By admin | February 8, 2010
Submitted by The Capital Spectator
Fed Chairman Ben Bernanke will be chatting up the central bank’s exit strategy later this week when he testifies before the House Financial Services Committee on February 10. To say that there are political and economic risks hovering over the subject is to understate the potential hazards.
There are risks to tightening too early, which some worry would repeat the mistakes of 1936-1937, when reserve requirements were tightened and the economy slipped into recession. At the same time, it’d be foolish to discount the potential for higher inflation in the years ahead in the wake of the extraordinary monetary stimulus over the past year or so. Regardless of the economic reality, the political pressure to keep rates low is intense, given the weak labor market.
In late-January, Carnegie Mellon Professor Alan Meltzer bluntly responded to Bernanke’s commentary on the details of an exit strategy by opining that the Fed chairman’s plan is destined to fail. Meltzer, author of a sweeping two-volume history of the Fed (A History of the Federal Reserve, Volume 1: 1913-1951
and A History of the Federal Reserve, Volume 2, 1970-1986
), said that Bernanke’s plan to prevent future inflation is “incomplete.” As Meltzer explains, “The Fed recently began to pay interest to banks on the reserves they hold in their vaults. Using this new tool, it claims the ability to get banks to keep the money instead of lending it out, thus containing the money supply and inflation. I don’t believe this will work, and no one else should.”
Will Ben respond to the criticism and soothe Meltzer’s concerns? Stay tuned. For the moment, however, the stakes are low, or so the market outlook for inflation suggests. The Treasury market’s 10-year inflation forecast is a modest 2.27%, based on the spread between the nominal and inflation-indexed 10-year Treasuries as of Friday’s close.
That’s roughly in line with the inflation outlook just before all hell broke loose in September 2008, when Lehman Brothers failed and the financial troubles at the time exploded into a crisis. Among the fallout from the chain of events that month was the heightened risk of deflation. Judging by the market’s forecast these days, the deflation risk has faded. Yet the inflation risk at the moment looks tame.
No wonder that the Fed funds futures market anticipates no imminent change in short term rates. If we look out a year, the futures market expects the Fed to raise interest rates, but just barely. The February 2011 contract is currently priced for a roughly 0.75% Fed funds. That’s up from the current 0-0.25% target range, but as changes in rate expectations go, that’s rather subdued.
Will Ben’s testimony on Thursday give us reason to rethink the future of inflation and interest rates?
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 8, 2010
Submitted by CARPE DIEM
Here is a great database for statistics on Mineral and Material Commodities in the United States, annually from 1900 and through 2008, for about 90 commodities and minerals including data for supply, demand, exports, imports, nominal prices, real prices, etc.
The chart above shows the real price of aluminum annually back to 1900. Despite the fact that the real price of aluminum had fallen from $14,000 per ton in 1900 by 64% to less than $5,000 per ton in 1937, Alcoa Aluminum was charged with “illegal monopolization” of the aluminum market by the Justice Department in 1938 (see details here “United States vs. Alcoa“). Visit 1800blogger to see all of our industry leading blogs.
By admin | February 8, 2010
Submitted by CARPE DIEM
“In December, 8,259 new and resale houses and condos closed escrow in the metro area encompassing Miami-Dade, Palm Beach and Broward counties. That was up 19.1% from November and up 41.3% from 5,846 in December 2008, according to MDA DataQuick (see chart above). December marked the tenth consecutive month in which the region’s overall sales rose on a year-over-year basis.
The median price paid for all new and resale houses and condos sold in December was $155,000, the same as in November but down 22.5 percent from $200,000 in December 2008. It was the smallest year-over-year decline for the overall median sale price since the median fell 22.2%, to $210,000, in November 2008.”
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 8, 2010
Submitted by Businomics Blog
My best example of the value of consulting is actually a sailing story. I was the guest skipper of a 37-foot sailboat racing off Berkeley, California on a calm winter day. The racing area is shallow, really just an extension of the mud flats. That day the wind was very light, and the boat was going very, very slow.
As we approached the first buoy we were to go around, the boat slowed, and slowed, and then seemed to stand still. I looked behind me and saw three boats approaching. I figured that they were riding a little puff of wind, and that I’d catch that puff, but their momentum would take them past me.
As the first boat pulled even with me, the skipper yelled over, “Are you aground?”
I immediately replied, “Yes we are.”
The six crew members on my boat were stunned. We’re aground? And the skipper knew it, but hadn’t told us?
Well, I had not known we were aground until that other skipper asked the question. Then it all became clear. We were sailing in a shallow area at low tide. We had been going slowly in the first place. The bottom was soft mud, so we could gradually plow into it without feeling the jarring halt that happens from hitting rocks or sand. We were aground. I had all the pieces of information that I needed to understand our situation, but I was too caught up in running the boat to put it all together. A simple question from an outsider was invaluable.
