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

Tariffs and Price Changes

I have been looking at the data recently to find economic series that would quickly reflect the impact of rising tariffs on the consumer.

One is Retail Sales: GAFO.  Think of it as department store type merchandise  — goods excluding autos, food and energy. It is reported every month in both the Census retail sales press release and in the BEA measures of retail sales they compile in putting together personal spending and GDP.  I have long preferred the BEA data because it provides very detailed measures of retail sales and real growth. Moreover, the practice of some to deflate the Census retail sales data with the CPI overstates retail price increases and under states real sales growth.As the chart shows price changes in GAFO sales moves very closely with prices of consumer goods imports excluding autos, food and fuels.

However, there is a problem with using the price index for imports as a measure of the impact of tariffs. It is a measure of prices FoB,  or freight on board. So it does not include tariffs that are added as the merchandise moves through customs. In the current environment importers reaction to tariffs could show up here.  One, if China absorbs some of the price increase while consumers would see higher  import prices, this measure of import prices would actually fall  as it shows prices China receives. Alternatively, if production is shifted to other countries their prices could be higher that the original Chinese price but less than the new Chinese price including the tariff. In this case, this measure of import prices would rise. So we do not know ahead of time how this price index will change.

Just a footnote, GAFO is about a quarter of all retail sales and this measure of consumer imports is also about  a quarter of all imports.

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Two sharply contrasting reports on the economy to start September

Two sharply contrasting reports on the economy to start September

We got two contrasting views of the economy this morning. (Tuesday)

First, the good news: residential construction spending increased in July. Below I show it in comparison with single family permits:

Typically construction follows permits. In the past few years, it has been almost coincident with permits. This is more good news for the important and leading housing sector, indicating that the decline that started in early 2018 has ended. With the continued recent further decline in mortgage rates, I expect further advances, although possibly not strong.

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The Hurricane/Picture of Dorian Gray: A Perfect Moral Storm in Three Texts

The Hurricane/Picture of Dorian Gray: A Perfect Moral Storm in Three Texts

Andreas Malm, Fossil Capital:

The temporal aspect is particularly striking,’ writes philosopher Stephen Gardiner, who has done perhaps more than anyone to foreground it, in A Perfect Moral Storm: The Ethical Tragedy of Climate Change: it catches us in a bind. Given that global warming is ‘seriously backloaded’ (every moment experiencing a higher temperature posted from the past) and ‘substantially deferred’ (the cumulative effects of current emissions arriving in the future), a warped ethical structure arises. The person who harms others by burning fossil fuels cannot even potentially encounter his victims, because they do not yet exist. Living in the here and now, he reaps all the benefits from the combustion but few of the injuries, which will be suffered by people who are not around and cannot voice their opposition. Each generation, reasons Gardiner, thus faces a perverse incentive to ‘pass the buck’ to the next, which also profits from its own fossil fuel combustion while dodging the pain from it, and so on, in a vicious cycle of infliction of harm.

James P. Kossin, “A global slowdown of tropical-cyclone translation speed”:

As the Earth’s atmosphere warms, the atmospheric circulation changes. These changes vary by region and time of year, but there is evidence that anthropogenic warming causes a general weakening of summertime tropical circulation.

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An extended look at jobless claims, and a note about payrolls

(Dan here…better late than not)

by New Deal democrat

An extended look at jobless claims, and a note about payrolls

Let’s take an extended look at jobless claims, with a side note about payrolls.

First, I have started to monitor initial jobless claims to see if there are any signs of stress.

My two thresholds are:1. If the four week average on claims is more than 10% above its expansion low.
2. If the YoY% change in the monthly average turns higher.Here’s this week’s update.

Initial jobless claims last week were 215,000. This is in the lower part of its range for the past 18 months. As of this week, the four week average is 6.5% above its recent low:

Additionally, the YoY change remains -1,500 below where it was last year:

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Digital Sales Tax v. Tariffs on French Wine

Digital Sales Tax v. Tariffs on French Wine

Even before Donald Trump departed for the G7 in Biarritz France, he threatened another trade war this time with the host country over the digital sales tax:

U.S. President Donald Trump on Friday reiterated criticism of a French proposal to levy a tax aimed at big U.S. technology companies and threatened again to retaliate by taxing French wine. Speaking to reporters at the White House before leaving for a Group of Seven summit in France, Trump said he is not a “big fan” of tech companies but “those are great American companies and frankly I don’t want France going out and taxing our companies.” “And if they do that … we’ll be taxing their wine like they’ve never seen before,” he said.

A tariff on French wine might help New York’s Finger Lake area as well as California wine makers so maybe Trump is hoping to win over California and New York in the 2020 election. Or maybe Trump does not know that some states impose digital sales taxes:

The sales tax laws have been updated to include digital goods and services in different ways across the different US states, and the application of these laws has been troublesome for most state and local governments. Quick Stats: There are 27 states that tax digital products. There are 23 states that do not tax digital products. 5 states do not have a retail sales tax at all; these include, Alaska, Delaware, Montana, New Hampshire and Oregon. For the states that tax digital products, the tax rate varies from 1% to 7%, depending upon the state and the type of digital good.

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Record Income Taxes?

Record Income Taxes?

