Another Sign Manufacturing Leads Recovery: Mich. Could Collect $1Billion in Extra Taxes in 2011-2012

LANSING -- "A day after the Legislature delivered most of Gov. Rick Snyder's business and personal income tax overhaul, state government got the best news it's had in a decade: Tax collections are exceeding expectations again, with analysts predicting Friday that the state will take in up to $690 million more next year than had been forecast only four months ago.

Forecasts released Friday by the House and Senate Fiscal Agencies said 2012 tax collections will be between $484 million and $690 million higher than had been contained in official estimates in January. According to the Fiscal Agency forecasts, tax collections also will exceed earlier projections in the current fiscal year by between $426 million and $557 million."

Inflation Expectations Are Falling in Bond Market

Based on the "breakeven rate," or the difference between 10-year nominal Treasury yields and 10-year Treasury Inflation Protected Securities (TIPS) yields, the bond market's expectation of future inflation has been falling over the last month, not rising.  After peaking at 2.65% on April 11, the breakeven rate has been gradually falling, and dropped below 2.40% yesterday (Friday) for the first time since March 23.  That's a 25 basis point drop in the breakeven rate over the last month. 

HTs: John Makin over lunch in the AEI dining room on Thursday, and Paul Krugman (see his post here).

The "Crazed Pursuit of A Level Playing Field"

"For 30 years, [stock market] regulators have been driving themselves and the markets batty with their crazed pursuit of a "level playing field"—the weird idea that the stock market should be some kind of informational potato-sack race in which all boys and girls have an equal chance to win.

There is no level playing field. Nor does there need to be one for the stock market to be an acceptable place for the public to park its savings. The efficient-markets hypothesis may not be in the best of odors these days, but its signature piece of advice is as good as ever: Stock trading is a mug's game. Use an index fund."

~Holman Jenkins in today's WSJ on the Raj Rajaratnam case.

The $32.5 Trillion Global Stock Market Rally

The Paris-based World Federation of Exchanges, an association of 52 regulated stock market exchanges around the world, recently released data on the total world stock market capitalization, which increased to $59.12 trillion in April from $57.8 trillion in March. That was a 40-month high for world equity values and the highest level since December 2007 when the U.S. recession started. From the all-time high of $63 trillion in October 2007, the value of world equity markets is currently about 6% below that pre-crisis peak, or less than $4 trillion in dollars. 

Compared to the cyclical low of $26.6 trillion in February 2009, the total world stock market capitalization has more than doubled to the current level of $59 trillion - that's a $32.5 trillion, 122% gain in two years!  Prior to the financial crisis, the world stock market value was last at $27 trillion in August 2003, and it took more than four years to reach $59 trillion in the fall of 2007 (see chart above).  The fact that world stock markets achieved the same $32.5 trillion increase in equity value in about half that time between 2009 and 2011 demonstrates the incredible resiliency of economies and financial markets to recover, even following the worst financial crisis in generations.    

Market-Based Medicine: MediBid

The website MediBid describes itself as a new "Marketplace for Self Pay Patients to Find a Doctor or Other Medical Specialist and Deal Direct," and here's some info:

"Patients can find a doctor, family physician, chiropractor, dermatologist, surgeon, dentist, or any other medical specialist on MediBid.  The process is simple; patients register as "Seekers" and post a secure, private request for medical care for anything from acupuncture to total knee replacement surgery or stem cell therapy for cancer.  With thousands of registered healthcare providers, finding a doctor taking new patients such as a family physician, pain management specialist, orthopedic surgeon, ear nose and throat doctor, or other specialist is easy.  Just post a request, then browse through the profiles of qualified medical specialists that offer the procedure you are looking for.  While you browse profiles, your request will be emailed to the healthcare providers that match your unique need.  These healthcare providers will review your request and submit a custom price quote to you in the form of a Bid.  Patients can review their Bids with the profiles of the medical specialists and choose the provider that is right for them based on quality, location, availability, price, credentials, or any other attribute important to the patient. 