A consultant doesn’t have to be smarter than his client to add value, just as a Tiger Woods’s coach does not have to be a better golfer than Tiger. The outside perspective, the freedom to ask questions, the ability to pull his viewpoint above the day-to-day challenges and look at the bigger picture, these are the things that consultants bring to the client.
(For more about my own consulting, check out my consulting web page.)
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by Businomics Blog
The Eugene Register-Guard quotes me giving that advice:
Executives and business owners charged with strategic planning for 2010, here’s a bit of advice from Economist Bill Conerly: “Stop thinking like it’s a recession, and start thinking like it’s a recovery.”
Conerly, who advises businesses on economic and strategic planning, said he urges clients to consider now what problems might crop up when business starts improving.
Read the full article.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by Businomics Blog
I just updated my economic forecast, taking into account the new GDP data released by the government last week. Fourth quarter growth came in stronger than I had expected–and everyone has been telling me I’m an optimist!
Here’s how the new forecast looks:
The dark blue columns are actual data (though subject to revision by the government), and the light blue columns are my forecast growth rates. The red line is the average growth rate of all the post-World War II recoveries. I’ve posted information showing that typically, more severe recessions result in stronger economic recoveries. So any forecast underneath that red line is being very conservative.
A key driver of the turnaround in growth is the inventory swing. The latest GDP numbers show a faster recovery of business equipment spending, consistent with reports from high tech companies (such as Cisco’s recent sales and earnings report). I had expected more of a post-cash-for-clunkers slump in consumer spending than we actually got, suggested a bit more resilience out there.
Every time I release a forecast that is not totally doom and gloom I get mail from folks reminding me of the deficit, bad policy, high unemployment, etc. I suggest that you extreme pessimists pull data on the long-term growth of the economy, and then argue that the problems we have now are worse than the Civil War, Great Depression, dismantling of the British Empire, World War II, and rise of disco music.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by EconWeekly
I just found out that my paper (with co-authors E. Hurst, A. Lusardi, and A. Kennickell) got published!!
Abstract—Not properly accounting for differences between business owners and nonbusiness owners in studies of household wealth can lead to erroneous conclusions about the significance of different saving motives. Using data from the Panel Study of Income Dynamics from the 1980s and 1990s, we show that within samples of both business owners and non–business owners, the amount of precautionary savings with respect to labor income risk is modest and accounts for less than 10% of total household wealth. Previous large estimates of the size of precautionary balances resulted from pooling these two groups together. Such pooling is inappropriate given that business owners face higher labor risk and accumulate more wealth than non–business owners for reasons unrelated to precautionary motives.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by Econbrowser
Here I offer some thoughts on last week’s numbers for employment, auto sales, and commodity prices.
On Friday the Bureau of Labor Statistics reported that 20,000 fewer Americans were working in January compared with December on a seasonally adjusted basis but that the unemployment rate nevertheless fell from 10.0% in December to 9.7% in January. The discrepancy comes from the fact that the BLS gets employment counts in two different ways. The first is by asking establishments how many people they employed last month, and this establishment survey provides the basis for the reported 20,000 decline in nonfarm payrolls. But a second method is to go to individual residential addresses and ask the occupants how many people living there were working last month. According to the BLS household survey, the number of Americans working increased by a seasonally adjusted 541,000 workers in January over December, though updated population controls make that December-to-January comparison for the household survey problematic. Usually what we hear featured in the press are employment numbers coming from the establishment survey and an unemployment rate coming from the household survey. The wildly diverging fundamental numbers for employment itself in the two surveys account for the reported improvement in the unemployment rate coinciding with no progress yet on jobs. Mark Thoma, Phil Izzo, and of course Bill McBride ([1], [2]) survey the takes of various analysts on what to make of the conflicting numbers.
Normally the establishment survey is regarded as the more reliable, though Tim Kane has argued that the household survey sometimes does a better job of recognizing turning points. We might look to some other labor market indicators to try to referee the current dispute. Automatic Data Processing constructs its own estimate based on the 22 million Americans whose payrolls it helps prepare, and their guess was that the economy shed 22,000 private sector jobs in January on a seasonally adjusted basis. Since BLS estimates that 8,000 government jobs were lost in January, ADP’s estimate is about 10,000 more pessimistic than the BLS payroll figure. The Institute for Supply Management’s survey of nonmanufacturing establishments found more managers reporting declines in employment than reported increases in employment in January. By contrast, their survey of manufacturing establishments found more managers reporting increases in employment than declines. Fair to say that the signals are mixed, but things may not be as bad as the BLS nonfarm payroll numbers suggest.
