Tuesday, June 07, 2011

Job Layoffs in April Fall to Record Low

According to today's BLS report on Job Openings and Labor Turnover, job layoffs and discharges fell to 1.5 million in April, the lowest level since the BLS started tracking "involuntary separations" in 2001 (see chart above).  This is a positive sign that the labor market is gradually stabilizing as job layoffs are becoming much less frequent, and are in fact now way below the pre-recession average of almost 2 million when the jobless rate averaged 5.5 percent.  Read more here at The Enterprise Blog.

Update: The chart below displays monthly layoffs as a percent of total civilian employment to adjust for the number of jobs, and the pattern is the same as the unadjusted number of layoffs in the graph above.  By either measure, layoffs are at the lowest level since the BLS started tracking "involuntary separations" in 2001. 


Federal Tax Revenues Rising: +28.5% for Individuals


Treasury's Monthly Budget Review was released today, and the chart above shows that individual income tax collections through the first eight months of the fiscal year 2011 (October 2010 to May 2011)  increased by 28.5% and $156 billion, compared to last year.  Corporate income tax receipts increased by 4.8% and overall tax revenues increased by 10.3%.  For the month of May, federal tax receipts increased by $28 billion and 19% compared to last year, and about half of that increase was due to higher income and payroll taxes withheld, due at least partly to an increase in total wages and salaries this year.   

Now if the federal government could just get the spending part under control.... 

How U.S. Companies Like Apple Prosper and Create U.S. Jobs Even if Assembly Takes Place Overseas

In the Journal of International Commerce and Economics' current issue, there's an excellent article titled "Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod" (full paper here). Here's the paper's abstract:

"Globalization skeptics argue that the benefits of globalization, such as lower consumer prices, are outweighed by job losses, lower earnings for U.S. workers, and a potential loss of technology to foreign rivals. To shed light on the jobs issue, we analyze the iPod, which is manufactured offshore using mostly foreign-made components.  In terms of headcount, we estimate that, in 2006, the iPod supported nearly twice as many jobs offshore (27,250, see chart above) as in the United States (13,920). Yet the total wages paid in the United States ($746 million, see chart above) amounted to more than twice as much as those paid overseas ($318 million). Driving this result is the fact that Apple keeps most of its research and development (R&D) and corporate support functions in the United States, providing thousands of high-paid professional and engineering jobs that can be attributed to the success of the iPod. This case provides evidence that innovation by a U.S. company at the head of a global value chain can benefit both the company and U.S. workers."

From the paper's conclusion:

"When innovative products are designed and marketed by U.S. companies, they can create valuable jobs for American workers even if the products are manufactured offshore. Apple’s tremendous success with the iPod and other innovative products in recent years has driven growth in U.S. employment, even though these products are made offshore. These jobs pay well and employ people with college degrees. They are at the high end of what might be considered middle class jobs and appear to be less at risk of vanishing from the United States than production jobs."

MP: Part of the current and future strength of America’s manufacturing sector could be explained by the global shift in manufacturing that has leveraged the relative cost advantages of shifting low-end production and assembly to low-wage countries like China, while advanced economies and companies in the U.S. like Apple have increasingly specialized in the research, design and marketing of products like the iPod.  China’s focus on labor-intensive, low-skill, and low-value-added assembly of manufactured goods has allowed America to become even more competitive in the higher-end, higher-skilled manufacturing design and engineering in areas like electronics, aerospace, pharmaceuticals and medicine, industrial machinery, medical and scientific equipment and supplies, computers, software and semi-conductors, and oil and natural-gas equipment.  

The case study of Apple's iPod illustrates the reality that U.S. manufacturing in the 21st century will be increasingly focused on the high-tech, high valued-added, high-skilled, research-intensive, high-paying aspects of manufacturing, with the production and assembly taking place elsewhere. U.S. manufacturing is alive and well, it's just strategically shifted higher up the value chain.  

Update: Based on 2010 sales revenue, America's computer industry (including Apple, HP, Microsoft, etc.) is the second largest U.S. manufacturing sector, behind "Petroleum and Coal Products," and is almost four times larger than the ninth-ranked motor vehicle industry and more than twice as large as "aerospace and defense."  Keep in mind that most of America's computer companies didn't even exist until the 1970s or 1980s, and that high-tech manufacturing industry is now much larger than the traditional sectors of manufacturing like machinery, motor vehicles and electrical equipment.  

Monday, June 06, 2011

Monster Index Shows Escalation of Recruitment Activity Overall, Public-Sector Job Demand Lags

The Monster Employment Index for the U.S. was released today, and showed a positive annual gain of 7% in May, marking the 16th straight month of a year-over-year gain for online job demand. Other highlights include:

1. 14 of the 20 industries monitored by the Index showed positive annual growth trends, with the strongest gains in mining/oil and gas extraction (+62%, the "drill, drill, drill" effect), utilities (+35%), wholesale trade (+17%), and retail trade (+15%).  The weakest industry was public administration, which had a -18% decline in online job demand.  

2. 27 of the 28 metro markets recorded positive annual online job demand growth in May. Detroit (+38%) had the highest gain in May, followed by Cleveland, Minneapolis and Cincinnati (+27% for all three) and Chicago (+24%).  Washington, D.C. (-2%) continued to be the only market to decline on an annual basis, driven by weakness in public sector hiring.

Jesse Harriott, senior vice president and chief knowledge officer at Monster Worldwide commented “There has been considerable escalation in recruitment activity during 2011 with online job demand reaching the highest reading for the month of May in the index since 2008. We are currently seeing growth in private sector recruitment, with demand for professionals in healthcare, social services and business-related occupations rising; however government-related recruitment continues to lag.”

MP: The ongoing improvements in online job demand, especially for the private sector in 27 out of 28 metro markets, is consistent with my recent reports on private sector job gains (see here and here).  And the decline in advertised openings for public administration positions, and the overall weakness for job demand in the DC metro area is consistent with the job losses in the public sector documented in the two posts above. 

