Relevant and even prescient commentary on news, politics and the economy.

Greg Mankiw on beef exports to Japan

Greg Mankiw reports on the difficulties US beef producers are having selling in the Japanese market.

He blames it on Australian competition.

Does he not know that the problem is that Team Bush will not allow American beef exporters to inspect their beef for mad cow disease?

Does he really have such a low opinion of the readers of his blog that believes he can get away with stuff like this?

No wonder he does not allow comments.

Comments (0) | |

INDUSTRIAL PRODUCTION

The industrial production report this morning was muddied by the auto parts strike. Overall
manufacturing output fell 0.8%, but excluding auto and auto parts manufacturing output fell
0.4%. Because the auto output is being distorted, and will generate a snapback of output when the strike ends, manufacturing output will not be giving clear signals for months.

To get around this I looked at manufacturing output excluding autos and auto parts. The compound, smoothed three month growth rate for this series is -2.0%. The three month growth rate of this series is a good, but not perfect recession indicator. But if the US is not going into a recession this was be the largest false signal this series has generated.

Comments (0) | |

Spatial Price Index

Spatial Price Index

Despite the importance of the CPI and all the discussion about it one of the things we do not have is data to compare the price of living in one city or state as compared to another.
Well the Federal statisticians are working on it and the BEA just published a working paper by Bettina H Aten on Estimates of State and Metropolitan Price Levels for Consumption Goods and Services in the United States, 2005 http://www.bea.gov/papers/pdf/aten_estimates_state_metro_2005.pdf

The paper construction Spatial Price Indices (SPI) for the 50 states and Washington, D.C..
Moreover, in the index is also publishes a SPI for some 363 Metropolitan Statistical Areas.
Second it uses the SPIs to adjust estimates of real per capita personal income and real per capita GDP.

The results do not contain many great surprises, but it nice to get reliable data comparing the cost of living and to make realistic comparisons of living standards across the country.

For example, as we all knew the most expensive places to live in the US or New York, California, Boston and the Washington, D.C. area.

SPI PER CAPITA GDP
(US average = 100)

New York-New Jersey-Long Island 146.6 ……….85.5
San Jose – Santa Clara………………….. 143.4 ……..118.5
San Francisco…………………………………139.9 ……..112.2
Bridgeport-Stamford-Norwalk…….. 134.7…….. 143.5
Honolulu ……………………………………….131.4 ……….82.9
Boston-Cambridge-Quincy………….. 124.8 ………112.6
San Diego ……………………………………..122.4 ………..98.9
Los Angles – Long Beach ………………120.5 ………..98.5
Manchester-Nashua NH ………………120.3 ………..94.0
Washington-Arlington-Alexandria .118.7 ……….133.5
Salinas CA…………………………………… 118.5 ………….81.7
Santa Barbara ………………………………117.7 …………89.3

In Chicago the SPI is 107.1 and adjusted real per capita GDP is 109.2 while in Philadelphia they are 107.3 and 113,4, respectively. I’ve put a table comparing different cities under the fold. The message that comes through is that the places in the country with high real per capita gdp and lowest prices are the mid-sized, interior cities. Denver has an SPI of 95.5 and GDP of 139.6. Other cities with good numbers are Indianapolis with an SPI of 93.5 and GDP of 136.9.; Nashville SPI=94.2 & GDP=122.8. Minneapolis-St.Paul-Bloomington SPI=101.8 & GDP=128.3.

But sometimes numbers can be misleading or distorted. For example, Houston has an SPI of 98.5 and a GDP of 146.4. But the high GDP reflects the impact of oil. In contrast, real per capita personal income in Houston is only 115.5. Where I first noticed it was for New Orleans when it had a real GDP of 125.1 of the national average. For the entire state of Louisiana it raised the GDP to 113.0 and making it the eleventh wealthiest state. But per capita income was only 84.1, the second lowest state –Hawaii was the lowest state with per capita income of 76.7. Casper Wyoming had the highest GDP at 238.2 of the national average – how many oil wells do they have in Casper?

When you compare adjusted real per capita gdp by state there are several points that stand out.

First, the range is much narrower. In both cases Delaware is the wealthiest state and Mississippi is the poorest state. In Delaware it does not make much difference as it is 161.5 before adjustment and 160.1 after. But it makes a big difference for Mississippi, lifting it from 65.7 to 79.1. Before adjustment, Delaware is 2.5 times Mississippi but afterwards it is only two times.

The other big changes are for New York and California. New York falls from 107.7 to 80.2 while California falls from 119.3 to 89.3. The study does not publish detailed data on rural areas or small towns, but it shows the real per capita income, real gdp and the SPI in these areas are around 80. Because Los Angles and New York have below average GDP it does not offset the low living standards in the rural areas of the states. But apparently rural New York has its own problems as one of the lowest GDP I spotted was Kingston,NY with a GDP = 53.7. The lowest was Lake Havasu City, Az at 48.5.

