrees conferred. Here's the breakdown for graduates of the class of 2009:

Associate's Degrees: 167 for women for every 100 for men.

Bachelor's Degrees: 142 for women for every 100 for men.

Master's Degrees: 159 for women for every 100 for men.

Professional Degrees: 104 for women for every 100 for men.

Doctoral Degrees: 107 for women for every 100 for men.

In fact, the last time men had more degrees than women at any level was the Class of 2006, which had slightly more men than women for both Professional and Doctoral degrees. For the other levels, it hasn't been even close for decades. The last year that men earned more Master's degrees than women was 1984-1985, for Bachelor's degrees it was the Class of 1981, and for Associates degrees it was 1976-1977 when men earned more degrees than women.

For all levels of higher education, women have earned more college degrees than men in every year since the Class of 1982, and the degree gap has widened in every year since then, and is expected to widen in the future through the 2016-2017 year (see chart above).

Capitalism in Russia vs. Marxism in US

Monday, June 01, 2009

Emerging Markets Close at 8-Mo. High; Global Recession's Over; Everybody's Talking Green Shoots

The MSCI Emerging Markets Index closed today above 800 for the first time since late September 2008, reaching an 8-month high of 802.21.

According to Bloomberg:

Emerging-market stocks climbed the most in four weeks after China’s manufacturing expanded for a third month, boosting commodities prices and spurring speculation the global economy is recovering.

“We see green shoots; everybody is talking about them,” Hans Goetti, who oversees about $10 billion as chief investment officer at LGT Bank in Liechtenstein (Singapore), said in an interview on Bloomberg Television.

The MSCI Emerging Markets Index rose 3.8% to 802.21, the most since May 4. The gauge surged 61% since Feb. 27, the steepest advance since its inception in December 1987, on speculation the worst of the global recession is over. The increase outpaced a 32% rally in MSCI’s developed-market stock measure.

Real Disposable Income Grows at Above-Average Rate for 4th Straight Month, 1st Time Since 2007

Real disposable income increased by 3.7% in April from the same month last year, according to a report today from the BEA (data here, see Table 10). This marks the fourth consecutive month of above average growth in real disposable income, and is the first period of above-average growth over a four month period since 2007 (see chart above).

Sunday, May 31, 2009

Bull Market Rally in World Stocks; Largest 3 Month Gain in History of MSCI World Stock Market Index

The MSCI World Stock Market Index increased by 8.62% in May, following gains of 10.91% and 7.24% in April and March (see chart above). Over the last three months, the cumulative compounded gain of 29% in the World Stock Market Index is the largest gain over a 3-month period in the history of the index back to 1970 (full dataset here).

Detroit vs. Pittsburgh: Hockey and Economics

NY TIMES (Jan. 7, 2009) -- This is what life in one American city looks like after an industrial collapse: Unemployment is far below the national average (see chart above, data through April 2009). While housing prices sank nearly everywhere in the last year, they rose here. Wages are also up. Foreclosures are comparatively uncommon.

A generation ago, the steel industry that built Pittsburgh and still dominated its economy entered its death throes. In the early 1980s, the city was being talked about the way Detroit is now. Its very survival was in question. Deindustrialization in Pittsburgh was a protracted and painful experience. Yet it set the stage for an economy that is the envy of many recession-plagued communities, particularly those where the automobile industry is struggling for its life.

“If people are looking for hope, it’s here,” said Sabina Deitrick, an urban studies expert at the University of Pittsburgh. “You can have a decent economy over a long period of restructuring.”

Yet the semisweet spot that Pittsburgh finds itself in was never inevitable. As recently as 2000, it had a higher unemployment rate than Detroit or Cleveland (see chart above). Just as Michigan has traditionally put all its chips on the auto industry, it took Pittsburgh a long time to come to terms with the end of the steel era.

