Saturday, June 11, 2011

The City of Dallas' Anti-Small Business Sign Gestapo

The state of Texas received high marks this week from the Wall Street Journal for its "free market and business-friendly climate" that has been responsible for the creation of 265,300 jobs there since the recession ended in June 2009.  The WSJ also credits the Lone Star state for regulatory conditions that are "contained and flexible."

But after hearing this story about how the city of Dallas is harassing small businesses and using "extortionary, mob-style and vindictive" legal tactics to preserve its petty sign ordinance, one has to wonder just how many more jobs might have been created in Texas over the last two years if regulations were just a little more contained and more flexible.  

From the Washington Times:

"The Institute for Justice was forced last week to end its constitutional challenge to a Dallas city ordinance that prohibited small businesses from displaying large window signs advertising specials or even specifying the store’s hours of operation. To prevent the case from going to trial, Dallas bureaucrats threatened a mom-and-pop vacuum store, travel agency, uniform store and dry cleaner each with $300,000 in fines.

The ordinance specifies that no sign may appear in the upper two-thirds portion of any window or glass door. In the space that remains, signage may not take up more than 15 percent of the available window space. The ordinance carefully carves out an exemption for artistic and political speech. So a gigantic “Vote Obama” sign is acceptable, but one that states “20 percent off on Wednesdays” is not. “To claim that the citizens of Dallas were harmed to the tune of $300,000 per business is just ludicrous,” said Institute for Justice attorney Matt Miller.

Typical big-box stores like Wal-Mart and Best Buy have plenty of money to advertise specials and mail out flyers that inform customers about upcoming sales. For the little guy, a notice in the window is often the only cost-effective way to entice passersby to try out their products or services. That’s why the small shops in the case only asked for $1 in damages. Their only goal was overturning an ordinance they believe violates the First Amendment. Rather than allowing the case to go to a jury, the city unleashed code-enforcement officers who levied $1,000 in “nuisance” fines for each of the 300 days the businesses were in violation of the ordinance during the litigation."

The Latest Government Solution to a Non-Problem

Megabus already provides low-cost, high-speed service between Iowa City and Chicago, so why spend hundreds of millions of taxpayer dollars for "high speed" rail?
Megabus provides low-cost, non-stop express bus service twice daily between Iowa City and Chicago for fares as low as $10 each way for service on some days, and $18 and $23 on other days.  The single and double decker luxury buses offer free wireless Internet, convenient power outlets for laptops and cell phones, and panoramic windows (see photo above), and the one-way trip takes less than four hours.  To provide this affordable, convenient, dependable and low-cost daily bus service between Iowa City and Chicago, Megabus receives no taxpayer funding, federal or state subsidies, loan guarantees, support payments, etc.  

So what's the federal government's response to the "non-problem" of affordable public transportation between Iowa City and Chicago?  At New Geography, Wendell Cox writes:

"The federal government is again offering money it does not have to entice a state (Iowa) to spend money that it does not have on something it does not need. The state of Iowa is being asked to provide funds to match federal funding for a so-called "high speed rail" line from Chicago to Iowa City. The new rail line would simply duplicate service that is already available (Megabus).

Perhaps most surprisingly, the luxury buses make the trip faster than the so-called high speed rail line, at 3:50 hours. The trains would take more than an hour longer (5:00 hours). No one would be able to get to Chicago quicker than now. Only in America does anyone call a train that averages 45 miles per hour "high speed rail."

The state would be required to provide $20 million in subsidies to buy trains and then more to operate the trains, making up the substantial difference between costs and passenger fares. This is despite a fare much higher than the bus fare, likely to be at least $50 (based upon current fares for similar distances). By contrast, the luxury bus service charges a fare of $18.00 (or less, see above), and does not require a penny of taxpayer subsidy. Because the luxury bus is commercially viable (read "sustainable"), service can readily be added and funded by passengers. Adding rail service would require even more in subsidies from Iowa. The bus is also more environmentally friendly than the train."