More than a medical directory, MediBid is a resource where medical consumers can find a doctor, then actively seek bids for the care they need. It gives physicians a direct connection to their patients. MediBid's founders share an unrelenting drive to change the status quo in the field of healthcare financing. Focused on building strong patient-physician relationships, while supporting patients' privacy rights and choice in the medical market place, MediBid's goal is to provide the best opportunity for consumers to self-direct their medical care. Patients who use MediBid's uncompromisingly unique, highly secure, needs-matching technology can acquire the best cost-to-value services anywhere."

For Many Items, Prices Are Falling Not Rising

Item	% Change    Last Year
TVs	-16.26%
Software	-9.23%
Computers	-7.95%
Toys	-5.46%
Photographic Equipment, Supplies	-4.69%
Audio Equipment	-3.91%
Sports Equipment	-3.89%
Clothing: Infant and Toddler	-3.56%
Cell Phone Service	-3.50%
Audio Disks	-3.17%
Leased Cars and Trucks	-2.98%
Pets and Pet Supplies	-2.54%
Appliances	-2.29%
Hair, Dental, Shaving Products	-2.10%
Video Disks	-1.95%
Information Processing	-1.84%
Living Room and Kitchen Furniture	-1.60%
Natural Gas	-1.50%
Furniture and Bedding	-1.43%
Internet Services	-1.28%
Apparel: Men's	-1.20%
Recreational Reading Materials	-1.18%
Video Audio	-1.13%
Clothing: Women and Girls	-0.75%
Footwear	-0.66%

This is an update of a post I featured in February: 

Rising food and energy prices have received a lot of media attention lately, along with concerns about the threat of rising inflation. The chart above (using BLS data via Economagic) shows a sample of 26 products or services that have experienced deflation in the last year (April 2010 to April 2011) based on new CPI data released today by the BLS.  

One reason we don't pay much attention to these price decreases is probably that they happen so gradually and consistently over time, so we either: a) don't notice the falling prices, or b) take it for granted and don't appreciate the incredible savings over time in many of the products that we all buy. There are many, many products like computers, cameras, new cars, clothing, TVs, appliances, electronics, software, etc. that are significantly cheaper today than a year ago, and are probably cheaper today than five years or ten years ago in many cases.

Or maybe it's because we buy computers, TVs, appliances, and lease new cars INFREQUENTLY (every 5 years or more in some cases), and don't notice or appreciate the price decreases the same way we notice price changes for food and fuel that we purchase FREQUENTLY? But there does seem to be a certain amount of mis-perception among the general public and media that ALL prices are going up, which the data above show is clearly not the case. 

Overall, general inflation is a period when most prices (and wages, interest rates and home prices) are rising, and I don't think we're anywhere close to meeting those conditions yet. Not as long as so many prices are declining or staying the same, and not rising.

Inflation Fears Are Still Largely Unfounded

Core inflation and service-sector inflation are still far below long-run averages.

The BLS reported today that annual headline inflation increased to 3.2% in April, the highest rate since October 2008.  Core inflation increased at a 1.3% annual rate, and the CPI inflation for services is 1.5% (see chart above). Most of the increase in headline inflation was from a 19% annual increase in the overall energy index, and a 33.1% increase in the gasoline index.  Based on the relatively modest inflation rates for the core CPI (1.3%) and the services CPI (1.5%), which are still running well below their respective historical averages of 3.9% and 4.8%, I am still not convinced that inflation is a major concern yet.  

Neither is Chicago Tribune columnist Steve Chapman, who wrote a column yesterday titled "Unfounded Fears: Inflation Nightmare or Runaway Prices Just a Dream," with the following five key points:

1. "Take the price of gold. It has more than doubled since Obama was elected in November 2008, allegedly because investors want a hedge against an increasingly worthless currency. But gold prices were also on a rocket during the previous eight years. And they were not a portent of raging inflation. During the administration of President George W. Bush, the consumer price index rose at an average rate of less than 3 percent per year — while gold was tripling in value.

2. Though some U.S. prices have jumped recently, most have not. The "core" inflation rate, which includes everything except food and energy, was 1.2 percent over the past year. That may seem painfully irrelevant, given the supreme importance of groceries and gas. But you can't have general inflation without core inflation. Comparisons with the last serious bout of inflation, the 1970s, suggest that today's worries are misplaced. Back then, it wasn't just fuel and food that soared: The cost of everything soared.