Earlier in the week we received reports on January auto sales that could also be described as no better than lukewarm. Americans purchased 6% more light vehicles last month than they had in January 2009. That might sound encouraging, unless you’ve forgotten that January 2009 was the worst month for car sales out of the last 6 years (on a seasonally unadjusted basis). Last week’s good news was that January 2010 was only the third worst month out of the last 6 years, beating both January and February 2009. Nonetheless, that’s the same basic arithmetic that gives rise to some hope for 2010 reported growth rates– things were so awful last year that even a very bad month counts as an improvement.
 |
I also continue to follow with interest what’s been happening to commodity prices, with both oil and copper now off 15% from their values of just a few weeks ago. I’m persuaded that speculation in China has been a big part of the story on both the way up and now on the way down. Greg Merrill calls attention to the estimate by the International Copper Study Group that China’s apparent usage of copper grew by 43% in the first 10 months of 2009, while copper usage by the rest of the world fell by 18% over the same period. If stockpiling in China has indeed come to an end, that would explain the sharp fall in prices, and could portend more to come.
Finally, I have to pass along a story that Mike Shedlock highlighted from Bloomberg:
Non-performing loans in China have risen into the “trillions of renminbi” because of poor lending practices, an insolvency lawyer said.
“We work really closely with SASAC, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of, frankly, defaulting loans already in China that no one is doing anything about,” Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference yesterday. “At some point there’s going to be a reckoning for that.”
China’s government is tightening controls, including banks’ reserve ratios, to prevent record lending from fueling inflation. The Shanghai office of the China Banking Regulatory Commission warned yesterday that a 10 percent fall in property values would treble the number of delinquent loans in the city. Liu Mingkang, chairman of the CBRC, said Jan. 4 that loans were channeled into stock and property speculation last year, which China has been taking measures to stop.
My bottom line: the scales tipped last week in the direction of near-term deflationary pressures, despite the strong 2009:Q4 U.S. GDP report and falling unemployment rate.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by Econbrowser
Augmenting my previous post, here are two additional graphs, motivated respectively by comments by Econbrowser readers Eric Swanson (for Figure 1) and Cedric Regula and tim kemper (for Figure 2).
Figure 1: Federal debt held by the public as a share of GDP (blue) and as a share of potential GDP. NBER defined recessions shaded gray; assumes last recession ended 09Q2. Vertical dashed line at last Q4 of each Administration, solid vertical line at Q1 of beginning of each Adminisration. Sources: Series FYGFDPUN from St. Louis Fed FREDII, with 09Q4 data from CBO, and BEA, 2009Q4 advance release, CBO (January 2010), NBER, and author’s calculations.
Figure 2: Federal debt held by the public as a share of GDP (blue) and Total Federal debt as a share of GDP. NBER defined recessions shaded gray; assumes last recession ended 09Q2. Vertical dashed line at last Q4 of each Administration, solid vertical line at Q1 of beginning of each Adminisration. Sources: Series FYGFDPUN, series GFDEBTN from St. Louis Fed FREDII, and BEA, 2009Q4 advance release, NBER, and author’s calculations.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by Econbrowser
Downward revision in the level of nonfarm payroll (NFP) employment; stabilization in employment measures (establishment, household, research series); aggregate weekly hours trend up.
Figure 1: Nonfarm payroll employment, in thousands, seasonally adjusted, from January release (blue), December 2009 release (red) and December 2008 release (green). NBER defined recession dates shaded gray, assumes recession ended 2009M06. Source: BLS January 2010, December 2009 and December 2008 releases via FREDII, and NBER.
Figure 2: Nonfarm payroll employment, in thousands, seasonally adjusted, from January release (blue), civilian employment (over 16), in thousands, seasonally adjusted (teal) and civilian employment adjusted to conform to NFP concept (dark red). A vertical dashed line shows the break in the household survey based series, reflecting the introduction of new population controls based on Census data. NBER defined recession dates shaded gray, assumes recession ended 2009M06. Source: BLS January 2010, release via FREDII, BLS, and NBER.As discussed in the Employment Situation release, there are breaks in the population controls. Table B in the
release indicate little impact on the unemployment rate. With respect to changes in civilian employment, the Dec to Jan change would have been
larger than the one actually published.
Figure 3: Annualized three month growth rates for nonfarm payroll employment, seasonally adjusted (blue), civilian employment (over 16), seasonally adjusted (teal) and civilian employment adjusted to conform to NFP concept (dark red). Growth rates calculated as log-differences. A vertical dashed line shows the break in the household survey based series, reflecting the introduction of new population controls based on Census data. NBER defined recession dates shaded gray, assumes recession ended 2009M06. Source: BLS January 2010, release via FREDII, BLS, NBER, and author’s calculations.
