Construction Remains Weak

Yesterday the Census Bureau told us that construction spending in February ran at a seasonally adjusted annual rate of $846.2 billion. That was 1.3 percent below the revised January number and 12.8 percent below February 2009. Total construction spending for 2009 was revised slightly down to $935.6 billion. That was 12.7 percent below 2008.

Residential construction fell Click here to read the full post and comment (Insights subscribers) »

Health Care Reform: “Change” is Not Necessarily Good

I have a few “issues” with the recently passed health care reform bill. First, it was passed on a totally partisan basis, paying no attention to the views of the citizens who were overwhelmingly opposed to this “change.” This “we know best and have the power” attitude smacks of authoritarianism. Second, it violated a host of important promises ranging from “transparency” to “no tax increases for anyone who earns less than $200,000” (originally $250,000), to the assertion that health care costs are preventing new firms from being formed–a real reach since it is not mandatory, yet, that firms must provide health care insurance. Add to that promises that we can keep our health care insurance, that we can see any doctor that we want, that premiums will fall and a host of other assertions from the White House and members of Congress and we see an ocean of promises floating away.

Assertions that health care is a “right” are simply incorrect. It’s not in the Constitution and it’s not someone’s “right” if I have to work to pay for it.

Finally, the preferences explicitly shown for trial lawyers and union members, “Obama Buddies,” were offensive. A sad showing indeed. This was not “government of the people, by the people,” but rather just a few people imposing their values on the rest of the people.

In order to remain financially solvent, the compensation that a firm can pay is limited to the revenue that a worker can add to the firm’s operation. In simple terms, a company cannot stay in business paying workers more than the revenue they generate for the firm. Compensation can then be divided between cash take-home pay and benefits and taxes. If you are worth $50,000 a year and have benefits and health care costs rise, it is hard to keep paying you the same take-home cash. This is the pressure that employers and employees face. But this bill does nothing to reduce costs by producing more efficient health care decisions. Instead, $500 billion in benefits have to be taken from the elderly while those who buy their own more expensive insurance must pay penalties. This is “rationing,” not “rationalizing” the health care market.

Bottom line, this legislation does nothing to make the health care system operate more efficiently, which is the “reform” that people wanted. Instead, it brings in millions of new “dependents,” those who will look to government for more handouts and vote for them (hang on for immigration reform, 12 million more votes). Furthermore, it manages to raise the health care bill for the country to be paid for by private-sector workers (unless you get a union “break”– stay tuned).

To be sure, many will like the “no pre-existing conditions” provisions and keeping “kids” (?) on the family policy until age 26 (guaranteed to raise health care costs). But these mandates, government definitions of “acceptable coverage” and the penalty structures are likely leading us to a single-payer, government-controlled health care system that will be rife with rationing. (How else, for starters, can we cut $500 billion out of Medicare?)

In the meantime, enjoy paying for the 16,000 new IRS “enforcers” out of your income. And here’s my confident forecast: there will be more taxes to come.

Consumer Net Worth Keeps Rising

The “Flow of Funds” report released by the Fed on March 11 showed that consumers had a net worth of $54.2 trillion on December 31, 2009. That was up $2.8 trillion or 5.4 percent from a year earlier. It was an increase of $682.7 billion or 1.3 percent from September 30.

Consumers had total assets of $68.2 trillion on December 31. Real estate was $16.6 trillion of that, against which there was $10.3 trillion in mortgages. This meant consumers had $6.3 trillion of unborrowed home equity or 38.1 percent of the value of our houses.

Total liabilities were $14.0 trillion. Obviously, mortgages made up most of that. Consumer credit added another $2.5 trillion.

Household net worth was 490.3 percent disposable personal income of $11.0 trillion. Consumers as a group are quite solvent.

