Inflation Is No Problem Now

On April 14, the BLS gave us the CPI data for March. A surge in the “Fresh Fruits and Vegetables” index lifted the total to 217.631 (1982-1984=100), up 2.3 percent from a year earlier.

However, the CPI-U less food and energy index was 221.059, up only 1.1 percent from a year earlier. Click here to read the full post and comment (Insights subscribers) »

Industrial Production Is Rebounding As Well

If you want to look for clear evidence of a V-shaped recovery, then the industrial production (IP) statistics are a great place to visit. On April 15, the Federal Reserve Board released the latest in a string of strong reports on this critical part of the US economy. Click here to read the full post and comment (Insights subscribers) »

Some Good Employment News at Last

The month of April has brought us three reports that indicate that growth in employment may finally have returned to the US in March. On April 2, the BLS released “The Employment Situation” for March and the first piece of good news was that nonfarm payroll employment rose by 162,000 jobs in March. This was the first statistically significant increase in this closely watched measure since December 2007, when the recession began. There were small increases in November 2009 and January 2010, but the net change has to be larger than 108,000 jobs to be statistically significant.

The second bit of good news was that the total number of people employed rose by 264,000 in March after an increase of 308,000 in February. We had not seen two consecutive months of growth in this measure, which directly influences the unemployment rate, since October and November 2007, just before the recession began. The unemployment rate held at 9.7 percent for the third straight month. That’s not wonderful news, but it sure beats continuing increases.

On April 6, the BLS released the JOLTS report for February. That report said there were 2.7 million job openings on the last business day of February.

For the first time, the BLS released a very interesting group of graphs with analytical information with that report. These showed that the number of job openings hit its recent peak of 4.8 million in March 2007, well before the recession started. It fell to 2.3 million openings in July 2009. Since then it has gradually moved up to 2.7 million.

The JOLTS report also showed that in February, for the first time since the recession began, the number of new hires was equal to the number of job separations. Both totaled 4.0 million in February.

For the twelve months ended in February 2010, there were 48.3 million people hired and 51.5 million people separated. That’s a net employment loss of 3.2 million, which is 2.2 million better than where we were in December 2009.

On April 16, the BLS released the state employment data for March. Following the good news from the national report, this release showed that 33 states and the District of Columbia had a seasonally adjusted increase in nonfarm payroll employment in March as compared to February. Three states (Alaska, New Hampshire and North Dakota) and the District of Columbia had increases from March 2009.

Only Alaska, North Dakota and the District of Columbia posted increases in nonfarm payroll employment since the recession began. Nevada has lost 13.7 percent of its jobs since then, followed by Arizona (-10.7 percent), Michigan (-9.9 percent), Florida (-9.7 percent), California (-8.8 percent), Oregon (-8.8 percent), Georgia (-8.3 percent) and Idaho (-8.1 percent).

In terms of total employment, only Texas (1.4 percent) and Alaska (0.1 percent) have shown increases since the recession began. That should change dramatically over the course of 2010.

Great News from Manufacturers

On April 1 the Institute for Supply Management (ISM) gave us wonderful news. They told us that their purchasing manager’s index (PMI) improved to 59.6 percent in March from an already high 56.5 percent in February.

That was the highest reading since July 2004. If the first quarter levels of the PMI were maintained for a year, the ISM said that would be consistent with real GDP growth of 5.4 percent. Wouldn’t we all love to see that?

There are 18 manufacturing industries included in the ISM survey. Every sector except one (plastics and rubber products) reported growth in March.

Even better news was in the inventories index, which was 55.3 percent. That meant March was the first time, after 46 consecutive months of decline, that manufacturing inventories have expanded. Some ten industries reported higher inventories.

The March employment index was 55.1 percent. There were 13 of the 18 manufacturing industries reporting increased employment last month.

All of these things are indicators of a growing economy. That’s terrific news for sure.

Jobless Claims Are Finally Encouraging Again

On April 1 the US Department of Labor told us that the number of people filing first-time claims for unemployment insurance fell to 439,000 for the week ended March 27. That matched the level for the week ended February 6.

Both of these were the lowest since the week ended August 23, 2008. That was before the September 15 collapse of Lehman Brothers set off a global collapse.

We probably need to see claims constantly below 400,000 a week to signal robust improvement in the employment numbers. That should come soon.

No Bottom-Line Responsibility = Financial Crisis

Cities, states and countries are now facing serious fiscal problems which arise from the simple fact that public managers face no bottom-line accountability. Managers, with horizons driven by election cycles, not the longer term interests of the “company,” too easily cave in to special interests and public pressure. When the garbage collectors go on strike, the pressure on city politicians to settle is strong indeed. Over the past few decades, government has grown in size and largess.

In California, prison guards and highway patrol officers earn up to $100,000 a year (with overtime) and can retire as early as age 50 with a benefit that can reach 90 percent of income [The Economist, February 27, 2010, page 38]. Even in small cities, pay and retirement packages for government workers far exceed comparable jobs in the private sector.

In Greece, the retirement age is 61 and the retirement benefit is 80 percent or more of the last pay earned for public and private workers (and they receive 14 “monthly” paychecks per year).[Financial Times, March 1, 2010, page 10]. These stories are replete in city after city, state after state and country after country. Private companies cannot survive such mismanagement. General Motors is a classic example.

Over the decades, the UAW, with pressure from government to avoid strikes and promises of protectionism, helped destroy the company. The bottom line was terrible, but politics trumped rationality, and GM is now a government-owned enterprise. Taxpayers will never recover their (involuntary) “investment” in GM which many feel should have been allowed to go through a structured bankruptcy that would have kept what was good and shed the units and contracts that guaranteed that GM would remain unprofitable in a competitive market. This administration has made clear its intent to support public and private unions in spite of these growing problems.

Add to this extended periods of cheap and easy credit which further lowers the cost of caving in to pressure and the stage is set for the fiscal disasters we face today. The larger the role of government in a country, the larger the potential for inefficiency and mismanagement, corruption and graft. Government entities avoid “bankruptcy” by taking an ever-rising share of private-sector income, but even this has it limits as we are about to discover (40 percent of tax filers don’t pay any tax).

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.