I should read more posts from Kevin Drum:

The Yahoo News reporter comes close to explaining what happened by noting that there were more returns in 2018 than 2017. As you might guess, this happens every year as the US population increases. So let’s take a look at personal income tax receipts adjusted for inflation and population growth … In reality, income tax receipts were down 2.6 percent in 2018 compared to 2017. What this means, unsurprisingly, is that when you cut tax rates you get less revenue. When you fail to account for things like inflation and population growth, nearly every year is an “all-time high.” But that’s meaningless.

Let’s turn to BEA Table 3.2. Federal Government Current Receipts and Expenditures. Personal current taxes (nominal) rose from $1613 billion in 2017 to $1620 billion in 2018 but current tax receipts fell from $2019 billion in 2017 to $1956 billion. You see our Yahoo News reporter was omitting the drop in corporate profits taxes which fell from $251 billion in 2017 to $147 billion in 2018. So even in nominal terms, we saw a decline in tax revenues. Kevin continues:

Someday our nation’s press is going to stop producing innumerate pieces on the economy and learn how to do simple adjustments that tell the real story of what’s going on.

Maybe our Yahoo News reporter can take this additional information on taxes and recast the absolute nominal figures into real per capita terms for us!

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Cheerleading for Austerity

Cheerleading for Austerity

Not content to follow a news strategy that maximizes Trump’s prospects for re-election, the New York Times leads today with a story that combines economic illiteracy and reactionary scaremongering in a preview of what we’re likely to see in the 2020 presidential race.

“Budget Deficit Is Set to Surge Past $1 Trillion” screams the headline, and the article throws around a mix of dollar estimates and vague statements about growth trends, leavened with quotes from budget scolds from both Republican and Democratic sides of the aisle.  (That shows balance, right?)  After terrorizing us with visions of a tide of red ink, the article concludes with a ray of sunshine in the form of prospects for a Grand Bargain under a lame duck Trump that would cut benefit programs like Social Security and Medicare to put us once again on a stable path.

Where to begin?  Should we start by mentioning that nowhere in this lead article does it give the single most relevant statistic, the ratio of the federal budget deficit to the size of the overall economy—the money part, GDP.  The raw size of the deficit itself is meaningless, and the trillion dollar line is meaningless squared.  As Dean Baker likes to say, the article shows its respect for our powers of thought by informing us the deficit is a Very Big Number.  Scared yet?

Measurement aside, the article simply assumes that “large” deficits are unsustainable and bad, and that only irresponsible political motives prevent action on them.  In the name of a nebulous, unspecified Evil of Debt, the population of the US must be subjected to a regime of austerity, beginning with cuts in the programs many depend on to keep themselves and family members out of poverty.  Worse, it opines, Democrats will run for office next year on a platform of spending increases, demonstrating they are the party of ruin.  We can only hope, goes the argument, that they are just saying these things to get votes from the gullible public, and once in power they will join the deficit-cutting crusade.

No reason is given for the assumed Evil of Debt, and it’s no surprise, since it’s based on ignorance, willful or otherwise.  To begin with, federal debt is denominated entirely in US dollars, so servicing is not a problem.  Countries that borrow in foreign currencies, like Greece (which had no control over the euro) and Argentina, can default; that’s not a problem for the US.  Second, government debt is private wealth, and the relevant question is whether there are too many or too few government bonds in private portfolios.  If private wealth holders are satiated with public debt and prefer other securities, it would be a problem.  But that would be a world in which interest rates on the debt would be high in order to sell them, and rates are about as low as they can go without flipping negative (as they have elsewhere).

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Importance of Imports

It is standard analysis to see real and nominal imports as a share of GDP quoted to estimate the importance of imports in the economy. Currently that shows nominal imports are about  15% of GDP and real imports are some 18% of real GDP.

But I suspect that this comparison understates the role of imports in the economy because services are some 45% of GDP but only about 16% of imports.  As my high school algebra teacher was fond of saying, you are adding crabs and apples. Rather, you should compare real goods imports to real goods GDP. On this basis imports are some 46% of GDP, a much larger share than standard analysis shows.  (second chart fixed….Dan)

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Need to remember

Many of the photos were taken before water and air pollution were fully regulated. The Clean Air Act was passed in 1970, and the Clean Water Act was passed in 1972.

Baltimore, Birmingham, Cleveland, Delaware, Denver, Kansas, Los Angeles, New Orleans, New Jersey, New York, Philadelphia, Pittsburgh, and San Francisco all feature here, in shots filled with smoke, smog, acid, oil, rubbish, and sewage.

None of the 35 photos are pretty (other than the film-photo haze), but it’s worth remembering what US cities used to be like before we cared what we put into the air, soil, and water.

Via Business Insider

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Amazon, FedEx and the Post Office

Both Amazon and Fed ex have embarked on plans to deliver their own “last mile” package delivery previously contracted with the US Post Office. Here is a link to run75441 (postmaster Mark Jamison’s) piece on this process Fake News, Flawed Analysis, and Bogus Tweets from 2018 for a much more complete description. I have pulled a quote from the more recent Business Insider post on “last mile” delivery.

 

According to the US Postal Service Inspector General, the new requirement to pre-fund retiree benefits accounted for $55 billion of the agency’s $62 billion loss incurred between 2007 and 2016.

Because of that, the Postal Service can’t make the massive investments into its logistics networks that its competitors have been able to.

Business Insider

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