January Does Implementation of the Death Penalty lead to higher costs February Less Competition and Higher Hospital Costs March Millionaires Who Get Subsidies from the Affordable Care Act April The Unintended Obama Legacy May The NY Times and $15 Minimum Wage
Blog Topics 2014 blog topics for 2013 are at page bottom
January Will Lake Meade become another Aral Sea February Does Taxing the rich hurt the economy March The Cause of the Great Depression April Temporary Agricultural Subsidies lead to wealthy Farmers and Higher Prices May The Presidents Stance on Gun Control leads to Increased Gun Ownership June Is there really a Gender Pay Gap July Did the Supreme Court decision in Roe v. Wade lower the crime rate August Department of Education and wasted Money October The Financial Follies of the EPA November Social Security and Portfolio Diversification December The White House and Terrorism
September Job's Report 10-2-2015 The job's report for September was a huge disappointment. Only 142,000 jobs were created in September when over 200,000 were expected. In addition, the August job's report for August was revised downwards to 136,000 from 173,000. The unemployment rate remained constant at 5.1%(U-3) and the Real unemployment rate is 10% (U-6), The real unemployment rate includes marginally attached workers and part-time (temporary) workers as unemployed. The Labor Force participation rate was a dismal 62.4%, which makes more than 45 months where it has been below 64%. The people who reported they are not in the labor force increased by 579,000. The participation rate refers to the number of people who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate. This does not include Marginally attached workers who have not looked for a job in more than 4 weeks. There are currently 1.9 marginally attached workers of which there were 635,000 discouraged workers (those who have given up looking for a job). Unemployment rates were highest amongst teenagers (no education or experience) at 16.3%; for ethnic groups it was highest amongst blacks and Hispanics, 9.2 and 6.4% respectively (low education rates <10% with a BA) and lowest amongst Asians, 3.6% (more than 50% have a BA). The average workweek for all employees was 34.5 hours and 40.6 for manufacturing workers, down .2 hours. I find this somewhat disconcerting since durable goods are the 1st to suffer during a recession. Lastly, average hourly earnings for all employees on private nonfarm payrolls, at $25.09, changed little (-1 cent), following a 9-cent gain in in August. Hourly earnings have risen by 2.2 percent over the year.
For the first time in 7 weeks, the Dow finished above 17,000, compliments of the FED and a late day rally. The Dow advanced 138 points to finish at 17051. The Dow started out on an uncertain note as the heir apparent for the Speaker of the House, Kevin McCarthy, stated that he would no longer seek the position. This led to uncertainty and a shaky Dow until the cavalry, in the form of FED minutes from the last FOMC meeting, was seen charging over the hill. The Fed minutes, in which the central bank said it was still worried about low inflation readings, was the impetus as the odds for an interest rate hike this year shrank some more. This all but nullified a rate hike during the October meeting and made the chance of a December rate hike doubtful. Chinese stocks jumped 3% Thursday after markets reopened following a week-long holiday. The "rally is partly driven by the positive economic data released over the break, such as a slightly better than expected official manufacturing" index. Also contributing to the markets rally was the price of oil that finished just shy of $50. The declining US rig count in addition to Russian unrest contributed the rise. The new military involvement by Russia in Syria could force OPEC's largest oil member to finally capitulate on production cuts, energy entrepreneur Boone Pickens said Thursday. Such a move could rescue battered crude prices, which have lost half their value in the past year. There is also concern that the bombing of Syrian militants by Russia could lead to more unrest in the region which would put upward pressure on oil.
