Sunday, October 31, 2010

Random Halloween Links

1. Bedbug Registry -- Traveling soon? Check out this free, public database of user-submitted bed bug reports from across the United States and Canada. HT: Mike Carlson

2. Families avoid flying from U.K. to Egypt and Caribbean as air taxes increase. If you tax something.....

3. Hells Angels sue over the use of their logo.

4. The bottom is falling out of global ocean surface temperatures, are we headed for global cooling?  

5. Mount Everest gets 3G.

The Power of Freedom Overcomes All Obstacles

Don Boudreaux explains how the immense strengths behind freedom and the human spirit provide the power to triumph over all obstacles - both those obstacles that result from natural disasters like earthquakes, and man-made obstacles like taxes and regulation.  Call it a "Ganesha-like" power of freedom to overcome all obstacles: 

"Freedom is a beautiful flower with more robustness than crabgrass. Freedom is not delicate or easily uprooted, and is not a frail institution that collapses and dies the moment it is attacked by some element foreign to its nature. If it were, we all would long ago have been well and truly enslaved.

The human spirit seizes opportunities to flourish even with less-than-maximum scope; it naturally resists being confined to the arbitrary will of others. We do not all fall in line behind the commissar or Congress’s commands simply because we’re ordered to do so. (How many Americans really care if the busboy at a restaurant is an “illegal” alien?) And even when we abide by the letter of legislation, we are wonderfully crafty at violating its spirit if that legislation is felt to be inappropriate.

So, too, with the free market. It is perhaps the most remarkably vigorous of all human institutions. Heavily taxed and loaded with arbitrary regulations, the market keeps on keeping on. Entrepreneurs creatively find ways around government intrusions or they discover techniques for reducing the intrusions’ ill effects.

Everyone who understands the logic of markets knows that, say, the unexpected destruction of a factory by an earthquake will barely slow the market’s relentless push to improve living standards. We understand that markets are remarkably resilient at dealing with natural obstacles such as mountains that separate suppliers from customers, or weather disasters that destroy existing inventories and supply lines.

Although we’d be even wealthier if these obstacles and weather disasters never materialized, their existence does not condemn us to everlasting poverty. Entrepreneurs—given sufficient freedom—are guided by prices and profits to overcome these obstacles. Likewise, entrepreneurs—given sufficient freedom—are guided by prices and profits to overcome government-erected obstacles.

To point out that freedom can be hobbled and hamstrung by a predatory State and nevertheless continue to shower blessings on ordinary men and women is to praise freedom—to applaud it loudly and lovingly."

Saturday, October 30, 2010

Restaurant Performance Index Rises Above 100 For 1st Time in 5 Mos., Current Index Highest in 3 Yrs.

"Driven by improving same-store sales and customer traffic levels as well as growing optimism among restaurant operators, the outlook for the restaurant industry improved in September. The National Restaurant Association’s Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.3 in September, up a solid 0.8 percent from its August level (see chart above). In addition, the RPI rose above 100 for the first time in five months, which signifies expansion in the index of key industry indicators.

The RPI’s solid gain in September was the result of broad-based improvements among both the current situation and forward-looking indicators. Restaurant operators reported positive same-store sales and customer traffic levels for the first time in six months, which propelled the RPI’s Current Situation Index to its highest level in nearly three years."

MP: On a year-over-year basis, the RPI increased by 2.87% in September, the highest annual increase in at least four years (see bottom chart above). 

Happy Halloween



HT: Coyote Blog

How To Carve a Pumpkin

without getting your hands messy......


HT: Andy Roth

Higher Education Bubble Update; New York Daily News Calls It a "Government-Sanctioned Racket"

The College Board released new data this week on "Trends in College Pricing" for 2010, and reported that four-year public universities raised tuition this year by 8%, almost twice the 4.5% average increase for tuition at America's private universities.  That differential follows a well-established pattern over the last decade of higher tuition increases at America's public universities than at private schools (see the chart above).  Public university tuition has increased faster than private tuition in each of the last four years, and in eight out of the last nine years, by an average of 3% per year.  As the chart above shows, the trajectory of college tuition in the U.S. is on a path that makes the recent housing bubble seem like a minor historical footnote by comparison. 

In assessing the College Board data, a NY Times article "As College Fees Climb, Aid Does Too" finds some "good news," but only by reversing cause and effect:

"The good news in the 2010 “Trends in College Pricing” and “Trends in Student Aid” reports is that fast-rising tuition costs have been accompanied by a huge increase in financial aid, which helped keep down the actual amount students and families pay."

The New York Daily News does a much better job of reporting the true causal relationship in an editorial that could be titled "As College Financial Aid Climbs, Tuition Follows:"

"College financial aid comes largely from the federal government. Meaning, out of your pocket. And ours. And out of the pockets of families scraping to raise that extra 8% for tuition. A government-sanctioned racket is what it is. States cut back on assistance to schools, so the schools raise tuition. Then the feds jump in, dish out billions in taxpayer dollars in student aid, and tuition goes up again. And again (see chart above).

Meanwhile, those fortunate folks who inhabit the groves of academe feel absolutely no need to hold the line on expenses. They ought to be ashamed, most of all for sending so many graduates out into the world with diplomas and loan statements showing a near-lifetime's worth of debt."

And this ongoing "higher education bubble" is especially troubling at a time when economist Richard Vedder reported recently that millions of students with college degrees not only graduate with debt, but "are doing jobs that the BLS says require less than the skill levels associated with a bachelor’s degree."  Some of those jobs include bartenders, janitors, and food preparation workers, all the more reason to call it a "government-sanctioned racket."