Figure 4: Log aggregate weekly hours in private sector index from Jan. ‘10 release (blue), from Dec. ‘09 release (red). NBER defined recession dates shaded gray, assumes recession ended 2009M06. Source: BLS January 2010, release via FREDII, and NBER.
Additional coverage: Izzo/WSJ RTE, Reddy/WSJ RTE, CR 1, CR 2, CR 3, Economist’s View, Jeff Frankel.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by Econbrowser
The Administration has committed itself to doubling exports in five years, via the National Export Initiative. Much of the journalistic coverage has focused on the regulatory, trade-credit financing, and export promotion measures being considered [0]. I wanted to take a macro oriented approach to the viewing the plausibility of this goal. Let me address this issue from a variety of perspectives.
The historical record
First, has a doubling of exports ever occurred in the past forty or so years? The answer is yes!
Figure 1: Ratio of nominal exports to exports 5 years earlier (blue), and real exports (red). NBER defined recessions shaded gray; assumes last recession ended 09Q2. Source: BEA GDP 2009Q4 advance release, NBER, and author’s calculations.Notice that nominal exports certainly doubled in the mid-1970s and early 1980’s. Nominal exports also almost doubled by 1990 and 2008, approximately 5 to 6 years after peaks in the trade-weighted exchange rate. (Real exports seldom exceed a 50% increase).
Hence, the objective of doubling nominal exports is clearly possible. From a macro perspective, whether the doubling occurs depends upon (i) the price level of exports, (ii) the quantity of exports.
The price of exports
Clearly, the price of exports matters both directly (by affecting the price of each unit of exports) and indirectly (by affecting the quantity of exports) for nominal exports. First, we can examine the relationship of the price level to the exchange rate.
Figure 2: Log price of goods exports (blue), of services exports (red), and log dollar exchange rate against a broad basket of currencies (green), all normalized to 0 at 2002Q1. NBER defined recessions shaded gray; assumes last recession ends 09Q2. Source: BEA GDP 2009Q4 advance release, Federal Reserve Board, NBER, and author’s calculations.Here, the implied pass through is substantially higher than import pass-through [1], but in line with the estimate of 0.75 reported by Vigfusson, Sheets and Gagnon [link fixed, 2/5 9am] for the US.
Hence, sustained dollar depreciation could aid in hitting the target in a direct fashion.
The quantity response
The quantity of exports depends on (1) rest-of-world GDP, (2) the real exchange rate, and (3) US supply of exportables. (1) and (2) enter into standard elasticities approach equations; (3) has been included in studies such as Helkie and Hooper (1988), as well as more recent studies by me [2]. Omitting the supply side artificially imputes to rest-of-world growth the supply side if the two variables co-trend.
For the moment, consider the basic specification omitting the supply side, as discussed in this post from last October, but estimated over the 1973Q1-2009Q4 period:
Δ exp t = θ 0 + ρ exp t-1 + θ 1 y* t-1 + θ 2 r t-1 + σ 1 Δ exp t-1 + σ 2 Δ y* t-1 + σ 3 Δy *t-2 + σ 4 Δ r t-1 + v t
Where exp is real exports of goods and services, r is the real exchange rate, and y* is the rest-of-world GDP. Note that the rest-of-world GDP variable is the export weighted real GDP calculated by the Federal Reserve Board, for 1970q2-07q4; the 2008q1-09q3 data I estimated using a regression of GDP on a current and four lags of industrial country industrial production, time trend, trend squared, and world GDP ex.-US.
(Data sources: BEA 2009q4 advance release for imports, exports, GDP; Federal Reserve Board for broad index of real dollar value; personal communication/Fed for rest-of-world export weighted GDP; and IMF International Financial Statistics for industrial country industrial production (nsa), and GDPs used to project rest-of-world GDP.)
The implied long run price elasticity is 0.82, and the long run income elasticity is 1.81. The price elasticity is higher than that obtained by DOLS in this paper, based on export data up to 2007, but the income elasticity is about the same. Hence, continued dollar depreciation would have a substantial direct impact on export quantity. But rapid rest-of-world growth could be even more important, given the high income elasticity. (The rest-of-world GDP variable is export-weighted, so this characterization pertains to US export markets.)
In my working paper, augmenting the basic specification with a supply variable (industrial production) halves the income elasticity. This complicates the issue; then one needs to know how the supply of exportables will evolve over time.
I am the first the confess that the measure I use for the supply of exportables is wanting. One could use a measure of the capital stock (as in Helkie and Hooper). But I think no measure is particularly satisfying, especially given the fact that over one-third of exports are in the form of services, and a full 15% are “private services”, including business, professional and technical services.