MP: H.L. Mencken summarizes the situation well: "The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by an endless series of hobgoblins, most of them imaginary."  And the government solutions to the imaginary hobgoblins, e.g. the need for "high speed" transportation between Iowa City and Chicago, are always very, very costly, in this case hundreds of millions of dollars to solve a "non problem."

HT: Michael Barone via Pete Friedlander

30-Year Mortgage Rates Fall to 6-Month Low, +15-Year Corporate Yields Close to Historic Lows

In another market-based indicator that inflationary pressures are contained for the time being and should not be a major concern, the fixed rate for 30-year mortgages fell to the lowest level in 2011: 4.55%.  That's the lowest level since early December last year, six months ago, and only 38 basis points above the historical low level of 4.17% last November. It just doesn't seem like there could be any major inflationary pressures in the U.S. economy when 30-year fixed rates are so, so low.

Update: It's not just long-term mortgage rates that are falling and close to historical lows, the graph below of 15+ year yields for U.S. corporate bonds shows a similar pattern. And I don't think the Fed is buying these corporate bonds, and Fannie and Freddie are not backing them or buying them, so I don't think we can claim government manipulation of markets here?

Since 1948 the U.S. Has Lost Twice as Many Jobs in Agriculture (-5.8m) as in Manufacturing (-2.74m)

The chart above displays monthly employment levels for the U.S. manufacturing and agriculture sectors back to January 1948.  

Note that:

1. Compared to 1948 levels of employment, the U.S. agriculture sector has lost more than twice as many jobs (5.83 million) as the manufacturing sector (2.74 million).   

2. Compared to their respective peak levels of employment, the agriculture sector has contracted by 72.3% since 1948 (-5.83 million jobs), which is much higher on a percentage basis than the manufacturing sector's percentage contraction of 40.2% (-7.86 million) since the peak employment level of 19.55 million in 1979.  

Even though job losses in America's farming sector have been much greater both in absolute numbers since 1948 and in percentage terms from their peak levels, when have you ever heard anybody complain about the "decline of U.S. farming" (only about 400 Google search results, many to this blog) or claim that "America doesn't grow anything any more" (no Google results)? In contrast, you'll find 141,000 Google results for "decline of U.S. manufacturing" and 19,500 Google results for "America doesn't make anything anymore."    

The long-term trends are the same in both manufacturing and farming: Technological advances lead to huge increases in worker productivity, which then requires fewer and fewer workers to produce more and more output.  The huge gains in productive efficiency and worker productivity lead to significantly lower and more affordable prices for consumers, leading to a reduced share of food and manufactured goods in both household income and national income (GDP), but increasing levels of output in absolute terms.  For these long-term trends we should be grateful for their major contribution to our ever-increasing standard of living.

Friday, June 10, 2011

Markets in Everything: Econ BS from LSE for $5k

Via Academic Earth:  

The London School of Economics(LSE) offers a Bachelor of Science in Economics that can be earned entirely through distance learning. The program is administered through the University of London External System.

Requirements and Costs: The degree can be completed in three years through full-time study, with 12 total year-long courses. Total tuition expenses for the degree are approximately $5,000 for the entire three-year program (3,237 GBP).

Qs: Why go to Harvard or Yale, where just one college class costs about $3,500, or almost as much as the entire BS degree from LSE?  Is this the college degree of the future? 

HT: Buddy Pacifico

TIPS Breakeven Rate Falls to Six-Month Low

As I've reported before, 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 today, the breakeven rate was 2.17%, down by almost 50 basis points from the recent peak of 2.65% on April 11, and the lowest level since early December last year (see chart above).  Contrary to the worries of the many "inflationistas," this downward trend in the TIPS breakeven rate suggests that inflationary expectations in the bond market continue to moderate. 

U.S. Big-Truck Sales Soar By 62% in May

According to a report today from  Wards Auto,

"U.S. big-truck sales soared in May, up 61.9% vs. a year-ago and far surpassing April’s 31.2% increase, previously 2011’s best monthly performance. Class 8 sales made the biggest leap, up 82.4% thanks to triple-digit percentage increases at Volvo Truck and PACCAR, up 175.4% and 145.4%, respectively. Through May, sales of medium- and heavy-duty trucks in the U.S. were tracking 30.9% ahead of like-2010.

