Monday, October 24, 2011

Reshoring: Manufacturing is Coming Back to U.S.

Three examples:

1. "Globalization has come full circle at Otis Elevator. The U.S. manufacturer, whose elevators zip up and down structures as diverse as the Empire State Building and the Eiffel Tower, is moving production from Nogales, Mexico, to a new plant in South Carolina. More startling: Otis says the move will save it money."

2. "After having their products manufactured in China the past seven years, The Outdoor GreatRoom Company is bringing production back home to Minnesota."

3. "Not long ago, overseas plants produced half of Idaho-based Buck Knives’ output. Today they produce 25 percent. Buck Knives wants to keep moving production from China to Post Falls, Idaho over the next few years, company chairman Chuck Buck said. “I want to get out of China as quickly as I can,” he said.

Buck Knives is not the only Idaho company “reshoring” — the opposite of offshoring, and the buzz term for bringing jobs from abroad back to America. Ende Machinery and Foundry, owned by Ed Endebrock and his daughter Sue Edwards,has just started to make castings for a plant Endebrock owns in Lewiston that makes hydraulic pumps for trucks and other uses. He had been outsourcing that work to China."

Bakken Boom Spreads to Montana, South Dakota

1. "The North Dakota oil boom is spreading into Montana, bringing development opportunities for businesses stretching across both states, said Tom Rolfstad, executive director of economic development in Williston, N.D."

2.  "South Dakota auctioned off some 67,000 acresof public land in Harding and Butte counties earlier this month — one of the largest oil based public land sales in the state's recent history. One hundred and eighty six of the 189 lots were scooped up by Bedrock Oil and Gas of Boerne, Texas. Could this mean the state is on the edge of a North Dakota-like oil boom?

At this point the most responsible answer is “maybe.”  Bedrock Oil and Gas have chosen to keep their intentions to themselves at this point. But they certainly didn't buy all that land for a hunting ranch."

Reshoring Example: Houston-Based Farouk Systems

"Farouk Shami, chairman and main owner of Houston-based Farouk Systems, made an unorthodox choice when he decided where to expand production of his professional hairdressing equipment. Rather than adding to his existing workforce in Asia, Mr. Shami expanded in Texas.

More of his products now carry the “made in America” label after the decision four years ago to cut back on the work he was giving to subcontractors, based mainly in China and South Korea, in favor of expanding local production.

As a result his company – which supplies professional hairdressers with high-tech dryers, hair curlers and other specialized equipment – has added 400 jobs to its Texas-based workforce, which now totals 2,000.

Production costs are only slightly higher in the U.S. than in China, he says, because the workers are more efficient. “I may need to employ only 15 people to do a job that would require 70 in a Chinese factory,” said Mr. Shami.

This year 80% of his company’s production is being done in the U.S., compared with 40 per cent in 2007. His sales have risen by about 20% since the decision to expand the domestic operation."

World Economic Power is Shifting Back to the U.S.A.: The 21st Century May Be American After All

Ambrose Evans-Pritchard writing in the U.K. Telegraph:

"The American phoenix is slowly rising again. Within five years or so, the US will be well on its way to self-sufficiency in fuel and energy. Manufacturing will have closed the labor gap with China in a clutch of key industries. The current account might even be in surplus.

"The U.S. was the single largest contributor to global oil supply growth last year, with a net 395,000 barrels per day," said Francisco Blanch from Bank of America, comparing the North Dakota fields to a new North Sea.

Total U.S. shale output is "set to expand dramatically" as fresh sources come on stream, possibly reaching 5.5m barrels per day by mid-decade. This is a tenfold rise since 2009. The US already meets 72% of its own oil needs, up from around 50% a decade ago.

"The implications of this shift are very large for geopolitics, energy security, historical military alliances and economic activity. As US reliance on the Middle East continues to drop, Europe is turning more dependent and will likely become more exposed to rent-seeking behaviour from oligopolistic players," said Mr. Blanch.

Meanwhile, the China-US seesaw is about to swing the other way. Offshoring is out, 're-inshoring' is the new fashion. "Made in America, Again" - a report this month by Boston Consulting Group - said Chinese wage inflation running at 16% a year for a decade has closed much of the cost gap. China is no longer the "default location" for cheap plants supplying the US.

A "tipping point" is near in computers, electrical equipment, machinery, autos and motor parts, plastics and rubber, fabricated metals, and even furniture. "A surprising amount of work that rushed to China over the past decade could soon start to come back," said BCG's Harold Sirkin.

The gap in "productivity-adjusted wages" will narrow from 22% of US levels in 2005 to 43% (61% for the US South) by 2015. Add in shipping costs, reliability woes, technology piracy, and the advantage shifts back to the US.

The 21st Century may be American after all, just like the last." 

HT: Lyle Meier

Sunday, October 23, 2011

Can Aging Population Explain Income Stagnation?

Since 1970, the number of retired workers receiving Social Security has increased by 159% from 13.35 million to 34.59 million.  During the same period, the number of active employed workers increased by less than half that amount, by 77% from 78.7 million to 139 million.  The fact that retired workers have increased so significantly relative to active workers since 1970 can be explained by advances in medical care that have increased life expectancy by 20 years since 1930.  

The top chart shows that the ratio of active workers to retired workers decreased by almost 32% since 1970, from 5.90-to-1 in 1970 to 4.02-to-1 by 2010.  The bottom chart shows the inverse - retired workers as a percent of active workers - which has increased from 17% in 1980 to 24.8% in 2010.    