3. The depreciation of the dollar, likewise, is not really the unspeakable horror often portrayed. No one seems to recall that the greenback fell against the euro for most of the past decade.

4. Investors wouldn't be snapping up three-year Treasury notes at 1 percent if they were expecting their purchasing power to be ravaged by wolves any moment now. It's true that if the Fed pumps too many dollars into the financial system, it will eventually mean too much money chasing too few goods, pushing prices through the roof. But in the aftermath of the near-death experience of 2008, banks have been happy to hang on to cash rather than lend it out. By a broad measure known as M2, the money supply has been growing very slowly.

5. You can't have a wage-price spiral when unemployment is high, workers have little bargaining power and pay is stagnant. Wages and salaries, according to the Bureau of Labor Statistics, are up only 0.4 percent in the past year. Raise your hand if your pay is spiraling — upward, I mean."

MP: I've blogged recently about most of these same points - that you can't have overall high inflation without: a) high core inflation, b) high service sector inflation, c) rising wages, d) rising interest rates and e) much higher M2 growth.   

For the opposing view, see Scott Grannis and Brian Wesbury/Bob Stein and Mark Calabria.

Blogger Snafu

Blogger has been down since last night, and just started working again.  Several of the most recent posts have been lost, and I'm not sure if they'll be restored. 

New posts will resume shortly.  

Oil Industry Profit Margin Ranks #114 out 215

The table below shows industry rankings for net profit margin (profits / sales) of the top 114 industries out of 215 total industries during the most recent quarter, from Yahoo!Finance.  

The top five oil companies (Chevron, Shell, BP, ExxonMobil and ConocoPhillips) are part of the "Major Integrated Oil and Gas" industry, and the CEOs of the "Big Five" are appearing today before the Senate Committee on Finance, to get grilled about the "taxpayer subsidies" and "tax breaks" they receive, explain why they deserve to earn record "windfall" profits, and explain the role they play in higher oil and gas prices.  

As the table below shows, the Integrated Oil and Gas industry made an average profit of 6.2 cents per dollar of sales, which ranks #114 out of 215 industries by profit margin, and puts oil companies right in the middle of industries by profitability.  

If the Senate Finance Committee wants to investigate "excessive" or "windfall" profits, they might consider going after some of the other industries that have benefited from higher commodity prices and achieved much higher profit margins than oil (at 6.2%), like silver (44.7%), copper (24%),  gold (21%), and industrial metals (21%) and lumber (17.7%).   