MP: As Detroit faces Pittsburgh for the Stanley Cup, it reminded me of a previous CD post and NY Times article contrasting the two cities in terms of economic development.

There has been a lot of hysteria about the significantly negative impact of a GM bankruptcy on the Michigan and national economies, almost as if Detroit and Michigan could never fully recover from their long dependence on the auto industry. Pittsburgh's comeback from the decline of the domestic steel industry shows that Detroit and Michigan could survive even the unlikely demise of GM, and illustrates that there could be non-automotive life and jobs in Detroit and Michigan even without GM and Chrysler.

As the chart above shows, Pittsburgh had a jobless rate above Detroit's as recently as 2000, and now has an unemployment rate of 6.9% (seasonally adjusted), almost 6.5 percentage points below Detroit's 13.3%, and more than 1.5% below the national average of 8.5% in April.

Saturday, May 30, 2009

CA Real Estate Market Recovery: Sales Boom, Marketing Time Falls, and Unsold Inventory Drops

LOS ANGELES (May 28)Home sales increased 49.2% in April in California compared with the same period a year ago, while the median price of an existing home declined 36.5%, the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) reported today.“With annualized sales at 540,360 units, April marked the eighth consecutive month of home sales above the 500,000 level,” said C.A.R. President James Liptak.

Closed escrow sales of existing, single-family detached homes in California totaled 540,360 in April at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR associations statewide. Statewide home resale activity increased 49.2% from the revised 362,170 sales pace recorded in April 2008 (see chart above). Sales in April 2009 increased 3.2% compared with the previous month.

The median price of an existing, single-family detached home in California during April 2009 was $256,700, a 36.5% decrease from the revised $404,470 median for April 2008, C.A.R. reported. The April 2009 median price rose 1.4% compared with March’s $253,040 median price.

C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in April 2009 was 4.6 months, compared with 9.8 months (revised) for the same period a year ago (see chart below). The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate. The median number of days it took to sell a single-family home was 48.7 days in April 2009, compared with 51.8 days for the same period a year ago.

MP: In March, the California median home price showed the first monthly increase since August 2007, and has now increased for two months in a row with the monthly increase in April. Falling prices compared to last year are stimulating unit sales, homes are selling faster than last year, unsold inventory of homes is decreasing as the market clears excess supply. Markets are working for California real estate.

Florida Home Sales Increase for 8th Straight Month

ORLANDO, Fla. – May 27, 2009Florida’s existing home sales rose in April – the eighth consecutive month that sales activity increased in the year-to-year comparison, according to the latest housing data released by the Florida Association of Realtors (FAR). April’s statewide sales showed gains over the previous month’s sales level in both the existing home and existing condominium markets.

Existing home sales rose 18% last month with a total of 13,111 homes sold statewide compared to 11,133 homes sold in April 2008, according to FAR. April’s statewide existing home sales were slightly higher than statewide activity in March. Florida’s median sales price for existing homes last month was $138,500; a year ago, it was $199,500 for a 31% decrease (see chart above).

Friday, May 29, 2009

Restaurant Activity Index Increases For 4th Straight Month; Reaches Highest Level Since May 2008

(Washington, D.C.) -- The outlook for the restaurant industry grew more optimistic in April, as the National Restaurant Association’s comprehensive index of restaurant activity registered its fourth consecutive monthly gain. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 98.6 in April, up 0.8% from March, its highest level in 11 months (see top chart above).

“The recent growth in the RPI was driven by the Expectations component, which rose above 100 in April for the first time in 18 months, a level which indicates expansion,” said Hudson Riehle, senior vice president of Research and Information Services for the Association (see chart above). “Although the RPI’s Current Situation indicators are still in a period of contraction, the solid improvement in the forward-looking indicators suggests that the end of the industry’s downturn may be in sight.”

Thursday, May 28, 2009

Cartoon of the Day

HT: Mitch Parr

The New C Word

A cartel is an organization of producers that agree to coordinate prices and production.