Thanks to Gregory Tetrault. 

Hispanics: Longer Life Expectancy, Less Insurance

John Goodman points out on The Health Care Blog that Hispanics live longer than non-Hispanic whites on average, and the table above based on CDC data shows that life expectancy is greater for Hispanics than for whites both at birth (by 2.5 years), but also at other selected ages (20, 40, 60 and 80 years).  At the same time, Census data for 2009 shows that only about two out of every three Hispanics is covered by health insurance, compared to 88% of whites being covered, so that Hispanics are almost three times as likely as whites to be uninsured (32.4% vs. 12%).  

John concludes that these findings "make mincemeat out of the oft-repeated idea that the uninsured get less health care and die earlier than everyone else."

Friday, October 29, 2010

Global Economic Recovery Watch

1. The Conference Board Leading Economic Index for Australia increased 0.2% and the Conference Board Coincident Economic Index increased 0.3% in August.

2. The Conference Board Leading Economic Index for Mexico increased 0.8% and the Conference Board Coincident Economic Index increased 0.5% in August.

Average GDP Growth of 2.81% Over Last 5 Quarters Compares Favorably to the Last Two Expansions

We're now in the fifth quarter of economic expansion since the recession officially ended in June 2009.  How does this economic expansion compare to the last two?  Most reports describe the recovery as "sub-par," "weak," "fragile," and "anemic," etc.  

And yet real GDP growth over the last five quarters of expansion (1.6%, 5%, 3.7%, 1.7% and 2% for an average of 2.81%) compares very favorably with the five-quarter periods following the 2001 recession (3.5%, 2.1%, 2%, 0.1% and 1.6%, for an average of 1.87%) and the 1990-1991 recession (2.7%, 1.7%, 1.6%, 4.5% and 4.3% for an average of 2.96%).  Based on average real GDP growth (subject to revisions of third quarter GDP) for the five quarters following recession, this expansion is stronger than the 2002 expansion by almost a full percentage point (2.81% vs. 1.87%), and just slightly below the 1991-1992 period (2.96%). 


Strongest Consumer Spending Growth Since 2006

The BEA reported today that real GDP grew at 2.0% in the third quarter, boosted by a 2.6% rise in inflation-adjusted consumer spending, the highest quarterly increase since the 4.1% growth in the fourth quarter of 2006, 15 quarters ago.  This healthy growth in consumer spending from July through September is consistent with:  a) the many states that have been reporting increases in tax revenues in the third quarter from sales, individual income and corporate income taxes, and b) the stronger-than-expected retail sales report for September (7.2% annual growth).   

Thursday, October 28, 2010

Food Trucks Spice Up the Nation's Capital

About 20 food trucks are currently operating in the Washington, D.C. area, with another five coming soon, according to the Food Truck Fiesta blog, which also provides a daily, real-time automated "DC Food Truck Tracker" map and updated Twitter feeds with information about where the trucks are located on a given day.  The trucks typically move around each day, and about three locate daily at Farragut Square (conveniently located just down the block from AEI), often with blankets for a full picnic experience (see top picture), and often with ridiculously long lines at the Lobster Truck (see bottom picture), which currently ranks #1 among DC food trucks for having the most Twitter followers.  

Some of the food trucks offer limited State-fair type junk food menus like Fry Captain (fries and milk shakes only, menu here), and others have a more sophisticated international street food menu like Sauca, which sells Mumbai butter chicken, Vietnamese pork banh mi, beef Shawarma, Italian salsiccia con Puttanesca, and Mexicali fish tacos (they come to Farragut Square every Tuesday).

With long, Soviet-style queues like those at the Lobster Truck, it's no surprise that according to the Wall Street Journal:

"A small but growing number of chains—such as Cousins Submarines Inc., Tasti D-Lite LLC and Toppers Pizza Inc.—are following in the tire tracks of those local food-truck businesses popping up on city streets around the U.S. Many brick-and-mortar eateries have added mobile units in recent years, and more are expected to do the same, including national brands. 

Sites like Twitter, Facebook and FourSquare are making it easy for consumers to track mobile vendors' whereabouts, says Hudson Riehle, senior vice president of research for the National Restaurant Association in Washington, D.C."

Jobless Claims Fall to Second-Lowest Level Since Aug. 2008, German Jobless Rate Lowest Since 1991

WASHINGTON (AP)  -- "Fewer people applied for unemployment benefits last week, the second drop in a row and a hopeful sign the job market could be improving.The Labor Department said Thursday that initial claims for jobless benefits dropped 21,000 to a seasonally adjusted 434,000 in the week that ended Oct. 23 (see chart above).  It was the second-lowest number for claims this year. The only time it was lower was during the July 10 week, and that week was affected by the Independence Day holiday when state unemployment offices were closed."

MP: Except for the holiday-related July 10 low, last week's 434,000 seasonally-adjusted weekly claims for unemployment insurance was the lowest since the week of August 23, 2008, more than two year ago (see chart).

In some positive labor market news from Europe, the German unemployment rate fell in September to an 18-year low of 7.5%, the lowest jobless rate since 1991, and analysts expect the positive trend to continue.   