After rising to nearly $50/barrel, oil finished the day at $47.81 after crude inventories rose by 3.1 million barrels when only a 2.2 million build was expected. A rally between Friday and Tuesday had bumped up Brent and U.S. crude by about $4 each, as oil broke out of a month-long trading range on technical buying and supportive data. The oil market has been relatively benign as there have been no hurricanes that have shot American oil installations and Iranian oil is about to hit the market after sanctions are lifted. However, there are some commodity analysts, most notably, Dennis Gartman, who are very bullish on oil. "Gartman points out in his daily newsletter that OPEC has increased its production in August, which has caused the WTI/Brent spread to narrow. And if U.S. production continues to fall and OPEC production continues to increase, it is entirely possible to see Brent/WTI narrow to parity. He also pointed to rig counts, which have fallen the last six weeks and, he believes, will continue to fall further."(CNBC). As oil went, so did the stock market, initially. After being up 175 points, the Dow sank, after the oil report, to only plus 15, but finished the day up 122 points to end at 16,912. What has taken much of the volatility out of the market is the fact that the Chinese market has been closed all week for a holiday. Another possible market-moving event occurs Thursday, when the Federal Reserve releases the minutes of its September meeting, when it opted not to hike short-term interest rates for the first time in nearly a decade. Stocks, of course, have been hurt by uncertainty surrounding the start of rate hikes. Gas is remaining relatively stable with a national average of $2.30/gallon and gold is trading at $1145/oz
Dow 5 day
In the past 3 days, the Dow has gained 500 points and is currently at 16,790. Friday was a roller coast where it dropped more than 250 points at the open because of a disappointing jobs report (see above). However, bad news soon became good news since investors realized that given the disappointing jobs report, not to mention the previous month's lower revision, the FED may not raise rates until next year. On Friday, investors also focused on some other positives such as the weakening dollar (currently $1.14=1 Euro down from $1.05 = 1 Euro), and earnings of U.S. multinationals. What is also helping the market is the price of oil which is up to over $48/barrel. This could be a sign of healthy demand worldwide which can signal a stabilizing economy. Monday was a continuation of Friday and the market advanced another 300 points on statements from a number of analysts that interest rate hikes could wait until next year. The market took a breather today and advanced only 14 points which was down from a high of plus 90 (think profit taking). Traders have also gotten a reprieve from China, where markets have been closed this week for a holiday, which has reduced market volatility in Asia. Some Wall Street pros believe a year-end rally has begun, while others remain cautious and argue that it's still too early to conclude the worst of the recent market volatility is over; HOWEVER, I think Santa is still a ways off and I remain skeptical particularly with earnings season around the corner which will be Wall street's next challenge which begins this Thursday. Earlier Tuesday, snack and soft drink giant Pepsico (PEP) gave the market a lift when it topped earnings and revenue targets and also lifted its outlook for the rest of the year. Pepsico shares were up about 2% in early trading.
After tanking over 300 points on Monday to finish at 16,012, the Dow is up 50 points in pre-market trading. Stock markets around the world followed the DOW and all were down except for India which was up due to a central bank rate cut. World wide markets continued to be worried from everything to slowing growth in China and the resulting wreckage in the commodity space to questions about the timing of the Federal Reserve's first interest rate hike in nearly a decade and signs that overpriced assets boosted by cheap money from the Fed in recent years are in full-fledged price corrections. This was magnified yesterday by stock icon, Carl Icahn, stating that he has the biggest short position he has ever had in the market. What will move the market for the rest of the week is today's release of the Case Schiller Index on house, the jobs number for September which will be released on Friday and how the Dow reacts if it should hit its August lows of 15,500. If it bounce off that it is a good sign and it will establish support at that level. If it doesn't, hang on to your cookies we'll be going for a ride. The housing market has been holding its own and that combined with low energy prices have, so far, been staving off a recession; but with the advent of increased rates that may slow. You may see some movement in energy prices, particularly oil, since Congress is primed to repeal the Jones Act and allow companies to sell oil abroad. Oil is currently at $44.91/barrel, gold is also steady at $1126/oz and the average price of a gallon of gas is up slightly to $2.28/gallon.