Organization of the Petroleum Exporting Countries (OPEC) is a cartel of twelve countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. The cartel has maintained its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its Member Countries.

REUTERS -- An OPEC statement formally confirming the decision said the organization "reiterated their firm commitment" to their quotas — organization members under quotes are still producing more than 800,000 barrels a day above the group's overall target level of just under 25 million barrels.

MP: So let me get this straight. OPEC is not a cartel (watch the video above), but the members have just met to engage in collusion to restrict output, and they are all now firmly committed to the production quotas they
agreed to maintain?!

Unionized Companies Punished in Bond Market

NEW YORK (Reuters) - Scores of companies are being punished in the bond market as the Obama administration's policies on General Motors and Chrysler LLC create new risks for creditors, a veteran bond strategist says.

As GM teeters toward a bankruptcy filing and Chrysler attempts to restructure in bankruptcy court, the Obama administration is offering most of the recovery value of those companies to "a favored political class, in this case the United Auto Workers, leaving creditors with very slender debt recoveries," Christopher Garman, founder of Garman Research in Orinda, California, said in a report released late on Friday.

To gauge whether those cases have made debtholders wary of other companies with so-called favored political classes, Garman compared spreads, or bonds' extra yields over U.S. Treasury yields, for companies with collective bargaining agreements with the high-yield bond market as a whole. While the two performed in line with each other since 2003, they diverged sharply in February, with spreads on companies with organized labor gapping nearly 11 percentage points higher than the market as a whole, according to Garman's research. The gap in spreads has persisted and was about 9 percentage points as of mid-May, Garman said. The gap appeared shortly after strategists reported signs that bondholder negotiations with GM were unraveling.

Apart from automakers, sectors heavily influenced by collective bargaining agreements include supermarkets, construction, wired telecommunications, delivery and healthcare, Garman found. Gaming, select media and publishing companies and paper and textile companies also made his list. For years in the past, "bondholders were more than happy to hold on to the debt of these companies," Garman said in an interview. "That's come to a pretty sharp end over the past six months."

Garman's findings echo warnings from other bondholders that unionized companies will have trouble attracting cash in the bond market if the bankruptcies of GM and Chrysler give creditors substantially smaller payouts than they traditionally received.

HT: Mike LaFaive

Wednesday, May 27, 2009

Baltic Dry Index Advances 20 Days in a Row

The Baltic Dry Index came close to reaching an 8-month high today, closing above 3,000 for the first time since early October, and hitting the highest level since September 30. The shipping index has advanced for each of the last 20 sessions, and the 222 point increase today was the largest one-day increase since early July 2008.


FT.COM --Rising demand for raw materials in China has led to a sharp recovery in the Baltic Dry Index, the benchmark for freight costs for dry bulk commodities such as iron ore, coal and grains.

The Baltic Dry jumped 7.6 per cent to 3,164 points on Wednesday, pushing through the 3,000-points mark for the first time since October as shipping congestion outside China’s ports reached record levels with 80 Capesized vessels awaiting unloading.

Remember The Good Old Days?


Controversy at Univ. of Chicago: "Men in Power"

April Unemployment Rates
Male: 10%
Female: 7.6%

Note: The 2.4% male-female jobless rate gap in April is at an all-time historical high.

Job Losses During the Recession:
Male: 79% of total
Female: 21% of total

Bachelor's Degrees
Female: 57.4%
Male: 42.6%

Master's Degrees
Female: 60%
Male: 40%

Note: Women earn 135 bachelor's degrees for every 100 degrees earned by men, and by 2016 that ratio is projected to be 150:100. Women earn 150 master's degrees for every 100 degrees for men, and that ratio is expected to be 170:100 within seven years.