Rank	Industry	Net Profit Margin
1	Closed-End Fund - Equity	81%
2	Publishing - Periodicals	51.7
3	Silver	44.7
4	Closed-End Fund - Foreign	38.3
5	REIT - Diversified	36
6	Copper	24
7	Internet Information Providers	23.8
8	Application Software	22.7
9	Foreign Utilities	20.5
10	Industrial Metals and Minerals	20.1
11	Gold	20.1
12	Cigarettes	19.8
13	Semiconductor - Broad Line	19.2
14	REIT - Healthcare Facilities	19.1
15	Lumber, Wood Production	17.7
16	Semiconductor - Integrated Circuits	17.6
17	Diversified Investments	17.5
18	Healthcare Information Services	16.6
19	Beverages - Brewers	16.5
20	Regional - Southwest Banks	16.4
21	Semiconductor- Memory Chips	16.1
22	Publishing - Books	16.1
23	Networking and Communication Devices	15.7
24	Drug Manufacturers - Major	15.4
25	Long Distance Carriers	15.2
26	Railroads	15
27	Beverages - Wineries and Distillers	14.9
28	Nonmetallic Mineral Mining	14.6
29	Beverages - Soft Drinks	14.3
30	Wireless Communications	14.1
31	Semiconductor Equipment and Materials	14.1
32	Personal Products	13.9
33	Personal Computers	13.9
34	Medical Instruments and Supplies	13.9
35	Drug Manufacturers - Other	13.6
36	Security Software and Services	13.2
37	Property and Casualty Insurance	13.2
38	Agricultural Chemicals	13
39	Specialty Chemicals	12.7
40	REIT - Residential	12.7
41	Biotechnology	12.7
42	Medical Appliances & Equipment	12.6
43	Technical and System Software	12.5
44	Mortgage Investment	12.5
45	Entertainment - Diversified	12.5
46	Air Services, Other	12.4
47	Diversified Electronics	11.9
48	Processed and Packaged Goods	11.5
49	Foreign Regional Banks	11.5
50	Water Utilities	10.9
51	Semiconductor - Specialized	10.5
52	Money Center Banks	10.5
53	Consumer Services	10.5
54	Broadcasting - TV	10.5
55	Regional - Midwest Banks	10.4
56	Toys and Games	10.1
57	Textile - Apparel Footwear	10.1
58	Restaurants	10
59	Investment Brokerage - National	10
60	Oil and Gas Drilling and Exploration	9.9
61	Paper and Paper Products	9.8
62	Foreign Money Center Banks	9.8
63	Regional - Northeast Banks	9.7
64	Business Software and Services	9.7
65	Synthetics	9.5
66	Scientific and Technical Instruments	9.5
67	Data Storage Devices	9.5
68	Internet Software and Services	9.4
69	CATV Systems	9.3
70	Specialty Eateries	9.2
71	Telecom Services - Domestic	9.1
72	Specialized Health Services	9
73	Diversified Computer Systems	9
74	Savings and Loans	8.9
75	Internet Service Providers	8.9
76	Conglomerates	8.8
77	Research Services	8.7
78	Diversified Machinery	8.7
79	Education and Training Services	8.4
80	Independent Oil and Gas	8.3
81	Industrial Equipment and Components	8.2
82	General Entertainment	8.2
83	Diversified Utilities	8.1
84	Asset Management	8.1
85	Accident and Health Insurance	8.1
86	Information and Delivery Services	8
87	Gas Utilities	8
88	Business Services	8
89	Telecom Services - Foreign	7.9
90	Oil  and Gas Equipment and Services	7.9
91	Insurance Brokers	7.8
92	Cleaning Products	7.8
93	Steel and  Iron	7.7
94	Drug Related Products	7.7
95	Home Furnishing Stores	7.6
96	Diagnostic Substances	7.6
97	Auto Parts Stores	7.3
98	Industrial Electrical Equipment	7.2
99	Waste Management	7
100	Confectioners	7
101	Aerospace/Defense - Major Diversified	7
102	Publishing - Newspapers	6.9
103	Jewelry Stores	6.9
104	Home Health Care	6.9
105	Computer Based Systems	6.9
106	Pollution & Treatment Controls	6.8
107	Lodging	6.8
108	Communication Equipment	6.7
109	Aerospace/Defense Products & Services	6.6
110	Sporting Activities	6.5
111	Packaging & Containers	6.5
112	Catalog & Mail Order Houses	6.5
113	Drugs - Generic	6.3
114	Major Integrated Oil and Gas	6.2

Health Care Solutions: Market (Same-day House Calls) vs. Government (36 Days to See Family Doc)

 
1. Here's a market-based approach to health care (watch video above), where nurse practitioners make house calls and come to your home or office, so you can avoid all of the  costs typically associated with an appointment at a doctor's office: gas, travel time, waiting time, parking, child care, time off work, etc. 

"WhiteGlove House Call Health is focused on changing healthcare on a national level by lowering the cost of healthcare while improving the consumers’ healthcare experience. As a medical care provider, we offer our members access to affordable, high quality medical care at your home or work, 365 days a year, 8 a.m. to 8 p.m. WhiteGlove members enjoy a comprehensive primary care experience, now including chronic care."

 HT: John Goodman, who refers to this "mobile medical care" approach as "Minute Clinic on Wheels." 

 2. In contrast, consider the situation in Massachusetts, after five years of government-managed "Romneycare," which is frequently mentioned as a model for how "Obamacare" will operate nationally.  According to the recently released  study "2011 Study of Patient Access to Health Care" from the Massachusetts Medical Society (press release here, full report here):

a. "Access to primary care physicians is becoming more restricted, as more than half of primary care practices – 51% of internists and 53% of family physicians – are not accepting new patients.  These figures remain close to those of last year’s survey which showed 49% of internists and 54% of family physicians not accepting new patients.