Weekly Rail Traffic Continues Upward Trend

WASHINGTON, D.C. – Oct. 28, 2010 – "The Association of American Railroads (AAR) today reported that weekly rail traffic remains up over 2009 levels with U.S. railroads originating 302,855 carloads for the week ending Oct. 23, 2010, up 9.6 percent compared with the same week last year (see chart).  Intermodal traffic for the week totaled 235,606 trailers and containers, up 13.6 percent compared with the same week a year ago, with container volume up 14.6 percent and trailer volume up 8.2 percent."

MP: Rail traffic continued on an upward trend for the week that ended last Saturday, with both carloads and intermodal traffic registering solid gains versus the same week last year of 9.6% and 13.6% respectively.  The trend lines in the graph above show the steady improvements in both measures of rail traffic over the last 22 months.  Compared to January 2009, carload volume is up by 16.6% and intermodal volume by 26%.  The ongoing gains in the demand for raw materials, inputs and commodities will eventually translate into gains in final output and employment.     

Wednesday, October 27, 2010

Food is Now More Affordable Than Ever, Thanks in Part to International Trade

Charles Campbell, retired senior VP of Gulf Oil, cooks up quite "a stew of errors, misunderstandings, and non sequiturs" about free trade, according to Don Boudreaux, in this Baltimore Sun editorial "Free Trade Has Failed the U.S."

Some of the errors appear in this discussion on U.S. food export and imports:

"In 1970, U.S. technology was superior to that of every other nation in the world; we manufactured nearly everything we consumed; we were essentially self-sufficient in energy; we exported food; and we imported little of consequence.  Over the last 40 years, we have hollowed out our industrial base and .... we now import more food than we export."  

In fact, we typically export more food than we import in most years, and have run trade surpluses for food in 2007, 2008 and 2009.  And we have always imported billions of dollars of food each year (think bananas, coffee), see chart above.  Partly as a result of increasing international trade, food is more affordable than any time in U.S. history, when measured as a share of disposable income (see chart).  Free trade has not failed the U.S., it has contributed to a rising standard of living for all Americans, and the increasing affordability of food is just a small part of the story.     

Global Economic Recovery Watch

1. "The Conference Board's Leading Economic Index (LEI) for Europe remains on an upward trend, and increased 0.3 percent in September, following a 0.7 percent increase in August, and a 0.9 percent increase in July. After increasing in September, the LEI for the Euro Area is 18.4 percent above its March 2009 trough."

2. From the WSJ: "Britain's economy grew more briskly than expected during the third quarter (3.2% at an annual rate), damping fears that the U.K. could tip back into recession and, for now, buttressing the government's move to attack the country's huge deficit with public-spending cuts."

Election Watch 2010

1. Ireland's largest bookie Paddy Power said today it has already paid off all bettors who wagered the GOP would capture the chamber, saying there's no way Democrats can keep control of the House. (Source)

2. From P.J. O'Rourke "This is not an election on November 2. This is a restraining order."

3. Current Intrade odds: 2:1 that Harry Reid will lose in Nevada, 5:1 that Barbara Boxer will win in California, and 13:1 that Jerry Brown will win in California.  

Markets/Websites in Everything

It's not exactly a "market," but here's a free website (donations are accepted) that helps you when you're saying "I Can't Find My Phone."

HT: Nicholas Bretagna II

Sept. Durable Goods Orders Reach Two-Year High

New orders for durable manufactured goods in September reached the highest level ($199.1 billion) since September 2008, two years ago (see top chart above). The 12.2% increase in durable goods orders in September compared to the same month last year was the ninth consecutive double-digit increase starting in January of this year.  From the cyclical low of $160 billion in March 2009, new orders for manufactured goods have increased by about 25% to almost $200 billion last month.  

MP: We haven't heard much lately about a V-shaped recovery, but this 25% surge in orders for durable goods over the last 18 months to a two-year high in September sure seems like solid evidence of a V-shaped recovery for the manufacturing sector of the U.S. economy.  And since two out of the ten economic variables in the Leading Economic Index are based on manufacturers' new orders, this V-shaped increase in durable goods signals future increases in manufacturing output.  

Tuesday, October 26, 2010

Kauffman Foundation Quarterly Survey of Bloggers



There are lots of economic indicators to track the U.S. economy, but Tim Kane at the Kauffman Foundation came up with a new one about a year ago—a quarterly survey of economics bloggers, and he invited me to join the 13-member board of advisors for the project. The most recent survey was conducted in mid-October, and the results of the fourth “Quarterly Survey of Leading Economics Bloggers” were just released by the Kauffman Foundation (press release here, full report here). 

Tim Kane is featured on the CNBC segment above, where he discusses the background and details of the bloggers survey, and I summarize some of the key findings here at the Enterprise Blog

ASA Staffing Index Holds Steady at 100 for 4th Wk.


"During the week of Oct. 11–17, 2010, temporary and contract employment increased 0.45%, maintaining the ASA Staffing Index at a value of 100. At a current index value of 100, U.S. staffing employment is 45% higher than the level reported for the first week of the current year and is 20% higher than the same weekly period in 2009."

From the monthly report:

"Staffing employment in October is 20% higher than in the same month last year, according to the ASA Staffing Index. The index for October is 100, up four points from 96 for September, suggesting that staffing employment has increased about 4% over the past month."

From an ASA Backgrounder

"Jobs, flexibility, a bridge to permanent employment, alternative employment arrangements, training—these are the benefits staffing firms offer today's workers. Work force flexibility and access to talent—these are the benefits staffing firms bring to businesses. Jobs, labor market flexibility, efficient bridging to permanent jobs, and training—these are the benefits the industry brings to the economy." 

