Questions and Observations

Free Markets, Free People

Economic Statistics for 13 May 14

The NFIB small business optimism index rose a sharp 1.8 points to 95.2 in April. It’s the highest reading since since 2007.

ICSC-Goldman’s read on retail sales shows a weak -0.1 sales drop from last week, but a strong year-over-year 3.9% increase. Redbook’s weekly retail sales figure shows year-on-year strength, with a 4.2% sales increase.

The Census Bureau’s April retail sales report shows a soft 0.1% increase. Sales ex-autos were unchanged. sales ex-autos and -gas fell -0.1%.

April export prices fell -0.1%, and import prices fell -0.4%. On a year-over-year basis, export prices rose 0.1%, while import prices fell -0.3%.

Business inventories rose 0.4% in March, while a 1.0% rise in sales kept the inventory-to-sales ratio unchanged at 1.30.


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The “teenage” administration

When Barack Obama was running for the presidency, there were a number of people who warned he wasn’t ready for prime time – that he’d never really “done anything or run anything”.  That he had never demonstrated any penchant for leadership at any time in his life, nor had he ever had any executive experience.  That most of his adult life had been political campaigns for the next highest office – moving directly from one to the next with few if any accomplishments in-between.

Those people were shouted down by their “betters” claiming Mr. Obama was hip, wicked smart, charming, “with it”, confident and a master of social media.  He would change the dynamic in Washington, charm the world into doing his bidding and calm the rising seas etc., etc., etc.

Eliot Cohen, in a Wall Street Journal op/ed, says instead, we’ve got a bunch of people in the administration that basically and unsurprisingly act like teenagers:

Often, members of the Obama administration speak and, worse, think and act, like a bunch of teenagers. When officials roll their eyes at Vladimir Putin‘s seizure of Crimea with the line that this is “19th-century behavior,” the tone is not that different from a disdainful remark about a hairstyle being “so 1980s.” When administration members find themselves judged not on utopian aspirations or the purity of their motives—from offering “hope and change” to stopping global warming—but on their actual accomplishments, they turn sulky. As teenagers will, they throw a few taunts (the president last month said the GOP was offering economic policies that amount to a “stinkburger” or a “meanwich”) and stomp off, refusing to exchange a civil word with those of opposing views.

In a searing memoir published in January, former Defense Secretary Robert Gates describes with disdain the trash talk about the Bush administration that characterized meetings in the Obama White House. Like self-obsessed teenagers, the staffers and their superiors seemed to forget that there were other people in the room who might take offense, or merely see the world differently. Teenagers expect to be judged by intentions and promise instead of by accomplishment, and their style can be encouraged by irresponsible adults (see: the Nobel Prize committee) who give awards for perkiness and promise rather than achievement.

If the United States today looks weak, hesitant and in retreat, it is in part because its leaders and their staff do not carry themselves like adults. They may be charming, bright and attractive; they may have the best of intentions; but they do not look serious. They act as though Twitter and clenched teeth or a pout could stop invasions or rescue kidnapped children in Nigeria. They do not sound as if, when saying that some outrage is “unacceptable” or that a dictator “must go,” that they represent a government capable of doing something substantial—and, if necessary, violent—if its expectations are not met. And when reality, as it so often does, gets in the way—when, for example, the Syrian regime begins dousing its opponents with chlorine gas, as it has in recent weeks, despite solemn deals and red lines—the administration ignores it, hoping, as teenagers often do, that if they do not acknowledge a screw-up no one else will notice.

It is a pretty fair and devastating summary of an immature, selfie-taking, hashtag loving administration.  Intentions speak louder than action in their world.  They don’t take criticism well.  And they are about as petty as it comes when talking about their opposition. They demand respect for the man in office, but the man in office shows no respect to those whose views differ from him.

He is also given very little if any respect in the world because he’s really done nothing to earn it (and quite a bit to unearn any he had when he took office).  Hostile nations, knowing how thin skinned this administration is, openly taunt the President and his policies. They fear no reprisal from the US.  Iran recently declared victory over the US in Syria.  Russia – well Russia has simply decided the US isn’t a real threat as it plays out its expansionist intentions.   Even our allies have openly criticized the administration for their inept handling of foreign policy.

We live in a very dangerous world, one in which the predators are always looking for an opening (usually in the form of a power vacuum) of which they can take advantage.  This administration has provided no leadership whatsoever during its tenure and that power vacuum has developed during our unilateral withdrawal from our previously prominent position in the world.  And just like a bunch of teenagers, this administration is sure that it is the fault of everyone but themselves.

After all, their intentions were pure … or something.

~McQ

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So how are those sanctions against Russia going?

Ask France:

France will press ahead with a 1.2 billion-euro ($1.66 billion) contract to sell helicopter carriers to Russia because cancelling the deal would do more damage to Paris than to Moscow, French diplomatic sources said on Monday.

France has come under pressure from Washington and some European partners to reconsider its supply of high-tech military hardware to Moscow. It had said it would review the deal in October – but not before.

However, French diplomatic sources said on Monday the 2011 contract with Russia for two Mistral helicopter carriers, with an option for two more, would not be part of a third round of sanctions against Moscow.

