Recession Frequency Was Much Higher Pre-1990

There have been a lot of comparisons of the most recent recession to the Great Depression and to previous post-WWII recessions, for example see the Minneapolis Federal Reserve's website on The Recession and Recovery in Perspective.  While most comparisons have been between the length and severity of the 2007-2009 recession to previous individual recessions, what has received considerably less attention is the frequency of recessions over various periods of time.  That is, it's not only the length and severity of individual recessions that is important, but it's also important how frequently recessions occur over periods like 8, 10 and 12 year periods. 

The top chart above shows the frequency and duration of the 12 recessions since WWII, according to the NBER.  Using "inter-ocular least squares analysis" (i.e. "eyeballing" the data), it seems pretty clear that recessions were much more frequent in the: a) mid-1940s to early 1960s period, and b) early 1970s to early 1980s period, than in the post-1982 period.  Maybe one of the reasons the most recent recession seems particularly severe is that we "got spoiled" in the 25-year period between 1983 and 2007, when the economy was in recession only 6.3% of the time, compared to the previous 25-year period when the economy was in recession 23% of the time from 1958 to 1982. 

The next three charts show the percentage of months in recession over: a) rolling 8-year periods, b) rolling 10-year periods, and c) rolling 12-year periods.  Over the most recent 8-year period (July 2002 to June 2010), the economy has been in recession 20% of the time, down from 25% a year ago.  In contrast, the economy was in recession 20% or higher during 62% of the 8-years rolling periods between 1953 and 1989.  Similar patterns emerge for the 10-year and 12-year rolling periods: the economy was in recession much more frequently between the 1950s and 1990 compared to the post-1990 period, and we definitely got "spoiled" in the 1990s and 2000s, with long periods of time during which the economy was expanding, not contracting. 

For example, over 12-year periods, the economy was in recession for only 6.25% of the time for more than half of the 1990s and  half of the 2000s, representing the longest periods of ongoing economic expansion since WWII. So not only has the most recent recession been less severe than some of the previous recessions by certain measures like the maximum unemployment rate, but the recession frequency during the most recent 8-, 10- and 12-year periods has been much lower than the pre-1990 period.  

Bottom Line: It could be a lot worse, and in fact when it comes to the frequency of recessions, it was a lot worse in much of the 1950s, 1960s, 1970s and 1980s than recently in the 1990s and 2000s.

U-Haul Index: LeBron's Not the Only One Leaving

One-way rental rates for a 26-foot U-Haul truck on August 4, 2010:

Miami, FL to Cleveland, OH: $1,000
Cleveland, OH to Miami, FL: $1,457
Premium to leave Ohio: 45.7%

Orlando, FL to Cleveland, OH: $834
Cleveland, OH to Orlando, FL: $1,301
Premium to leave Ohio: 56%

Tampa, FL to Cleveland, OH: $917
Cleveland, OH to Tampa, FL: $,1379
Premium to leave Ohio: 50.4%

Assuming that one-way U-Haul rates are based on relative demand, there are lot more people and trucks leaving Ohio for Florida than vice-versa, resulting in large premiums to rent trucks going to Florida and large discounts for trucks going to Ohio. 

Section 342 of the Dodd-Frank Bill Will Impose Gender and Racial Quotas on the Financial Industry; Even Though the House Committee is 82% Male, and the Senate Committe is 96% Male, 100% White

Here's something that has great potential to ruin your day, from Diana Furchtgott-Roth:

"Section 342 of the Dodd-Frank financial regulation bill declares that race and gender employment ratios, if not quotas, must be observed by private financial institutions that do business with the government. In a major power grab, the new law inserts race and gender quotas into America's financial industry.

In addition to this bill's well-publicized plans to establish over a dozen new financial regulatory offices, Section 342 sets up at least 20 Offices of Minority and Women Inclusion. This has had no coverage by the news media and has large implications.

The Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks, the Board of Governors of the Fed, the National Credit Union Administration, the Comptroller of the Currency, the Securities and Exchange Commission, the new Consumer Financial Protection Bureau...all would get their own Office of Minority and Women Inclusion.

Each office would have its own director and staff to develop policies promoting equal employment opportunities and racial, ethnic, and gender diversity of not just the agency's workforce, but also the workforces of its contractors and sub-contractors.

What would be the mission of this new corps of Federal monitors? The Dodd-Frank bill sets it forth succinctly and simply - all too simply. The mission, it says, is to assure "to the maximum extent possible the fair inclusion" of women and minorities, individually and through businesses they own, in the activities of the agencies, including contracting.

Lest there be any narrow interpretation of Congress's intent, either by agencies or eventually by the courts, the bill specifies that the "fair" employment test shall apply to "financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants and providers of legal services." That last would appear to rope in law firms working for financial entities.