MP: The ASA Staffing Index has remained at a level of 100 for the last four weeks, which is the first time since April-May 2008, almost 2 and a half years ago, of four consecutive weeks at 100 for the nation's key barometer of the demand for contract, temporary and freelance employment.  As a leading indicator of nonfarm employment, the ongoing improvements in temporary help signal future gains in permanent employment opportunities.  

International Air Travel Above Pre-Recession Levels

"The International Air Transport Association (IATA) released international traffic results for September today, reported that international passenger traffic had a 10.5% year-on-year increase which is significantly stronger than the 6.5% rise recorded for August. International freight traffic recorded a 14.8% year-on-year increase, which is significantly weaker than the 19.0% rise recorded in August.  The contrast between the performance of freight and passenger markets provides a mixed picture for industry performance. Seasonally adjusted figures show that, compared to the previous month (August), passenger traffic in September expanded by 2.1% while freight markets contracted by an equal 2.1%."

Other highlights include:

1.North American carriers saw their traffic climb back to pre-recession (early 2008) levels during the month with an 11.1% increase in passenger demand compared to the previous September.

2. European carriers experienced an 8.4% increase in demand over the previous year. The region is now 2% above pre-recession levels.

3. Asia-Pacific carriers posted an 8.6% traffic increase over the previous September. Traffic in the region remains 2% below the pre-crisis peak of early 2008.

4. Middle Eastern carriers led the industry growth with a 23.9% increase compared to 2009, and Latin American carriers posted the industry’s weakest growth at 6.6%.

5. African carriers reported a 16% growth in demand over the previous September. The region is now 7% higher than the pre-recession levels of early 2008.

Want to Lose Weight? Pay with Cash, Not Credit

From the introduction of a research article in the Journal of Consumer Research "How Credit Card Payments Increase Unhealthy Food Purchases: Visceral Regulation of Vice":

"The pain of paying in cash can curb impulsive urges to purchase such unhealthy food products. Credit card payments, in contrast, are relatively painless and weaken impulse control. Consequently, consumers are more likely to buy unhealthy food products when they pay by credit card than when they pay in cash. Results from four studies support these hypotheses. Analysis of actual shopping behavior of 1,000 households over a period of six months revealed that shopping baskets have a larger proportion of food items rated as impulsive and unhealthy when shoppers use credit or debit cards to pay for the purchases (Study 1)."


"The authors suggest that there may be a connection between rising obesity and changing modes of payment. According to the Centers for Disease Control, 34 percent of U.S. adults are obese. And nearly 40 percent of all purchases in 2006 were paid by credit and debit cards, and the average American carries 4.4 cards in his/her wallet. “The relationship between these trends suggests that self-control is not entirely volitional; it can be facilitated or impeded by seemingly unrelated contextual factors that influence people’s visceral feelings.”

Monday, October 25, 2010

DP World: Shipping Back to Pre-Recession Levels

Dubai-based DP World is one of the world's largest marine terminal operators, with 50 terminals and 11 new developments and major expansions across 31 countries.  From its latest report:

"Global marine terminal operator DP World announced it handled 13 million TEUs (20-foot equivalent container units) in the third quarter of the year, an increase of 14% against the same period last year, and a 15% increase for the first nine months of the year to 36.7 million against the comparable period last year. 

DP World continues to handle container volumes ahead of the levels reported in 2008 reflecting how resilient our portfolio was to the global declines in 2009. Volume growth in the third quarter has been driven by strong growth in the Asia Pacific, Americas and Australia regions as well as a continuation of returning volumes across Europe and a stabilization of volume growth in the UAE."

Global Economic Recovery Watch: World Steel Output Rises in September to Pre-Recession Levels

Brussels - "World crude steel production for the 66 countries reporting to the World Steel Association was 112 million metric tons (mmt) in September. This is 0.9% higher than September 2009 and 3.5% higher than September 2008 when the global economic crisis started showing the impact on the world crude steel production. 

The U.S. produced 6.6 mmt of crude steel in September 2010, an increase of 15.0% compared to September 2009."

Trade Deficit = Capital Inflow = BOP = 0

We hear a lot about the U.S. "trade deficit" or the "current account deficit," but we don't hear as much about the offsetting "capital account surplus" or "capital inflow" that has to exist when there's a trade deficit.  For example, a Google search reveals three times more results for "current account deficit" (775,000) than for "capital account surplus" (224,000).  

The current account and capital account are the two main components of the U.S. Balance of Payments (BOP), which is a record of all international transactions for both: a) trade flows and b) capital flows in a given period.  Every international transaction (e.g. export, import, U.S. investment abroad, foreign investment in the U.S.) is recorded on a double-entry accounting basis, so that each transaction involves both a debit and credit.  Under double-entry accounting, debits have to equal credits, which applies to BOP accounting, where:

BOP = CURRENT ACCOUNT + CAPITAL ACCOUNT = CREDITS - DEBITS = 0

The chart above displays annual figures for the U.S. capital account (brown line) and current account (blue line) back to 1980, and shows graphically that the CURRENT ACCOUNT = CAPITAL ACCOUNT = BOP = 0. 

