Thursday, April 30, 2009

Coin Scalping? Buffalo Nickel Sells for $965 on Ebay

The 1913 S Buffalo Nickel ("Type 2" Near Gem BU++/Gem BU) pictured above just sold on Ebay for $965.

Face Value: 5¢ (Five cents, see top photo)

Market Value: $965

Question #1: Isn't that "coin scalping?, i.e. selling a coin above its face value?"

Question #2: What's the difference between selling a concert ticket above face value and selling a coin above face value? Why should one be illegal and one be legal?

Unemployment Rate for PhD Economists = 0%

Economics has long been called the dismal science. The general economic outlook today is indeed dismal, but that doesn't mean job prospects in the field are. "There is no unemployment among Ph.D.s in economics," declares John Siegfried, a Vanderbilt University professor.

Just do the math, and you'll see why: In the current academic year, the American Economics Association has listed approximately 2,200 job openings worldwide—but U.S. universities will grant only 950 Ph.D.s in economics.

Universities themselves may cut back, but economists remain in demand in government, business, and nonprofits and as consultants or policy analysts. "Depending on the program, about half the graduates stay in academics, and the other half go into the private sector, government, or places like the World Bank or International Monetary Fund," says William Collins, director of graduate studies in economics at Vanderbilt.

Some of the most famous economics Ph.D.s straddle both worlds; think of Fed Chairman Ben Bernanke, New York Times columnist and Nobel Prize winner Paul Krugman, and Obama advisers Christina Romer (who will chair the White House Council of Economic Advisers) and Laura D'Andrea Tyson.

~US News and World Report article "For Economists, a Moment in the Sun"

Economics Ph.D. program rankings

HT: Tom Hemphill

Green Shoot: Restaurant Activity's Up For 3 Months

(Washington, D.C.) -- The outlook for the restaurant industry improved in March, as the National Restaurant Association’s comprehensive index of restaurant activity rose for the third consecutive month. The Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 97.7 in March, up 0.2% from February and 1.3% during the last three months (see chart above).

“Although the RPI remained below 100 for the 17th consecutive month, which signals contraction, there are clear signs of improvement,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “Restaurant operators reported a positive six-month economic outlook for the first time in 18 months, and capital spending plans rose to a 9-month high.”

New Dow Jones Economic Sentiment Indicator

NEW YORK, April 30, 2009A unique new monthly economic indicator introduced today by Dow Jones offers what could be an early signal that the economy may be lifting off its low point but any recovery remains very tentative.

The Dow Jones Economic Sentiment Indicator (ESI) edged higher in April to 27.6, up from 26.3 in March. The ESI aims to predict the health of the U.S. economy by analyzing the coverage of 15 major daily newspapers in the U.S. It uses a numerical scale from 0 to 100 to express the balance of sentiment in articles about the economy.

“The green shoots of recovery may be making an appearance,” Dow Jones Newswires “Money Talks” columnist Alen Mattich said, “but they are as yet very small and very pale."

The ESI represents one of the most comprehensive and far-reaching examinations of media coverage as an economic indicator. The ESI has been back-tested to 1990, allowing a detailed retrospective look at the indicator’s propensity for anticipating changes in the economy. This historical analysis of the series shows that the ESI clearly highlighted the risk that the U.S. economy was sliding into recession in 2001 and 2008 and suggests the indicator can help predict economic turning points as much as seven months in advance of other indicators.

“The Dow Jones Economic Sentiment Indicator represents a valuable new tool for measuring and anticipating key turning points in the economy,” Clare Hart, President of Dow Jones Enterprise Media Group, said. “And even though it is being released for the first time today, the ESI’s ability to anticipate those turning points is supported by nearly 20 years worth of data.”

Clarification on Moderating Comments

A commenter writes ".....with Mark running nanny patrol with comments...."

Let me clarify:

Carpe Diem has been subject to several major spam attacks recently, where somebody posts comments with advertising links on hundreds of older posts at a time. On several occasions in the last few weeks, I had to spend the first 30 minutes of the day removing all of the spam comments. Therefore, I changed the Blogger comment setting to allow me to moderate comments on any post older than 5 days, since most of the spam attacks were on older posts. That seemed to take care of the spam attacks for now, and I just changed the moderation to 10 days for now, to allow for some ongoing, unmoderated discussion that sometimes takes place on popular posts.

So I wasn't intending to be running nanny patrol with comments, but was forced into that situation because of several major spam attacks. I'll fine-tune this as necessary, and have only rejected comments with advertising during the forced "nanny patrol" period. Comments within 10 days of a post are currently not moderated at all.

Don't Make America More Like France

HT: Dan Mitchell

Chart of the Day:Retirement Age v. Life Expectancy

The chart above displays the decreasing median retirement age for men (data from BLS) over the last half century, from almost 67 years in 1950 to less than 62 years by 2005, a decrease of more than 5 years. During the same period, male life expectancy has increased significantly by almost 10 years, from 65.47 years in 1950 to 75.2 years in 2005 (data from CDC). As a result of those two trends, the average expected time in retirement for men has increased from 0 in 1950 to 13.5 years in 2005.


1. It's only been in the last 50 years or so that the average male lived long enough to enjoy any time in retirement. For all of human history before the 1950s, the average male worked his entire life and died before reaching retirement age. When it comes to expected years in retirement, there has never been a better time to be alive.