After adjustment a bloc of Midwestern states with relatively low population density are ranked very high. They are Wyoming, North and South Dakota, Iowa, Nebraska, Minnesota and Colorado. I suspect a major factor here is that they do not have urban slums. Massachusetts falls
from 119.2 to 100.7 while Texas increases from 103.4 to 110.9. But otherwise, it is very hard to make broad generalizations about the impact of the SPI adjustments.

The Washington, D.C. real GDP data is significantly distorted by commuters. The output of workers commuting into the city are counted in GDP but they are not included in the population.

Comments (0) | |

Windfall Profits Tax

Again we are getting the right wing line that the windfall profits tax on oil in the 1980s caused
oil production to fall and oil imports to rise as Carpe Diem at http://www.blogger.com/post-create.g?blogID=5048766.

post a story from Investors Business Daily saying that from 1980 to 1986 oil production fell.

Yes, the windfall profits tax was still on the books in 1986, but the tax was only paid when the price of oil was above $30/ B and the last time that happened was in September 1983. So by claiming a tax was effective three years after it became ineffective they are able to make that claim.

I am still waiting for one of these right wing advocates to reply to my question that if their economic philosophy is so good and superior why do they have to be so dishonest in defending it.

If their claims are correct, shouldn’t the truth be an adequate defense?


Comments (0) | |

Oil Price Controls

All the discussion about a holiday from the federal tax on gasoline this summer has brought all kinds of comments out of the woodwork about how government interference in markets, and especially the 1970s oil price controls and windfall profit tax prevented private companies from investing. Such comments seem to start out with some sort of comment about how politicians are stupid and do not know what they are doing. What I find especially amusing about these comments is that they almost always seems to come from the same people who carry on about how large corporations capture the various regulatory authorities and use their influence in Congress to stifle competition. They seem to want it both ways. But in the case of oil the point that the oil companies capture the system and get Washington to further their interest appears to be more the case. For example, if you look at drilling and exploration by the oil companies it clearly seems to be largely a function of current and lagged oil prices — see chart. This strongly implies that the oil companies and Congress acted in concert to prevent the price controls and windfall profits taxes in the 1970s from influencing oil exploration and production. Actually, the one important point this model makes is that the oil companies do not seem to be drilling as much now as the historic relationship suggest they should. Maybe the complaint that the oil companies executives have decided that there is not much future in the oil business and are returning their profits to shareholders in the form of high dividends so that the shareholders
can find more attractive investment alternatives has a certain validity.

Comments (0) | |

Inventories and GDP growth

A lot of ink is being spilled over the inventory numbers in the gdp report.

So I though I would just post on one of the available monthly data series on inventories.
This shows that the real I/S ratio fell sharply in March. But the gdp report includes no
data on March inventories. This implies that the next revision of real GDP will be down,
but that there is little reason to expect a rebuilding of inventories in the future to boost growth.
It is part of the great moderation that in todays world firms do not allow inventories to get way out of line and this sharply reduces the odds of a recession. We could still have a recession, but it
will not be a classic inventory cycle.

Comments (0) | |

Employment Report

The Wall Street Journal and others are looking at the headline numbers and reporting that we are seeing another report of moderate employment declines like the last few. But hours worked fell -0.4%, a significantly laarger drop then in the last few months.

Moreover, average hourly earnings were only up 0.1% and average weekly wages actually fell. The year over year gain in average weekly earnings is now 3.1% vs a 4.6% peak in late 2006.

My equation that makes average hourly earnings a function of inflation expectations — a 3 year moving average of the CPI — the unemployment rate and capacity utilization strongly implies that wage growth should continue to weaken. The current difference between the fitted value and the actual value is probably due to the point that falling labor participation is artificially holding the unemployment rate down.
Basically we are in a reverse of Say’s law where falling output leads to falling real wages and falling consumer spending. Hopefully, the tax rebate will cause this downward spiral to reverse.
But that will also require a weakening of inflation so that real wages start to rise. Core inflation is not a problem, so now we just have to wait and see if food and fuel inflation can moderate.


Meanwhile, auto sales fell from 15.1 Million to 14.4 million last month, one of the largest drops in recent years. Moreover, unlike the large monthly drops of a few years ago this sharp drop was not preceded by a pop in sales. It was not just short run noise. It also implies that we are starting the second quarter on a very, very weak note–especially for real PCE.

Comments (0) | |

Liberal Massachusetts Economic Growth

Economy in state outpaces US growth

Adds 4,600 jobs through March

The Massachusetts economy expanded at a healthy clip in the first three months of the year despite a national economic slowdown, breaking with the recent past when the state suffered longer and deeper recessions than the rest of the United States.