So what? Well, perhaps this demographic trend of an aging U.S. population explains why real median household income has stagnated in recent decades, according to Census Bureau data. Relative to active workers, we now have significantly more retirees, many of whom might have significant assets (a house with no mortgage, stocks and bonds, mutual funds, etc.) that make them very wealthy, but in retirement would be receiving relatively low annual incomes compared to when they were working full-time.

With an increase in retirees, we have thousands or millions more Americans over time moving from top household income quintiles while working, into lower income quintiles when in retirement,  bringing down average or median household income as measured by the Census Bureau.

Therefore, the growing ratio of retirees to active workers makes it appear that household income is stagnating, when in fact the median household income of active workers (or real compensation per hour, see chart below) could be increasing, and the average wealth per household could also be increasing.  

Q: Could the aging of the U.S. population make it appear that we're in a period of "Great Stagnation" based on stagnating household income, when in reality the finding of stagnation is only a "statistical artifact" or "spurious finding" due to a significant demographic shift over time?

Comments welcome.  

Update: The chart below shows no stagnation over time in "Real Compensation per Hour," which has increased by almost 30% since 1990 and almost 14% since 2000 (thanks to Peak Trader).  Perhaps another factor in the "non-stagnation story" is that fringe benefits have increased over time relative to money income, and that increase in compensation is not captured by the Census Bureau when it calculates household income. In that case, household money income could be stagnating at the same time that total household compensation is increasing.    

The non-stagnation of real compensation per hour.

MLB Facts

MLB players make 1,000 times more than the workers in Costa Rica who make their baseballs.
1. Average 2011 salary for the St. Louis Cardinals: $3.9 million

2. Highest 2011 salary for the St. Louis Cardinals: $16.3 million (Matt Holliday, started at $366,000 in 2005) )

3. Average 2011 salary for the Texas Rangers: $3.2 million   

4. Highest 2011 salary for the Texas Rangers: $16.2 million (Michael Young, started at $250,000 in 2002)

5. Average salary for the workers in Costa Rica who make the official MLB Rawlings baseballs: $3,200

Saturday, October 22, 2011

"Refashioning the Continent's Energy Arteries" Shale Gas is Fueling A Pipeline Construction Boom

CANADA GLOBE AND MAIL -- "Spectra Energy Corp. (SE-NYSE) is driving North America’s pipeline construction boom into the heart of New York City, part of a massive industry push to connect previously untapped shale gas and oil reserves to under-served markets. From the growing Alberta oil sands to booming production in Pennsylvania’s Marcellus shale gas reserves, new fuel sources are prompting pipeline companies to refashion the continent’s energy arteries.

Houston-based Spectra Energy Corp., for example, is spending $800-million to lay a mere 15 miles of natural gas pipeline into Jersey City and Manhattan.  Spectra’s pipeline extension is a key part of energy strategies embraced by the State of New Jersey and New York Mayor Michael Bloomberg to switch from heating oil to cheaper, cleaner-burning gas.

Spectra chief executive officer Greg Ebel said the pipeline project – so costly because it traverses such a densely developed area – could save consumers in the New York City area more than $250-million a year on their energy bills. It’s just one example of the vast opportunity for North American pipeline companies as producers use modern extraction techniques to boost production of shale gas and tight oil structures.

“I think we’re just at the early stages of really understanding just how powerful a resource this can be in the United States and in Canada,” Mr. Ebel said in an interview. Spectra – which owns Ontario’s Union Gas local distributor as well as pipelines and processing plants in western Canada – has a $5-billion capital expenditure program planned for the next five years."

In the Case of Electric Cars, Even If You Subsidize Them @ $8,000, You Don't Get More of Them

GUARDIAN UK -- "Hopes that £5,000 (about $8,000) government grants would make 2011 "remembered as the year the electric car took off" have been dashed with the release of new figures showing uptake of the greener cars has sputtered out.

Only 106 electric cars were bought in the third quarter of 2011 through the "plugged-in car grant" scheme, launched in January. It marks a significant slump in demand on already sluggish-take-up, with 465 cars registered through the scheme in Q1 and 215 in Q2.

Electric car campaigners and industry had hoped this would be the year the cars – billed as a clean low carbon alternative to conventional petrol and diesel models – made a breakthrough. Former transport secretary Phillip Hammond said in January: "Government action to support affordable vehicles and more local charging points means we are on the threshold of an exciting green revolution – 2011 could be remembered as the year the electric car took off."

The number of electric vehicles in the UK stands at just 1,107, a tiny chunk of the country's 28.5m cars. But the government had hoped to incentive take-up with the launch of grants of up to £5,000, preserving the grant during last summer's cuts and putting aside £43m, or enough for 8,600 cars, until March 2012. The scheme is due to be reviewed in January."

MP: Maybe this is a lesson that the government really shouldn't be picking winner and losers when it comes to the cars consumers buy? 2011 will now be remembered as the "year the electric car fizzled, even with very, very generous government subsidies."

OWS Crowd: Want a High-Paying Job? Move to North Dakota Where They Have a Labor Shortage

INTERNATIONAL BUSINESS TIMES -- "Williston, N.D., is booming. And it's all because of the oil. People are moving there en masse. It is probably the one place in the nation where there are not enough empty homes to meet the new residents' demands.

More than 6,000 job-seekers have packed their bags and headed to the small northern U.S. town with a normal population of just 3,000. Some of the newly arrived are currently homeless, since last year only 2,000 new housing units were built. This is not nearly enough to sustain the influx. Yet more come in droves each day.

Why wouldn't they? North Dakota has the lowest unemployment rate in U.S. at 3.5 percent and can tout the fact that workers' salaries have doubled and tripled recently.  Individuals can make $15 an hour serving tacos (see photo above), $25 an hour waiting tables and $80,000 a year driving truck.