2. The Social Security system was designed in the 1930s when the average male wouldn't ever collect any benefits.

3. Given the recent performance of the stock market, the median retirement age may increase.

Did Jobless Claims Peak in Early April?

James Hamilton (4/9/2009): If subsequent data confirm that the 4-week average of initial claims did indeed reach its peak in the number reported April 2, and if Robert Gordon's pattern holds up, the recovery that many of us had assumed would be quarters or perhaps even years away may instead have started by June.

James Hamilton (4/16/2009): If April 4 ultimately proves to be the peak for the entire year, and if this recession behaves like each of the previous 6 recessions, we could expect the NBER eventually to declare that the economic recovery began within 6 weeks of today.

-- "The past few weeks' claims data are beginning to look increasingly like a peak," wrote Ian Shepherdson, economist at High Frequency Economics, in a research note.

Note: The chart above is based on jobless claims data through today's release, which reported the third consecutive monthly decline in the 4-week moving average.

2.3% Real Disposable Income Growth in March

From Table 10 in today's BEA report on Personal Income: Real disposable income increased 2.3% in March compared to March last year, following increases of 2.8% in January and 2.4% in February (see chart above).

This is the sixth consecutive month of positive growth in real personal income compared to the same month in the previous year, following negative growth in August and September 2008. The 2.3% increase in March real disposable income is equal to the 2.3% average over the last four years.

Fuel Efficiency Doesn't Lower Demand, It Raises It

It seems intuitive: Increasing the fuel efficiency of automobiles - or anything else that runs on gas - should lower the demand for oil.

It was with precisely that expectation that Congress enacted the Corporate Average Fuel Economy (CAFE) standards in 1975, following the Arab oil embargo. At the time, US oil imports amounted to a little more than one-third of consumption. Today we import two-thirds. After more than three decades of CAFE standards, heightened environmental awareness, and steady improvements in fuel efficiency and engine technology, America's demand for oil is greater than ever. In 1975, highway fuel consumption amounted to 109 billion gallons, according to the Federal Highway Administration. By 2006 it had climbed to 175 billion.

"It seems obvious that rising efficiency in cars, furnaces, and lawn mowers should, in the aggregate, significantly curb demand for energy," write Peter Huber and Mark Mills in "The Bottomless Well," their perceptive 2005 book on the supply, demand, and pricing of energy. "Sad to say, however . . . efficiency doesn't lower demand, it raises it."

Why? Because improvements in fuel economy effectively make fuel less expensive, and when costs fall, demand tends to rise. As driving has grown cheaper in recent decades, people have done more of it - choosing to drive to work instead of taking the bus, for example, or buying a second car, or moving to a house with a longer commute, or sending the kids to college with cars of their own. Between 1983 and 2001, data from the Energy Information Administration show, the number of annual vehicle-miles driven by the average American household rose from 16,800 vehicle-miles to more than 23,000.

"Efficiency may curtail demand in the short term, for the specific task at hand," Huber and Mills acknowledge. "But its long-term impact is just the opposite. When steam-powered plants, jet turbines, car engines, light bulbs, electric motors, air conditioners, and computers were much less efficient than today, they also consumed much less energy. The more efficient they grew, the more of them we built, and the more we used them - and the more energy they consumed overall."

~Jeff Jacoby, in the Boston Globe,
The Fuel-Efficiency Paradox

Wednesday, April 29, 2009

Homebuilders Index Up By 67.4% Since Mid-March

After several years of punishment, the U.S. homebuilding industry has begun to show some glimmers of hope. Earlier this month, The National Association of Home Builders reported its confidence index to be at its highest level since October. This optimism has pushed shares of the SPDR S&P Homebuilders ETF (NYSE: XHB) 18.3% higher during the past 4 weeks. Record-low interest rates and an $8,000 tax credit for new home buyers have been key factors to the XHB rebound.

MP: Since the early March low, the SPDR S&P Homebuilders Index is up by 67.4%, and over the last three months it's up by 30% vs. 0% for the Dow Jones average (see chart above, click to enlarge).

NY Yanks: Too Greedy to Outsmart Ticket Scalpers

The Yankees decided when they opened their new ballpark, that they would outsmart the scalpers and just raise ticket prices to levels where the tickets had normally sold on the secondary market in previous years. It seemed pretty smart at the time and then the first 6 games happened and the seats were glaringly empty at new Yankee Stadium. Now the Yankees have announced that they are going to go ahead and lower some prices.

The Yankees went ahead and priced their tickets too far up the scale and killed the demand across the board. They killed the demand for the primary market, and they took all the profits away from players in the secondary market like brokers and scalpers. While that might seem like a good thing, it creates embarrassing television broadcasts with empty seats.

Unfortunately for them, the Yankees have endured an embarrassing false start by being too greedy.

MP: Isn't it usually the ticket scalpers who are accused of being too greedy....

Goods-Producing Sector Fell Below 19% in 2008

In a previous CD post, I suggested that "Since fewer than 10% of all U.S. jobs are now in the manufacturing sector, should we continue to rely on industrial production as a key economic variable, when the manufacturing share of overall employment continues to decline to record low levels?"

The chart above using annual GDP data by sector from the BEA shows the downward trend in the private goods-producing sector, from 40% in 1947 to less than 19% in 2008. More reason that the importance of industrial production as an economic indicator has been declining over time. (Note: The BEA defines these two sectors as "private goods-producing" and "private services-producing," with the remaining percentage in the non-private or government sector.)