Markets in Everything: Moving Box Rental

Jugglebox provides eco-friendly reusable plastic moving boxes for residential, commercial and college moving needs throughout Manhattan and Brooklyn.  The two-week rental charges range from $99 to rent 25 large boxes and packing materials to move a studio apartment, up to $239 to rent 75 large boxes for a 3 bedroom apartment, including box delivery and pick-up (price list here).

HT: Maureen Farrell

Postponing the Economic Rapture?

A new commentary from Brian Wesbury and First Trust Advisors titled "Economic Rapture?"

"While the economy could be doing better, real GDP has expanded for seven straight quarters – we’re now in the eighth. Corporate profits are at a record; the S&P 500 is up 100% from the bottom; consumer spending is $450 billion above its pre-panic 2008 peak, and private sector payrolls have expanded for 15 straight months.

We are not in the majority, nor are we ignoring our economic problems. We just believe the economy did not come to an end back in 2008 and we do not believe recent growth has been created artificially. But a large, loud and sincere group is still convinced the economy is broken and fragile. They see the recent slowdown in economic growth – real GDP growth looks to be growing at only a 1.5% annual rate in Q2 – as another sign that it really has been the end of the economic world. Gloom and doom are back on the table.

Never mind that much of the slowdown is so obviously tied to temporary Japan-related disruptions in manufacturing and tornado-related dips in home building. That doesn’t matter if you really believe the end is near. But, when we move through these temporary problems, when auto production overcomes the parts-related slowdown and spikes back up at about a 100% annual rate in Q3, real GDP will sharply accelerate again.
 

At that point, we suppose that those predicting the end of the economy will postpone their forecast once again."

NY Fed Model: 1-in-167 Chance of 2012 Double-Dip

The New York Federal Reserve recently updated its "Probability of U.S. Recession Predicted by Treasury Spread" with treasury yield data through May 2011, and the Fed's recession probability forecast through May 2012. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (3.17% in December) and 3-month Treasury bills (0.04%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here).

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 37-42% (see chart above), and has been declining since then in almost every monthAccording to the NY Fed, the odds of a double-dip recession in May 2012 are 0.60%, or about 1 in 167.

Beyond Gas: Oil is "Lifeblood" of U.S. Economy

Less than 46% of each barrel of crude oil gets processed into "finished motor gasoline" according to the EIA. So what gets produced from the other 54% of each barrel of crude oil?  

You can find the details here, but the list includes aviation and jet fuel, kerosene, lubricants, waxes, asphalt, dyes, athletic shoes, crayons, car tires, cosmetics, and plastics that are used in appliances, toys, flooring, computers, desks, carpeting, automobiles and medical equipment (syringes, artificial joints, prosthesis, catheters, hearing aids, artificial corneas, etc.).  

As ExxonMobil's Ken Cohen concludes, "When some politicians, celebrities and even other companies talk about getting “off oil,” [MP: Or raising taxes on "Big Oil"] I hope they realize what that would really mean for our way of life – because it might make them think twice."

The Current Economic Recovery in Perspective



The charts above show how the current economic expansion compares to the last two expansions (following the 1990-1991 and 2001 recessions) in terms of: a) employment (nonfarm payroll) recovery (top chart), and b) output (real GDP) recovery (bottom chart), from the Minneapolis Federal Reserve website (updated through May for employment).  Note that:

1. For employment (top chart), the job gains during the current expansion (red line) are actually quite a bit better 23 months into the expansion than in the comparable period following the 2001 recession (green line), and a bit worse than the job gains following the 1990-1991 recession (yellow line). 

2. The recovery in real output (bottom chart) seven quarters into the current recovery (red line) is about exactly the same as the output recovery following the last two recessions.

 With the interactive charts at the Minneapolis Fed website, you can add more post-recession periods and see the big difference between the much faster and stronger recoveries in the 1950-1980 period than the sluggish recoveries ("jobless recoveries") following the last three recessions (see chart below).   But for the post-1990 period, the current economic recovery seems pretty average, at least in terms of gains in employment and output at 23 months (7 quarters) since the end of the recession. 


Sunday, June 05, 2011

How About a Cease-Fire in the War on Drugs?

Mary Anastasia O'Grady write in Monday's WSJ about how an increasing number of world leaders are concluding that laws against drug consumption do more harm than good (see related CD post here about the Global Commission on Drug Policy Report):

"Almost 100 years after drug prohibition was ushered in, school children report that they can easily access narcotics and surveys indicate they are used across social classes. A May 23 story in the Economist reported that Canada now trumps Mexico as an entryway into the U.S. for the drug "ecstasy." American jails are taking in record numbers of young minorities and converting them into hardened criminals; gang violence is on the rise; organized crime is undermining U.S. geopolitical interests in places like Mexico, Central America and Afghanistan. Thousands of innocents, including children, have been killed in the mayhem. 

Having produced nothing but hardship for the most vulnerable, disrespect for the rule of law, terror in formerly peaceful cities and profit opportunities for gangsters, drug warriors now want to militarize the southern U.S. border."

In her article, Ms. O'Grady quotes Claremont Institute scholar Angelo Codevilla:

"Even if our southern border were completely closed off it would do nothing to change the fact that mind-altering drugs have become morally and politically acceptable to mainstream American society.  America's assumption that restricting supply can somehow make it safe for us to tolerate widespread drug use has itself proved to be a habit-forming narcotic that has reduced our sensitivity to moral rot." 

HT: Pete Friedlander

Americans Losing Jobs from FTAs Are Overpaid

Steven Landsburg does some fine editing of this NY Times article on the pending FTAs with Colombia, Panama and S. Korea:

"The Obama administration said that it would not seek Congressional approval of free trade agreements (FTAs) with Colombia, Panama and South Korea until Republicans agree to expand assistance for American workers who might lose jobs as a result extort additional money from American consumers and taxpayers who might stop being overcharged as a result." 


"Anybody who loses his job because of a free trade agreement was overpaid to begin with. The $20-an-hour American who loses his job to a $5-an-hour Colombian is an American who has spent the past few years charging his countrymen twenty dollars for something they ought to have been able to buy for five."