Medical Society officials say the percentage of practices closed to new patients reflects the persistent shortages of primary care physicians in the Commonwealth. For five consecutive years, the Medical Society has recorded critical and severe shortages of both internists and family physicians. 

b. Long wait times continue for the primary care physicians of internal medicine and family medicine who are accepting new patients. The average wait time for an appointment for internal medicine is 48 days, five days shorter than last year, and the average wait time for family medicine is 36 days, up 7 days. Internal medicine was the only specialty reporting a shorter wait time, yet at 48 days it has the longest wait time of any of the seven specialties surveyed.

All four specialty care categories reported longer wait times: gastroenterologists, 43 days, up from 36 days; obstetricians and gynecologists, 41 days, up from 34 days; orthopedic surgeons, 26 days, up from 17 days; and cardiology, 28 days, up from 26 days."

March Miami Home Sales Highest Since 2006

DQNews -- "Miami-area March home sales rose to a five-year high for that month amid especially robust condo resales, which represented a record 53.1 percent of all homes sold. Sales to cash buyers, investors and others snapping up sub-$100,000 homes helped keep the region's overall median sale price pinned at $120,000 - the lowest level in more than a decade.

In March, 10,238 new and resale houses and condos closed escrow in the metro area encompassing Miami-Dade, Palm Beach and Broward counties. March sales rose 39.1 percent from the prior month and increased 18.2 percent from a year earlier. March's 39.1 percent sales gain from February was higher than the normal, seasonal increase.  March's total sales were the highest for that month since 2006 (when 16,199 homes sold)."

NLRB's Fundamental Assault on Capitalist Principles

Boeing CEO Jim Mcnerney writing in today's WSJ:

"Deep into the recent recession, Boeing decided to invest more than $1 billion in a new factory in South Carolina. Surging global demand for our innovative, new 787 Dreamliner exceeded what we could build on one production line and we needed to open another.

This was good news for Boeing and for the economy. The new jetliner assembly plant would be the first one built in the U.S. in 40 years. It would create new American jobs at a time when most employers are hunkered down. It would expand the domestic footprint of the nation's leading exporter and make it more competitive against emerging plane makers from China, Russia and elsewhere. And it would bring hope to a state burdened by double-digit unemployment—with the construction phase alone estimated to create more than 9,000 total jobs.

Eighteen months later, a North Charleston swamp has been transformed into a state-of-the-art, green-energy powered, 1.2 million square-foot airplane assembly plant. One thousand new workers are hired and being trained to start building planes in July. It is an American industrial success story by every measure.

Yet the National Labor Relations Board (NLRB) believes it was a mistake and that our actions were unlawful. It claims we improperly transferred existing work, and that our decision reflected "animus" and constituted "retaliation" against union-represented employees in Washington state. Its remedy: Reverse course, Boeing, and build the assembly line where we tell you to build it.

The NLRB is wrong and has far overreached its authority. Its action is a fundamental assault on the capitalist principles that have sustained America's competitiveness since it became the world's largest economy nearly 140 years ago. We've made a rational, legal business decision about the allocation of our capital and the placement of new work within the U.S. We're confident the federal courts will reject the claim, but only after a significant and unnecessary expense to taxpayers."

U.S. Exports Surge to New Record-High in March

About a month ago, I reported on the record-high number of outbound export containers shipped in March from America's largest port in Los Angeles.  That March surge in export containers from L.A. is now showing up in a record-high volume of U.S. exports in March, according to today's BEA report on international trade.   Exports of U.S. goods and services in March reached a new all-time record monthly high of $172.7 billion, which was almost 15% higher than exports a year ago, and 4.6% above February's level.  The increase in exports from February to March of 4.6% was the largest monthly increase in 17 years, since March 1994.  March exports were also 4.2% above the cyclical high of $165.7 billion reached in July of 2008, before the worldwide recession caused U.S. exports to plunge by 25% in the 9-month period between July 2008 and April 2009 (see chart above). 