See related WSJ article "Nation’s Goods-Producing Sector Continues to Shrink"

Housing Affordability Falls For Second Straight Month Due to Rising Home Prices in Feb. and Mar.

The National Association of Realtors released its monthly Housing Affordability Index today, showing that the index fell in March to 166.7 from 174.4 in February, and from 176.9 in January (historical high), but is still 43 points above the 123.7 index average since 1989 (see chart above).

Housing affordability is determined by three variables: mortgage rates, median family income and median home prices. For the first three months of 2009, both mortgage rates (5.16% average) and median family income ($61,185 average) have held fairly steady, but the median home price has increased in each of the last two months from $164,200 in January to $167,900 in February (2.25% increase) and $174,900 in March (4.2% increase).

This two consecutive month increase in median home prices follows seven straight months of price declines (July 2008 through January 2009), suggesting that the national housing market may have reached a bottom in early 2009?

Markets in Everything: Stylin' Flu Masks

Markets in Everything: Zillow iPhone Ap

Imagine strolling through your neighborhood and, with a glance at your iPhone, finding out instantly how much just about any home you walk by last sold for. What if your iPhone could also display your location on a map that pinpoints nearby homes for sale and any that have recently changed hands? That's the promise of the new location-based iPhone application unveiled today by property valuation and listings giant Zillow.

Users can pull up details on just about any home they are interested in -- not just those that are for sale. "Basically what we've done is put the power of Zillow into the palm of your hand," Zillow COO Spencer Rascoff said. "Pushing the baby stroller around your neighborhood will never be the same."


12 Reasons To Be Economically Optimistic


One Bright Spot: Consumer Spending Rebounds

The economy contracted at a 6.1% annual rate in the first quarter, according to today's BEA report, which was worse than the 4.6% decrease in real GDP expected by economists. The one bright spot in today's report was the rebound in Personal Consumption Expenditures during the first quarter - consumer spending grew at 2.2% during the first quarter (see graph above) following two quarters of negative growth (-4.3% in 2008:Q4 and -3.9% in 2008:Q3), and was just slightly below the 2.27% average growth since 2001.

REUTERS -- There were some bright spots in the report. Consumer spending, which accounts for over two-thirds of U.S. economic activity, rose 2.2%, after collapsing in the second half of last year. Consumer spending was boosted by a 9.4% jump in purchases of durable goods, the first advance after four quarters of decline.

WSJ -- GDP acts as a scoreboard for the economy by measuring all goods and services produced. Its biggest component is consumer spending, which accounts for about 70% of GDP. First-quarter spending increased 2.2%, after dropping 4.3% in the fourth quarter.

Tuesday, April 28, 2009

Strongest Two-Month Gain in History for Fed Index

Manufacturing activity in the central Atlantic region contracted at a markedly diminished pace in April, according to the Richmond Fed’s latest survey. Our broadest indicators of overall activity—shipments, new orders and employment—remained in negative territory but the rate of decline moderated considerably from our last report. Evidence of diminished weakness was also reflected in all other indicators. District contacts reported that orders backlogs and vendor delivery times remained negative but improved from March’s readings, while capacity utilization was virtually unchanged. In addition, manufacturers reported somewhat slower growth in inventories.

MP: The chart above (data here) shows the Richmond Fed's monthly manufacturing index back to 1999. The 42-point improvement from February to April 2009 is the largest two month increase in the history of the Richmond's Fed's manufacturing index, going back to 1994.

HT: Scott Grannis' post Richmond Fed Survey Bounces

California Statewide Median Home Price in March Shows First Monthly Increase Since August 2007

LOS ANGELES (April 27)Home sales increased 63.8% in March in California compared with the same period a year ago, while the median price of an existing home declined 39%, the CALIFORNIA ASSOCIATION OF REALTORS (C.A.R.) reported (see chart above).

The March sales figure of 522,980 homes indicates that the market continues to be very active,” said C.A.R. President James Liptak. “All of the regions in the state experienced increases in month-to-month raw sales.”

Closed escrow sales of existing, single-family detached homes in California totaled 522,980 in March at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR associations statewide. Statewide home resale activity increased 63.8% from the revised 319,290 sales pace recorded in March 2008.

The median price of an existing, single-family detached home in California during March 2009 was $253,040, a 39% decrease from the revised $414,520 median for March 2008.

The March 2009 median price rose 2.2% compared with February’s $247,590 median price. “The statewide median price showed the first monthly increase since August 2007, and has remained in the $250,000 range over the past three months,” said C.A.R.’s Chief Economist Leslie Appleton-Young. “A number of regions around the state also have registered monthly gains for one or more months since the beginning of this year. While these are welcome signs, it remains to be seen whether home prices have stabilized.

“While we still face continued weakness in the general economy and expect continued foreclosures, the increased incidence of multiple offers indicates that first-time home buyers and investors are responding to dramatically improved housing affordability. Low mortgage rates and house prices, coupled with the federal first-time home buyer tax credit, is having a definite impact on the California housing market,” Appleton-Young added.

Other highlights for March 2009 include:

C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in March 2009 was 5 months, compared with 12.2 months for the same period a year ago (see chart below). The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

The median number of days it took to sell a single-family home was 48.3 days in March 2009, compared with 56.8 days (revised) for the same period a year ago (see chart below).