Retail Sales Looked Good in February

On March 12 the Census Bureau told us that retail and food services sales in February were $355.5 billion. That was an increase of 3.9 percent from a year earlier and was the best month since the $365.9 billion of September 2008, the month when Lehman Brothers collapsed and caused a huge shock to the global economies that has still not gone away in many countries.

This excellent result suggests personal consumption expenditures may be growing at a 3.0 percent seasonally adjusted annual rate this quarter. That bodes well for a good first quarter GDP report on April 30.

No Inflation Problems Here

Today the BLS gave us the data on the CPI for February. It was 216.7 (1982-1984=100) or 649.3 (1967=100). That was unchanged from January and up 2.1 percent from February 2009.

Tuitions were up 4.6 percent from a year earlier and medical care was up 3.6 percent. Tobacco products were up 28.5 percent and energy prices were up 14.4 percent. Water and sewer and trash collection services were up 6.6 percent.

The widely followed “all items less food and energy” index was up only 1.3 percent from a year earlier. That’s the lowest since the 1.2 percent rate in February 2004. It’s a far cry from the post-1957 peak of 13.6 percent in June 1980. All but one month that year was above 12.0 percent.

Get Ready for a Weird Employment Report

On Friday the BLS will release the “Employment Situation” report for February. There has been much speculation that it could show a net gain in nonfarm payroll jobs, a small loss of 20,000 such jobs, or a big drop of 100,000 or more.

Today, the ADP report, which is the only major forecast of the BLS employment report available, said that private-sector employers cut 20,000 jobs in February, the fewest in two years. They revised the January loss from 22,000 to 60,000 jobs.

The February report marked the eleventh consecutive month in which job losses were less than in the previous month. Consistent with the February PMI report, ADP said the manufacturing sector added 3,000 jobs in February. They also said the service sector added 17,000 jobs, the third consecutive month of increases after 21 months of job losses in that huge sector.

Construction lost 41,000 jobs in February. That was only slightly better than the 48,000 construction jobs lost in January.

The big differences between ADP, a major processor of payrolls for companies, and the BLS are 1) ADP doesn’t cover government employees and hiring for the Census probably added 50,000 or more jobs in February, and 2) ADP counts people as being on the payroll even if the weather kept them from being able to get to work during the week that included February 12. The BLS only counts them if they did any work for which they got paid that week.

Thus you have the wide range of expectations. At 8:30 AM EST on Friday we’ll get the answer.

Not a Surprise, Construction Was Weak in 2009

On February 1 the Census Bureau told us that the value of construction put in place in 2009 was $939.1 billion. That was a plunge of 12.4 percent from the $1,072.1 billion spent in 2008.

Indeed, it was the first year that construction spending has been below $1 trillion since 2003. Nearly all forecasters expect further declines in 2010 and probably 2011 as well because the expected decline in nonresidential construction will more than offset the increases in residential spending. Click here to read the full post and comment (Insights subscribers) »

The ISM Delivers a Barnburner Number

On February 1 the Institute of Supply Management told us that their PMI index for manufacturing hit 58.4 percent in January, up from 54.9 percent in December. That index has now risen for six consecutive months after declining for 13 months in a row. Click here to read the full post and comment (Insights subscribers) »

Some Good News from Consumers

On January 29 the University of Michigan reported that its Index of Consumer Sentiment was 74.4 in January (March 1965=100). That was the highest since January 2008, the first full month of the recession.

Survey director Dr. Richard Curtin said, “Consumers are overwhelmingly convinced that the worst is over but nonetheless expect stagnating income and job prospects rather than solid growth during the year ahead.” Consumers’ attitudes and spending should rise during the course of 2010 as economic growth continues.

Retail Sales Were Pretty Darn Good in December

On January 14 the Census Bureau gave us the advance estimates of retail and food services sales for December and the full year 2009. The year ended better than most people expected.

The total for December (adjusted for seasonal variation, holiday and trading day differences) was $353.0 billion, up 5.4 percent from the year before. That was the third-best December ever. Click here to read the full post and comment (Insights subscribers) »