Free Markets, Free People

Economy

Economic Statistics for 14 Feb 12

The following statistics were released today on the state of the US Economy:

Despite strong core numbers, weak auto sales meant that retail sales were up a less-than-expected 0.4% for January. Ex-autos, retail sales rose 0.7%, and removing gasoline sales brings the core number to 0.6%.

In weekly store sales, ICSC-Goldman reports a weak -2.0% drop in sales, with the year-on-year rate at 2.8%. Redbook is also weak at a 2.7% same store sales increase from last year.

Export prices rose 0.2% for January, which is up 2.5% from last year. Import prices rose 0.3% for the month, and 7.1% for the year.

The NFIB Small Business Optimism Index rose very slightly to 93.9 in January.

The Ceridian-UCLA Pulse of Commerce Index fell 1.7% in January to a level of 93.17.

Business inventories rose 0.4% in December. Sales rose 0.7%, so the stock-to-sales ratio dropped to 1.26.

~
Dale Franks
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Obama budget full of gimmicks and rosy assumptions

Representative Paul Ryan characterized the Obama budget as not a fiscal plan but “a political plan designed to help the President’s reelection.”  Getting into the details seems to validate Ryan’s point.

He also pointed out that the debt crisis is the most predictable crisis imaginable and the president has "punted" again with this budget. Said Ryan, “Instead of an America built to last we get an America drowning in debt.”

The White House claims the Obama budget saves 4 trillion over and above the Budget Control Act.  But in fact, the Obama budget rides the base line and throws more taxing and spending on top of it (while claiming to save 4 trillion).  Analysis of the budget shows, at best, a savings of 300 billion over 10 years.

As for an “America Built To Last”, Obama approaches that in a very odd way.  He goes after businesses and investors:

1. The top income rate would be raised to 39.6 percent vs. 35 percent today.

2. Under the “Buffett rule,” no household making over $1 million annually would pay less than 30 percent of their income in taxes.

3. Between now the end of a second Obama term, Obama proposes $707 billion in “net deficit reduction proposals.” Of that amount, only 16 percent is spending cuts.

4. The majority of small business profits would be taxed at 39.6 percent vs. 35 percent today.

5. The capital gains rate would rise to 25.0 percent (including the Obamacare surtax and deduction phase out) from 15 percent today.

6. The double-tax on corporate profits (including dividends) would increase to 64 percent based on the statutory corporate tax rate (58 percent using the effective tax rate), easily the highest among advanced economies.

7. The double tax on corporate profits (including capital gains) would increase to 51 percent (44 percent using the effective tax rate), also among the highest among advanced economies.

Those details alone are a basis for declaring his budget “dead on arrival” at Congress.  These new taxes would take the tax revenue as a share of GDP to 20.1 percent in 2022.  The historical average is 18 percent.  In a time of deep recession, when government should be proposing economic, tax, labor and trade policies to create jobs and move the economy in a positive direction, Obama’s budget proposes to do exactly the opposite.  The attack on small business, as well as corporations, points to a president out of touch with the problems of the economy.  He claims to save 4 trillion on debt with these policies but in fact, his budget proposals add 6.7 trillion to the debt over the next 10 years and the debt-to-GDP ratio is predicted to be 74.2 percent this year and 76.5 percent in 2022.

And here’s the bottom line truth about policies such as Obama is pursuing:

Corporate taxes are paid by consumers in higher prices and by workers in lower wages – so much for the promise not to increase taxes on those making less than $250,000. Every good tax economist knows this, but the president chooses to ignore reality and demagogue the issue.

Indeed.

Given that, how does the White House justify such policies?  Well, it simply makes up a rosy forecast for the future, that’s how.  3.4 percent in 2015, 4.1 percent in 2017 and 3.9 percent in 2018.  As James Pethokoukis points out:

The U.S. economy has only seen a run like that three times in the past four decades.

Yet we’re supposed to believe that we’ll come roaring out of one of the longest and deepest recessions since the Great Depression with taxes focused mostly on business at a higher than historical rate?  Not likely.