For the year 2007, we had a current account deficit or "trade deficit" of about $700 billion, and a capital account surplus, or capital inflow of approximately the same amount, of about $700 billion (statistical discrepancies account each year for any differences).  Americans in 2007 purchased $2.35 trillion of goods and services from foreigners, which was more than the $1.65 trillion foreigners spent on U.S. goods and services in that year.  On the other hand, foreigners invested more than $2 trillion in U.S. assets in 2007 (stocks, bonds, real estate, Treasuries, direct investment), which was more than the approximately $1.4 trillion invested by Americans overseas in foreign assets, resulting in a net capital inflow of about $700 billion into the U.S. that year.  

In other words, the $700 billion "trade deficit" in 2007 was exactly offset by a $700 billion capital account surplus, or capital inflow, and the overall BOP = -$700 billion + $700 billion = 0.  What are the lessons from this?

1. There are no BOP deficits once we account for all international transactions, both for: a) goods and services, and b) financial transactions.  For all of the one-sided coverage in the press about the "trade deficit," you would almost never even know that there is an offsetting "capital surplus" or "capital inflow."  It's important for the general public to understand that trade deficits are offset by capital inflows on almost a 1:1 basis, resulting in a "balance of payments" for international transactions.  When the public constantly hears about "trade deficits" without any understanding of the offsetting surplus, that economic ignorance allows politicians and special interest groups to exploit the general public, by advancing and promoting protectionist trade policies aimed to reduce the "trade deficit," or by refusing to approve trade agreements between Colombia, Panama and Korea, etc.  

2. The "trade deficit" generates so much negative coverage, that the significant advantages of capital inflows from abroad get frequently overlooked.  Since 1980, the U.S. has attracted almost $8 trillion of foreign investment, which has provided much-needed equity capital that has allowed U.S. companies to start or expand, has provided much-needed debt capital that has also funded the expansion of American companies, along with providing debt capital for U.S. consumers in the form of mortgages, student loans, and car loans.  Some of the $8 trillion of investment includes billions of dollars of Foreign Direct Investment, which has funded thousands of new projects in the U.S. (Toyota factories for example) and created hundreds of thousands of jobs.             

Home Sales Begin Rebound, Inventory Gauge Falls



"The homebuyer tax credit artificially boosted home sales in the Spring and then – after taking sales away from the future – the lapse of the credit caused a “hangover” in the Summer. Now sales are rebounding without artificial government support. Sales are up two months in a row and came in well above consensus expectations in September." 

MP: The charts above help tell the "artificial stimulus and hangover" story.  After the homebuyer tax credit ended, existing-home sales dropped precipitously by 27% in July, and the months supply of inventory increased to 12.5 months in July from 8.9 months in June.  Now that market forces are prevailing again, the real estate market is rebounding on its own, with a strong boost from record-low mortgage rates (currently at 4.21%).  Since the bottom in July of 3.84 million homes (seasonally-adjusted annual rate), sales have increased in the last two months to 4.53 million units in September, which is 18% above the July low.  The months supply of home inventory fell two months in a row, to 10.7 months in September.

Global Economic Recovery Watch: Hotel Industry Is Rebounding in U.S. and All Around the World

"The U.S. hotel industry reported increases in all three key performance metrics for third-quarter 2010 in year-over-year measurements, according to data from STR.  The industry’s occupancy was up 6.7 percent to 63.9 percent, average daily rate (ADR) rose 1.6 percent to $99.07, and revenue per available room (RevPAR) increased 8.4 percent to $63.34.  Year-to-date 2010, occupancy increased 5.2 percent to 58.9 percent, ADR fell 0.7 percent to US$97.89, and RevPAR was up 4.5 percent to US$57.70.

“The U.S. hotel industry continued its recovery in the third quarter,” said Bobby Bowers, senior VP at STR. “Quarterly occupancy growth was the highest STR has ever recorded, and ADR growth was positive for the first time since third-quarter 2008—a seven-quarter stretch. The combined occupancy and ADR gains pushed RevPAR up 8.4 percent—the best quarterly growth the industry has recorded since second-quarter 2006. We anticipate continued but somewhat slower occupancy growth in the final quarter, while ADR should continue its positive momentum.”

In other hotel news from the industry trade group STR, positive results were also reported for the month of September for the Middle East/Africa region, the European hotel industry, the Asia/Pacific region, and the Americas region


The End of the College Textbook as We Know It?

The unsustainable "higher education bubble" has received some well-deserved attention lately - watch Glenn Reynolds talk about it in detail here. A direct partner in the "higher education bubble" is the unsustainable "college textbook bubble," captured graphically in the chart above - notice how it totally dwarfs the "real estate bubble." Since 1980, educational books have risen annually at more than twice the rate of overall inflation, 6.7% vs. 3.3% respectively. "When students pay more for new textbooks than tuition in a year, then something's wrong," says Rand S. Spiwak, executive vice president at Daytona State in the article below. 

From today's Chronicle of Higher Education, a possible solution? 

"Here's the new plan: Colleges require students to pay a course-materials fee, which would be used to buy e-books for all of them (whatever text the professor recommends, just as in the old model).

Why electronic copies? Well, they're far cheaper to produce than printed texts (MP: $25-30 vs. $150-300), making a bulk purchase more feasible. By ordering books by the hundreds or thousands, colleges can negotiate a much better rate than students were able to get on their own, even for used books. And publishers could eliminate the used-book market and reduce incentives for students to illegally download copies as well.

Of course those who wanted to read the textbook on paper could print out the electronic version or pay an additional fee to buy an old-fashioned copy—a book."

MP: As Glenn Reynolds reminds us, "a process that cannot go on forever, won't."  When some students are spending more on textbooks than tuition, that certainly seems to qualify as a situation that cannot go on forever.  For the unsustainable "textbook bubble," e-books seem to offer one possible solution.   