MP: Markets are working, and a recovery is taking place in the California housing market.

Update: Top graph has been corrected.

Florida Home Sales Increase for 7th Straight Month

ORLANDO, Fla. – April 23, 2009 – Florida’s existing home sales increased in March, making it the seventh month in a row that sales activity demonstrated gains in the year-to-year comparison, according to the latest housing data released by the Florida Association of Realtors (FAR). March’s statewide sales also increased over the previous month’s sales level in both the existing home and existing condo markets.

Existing home sales rose 30% last month with a total of 13,085 homes sold statewide compared to 10,080 homes sold in March 2008, according to FAR (see chart above). Statewide existing home sales in March were 32.7% higher than February’s statewide sales.

Fifteen of Florida’s metropolitan statistical areas (MSAs) reported increased existing-home sales in March and 13 MSAs also showed gains in condo sales. It marks the ninth consecutive month that a majority of markets have reported increased sales.
Florida’s median sales price for existing homes last month was $141,300; a year ago, it was $201,700 for a 30 percent decrease (see chart above).

MP: Falling home prices, record-low
mortgage rates, and record-high housing affordability are all working together to fuel a real estate recovery in states like Florida and California. Seven consecutive months of increased year-to-year sales activity suggests that the Florida real estate market is way past its bottom, and is making a solid recovery and strong comeback. Markets are working.

New Study Shows Clear Negative Relationship Between Local/State Tax Burden and Econ. Growth

Arlington, Va. – U.S. metropolitan areas with lower taxes exhibit higher employment growth, faster population growth, and greater increases in real personal income than areas with a higher tax burden, concludes a new study released today by the National Foundation for American Policy (NFAP), an Arlington, Va.-based policy research group. The study, “Higher Taxes, Less Growth,” found that areas with higher taxes had lower employment growth, smaller personal income gains and slower growth of population.

“These findings are particularly relevant at a time when many states and cities are proposing to raise taxes to address short and long-term budget problems,” said Stuart Anderson, Executive Director of NFAP.

1. Employment growth between 2000-2006 was 54% higher in the 50 metropolitan areas with the lowest tax burden than in the 50 highest-tax metro areas (measuring the tax burden as state and local taxes as a percent of personal income in 1997 for all 381 metropolitan areas).

2. Real personal income growth was 80% higher between 2000 and 2006 in the 50 areas with the lowest state and local tax burden (as a percent of personal income in 1997) than in the 50 highest-tax metro areas (see chart above).

3. In the 50 lowest-tax areas, population growth at 8.6% (between 2000 and 2007) was more than three times higher than in high-tax metro areas (2.6%).

Conclusion: The results suggest a clear negative relationship between state and local tax burdens and local economic growth.

Pakistan Tops Emerging Markets for 3-Mo. Returns

The chart above (click to enlarge) displays the most recent 3-month returns for the emerging market stock markets (in local currency) vs. the USA (4.09%), according to data from MSCI Barra. Nineteen of the emerging market indexes are showing double-digit returns for the last three month period.

Markets In Everything: Ultrasound Smartphones

Looks like smartphones are getting even smarter. We can already access our email, GPS navigate and use a wide range of business document formats, making them an integral part of a business person’s day. Now doctors might soon be packing a smartphone alongside their stethoscopes. Computer engineers at Washington University in St. Louis have combined a smartphone with USB-based ultrasound probe technology to produce a mobile imaging device that fits in the palm.

The development team envisages the smartphones will become essential tools in ambulances and emergency rooms and hopefully prove vital in the developing countries, where there are insufficient trained medical staff. People in remote areas could be trained to gather data with the phones and send the information to a large medical facility where specialists can analyze the image and make a diagnosis. The technology could also provide army medics the means to quickly diagnose wounded soldiers and detect the location of shrapnel wounds.

To make it happen, the team is working at keeping the cost of the device low. A typical, portable ultrasound device can cost as much as USD$30,000, but some USB-based probes sell for less than $2,000. The team is aiming for a price of about $500. There was also a need to keep the device small, which advances in technology have enabled.

Monday, April 27, 2009

All Aboard the Federal Gravy Train: We're In The Midst of Largest Federal Gold Rush Since the 1960s

Federal spending is growing by leaps and bounds. The budget hit $3.9 trillion this year, double the level of spending just eight years ago. The government is also increasing the scope of its activities, intervening in many areas that used to be left to state and local governments, businesses, charities, and individuals.

By 2008, there were 1,804 different subsidy programs in the federal budget. Hundreds of programs were added this decade—ranging from a $62 billion prescription drug plan to a $1 million anti-drug education grant—and the recent stimulus bill added even more. We are in the midst of the largest federal gold rush since the 1960s.

~From the study "Number of Federal Subsidy Programs Tops 1,800," by Chris Edwards, Director of Tax Policy Studies, Cato Institute

Markets in Everything: Gangsta Baby Dolls

The blingin'-est kids in daycare!
Big Duece.


Yesterday's Necessities Become Today's Luxuries

Click to enlarge graphs.
In hard times, the Pew Research survey finds that many Americans are changing their minds about which everyday goods and services they consider essential and which ones they could live without. The survey also shows that "old-tech" household appliances have fared the worst in the public's reassessment of the line between luxury and necessity in their daily lives.