Oil is the reason behind this small town turned boomtown. Williston is just one of multiple towns surrounded by the oil-rich Bakken formation. This 200,000-square mile rock unit could hold anywhere between 4 billion and 24 billion barrels of oil.

Oil workers can make upwards of $100,000 a year, including overtime and bonuses. As the oilfields offer more lucrative salaries, other local businesses are raising their pay to compete. "There's not a business you can start in North Dakota right now that wouldn't make it," said Nathan Pittman, who works for a trucking company in the state."

MP: The rising tide of oil wages is lifting all wages in North Dakota. 

As Peak Trader comments, the OWS protesters should move to Williston and work hard, so they can pay their fair share of taxes!  It is a bit ironic that at the same time that the OWS crowd is protesting about a lack of  jobs and economic opportunity in the U.S., there's a labor shortage in western North Dakota, and "there's not a business you can start in North Dakota right now that wouldn't make it."  In other words, if the OWS protestors are ambitious and hard-working, they can easily find work in Williston, or start a business there and it's almost guaranteed to succeed!!

From "Made in China" to "Made in the USA"

THE TENNESSEEAN (AP)  -- "Four years ago, the Tennessee-based company Pro Charging Systems outsourced manufacturing of several key components of its new line of battery chargers to China. The idea was to take advantage of lower labor costs and other advantages the company was counting on as it made charger parts there that would end up in hunting vehicles and golf carts sold in the United States.

Over the past year, though, Pro Charging has shifted that work and some other assignments back to U.S.-based suppliers.  The Tennessee company illustrates a surprising trend — call it a trickle — in which some manufacturers are bringing jobs back to America from Asia. With U.S. jobless rates stubbornly high, it’s part of a welcome reversal fueled by the Chinese economy starting to lose its cost advantages for many products made abroad but bound for final assembly and sale here.

As labor costs rise in China — along with steep fuel and transportation costs to ship merchandise back home — the idea of making goods in the U.S.A. starts to look better to American companies, a recent study by The Boston Consulting Group found. U.S. suppliers also are closing the gap in relative costs by operating more efficiently here.

“We’re not saying that factories in China will close,” said Mike Zinser, a partner who leads Boston Consulting Group’s manufacturing work in the Americas. “There will still be huge demand for serving the Chinese market and the rest of Asia. But in terms of supplying North America, China will no longer be the default option.”

U.S. manufacturing advantages include a better-skilled workforce, ease of security and other logistical advantages “that will make the U.S. a better option for many companies,” wrote Justin Rose, co-author of the Boston Consulting study. It lists transportation goods, including vehicles and auto parts, household appliances, and furniture among seven sectors that could return up to 3 million manufacturing jobs to the U.S."

HT: Mike W.

Income Inequality Explained by Demographics

From my post yesterday on the Enterprise Blog:

The Occupy Wall Street protest has returned national attention to the topic of income inequality; see recent commentary from bloggers Megan McArdle here and James Pethokoukis here and here. Both highlight empirical evidence that challenges the narrative that income inequality has gotten worse over time.

Most of the discussion on income inequality focuses on the relative differences over time between low-income and high-income American households, but it’s also instructive to analyze the demographic differences among income groups at a given point in time to answer the question: How are high-income households different from low-income households? Recently released data from the Census Bureau (available here, here, and here) for American households by income quintiles in 2010 allows for such a comparison: see the chart above (click to enlarge).

Bottom Line: American households in the top income quintile have almost five times more family members working on average than the lowest quintile, and individuals in higher-income households are far more likely than lower-income households to be well-educated, married, and working full-time in their prime earning years. In contrast, individuals in low-income households are far more likely to be less-educated, working part-time, either very young or very old, and living in single-parent households.

Dead Heat: Obama vs. Any Republican Candidate

Current Intrade odds for the 2012 election: Obama (48.6%) vs. any Republican candidate (48.7%), basically a "dead heat" (see chart).   

For other Intrade contracts: Bachmann is down to 1.2% (from 18% in July), Gingrich is up to 3% (from 1% a month ago), Herman Cain is steady at 7-8% for the last month, Perry is steady at 15% for the last 10 days but down from 35% a month ago, and Romney is still the front-runner holding steady at 67% and up from 35% a month ago.  

Friday, October 21, 2011

The "Bismarck Boom": Lowest Jobless Rate in U.S.

 At 3%, Bismarck Has the Lowest Jobless in the U.S., a Booming Labor Market and a Hot Real Estate Market
video platformvideo managementvideo solutionsvideo player

In the video above, ABC News features Bismarck, North Dakota, the city with the lowest jobless rate in the country at 3% in August. The energy-related economic boom there is also fueling a real estate boom - homes in Bismarck are selling in three weeks or less at an average selling price of 99% of list price, and home prices have gone up by 6% so far this year. Anchor Diane Sawyer comments at the end of the segment that the "Bismarck Boom" is "like a dream of America as we want it to be." 

Diane Sawyer's dream could become a reality for 1.4 million Americans, who could find new jobs if the U.S. adopts policies that encourage the development of energy resources in the U.S. and Canada, according to a recent study by Wood Mackenzie.   

Green Wind Energy Can Be Deadly for Bats

It must be hard to be an environmentalist some days.  You love green energy sources like wind power, but you also have strong feelings for bats, especially rare, endangered ones like the Indiana bat (pictured above).  And if just one of those cuddly creatures is found dead near a wind turbine, there's only one solution: stop the windmills from operating at night until the middle of November when the bats will hibernate until spring.  

That's exactly what just happened this week in Pennsylvania, read about it here and here.    