Markets in Everything: World's Largest Gummy

Three pounds and 4,000 calories of gummy goodness for $27.95.

Crystal Ball Website: If Election Were Held Today

Predictions from University of Virginia Political Science Professor Larry Sabato's Crystal Ball website, if the election were held today:

1. Republicans would have a net gain of 8-9 Senate seats, short of the 10 they need to control the majority.

2. Republicans would gain 47 House seats, more than the 39 they need to control the majority.

3.  Republicans would gain 8 governorships. Republicans currently hold 24 governorships to 26 held by Democrats, and that would change to 28 Republican governors and 22 Democrats.

The Crystal Ball website also provides lots of detailed information on individual races.   

Sunday, October 24, 2010

For Poor Countries, The Problem is Not Unethical Businesses, But That There Aren't Enough of Them

"In South Africa, where more than a third of the workforce is jobless, the problem is not that corporations are unethical but that there are not enough of them. One reason is that South Africa’s leaders blithely heap social responsibilities on corporate shoulders. Strict environmental laws cause long delays in building homes. This is nice for endangered butterflies, but tough for South Africans who live in shacks. Such laws also slow the construction of power plants, contributing to the rolling blackouts that crippled South Africa in 2008. South African labour laws make it hard to fire workers, which deters companies from hiring them in the first place. And a programme of “Black Economic Empowerment”, which pressures firms to transfer shares to blacks, has made a few well-connected people rich while discouraging investment."

~The Economist article "Companies Aren’t Charities"

UK To Sell Govt.-Owned Forests to Cut the Deficit

TELEGRAPH -- "Caroline Spelman, the U.K. Environment Secretary, is expected to announce plans within days to dispose of about half of the 748,000 hectares of woodland overseen by the Forestry Commission by 2020 (MP: That's an area slightly larger than the state of Rhode Island).

The controversial decision will pave the way for a huge expansion in the number of Center Parcs-style holiday villages, golf courses, adventure sites and commercial logging operations throughout Britain as land is sold to private companies."

Saturday, October 23, 2010

GM Set to Sell More Cars in China Than in U.S.; Doesn't That Mean China is Shipping Jobs to U.S.?

SHANGHAI (WSJ) -- "China's domestic auto market could reach sales of more than 17 million vehicles this year and 19 million next year, said a senior General Motors Co. executive, outpacing home-market sales for several Western auto brands . The sales forecasts are up sharply from the 13.7 million vehicles that auto makers sold in China last year (see chart) as the country's auto market grew about 50% to surpass the U.S. as the world's biggest." Also:

1. Daimler expects Chinese consumers to become the biggest buyers of Mercedes Benz cars in the next three to five years. 

2. Volkswagen AG's Audi unit expects its sales in China to surpass German sales next year.

3. GM's sales in China will surpass that of its parent company in the U.S. according to GM's Kevin Wale (source)."

MP: We hear a lot about how because of corporate greed and trade with countries like China, we end up "shipping U.S. jobs overseas." (Q: How exactly are jobs packaged and shipped from the U.S. to China or other countries, i.e. which shipping method is used to send jobs overseas: air freight, containers by ship, or ??)

The story above illustrates how trade with China benefits the U.S. and creates jobs in the U.S. for GM workers. But by selling more cars in China than in the U.S. this year, doesn't that mean that China is "shipping jobs overseas to the U.S.?"  And by buying so many Mercedes, Audis and Volkswagens in China, doesn't that mean that China is "shipping jobs overseas to Germany?"Don't all those brand new Buicks, Mercedes and Audis sold in China make the Chinese people worse off?

Adam Smith: Mercantilism Is Enemy of the People

From the New World Encyclopedia:

"In Wealth of Nations, one senses Smith's passion for what is right and his concern that mercantilism benefits the wealthy and the politically powerful while it deprives the common people of the better quality and less expensive goods that would be available if protectionism ended and free trade prevailed."

HT: PeakTrader

Five Ways Regulators Think Wrong

Here's one of the five.....

"Affect heuristic'" is a fancy name for a pretty obvious concept, namely that we discount the drawbacks of things we are emotionally in favor of. For example, the Deepwater Horizon oil spill certainly killed about 1,300 birds, maybe a few more. Wind turbines in America kill between 75,000 and 275,000 birds every year, generally of rarer species, such as eagles. Yet wind companies receive neither the enforcement, nor the opprobrium, that oil companies do.

~Matt Ridley in today's WSJ column "Studying the Biases of Bureaucrats"

Domain Names: Sex.com Sells for $13,000,000



Communism to Capitalism: China and Cuba

1. Bloomberg -- "Yang Shuqi paces up and down Ikea’s Beijing store, looking for a “small bed with toys” for her grandson. She doesn’t plan to buy it -- 1-year-old Beibei just needs to take a nap. Saturday afternoon is a bad time to look. Every bed (and couch, see picture above) in the 43,000-square-meter (463,000-square-foot) store is occupied, with some children and adults fast asleep under the covers. 

Ikea, whose biggest Asian store is in China, plans to more than double its outlets in the country by 2015 as rising incomes turn more dozing visitors and diners at in-store restaurants into furniture buyers. The home-furnishings market is projected to surge 17 percent this year in China, the world’s fastest-growing major economy." (HT: Norman Berger)

2. Reuters - "Cuba unveiled on Friday a new tax code it said was friendlier for small business, signaling authorities are serious about building a larger private sector within the state-dominated economy. The tax redesign comes as the government has begun slashing 500,000 workers from state payrolls and preparing to issue 250,000 self-employment licenses to create new jobs in President Raul Castro's biggest reform since taking office in 2008."