Dow 1 Year
After being up 283 points in the past two days, the Dow is taking a breather, and shortly after the market open, it is down 31 points at 16,253. After trading in a range for 7 months, the Dow broke to a downside and the question plaguing everyone is what does the Dow need to find a bottom. In a nutshell, it is the absence of uncertainty, and Bob Pisani, CNBC, came up with the following list after interviewing a number of traders and specialists on the floor of the Dow. First is clarity on when the FED will raise rates. At this time I believe the market will react positive to a .25 rate hike since the waiting will finally be over. Next would be China and it's growth stability are essential. At 12 trillion dollars, China is the 2nd largest economy in the world and a massive importer and exporter of goods and services. Stabilization of oil prices would be helpful and this could be happening in the $45-50/barrel range. Oil is currently trading close to $47/barrel. We next need continued job growth, so therefore, tomorrows job report for September is critical; and lastly a stable dollar, remember, a weak dollar is good for Wall St but bad for main street. Currently the dollar has strengthened against most currencies which makes US goods more expensive to foreign markets. This is compounded by the fact that the Eurozone is currently experiencing negative inflation (deflation) which is indicative of a looming recession. Currently, Russia and Brazil are in recessions, and Japan, the world's 3rd largest economy, is tettering on the brink. Gold is trading at $1116/oz and the price of a gallon of regular gas is stable at $2.29/gallon
At 16,315, the Dow was up 113 points Friday but that was down from its high of 16465, up 263. The market was buoyed by Janet Yellen's remarks that there would be probably be a rate hike by the end of the year which eliminated some of the uncertainty from the market. The selloff at day's end were due to a downturn in Biotechs. Also adding some uncertainty was the surprise resignation of House Speaker John Boehner and the looming threat of a government shutdown. Republicans are concentrating on the funding for planned parenthood. Can someone please advise House Republican's that 70% of all abortions in the US are to women in the lower socio-economic class. It is much cheaper for an abortion or birth control pills than it is to have another child on welfare rolls. Important for markets, too, will be economic reports, especially the jobs data, expected to show creation of 203,000 jobs, up from 173,000 last month. If the job numbers exceeds expectations, this will add to the possibility of a rate increase. According to Phillips Curve theory, a low unemployment rate can be a cause of inflation (think more people are working and spending money) Other data in the coming week includes personal consumption data Monday, with the PCE, the Fed's preferred measure of inflation. ISM manufacturing data and vehicle sales are Thursday.
The DOW was down 77 points today but it could have been a lot worse since it recovered from a more than 250 point midday loss. The World's largest maker of mining equipment, Caterpillar, announced that it would be laying off 5000 employees. This is not a big surprise since all mining stocks have been depressed from gold, copper & oil to coal. The hardest hit has been coal since electricity generation by coal has dropped from 50% to 38%. This is a result of the Obama Administration giving the EPA free reign to close coal fired plants (100 plus and counting). This has resulted in 20,000 jobs lost (about 200/plant) and 80,000 lost jobs in the coal mining industry. Also contributing to the DOW's loss (4 out of the past 5 sessions), is the VW scandal. This may not seem like much, but when you consider VW sales account for over 1% of Germany's GDP, it is not surprising, especially since there will most like be a multiplier and ripple effect. VW stock has lost approximately 50% of it's value. This is further compounded by persistent worries over interest rates and China's economic slowdown. China has lowered its growth target to 6.5% from 7%. Heading into Thursday's trading session the Dow was deep in correction territory, down 11.1% from its May 19 record high. The S&P 500 and Nasdaq, both off around 9% from their recent peaks, are also in danger of falling back into correction mode. Federal Reserve Chair Janet Yellen told economists gathered Thursday that the conditions she sees now would allow the U.S. central bank to boost short-term interest rates this year. I can't help but think this is a terribly bad idea. Inflation is not a problem, we're moving towards a bear market in stocks. Also, durable goods orders, a leading economic indicator, was down in August by 2% Think negative wealth effect which leads to lower consumption which is 2/3's of GDP and you have the making of a recession; and lets not forget the anti-business Administration which has raised taxes and increased regulation. At this point, I am predicting a mild recession or at the very least, growth more anemic than it is now (<2%).