“The Mistrals are not part of the third level of sanctions. They will be delivered. The contract has been paid and there would be financial penalties for not delivering it.

“It would be France that is penalized. It’s too easy to say France has to give up on the sale of the ships. We have done our part.”

And, we can’t have the sanctions hurt France, can we?

One of the attack helicopter carriers will be deployed in the Black Sea, where all the trouble began:

The first carrier, the Vladivostok, is due to be delivered by the last quarter of 2014. The second, named Sebastopol after the Crimean seaport, is supposed to be delivered by 2016.

How does France justify its intention to provide the ships?

“We are not delivering armed warships, but only the frame of the ship,” the source said.

That, of course, misses the entire point of sanctions. It is a punishment for wrong behavior. It is supposed to be a way one side teaches the other not to do what it has done. And the Western powers agreed that “strong sanctions” be imposed because of Russia’s unacceptable behavior. Now we see the exceptions being made – exceptions that Russia will, rightfully, view as weakness.

Additionally, that “frame” the French are dismissing as inconsequential will give Russia access to advanced technology. And these “frames” have quite a potent capability. The Mistral can carry up to 16 attack helicopters, such as Russia’s Kamov Ka-50/52; more than 40 tanks or 70 motor vehicles; and up to 700 soldiers.

As for leadership from the US insisting that the French not provide the Russians with advanced weaponry?

A French government source said at no point had the U.S. officially expressed any concern over the sale …

Another example of why “strong sanctions” is, in reality, an oxymoron, especially when the Western powers are concerned.

~McQ

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3/4 of ObamaCare enrollees? Previously insured …

Or so says a new McKinsey survey of the numbers:

One of the principal flaws in the coverage of Obamacare’s exchange enrollment numbers to date has been that the press has not made distinctions between those who have “signed up” for Obamacare-based plans, and those who have actually paid for those plans and thereby achieved enrollment in health insurance. A new survey from McKinsey indicates that a large majority of people signing up are now paying for their coverage. This is progress for the health law. But the survey still indicates that three-fourths of enrollees were previously insured.

Of course we’ve seen the propaganda push from the White House that has claimed the numbers (8 million enrolled) mean that the law is working.  As usual, the devil is in the details.  If the law was designed to provide coverage to those who were uninsured, 25% of the total enrolled fitting that description is hardly indicative of that claim’s efficacy.  And when you break down that 25% number, it’s even less indicative:

At most around 930,000 people have gained coverage from Obamacare’s under-26 “slacker mandate” (not 3 million, as is commonly suggested); another 3 million or so have gained coverage from the law’s expansion of Medicaid. Approximately 2.6 million previously uninsured individuals have obtained coverage through the ACA exchanges and the related off-exchange individual markets; however, the off-exchange purchases are mostly unsubsidized, and therefore can’t necessarily be credited to Obamacare.

Here’s a graphic that breaks the McKinsey survey’s results down into a more understandable form:

McK-enroll-Apr-2

In reality, what the law has essentially done rearranged the burden of payment among those enrolled while really not doing much at all in terms of reaching those for whom it was supposedly designed to help:

What the exchanges appear to be doing is mainly helping people who were previously insured. If you’re 62 years old, say, and your income is $30,000, and you were paying for your own coverage before, you’re now eligible for plans that are much cheaper for you, thanks to taxpayer-funded subsidies and higher premiums for young people.

Of course that means that other people are paying more. “My old plan was canceled under Obamacare,” an exasperated Californian told me last week. “The new Obamacare plan costs twice as much, and the deductibles are higher. And yet Obama is counting me as one of his 8 million people!” But hey—at least he has maternity coverage.

And I’m sure our Californian is eternally grateful for big brother deciding for him that maternity care was an absolute necessity for which he must pay.  But the point is the 8 million number remains very shaky (and that’s being kind) and it really doesn’t at all reflect what the White House would have you believe it reflects – that the law is working.

~McQ

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Health Insurance Tax – another governmental attack on small business

So a day or so ago, I talk about how regulation and government intrusion is helping to kill entrepreneurship and, as a result, small businesses. The same problem, as we all know, is also exacerbating the unemployment picture.  A prime example?  That odious law known as ObamaCare.

The US Chamber of Commerce blog has this chart for us to peruse. It is all about the recently implemented “Health Insurance Tax”, aka “HIT”: As this awful law continues to be implemented when it is politically convenient for the Democrats, we see even more disaster lurking for those who are employed and actually “like their insurance and like their doctor”.  But HIT is already taking a toll.

The National Federation of Independent Business’ Research Foundation estimates that the Health Insurance Tax (HIT) will result in a reduction in private sector employment of 152,000 to 286,000 jobs by 2023, with 57 percent of the job losses coming from small businesses. This will amount to a reduction of U.S. real output (sales) by between $20 billion to $33 billion during the same time frame.

