The only release today is the CPI, which shows that inflation eased last month. The overall CPI was unchanged for the month, and the core rate (ex-food and energy) rose only 0.2%. On a year-over-year basis, CPI fell from 3.6% last month to 3.4%, while the core rate only rose 2.2% from last month’s 2.1%.
Today’s economic statistical releases:
Initial jobless claims dropped sharply for the 2nd week in a row, falling 19,000 to 381,000. The four-week average is down 6,500 to 387,750, and has dropped for 10 of the past 12 weeks. One note of caution, however, is that the holiday period can make the numbers volatile, and there are lots of special factors that can affect the numbers. Still, the trend is positive, overall, and is looking better than it has at any time since the recovery—such as it is—began.
Food prices pushed the Producer Price Index higher, up 0.3% for the month and 5.7% for the year. The core rate, which ignores food and energy prices, was up 0.1% last month, and 2.9% over the last year.
Industrial production fell -0.2% last month, well below expectations for a 0.2% increase. Manufacturing was down across the board, but auto manufacturing particularly declined. Capacity utilization also dropped slightly to 77.8%. In contrast to this morning’s industrial production numbers, the Empire State Manufacturing Survey rose well above expectations to 9.53. Especially heartening is new orders which rose to 5.1 versus -2.07 last month. In addition, the Philly Fed’s general activity index rose to 10.3 from November’s 3.6, as manufacturing in the Philly Fed district grew at a faster rate.
The nation’s current account deficit narrowed to $110.3 billion in the third quarter, the smallest gap since Q4 2009.
Inflow of investment income into the US slowed sharply in October, to a net $4.8 billion compared to $68.3 billion in September.
The Bloomberg Consumer Comfort Index rose to the highest level in two months, to -49.9. Of course, -49.9 still isn’t good.
Brian Dimitrovic, writing in Forbes, is another who takes a shot at Obama’s speech in Kansas (this is almost becoming a series considering the number of people ripping the speech on its economic ignorance) and posits that it is an example of abysmally incorrect economic history. The most obvious reason for the rewriting of that history by President Obama is centered in his ideology. If the history doesn’t prove what he says, President Obama doesn’t have a case. Dimitrovic, using the actual history of the periods Obama cites, shows Obama’s grasp of the history of those eras is as poor as the ideology he touts. Here’s the passage from the speech that Dimitrovic cites. We’ve cited it in previous posts, but Dimitrovic’s demolition of the premise is important:
[T]oday, we are a richer nation and a stronger democracy because of what [Teddy Roosevelt] fought for in his last campaign [of 1912]: [including] political reform and a progressive income tax.
Now, just as there was in Teddy Roosevelt’s time, there is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune….If we just cut more regulations and cut more taxes – especially for the wealthy – our economy will grow stronger….
Now, it’s a simple theory. And we have to admit, it’s one that speaks to our rugged individualism and our healthy skepticism of too much government….And that theory fits well on a bumper sticker. But here’s the problem: It doesn’t work. It has never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible postwar booms of the ’50s and ’60s. And it didn’t work when we tried it during the last decade. I mean, understand, it’s not as if we haven’t tried this theory.
Now there are lots of opinions about economics, but like it or not, facts are facts. Those facts are readily available to those who seek them. By the way, Dimitrovic is a Harvard PhD and an economic historian, so this is right in his wheelhouse.
First is his contention that Roosevelt’s “progressive” ideas are what essentially saved the nation. That the intrusion it represented was necessary. Dimitrovic pretty much says that’s nonsense. In fact, he says, what happened then may be the reason we’re suffering now.
Let’s look at the past as it actually was.
There is one major inflection point in U.S. economic history. Before this point, growth was high, at about 4% per year for a century. Also in this period, there was remarkable price stability and so little unemployment that the nation had to import tens of millions of workers from abroad.
After this point, growth was moderate, at about 3% per year for the long term, with variations in the form of major depressions and recessions and a 23-fold inflation which had no like in the previous epoch.
This inflection point was 1913 – the very year which the reforms TR plumped for in his last campaign, the income tax and the Federal Reserve, came into being. 1913 marks the one secular shift in American economic history toward lower growth and more economic unpleasantness in the form of unemployment, inflation, and serial recession.
Had this nation grown at the 4%-rate achieved in the pre-1913 period, we would be twice as well-off today. As for inequality, unemployment and inflation are scourges to the working class, but not so much to the rich, and these are 20th– and 21st– century innovations.