Figure 3: Shares of total exports. NBER defined recessions shaded gray; assumes last recession ends 2009Q2. Source: BEA GDP 2009Q4 advance release, NBER, and author’s calculations.Complications: Vertical Specialization, etc.
In a number of posts [3] [4] [5], I’ve argued that vertical specialization — the use of imported inputs for subsequent exports — is important in thinking about how trade flows respond to exchange rates and incomes. While it’s likely that the degree of vertical specialization is less for the US than other, smaller, developed economies, it’s plausible that it’s been increasing over time. If this is so, then measured exports could be rising at a noticeably higher rate than the value-added component of exports. In other words, I’m positing an upward trend in gross exports to GDP that is not as marked as the value added in exports as a share of GDP. This upward trend helps make the goal of a doubling of gross nominal exports more feasible.
Of course, this effect relies upon a continuation of “product fragmentation” or “globalization”. That process might have been slowed by rising energy prices, or rising transactions (including credit) costs, as discussed here and here.
Bottom Line
So, if you didn’t know it already, achieving the goal of doubling nominal exports depends upon exchange rate pass through, the extent of exchange rate depreciation, the rate of rest-of-world GDP growth, and the evolution of export supply (of both goods and services).
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by The Capital Spectator
Today’s employment report was, well, discouraging. Or was it? The range of opinion was unusually wide, or so it seems.
The reported facts, at least, are clear. Quoting from the Labor Department’s press release, “The unemployment rate fell from 10.0 to 9.7% in January, and nonfarm payroll employment was essentially unchanged (-20,000), the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and in transportation and warehousing, while temporary help services and retail trade added jobs.”
But that’s just the beginning. Or is it the end? You decide. Here’s a sampling of the commentary on today’s numbers that, for one reason or another, caught our attention…
● “The question is, what is the rate of improvement going to be? Very slow. We don’t see companies going crazy on the hiring.”
Joshua Shapiro, chief United States economist at MFR Inc.
New York Times
● “Today’s employment report from the Bureau of Labor Statistics, showing that unemployment fell to 9.7 percent in January, provides fresh evidence that the labor market has stabilized and our nation has turned a corner.”
Rep. Carolyn Maloney, congresswoman (D-NY)
Huffington Post
● “The Bureau of Labor Statistics (BLS) employment report for January contains mixed signals about the job market’s emergence from the 2008-2009 recession. The household survey showed a sizeable drop in the unemployment rate – down 0.3 percentage points from December 2009 and down 0.4 percentage points since the peak unemployment rate in October. The fall in unemployment cannot be explained by a rise in the number of discouraged workers or any further decline in the labor force participation rate. On the contrary, the household survey shows a rise in the participation rate. The reason unemployment fell is that the number of Americans who report being employed rose substantially. This is heartening news.”
Gary Burtless, Senior Fellow, economic studies
Brookings Institute
● “The drop in the unemployment rate, from 10% to 9.7%, is grabbing a lot of attention, but I’d suggest that’s not providing the most accurate picture of the labour market. Looking instead at the establishment data, we see that the employment picture was more or less flat in January (payrolls officially fell by 20,000), but that labour markets are struggling to climb out of a much deeper hole than was initially realised…”
The Economist.com blog
● “The latest unemployment rate of 9.7 percent is an unexpected jolt of good news. That’s down from 10 percent in December and even lower than the 9.8 percent the Obama administration projects for the end of this year. That encouraging number raises an obvious question: Is it an aberration or a positive indication that we are indeed coming out of the recession in the only way that matters to most people, the ability to readily find work? Buried in the numbers there is reason to hope.”
Dale McFeatters, Scripps Howard News Service
Scipps News
● “Today’s report contained the much-awaited annual benchmark adjustment that added 930,000 lost jobs which had not been counted between April 2008 and March 2009. Since the start of the recession in December 2007, payroll employment has fallen by 8.4 million. Before today’s adjustment, job losses had totaled 7.2 million. The adjustment happens every year, but this year’s is especially large. A number of economists blame the BLS’s birth-death model for the problem. This is a 10-year-old formula for calculating the number of jobs created as businesses are born and die. The trouble is that it doesn’t seem to work very well in a recession. And while we now know how many lost jobs it didn’t count nearly a year ago, we won’t know until a year from now how many jobs the birth-death model will have miscalculated from April 2009 until March 2010. We do know the the model ‘created’ nearly a million jobs in the nine months ending in December. How many of them are real?”
Meteor Blades
Daily Kos
● “…much of the job growth in the past has been in the public sector and through gimmicks such as the so-called ‘cash for clunkers,’ and this is unsustainable as a foundation for long-term economic growth. While private industry appears to be replenishing depleted inventories, many manufacturers are skittish about significantly increasing production to meet rising consumer demand that may not be there. This is still a very risk-averse economic environment.”