This latest attempt by Congress to dictate what "fair" employment means is likely to encourage administrators and managers, in government and in the private sector, to hire women and minorities for the sake of appearances, even if some new hires are less qualified than other applicants. The result is likely to be redundant hiring and a wasteful expansion of payroll overhead.

With the new financial regulation law, the federal government is moving from outlawing discrimination to setting up a system of quotas. Ultimately, the only way that financial firms doing business with the government would be able to comply with the law is by showing that a certain percentage of their workforce is female or minority.

The new Offices of Women and Minorities represent a major change in employment law by imposing gender and racial quotas on the financial industry. The issue deserves careful debate - rather than a few pages slipped into the financial regulation bill."

MP: As Thomas Sowell reminds us: If there is ever a contest to pick which word has done the most damage to people's thinking, and to actions to carry out that thinking, my nomination would be the word "fair."

Update: Gender composition of The House Committee on Financial Services, chaired by Barney Frank: 

Male: 81.7%
Female: 18.3% (only 13 female members out of 71)

Gender composition of the Senate Committee on Banking, Housing and Urban Affairs:

Male: 96% (all white)
Female: 4% (only one white female member out of 23)
Minorities: 0%

Markets in Everything: Dollars for Domains

The chart above shows the top ten highest reported domain sales in 2010, see the full list of the top 100 here. 


Here's a recent CNBC segment about the market for domain names:

Canada Recovers Almost All Jobs Lost in Recession

Statistics Canada -- "Employment rose by 93,000 in June, pushing the unemployment rate down 0.2 percentage points to 7.9%. This is the first time the rate has been below the 8% mark since January 2009.  Employment has been on an upward trend since July 2009, increasing by 403,000 (+2.4%). These gains offset nearly all the employment losses observed during the labour market downturn which began in the fall of 2008. The June unemployment rate, however, remained well above the October 2008 rate of 6.2%, due to a large increase in the number of people in the labour force over this period."

Chart of the Day: Real Gold Prices

Adjusted for inflation, the price of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce (in 2010 dollars). 

Chart of the Day: Net Interest Margin

The net interest margin for all U.S. banks of 3.82% in the first quarter of 2009 is the highest since the fourth quarter of 2002. 

Warren Buffett's Favorite Economic Indicator: Rail

In this CNBC interview, Warren Buffett was asked to identify the single most important economic statistic he would choose if he was stranded on a desert island for a month and could only get one set of economic numbers. Buffett reported that his favorite “desert island indicator” would be freight car loadings. 

The likely reason that Buffett is so fond of rail traffic as his “desert island indicator” is that it measures the amount of raw materials, inputs, and supplies moving around the country every week, and this should accurately predict the future direction of the overall economy. After all, the inputs transported by rail eventually get processed into inventory, final output, and goods for sale.

In that case, Buffett must be pretty pleased with yesterday's American Railroad Association’s (AAR’s) weekly report, which shows that rail traffic in the United States is booming.

Read more here at The Enterprise Blog.

OECD Leading Index Increases for 15th Month

Data released today from the OECD shows that its Composite Leading Indicator Index for 28 member OECD countries reached a 31-year high in May (see chart above, data here).  The OECD Composite Leading Indicators increased slightly in May to 103.7 from 103.6 in April, and reached the highest level in the index's history since March 1979.  The OECD Leading Index has now increased for 15 consecutive months, although the increase in May was the smallest monthly increase since the positive trend started in March of 2009. 

On an individual country basis, the May leading indexes were mixed, with about half of the countries registering slight decreases and the other half showing increases.  The United States leading index increased in May and reached the highest level since August 2007, and the major country groupings including the G7, NAFTA, and OECD Europe all increased in May.  Non-OECD countries were also mixed, with the indexes for Indonesia, Russia and South Africa increasing in May, and Brazil, China and India decreasing slightly. 

According to the OECD report, the "OECD composite leading indicators for May 2010 continue to point to an expansion but with stronger signals of a slowing pace of growth than in last month’s assessment."

Most of the Gender Pay Gap Disappears After Controlling for Marriage and Having Children

The Department of Labor recently released its annual study Highlights of Women’s Earnings in 2009 and opens the report with the following statement:

"In 2009, women who were full-time wage and salary workers had median weekly earnings of $657, or about 80 percent of the $819 median for their male counterparts. In 1979, the first year for which comparable earnings data are available, women earned about 62 percent as much as men. After a gradual rise in the 1980s and 1990s, the women's-to-men's earnings ratio peaked at 81 percent in 2005 and 2006."

MP: Doesn't the BLS' use of the term "male counterparts" (Webster definition: "one remarkably similar to another") imply an "apples to apples" comparison between male and females workers, as if all relevant explanatory factors have been controlled for, i.e. the ceteris paribus condition has been imposed?