That’s the actual history coupled with the economy’s real performance. The economy here worked pretty darn well before 1913 and we saw consistent growth that continued to lift all boats. After 1913, not as much. An entire percentage point of growth was, on average, was lost. The only real and significant difference – income tax and the Federal Reserve. What does economic history show happened after this inflection point where government intruded significantly?
As Dimitrovic points out, “lower growth and more economic unpleasantness in the form of unemployment, inflation, and serial recession.” And again, this isn’t a claim that government has no role in the economy as Mr. Black and White would like to claim. This is to point out that what he is attempting to sell with his rhetoric and in support of his premise that it is capitalism that has failed (and thus government is the answer) has no basis in fact. In fact, it appears the opposite is probably true.
Dimitrovic then turns to the 20th and 21st centuries and their history:
Now about that 20th-century, the only reason its record came in even respectably is that at certain junctures, decided efforts were taken to withdraw the impress of the institutions of 1913, the Federal Reserve and the income tax.
He lists a number of facts that contradict Obama’s contentions about the market. In fact, as Dimitrovic says, it was decidedly anti-progressive ideas which saved the 20th Century, for example:
The President says, “It didn’t work when it was tried in the decade before the Great Depression.” These would be the years 1921-1929, when on account of a tax cut put together in 1921, the economy boomed at 4.8% per year as unemployment and inflation (the latter recently on a 100% run) both collapsed. How does a president, in a major, prepared speech make such an indefensible factual error?
Next: “It’s not what led to the incredible postwar booms of the ’50s and ’60s.” No? The trough of the recession at the end of World War II was 1947, when the Republican majority in Congress conspired to win a tax cut over President Truman’s veto. Result: a 6-year run of 4.8% growth.
Note the question Dimitrovic asks in the last sentence off the first example. This isn’t something that would be difficult to find for a research staff. These numbers and facts exist and are out there. But they don’t fit the ideology. You either have to assume they didn’t research the claims or that they rejected the facts because the were inconvenient to the premise. It is hard to believe the didn’t research the claims, isn’t it? They’re pretty definitive claims. One would assume, listening to a President of the United States, they’re anchored in fact. Obviously they’re not. The question is whether this is true economic historical ignorance or willful economic historical revisionism?
Dimitrovic also includes an example of where tax cuts were resisted, and the result, and where they were instituted afterward and that result. Again, the facts seem to refute the President’s premise:
In 1953, when recession came, President Eisenhower resisted calls for another tax cut, and recessions came again and again such that Eisenhower left office in 1960 with a record of 2.4% annual growth on his watch. John F. Kennedy followed, as every schoolchild should know, with another big tax cut. The great 1960s boom ensued, with 4.9% growth from 1961 to 1969.
Also interesting are the parties of the presidents. The numbers, however, aren’t controversial at all. This has been a fact with which almost all of those who’ve followed politics for any length of time and have been interested in the effect of tax cuts on our economy are familiar. These aren’t obscure, little known facts. But they certainly have been facts that one side of the ideological spectrum have tended to ignore when trying to spin more government and not less. That is precisely what President Obama’s object was in his Kansas speech.
The reason for Dimitrovic’s rebuttal of the contentions and claims made in the speech is fairly easy to discern:
Two years ago, I happened to publish a book, Econoclasts, canvassing all this history. I also happen to know that the White House library has a copy.
It also explains his disbelief in what was said:
I have to wonder what historical scholarship the president and his speechwriters are consulting as they come up with their strange counter-narrative of American economic history. I truly don’t know what the books could be.
After all, when the major library bibliographical service, Choice, reviewed Econoclasts, it said the book “fills a gaping hole in the literature.” Has there been some new revisionist history of the effects of tax cuts since 1913 that validates the president’s new narrative? If so, no one’s ever heard of it.
Then again, you can find the stuff the President reiterated in Kansas here and there in left wing redoubts, Berkeley, California and the like – on bumper stickers.
But not in the history of the actual eras in question. In fact, precisely the opposite of the claims made by the President seem to be true. Government intrusion is what has dampened our economic growth. You can see the percentage amounts for yourself. The cycles of recession, unemployment and inflation are a result of more government, not the failure of the market. In fact, per Dimitrovic’s examples, every contention made by the President, which Dimitrovic highlighted, are demonstrably wrong.
The reason for the claims is obvious, however. The ideology of market failure and the demand for more government requires that history, whether it is accurate or not.
We have an old word for that – propaganda. The dishonesty being employed ought to make the current purveyor of that propaganda ashamed of himself. But there is certainly no sign of that being the case.