Samuel R. Staley, director of Urban & Land Use Policy at the Reason Foundation
NationalReview.com
● “With the unemployment rate falling from 10.0 to 9.7 the employment report implies that the economy is in a transition phase. The period of widespread layoff and job cuts is over. So if you still have a job the odds of your losing it have roughly returned to normal. This change is reflected in the improvement in personal confidence. But firms have not yet begin widespread hiring. So if you are still looking for a job it is going to be rough.”
Angry Bear
And, finally, a picture really is worth a thousand words, courtesy of Calculated Risk
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by The Capital Spectator
Martin Fridson of Fridson Investment Advisors reviews my new book, Dynamic Asset Allocation: Modern Portfolio Theory Updated for the Smart Investor
, via the CFA Institute.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by The Capital Spectator
Always a bridesmaid, never a bride. That about sums up the struggle in nonfarm payrolls to reach the tipping point of growth (or at least zero).
This morning’s update for January tells us that the economy is still losing jobs. In the optimistic words of the Labor Department’s press release, last month’s 20,000 decline in nonfarm payrolls amounts to a labor market that’s “essentially unchanged” for January. Yes, we recognize the statistical reasoning for saying so. A decline of 20,000 jobs in a labor force of nearly 130 million is statistically insignificant—a decline of less than two-hundredths of one percent. But the scribes at the Labor Department have chosen their words poorly for the press release du jour. The economy has now lost over 8 million jobs since the recession began in December 2007, and the losses continue. The red ink is relatively slight, to be sure, but continuing nonetheless. Calling another loss of jobs–any loss of jobs–as a status of “essentially unchanged” at this late date is not only unecessary, it appears to trivialize what is clearly the deepest and longest-running dent in the labor market since the Great Depression.
But enough of complaining about poor manners and ill-advised rhetoric. As for the numbers dispensed today, there’s some good news in the sense that the Labor Department revised upward the November nonfarm payrolls count: the month had a net gain of 64,000 jobs, much better than the rise of 4,000 previously reported. Unfortunately, the revision for the rest of the year is uniformly worse off than originally reported. Bottom line: the Labor Department tells us that the economy was lighter by more than 600,000 nonfarm jobs than originally estimated.
At this point the details don’t matter and revisions are of little relevance save for the academics who’ll be studying the numbers in the years ahead. For now, the only issue is reaching the point of nirvana, that glorious realm where the trend in nonfarm payrolls is something other than a loss. We’re not there yet, the “essentially unchanged” status notwithstanding.
Yes, we’re close. Zero and above zero seem to be well within the economy’s grasp. But with each near miss, the disappointment builds and so the case for arguing that the “essentially unchanged” status will linger well into 2010 becomes a bit more persuasive. Next month, is all we’re left with. Maybe, maybe not.
The longer this drags on, the higher the odds that we’re facing an even weaker post-recession job recovery than previously anticipated. And that’s saying something. We’ve been opining for some time now that the labor market’s “recovery” is likely to be weak this time (for example, see our posts here and here). Perhaps even weaker than we thought.
In fact, we expect zero to arrive, more or less, in the months ahead. The problem is still that there’s some doubt about the capacity for generating numbers of substance above zilch on a sustainable basis.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by The Capital Spectator
Mercer, the consultancy, has some thoughts. Ten, to be exact…
1. Superannuation legislation will force change in the way we look at retirement and how retirement savings are invested
2. A weaker global banking system will create opportunities for private credit
3. Emerging market growth will outstrip developed markets, but equity markets may have priced this in
4. Environmental, Social and Governance (ESG) factors will continue to rise on investors’ radar
5. Investors will critically examine their investment strategies in the context of evolving deflation/inflation risks
6. Dynamic Asset Allocation (medium-term asset allocation tilts) will be de rigueur to capture market mispricing in the medium-term
7. Investors will undertake more due-diligence on hedge fund strategies
8. The big “macro” moves may be behind us - time to become “micro”?
9. Super funds will question the role of illiquid assets in their portfolios
10. Diversification will remain key.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by The Capital Spectator
Yields on short-term government securities vary from just above zero (10 basis points for 3-month T-bills) to around 1% (88 basis points for a 2-year Treasury). Those are extraordinarily low rates by the standards of recent decades. But don’t confuse that with borrowing costs, or the demand or ability to borrow.
Finding loans is tough. Commercial and industrial lending continues to fall. In last year’s fourth quarter, C&I loans were down more than 5%, even though top-line GDP climbed at an annualized real 5.7% rate.