In the chart above, BLS data show that marriage and having children affect male and female earnings differently, so that men and women workers can't really be considered "counterparts" in a statistical sense, and any unadjusted comparisons would be comparing apples to oranges.  For example, single women earn about 95% of what men earn, but married women earn 75.6% of what married men earn (from Table 1), and married women with children between the ages of 6-17 earn 70.25% of their male "counterparts" (Table 8).  Also from Table 8, for the marital status that includes "never married, divorced, separated and widowed," and with "no children under 18 years old," women in that group make 96.3% of their "male counterparts." 

According to the BLS report, marriage and motherhood can explain a large portion of the gender pay gap.  

LeBronomics: $12m in NY Taxes vs. $0 in Florida?

Business and Media Institute - "While sports reporters have sought agents and teammates for the inside scoop on where NBA superstar free agent LeBron James will sign, there’s another person who may know The King’s next move: his accountant."

Based on a $96 million, five-year contract, here's an estimate of what LeBron James would pay in state income taxes:

New York: $12.34 million

New Jersey: $10.32 million

Ohio: $5.69 million

Florida: $0.00

Update: It's actually a little more complicated, and here's a more thorough tax analysis by Aaron Merchak of The Tax Foundation, concluding that "Even though LeBron's salary would be $10,000 more per game if he stayed in Cleveland, he would be paying $12,500 more in taxes. The rest of the road games are pretty much a wash between the two cities. When playing in California, New York and other destinations, players from Ohio and Florida pay the same, the tax rate of the state they're visiting."

Weekly Rail Traffic Tops Same Weeks in 2008 and 2009; Highest Rail Traffic for Week 42 Since 2007

"The Association of American Railroads today reported that rail traffic for the week ending July 3, 2010 topped comparison weeks from both 2008 and 2009. Carloads were up 18.8 percent, at 286,777 cars, from the comparable week in 2009 (see chart above) and up 0.4 percent from the same week in 2008.

Intermodal traffic totaled 231,286 trailers and containers, the highest since week 42 of 2008. Volume was up 36.6 percent from a year ago (see chart above) and 19.1 percent from 2008. Container volume of 197,134 was the sixth highest week ever and the highest since week 39 of 2007. Compared with the same week in 2009, container volume gained 39.8 percent and trailer volume rose 20.9 percent. Compared with the same week in 2008, container volume increased 30.8 percent and trailer volume fell 21.3 percent."

MP: As the chart above illustrates, rail traffic has been improving all year, with positive gains in weekly traffic compared to 2009 in almost every week of 2010.  However, this week marks the first time that both carload volume and intermodal traffic were above the comparable weeks in both 2008 and 2009, bringing traffic for Week 42 to the highest levels since 2007.

IMF Forecasts Continuing Global Recovery in 2010

The IMF has updated its forecast for global GDP growth in 2010 and 2011 (see chart above, click to enlarge).  Compared to its April forecast, the IMF has made upward revisions to almost all of its forecasts for real output growth in 2010 (the only exceptions being downward revisions of -.01% for U.K. and France): world GDP growth for 2010 has been revised upward to 4.6%, which will be the highest annual growth rate since 2007, and far above the 3.2% average growth since 1980.  The upward revision of .40% for world GDP translates into an additional $220 billion of output that will be produced this year compared to the IMF's April forecast.   

China (10.5%, revised upward by .5%), India (9.4%, revised up by .6%) and Brazil (7.1%, revised up by 1.6%) are expected to lead the world in real output growth this year.  Real GDP growth in the U.S. was revised up by .20% to 3.3% for 2010, and revised up by .30% to 2.9% for 2011.

Basic Econ: To Stimulate One Group, You HAVE to De-Stimulate Some Other Group, Net Effect = 0

Art Laffer in today's WSJ "Unemployment Benefits Aren't Stimulus":

"When it comes to higher unemployment benefits or any other stimulus spending, the resources given to the unemployed have to be taken from someone else. There isn't a "tooth fairy.” The government doesn't create resources, it redistributes them. For everyone who is given something there is someone who has that something taken away.

While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.

To see this, imagine an economy that produces 100 apples. If 10 of those apples are given to the unemployed, then people who otherwise would have had those 10 apples now won't. The stimulus of 10 apples for the unemployed is exactly offset by the destimulus of 10 apples for those people from whom the 10 apples were taken.

Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial "toll for the troll." These massive inefficiencies could lead to lower output.

To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may "buy" more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will "buy" less. There is no stimulus for the economy.

But it doesn't stop there. While the income effects sum to zero, the substitution effects aggregate. The person from whom the unemployment funds are taken will find work less rewarding and will work less. The person who is given the unemployment benefits will also find work relatively less rewarding and will therefore work less. Both people in this two-person economy will be incentivized to work less. There will be less work and more unemployment.