The University of Massachusetts said yesterday that the state’s economy grew at a 3.2 percent annual rate, about five times faster than the 0.6 percent national rate reported yesterday by the Commerce Department. During that period, Massachusetts employers added 4,600 jobs, even as companies nationwide cut more than 200,00.

So much for the wing-nuts that keep saying we would all be better off if we were less like Massachusetts and more like Mississippi.

It was suggested that I copy this comment here.

The real story is that because of the major investment Mass has made in education — its students rank number one in national achievement test — Mass has moved on to the new knowledge intensive industries like technology, investments, healthcare and biotechnlogy.

This means Mass generates high quality, high paying jobs. It has intensive growth while the sun belt creates jobs in the old low productivity, low paying jobs that have left Mass. They have extensive growth. The problem the sunbelt states face is that these low paying jobs are now leaving the sunbelt states for China, and other foreign producers. In essence, Mass is already where the rest of the country is going to have to follow over the coming decades.
There are many reasons for this. But much of it is the great Mass public education system and the willingness of Mass business and government leaders to work together to create the environment needed to support these high quality jobs.

Yes, the Mass model does create problems for those who do not get an education and prepare themselves to live in the post-industrial economy. That is why so many of them move out and are replaced those who come here to school and stay. A great example of that is that medical doctors in Mass have the lowest income of doctors in any state.

Comments (0) | |

Family & Household Real Income Trends

Last Friday Arnold Kling at Econlog and Russell Roberts at Cafehayek commented on Larry Bartels book Unequal Democracy and I made some comments
about what they were saying.

Bartels used family income data in his book and both Arnold and Russell ignored this point and went into long discussion about why household income data is so distorted that the comparisons in Unequal Democracy were meaningless. Both Arnold and Russell are correct that the rapid growth in single women households over recent decades is a significant factor behind recent changes in poverty and this growth in single mothers and divorced women does impact the data. But GMU libertarians are not the only ones that know the household data is distorted by the growth in single women households. The Census Bureau where the data originates and Bartels are well aware of these problems. That is why Census also publishes data on family income and why Bartel used family income data in his book.

I suspect neither Arnold nor Russell have ever looked at the data to see how the growth of single women families has impacted the data. Rather they have heard someone use these criticisms of the data and just started used it because it agreed with their priors. But the data is readily available at Census.

First, what has happened to family income growth.

As the chart shows there was a sharp slowdown in family income growth sometime in the late 1970s. The trend growth rate of real family income slowed from 2.8% from 1950 to 1980 to only
0.8% from 1975 to 2005. The more recent growth rate was only 30% of the old trend and if the old trend growth had continued family income would have been 177% higher in 2005.

So what happened to married couples real income.

Married couples — including both families where the wife worked and where the wife stayed home — experienced a very similar slowdown in real income growth from a trend growth rate of 2.8% from 1950 to 1980 to only a 1.1% trend after 1975– the new trend is 40% of the old one If the old trend for married couples had continued their real income would have been 172% larger in 2005.

Now Russell Roberts argues that the growth in single women households distorted the data so severely that one could not make meaningful comparisons. But that does not look right to me.
It is very easy to see that the growth of single person household had a modest impact on real family income growth. Essentially, it is responsible for the fact that since 1975 real family income growth was 0.8% and married couples real income growth rate was 1.1%. This 0.3 percentage point impact from the growth in single person families clearly does not look like such a sever distortion that comparisons are meaningless. Moreover, the point that total family income would have been 177% higher and married couples income would have been 172% higher if the old trends continued does not look like such a sever distortion that no one can make meaningful comparisons. A five percentage point difference over 30 years does not look like a massive distortion that makes comparisons meaningless.

I’m not sure what else to do with this information. I’m sure that both Arnold and Russell heard this criticism at some right wing think tanks or blog and just picked it up without ever thinking about it. But too many people at right wing think tanks are paid to put out research that supports a point of view that one can not trust their research conclusions. The growth in single person households sounds dramatic and it could be very easy to accept someone quoting this data when they conclude that the income data is unrealistic. But as they say down home, if you lay down with dogs you get fleas.

What I’m curious about is what happens to the sharp 18 year old undergraduate at GMU that recognizes that their professors are dissembling and does not buy into their ideological distortions. I sure hope these professors do not grade on the basis of their students ideological purity.

Comments (1) | |

UNEMPLOYMENT DURATION

Cactus ran across this data and sent this chart along.

It implies two things to me.

One, the average duration of unemployment was much higher in this cycle then it was in the 1990s cycle. This is in line with all the other data showing the recent cycle to be weak by historic norms.

Two, the most recent drop in the median duration of employment implies to me that the odds of a recession are falling.

Do others reach the same conclusion?

Comments (0) | |