Of 12 items tested, six dropped significantly in the necessity rankings from 2006 to 2009, while the other six basically held their own. All of the "old-tech" household appliances on the list dropped in their necessity ratings. For example, the proportion of people who rate a clothes dryer as a necessity fell by 17 percentage points in the past three years. There are similar declines for the home air conditioner (16 points), the dishwasher (14 points) and the television set (12 points).

A few of the "middle-aged" household appliances and services also declined. The microwave, a kitchen staple since the late 1980s, is currently viewed as a necessity by less than half the public, a 21-point drop in the past three years. The proportion who rate cable and satellite television service as a necessity fell 10 percentage points since 2006, nearly matching the declining value of a television set.

In contrast, none of the newer information-era gadgets and services has fallen in Americans' assessment of what they absolutely need to have. Cell phones and home computers continue to be seen as a necessity by half of the public, unchanged from three years ago. High-speed Internet access is seen as a necessity by about three-in-ten adults, also unchanged from 2006. Two items that came onto the consumer scene in this decade -- iPods and flat-screen TVs -- are still seen as a necessity by a very small share of the public, but that share hasn't declined during the recession.

Finally, there's the automobile -- the ultimate survivor. It's been around for nearly a century, but in good times or bad, it retains its pride of place at the top of America's list of everyday necessities.

Brazil's Bovespa Index Reaches Six-Month High

BRASILIA, April 24 (Reuters) - Brazilian stocks rallied to their highest close in more than six months on Friday, as optimism about the world's largest economy boosted appetite for riskier assets and lifted the national currency.

Sao Paulo's main stock index, the Bovespa (^BVSP) rose 2.12% to 46,772 points -- its highest close since early October 2008 (see chart above). The index has gained nearly 25% so far this year, and almost 50% since the November bottom.

HT: Dennis Gartman, who writes in today's The Gartman Letter that "The world wants “stuff” and Brazil has “stuff” for sale."

Sunday, April 26, 2009

Some Questions for the Protectionists: Are Zoos with Foreign Animals Unpatriotic & Un-American?

Foreign import?
Don Boudreaux opens his latest column saying that "Protectionism is a disease that feeds on fear and ignorance," and then proceeds to ask the protectionists five tough questions.

Here's are five additional questions for the protectionists:

1. Is there any material difference between American zoos spending millions or billions of dollars annually to acquire "foreign" animals from South America, Africa and Asia for their exhibits and American consumers spending billions of dollars annually to acquire foreign products from overseas?

2. If patronizing a foreign car company is considered to be an unpatriotic, un-American act, wouldn't visiting a zoo to patronize foreign, imported animals be equally unpatriotic and un-American?

3. Given a choice between visiting the Detroit Zoo with all of its foreign, imported animals, and visiting Detroit Zoo's Belle Island Nature Zoo that focuses on Michigan wildlife, flora and fauna, wouldn't it be more patriotic to visit Belle Island, and more unpatriotic to visit the Detroit Zoo's main facility?

4. Protectionists might argue that you cannot buy an American elephant, so the only choice for a zoo is to purchase one from Africa or India. But isn't it also true that American consumers cannot buy what they might consider to be uniquely British, Japanese or German engineering features in an American car? Just like you cannot purchase an American elephant, you cannot purchase an American Jaguar, Lexus or BWM can you?

5. Isn't naming professional sports teams after foreign animals (Tigers, Lions) somewhat unpatriotic? If a team is named for an animal, wouldn't it really be better to name teams after American animals instead? If you support "Buy American," shouldn't you also support a "Name American" practice for professional sports teams?

The Fed's Income in 2008: $35 Billion

According to the Federal Reserve's recently released financial statements for 2008:

1. Its assets included $502 billion of Treasury securities.

2. The Fed's income in 2008 included $25.6 billion of interest income from Treasury securities.

3. The Fed earned about $35 billion total in 2008.

Newmark's Door

Manufacturing: More Output With Fewer Workers

Don Boudreaux in the Pittsburgh Tribune-Review:

Many of you protectionists hyperventilate about America's alleged loss of manufacturing prowess. Are you aware that your worries on this front arise solely because you confuse manufacturing jobs with manufacturing output? Manufacturing jobs, as a percentage of all jobs in America, are indeed declining (see top chart above). And you hysterically interpret this fact as somehow proving that foreign producers are undermining America's economy.

But are you aware that America's manufacturing output today is near its all-time high (see middle chart above)? Are you aware also that America is by far the world's largest exporter of manufactured goods?

Are you aware that the reason manufacturing jobs are declining as a share of all jobs has far more to do with increased productivity of American industry -- that is, increased strength of American industry -- than it has to do with increased foreign trade (see bottom chart above)? Manufacturing jobs are being lost to technology and improved efficiencies. Do you think that this trend is undesirable?

MP: The middle chart above shows U.S. Manufacturing Output (Gross Value) from
The Federal Reserve, and U.S. Manufacturing Payroll Employment from the BLS (via Economagic), monthly from 1972 through March 2009. In the last 37 years, manufacturing output in real dollars has more than doubled, while manufacturing employment has dropped by about 35%, resulting in an almost tripling of the amount of manufacturing output per manufacturing worker in the U.S., from less than $80,000 in 1972 to almost $240,000 per worker today (bottom chart).