Meanwhile we’re being told by the President’s Chief of Staff that it is all the Republican’s fault that we don’t have a budget out of the Senate.  Mistakenly claiming that it takes 60 votes to pass a budget, he points to the Republican Senators as the obstructionists.

Of course, on budget matters, it only takes a simple majority.  And there are 53 Democratic Senators.   If you recall, the Senate minority leader, Republican Mitch McConnell introduced and got votes on two budgets last year – the Ryan budget, voted down by Democrats and President Obama’s budget which was voted down 97-0.   Harry Reid, however, has introduced no budget in over 1,000 days.

And the gimmicks:

At issue is how the government projects spending and deficits going forward. Of the $4 trillion in deficit reduction claimed by the White House, $3 trillion would come from a combination of tax increases and spending cuts. Another $900 billion would come from domestic spending caps agreed to with Republicans last year to resolve the impasse over raising the nation’s statutory borrowing limit.

But if Congress and the president did nothing, spending would actually fall by $2 trillion under current law. That is because automatic cuts to defense and nondefense programs totaling $1.2 trillion are already set to go in force in 2013. The Obama budget assumes those cuts will not happen. The president also assumes that sharp cuts to reimbursement rates for doctors treating Medicare patients will never be enforced, but the budget does not detail how those scheduled cuts will be prevented.

Republicans say that effectively negates $522 billion over 10 years, since Congress will have to figure out how to pay for the so-called Medicare doc fix.

Republicans also protest that Mr. Obama is "saving" nearly $1 trillion by not spending over the coming decade what the United States has spent each year on wars in Iraq and Afghanistan.

So the Obama savings are built on assuming the “Doc Fix” won’t be made and that war spending will remain at the current level (even with the withdrawal from Iraq and the coming withdrawal from Afghanistan) for 10 years – something obviously not the case.  He’s built his 4 trillion in “savings” on 1 trillion in tax increases, 2 trillion on spending cuts already enacted into law (sequestration), 1 trillion assuming war spending will remain level for 10 years.  Meanwhile most of his spending cuts come from where?  The military, of course.

Finally, remember this?

“This is big,” wrote White House director of new media Macon Phillips in a February 23, 2009 blog post, ”the President today promised that by the end of his first term, he will cut in half the massive federal deficit we’ve inherited. And we’ll do it in a new way: honestly and candidly.”

Indeed, President Obama did make that promise that day, saying, “today I’m pledging to cut the deficit we inherited in half by the end of my first term in office. This will not be easy. It will require us to make difficult decisions and face challenges we’ve long neglected. But I refuse to leave our children with a debt that they cannot repay — and that means taking responsibility right now, in this administration, for getting our spending under control.”

This budget does none of the above.  In fact, it’s not even close.  There are no “difficult decisions” included.   There are now “challenges” faced.  As Rep. Ryan said, Obama has again “punted”.

This is indeed the most predictable crisis imaginable and again, the man who claimed he would do what is necessary to fix the problem has once again kicked the can down the road.

~McQ

Twitter: @McQandO

An example of how government can become an obstacle to economic recovery

I don’t imagine anyone would argue that it is supposed to be like this, however, this is reality in one city in one state and I’d guess that its true in most places to one degree or another.  The place in question?  San Francisco, where a woman wanted to open a simple ice cream shop.

Ms. Pries said it took two years to open the restaurant, due largely to the city’s morass of permits, procedures and approvals required to start a small business. While waiting for permission to operate, she still had to pay rent and other costs, going deeper into debt each passing month without knowing for sure if she would ever be allowed to open.

“It’s just a huge risk,” she said, noting that the financing came from family and friends, not a bank. “At several points you wonder if you should just walk away and take the loss.”

Ms. Pries said she had to endure months of runaround and pay a lawyer to determine whether her location (a former grocery, vacant for years) was eligible to become a restaurant. There were permit fees of $20,000; a demand that she create a detailed map of all existing area businesses (the city didn’t have one); and an $11,000 charge just to turn on the water.