The Global War on Drugs Has Failed With Devastating Consequences Around the World

From the introduction of the Global Commission on Drug Policy Report:

"The global war on drugs has failed, with devastating consequences for individuals and societies around the world. Fifty years after the initiation of the UN Single Convention on Narcotic Drugs, and 40 years after President Nixon launched the US government’s war on drugs, fundamental reforms in national and global drug control policies are urgently needed.

Vast expenditures on criminalization and repressive measures directed at producers, traffickers and consumers of illegal drugs have clearly failed to effectively curtail supply or consumption. Apparent victories in eliminating one source or trafficking organization are negated almost instantly by the emergence of other sources and traffickers. Repressive efforts directed at consumers impede public health measures to reduce HIV/AIDS, overdose fatalities and other harmful consequences of drug use. Government expenditures on futile supply reduction strategies and incarceration displace more cost-effective and evidence-based investments in demand and harm reduction.

Our principles and recommendations can be summarized as follows:

1. End the criminalization, marginalization and stigmatization of people who use drugs but who do no harm to others.

2. Encourage experimentation by governments with models of legal regulation of drugs to undermine the power of organized crime and safeguard the health and security of their citizens.

3. Offer health and treatment services to those in need.

4. Abolish abusive practices carried out in the name of treatment – such as forced detention, forced labor, and physical or psychological abuse – that contravene human rights standards and norms or that remove the right to self-determination.

5. Invest in activities that can both prevent young people from taking drugs in the first place and also prevent those who do use drugs from developing more serious problems. Eschew simplistic ‘just say no’ messages and ‘zero tolerance’ policies in favor of educational efforts grounded in credible information and prevention programs that focus on social skills and peer influences.

6. Begin the transformation of the global drug prohibition regime. Replace drug policies and strategies driven by ideology and political convenience with fiscally responsible policies and strategies grounded in science, health, security and human rights.

Break the taboo on debate and reform. The time for action is now."

HT: Alex Tabarrok, who points out that the members of the commission are so stellar that it will be difficult to ignore this report, e.g. George Shultz, the former presidents of Mexico, Brazil, Switzerland, and Colombia,  Paul Volcker, Richard Branson, Kofi Annan, Nobel Laureate Mario Vargas Llosa, and the current prime minister of Greece.

Check Your Science IQ

Take this 12-item quiz, a mix of contemporary knowledge and text-book style questions, to find out.

Saturday, June 04, 2011

We're in Era of "Peak Renewables," To Be Followed By An Age of Fossil Fuels That Has Just Begun

Scott Grannis points to this excellent Salon article "Everything You've Heard About Fossil Fuels May Be Wrong" about natural gas and fracking, here are some excerpts:

"According to the conventional wisdom, the U.S. and other industrial nations must undertake a rapid and expensive transition from fossil fuels to renewable energy for three reasons: The imminent depletion of fossil fuels, national security and the danger of global warming. What if the conventional wisdom about the energy future of America and the world has been completely wrong?

The U.S., Canada and Mexico, it turns out, are sitting on oceans of recoverable natural gas. Shale gas is combined with recoverable oil in the Bakken "play" along the U.S.-Canadian border and the Eagle Ford play in Texas. The shale gas reserves of China turn out to be enormous, too. Other countries with now-accessible natural gas reserves, according to the U.S. government, include Australia, South Africa, Argentina, Chile, France, Poland and India.

Because shale gas reserves are so widespread, the potential for blackmail by Middle Eastern producers and Russia will diminish over time. Unless opponents of fracking shut down gas production in Europe, a European Union with its own natural gas reserves will be far less subject to blackmail by Russia. The U.S. may become a major exporter of natural gas to China -- at least until China borrows the technology to extract its own vast gas reserves. 

Two arguments for switching to renewable energy -- the depletion of fossil fuels and national security -- are no longer plausible.

The arguments for converting the U.S. economy to wind, solar and biomass energy have collapsed. The date of depletion of fossil fuels has been pushed back into the future by centuries -- or millennia. The abundance and geographic diversity of fossil fuels made possible by technology in time will reduce the dependence of the U.S. on particular foreign energy exporters, eliminating the national security argument for renewable energy.

Conclusion: Eventually civilization may well run out of natural gas and other fossil fuels that are recoverable at a reasonable cost, and may be forced to switch permanently to other sources of energy. These are more likely to be nuclear fission or nuclear fusion than solar or wind power, which will be as weak, diffuse and intermittent a thousand years from now as they are today. But that is a problem for the inhabitants of the world of 2500 or 3000 A.D.

In the meantime, it appears that the prophets of an age of renewable energy following Peak Oil got things backwards. We may be living in the era of Peak Renewables, which will be followed by a very long Age of Fossil Fuels that has only just begun."

MP: The chart above shows that natural gas has become so abundant in the U.S. because of technological advances in drilling that prices for commercial users today (adjusted for inflation) are lower than at any time since November of 2002. 

To understand how horizontal drilling and hydraulic fracturing work and have revolutionized natural gas production, check out this video (thanks to Pete Friedlander). 

Milton Friedman: Why Drugs Should Be Legalized



In the video above, economist Milton Friedman explains why the government's "War on Drugs" is immoral and costly, and how it contributes to 10,000 unnecessary homicides per year, helped create the market for "crack cocaine," protects the "Drug Cartel" and will destroy our free society.

Minneapolis Licensing Gestapo Fines a Local Tree Trimmer $275 for Volunteering After a Tornado

A tornado with 100 mile winds tore through one of the poorest neighborhoods in Minneapolis on May 22, and many large trees were down on houses, cars, streets and yards (see photo above from this video).  The damage was so serious that Sen. Al Franken toured the devastated area with Minneapolis Mayor R.T. Rybak. 

A licensed tree trimmer about 20 miles away in Hastings, MN saw the devastation on the news, had a day off, and so he headed to the affected area in North Minneapolis with his chain saws, wood chipper and bucket truck to help out.  With some other volunteers, The Good Samaritan went to work removing trees without pay for poor residents of North Minneapolis who didn't have insurance.  