In other big-truck news, Daimler says it will add output and jobs at its North American plants this year. In the second half the company will hire about 1,230 workers at its Mt. Holly and Gastonia, NC, plants, as well as at the truck maker’s sites in Portland, OR, and Saltillo, Mexico."

MP: Doesn't quite fit the "gloom and doom" double-dip recession story.    

Markets in Everything: Gates Wikipedia University?

In the Chronicle of Higher Education, economist Richard Vedder writes:

"Why doesn’t someone—say, the Gates Foundation—hire 100 or so stellar professors in 20 disciplines to offer perhaps 150 to 200 absolutely superb courses online, with testing administered by an outside agency (say, the ACT, SAT, or Underwriter’s Laboratories)? Even paying each professor $100,000 per course and allowing for 100 percent overhead, this would cost $30- to $40-million. There would be some expenses for administration and a need to redo lectures every few years, but the whole thing is within the financial capacity of several foundations in the private sector. The upshot would be that a student taking about 32 of the courses would have the equivalent of a B.A. degree, and it could be offered to the student free (with modest per-student private or government subsidies) or at very modest cost.

The “Wikipedia” in the title to this blog suggests that perhaps the core of courses taught by superstars could be augmented by open-source courses provided by others with expertise. If we can offer very useful encyclopedias for free online, maybe we can do the same for other compilations and certifications of knowledge.

Universities spend billions annually researching everything under the sun—but precious little on R&D into their own business, specifically into cheap ways to disseminate higher forms of knowledge."

MP: In addition to the educational benefits of this proposal, it would also be a great antidote to the "administrative bloat" problem in U.S. colleges, which is one of the main reasons that tuition costs keep rising: to finance administrative overhead.   

Update: Buddy Pacifico mentions Academic Earth, which now offers 11 bachelor's degrees online, mostly from the University of Maryland, but also two from the London School of Economics (economics, and politics and international relations).  

Infomation Age 2.0: The Cost of Hard Disk Space Has Decreased by Almost 1.5M Times Since 1980

Here's a website that documents the amazing drop over time in the cost of hard drive storage space, via Craig Newmark who aptly refers to this phenomenon as "one of the economic and technological wonders of our time."

The chart above (available here with detailed price and hard drive data) shows graphically the almost 1,500,000X reduction in the cost of hard disk space over the last thirty years (not adjusted for inflation), from $100,000 per gigabyte in 1980 to only $0.07 by 2009.  At that rate, "hard disk space per unit cost has doubled roughly every 14 months," according to the link above. 

This "technological wonder" of cheaper and cheaper costs of storing information is part of Information Age 2.0, which started with the commercial introduction of the microchip by Intel in 1971.  To put this all in perspective, the first Information Age 1.0 started with the introduction of the printing press in the 15th century, which lowered the cost of reproducing and storing information by about 1,000X.  

In a related CD post in 2007, I wrote about the 33,333X increase in the speed of Intel microprocessors from 108 KHz in 1971 to 3.6 GHz in 2007 (Pentium 4), and that's not adjusting for prices.  I also had a post last year comparing a 1984 Apple Macintosh to a 2009 Apple iMac, which is almost 2,000 times cheaper for processing speed (real $ per CPU) and 162,000 times cheaper for memory (real $ per RAM).  

HT: Lee Coppock

Excluding Distressed Home Sales, CoreLogic Index Shows That Home Prices Are Increasing in 20 States

The company CoreLogic calculates and reports a monthly home price index (HPI), similar to the Case-Shiller Home Price index, and is being featured on CD for the first time today.  The CoreLogic HPI is a "repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, which provides a more accurate "constant-quality" view of pricing trends than basing analysis on all homes."  CoreLogic's HPI covers median home sales prices in 6,500 U.S. zip code areas and 1,119 counties in all 50 states.  

Two key differences between the Case-Shiller and CoreLogic home price indexes are: a) CoreLogic releases home price data a month earlier (now available for April) than Case-Shiller (now available for March), and b) CoreLogic reports two price indexes - one that includes all single-family homes (like Case-Shiller) and another home price index that excludes distressed sales (short sales and REO transactions).  In that way, we can track home prices in the "healthy" sector of the real estate market independently of the distressed part of the market.