Most of the gain in March exports came from the sale of U.S. goods (rather than services), which increased by 6.1% in March on a monthly basis and 18.7% on an annual basis.  Almost all of our exported goods come from America's manufacturing sector (industrial supplies, capital goods, autos, and consumer goods), and the record high volume of exports provides further evidence that the U.S. manufacturing sector is leading the U.S. economy, and is benefitting from strong demand overseas and a weak U.S. dollar. 

Exports of manufactured goods for: a) industrial supplies ($41.7 billion), b) capital goods ($39.9 billion) and c) autos ($11.6 billion), all reached record-high levels in March, with strong annual gains of 31.3%, 11.1% and 26.5% respectively. 

Bottom Line: After years of hearing reports that the U.S. manufacturing sector was in decline and dying, today's report on record exports further proves that the manufacturing has come back to life and as is at the forefront of the U.S. economy and the recovery. 

See related post here at the Enterprise Blog, "Manufacturing Makes a Comeback as Shining Star of U.S. Economy."

Tax Fact of the Day:35 IRS Agents at XOM Full-Time

On a blogger conference call yesterday with API and ExxonMobil, Jaime Spellings,Vice President and General Tax Counsel for ExxonMobil said:

"And the IRS – we have a permanent team of 35 IRS agents who live here year-round.You know, we accommodate them, we deal with them every single day."

Seems like that would pretty much guarantee that ExxonMobil pays "its fair share of taxes."

Jobs Are Coming Back

1. A Graduation Gift for College Seniors: Jobs. The job prospects for the more than 1.6 million college students graduating this year will be the best since 2008. (HT: Steve Bartin)

2. Monster European Employment Index Reports 26 Percent Annual Growth Rate. Industrial production related sectors continue to lead the Index.

Manufacturing Is Leading the Whole Economy

Bloomberg -- "Once-ailing manufacturers are enjoying a robust rebound as cost-saving moves from job cuts to a greater reliance on technology help drive stronger-than-forecast growth. The shift has helped set the stage for a potential “manufacturing renaissance,” says James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management. He predicts the industry will set the pace for U.S. expansion and the American stock market during this decade, as technology did in the 1990s.

“Manufacturing is leading the whole economy,” said Paulsen, whose firm oversees about $340 billion. U.S. manufacturers “had to find religion. They’ve really cleaned up their balance sheets. What is left is the cream of the crop.” 

Investors’ confidence in the industry is evident in the Industrial Select Sector SPDR Fund (XLI), an exchange-traded fund made up mostly of manufacturers including Peoria, Illinois-based Caterpillar Inc. (CAT) and Boeing Co. (BA) in Chicago. The fund has climbed 37 percent since Dec. 31, 2009, compared with a 20 percent rise in the Standard and Poor’s 500 Index (see chart above, click to enlarge)."

US Manufacturing, Auto Industry Stage Comebacks

NEW GEOGRAPHY -- "This year’s survey of the best cities for jobs contains one particularly promising piece of news: the revival of the country’s long distressed industrial sector and those regions most dependent on it. Manufacturing has grown consistently over the past 21 months, and now, for the first time in years, according to data mined by Pepperdine University’s Michael Shires, manufacturing regions are beginning to move up on our list of best cities for jobs.

The fastest-growing industrial areas include four long-suffering Rust Belt cities Anderson, Ind. (No. 4), Youngstown, Ohio (No. 5), Lansing, Mich. (No. 9) and Elkhart-Goshen, Ind. (No. 10). The growth in these and other industrial areas influenced, often dramatically, their overall job rankings. Elkhart, for example, rose 137 places, on our best cities for jobs list; and Lansing moved up 155. Other industrial areas showing huge gains include Niles-Benton Harbor, Mich., up 242 places, Holland-Grand Haven, Mich., (up 172), Grand Rapids, Mich., (up 167)   Kokomo Ind., (up 177) ; and Sandusky, Ohio, (up 128).

One big driver of industrial growth has come from the source of so much pain in the past: the auto industry. Although production remains 25% below its 2007 peak, the industry, which accounts for roughly one-fifth of the nation’s industrial output, is on the rebound.  Ford Motor is achieving its best profits in over a decade, and both Chrysler and General Motors are officially in the black.