So far, so good.  Seems like the kind of "feel good" story that would have a very happy ending and make the local news.  Well that's unless Gestapo-like city inspectors and Minneapolis police officers get involved, and it becomes a nightmare with a very unpleasant ending.  The story did make the news, but it was because the Good Samaritan was not only shut down and prevented from helping out, but he (and at least 17 others) got a $275 fine from the city for cutting down trees without a Minneapolis license, read about it here and here.

HT: Coyote Blog

The Bullish Case for the U.S. Economy: Our Ability to Be Productive and Innovative in a Tough World

From today's WSJ interview with Robert Doll, Wall Street's perma-optimist and chief equity strategist for BlackRock, "The Bullish Case for the U.S. Economy":

"As intriguing in this moment of U.S. pessimism is the 56-year-old uber-investor's long-term bullishness on American companies and U.S. competitiveness. "You could say we're the best house in a bad neighborhood," says the man who has spent 28 years managing money. "We have fewer problems and more solutions than Europe or Japan." 

"Over the next 20 years, the U.S. work force is going to grow by 11%, Europe's going to fall by five, and Japan's going to fall by 17. This alone tells me the U.S. has a huge advantage over Europe and a bigger one over Japan for growth," he says. "And the reason for this is pretty simple. We have higher immigration than both of these, and we make more babies. We have a higher fertility rate. And they are the long-term determinants of population growth and therefore work force growth." 

But can we really win merely by staying ahead of Europe and Japan? So far the answer seems to be yes. People are invariably shocked when Mr. Doll tells them that in 1995 the U.S. produced roughly 25% of the world's goods and services and in 2010, after 15 years that included a tech bust, a terrorist attack and a housing bust that triggered a financial crisis, the U.S. was still producing that same 25% of global GDP (see chart above).

How is this possible given the rapid rise of China and India? Mr. Doll says the increase in emerging markets' share of the world economy has come "at the expense of mostly Japan and a bit Europe. The U.S. has held its own, which I think is a statement of our ability to be productive in a tough world."

But even with all our problems, he says, "I think the entrepreneurial spirit is alive and well in the U.S." He argues that we are still the source of technological innovation and home to the greatest universities and the most creative businesses. He sees promising advances in health care and alternative energy technologies. By alternative he doesn't necessarily mean "green" energy, but simply new power sources given that he expects oil prices to keep rising."

MP: The chart above of world GDP shares (data here) from 1969 to 2010 confirms Mr. Doll's claim about America's amazingly stable share of world output, which has remained at about 26% for more than forty years.  As I've indicated on the chart, the U.S. share of world GDP in 2010 (26.3%) was exactly the same as in 1975 (26.3%). It's also interesting to note that: a) the shares of world GDP in 2010 were almost exactly the same for the U.S. (26.3%), the EU-15 (26.4%) and Asia/Oceania (26.6%) and b) the shares of world GDP for Latin America and the Middle East + Africa have remained relatively stable since 1969.  

The biggest change over time has been the gradual decline in the EU-15's share of world GDP from almost 36% in 1969 to less than 27% by 2010, while Asia/Oceania's share has increased from less than 15% in 1969 to almost 27% in 2010. The fact that America's share of world GDP has remained constant over time is a testament to how America's dynamism, resiliency, and culture of innovation and entrepreneurship have enabled us to be "productive in a tough world."  In contrast, the EU-15's declining share of the world economy demonstrates the failure of anti-growth, European-style socialism with high taxes and excessive regulations that creates a culture of dependency and entitlement.        

Friday, June 03, 2011

Test Your Economic Literacy

Take the 13-question Minneapolis Federal Reserve economic literacy test here.  The national results from 1998 show that for 9 of the 13 questions, fewer than half of respondents selected the correct answer.

Private Sector Jobs Have Increased by 2 Million Since 2010, and Are Growing at 132,000 per Month

The chart above shows monthly private-sector jobs since January 2005 calculated by the BLS from two different methods: a) the household survey, which is larger and includes self-employed workers, and b) the establishment survey, based on company payroll records.  Over time they move very closely, although monthly variations are common - for May the household survey showed a gain of 373,000 private-sector jobs, compared to a gain of only 83,000 private payroll jobs.  But since the cyclical bottom in December 2009, both surveys are showing gains of more than 2.1 million private-sector jobs, which is a healthy increase of 132,000 private-sector jobs per month on average.  In the first five months of 2011 through May, private sector job growth has accelerated to an average of 200,000 new jobs per month, according to the household survey.  

For some related commentary, see Scott Grannis' post today "The Employment Situation Continues to Improve," with this conclusion: "The economy may have hit a mild soft patch, but it is not sinking and is likely to continue to grow. Optimists will once again be rewarded for their patience."  Scott also comments on the positive effects of the decline in public sector jobs:

"We are now seeing evidence that a significant shrinkage in the bloated public sector workforce doesn't necessarily lead to a painful result for the economy as a whole. In fact, cutting back government spending can free up resources that can be put to better use by the private sector, making the economy stronger over time. This is a trend that is now firmly in place, and that's very good news."

Additionally, Brian Wesbury comments today that: "Yes, May data shows a “soft patch,” but the economy is still expanding and should accelerate in the months ahead."

Household Survey: Private Sector Gains 373,000 Jobs in May, Public Sector Loses 417,000 Jobs

The chart above shows monthly employment levels for private-sector workers vs. full-time government workers, based on data from the BLS household survey (private sector employment is calculated by subtracting government employment from total nonagricultural employment). From the peak in late 2008, government payrolls have decreased by more than 1.2 million through May, while the number of private sector workers has increased by more than 2.5 million since the low in late 2009.  

The fact that private sector jobs are continuing to increase while public sector jobs are declining could be considered a positive side-effect of the 2007-2009 recession, i.e. the recession-related 5.6% contraction of the public sector employment.  In May alone, there was a decrease of 417,000 government jobs, following losses of 132,000 in April and 75,000 in March, totaling 549,000 for the last three months, and that's really the main source of labor market weakness - it's mostly in the public sector, not the private sector. 

Based on the household measure of private sector employment, there was a 373,000 job increase in May, following a 11,000 decrease in April and 370,000 increase in March.  In comparison, private payroll jobs increased by only 83,000 in May, following increases of 251,000 in April and 219,000 in March.   