HT: Matt Bixler

Markets in Everything: "Light Field Camera" Allows You To Focus Selectively AFTER You Take a Picture

Geeks at Large Blog -- "Lytro is the world’s first light field camera. Light field is the amount of light traveling in every direction through every point in space. Light field contains a lot more information than traditional light captured by regular cameras, especially pertaining to the placement of objects emitting that light and their distance from the camera. 

Traditional cameras capture light and color but light field cameras also captures vector direction of the rays of light. This extra bit of information, combined with the special light field sensor and the powerful software, let’s the camera know the position of the objects in the frame, which is what lets it perform its magic trick, focus selectively on objects AFTER they are captured by the camera. 

If you’re wondering how many megapixels can that sensor capture, then the answer is none. The Lytro camera chooses to measure rays of light instead, 11 million of them to be precise. The images captured by the camera are in a proprietary format and can be selectively zoomed in on the camera or the Mac-only desktop software that it comes with. Images can be converted to other formats but then they will obviously lose their focus changing ability.

The Lytro light field camera will go on sale early 2012 and will cost $399 for the 8GB model that can store up to 350 images and $499 for the 16GB model that stores up to 750 images."

MP: You can go here to Lytro's "living picture gallery" and see how the amazing selective focusing works - that was how I was able to create the images above.

Related: See stories in today's SF Chronicle and Wash Post

Markets in Everything: $1 Million Taxi Medallions

New York Times -- "Two New York taxi medallions — aluminum plates that grant the right to operate a yellow cab — changed hands this week for $1 million apiece, the highest recorded sale since the city’s modern livery system began (see chart). The sale was the culmination of decades of astonishing growth for the humble medallion, which is nailed to the hood of every yellow cab in the city. When New York issued its first batch of medallions in 1937, the going price was $10 even, or $157.50 in today’s dollars.

Some perspective: The Dow Jones industrial average has risen 1,100 percent in the last 30 years. In the same period, the value of a taxi medallion is up 1,900 percent. That return beats gold, oil and the American house.

Corporate medallions, like the two sold on Wednesday, do not need to be driven by their owners and can be leased out 24 hours a day. Individual medallions, which make up about 40 percent of the fleet and must be occasionally driven by the owner, are worth slightly less: the latest sale was for about $700,000 (see chart).

There are 13,237 medallions in the city; new ones, when issued, are sold at auction. But the medallion pool is rarely expanded, creating a scarcity that helps keep values high. (Many owners have objected to a city proposal that would allow livery cabs to pick up street hails outside busy parts of Manhattan, saying such a plan would lower the value of their medallions.)"

MP: Membership in the "NYC taxi cartel" certainly has its privileges: above-market returns (17.4% per year for corporate medallions and 14.75% for individual medallions, vs. 0.83% per year for the S&P 500 since 2004), see previous CD post here, here and here.

HT: Colin Grabow

Gibson Guitar CEO Speaks Out on Gov't. Persecution

World Trade and Output Reach New Record Highs

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

1. World trade volume increased in August by 1.4% on a monthly basis and by 5.9% on an annual basis, bringing the global trade index to a new all-time record high of 166.5 (see chart).   World trade is now 3.2% above the previous April 2008 peak of 161.3, and 28% above the recessionary low of 103.2 in March of 2009.  

2. On an annual basis through August, export growth was especially strong in emerging economies (9.0%) and the U.S. (6.6%), while Asia led the growth in imports at 10%.  

3. World industrial output increased by 0.3% in August from the previous month to a new monthly high (see chart), following monthly increases of 0.50% in July, 0.60% in June and 1.0% in May.  On an annual basis, world industrial production increased 5.5% above its year-ago level, with especially strong output growth in the emerging economies (8.21%) and Asia (11.1% gain).  

4. World output is now 6.4% above its pre-recession level and 21.2% above the recessionary low in March 2009. 

Bottom Line:  World trade and world output have fully recovered from the global economic contraction of 2008-2009, and are both now well above their early recession peaks.  Further, they both reached all-time record highs in August and they have both been growing at healthy rates on both a monthly and annual basis in recent months.  At least based on world economic conditions through August, there's nothing to suggest a pending global recession or slowdown. 

Thursday, October 20, 2011

The "Brent Oil Premium" Could Be Another Factor That Will Rekindle American Manufacturing

Diapson Commodities just released a detailed study of the world oil market and it reports that brent oil for December 2011 delivery is selling at a $25.30 per barrel premium over West Texas Intermediate (WTI). For many detailed reasons outlined in the study, Diapson expects this premium to continue, thus the report's title "Brent Oil Premium Over WTI: It's Here to Stay."

The implications of the brent oil premium are significant because U.S. manufacturers buy oil at the WTI price, while Asian and European manufacturers pay the brent oil price, giving U.S. manufacturers a huge energy cost advantage over their foreign competitors.  Expansion of the Canadian oil sands production, the shale oil and natural gas booms, and the Keystone XL pipeline will provide additional support to this energy cost advantage favoring American manufacturers.  

Diapson Commodities predicts in its report that the "quality spread" (another term for the brent oil premium over WTI) will help to rekindle U.S. industrialization:

"Manufacturers of energy-intensive goods located in the United States will have an enormous advantage over competitors in Europe or Asia, including China, in the next few years from the point of view of costs. This might even hasten the return of manufacturing from emerging market countries back to the U.S."

MP: This is another factor favoring increased manufacturing production in the U.S., including "reshoring," (moving production back to the U.S. from overseas) as part of the pending "renaissance of American manufacturing" that has been documented here on many occasions.    

Wall Street Protestors Come to K Street in DC

Occupy K Street (OKS).
I just happened to walk by the Occupy DC encampment today at 15th and K Street, and took the photos above.  Even if not intentional, it's appropriate that the protestors are headquartered on K Street, see previous CD post here, and in the city with the highest income in the country.  