Leading Economic Indicator Increasing, But Slowly

"The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.3% in September to 110.4, following a 0.1% increase in August, and a 0.2% increase in July (see chart above). Says Ataman Ozyildirim, economist at The Conference Board: “The LEI remains on a general upward trend, but it is growing at its slowest pace since the middle of 2009. There isn’t any indication of a relapse into another downturn through the end of the year.”

MP: While the Leading Economic Index rose in September for the third straight month, and has increased in 17 out of the last 18 months (since April 2009), the monthly increases in the LEI have started to slow somewhat this year, compared to the larger increases in 2009.  The chart above shows that following the last three recessions, there were times during the first year or two of the new economic expansions when the LEI flattened out for a period of 6-12 months, before gaining new momentum in economic growth.  It's possible that we are seeing the same phenomenon right now - a temporary slowdown through the end of the year, followed by stronger economic growth next year.

In contrast, the growth in Germany's LEI is accelerating, increasing sharply by 0.7% in August, following increases of 1.1% in July and 0.5% in June.  According to the Conference Board, "Between February and August 2010, the leading economic index increased 7.3 percent (about a 15.1 percent annual rate), faster than the increase of 3.1 percent (about a 6.4 percent annual rate) during the previous six-month period. In addition, the strengths among the leading indicators have remained widespread in recent months."

Overall, 10 of the the 11 Conference Board LEIs are showing increases in either August or September, with the only exception being Korea (see chart below).  The overall economic picture in both the U.S. and globally continues to remain bright. 



Intrade Updates

1. Republicans to control House: 90%

2. Republicans to gain 60 or more House seats: 39%

3. Democrats to control Senate: 56.6%

4. Republicans to hold 48 or more Senate seats: 75%

5. Michael Steele to depart as RNC chair before Dec. 31: 7.5%

6. Sarah Palin to announce run for President before Dec. 31: 67%

7. Barbara Boxer to win Senate in CA: 72.7%

8. Harry Reid to win Senate in NV: 40%

9. Jerry Brown to win governor in CA: 96%

10. Democrats to win 2012 Presidential election: 61% 

As of 9:30 a.m. on Intrade.com.


Friday, October 22, 2010

CA Home Sales Down in Sept.; Median Prices Rise

From DQ News on California home sales in September:

1. "An estimated 33,176 new and resale houses and condos were sold statewide last month. That was down 3.1 percent from 34,239 in August, and down 17.5 percent from 40,216 for September 2009. California sales for the month of September have varied from a low of 24,460 in 2007 to a high of 68,114 in 2005, while the average is 44,310.

2. The median price paid for a home last month was $265,000, up 1.9 percent from $260,000 in August, and up 5.6 percent from $251,000 for September a year ago. The year-over-year increase was the 11th in a row, following 27 months of year-over-year declines. The bottom of the current cycle saw a median of $221,000 in April 2009, while the peak was $484,000 in early 2007.

3. Of the existing homes sold last month, 35.8 percent were properties that had been foreclosed on during the past year. That was up from a revised 35.7 percent in August and down from 41.7 percent in September a year ago. The all-time high was in February 2009 at 58.5 percent."

MP: Although September home sales in California were below both August and last September, they were above the September 2007 bottom by 35.6%.  Further, median home prices rose for the 11th month in September and were 5.6% above median prices last September; and sales of foreclosed properties in September (35.8% of the total) were below the 41.7% level in September of 2009.  

Tariffs on China Will Cost U.S. Jobs

"Think about the IPod, for instance. It is designed in America and its 451 parts are made in dozens of different countries. But just because it is finally assembled in China, it officially counts as a Chinese import and therefore a contributor to America’s trade deficit — never mind that the Chinese add only $4 to the IPod’s $150 final value. Imposing duties on IPods to slash the deficit, then, won’t just cost Chinese jobs  in Beijing assembly plants, but American jobs in Cupertino (Apple’s headquarters) computer labs."


Friday Links

1. Male affirmative action is being used at Canadian medical schools, now that some  entering classes of medical students are only 23% male.  


3. The "People of Wal-Mart." Kinda scary.

4. What do the best classrooms in the world look like? Surprisingly, a lot like American ones—circa 1959 or 1989. 

An Attractive Option: Dropping Existing Coverage

From yesterday's WSJ, an article by the Democratic governor of Tennessee, Philip Bredesen:

"Our recent health reform has created a situation where there are strong economic incentives for employers to drop health coverage altogether. The consequence will be to drive many more people than projected—and with them, much greater cost—into the reform's federally subsidized system. This will happen because the subsidies that become available to people purchasing insurance through exchanges are extraordinarily attractive.

For a person starting a business in 2014, it will be logical and responsible simply to plan from the outset never to offer health benefits. Employees, thanks to the exchanges, can easily purchase excellent, fairly priced insurance, without pre-existing condition limitations, through the exchanges. As it grows, the business can avoid a great deal of cost because the federal government will now pay much of what the business would have incurred for its share of health insurance. The small business tax credits included in health reform are limited and short-term, and the eventual penalty for not providing coverage, of $2,000 per employee, is still far less than the cost of insurance it replaces.