Year-to-date, one million jobs have added in the private industries according to the household survey, slightly higher than the 908,000 jobs added according to private payroll data.  Either way, the household survey and payroll data are showing monthly private job gains of around 200,000 so far this year, suggesting that the labor market, especially for private sector employment, might have some underlying strength that is not showing up in today's Employment Situation report.

Thursday, June 02, 2011

Drill, Drill, Drill = Jobs, Jobs, Jobs in North Dakota; Both Oil Production and Jobs Reach Record Highs

More than 11 million barrels of oil were produced in North Dakota during the month of March, setting a new monthly production record, and topping the previous monthly record high from last November by almost half-a-million barrels.  Oil production in North Dakota has doubled in just the last two years, and tripled since 2007 (see chart above, data here).  

A recent computer model using geological data from the state of North Dakota estimates that there is 200-300 billion barrels of oil in North Dakota's Bakken Formation, which is equivalent to the oil reserves of Saudi Arabia.  Not all of the Bakken oil is recoverable, and estimates of recovery range from 3-50%.  

According to the state of North Dakota

"The Bakken play on the North Dakota side of the basin is still early in the learning curve. Technology and the price of oil will dictate what is potentially recoverable from this formation."

Along with the record production of oil in March, employment for natural resources and mining jobs in North Dakota reached a new record high in March of more than 14,000 jobs.  That's a doubling of the number of oil jobs in just 16 months since December 2009, at a rate of more than 20 new oil jobs being added every business day of the week for the last two years.  For the month of April, the jobless rate in North Dakota was only 3.3%, almost a full percent below the second lowest rate of 4.2% in Nebraska, and far below the national average of 9%.

With Substitutes, Monopoly Power Is Temporary

From The Economist comes this story illustrating how the market power of a monopolist (or dominant firm) is often temporary and frequently diminishes over time due to the availability and development of substitutes. In this case, a 19th century technology for electric motors is being revived by Toyota as one alternative to modern motors made with neodymium, a rare earth element controlled by China. 

"Today, China produces 95% of the world’s supply of rare-earth metals, and has started limiting exports to keep the country’s own high-tech industries supplied.

The rare-earth element that other industrial countries worry about most is neodymium. It is the key ingredient of super-strong permanent magnets. Over the past year the price of neodymium has quadrupled as electric motors that use permanent magnets instead of electromagnetic windings have gained even wider acceptance. Cheaper, smaller and more powerful, permanent-magnet motors and generators have made modern wind turbines and electric vehicles viable.  

That said, not all makers of electric cars have rushed to embrace permanent-magnet motors. The Tesla Roadster, an electric sports car based on a Lotus Elise, uses no rare-earth metals whatsoever. Nor does the Mini-E, an electric version of BMW’s reinvention of the iconic 1960s car. Meanwhile, the company that pioneered much of today’s electric-vehicle technology, AC Propulsion of San Dimas, California, has steered clear of permanent-magnet motors. Clearly, a number of manufacturers think the risk of relying on a single source of rare-earth metals is too high.

The latest carmaker to seek a rare-earth alternative is Toyota. The world’s largest carmaker is reported to be developing a neodymium-free electric motor for its expanding range of hybrid cars. Following in AC Propulsion’s tyre tracks, Toyota is believed to have based its new design on that electromotive industrial mainstay, the cheap and rugged alternating-current (AC) induction motor patented by Nikola Tesla, a Serbian-American inventor, back in 1888."

Miami Condo Sales Highest for April Since 2005

And total Miami-area home sales in April were the highest for that month since 2006, according to DQ News.  "The overall median sale price rose slightly from March but fell short of a year ago for the 43rd consecutive month amid near-record-high levels of investor and cash buying." In other words, markets are working - falling prices stimulated April sales to a five-year high (six-year high for condos).  If we measured home sales like we car sales - in terms of unit sales - the real estate market would look a lot better. 

Markets in Everything: Building in a Bag


HT: W. Heasley

TIPS Breakeven Rate Falls to Five-Month Low

The "breakeven rate" - the difference between 10-year nominal Treasury yields and 10-year Treasury Inflation Protected Securities (TIPS) yields - is one market-based measure of expected future inflation.  As of yesterday the breakeven rate was 2.20%, down 45 basis points from the recent peak of 2.65% on April 11, and the lowest level since mid-December last year (see chart above).  This downward trend in the breakeven rate suggests that inflationary expectations in the bond market have been moderating in recent months.

Wednesday, June 01, 2011

Don Boudreaux Channels Julian Simon in the Wall Street Journal With a New Bet for the Doomsayers

Don Boudreaux's masterfully continues the Julian Simon tradition in this WSJ article "More Weather Deaths? Wanna Bet?":

"Writing recently in the Washington Post, environmental guru Bill McKibben asserted that the number and severity of recent weather events, such as the tornado in Joplin, Mo., are too great not to be the result of fossil-fuel induced climate change. He suggested that government's failure to reduce emissions of greenhouse gases will result in more violent weather and weather-related deaths in the future. And pointing to the tragedy in Joplin, Mr. McKibben summarily dismissed the idea that, if climate change really is occurring, human beings can successfully adapt to it.

There's one problem with this global-warming chicken little-ism. It has little to do with reality. National Weather Service data on weather-related fatalities since 1940 show that the risks of Americans being killed by violent weather have fallen significantly over the past 70 years.

The annual number of deaths caused by tornadoes, floods and hurricanes, of course, varies. For example, the number of persons killed by these weather events in 1972 was 703 while the number killed in 1988 was 72. But amid this variance is a clear trend: The number of weather-related fatalities, especially since 1980, has dropped dramatically (see chart above, data here).

For the 30-year span of 1980-2009, the average annual number of Americans killed by tornadoes, floods and hurricanes was 194—fully one-third fewer deaths each year than during the 1940-1979 period. The average annual number of deaths for the years 1980-2009 falls even further, to 160 from 194, if we exclude the deaths attributed to Hurricane Katrina, most of which were caused by a levee that breached on the day after the storm struck land.