Today’s economic statistical releases:
Mortgage applications rose 4.1% last week, with purchases dropping -8.2% and re-finance applications up 9.3%. The 30-year mortgage rate averaged 4.12%., the lowest rate of the year.
Import prices rose 0.7% last month—9.9% for the year—due to spikes in petroleum prices. Ex-Petroleum, prices fell -0.2%, following a 0.3 percent ex-petroleum decline in the prior month. Export prices rose 0.1% for the month and 4.7% over last year.
Today’s economic statistical releases:
November retail sales weren’t as strong as expected, rising 0.2% both overall, and ex-autos. On a year-over-year basis, retail sales were up 6.6%. Despite the rather disappointing November sales, both September and October sales were revised upwards.
The post-Black Friday sales slump continued last week. Redbook reports that the year-on-year same-store sales rate slowed by -0.3% to 2.9% this week. Similarly, ICSC-Goldman Store Sales are slowing, just like Redbook, with sales down -2.3% last week, and up only 2.8% year-over year.
Business inventories continue to build at a moderate rate, up 0.8% last month. The stock-to-sales ratio is unchanged at 1.27, as inventory build-up continues to match the rate of sales.
The NFIB Small Business Optimism Index indicates easing pessimism among businesses, with the index up 1.8 points to 92.0.
The Ceridian-UCLA Pulse of Commerce Index rose only 0.1% in November, to 94.84. The index is only up 0.9% over last November.
As I mentioned in an earlier post, it is frightening to read the words by this President and it is hard not be appalled by the apparent economic ignorance they contain. We’ve remarked on it several times. In particular this statement is stunning in that regard:
Factories where people thought they would retire suddenly picked up and went overseas, where workers were cheaper. Steel mills that needed 100—or 1,000 employees are now able to do the same work with 100 employees, so layoffs too often became permanent, not just a temporary part of the business cycle. And these changes didn’t just affect blue-collar workers. If you were a bank teller or a phone operator or a travel agent, you saw many in your profession replaced by ATMs and the Internet.
Richard Epstein of the Hoover Institution noticed it too. And in very blunt language, points the very same thing we’ve been talking about:
To anyone schooled in economics, these statements reveal a breathtaking ignorance about the sources of national prosperity. It is a good thing when plants can achieve the same output with less labor. Do we really want an America in which thousands of people work in dangerous occupations to turn molten lava into steel bars? Far better it is that fewer workers are doing those jobs. The jobs lost in that industry will be in part replaced by newer jobs created in the firms that build the equipment that make it possible to run steel mills at a lower cost and far lower risk of personal injury. The former workers can seek jobs in newer industries that will only expand by competing for labor.
And what about those ATM machines? Does the president really want people to have to queue up in banks to make deposits or withdraw cash in order to make a boom market for human tellers? Perhaps we should return to the days before automation, when phone calls were all connected by human operators. And why blast the Internet, which has created far more useful jobs than it has ever destroyed?
The painful ignorance that is revealed in these remarks augurs ill for the long-term recovery of America. With the president firmly determined to set himself against the tides of progress, innovation will be harder to come by. The levels of unemployment will continue to be high as the president works overtime to impose additional restrictions on the labor markets and more taxes at the top of the income distribution—both backhanded ways to reward innovation and growth.
The problem, therefore, with the president’s speech is not that it is demagogic in tone. The problem is that it is intellectually incoherent. As a matter of high principle, the president announces his fealty to markets. As a matter of practical politics, he denigrates and undermines them at every step. It is a frightening prospect to have a president who lives in a time warp that lets him believe that the failed policies of 1935 can lead this nation back from the brink. His chosen constituency, the middle class, should tremble at the prospect that his agenda might well set the course for the United States for the next four years.
Well said, but frightening. Take the time to read the rest of Epstein’s piece. It’s worth the read.
Today’s economic statistical releases:
The U.S. trade deficit shrank in October to $43.5 billion from $44.2 billion in September. Both imports and exports declined, with imports declining more.
The consumer sentiment index–while still at fairly depressed levels–rose a strong 3.6 points to 67.7 in the mid-month reading.
Brett Arends is skeptical about Europe’s current direction:
Their proposal is preposterous. Anything can happen in this life, but it would be remarkable indeed if this idea got off the ground. Anyone pinning their hopes that this will solve the crisis needs to think it through.
Why would the Portuguese accept the right of Germany to impose budget cuts on their country? Why would the Greeks?