Saturday, April 25, 2009

Manufacturing Jobs As Percent of U.S. Payroll Employment Fall to Record Low of 9.25% in March

In today's NY Times, Floyd Norris reports that:

The current recession has become the second-worst in the last half-century and is close to surpassing the severe 1973-75 downturn, according to the Index of Coincident Indicators, based on government data and compiled each month by the Conference Board. Unlike the more widely followed Index of Leading Indicators, which is supposed to help forecast changes in the economy, the coincident index is aimed at simply recording how the economy is doing now.

The index is based on four elements, covering different aspects of economic activity. The two areas in which this is already the worst recession since 1960 are employment and industrial production. The 15.4% fall in industrial production, while worse than in previous recessions, is better than in some countries.

Industrial production is also one of the main variables used by the NBER to determine recessions:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

MP: But is industrial production still as relevant as an economic indicator as it used to be? Probably not, since industrial production is a measure of manufacturing output and manufacturing jobs as a percent of total payroll employment have declined significantly from 26.5% in 1969 (more than 1 out of every 4 jobs was in manufacturing) to the lowest-ever level of only 9.25% (about 1 in 11 jobs is in manufacturing) in March 2009 (see chart above, data are from the BLS via Economagic).

Since fewer than 10% of all U.S. jobs are now in the manufacturing sector, should we continue to rely on industrial production as a key economic variable, when the manufacturing share of overall employment continues to decline to record low levels? Probably not. While it might have made sense to rely on industrial production as a key economic indicator in the 1960s and the 1970s during the Machine Age, it probably doesn't make sense any longer in the Information Age.

To replace or supplement industrial production, what about some alternative Information Age measure of economic activity that might include web traffic, web pages, internet connections, software sales, online retailing activity, etc.?

Apple and the iPhone

1. Apple (+40%) vs. S&P 500 (-40%) over the last two years (see chart above).

2. Market Capitalization: Microsoft vs. Apple 1990-2009 (see chart above), via Scott Grannis, who writes, "As recently as a little over 9 years ago Microsoft had a market cap of $586 billion, while Apple's was a mere $17 billion. MSFT investors have since lost $421 billion, while AAPL investors have gained $95 billion. In my first post on this subject last October, I suggested AAPL could surpass MSFT's market cap within a few years. One reader said it would happen in less than a year. He has a good chance of being right."

3. Of the major companies that announced their earnings yesterday, two of them, AT&T and Apple, beat Wall Street estimates largely thanks to a single product: The iPhone. We’re approaching the two year birthday of the device, and it still remains one of the hottest items out there. Ladies and gentleman, the state of the iPhone is strong.

All told, Apple has sold 21 million iPhones since its launch. Perhaps just a drop in the bucket compared to overall Nokia sales, but remember, Apple was not in the mobile business at all before 2007. And aside from just sales figures, in the past two years, it has revolutionized the industry. That is, of course, a cliche. But in this case, it’s true.

Apple’s already has over 35,000 apps — and in a few short hours, there will have been one billion apps downloaded in just 9 months (including the one below).

Source: TechCrunch

4.iPhone app:

#4 via Economix and Greg Mankiw.

Yale Law Prof: Legalize It

Decriminalizing the possession and use of marijuana would raise billions in taxes and eliminate much of the profits that fuel bloodshed and violence in Mexico.

The drug-fueled murders and mayhem in Mexico bring to mind the Prohibition-era killings in Chicago. Although the Mexican violence dwarfs the bloodshed of the old bootleggers, both share a common motivation: profits. These are turf wars, fought between rival gangs trying to increase their share of the market for illegal drugs. Seventy-five years ago, we sensibly quelled the bootleggers' violence by repealing the prohibition of alcohol. The only long-term solution to the cartel-related murders in Mexico is to legalize the other illegal drugs we overlooked when we repealed Prohibition in 1933.

We can try to deal with the Mexican murderers as we first dealt with Al Capone and his minions, or we can apply the lessons we learned from alcohol prohibition and finish dismantling the destructive prohibition experiment. We should begin by decriminalizing marijuana now.

~Steven Duke, law professor at Yale Law School, in today's WSJ

Friday, April 24, 2009

5.8% Two-Month Increase in Capital Goods Orders is Strongest 2-Month Gain in More Than 4 Years

According to data released today from the Department of Commerce, orders for non-defense capital-equipment goods excluding aircraft rose 1.5% in March after a 4.3% gain in February. Such core capital-goods orders are considered the best gauge of capital spending by businesses, and are also considered a leading economic indicator. The two-month increase of 5.8% in new orders for capital goods was the strongest two-month gain in more than four years, since the 6.5% two-month increase for December 2004 and January 2005.

Thanks to Larry Kudlow for the alert on this.

Housing Affordability in CA Reaches Record High

The California Association of Realtors' (CAR) Traditional Housing Affordability Index (HAI) measures the percentage of households that can afford to purchase the median priced home in the state and regions of California based on traditional assumptions (methodology here).

The chart above shows the California Housing Affordability Index over the entire history of the series, quarterly from 1988:Q1 through 2008:Q4 (data
here and here). In the fourth quarter of 2008, the index reached the highest level in its history, 43%, which means that 43% of California households can afford to purchase the median priced home with a 20% down payment and financing at the national effective average mortgage rate.