Just what we need – another “hit” to employment and a “hit” to GDP. But it is clear the Democrats don’t really care about that.  As one of our low information commenters is want to say “a few eggs must be broken” to make an omelet … or something. Any inanity will do when it is clear that a law is a bust and a failure. As the Chamber of Commerce blog notes:

The HIT, which went into effect on January 1, 2014, levies a tax on health plans sold on the fully-insured market. Eighty-eight percent of it is made up of small businesses. Revenue from the tax will rise by 41% in 2015 and reach $14.3 billion in 2018.

“Small businesses are crucial to rebuilding an economy that allows all Americans to prosper,” Katie Mahoney, Executive Director of Health Policy at the U.S. Chamber said. “We need to work to find ways to ensure small businesses and their employees have the tools to build on their current success, not hinder future growth.”

You’d think what she says would be fairly common knowledge, but apparently the deluded administration that runs this country thinks we’re coming out of the economic malaise it has worked so hard to keep in place, and thus its time for another little shot to the head of small business.

With the HIT – mission accomplished.

~McQ

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Economic Statistics for 8 May 14

Those chain stores that still report monthly sales showed exceptionally good April sales, helped by warmer weather and a late Easter.

Weekly initial jobless claims fell 26,000 to 319,000. The 4-week average rose 4,7540 to 324,750. Continuing claims fell 76,000 to 2.685 million.

The Bloomberg Consumer Comfort Index fell -0.8 points to 37.1 in the latest week.

The Fed’s balance sheet rose $7.1 billion last week, with total assets of $4.303 trillion. Total reserve bank credit rose by $5.6 billion.

The Fed reports that M2 money supply rose $51.2 billion in the latest week.


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Economic Statistics for 7 May 14

The MBA reports that mortgage applications rose 5.3% last week. Purchases rose 9.0% and re-fis 2.0%.

Gallup’s Job Creation Index rose 2 points to 25 in April.

Non-farm productivity fell a sharp -1.7% annualized in the 1st Quarter of 2014 while unit labor costs rose 4.2%. Weather distortions are being blamed. On a year-over-year basis, productivity is up 1.4%.

The JP Morgan Global Composite PMI fell -0.7 points to 52.8 in April. The Global Services PMI fell -0.8 points to 52.7.

Consumer credit expanded by a sharp $17.5 billion in March, but it’s mainly in non-revolving credit.


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Slowly killing the Golden Goose

You all know the nursery story about the Golden Goose.  Well, as we head into “Recovery Summer V” with no real recovery in sight, subject to false unemployment numbers and pitiful quarterly GDP earnings, it might be useful to look at something else that is likely a factor in all of this:

Business dynamism is the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over. Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation.

And all of that is a function of what?

That evil thing called “capitalism”.  Yup, evil capitalism encourages entrepreneurship and through that cycle, we see the market at work – creating profit, which creates jobs, which expands businesses and creates more of them and more jobs and more wealth and … etc., etc., etc.  It is that repeating cycle that has, at least till recently, gotten us where we are in terms of wealth and power as a nation.

Not government.  Government is a net leech.  It sucks the blood out of productivity in the form of taxes.  But government also plays another role – as a regulator. Most look at that as a necessary evil.  But most governments always go overboard with their regulatory regimes and end up making it harder and harder for entrepreneurs  to do what they do best.  The Brookings institute has taken a look at this and found that over the past few decades, the entreprenurerial role has declined and, as a result, we have, for the first time, seen more businesses exiting the economy than entering it:

Now Brookings tries to stay claim this can be reversed, even though it is such a widespread trend it should alarm us all.

In fact, we show that dynamism has declined in all fifty states and in all but a handful of the more than three hundred and sixty U.S. metropolitan areas during the last three decades. Moreover, the performance of business dynamism across the states and metros has become increasingly similar over time. In other words, the national decline in business dynamism has been a widely shared experience.

While the reasons explaining this decline are still unknown, if it persists, it implies a continuation of slow growth for the indefinite future, unless for equally unknown reasons or by virtue of entrepreneurship enhancing policies (such as liberalized entry of high-skilled immigrants), these trends are reversed.

Note the oblique way Brookings points to government, but nevertheless identifies the problem.  The phrase is “entrepreneurship enhancing policies”.  And what would that look like?  Well Brookings thinks liberalizing entry of high-skilled immigrants might to the trick.  I, on the other hand, think a thorough review of the regulatory regime and revocation of all unnecessary regulations along with those found to punish or hinder entrepreneurship would have a much speedier and positive effect than the Brookings suggestion.

Certainly, we know why there was a precipitous drop in 2008, but again, what has the government, in terms of policy, done to ease the situation?  Nada.  Nothing.  Except play a little crony capitalism (i.e. pick winners and losers) in the green energy game.  And, of course, most of their “winners” have gone belly up.

As a consequence of this refusal to consider steps concerning rolling back regulations (and, instead heaping even more on the books), we see the trend get worse on both the entry and exit levels.

Entrepreneurship IS the “Golden Goose” of capitalism.  One of the big reasons our economy continues to lag badly can be found in the chart above.  And what has this administration done in 5 plus years to address this problem?  Well, to be honest, it’s done more to exacerbate it that help it. Thus the Golden Goose on life support.

All hands prepare for “Recovery Summer VI”.  And VII.  And VIII …

~McQ

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