University of Chicago
Approved Women's Groups on campus: 11
Approved Men's Groups on campus: 0 (1 pending)

CHICAGO TRIBUNE -- A group of University of Chicago students think it's time the campus focused more on its men. A third-year student from Lake Bluff has formed Men in Power, a student organization that promises to help men get ahead professionally. But the group's emergence has been controversial, with some critics charging that its premise is misogynistic. Others say it's about time men are championed, noting that recent job losses hit men harder and that women earn far more bachelor's and master's degrees than do men (see data above).

Empire State Survey Suggests Recession is Ending

NY Fed Empire State Manufacturing Survey -- The future general business conditions index rose 11 points in May to 43.8, its highest level since November 2007 (see chart above). This index has shown a cumulative increase of more than 40 points over the past two months. The future new orders and shipments indexes have followed a similar path. The future prices paid index remained modestly above zero, while the future prices received index remained just below zero. The future employment indexes were both positive. The future index for number of employees rose for a third month, to 0.7, and the future average workweek index dipped to 4.6. The capital expenditures and technology spending indexes were little changed from last month, both holding just below zero.

MP: The last time there was a two-month increase of more than 40 points was November 2001, at the tail end of the 2001 recession.

Tuesday, May 26, 2009

Exhibit B: Tax The Rich, Lose The Rich

Maryland couldn't balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were "willing and able to pay their fair share." The Baltimore Sun predicted the rich would "grin and bear it."

One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.

~Wall Street Journal (HT: Lee Coppock)

See Exhibit A here.

Read about The Laffer Curve here.

Evolution of Cell Phones: 1983-2009

Above is the 1983 model, see the rest here.

Monday, May 25, 2009

WIRED: New Digital Socialism and Dot-Communism

I recognize that the word socialism is bound to make many readers twitch. It carries tremendous cultural baggage. I use socialism because technically it is the best word to indicate a range of technologies that rely for their power on social interactions. Broadly, collective action is what Web sites and Net-connected apps generate when they harness input from the global audience. Of course, there's rhetorical danger in lumping so many types of organization under such an inflammatory heading. But there are no unsoiled terms available, so we might as well redeem this one.

When masses of people who own the means of production work toward a common goal and share their products in common, when they contribute labor without wages and enjoy the fruits free of charge, it's not unreasonable to call that socialism.

In the late '90s, activist, provocateur, and aging hippy John Barlow began calling this drift, somewhat tongue in cheek, "dot-communism." He defined it as a "workforce composed entirely of free agents," a decentralized gift or barter economy where there is no property and where technological architecture defines the political space. He was right on the virtual money. But there is one way in which socialism is the wrong word for what is happening: It is not an ideology. It demands no rigid creed. Rather, it is a spectrum of attitudes, techniques, and tools that promote collaboration, sharing, aggregation, coordination, ad hocracy, and a host of other newly enabled types of social cooperation. It is a design frontier and a particularly fertile space for innovation.

Over the past century, every day, someone asked: What can't markets do? We took a long list of problems that seemed to require rational planning or paternal government and instead applied marketplace logic. In most cases, the market solution worked significantly better. Much of the prosperity in recent decades was gained by unleashing market forces on social problems.

Now we're trying the same trick with collaborative social technology, applying digital socialism to a growing list of wishes—and occasionally to problems that the free market couldn't solve—to see if it works. So far, the results have been startling. At nearly every turn, the power of sharing, cooperation, collaboration, openness, free pricing, and transparency has proven to be more practical than we capitalists thought possible. Each time we try it, we find that the power of the new socialism is bigger than we imagined.

We underestimate the power of our tools to reshape our minds. Did we really believe we could collaboratively build and inhabit virtual worlds all day, every day, and not have it affect our perspective? The force of online socialism is growing. Its dynamic is spreading beyond electrons—perhaps into elections.