Markets in Everything: Peer-to-Peer GM Carsharing

DETROIT – "General Motors and RelayRides, the world’s first peer-to-peer carsharing marketplace, today announced an exclusive relationship that will allow millions of GM vehicle owners to leverage the OnStar system to rent out their idle cars through the RelayRides marketplace.

The program, which will launch in early 2012, is GM’s first large-scale involvement in carsharing and is aimed at making it easier for those without a vehicle to access temporary, affordable and reliable transportation in a Chevrolet, Buick, GMC or Cadillac.

RelayRides allows vehicle owners to choose to rent out their idle vehicles, with the owner controlling the rates and availability of the car. RelayRides provides an online marketplace and a $1 million insurance policy to make the transaction safe and convenient. Through innovative technology integration, RelayRides will leverage OnStar to allow RelayRides borrowers to unlock GM cars with their mobile phones. For vehicles that are not OnStar enabled, RelayRides must install a small device in the car to provide convenient access to borrowers. The integration makes all eligible OnStar vehicles immediately “RelayRides ready” without having to install additional hardware."

Navigating the Bureaucracy to Start a Food Truck

As they prepared for the lunchtime crowd, the owners of the Concrete Cuisine food truck in Detroit (pictured above) explained to the Detroit Free Press what it took to get their vehicle and food business licensed:

"The food truck owners started working to get their license from the Wayne County Health Department -- known for its tough standards -- in the spring. "It took us three or four months," says Kava, 32, of Livonia. "You had to come up with a plan review, the same as you would with a bricks-and-mortar restaurant. They wanted to see your whole layout. They wanted to know every single piece of equipment -- dimensions, specs, where you're buying it. You have to have a spec sheet for every single thing -- the exact model.

"They wanted to know your food sources and the entire flow of the food. ... We had to say we were getting the chicken, for instance, from U.S. Foods. And then it's, 'OK, you buy your chicken frozen. What's your thawing-out process? How do you cook it? How do you hold it? How do you serve it?' We had to go through every single menu item and do the exact food flow."

And those were only a few of the requirements.

"They say you have to do this, this, this and this," says Aquilina, 35, of Plymouth. "So you go back and do that, and keep redoing it. The final step was the lighting. We didn't have a lighting chart. They wanted to know where the lights are going to be and what's covering the lights."

"We were amazed at the amount of steps," adds Kava. Other people told them they should have gone to Oakland County, where the process is said to be easier. "But you know, it's cool, because once you actually receive the license, you have a sense of accomplishment."

MP: Yes, once it's all over, you might have a sense of accomplishment from successfully navigating the bureaucratic maze and getting a food truck license, but it's too bad that so much time, energy and money has to be spent on the mountain of paperwork required to start a small business to serve the public.  Well, at least it's creating a huge barrier to entry for the incumbent businesses, and will limit the competition from potential entrants who might be unwilling or unable to navigate the bureaucracy.  

Thursday Positive Economic News Roundup

There's so much positive economic news coming out today that I'll summarize six of the reports below instead of writing a separate post for each one: 

1. Gallup's survey-based measure of the U.S. unemployment rate dropped sharply to 8.3% in mid-October, from 9.2% at the end of August and from 10% a year ago (see chart above).  The decrease suggests that the BLS could report an October jobless rate below 9.0%.

2.  To meet burgeoning worldwide market demand for Boeing's single-aisle jets, the 737 production rate has recently increased from 31.5 airplanes per month to 35 per month, and will increase in the future to 38 airplanes a month in the spring of 2013, and to 42 airplanes a month by the summer of 2014.

3. Demand for commercial vehicles strengthened in September. Class 8 net orders rose to 23,600 units, a gain of 55% year-over-year and 12% month over month, while orders for 5-7 classes rose 8% month over month. “Years of deferred purchases are buoying up demand,” said an industry analyst.  

4. Leading economic indexes continued to improve for China in August by 0.50%, and for the U.S. by 0.20% in September (see chart above).  The Leading Economic Indicator in the U.S. has now increased in 29 out of the last 30 months, and there hasn't been such a long streak of positive readings over a 30-month period since the early 1970s, 40 years ago.

5. According to the Philadelphia Federal Reserve's Business Outlook Survey, regional manufacturing for Pennsylvania, New Jersey and Delaware showed signs of recovering in September, following several months of decline.  The survey’s broadest measure of manufacturing conditions increased from -17.5 in September to 8.7, the first positive reading in three months.  Indicators for future regional manufacturing activity remained positive and strengthened moderately this month. The broadest indicator of future activity improved by 6 points in September, and is now at its highest level in six months. 

MP: The case for the U.S. economy to enter another recession this year continues to weaken. 

Let's End the Antiquated, Job-Killing Sugar Shaft

From Sen. Jeanne Shaheen (D-N.H.) and Sen. Mark Kirk (R-Ill.), co-sponsors of the Stop Unfair Giveaways and Restrictions Act, writing in Politico:
"U.S. sugar policy is rigged in favor of a handful of large sugar producers — at the expense of everyone else. This is costing consumers and sugar-using businesses $4 billion a year according to a study due to be released Wednesday [MP: That's close to my estimate of $4.5 billion for 2010]. The sugar program is outdated, unneeded and should go. Our bill, the Stop Unfair Giveaways and Restrictions Act, would end this system.

Created in 1934 and modified several times since, the sugar program is a complex system that often escapes public scrutiny. It includes price supports, which establish an artificial floor on sugar, and import restrictions, which prevent foreign sugar from bringing U.S. sugar prices in line with the rest of the world.