For consumers, the state of borrowing isn’t encouraging either. The St. Louis Fed recently crunched some numbers on so-called consumer loan spreads, defined as “the amount they would earn on a weighted average of funds held in M2 (which is essentially cash on hand or in easily accessible bank accounts).” The bottom line: the cost of funds remains high for consumers. In fact, the credit card spread “is higher today than at any time in the past decade—even when the federal funds rate was as high as 6.5 percent in 2000:Q4,” according to William Gavin at the St. Louis Fed.
On the other hand, perhaps this is something of a moot point. Joe Sixpack seems intent on saving more these days. The personal savings rate (measured as a % of disposable personal income) was 4.6% in last year’s fourth quarter, more than double the level in 2008’s third quarter. That’s hardly a surprise, given the current economic backdrop and the general need to repair household balance sheets. But to the extent that economic recovery depends on a robust increase in consumer spending, there’s reason to stay cautious (as if we needed another reason).
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by CARPE DIEM
Feb. 5 (Bloomberg) — “Canada gained almost three times as many jobs as expected in January, led by part-time positions for youth, pushing the unemployment rate down to the lowest since September.
Employment rose by 43,000 last month, Statistics Canada said today in Ottawa, and the unemployment rate fell to 8.3%. The median forecast of 22 economists surveyed by Bloomberg was for a 15,000 gain in employment and a jobless rate of 8.5%.”
MP: The unemployment rate in Canada has now declined three months in a row, and has decreased in four out of the last five months, reaching the lowest rate in January (8.3%) since April of 2009 (8%).
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by CARPE DIEM
“Sadly, neither version of the healthcare plans in front of Congress allow space for healthy competition. The various health insurance “exchanges” and byzantine combinations of subsidies and penalties that the proposed legislation contains will only further restrict competition. Restrictions force insurance companies to offer only those plans that meet government approval.
If a bill passes, the result would be the equivalent of forcing every American to buy a cellphone, even if they didn’t want one. Those who have phones would see their plan costs soar, spending more for features they don’t want and inferior customer service. Washington should seriously consider the success of the cellphone industry’s model. Making health insurers more consumer-friendly requires competition.
By changing tax law to break the link between employment and health insurance and by abolishing laws that prevent purchasing health insurance across state lines, Washington could turn a doomed system around. More competition would give consumers more options and enable them to switch providers more easily, which would create much stronger incentives for good customer service than just complaining to a monopoly.
The sooner Congress realizes that the prescription is not more government regulations but a dose of real competition, the sooner we can restore some health to the health insurance industry.”
~Steve Horwitz in the Christian Science Monitor
MP: The chart above shows the percent change in the CPI since 1998 for all items (+34%) compared to the CPI for medical services (+60%, almost twice the overall rate of average price increase) vs. a -36.4% decrease in the CPI for cell phone services since 1998.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by CARPE DIEM
From today’s NY Times:
“Women have represented about 57% of enrollments at American colleges since at least 2000, according to a recent report by the American Council on Education (see chart above for BA degrees, data here). Researchers there cite several reasons: women tend to have higher grades; men tend to drop out in disproportionate numbers; and female enrollment skews higher among older students, low-income students, and black and Hispanic students.”
From the article “Feminists Still Defending Radical Gender Inequality in Education“:
“There was a time, of course, when feminists railed against gender inequality in a wide variety of areas, and rightly so. What possible reason could there be for inequalities based on sex in education, the workplace, academia, government, etc.? And they had a good point; there was no legitimate reason.
But the instant the shoe gets onto the other foot, the principle of gender equality vanishes from feminist discourse. Funny how that happens. Indeed, when it comes to the radical gender equality in education, feminists tie themselves in rhetorical knots justifying the very thing they were screaming about just 30 years ago.
Once feminists pretended to care about gender equality, but when that principle could conceivably benefit men, all of a sudden they’re not. There’s a word for that – hypocrisy.”
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by CARPE DIEM
The New York Times reports today that “Women Now a Majority in American Workplaces“:
For the first time in recorded history, women outnumber men on the nation’s payrolls. This benchmark is bittersweet, as it comes largely at men’s expense. Because men have been losing their jobs faster than women, the downturn has at times been referred to as a “man-cession.”
Women’s new majority in the nation’s workplaces comes decades after women first began trading in their aprons for pantsuits in droves, and it reinforces expectations that women will continue on the path to pay parity.
“Important milestones remain to be achieved, but women’s surpassing 50 percent of employment is something that historians will note for years to come,” said Casey B. Mulligan, an economics professor at the University of Chicago who has been tracking the recession’s effects on both sexes.
MP: There are a few problems with this report.
1. On a seasonally adjusted basis, the percent of women on nonfarm payrolls in January was 49.9% (see Table B-5 of the
BLS report), so women were not a majority on a seasonally adjusted basis.