Imagine how many potential business owners would have said “the hell with it” and, if possible, gone elsewhere or shelved the idea completely?  Had that happened in this case, had the woman in question not had the patience of Job and enough money to weather the 2 years in question, 14 full and part-time workers wouldn’t be employed there.

That’s the problem with stories like this – its hard to get a handle on how many businesses have been discouraged by such a permitting and regulation regime, but you have to assume they are plenty.

It should not take two years for a government to say “okay” to a business.  Nor should there be exorbitant fees associated with it.

Thankfully San Francisco has begun to recognize the enormity of its problem and attempt to do something about it.   A little thing called “reality”, in the guise of the headquarters for Twitter, has finally begun to bring some government officials around:

“The city has had the reputation of being a difficult place, and a hostile place, to do business,” said Mark Farrell, the city supervisor who has the most private-sector experience (he still operates a venture capital firm). “We’re changing the dialogue.”

According to Mr. Farrell, a critical shift occurred last year when supervisors approved a tax incentive to keep the headquarters of Twitter, the social network, in the city after the company threatened to move.

But he admitted that such actions were relatively easy compared with reforming the city’s entrenched bureaucracy. “To change the inner workings of government is a longer proposition,” he said.

Christina Olague, a former Planning Commission president who was recently appointed city supervisor, said that planning codes governing businesses had ballooned over the years to become hundreds of pages long. “It’s so convoluted,” she said. “It’s so difficult for these businesses to move ahead.”

But the byzantine, time consuming and costly regulatory process, for the most part, still remains.   Check out this animated video which illustrates how absurd it can be. 

 

 

As we’ve said any number of times here, if government wants to play a role in the economy and the economic recovery, perhaps the best role it can play is, for the most part, to get the hell out of the way.

~McQ

Twitter: @McQandO

Economic Statistics for 9 Feb 12

Today’s economic statistical releases:

Initial claims for unemployment fell 15,000 last week to 358,000, while the 4-week average dropped 11,000 to 366,250. This is strongly positive for job growth. Or it means that, after losing 7 million jobs since 2007, we’ve pretty much fired everyone who can usefully be fired.

The Bloomberg Consumer Comfort Index rose to -41.7 from -44.8 last week.

In wholesale trade, inventories rose  a strong 1.0% in December, and a 1.3% rise in sales leaves the stock-to-sales ratio unchanged at 1.15.

~
Dale Franks
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CAFE standards, market distortion and the usual results

In light of the article below on the failure of communism (which, necessarily, relies on central planning and ignores markets), this is an interesting topic:

The CAFE rule is the fleet-wide average fuel economy rating manufacturers are required by Washington to achieve. The new rule — issued in response to a 2010 Obama directive, not to specific legislation passed by Congress — would require automakers to achieve a 40.9 mpg CAFE average by 2021 and 54.5 mpg by 2025.

Got that folks … your representatives had nothing to say about or do with this.  It was dictated from on high.

In case you’re wondering whatever happened to the National Highway Traffic Safety Administration, it has been supplanted in the CAFE process by the EPA. The proposed regulation was designed, according to the EPA, "to preserve consumer choice — that is, the proposed standards should not affect consumers’ opportunity to purchase the size of vehicle with the performance, utility and safety features that meets their needs." But the reality is that consumer choice will be the first victim.

And that essentially means that with the switch from the NHTSA to EPA, the auto industry most likely had no place at the table.  An agency with an agenda but little experience with the industry came up with the new rules.

Also note the usual pandering to choice.  They talk the talk, but reality shows they’re not at all sincere about it:

Getting from the current 35 mpg CAFE standard to 54.5 can be achieved by such expedients as making air conditioning systems work more efficiently. We have a bridge in Brooklyn to sell to anybody who thinks that’s even remotely realistic. There is one primary method of increasing fuel economy — weight reduction. That in turn means automakers will have to use much more exotic materials, including especially the petroleum-processing byproduct known as "plastic." But using more plastic will make it much more difficult to satisfy current federal safety standards. The bottom-line will be much more expensive vehicles and dramatically fewer kinds of vehicles.