~From "
The New Socialism: Global Collectivist Society Is Coming Online" in the current issue of Wired Magazine, by Kevin Kelly

NoVA Home Sales Increase for 13th Straight Month

The Northern Virginia Association of Realtors reports that:

The number of Greater Northern Virginia region homes sold in April was 2,904, a 5.75% increase from April 2008’s total of 2,746 sales. This marks the thirteenth consecutive month of increased year-over-year sales totals for Greater Northern Virginia. The average sales price of $331,600 in April 2009 continues to lag behind the 2008 average by 18.6%. The April 2008 average sales price was $407,500 (see chart above).

Across Greater Northern Virginia, the number of listings showed a decrease from 2008 numbers, with 15,683 listings active, which is 33.2% less than this time last year, when 23,471 homes were available. The average number of days on the market (DOM) for a home sold in April 2009 was 89 compared with last year’s 112 DOM, a decrease of 20.5%.

MP: Although the average sales price in April ($331,600) was down from a year ago by 18.6%, it was up from the average price in March ($317,158) by 4.55%, which was above February's average price of $305,000. The $303,000 average price in January 2009 appears to mark the bottom of the market for Northern Virginia, followed by 3 months of increasing average prices. Now with both unit sales increasing (13 consecutive months) and average home prices increasing (three consecutive months), along with reduced marketing time by 23 days, we can probably conclude that the real estate market in Northern Virginia reached a bottom in January 2009 and is now coming back.

For some perspective, consider that in April of 2006, the average sales price was $507,585, or 53% above the April 2009 average price.

Green Shoots Are Starting to Break Through

But in Michigan??? Read about it here.

Markets in Everything: Tata's $8,000 Condos

BUSINESS WEEK -- Tata, the Indian company that made worldwide headlines with its $2,000 Nano car, now plans to build 1,000 tiny apartments outside Mumbai that will sell for $7,800 to $13,400 each. The company plans to roll out low-cost projects outside other major cities.

Tata’s housing division is targeting a segment of the market that was largely overlooked during the housing boom. India’s builders were concentrating on building shiny new high rises and mansions on golf courses. Builders were after profits, but they were also trying to justify their fast-accelerating land costs, especially in and around Mumbai (formerly known as Bombay) and other major cities.

But some business consultants (most prominently, C.K. Prahalad) were arguing that companies would profit handsomely if they target the “bottom of the pyramid” where the bulk of consumers are. It looks like Tata is taking that advice.

Sunday, May 24, 2009

Cartoons of the Day: CAFE Standards

Will The Economic Crisis Change What Material Is Covered in a Freshman Economics Course?

Not really, Greg Mankiw explains.

ECRI: Green Shoots Will Blossom This Summer

NEW YORK (Reuters) - A measure of U.S. futuree conomic growth inched higher in the latest week, while its yearly growth rate continued to climb toward positive territory. The Economic Cycle Research Institute, a New York-based independent forecasting group, said its Weekly Leading Index (WLI) edged up to a 29-week high of 111.1 for the week ending May 15 from 111.0 the prior week. The index's annualized growth rate reached a 35-week high of minus 11.5 percent from last week's rate of minus 13.6 percent. It was the highest yearly growth reading since the week ended September 12, when it stood at minus 11.4 percent (see chart above, click to enlarge).

"With WLI growth rising steadily to a 35-week high, it is increasingly obvious that the 'green shoots' will blossom this summer," said Lakshman Achuthan, managing director at ECRI.

Graph HT:
Steven Hansen

Saturday, May 23, 2009

Real Estate Market is Booming in Phoenix: What A National Housing Recovery Could Look Like

LA TIMES -- More Phoenix homes are selling than at any time since 2006. Prices are slowly stabilizing. Buyers find themselves in bidding wars over low-end properties. It's what a national housing recovery could look like.

Mike Orr, a Phoenix real estate analyst, thinks the market already has hit bottom. Among the signs: As recently as January, a year's worth of homes sat on the market; in March, that dropped to seven months' worth of inventory."It's a dramatic change in just three months," he said. "I never imagined it'd get this crazy this quickly."