Would we accept that role for the Chinese and the Japanese, the biggest holders of Treasury debt? How would you feel if you opened the paper to be told that the new Sino-Japanese “Fiscal Stability Commission” in Washington had just slashed your grandma’s Social Security checks by one-third, scaled back federal highway repairs, and that it would impose a 10% national sales tax?
That is, after all, effectively what is being offered to the people of Greece, Italy, Spain, Portugal and Ireland.
It’s absurd. There is no reason why these countries should have to surrender sovereignty. They can simply, where necessary, default. A default by, say, Louisiana would not destroy the dollar. Neither did the bankruptcy of Enron or Lehman.
What happens when after signing the new treaty (if it ever actually comes to be) the Greeks or Italians decide to thumb their noses at the EU and default anyway? Kick them out? Isn’t that right where we are now? Isn’t the fear that countries are kicked out or leave leading to financial chaos and defaults? Will these countries truly continue to pay their bills and accept austerity in the face of a severe recession/depression?
If that is the concern, just as I have been pointing out for some time, anything short of true fiscal and political union will fail. The right of existing states to refuse to honor the treaty (remember the last one was treated as inconsequential by violators, including Germany and France) cannot exist which means the right of states to secede or be expelled from the union cannot exist. If that option is not off the table then Eurozone bonds cannot be treated as risk free. If they are not seen as risk free then they will be rated accordingly and the Eurozone will be unstable as Louis-Vincent Gave points out:
Basically, we have to remember that the average sovereign debt buyer is not a hazardous investor. The guy who buys a government bond is looking for a very specific outcome: he gives the government 100 only so he can get back 102.5 a year later. That’s all the typical sovereign debt investor is looking for. Nothing more, nothing less.
But now, the problem for all EMU debt is that the range of possible outcomes is growing daily: possible restructurings, possible changes in currencies, possible assumption of other people’s debt, possible mass monetization by the central bank etc. Given this wider range of possible outcomes, and the consequent surge of uncertainty, the natural buyer of EMU debt disappears. Again, the typical sovereign investor is not in the game of handicapping possible outcomes; he is in the game of getting capital back!
This is very problematic because once uncertainty creeps in, bonds will tend to gradually drift towards what I have come to call the bonds “no-man’s-land”. Basically, once sovereign bonds reach 90c to par, they tend to have a much higher volatility and much greater uncertainty. As a result, they are no longer attractive to the typical bond manager or asset allocator looking to buy bonds to diversify equity risk (think how Italian bond yields are now correlated to European equities. If you want to be bullish Italian bonds, you may now just as well spend a fifth of the money and buy European banks for the same portfolio impact…). And once a bond enters into no-man’s-land, it has to fall a lot before attracting the attention of distressed debt and vulture investors (usually yields of 15%+). So the first obvious problem is that more and more European debt markets are entering this “no man’s land” bereft of “normal” investors.
Do these countries need the Euro over the long term to be prosperous? More Brett:
The British look smarter and smarter for staying out of the euro area in the first place. Prime Minister John Major, and then, later, Chancellor of the Exchequer Gordon Brown, each took the decision to keep the British pound free. At the time fashionable opinion predicted disaster for the Brits. So much for that.
(Predictably, fashionable opinion now says the Brits look “isolated” for staying out. Really, you couldn’t make it up).
My guess is Brett is correct that we are no where close to a real resolution, which is a path to political unification or breakup.
It has long been clear the Franco-German duo wanted to use their shared currency to bludgeon the continent into something closer to a federal system.
Any investor pinning their hopes on this bird flying needs to be aware it looks a lot more like a turkey than an eagle.
This week’s meeting of European leaders already marks the fifth “summit” to solve the region’s debt crisis since early 2009.
My favorite comment this time: “After a series of ‘final’ summits, it would be nice this time to have a real ‘final’ summit.” That was from Standard & Poor’s chief European economist, appropriately-enough named Jean-Michel Six. What’s the betting Mr. Six will be attending Summit No. Six in the new year?
Which is not to say that the ECB or some other entity couldn’t stem the immediate crisis and kick the can further down the road. Maybe, but if so the question is how far? A week, a year, five years? That I cannot answer now.
Today’s economic statistical releases:
Initial jobless claims fell 23,000 last week to 381,000, the lowest weekly level since February.
The Bloomberg Consumer Comfort Index held steady for a second week, at 50.3 compared to the previous 50.2. That’s still a recessionary level of consumer confidence.
Wholesale inventories jumped 1.6% with a strong 0.9% rise in wholesale sales, increasing the stock-to-sales ratio by one tenth to 1.16.