In its June 1 release (available here with registration), CoreLogic reported that its April HPI increased on a monthly basis by 0.7% compared to March, the first monthly increase in home prices since the home-buyer tax credit expired in mid-2010.  On an annual basis, home prices declined by 7.5% in April.  Excluding distressed sales, the HPI increased by 1.78% on a monthly basis in April, and declined by only 0.45% on an annual basis. 

Mark Flemming, chief economist of CoreLogic commented that "the first month-over-month increase in the HPI since government support for home buying was removed provides reason for cautious optimism" about the U.S. housing market.  

The maps above from the CoreLogic June report show an interesting pattern: the top map displays the annual change in the HPI for all homes, and shows that only six U.S. states have positive 12-month rates of appreciation through April (white states).  Excluding distressed sales, the bottom map shows that there are 20 states that have positive rates of appreciation through April, led by W. Virginia (8.4%), S. Carolina (6.1%), Hawaii (5.8%), Mississippi (5%) and N. Dakota (4.5%).     

Bottom Line: Distressed home sales are dragging down overall home prices and mask the fact that home prices in the "non-distressed" sector of the market are actually starting to show some healthy, positive appreciation. 

Thursday, June 09, 2011

Intrade Odds for Weiner to Resign

Update: 52 percent last night when originally posted, now down to 35 percent.

Household Net Worth Increases $10T in 2 Years

The Federal Reserve released data today on household balance sheets, and reported that household net worth increased to slightly more than $58 trillion in the first quarter of 2011, the highest level since the second quarter of 2008, almost three year ago (see chart above).  From the recession-driven low of $47.75 trillion in the first quarter of 2009, household net worth has experienced a V-shaped recovery of more than $10 trillion in just two years.  Without adjusting for inflation or population, the net worth of U.S. households has increased by 45% since 2002, and has doubled in the 15 years since 1996.  And in the twenty years since the early 1990s, the net worth of American households has almost tripled, having gained almost $40 trillion of wealth in just several decades.    

Bottom Line: It took more than several hundred years until 1996 to create $30 trillion of wealth for U.S. households, and then that much wealth ($30 trillion) was created again over just the last 15 years. And despite the Great Recession, a severe financial crisis, and a collapse of housing prices, more than $10 trillion of wealth has been created over the last two years - that's a testament to the resiliency and dynamism of the market.  

Markets in Everything: Tech Shop Memberships

"TechShop is a membership-based workshop that provides members with access to tools and equipment, instruction, and a community of creative and supportive people so they can build the things they have always wanted to make. You can think of TechShop like a fitness club, but with tools and equipment instead of exercise equipment. It is sort of like a Kinko's for makers, or a Xerox PARC for the rest of us."

TechShop was featured this morning on CNBC as part of its "Manufacturing's New Future" series (see video above), as a company that helps entrepreneurs realize their dreams.  One entrepreneur says "It's like belonging to a gym, but you get access to $10 million worth of equipment."  One term used about TechShop is that facilitates the "democratization of tools."

Don't Blame Big Oil for High Gas Prices

From my editorial in today's Sacramento Bee:

The administration's moratorium on exploratory drilling in new offshore areas has locked away billions of barrels of oil. Oil production in Alaska, which has been in decline for decades, could be doubled by opening up the Arctic National Wildlife Refuge and Arctic waters that are currently closed to drilling.

Combine these restrictions on drilling with instability in the Middle East and it's no wonder consumers are gritting their teeth at the price of gasoline. But we shouldn't blame oil companies for soaring prices, when they have nothing to do with the restrictions on domestic energy sources or the geopolitical events elsewhere that are the real culprits for higher gas prices.

Sacrificing Economic Growth and Job Creation

George Will's column today is about how "President Obama is sacrificing economic growth and job creation in order to placate organized labor.... and enlarge the entitlement system and exacerbate the entitlement mentality."