This decline in the absolute number of deaths caused by tornadoes, floods and hurricanes is even more impressive considering that the population of the United States more than doubled over these years—to 308 million in 2010 from 132 million in 1940 (see bottom chart above).

Here's the Boudreaux Bet: So confident am I that the number of deaths from violent storms will continue to decline that I challenge Mr. McKibben—or Al Gore, Paul Krugman, or any other climate-change doomsayer—to put his wealth where his words are. I'll bet $10,000 that the average annual number of Americans killed by tornadoes, floods and hurricanes will fall over the next 20 years. Specifically, I'll bet that the average annual number of Americans killed by these violent weather events from 2011 through 2030 will be lower than it was from 1991 through 2010.

If environmentalists really are convinced that climate change inevitably makes life on Earth more lethal, this bet for them is a no-brainer. They can position themselves to earn a cool 10 grand while demonstrating to a still-skeptical American public the seriousness of their convictions. But if no one accepts my bet, what would that fact say about how seriously Americans should treat climate-change doomsaying? Do I have any takers?"

MP: Excluding the year 2005 for Katrina, the trend lines in the two graphs above are statistically significant at the 1% level. Adjusted for the U.S. population, the average American was more than 2.5 times more likely to get killed in a flood, hurricane or tornado between 1940 and 1979 than in the period between 1980-2009. The bottom chart shows that 2009 was the safest year ever since 1940, with fewer than 0.25 deaths per 1 million population.

Labor Demand Rises to Pre-Recession Monthly High in May of 4.5 Million Advertised Vacancies


"Online advertised vacancies were up 148,800 in May to 4,471,200 according to The Conference Board Help Wanted OnLine Data Series released today. The May increase follows a decline of 124,000 in April and a gain of 198,000 in March (see chart above).

In April 2011 (the latest unemployment data), there were just over 3 (3.18) unemployed for every advertised vacancy, in contrast to the 1.5 unemployed for every vacancy in April 2007. Labor demand is still uneven across occupations. Although demand in most occupations has picked up, with 6 of the 22 major occupation groups reaching all-time highs this month (computer science, art/design/entertainment/sports/media, building and grounds maintenance, personal care, sales and transportation), others are slower to rise and the demand for workers in legal occupations has stalled."

“Overall, the trend in online advertised vacancies has been positive this year,” said June Shelp, Vice President at The Conference Board. “Following the large increase of 526,000 in January, over the next four months the increase in advertised vacancies has averaged 66,000 per month. While we have now returned to the pre-recession levels of labor demand, the big difference today is the larger number of unemployed workers that are seeking jobs compared to four years ago.” 

Two More Questions About The Minimum Wage

Saw Bowman at the Adam Smith Institute blog asks two more questions about the minimum wage:

1. An excess of supply in labour is usually called unemployment; minimum wage supporters deny that minimum wage laws create unemployment. What other goods can have a price floor set above the market price without creating an excess of supply?

2. Why don't you want minimum wage to be £20/hr. ($33/hr.), or £100/hr. ($164.25), or £1,000/hr. ($1,642.50)? If wages can be set by government without any ill effects, why not solve poverty simply by raising the minimum wage?

Tuesday, May 31, 2011

Restaurant Current Situation Index Reaches 100.3 in April, The Highest Level in April Since July 2007

National.Restaurant Association -- "Buoyed by positive same-store sales and solid optimism among restaurant operators for continued growth, the outlook for the restaurant industry remained positive in April. The National Restaurant 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 100.9 in April, essentially unchanged from a level of 101.0 in March. In addition, April represented the 5th consecutive month in which the RPI stood above 100, which signifies expansion in the index of key industry indicators.

The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 100.3 in April – up slightly from a March level of 100.2. In addition, the Current Situation Index stood above 100 for the 2nd consecutive month, which signifies expansion in the current situation indicators (see chart above).

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 101.5 in April – down from a level of 101.7 in March. The Expectations Index stood above the 100 level for the 9th consecutive month, which signifies expansion in the forward-looking indicators (see chart above)."


MP: At 100.3, the Current Situation Index in April was at the highest level since July 2007, almost four years ago.  It's also the first time since the summer of 2007 that the Current Situation Index has remained above the benchmark 100 level, which signals expansion of restaurant activity. 

Drill, Drill, Drill = Jobs, Jobs, Jobs in Pennsylvania

Marcellus Shale Coalition – "The Pennsylvania Department of Labor & Industry – like a host of news outlets across the region and the nation – continues to keep a watchful eye on the powerful job creation engine called the Marcellus Shale, the world’s second largest natural gas field behind one in Iran.

In its recent “Marcellus Shale: Fast Facts” employment overview, the Center for Workforce Information & Analysis – a research arm of the Dept. of Labor & Industry – demonstrates clearly, with new data, the Marcellus Shale’s sustained, growing and unmatched economic strength. In fact, according to this independent, government data, “The number of new hires across the Marcellus producing regions is nearly double in 2011Q1 than what it was in 2010Q1; indicating that while new employees continue to be hired, the rate is accelerating.”

Under the headline “Marcellus Shale drilling creates 48000 jobs, report says,” the Patriot-News reports this:

"Nearly 48,000 people have been hired in the last year by industries related to drilling in the Marcellus Shale, and 71 percent of those people were Pennsylvania residents. Nine thousand of them were hired in the first three months of 2011. The average salary was higher than the statewide average. And the rate of hiring is accelerating." 


MP:  The chart above shows that while the overall employment level in the state is still more than 100,000 jobs below the pre-recession level, mining employment barely slowed at all during the recession. In the last eight years, mining jobs in Pennsylvania have almost doubled, and have increased by more than 36% in just the last two years.

If You Tax Large Firms You Get Fewer of Them, If You Subsidize Small Firms, You Get More of Them

FINANCIAL POST --"Small business tax incentives are keeping businesses in Canada small, hindering business efficiency and disproportionately benefiting the wealthy, according to a new study from the University of Calgary. The study, authored by Jack Mintz and Duanjie Chen of The School of Public Policy, said that Canada’s small business tax rate creates a “wall of taxation” in the country that keeps businesses small so they can remain in favorable tax brackets.