In a throwback to the boom, real estate agents and investors are swapping stories of brutal competition for bottom-end homes. Orr called on one property to find it had already received 14 bids. Realtor David Thomas recalled getting a client in a $60,000 foreclosed home in the suburb of Avondale, on a street lined with vacant properties. He recently returned to find almost all the for-sale signs gone.

-- The low end of the Phoenix real estate market — and in some equally hard-hit places like inland California and coastal Florida — is becoming as wild as anything during the boom.

One real estate agent was showing a foreclosed house to a prospective client when a passer-by saw the open door, came in and snapped up the property. Another agent says she was having the lock changed on a bank-owned home when a man happened by, found out from the locksmith that it was available, and immediately bought it. Bidding wars are routine.

Who Could Possibly Object to Expansion of Low-Cost, Convenient Retail Health Clinics in Texas?

Texas has only about 85 of the 1,200 retail health clinics in the nation. San Antonio does not have a single one. The clinics are popular wherever they exist because nurse practitioners can treat common ailments and minor injuries with little waiting time and fees that average about $60, much less than emergency rooms. The clinics operate evenings and weekends and accept insurance plans. The clinics would represent real health care reform, especially in Texas. Most of the state, 179 counties out of 254, is classified as medically underserved. Among them are 45 metropolitan counties.

MP: Who do you suppose could possibly object to, and successfully block, the expansion of affordable, convenient retail health clinics in Texas, including in the medically underserved areas? Find out here, I am sure you can probably guess.

Buying Brand New $23,000 Cars For Commuters in Phoenix is Cheaper Than Light Rail for $1.4B

The other day, Phoenix trumpeted that its daily light rail ridership had reached 37,000 boardings per weekday. Since most of those people have two boardings per day (one each direction) we can think of this as 18,500 people making a round trip each day.

Well, if we bought each of these folks a brand new Prius III for $23,000 it would cost us just over $425 million. This is WAY less than the $1.4 billion we pay to move them by rail instead. We could have bought every regular rider a Prius and still have a billion dollars left over! And, having a Prius, they would be able to commute and get good gas mileage anywhere they wanted to go in Phoenix, rather than just a maximum of 20 miles on just one line.

~Coyote Blog

Friday, May 22, 2009

Unintended Consequences: CAFE Standards Will Cause More Pollution and Increase Highway Deaths

An economic phenomenon called "price elasticity of demand" is well established when it comes to automobile purchases. In other words, if you raise the price of new cars, people will buy fewer of them or, at a minimum, put off the purchase for a year or so while they drive the old clunker for a few thousand more miles. And fewer new cars means more pollution, which can cause significant health problems. Yet environmentalists and the press have ignored this issue, so as not to inject a note of complexity or doubt into the chorus of glee that greeted the president's attack on greenhouse-gas emissions.

The Obama fuel efficiency plan may also contribute to a significant increase in highway deaths as vehicles are required to quickly meet the new CAFE standard and will likely become lighter in weight as a result. According to a study completed in 2001 by the National Research Council (NRC), the last major increase in CAFE standards, mandated by the Energy Policy and Conservation Act of 1975, required about a 50% increase in fuel economy (to 27.5 mpg by model year 1985 from an average of 18 mpg in 1978). The NRC study concluded that the subsequent downsizing and down-weighting of vehicles, "while resulting in significant fuel savings, also resulted in a safety penalty." Specifically, the NRC estimated that in 1993 there were between 1,300 and 2,600 motor vehicle crash deaths that would not have occurred if cars were as heavy as they were in 1976.

The president now proposes a fuel economy increase of similar magnitude in an even quicker time frame -- to 39 mpg by model year 2016 from 27.5 mpg now. Given the time it takes for new technologies to be developed, tested and incorporated into new car models, it is likely that down-weighting of cars will be an important means of meeting the new standard. And one result again could be highway deaths that might otherwise not have occurred.

~Robert Grady in today's WSJ