MP: The issue here is the Free Trade Agreements (FTAs) with Colombia, Panama and S. Korea which are being held up for approval until "Congress expands an entitlement program favored by unions" - the Trade Adjustment Assistance (TAA) program, which provides financial aid (welfare payments) to American workers who lose their jobs due to foreign competition. 

George Will raises another very important issue about how competition and economic dynamism affect the labor market:

"There is this problem with TAA at any level: It is unjust to treat some workers as more entitled than others to protection from the vicissitudes of economic dynamism.

Consider a hypothetical Ralph, who operated Ralph's Diner until an Applebee's and Olive Garden opened in the neighborhood. With economies of scale and national advertising budgets, those two franchises could offer more choices at better prices, so Ralph's Diner went out of business. Should he and his employees be entitled to extra taxpayer subventions because they are casualties of competition? "Why should someone be entitled to such welfare just because he is affected negatively by competition that comes from abroad rather than down the street?

MP: Keep in mind that the Colombian FTA was signed 1,661 days ago in November 2006, and has been languishing ever since awaiting Congressional approval.  Also consider that all three FTAs will provide greater access for American manufacturers to sell manufactured goods overseas, which translates into more jobs in the U.S.  So the real story here is about the power of organized labor to use its political muscle to create a drag on U.S. economic growth and job creation.  

Manufacturing Job Openings Highest Since Aug. '08

Although job openings in the U.S. manufacturing sector slipped slightly in April to 230,000 from 235,000 in March, they have remained above 200,000 for four straight months for the first time since the summer of 2008 (see chart above, data here).  From the recessionary lows of 100,000 through mid-2009, manufacturing job openings have more than doubled to levels not seen since the summer of 2009, two years ago.  We can expect ongoing improvements in America's manufacturing sector, both in terms of output and employment, as it continues to remain at the forefront of the economy recovery.  

Wednesday, June 08, 2011

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

According to Malcom Harris writing in n+1:

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

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

How To Save the Elephants? Buy Ivory, Shoot Them

In the 1970s, Kenya had about six times as many elephants as Zimbabwe, and today Zimbabwe has three times more elephants than Kenya (see chart).  What happened that caused the dramatic reversal in elephant populations in the two African countries? 

Terry Anderson and Shawn Regan of the Property and Environment Research Center (PERC) explain in their excellent article "Shoot an Elephant, Save a Community":

"Anti-hunting groups succeeded in getting Kenya to ban all hunting in 1977. Since then, its population of large wild animals has declined between 60 and 70 percent. The country’s elephant population declined from 167,000 in 1973 to just 16,000 in 1989. Poaching took its toll on elephants because of their damage to both cropland and people. Today Kenya wildlife officials boast a doubling of the country’s elephant population to 32,000, but nearly all are in protected national parks where poaching can be controlled.

In sharp contrast to Kenya, consider what has happened in Zimbabwe. In 1989, results-oriented groups such as the World Wildlife Fund helped implement a program known as the Communal Areas Management Program for Indigenous Resources or CAMPFIRE. This approach devolves the rights to benefit from, dispose of, and manage natural resources to the local level, including the right to allow safari hunting. Community leaders with local knowledge about wildlife and its interface with humans help establish sustainable hunting quotas. Hunting then provides jobs for community members, compensation for crop and property damage, revenue to build schools, clinics, and water wells, and meat for villagers.

By granting local people control over wildlife resources, their incentive to protect it has strengthened. As a result, poaching has been contained and human-wildlife conflicts have been reduced. While challenges remain, especially from the current political climate in Zimbabwe, CAMPFIRE has quietly produced results with strikingly little activist rhetoric.

Between 1989 and 2005, Zimbabwe’s total elephant population more than doubled from 37,000 to 85,000, with half living outside of national parks. Today, some put the number as high as 100,000, even after decades of legal, trophy hunting. All of this has occurred with an economy in shambles, regime uncertainty, and mounting socio-political challenges."

See a related CD post here on how private property rights, legalized hunting, commercial farming, and the commercial sale of alligator meat and hides saved the American alligator from extinction. 

What Can We Learn from China's Interest in Idaho?