For an entrepreneur wanting a lean, employee-oriented company, it's a natural position to take: "We don't provide company housing, we don't provide company cars, we don't provide company insurance. Our approach is to put your compensation in your paycheck and let you decide how to spend it."

The economics of dropping existing coverage is about to become very attractive to many employers, both public and private. By 2014, there will be a mini-industry of consultants knocking on employers' doors to explain the new opportunity. And in the years after 2014, the economics just keep getting better."

Thursday, October 21, 2010

Interesting Fact of the Day

According to this article, there are "more tigers in captivity in the U.S. than survive in the wild. As few as 3,200 tigers are left in the wild across Asia, down from 100,000 a hundred years ago. America's 5,000-plus captive tigers are mostly kept by private individuals, not zoos."

Via Twitter from Paul Kedrosky.

Carbon-Monoxide Detector with Snooze Button Recalled

Gotta love The Onion

Explaining Income Inequality

Click to enlarge.

There's a lot of discussion on the topic "income inequality," especially concerns about "increasing income inequality" (223,000 Google hits) and "rising income inequality" (432,000 Google hits).  There's apparently not as much discussion on "explaining income inequality" (18,800 Google hits), a topic this post addresses. 

The chart above (click to enlarge) shows selected characteristics of U.S. households by income quintiles (and the top 5%) for 2009, using data from the Census Bureau (here and here). Here is a summary of some of the differences between low-income and high-income households in America:

1. On average, there are more income earners per household in highest-income households (2.05 earners for the top fifth) than earners in the lowest-income households (0.48 for the lowest fifth).

2. Married-couple families represent a much greater share of the top income quintile households (79%) than lowest quintile households (18%).

3. More than 3 out of 4 households in the top fifth of households are in their prime earning years between 35-64 years old, compared to only 43% of households in the bottom fifth. The lowest quintile households are more than 1.5 times as likely to be younger (under 35 years) as the highest quintile households (23.4% to 14.8%), and more than three times as likely to be old (65 years and over) as the top fifth (33.3% vs. 9.9%).

4. Almost 4 times as many top quintile households are working full-time (78%) compared to the bottom quintile (20.8%), and more than five times as many households in the bottom quintile are not working (65%) as households in the top quintile (12.2%).

5. Households in the top quintile are almost seven times more likely to have a college degree than bottom quintile households (72.8% vs. 10.8%). 

Bottom Line: The highest-income quintile has four times more people working per household than the lowest quintile (2.08 earners vs. 0.48), and individuals in those households are far more likely to be well-educated, married and working full-time in their prime earning years.  In contrast, those individuals with low incomes are far more likely to be less-educated and working part-time, and either very young or very old living in single-parent households.  Given these significant differences in household characteristics, it's not too surprising that there are huge differences in incomes among American households.  It's also very likely that those individuals in the highest quintile were once in the lower quintiles before they acquired job experience and education, and they'll likely be in a lower quintile again when they retire.  

Understanding the factors explaining income inequality would also help explain why income inequality changes over time.  For example, compared to previous years, in 2009 there were both: a) more single-parent households, and b) more married, dual-earner households, following trends going back to the 1960s, and both of those trends would explain rising income inequality over time.

Thanks to Diana Furchtgott-Roth for the idea.

NY Fed Model: 1-in-50 Chance of 2011 Double-Dip

The New York Federal Reserve updated its "Probability of U.S. Recession Predicted by Treasury Spread" with treasury yield data through September 2010, and the Fed's recession probability forecast through September 2011. The NY Fed's Treasury model uses the spread between the yields on 10-year Treasury notes (2.65% in September) and 3-month Treasury bills (0.15%) to calculate the probability of a U.S. recession up to twelve months ahead (see details here) using the spread between those two yields.

The Fed's model (data here) shows that the recession probability peaked during the October 2007 to April 2008 period at around 37-42% (see chart above), and has been declining since then in almost every month.  For September 2010, the recession probability is only 0.45% and by September of next year the recession probability is slightly higher, but still less than 2% (1.7%). According to the NY Fed Treasury Spread model, the chances of a double-dip recession through fall of next year are less than 1 out of 50.

Rail Traffic Continues to Show Improvement

WASHINGTON, D.C. – Oct. 21, 2010 – "The Association of American Railroads (AAR) today reported that weekly rail traffic continues to show improvement over 2009 levels with U.S. railroads originating 303,664 carloads for the week ending Oct. 16, 2010, up 10.1% compared with the same week last year. Intermodal traffic for the week totaled 237,180 trailers and containers, up 15.1% compared with the same week a year ago, with container volume up 15.8% and trailer volume up 11.1%."

MP: Based on the continuing gains in weekly rail traffic week after week, we would have to conclude that: a) there are ongoing increases in the demand for raw materials, parts, chemicals, grains, lumber, petroleum products, farm products, coal, etc., and b) these inputs will then end up as increases in final output (GDP), and c) eventually increased employment.  

No One Pays Taxes On Business Not Done

I have been reporting on the increases in September state tax revenues for at least 14 states so far, and have suggested that this should be interpreted as a sign that the economic activities subject to state taxes (retail sales, individual income earned, corporate income generated, etc.) are expanding as the economy improves.   

In today's "The Gartman Letter," Dennis seems to concur that the improving tax collections reported for September are a sure sign of economic strength:

"We don’t know many things upon which we can count on unequivocally, but we can count upon this: no one in history has ever paid taxes upon business not done. Taxes are paid on business done; on deals consummated; on sales made and delivered; on hours worked and billed."