They’ll have to be much smaller and much lighter and they’ll cost an average of $3,200 dollars more (and that’s the lowball estimate).  Yup, no intrusion into the market there.  They’ve given “choice” lip service – get over it.

Result?

The U.S. Energy Information Administration projects that there will be no vehicles costing $15,000 or less, the segment of the market that college students and low-income consumers depend upon. Altogether, an estimated seven million buyers will be forced out of the market for new cars.

Note, it’s the new car market at risk. 

And:

Total costs, as calculated by the EPA, will exceed $157 billion, making this by far the most expensive CAFE rule ever. For comparison, the previous rule in 2010 cost $51 billion, according to the EPA. But the EPA doesn’t include this fact in its calculation: Annual U.S. car sales are 14-16 million units, yet over time, this rule will remove the equivalent of half a year’s worth of buyers.

But remember, to the sycophants, this is the crew that “saved” the auto industry.  Now you can understand that it was only for political reasons that was attempted.  Those jobs and industries, after this election year, are no longer critical.  In fact, they actually hamper the goal to “revolutionize” the energy sector.  That’s much more important than the middle class the left is currently and conveniently so fond of.

Put this one under “the law of intended consequences”.

~McQ

Twitter: @McQandO

Economic Statistics for 3 Feb 12

Today’s economic statistical releases:

Factory orders rose a very healthy 1.1% in December. November’s orders were also upwardly revised to a 2.2% jump.

A very strong ISM non-manufacturing report showed the index jump to 56.8—well above expectations—based on a huge jump in employment and new orders.

The Monster employment index fell to 133 in January from 140 in December.

The Bureau of Labor Statistics reports that 243,000 new net jobs were created last month, while the unemployment rate fell to 8.2%. Average hourly earnings increased 0.2%, and the average workweek rose to 34.5 hours. The new jobs came entirely from private payrolls, with private jobs increasing by 257,000. All is not quite as rosy as the headline numbers indicate, however:

  • Another 132,000 people left the labor force, as the labor force declined from 153,617,000 to 153,485,000.
  • The labor force participation rate declined to 63.4, the lowest since February, 1984.
  • The number of Americans who consider themselves employed rose to 139,944,000 from 139,869,000 last month, an increase of only 75,000. Meanwhile, the working age population rose from 239,618,00 to 424.269,000, an increase of 2,651,000.

So, some things to keep in mind might be a comparison of the peak of the last cycle’s employment, in November of 2007 to today. In making that comparison, some things become much clearer:

  • In November, 2007, 63.15% of Americans had a job. In Feburary, 2012, it was 57.76%.
  • In November, 2007, there were 147,118,000 Americans working. This month, that number was 139,944,000. That’s 7.1 million jobs that have disappeared.
  • If the labor force participation rate was the same today as it was in November 2007 (66.1%), today’s unemployment rate would be 12.61%.

~
Dale Franks
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The jobs report

A good job report this month drops the “official” unemployment rate to 8.3%.  That, of course, will be touted as significant progress and, on one level, it is.  The number of jobs created is above the maintenance level.  That means a real net gain.

But there are some underlying numbers that are much less positive.

While the job creation is “well above expectations”, there’s another record that masks the real unemployment number.

Namely 1.2 million workers (another record) fell out of the labor force.  That’s one reason the official rate looks good. 

And, probably the most important number to be considered – the labor participation rate – fell to 63.7% which is a 30 year low and reflects the loss of those 1.2 million workers from the work force.  Neither of those numbers are good.

That said, the report on the numbers of jobs created is a good report and may signal some growth. It is, for a change, above the maintenance level of jobs.   But you have to keep in mind that in overall terms, and despite the official numbers, the job situation still has a very, very long way to go.

~McQ

Twitter: @McQandO