2. More importantly, the nonfarm payroll data excludes almost 9 million American workers including the self-employed, unpaid family workers, agricultural workers, and private household workers, who are all included in the more comprehensive household survey. The two charts above shows employment levels and employment shares by gender, using the BLS monthly household survey data back to 1948.
The top chart shows historical employment levels by gender (household survey), and for January 2010, there were almost 7 million more men employed than women: 72,516,000 men vs. 65,817,000 women. The bottom chart displays employment shares by gender and shows that men held 52.42% of all jobs in January.
3. Gender parity by employment level/share really doesn’t have anything to do with gender parity for pay, since even with employment gender parity there will still be gender differences in hours worked, career choices, family roles, career interruptions, etc.
4. For women’s jobs to come at the expense of men’s jobs requires a fictitious labor market with a fixed number of jobs, so the writer has committed the “fixed pie fallacy.” As Milton Friedman reminds us, “Most economic fallacies derive from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by CARPE DIEM
Data source.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by CARPE DIEM
Thomas Sowell
1. The big question that seldom— if ever— gets asked in the mainstream media is whether these are a net increase in jobs. Since the only resources that the government has are the resources it takes from the private sector, using those resources to create jobs means reducing the resources available to create jobs in the private sector.
So long as most people do not look beyond superficial appearances, politicians can get away with playing Santa Claus on all sorts of issues, while leaving havoc in their wake— such as growing unemployment, despite all the jobs being “created.”
2. Whatever position people take on health care reform, there seems to be a bipartisan consensus— usually a sign of mushy thinking— that it is a good idea for the government to force insurance companies to insure people whom politicians want them to insure, and to insure them for things that politicians think should be insured. Contrary to what politicians expect us to do, let’s stop and think.
Why aren’t insurance companies already insuring the people and the conditions that they are now going to be forced to cover? Because that means additional costs— and because the insurance companies don’t think their customers are willing to pay those particular costs for those particular coverages.
It costs politicians nothing to mandate more insurance coverage for more people. But that doesn’t mean that the costs vanish into thin air. It simply means that both buyers and sellers of insurance are forced to pay costs that neither of them wants to pay. But, because political rhetoric leaves out such grubby things as costs, it sounds like a great deal.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by CARPE DIEM
Filmmaker Michael Moore would like to fill that bag with Michigan taxpayer money.
“A Michigan Republican state senator is calling out filmmaker Michael Moore for requesting $1 million in tax subsidies for his movie “Capitalism: A Love Story,” in which the filmmaker decried the government bailout of Wall Street executives.
State Sen. Nancy Cassis, R-Novi, is asking Moore to withdraw his application from the Michigan Film Office, which would reimburse up to 42% for costs associated with filming in the state. Cassis, who is chair of the Senate Finance Committee, said Moore shouldn’t be treated differently from any other filmmaker applying for the tax credits, but said his public criticisms of corporate welfare ring hollow if he asks for taxpayer dollars. Cassis said the Michigan Film Office told her Moore qualified for $1 million in tax credits.
“He got caught in his own rhetoric and double standards,” Cassis said. “He decried capitalism and big corporations getting government handouts, and he asked for a handout himself from all the taxpayers of Michigan. He presented himself as a defender of the poor and downtrodden, and government should not be supportive of corporate welfare, but he himself is taking money from taxpayers.
She continued, “Michael Moore, if you stand by your position in ‘Capitalism: A Love Story,’ then withdraw your application from the film office for refunds at the expense of and subsidized by Michigan taxpayers.”
Moore has not responded to media attempts to get his comments, and appears to be “just as elusive as the subject of his breakthrough movie ‘Roger and Me’ ” according to Kathy Hoekstra of the Mackinac Center who broke the story last week that Moore applied for the tax subsidy.”
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by CARPE DIEM
ProctorU is a revolutionary new service to help students take exams online. Using almost any webcam and computer, students can take exams at home, at work, or anywhere they have internet access. Connect one-on-one with your proctor, follow their instructions, and take exams from the comfort of your own home.
Visit 1800blogger to see all of our industry leading blogs.
By admin | February 7, 2010
Submitted by CARPE DIEM
Two positive signs from today’s BLS employment report are:
1) Manufacturing overtime hours for January increased to 3.5 hours, reaching the highest level since August 2008 (see graph). This marks the tenth month in a row that overtime hours have either increased or stayed the same as the previous month, following 16 months of declines (or no change) in average overtime hours.
2) The number of temporary help workers increased in January by 52,000 to the highest level since December 2008 (see graph above), and temporary workers increased for the sixth consecutive month for the first time since 2005. The 227,000 increase in temporary jobs since August is the largest 6-month increase since that data series started in 1990.
Both of those indicators signal a labor market that is slowly recovering, and strongly suggest that the worst is behind us.
Visit 1800blogger to see all of our industry leading blogs.