The end result is a U.S. sugar price that’s almost twice the world average (see chart above). That translates into a direct impact on U.S. consumers — who buy sugar directly and who buy products made with sugar every day. Americans can’t afford to be wasting that money in today’s difficult economy.

Most alarming, high sugar prices affect jobs. The sugar program benefits about 4,700 growers of sugar cane and sugar beets nationwide. But it hurts more than 600,000 people working in sugar-using industries nationwide — from candy makers to bakers.

High sugar prices were responsible for the loss of 112,000 jobs in those industries between 1997 and 2009, according to industry analysts. For every sugar-growing job saved through high U.S. sugar prices, according to a 2006 Commerce Department study, approximately three jobs in sugar-using industries are lost.

This policy puts U.S. businesses at a terrible disadvantage. Imported products that use sugar are relatively free of punitive tariffs. That means foreign competitors in the confectionery industry are using cheaper sugar so they can undersell American companies. The result is a loss of American jobs as U.S. factories shut down and international firms locate new facilities outside the United States.

This sugar program is antiquated. Supporters of sugar reform, include the Competitive Enterprise Institute, the U.S. Chamber of Commerce, the National Foreign Trade Council, the National Association of Manufacturers and the Consumer Federation of America. All say the program is hurting consumers and businesses.

Democrats and Republicans have come together to push for an end to this program because it is not a partisan issue. It’s about entrenched interests versus sound policy. Sugar price supports are an unnecessary market intervention that have no place in our 21st-century economy."

Wednesday, October 19, 2011

The Rust Belt Comes Back to Life: Shale Gas Revolution Could Bring 200,000 Jobs to Ohio

Steubenville, Ohio = "Little Saudi Arabia"
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ABC NEWS -- "Steubenville, Ohio, may not look like a city sitting on a multi-billion dollar industry. Unemployment here reached 15 percent in 2010, and a now-shuttered steel mill -- which was once the lifeline of the Steubenville economy -- is now just a painful reminder of what used to be. While the old way is gone for good -- a new way has already changed lives.

Two huge shale formations -- the Marcellus and Utica -- lay underneath a five-state region. Steubenville sits right on the epicenter of the Marcellus formation, ready to absorb all the new positions needed to open new and repurposed old wells. In a matter of months, rigs will begin to dot the landscape, and current and former residents hope the money will line their pockets.

More than 300 new jobs have already come to the Steubenville area. And as many as 10,000 more are expected in the next three years. If jobs keep growing at this pace, every adult in Steubenville could be working by April. 

No one in Steubenville can remember the last time anyone heard of a job that paid as much as $77,000 a year coming to town, but those jobs are coming. There could be more than 200,000 of them in Ohio in the next few years."

MP: Inspired by the jobs booms in energy-rich states like Ohio and North Dakota, let me propose the "Domestic Energy Jobs Act."  Unlike Obama's "American Jobs Act" that would cost the American economy $450 billion from a mix of tax cuts, tax credits, and government spending to create a questionable and uncertain number of new jobs, the "Domestic Energy Jobs Act" would open up more domestic areas to oil and gas drilling and cost nothing.

Thousands or even millions of guaranteed new jobs would be created throughout the country, bringing full employment to cities like Steubenville, Ohio.  Increased domestic production of oil and gas wouldn't require a penny of taxpayer subsidies or government spending, and instead would actually generate millions of dollars of government revenue from oil taxes and royalties.

In additions to more jobs, another benefit of increased natural gas production is that it would help lower energy costs for American manufacturers, increasing their competitiveness.  The National Association of Manufacturers explains:

"Manufacturers, users of approximately one-third of the energy consumed in the United States, strongly support the use of hydraulic fracturing to access our nation’s abundant supply of natural gas. We use natural gas not only as a source of electricity, but as a feedstock for products such as plastics, fertilizer and pharmaceuticals. Affordable natural gas provides manufacturers with the ability to expand their facilities, increase production and create even more jobs. It is critically important that the states and the federal government not stand in the way of our access to these valuable resources."

HT: Paul Evans 

Washington DC Has Highest Median Household Income, As Wall Street Moved to K Street. OKS?

Political Capital Is Now Richer Than Tech Capital 
BLOOMBERG -- "Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show.

The U.S. capital has swapped top spots with Silicon Valley, according to recent Census Bureau figures, with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046.

The figures demonstrate how the nation’s political and financial classes are prospering as the economy struggles with unemployment above 9 percent and thousands of Americans protest in the streets against income disparity, said Kevin Zeese, director of Prosperity Agenda, a Baltimore-based advocacy group trying to narrow the divide between rich and poor.

“There’s a gap that’s isolating Washington from the reality of the rest of the country,” Zeese said. “They just get more and more out of touch."

In recent years Washington has attracted more lobbyists and firms with an interest in the health-care overhaul and financial regulations signed into law by President Barack Obama, according to local business leaders. 

“Wall Street has moved to K Street,” said Barbara Lang, president and chief executive officer of the DC Chamber of Commerce, referring to the Washington street that’s home to prominent lobbying firms. 'Those two industries clearly have grown in our city.'" 

MP: Considering that Washington has the highest median income in the country thanks to all of the lawyers and lobbyists, and all of the federal employees earning compensation that averaged $126,369 last year, OWS might have the wrong target.  After all, it was government housing policies originating in Washington that contributed more significantly to the housing bubble, mortgage meltdown, financial crisis and economic recession than any greed on Wall Street.

Based on a new Gallup Poll (ht: Economix Blog), the American people understand this, and they are more than twice as likely to blame the federal government in Washington (64%) than financial institutions on Wall Street (30%) for the economic problems facing the U.S. How about: Occupy K Street? Or Occupy 1st Street SE?