Instead of job growth, the authors said that the small business tax rate has led to an abundance of small businesses in Canada that have no intention to grow. Furthermore, the authors said that wealthy Canadians have used the favorable tax rate as a tax shelter, incorporating small businesses to avoid high personal income taxes."

From the paper's summary:

"We show that small business growth is hampered by the existing tax system. As a business grows, effective tax rates on capital investments made by entrepreneurs virtually double when the business grows from as a little as $1 million to over $30 million in asset size (see chart above)."

Monday, May 30, 2011

Oil Updates: Cuba Discovery and Tax Cuts in Alaska

1. Could the 50-year United States embargo against Cuba finally be lifted after the discovery of an enormous oilfield in Cuban waters (20 billion barrels, with drilling to start within the next few months)? 

2. Alaska Governor Sean Parnell said he plans to continue to "vigorously pursue" tax-cuts for oil companies as a way to boost production in the state.  Hope Sen. Max Baucus is paying attention. 

Two More Questions

1. If ticket scalping laws that make it illegal to sell a ticket to a concert or sporting event above face value are a good idea, shouldn't selling a coin, bond, car, or house above face value, sticker price or list price also be illegal as well?  If not, why not? 

2. Name the main arguments in favor of selling a coin, bond, car or house above face value/list price.  Aren't all of them equally good arguments for allowing people to sell tickets above face value?

Sunday, May 29, 2011

Two Great Questions from Bryan Caplan

Bryan Caplan asks:

1. If the minimum wage is a good idea, shouldn't unpaid internships be illegal as well?  If not, why not? 

2. Name the main arguments in favor of the legality of unpaid internships.  Aren't all of them equally good arguments for allowing people to work for wages greater than zero and less than the minimum wage?

Leading Economic Indexes

The Conference Board reported increases this week for the Leading Economic Index in the Euro Area (0.4% in April), Mexico (0.8% in March) and Australia (0.4% in March).   

IJ Wins A Victory for Food Trucks in El Paso



The video above documents how the Institute for Justice filed a federal lawsuit and successfully overturned an El Paso, Texas city ordinance that prevented food trucks from operating within 1,000 feet of an established restaurant or convenience store, which effectively turned the entire city of El Paso into a "No Vending Zone."  It's another IJ victory for economic liberty and the right to earn an honest living, and a defeat for economic protectionism. 

Saturday, May 28, 2011

U.K. North Sea Oil Companies "Going Galt"

UK Independent -- "North Sea oil production has slowed to its lowest level since records began 15 years ago following the Chancellor of the Exchequer's recent tax raid on the industry. An update from the U.K. Department of Energy yesterday showed the biggest fall in oil production since quarterly records started in 1995. Gas production fell 17.6 per cent from a year ago.

The slowdown follows the Chancellor's controversial Budget decision to increase the supplementary tax on North Sea Oil production to 32 per cent from 20 per cent to pay for a cut in petrol duty. The Chancellor's decision drew an industry-wide outcry and claims that mature fields would be closed.

An Oil and Gas UK survey warned that a quarter of 240 potential projects in the North Sea were less likely to go ahead after the tax increase."

MP: Let this be a lesson to the Senate Democrats who are proposing to burden (punish?) America's five biggest oil companies with $21 billion in additional income taxes over the next decade.

The Oil-Autocracy Link and Drill, Drill, Drill

The chart above is from a Bloomberg article and shows that "Most of the world's oil is produced in states that are undemocratic. The U.S., Canada and Norway are the exceptions."

The article refers to this 2009 research paper "Oil and Democracy Revisited" by UCLA professor Michael Ross whose findings include:

a) "Oil wealth strongly inhibits democratic transitions in authoritarian states, and b) Oil’s anti-democratic effects seem to vary over time and across regions: they have grown stronger over time, but do not hold in Latin America.

The mechanism that seems to account for the oil-autocracy link is the ‘rentier effect’ – the combination of low taxes and high government spending that seems to dampen support for democratic transitions."

MP: The oil-autocracy link is one of the indirect costs of our "dependence on foreign oil" because we provide support to authoritarian states and inhibit the growth of democracy in those countries.  This is one more reason to drill, drill, drill domestically, in places like the Eagle Ford Field in Texas, which is featured in yesterday's NY Times:

"The Texas field, known as the Eagle Ford, is just one of about 20 new onshore oil fields that advocates say could collectively increase the nation’s oil output by 25 percent within a decade — without the dangers of drilling in the deep waters of the Gulf of Mexico or the delicate coastal areas off Alaska. More than a dozen companies plan to drill up to 3,000 wells there in the next 12 months."

MP: It's all made possible by the technological "miracle" of "fracking," which is not without its critics and controversy, here's more from the NY Times:

"There is only one catch: the oil from the Eagle Ford and similar fields of tightly packed rock can be extracted only by using hydraulic fracturing, a method that uses a high-pressure mix of water, sand and hazardous chemicals to blast through the rocks to release the oil inside.

The technique, also called fracking, has been widely used in the last decade to unlock vast new fields of natural gas, but drillers only recently figured out how to release large quantities of oil, which flows less easily through rock than gas. As evidence mounts that fracking poses risks to water supplies, the federal government and regulators in various states are considering tighter regulations on it." 

The oil industry says any environmental concerns are far outweighed by the economic benefits of pumping previously inaccessible oil from fields that could collectively hold two or three times as much oil as Prudhoe Bay, the Alaskan field that was the last great onshore discovery. The companies estimate that the boom will create more than two million new jobs, directly or indirectly, and bring tens of billions of dollars to the states where the fields are located, which include traditional oil sites like Texas and Oklahoma, industrial stalwarts like Ohio and Michigan and even farm states like Kansas."

It’s the one thing we have seen in our adult lives that could take us away from imported oil,” said Aubrey McClendon, chief executive of Chesapeake Energy, one of the most aggressive drillers. “What if we have found three of the world’s biggest oil fields in the last three years right here in the U.S.? How transformative could that be for the U.S. economy?”