From the Idaho Statesman in December 2010

"A Chinese national company is interested in developing a 10,000- to 30,000-acre technology zone for industry, retail centers and homes south of the Boise Airport. Officials of the China National Machinery Industry Corp. have broached the idea — based on a concept popular in China today — to city and state leaders. They are also interested in helping build and finance a fertilizer plant near American Falls, an idea company officials returned to Idaho this month to pursue.

This ambitious, long-term proposal would start with a manufacturing and warehouse zone tied to the airport, and could signify a shift in the economic relationship between the two superpowers — a relationship once defined by U.S. companies like the J.R. Simplot Co., Hewlett-Packard and Morrison-Knudsen that would head to China to build and develop.

“I think China’s coming over here shows they are willing to collaborate on the reinvigoration of the American industrial base,” said Jeff Don, CEO of Eagle-based C3, which is acting as an Idaho representative for the Chinese company, called Sinomach for short. Sinomach is just one of an increasing number of companies and investors showing interest in Idaho.

Hoku Materials Inc., a subsidiary of a Chinese energy firm, already has 500 people building its $400 million plant to make polysilicon for solar panels in Pocatello. It expects to begin production in 2011, employing 250 people, said Scott Paul, Hoku’s president and CEO." 

MP: This story illustrates several important economic points: 

1. It helps expose the type of trade lunacy/nitwitery advocated by mercantilist protectionists like Ian Fletcher, who claims here that "Our trade deficit helps Guangdong, Seoul, Yokohama, even Munich – but not Gary, Indiana, Fontana, California, and the other badlands of America’s industrial decline."  Try telling that to the citizens and workers in Idaho, who are benefiting from jobs and investment as a direct result of our trade deficit with China.  

2. It helps illustrate a point made by Don Boudreaux, who reminds us that another name for the “U.S. trade deficit” is “U.S. capital-account surplus” – that is, inflows of investment funds to the U.S. that supply financing for the creation or expansion of U.S. companies, and help create or support jobs in America.  The $273 billion "trade deficit" with China in 2010 was exactly offset by a $273 billion capital inflow, and $400 million of that capital financed the construction of a solar panel factory in Pocatello, Idaho, employing 500 workers for the construction and another 250 workers this year when production starts.  

3. Why are China and investors from other countries showing such interest in Idaho as a location for manufacturing production, and not nearby California or neighboring Washington? Maybe it's because business-friendly Idaho ranks among the most free states in the country (#3) according to a new study by the Mercatus Center, while California (#48) and Washington (#40) rank among America's least free states. When companies, either foreign or domestic, shop around the U.S. for business locations or re-locations, the state's business climate will certainly rank as one the most important factors in the decision-making process.  In the future, we can expect much more investment, production and job creation in the freest states like Idaho, and ongoing contractions and out-migrations from the least free states like New York, New Jersey, California and Massachusetts.

Existing-Home Prices Might Be Falling, But Used Vehicle Prices Are Soaring to Record Highs

Existing-home prices may be falling, but used car prices reached an all-time high in May, according to a new report from Manheim Consulting (see chart above).  Manheim's Used Vehicle Value Index of 127.8 in May was 5.6% above its year-ago level of 121.  In eight out of the last nine months since last September, the Used Vehicle Index set new a new monthly record.

In this WSJ video,"Time to Trade In That Used Car?" four reasons are given for record-high used vehicle prices:

1. Earthquake-related reductions in Japanese production, leading to shortages of some popular new cars like the Toyota Prius. 

2. The recession-related collapse in new car sales in 2008-2009 is now contributing to a below-average number of trade-ins and an overall shortage of used cars on dealers' lots.  

3. Because of the weak economic recovery and labor market sluggishness, demand for new vehicles is soft, and demand for used cars has increased as cost-conscious consumers remain cautious when making major purchases, and look for ways to save money when buying cars.

4. Higher gas prices are also making car buyers more cost-conscious, which has increased demand for used cars, especially 4-cylinder vehicles.

5. Update: The destruction of almost 700,000 used cars in the summer of 2009 during the "Cash for Clunkers" program could also be contributing to the current shortage and high prices for used vehicles.  (HT: LoneSnark)

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.