Markets NOT in Everything: No Gas from 11pm-7 am

"In 48 states, customers are allowed to pump their own gasoline. In 48 states, filling station attendants no longer exist as a profession. Labor costs are lower. These savings are passed on to customers in the form of lower gasoline prices.

In Oregon, any convenience store that sells gasoline must hire a gasoline attendant. So, there are fewer convenience stores acting as sellers of gasoline. This law restricts entry into the field.

Because there are few customers from 11 p.m. to 7 a.m., it is unprofitable for stations to hire full-time attendants. The solution is to close the stations. When the stations are closed, the manager turns off the pumps. No one can buy gasoline at the station."

Markets NOT in Everything: No Cash Sales in LA

KLFY-TV --  "Cold hard cash. It's good everywhere you go, right? You can use it to pay for anything. But that's not the case here in Louisiana now. It's a law that was passed during this year's busy legislative session.

"House Bill 195 basically says those who buy and sell second hand goods cannot use cash to make those transactions, and it flew so far under the radar most businesses don't even know about it. Besides non-profit resellers like Goodwill, and garage sales, the language of the bill encompasses stores like the Pioneer Trading Post and flea markets.

Lawyer Thad Ackel Jr. feels the passage of this bill begins a slippery slope for economic freedom in the state. "The government is placing a significant restriction on individuals transacting in their own private property," says Ackel."

HT: Andy Weintraub

Tuesday, October 18, 2011

America's Ridiculously Large $15 Trillion Economy

Which Countries Match the GDP of U.S. Metro Areas?
RankU.S. Metropolitan
Area GDP, 2010
MillionsEquivalent Country by GDP, 2010
1New York City$1,280,517Australia
2Los Angeles-Long Beach$735,743Turkey
4Washington, D.C.$425,167Taiwan
6Dallas-Fort Worth$374,081Argentina
7Philadelphia$346,932South Africa
8San Francisco-Oakland$325,927Thailand
11Miami-Fort Lauderdale$257,560Finland
13Minneapolis-St. Paul$199,596Chile
15Phoenix$190,601Czech Republic
16San Diego$171,568Pakistan
17San Jose$168,517Romania
19Baltimore$144,789New Zealand
20St. Louis$129,734Kuwait

The Bureau of Economic Analysis recently released GDP by U.S. metropolitan area for 2010, and the top 20 largest metro areas are displayed above along with the equivalent countries that have economies that are approximately the same size as U.S. metro areas.  Pretty amazing, and a testament to the enormity of the U.S. economy and the productivity of American workers. 

Related: Map from The Economist comparing the 2009 economic output of American states to the economic output (GDP) of entire countries.

Let's End the Longest War in U.S. History; Support for Legalization of Weed Is Now At All-Time High

Canadian columnist Neil Reynolds writing in the Globe and Mail:

"The American war on drugs – or, more generically, the global war on drugs – can’t be won. The more intensely that governments wage it, the more certain is the defeat. This is because risk determines reward. More pressure on the supply of drugs means more risk and more profits. More profits mean more drugs and more violence. The proof is in the body count across Mexico, across Central and South America and, indeed, across the Western Hemisphere."

"Ironically, drugs became a significant problem only when governments declared war on them. Although Richard Nixon cited drugs as “public enemy No. 1” when he declared war in 1971, the statistical evidence doesn’t support the pronouncement. The U.S. incarceration rate, now the highest in the world, was one-eighth the problem 40 years ago than it is now. From 1920 through 1970, the rate remained flat: with 0.1 per cent of Americans in prison at any one time. By 1980, the rate doubled: 0.2 per cent. By 1990, it doubled again: 0.5 per cent. By 2010, it reached a record high: 0.8 per cent. This exceeds two million people – roughly 25 per cent of whom are serving time for drugs."

"The consequences of the war on drugs are appalling, from excruciating personal suffering to intractable national tragedy. It’s enough to note that the death toll in Mexico alone exceeded 15,000 last year, bringing the number of people killed in the past five years to nearly 40,000."

"Harvard economist Jeffrey Miron, incidentally, says legalizing drugs would save the United States $44-billion a year in law-enforcement costs and generate another $42-billion in tax revenue – finally, after the longest war in American history, a peace dividend that could buy a lot of help for a lot of troubled people."

Related: Support for legalization of marijuana in the U.S. is at an all-time historical high based on a new Gallup poll (see chart above), and according to CBS News: "If the steady climb in public support for marijuana legalization continues at its current pace, politicians will soon have to address the laws that fly in the face of that movement in opinion."

Random Thoughts from Thomas Sowell

"People who live within their means are increasingly being forced to pay for people who didn't live within their means -- whether individual home buyers here or whole nations in Europe."

"Politicians can solve almost any problem -- usually by creating a bigger problem. But, so long as the voters are aware of the problem that the politicians have solved, and unaware of the bigger problems they have created, political "solutions" are a political success."

"Do people who advocate special government programs for blacks realize that the federal government has had special programs for American Indians, including affirmative action, since the early 19th century -- and that American Indians remain one of the few groups worse off than blacks?"

Monday, October 17, 2011

Markets in Everything: Police Lineup Casting

For $10, A Bronx "Casting Director for Police Lineups" Will Find the Guys Who Didn’t Do It

New York Times -- "He is one of New York’s busiest casting directors, yet very few know of his work. For some 15 years, Robert Weston has been providing the New York Police Department with “fillers” — the five decoys who accompany the suspect in police lineups."

"Detectives often find fillers on their own, combing homeless shelters and street corners for willing participants. In a pinch, police officers can shed their uniforms and fill in. But in the Bronx, detectives often pay Mr. Weston $10 to find fillers for them." 