With all the talk of interest rate hikes, I've received a number of e-mails concerning an explanation of what interest rates are relevant to us as consumers. The Federal Funds Rate This is the interest rate that is followed most closely and affects all other short term interest rates. It is the rate that one bank charges another bank on an overnight loan and has a direct effect on the prime rate. The current rate is .25%. Prime Rate This is the rate that the larger banks charge their best customers on short term loans (under 3 months). Once the federal funds rate is changed, the prime rate is changed by, usually, the largest bank, JP Morgan-Chase, and all other banks follow. The prime rate is generally 3% higher than the Federal Funds rate. The current prime rate is 3.25%. This affects all other short term loans: HELOC's (Home Equity Line Of Credit), boat loans, car loans, etc. What it does not affect directly is the mortgage rate.
Yield on the 10 Year Government Bond The government finances it's deficit by borrowing money and it does this by issuing bonds that have a maturity value anywhere from 30 days to 30 years. Technically, Treasury bills are issued for terms less than a year.Treasury notes are issued in terms of 2, 3, 5, and 10 years and Treasury bonds are issued in terms of 30 years. The price of a bond is inversely related to its yield and the mortgage rate is usually 2-3% higher than the 10 year yield.
California Drought California is in the middle of a drought; it must be global warming or now the more politically correct term (spare me), climate change. In case you haven't noticed, the climate is always changing. It is in a constant state of flux. If you notice the chart below right, California has had a number of mega-droughts during the medieval ages and this was considerably worse than it is now. Oh yea, and probably the father of these current climate alarmists were predicting an ice age in the 1960's (click on pictures below).
Obamacare Revised Costs
More on Obamacare In a recent survey by the New York FED on businesses, the median increase in healthcare premiums is expected to be 10%. More than a quarter of the manufacturing and service firms surveyed said they either have or will boost prices for goods and services "because of the effects that the ACA is having on your business." About 20 percent of respondents said they were reducing their number of workers and/or raising the share of part-time workers as a result of the ACA. His is in stark contrast to the presidents remarks earlier this year that healthcare costs are decreasing. Maybe CEO's were right when they said the president "Just doesn't get it".
Commentary on Minimum Wage
There is currently a debate in the state of NH on whether to increase the minimum wage to 8.25 from 7.25. The main argument is that it will help to alleviate poverty. That is clearly not the case. As you can see from the chart at the left, the poverty rate dropped dramatically in the 1960's. This was a function of great society legislation; specifically, increase in Social Security benefits in addition to the inception and implementation of Medicare and Medicaid. Since then, the poverty rate has fluctuated between 9-15% and is highly correlated with the unemployment rate. The vertical grey area's in the graph represent periods of recessions in the US. As can be expected, unemployment rises during recessions and peaks at the end (unemployment is said to be a lagging indicator). As you can also see from the chart, so too does the poverty rate. There is no indication whatsoever that the poverty rate is affected by increases in the minimum wage. Generally, this is quite the contrary. As can be evidenced from the below left chart, increases in minimum wage can contribute to unemployment and as we can infer from the above chart, as unemployment increases so to does poverty. If you look at NH, they have the lowest state poverty rate in the nation and it generally parallels the national unemployment rate. By raising the minimum wage, you increase business costs. As a result; businesses either pass these costs onto the consumer (in which case inflation nullifies any wage increase), substitute capital for labor, or simply go out of business. If you look at the chart below right, UAW (United Auto Workers) membership has decreased in the late 1970's from 1.5 million to 350,000 in 2009. The reason for this is simple. Detroit isn't making fewer cars, they are making more, but they have made their assembly lines more robotic and have substituted capital for labor, which became cheaper in the long run. This can also happen to those fast food workers who want a $15 minimum wage. There is currently a machine on the market that can make 300 burgers/hour. In other words, capital can be substituted for labor. Someone please e-mail me and explain how someone is better off unemployed at $8.25/hour as opposed to being gainfully employed at $7.25/hour
You cannot legislate equality. If you want to decrease poverty, implement policies to insure that higher levels of education is available to all.