Long-depressed industry center Warren-Troy-Farmington Hills, Mich., topped our list of manufacturing job-creators, with an impressive 8.2% increase. Second place went to the Detroit-Livonia-Dearborn area, which experienced 3.5% growth."

HT: Newsalert

MP: The chart above helps tell the story of manufacturing's comeback this year.  Compared to the overall real growth rate of the U.S. economy during the first quarter of 2011 at 1.8%, the manufacturing sector is growing at 9%, or five times faster than the overall economy (based on the annual growth rate of Industrial Production: Manufacturing series from the Federal Reserve). 

Household Debts Ratio Are Lowest Since 1990s

The chart above displays Federal Reserve data on: a) the quarterly household debt service ratio (red line), which is the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt; and b) the quarterly financial obligations ratio, which adds automobile lease payments, rental payments on tenant-occupied property, homeowners' insurance, and property tax payments to the debt service ratio (blue line).

The debt service ratio was 11.75% in the last quarter of 2010, which is the lowest ratio since the first quarter of 1998,  and the financial obligations ratio at 16.64% in Q4 2010 was the lowest since the first quarter of 1995.  

Explanations?  Thoughts?

Made in the USA, Again: Manufacturing Renaissance Is Expected As The Wage Gap with China Shrinks

CHICAGO, May 5, 2011 -- "Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world, according to a new analysis by The Boston Consulting Group.

With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market."

No Wage-Price Spiral if Wages Refuse to Spiral

On his blog, Greg Mankiw says that he agrees with Paul Krugman that volatile commodity prices are not necessarily inflationary and he cites the abstract of one of his research papers (with R. Reis) "What Measure of Inflation Should a Central Bank Target?(published link):

This paper assumes that a central bank commits itself to maintaining an inflation target and then asks what measure of the inflation rate the central bank should use if it wants to maximize economic stability. The paper first formalizes this problem and examines its microeconomic foundations. It then shows how the weight of a sector in the stability price index depends on the sector’s characteristics, including size, cyclical sensitivity, sluggishness of price adjustment, and magnitude of sectoral shocks. When a numerical illustration of the problem is calibrated to U.S. data, one tentative conclusion is that a central bank that wants to achieve maximum stability of economic activity should use a price index that gives substantial weight to the level of nominal wages.

The graph above shows that nominal wage increases have been falling since 2007, and are currently running about 2% annually, suggesting that there are no significant inflationary pressures right now for nominal wages.  As Paul Krugman pointed on a recent  post, "You can’t have a wage-price spiral if wages refuse to spiral; and all indications are that wages are being held down by high unemployment." 

March Home Sales in Phoenix Highest Since 2007, Las Vegas March Home Sales Highest Since 2006

1. "A total of 10,352 new and resale houses and condos closed escrow in March in the Phoenix metropolitan area. That was up 44.3 percent from the month before and up 7.5 percent from a year earlier. A sharp rise in sales from February to March is normal for the season, although this year’s jump was larger than usual. March’s sales were the highest for that month since 10,712 homes sold in March 2007.  In the overall Phoenix market in March, buyers paid a median $119,000 for all new and resale houses and condos that closed escrow. That was down 0.8 percent from the month before and down 11.9 percent from a year earlier."

2. "In March, 4,953 new and resale houses and condos closed escrow in the Las Vegas metro area – the highest sales tally for any March since 2006, when 8,486 sold. March sales were up 27.3 percent from February and up 1.6 percent from March 2010. The median price paid for all new and resale houses and condos sold in the Las Vegas metro area in March was $117,000, down 1.7 percent from February and down 10.0 percent from a year ago."

MP: This seems like evidence that markets are working - bargain prices bring the buyers back into the market and home sales rise.  If we measured the housing market the way we measure car sales (in terms of units sold), we would say that the housing market is doing quite well.   

Walmart: More Selective Than Harvard

"Walmart has a history of growing their management team from within. Nationwide, nearly 75 percent of Walmart’s store management team started as hourly associates."

~From this press release announcing the creation of 4,000 new jobs in South Carolina over the next five years. 

Maybe that's one reason that it's harder to get a job at Walmart than it is to be admitted to an Ivy League school.  (HT: Steve Bartin)

See previous CD posts here and here.