"Mr. Weston says he is always on call; his Bluetooth earpiece comes off in public only when he goes to the barber for his weekly $16 trim. His cellphone, he says, holds the numbers of some 100 potential lineup fillers, mostly friends and acquaintances from the Mill Brook Houses, the public housing project in the South Bronx where he has lived most of his life."

"Fillers are paid $10 for a local lineup in the Bronx. For each lineup that Mr. Weston fills in the Bronx, he receives $10; he gets more if he sits in as a filler or if his services are required in another borough. This is Mr. Weston’s primary source of income. Some days he organizes as many as four lineups; on other days, none at all."

HT: Dan Greller

"Back in the USA" - Seattle Manufacturer Provides A Lesson on Reshoring. Expect More of It. Lots More

The NY Times recently featured a Seattle-based company named "Taphandles" that has brought some of its manufacturing of custom beer taps and beer-marketing products (see photo above) back to the United States from China as many of the economic and cost advantages of manufacturing have started to shift back to the United States, including:

1. Manufacturing wages in China continue to increase at 15-20% per year on average, and have actually increased by a whopping 300% for Taphandles since it opened a Chinese factory in 2006.  In contrast, manufacturing wages in the U.S. have remained relatively flat, or have even decreased in some industries that have adopted a two-tier wage structure. 

2. The lead time for Taphandles' orders coming from China is three weeks, compared to a much shorter time for domestic production, which improves customer satisfaction for Taphandles' clients.   

3. In addition to rising wages, the Chinese currency has appreciated by 23% over the last five years, making production there much more expensive for American firms like Taphandles. 

4. Taphandles owner Paul Fitcher predicts that international shipping costs will continue to rise along with higher oil prices, which was another factor in his decision to "reshore" manufacturing back to the U.S.  

Bottom Line: Look for more and more manufacturing production to come back to the U.S. from China in the future, as China's once-significant labor cost advantage continues to shrink.  According to a recent Boston Consulting  Group report, the example of Taphandles is part of an emerging trend that will accelerate in the next five years, and in the process could create 2 to 3 million American manufacturing jobs from the reshoring of production back to the U.S.

ND Oil Boom Fuels Airport Boom: New Records Are Set Every Month With September Gains of 60-90%

BISMARCK (AP) - "Airports in western North Dakota's booming oil patch are setting new passenger boarding records nearly every month and need tens of millions of dollars to invest in terminals, parking and runway upgrades, the state's aeronautics commissioner said.

Dickinson, Williston and Minot airports have set airline boarding records nearly each month for the past three years, said Larry Taborsky. "The airports are full and getting to the extreme point. Bigger runways are needed to support bigger planes and more facilities are needed for passengers," he said.

Dickinson boarded 89 percent more passengers in September than it did in September 2010, and Williston saw an 87 percent jump.  "Williston is way beyond capacity and parking lots are now spilling out on to the grass," Taborsky said. "Dickinson is the same way."

The year-on-year September jump at Minot's airport was slightly lower, at 61 percent, but it experienced the biggest increase in actual passengers boarded, 5,087 more, among the state's eight commercial and regional airports."

Try The Color Test

Take the test here - the old left/right brain struggle.

Natural Gas Boom Fuels Education Boom

ASSOCIATED PRESS -- "Zane State College in Ohio is among dozens of public colleges and universities across the northeastern shale states that are moving to add new staff, academic majors or job-training courses in fields related to natural gas.

“There’s really been a sea change in these opportunities, a cornucopia of community colleges and local workforce training programs across the Commonwealth of Pennsylvania, West Virginia, Ohio, even the southern tier of New York,” said Travis Windle, a spokesman for the Marcellus Shale Coalition, representing energy and exploration companies. “As natural gas continues to expand, so do the needs for a local workforce with these skills that are going to be in need for the next 50 years, or even more.”

Training shale workers is not only on the minds of energy interests in the Northeast; newly available resources in Colorado, Oklahoma, Wyoming and Texas have also been met with new educational offerings. Those include the Colorado Energy Research Institute’s outreach efforts with a dozen community and technical colleges, and the professional land management certificate program started just last month by the University of Texas at Austin. The field’s promised job growth is being documented."

MP: Here's another example of how domestic energy production creates positive ripple effects through the economy, and stimulates both direct job creation in drilling industries and indirect job creation in related industries like education in this case, which helps support the natural gas industry.  Another example is Ohio's booming steel industry that is providing the thousands of feet of steel pipe that are used for drilling natural gas.

HT: Marcellus Gas

Sept. Industrial Output Gains Are Above-Average

The Federal Reserve released data today on U.S. industrial production for the month of September with the following highlights: 

1.  Industrial production increased in September by 0.2% on a monthly basis and 3.2% on an annual basis. 

2. For the third quarter (July-September) industrial production increased an annual rate of 5.1%.

3. Manufacturing output increased 0.4% in September to a level that was 3.9% higher than a year ago.

4. The output of manufactured durable goods increased 0.6% in September to 7.9% above its year-earlier level.  

5. Mining output increased by 0.8% in September to 5.2% above its year-ago level.  

6. The September industrial production index at 94.2 is 12.8% above the cyclical low in June 2009 of 83.5, and is 6.4% below the cyclical high of 100.7 in December 2007 (see chart above). 

MP: On an annual basis, the 3.2% growth in industrial production through September is above the 2.2% average growth rate since 1973, and the 3.9% growth in manufacturing output is above its 2.6% average rate.  The above-average growth in industrial output through the third quarter this year runs counter to the claims that we are entering another recession. 

Update: Brian Wesbury and Bob Stein are predicting real GDP growth of 3.5% in the third quarter, and the 5.1% annualized growth in industrial output during the third quarter would certainly support that prediction.