The Congressional Budget Office predicted this week that more than 2 million people will leave the labor force because of Obamacare. Specifically, more people will leave the labor force or reduce their hours, to stay under the cap for federal subsidies. If you are a family of 4, and household income is under, WAIT FOR IT, $94,000, you are eligible for a federal subsidy. The number of part time/temporary workers has already increased by 35% since Obamacare was passed in 2010; and yes it will get worse, wait until 2015 when it becomes mandatory for businesses.
For a good laugh on Obamacare, go to this web site and watch this video; http://www.youtube.com/watch?v=qpa-5JdCnmo. It shows the president on 36 different occasions stating that if you like your healthcare plan you can keep it. Obviously there are 1 of two explanations for this misunderstanding. He was ill advised on the 2700 page, 4500 provision Affordable Care Act, or he knew about it and lied. According to a study by Forbes magazine, the ACA will increase premiums to men under 27 by 77%, 40 year olds, 37% and 64 year olds by 37%.
When Obamacare was 1st released, The Congressional Budget Office predicted that it would cost $900 billion over 10 years. At the time, I made a prediction to my students that I estimate the final cost would be closer to $3 trillion. Three years later, the CBO has raised it's estimate to $1.6 trillion. At this rate, we are on pace to reach the $3 trillion mark. www.healthcare.gov, the official website to sign up for Obamacare had an original cost of $100 million. That cost is now up to $2.6 Trillion and rising. If the government can't manage the costs on a web site, and these costs have trippled since it opened on October 1, how can it possible manage a 2700 page, 4500 provision bill. The words of Nancy Pelosi (see above) are acting as a harbinger of doom: "We have to pass the bill, so we can find out what's in it."
BLOG Topics 2013
January Do Protected Seals lead to Depleted Fish Stocks February Prohibition: Profits to Cartels & Increased Violence for Americans March Increased Minimum Wage & Extended benefits lead to Higher Unemployment April Ethanol from corn & Agflation May Cash for Clunkers lead to Higher Used Car Prices & Wasted Tax Dollars June The Affordable Care Act; Anything but Affordable Part 1 July The Affordable Care Act; The poster Child for False Advertising August Detroit: Higher Taxes + Liberal Benefits = Bankruptcy September No Keystone Pipeline leads to more pollution October Global Warming! Or is it Global Cooling! November Poverty & Benefits December Does Affirmative Action lead to Reverse Discrimination?
The United States has amongst the lowest savings rate for all technological nations. The iOMe challenge is a nationwide competition between Colleges where teams submit a 10,000 page essay on how Americans can improve their savings rates. In addition, teams must produce an approximate 60 second video which complements the essay. If you click on the iOMe logo above, it will take you to Bentley University's 2012 video submission. The faculty adviser for the challenge is John Tommasi and is offered during his Fall EC 351 course, Contemporary Issues in Economics. I'm pleased to announce that on February 15, Bentley was declared the winner of the iOMe video portion of the contest. Congrats to the team members and great job!
EC 3900 Energy Economics
EC 3900, Energy Economics and International Markets, is a 3 credit, Short Term Program, that is offered during Spring semester. After 7 weeks of lecture, the class takes a 10 day educational/cultural tour to France where 80% of their electricity is produced by nuclear power. During the 10 day trip, students travel to, and tour various nuclear facilities Last year's class visited; Marsailles, Aix en Provance, Lyons, Brest and 4 days in Paris.
If there were ever words that can strike fear into the hearts of any man women or child, it's: "I'm from the Government and I'm here to help". On a monthly basis my blog, from an economic standpoint, will explore government laws, decisions and actions, which while well intentioned, had inadvertent results that were either disastrous, or made a bad situation worse. It wouldn't surprise me if you reached the conclusion that congress does two things well, nothing and overreact; and you may ask yourself, do Congressional members vote for what is best for the economy, or what will get them re-elected.