In some parts of California, the Housing Affordability Index is as high as 61% (Sacramento), 65% (High Desert), and 56% (Riverside/San Bernardino); and in some areas as low as 17% (San Francisco and Contra Costa) and 19% (Marin).

With falling mortgage rates and falling median home prices, the CAR Housing Affordability Index will likely continue to rise in 2009, which will play a significant role in the recovery process for the California real estate market.

Thursday, April 23, 2009

Managed Funds Take Beating Again From Indexes

According to a recent Standard & Poor's study comparing index funds to actively-managed funds for a five-year period ending in 2008:

Percent of actively-managed, large-cap fund managers who beat the S&P500: 28.1%

Percent of actively-managed, small-cap fund managers who beat the S&P SmallCap 600: 14.5%

Percent of actively-managed, emerging markets fund managers who beat the S&P/IFC Emerging Markets Index: 10.2%

Wall Street Journal via Greg Mankiw

See previous CD posts on index investing here, here, here and here.

Markets in Everything: Everest Cell Phone Service

KATHMANDU -- Mobile phone services will soon be available on top of Mt Everest, the world’s tallest peak. The service, which will operate on both GSM and CDMA handsets, will be introduced by Nepal Telecom (NT), Nepal’s largest telecom company.

“We are planning to commence the service by mid-June this year,” Anoop Ranjan Bhattarai, chief of NT’s satellite division, told Republica. “We hope it will provide an alternative to those currently relying on satellite phone services.”

NT is extending its cell phone network to the top of the world with the help of a satellite antenna, which will soon be installed in Gorak Shep, located at an altitude of 5,160 meters. NT has installed satellite antennas in around seven locations in the Mt Everest region, including Lukla and Namche Bazar, located at 2,800 meters and 3,440 meters above sea level, respectively.

“All these antennas can smoothly handle around 3,000 calls at once,” Bhattarai said. “But we will increase the number of terminals depending on the traffic in the region.”

Mortgage Rates Drop to 4.80%

According to data released today by Freddie Mac, 30-year mortgage rates fell this week to 4.80%, from 4.82% last week and 4.87% the previous week. Except for the 4.78% average during the first week of April, the 4.80% rate marks the lowest 30-year mortgage rate in history (see chart above), and is a full 4 percentage points below the 8.80% average rate since 1964.

Along with falling home prices, the record-low mortgage rates are continuing to elevate housing affordability to record highs, which will help the real estate market in its recovery process this year.

Rich States, Poor States

What feature do 15 out of the top 16 states for economic outlook have in common?

What feature do the bottom 15 states for economic outlook have in common?

What feature do the top 8 states for domestic migration have in common? What feature do the bottom 10 states have in common?

USPS: They Don't Care, They Don't Have To

WASHINGTON (October 18, 2006) -- Postage stamps can be purchased by mail, at the supermarket, even from many bank cash machines. But there's one place you won't be able to get them in a few years - vending machines at the post office. The U.S. Postal Service plans to eliminate its 23,000 vending machines by 2010, the agency said in a recent internal memo.

"The heart of the matter is a lot of these machines are up to 20 years old," she said, meaning breakdowns are increasing and replacement parts are costly or impossible to get. The removals are expected to begin next year with about 5,900 machines eliminated annually.

MP: I just noticed yesterday that the vending machine at the downtown Flint Post Office no longer sells stamps, it sits there empty. Right next to the dark, empty vending machine for stamps sit two fully operational, bright and shiny vending machines, one for soft drinks and one for snacks, presumably owned and operated by a private, for-profit vending machine company.

Old machines, breakdowns, and replacement parts apparently are not overwhelming problems for a for-profit vending machine company, so couldn't the Post Office outsource its stamp vending machines to the private company that is providing soft drinks and snacks in the Post Office lobby?

This is worthy of a picture, I'll have to go back.

CEO Compensation Falls for Second Year in a Row

After a 15% collective pay cut in 2007, chief executives of the 500 biggest companies in the U.S. (as measured by a composite ranking of sales, profits, assets and market value) took another reduction in total compensation, 11%, for 2008. The last time the big bosses took a pay hit for two consecutive years was in 2001 and 2002.

In total, these 500 executives earned $5.7 billion in 2008, which averages out to $11.4 million apiece and computes to less than 1% of total revenues and 3% of total profits of their companies.


Unemployment Claims and the End of Recessions

James Hamilton (4/9/2009): If subsequent data confirm that the 4-week average of initial claims did indeed reach its peak in the number reported April 2, and if Robert Gordon's pattern holds up, the recovery that many of us had assumed would be quarters or perhaps even years away may instead have started by June.

James Hamilton (4/16/2009): If April 4 ultimately proves to be the peak for the entire year, and if this recession behaves like each of the previous 6 recessions, we could expect the NBER eventually to declare that the economic recovery began within 6 weeks of today.

Wednesday, April 22, 2009

Chart of the Day: Natural Gas Prices at 6.5 Yr. Low

According to new data released today from the NYMEX via the EIA, the price for natural gas futures hit a 6.5 year low of $3.51 (per Mil. BTUs) yesterday, the lowest level since mid-September 2002 (see chart above).

Did The Housing Market Bottom in Late 2008?