“This is very big and it’s coming on very fast,” said Daniel Yergin, the chairman of IHS CERA. “This is like adding another Venezuela or Kuwait by 2020, except these tight oil fields are in the United States.”

Thanks to Thomas Keene and Dan Greller for the pointers.  


What's Stopping Job Creation at Medium-Sized Firms? It's Washington's "Climate of Uncertainty"

I highly recommend this very insightful Bloomberg article "Economic Stagnation Explained, at 30,000 Feet" by Yale law professor Stephen Carter, based on his conversation while flying and sitting next to a successful business owner, about how regulatory and tax uncertainty is preventing job creation at small and medium firms.

Because he faces a "climate of uncertainty" created in Washington, the successful business owner refuses to hire new employees despite rising demand and sales for his company's products.  

“How can I hire new workers today," he asks, "when I don’t know how much they will cost me tomorrow? I don’t understand," he continues, "why Washington won’t just get out of our way and let us hire. Government should act like my assistant, not my boss.”

About the businessman and seat-mate, Professor Carter writes:

"He’s not anti-government. He’s not anti-regulation. He just needs to know as he makes his plans that the rules aren’t going to change radically. Big businesses don’t face the same problem, he says. They have lots of customers to spread costs over. They have “installed base.” 

For medium-sized firms like his, however, there is little wiggle room to absorb the costs of regulatory change. Because he possesses neither lobbyists nor clout, he says, Washington doesn’t care whether he hires more workers or closes up shop."

MP:  Thanks to the anonymous businessman for making a very strong "laissez-faire" ("allow to do" in French) case for job creation.

HT: Pete Friedlander

Friday, May 27, 2011

After-Tax Profits Reach Record High in Q1


Corporate profits after tax (unadjusted) reached a new record high in the first quarter of 2011 of almost $1.5 trillion. 

After adjustments for inventory and depreciation, after-tax corporate profits in the first quarter dipped slightly from the all-time high in the last quarter of 2010, but remained above the pre-recession peak levels of 2006 for the second consecutive month, both in nominal and real terms (see chart above).  It was the seventh consecutive quarterly increase in real profits from their year-earlier level following ten straight quarters of annual declines starting in 2007, and suggests that corporate profitability has completely recovered from the effects of the 2007-2009 recession.  Looking ahead, the record-level profits mean that U.S. companies now have the resources to propel the expansion forward with increased spending on capital investments and increased hiring. 

See also Scott Grannis' related post "Corporate Profits Remain Very Strong."

State Tax Collections Increase by 9.1% in the First Quarter, Largest Annual Gain in Almost Five Years

The Rockefeller Institute of Government reported this week that tax collections by state governments are showing strong improvements in the first quarter of this year compared to the same quarter of 2010.  Overall, tax collections increased by 9.1% in the first quarter of 2011 (based on preliminary tax collection data from 47 early reporting states), which is the largest increase since the second quarter of 2006, almost five years ago (see chart above).  The largest gain in the quarter came from a 12.4% increase in personal income tax collections, followed by increases in corporate income taxes (6.9%) and sales taxes (5.6%).  

Related reports: 

1. Unexpected state revenue in California leaps to $6.6 billion. (HT: Steve Bartin)

2. Massachusetts tax collections up 43 percent in April. (HT: Ben Cunningham)

Bloomberg Profiles Tyler Cowen

Bloomberg profiles George Mason economist, blogger, infovore, speed reader Tyler Cowen.

Thursday, May 26, 2011

Intrade Founder and CEO John Delaney, R.I.P.

Business Insider -- "John Delaney, founder and CEO of Intrade, the prediction market, has died while trying to climb Mt. Everest. He was less than 50 meters from the top, according to the Daily Mail."

Profitable Insider Trading..... Inside the Beltway

Washington Times -- "An extensive study released Wednesday in the journal Business and Politics found that the investments of members of the House of Representatives outperformed those of the average investor by 55 basis points per month, or 6 percent annually, suggesting that lawmakers are taking advantage of inside information to fatten their stock portfolios.

To the frustration of open-government advocates, lawmakers and their staff members largely have immunity from laws barring trading on insider knowledge that have sent many a private corporate chieftain to prison.

Strict laws ban corporate executives from trading on their insider knowledge, but no restrictions exist for members of Congress. Lawmakers are permitted to keep their holdings and trade shares on the market, as well as vote on legislation that could affect their portfolio values."

HT: Mike LaFaive

MP: How about we just "legalize it?"  Insider trading that is. 

Global Sticks Moves from China to Thunder Bay

Jeff Rubin -- "Why has Global Sticks, a manufacturer of wooden ice cream sticks, moving from Dalian, China to Thunder Bay, Ontario? It’s the kind of low margin manufacturing that is never supposed to come back after it leaves North America for cheaper labour abroad.

But wage costs are no longer everything they were cranked up to be. In today’s world of soaring energy costs, power rationing and export taxes on key commodities such as wood, wage gaps are less important. When the power goes off, it suddenly doesn’t matter if your labor is expensive.  Factories don’t run on sweat alone."


Thunder Bay -- "The Global Sticks factory will produce up to six billion food-grade wood sticks each year from northern white birch, a species that is underutilized by the forestry industry. The decision to relocate to North America came as a result of the recognition that manufacturing wooden sticks in China was going to become a much more difficult and expensive process given increasing fuel costs. With assistance from the province, Global Sticks will switch from sourcing products from China to manufacturing products at a new, state-of-the art facility in Thunder Bay that created 50 construction jobs. The new plant will employ 130 permanent workers and produce a variety of wooden sticks used for ice cream bars, corn dogs, tongue depressors for doctors and nurses, and paint paddles (see photo above)."

MP: We can probably expect a lot more of this type of shift in manufacturing production from China back to Canada and the U.S.  The Boston Consulting Group predicts that "Sometime around 2015, manufacturers will be indifferent between locating in America or China for production for consumption in America."  Important factors include rising wages and prices in China, an appreciating yuan, and rising energy costs both for production in China and for shipping goods to North America. 

HT: Brad Parkes