WASHINGTON, DCU.S. home prices rose 0.7% on a seasonally-adjusted basis from January to February, according to the Federal Housing Finance Agency’s monthly House Price Index. January’s previously reported 1.7% increase was revised to a 1.0% increase. For the 12 months ending in February, U.S. prices fell 6.5%. The U.S. index is 9.5% below its April 2007 peak.

The FHFA monthly index is calculated using purchase prices of houses backing mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. For the nine Census Divisions, seasonally-adjusted monthly price changes from January to February ranged from –1.2% in the East North Central Division to +3.8% in the Pacific Division.

MP: The chart above shows that the OFHEO Home Price Index increased in each of the last two months, following a 20-month period of 18 monthly decreases. The two consecutive month increase in home prices in January and February 2009 was the first time in almost two years that the index increased two months in a row (since March and April 2007). The chart also suggests that housing prices may have bottomed out at the end of 2008, and we might now be in a period of sustained price increases and a housing market correction.

What About Capitalism Day?

Of the estimated 1 billion people who will observe Earth Day worldwide this year, few will know about the progress that has been made. Fewer still will know how it was made. The media, uninterested in looking at the real story, will simply credit the environmental movement for the improvements.

Buried beneath all the badgering and fear-mongering about lavish Western lifestyles is a reality that the stuck-on-green left won't talk about and the average American isn't aware of: The world, especially in developed nations, is a cleaner — and greener — place than it was when the environmental movement began.

Topping the agenda of today's environmentalist groups is the pulling down of market economies, the raising up of central planning for egalitarian goals, forced lifestyle changes and the vilification — in hopes of the elimination — of signs of wealth.

None of these advance the planet's environmental health. But capitalism has. Through wealth generated by the free market, we have enough resources to move beyond the subsistence economies that damage the environment, enough disposable income to fund clean-up programs, enough wealth to scrub and polish industry.

Only in advanced economies can the technology needed to recycle hazardous waste or to replace dirty coal-fired power plants with cleaner gas or nuclear plants be developed. That technology cannot be produced in centrally planned economies where the profit motive is squelched and lives are marshalled by the state.

There's nothing wrong with setting aside a day to honor the Earth. In fairness, though, it should be complemented by Capitalism Day. It's important that the world be reminded of what has driven the environmental improvements since Earth Day began in 1970.

Investor's Business Daily Editorial

Laptop Computers: From $2,000 to $670 in Just a Decade, Thanks to Self-Interest and Invisible Hand

WALL STREET JOURNAL -- In an effort to drive sales, PC makers such as Hewlett-Packard and Dell have shifted their product lineups toward cut-rate laptops that appeal to frugal consumers. Netbooks -- mini-notebooks with small screens and low-powered processors that sell for less than $500 -- have rapidly gained popularity as manufacturers release new models. And in recent months, computer companies have started selling hybrid machines that blur the lines between netbooks and traditional laptops in terms of pricing, size and computing power.

Dell, meanwhile, is offering a 12-inch netbook -- the Inspiron Mini 12 -- that is almost the same size as a regular laptop. It sells for $399. Asian rivals Acer and Lenovo Group have expanded their discount lineups with more than half a dozen new laptops for under $800 each. And netbook pioneer Asustek Computer recently introduced several new models for less than $350.

All of this means 2009 is looking like a year-long bargain sale for PC buyers. In February, the most recent month for which data are available, the average laptop sold for $671, down from $864 a year earlier, according to research firm NPD Group (see chart above).

NPD analyst Stephen Baker says these prices are record lows for the PC industry, and he predicts prices could drop another 10% between now and the end of the year.

The low prices are also accelerating the shift away from desktop PCs toward laptops. A decade ago, the average desktop cost about $1,000, while the average notebook was close to $2,000, says Roger Kay, an analyst with Endpoint Technologies. But as the price difference has all but disappeared, consumer preference has tilted toward portable PCs. In the third quarter of 2008, notebooks outsold desktops for the first time, according to research firm iSuppli Corp. According to NPD, the average desktop in February sold for $658, just $13 less than the average notebook.

MP: From $2,000 for the average laptop just ten years ago, to only $671 today, with some models selling for $350, saving consumers billions of dollars -- never underestimate the power of self-interested profit-seeking activity. The invisible hand of self-interest is our most valuable resource. As Steven E. Landsburg remind us "It is something of a miracle that individual selfish decisions lead to collectively efficient outcomes."

Tuesday, April 21, 2009

Earth Day 2009: Air Quality's Better Than Ever

Data Source for graphs: EPA

From the first
Earth Day in 1970:

“Air pollution is certainly going to take hundreds of thousands of lives in the next few years alone,” Paul Ehrlich in an interview in Mademoiselle magazine, April 1970.

Ehrlich also predicted that in 1973, 200,000 Americans would die from air pollution, and that by 1980 the life expectancy of Americans would be 42 years.

“By 1985, air pollution will have reduced the amount of sunlight reaching earth by one half...” Life magazine, January 1970.

Most Earth Day predictions turned out to be stunningly wrong. In 1970, environmentalists said there would soon be a new ice age and massive deaths from air pollution. The New York Times foresaw the extinction of the human race. Widely-quoted biologist Paul Ehrlich predicted worldwide starvation by 1975.

MP: Consider that since the first Earth Day in 1970, U.S. population has increased by 50.25%, miles driven has increased by 159% and real GDP has increased 203%; and yet air quality is better than ever.