Not only will increased unemployment benefits not stimulate the economy, they will at the same time lower the incentives for people to work by reducing the amount people are paid for working and increasing the amount people are paid for not working. It's pretty basic economics."

White Castle Has Offered Health Insurance To Its Workers Since 1924, But Obamacare May End That

White Castle has been offering health insurance to its workers in 1924, but Obamacare "will make it hard for the company to maintain its 421 restaurants, let alone create new jobs," says company spokesman Jamie Richardson in this Cleveland Plain Dealer article.

"The Columbus-based family owned restaurant chain - known for serving small square hamburgers called "sliders" – says a single provision in the bill will eat up roughly 55 percent of its yearly net income after 2014. Starting that year, the bill levies a $3,000-per-employee penalty on companies whose workers pay more than 9.5 percent of household income in premiums for company-provided insurance.  White Castle, which currently provides insurance to all of its full-time workers and picks up 70 to 89 percent of their premium costs, believes it will likely end up paying those penalties.

House Republican Leader John Boehner of Ohio, a vocal foe of the changes, says White Castle's analysis shows how the law's "job-crushing" impact will be most severe in lower-income areas, where jobs like those at White Castle are most needed. "The irony is that in the name of expanding health care coverage, the administration is making it harder than ever for unskilled workers to get started in the workforce," Boehner said in a missive on White Castle's plight.

White Castle is also examining whether it would make financial sense for the company to eliminate health insurance coverage altogether and have all its employees buy insurance on the federal exchange, says Richardson."

HT: Steve Bartin

Tierney Wins The Peak Oil Bet

In August of 2005, Houston banking executive Matthew Simmons (one of the world's "leading experts" on the topic of peak oil, although not very good at predicting oil prices) and New York Times columnist John Tierney each put up $5,000 and made a bet about the price of oil in 2010. 

The wager was based on the price of oil in 2010, specifically on the average daily price for the entire year, adjusted for inflation into 2005 dollars. If the inflation-adjusted oil price this year is $200 or more per barrel, Mr. Simmons wins $10,000 plus interest, and if the average price this year is less than $200, Tierney wins the bet.   

The bet was made public in Tierney's New York Times column on August 23, 2005 called "The $10,000.00 Question."  Economist Julian Simon's widow put up $2,500 towards Tierney's $5,000 obligation, to honor the tradition of her husband's famous wager with Paul Ehrlich. 

The chart above shows monthly oil prices in 2010 (converted to 2005 dollars), including monthly projections through the end of the year, from the Energy Information Administration.  Now that we're halfway through 2010, it looks pretty certain that average oil prices this year won't even be anywhere close to $100, and will probably average less than $70, far below the $200 price predicted by Simmons.  Unless oil somehow averages more than $330 per barrel for the rest of the year, I think it's pretty safe to assume that Tierney has won the "peak oil bet." 

ASA Staffing Index Level Above Last Year by 26%

American Staffing Association - "During the week of June 21–27, 2010, temporary and contract employment increased 0.05%, maintaining the index at a value of 91.  At a current index value of 91, U.S. staffing employment is 32% higher than the level reported for the first week of the current year and is 26% higher than the same weekly period in 2009 (see top chart above)."

MP: The ASA index level of 91 for temporary and contract employment activity in the fourth week of June is the second week in a row at that level, which is the highest reading in 86 weeks ( since late October 2008, see chart above).   The 26% gain in the index marks the tenth consecutive week of an annual gain above 20% compared to the same week last year, and is also the nineteenth straight week of double-digit gains for temporary employment (starting in mid-February).

The ongoing increases in temporary hiring, measured by both the ASA Staffing Index and the BLS temporary employment levels (nine straight monthly increases that have added almost 400,000 jobs since last September), provides evidence that the demand for temporary and contract employment continues to strengthen, which should hopefully translate into more broad-based, permanent job creation in the second half of this year. 

Down With Gloom and Doom

From Matt Ridley's article "Down with Doom: How the World Keeps Defying the Predictions of Pessimists":

"When I was a student, in the 1970s, the world was coming to an end. The adults told me so. They said the population explosion was unstoppable, mass famine was imminent, a cancer epidemic caused by chemicals in the environment was beginning, the Sahara desert was advancing by a mile a year, the ice age was retuning, oil was running out, air pollution was choking us and nuclear winter would finish us off. There did not seem to be much point in planning for the future.

By the time I was 21 years old I realized that nobody had ever said anything optimistic to me - in a lecture, a television program or even a conversation in a bar - about the future of the planet and its people, at least not that I could recall. Doom was certain.

The next two decades were just as bad: acid rain was going to devastate forests, the loss of the ozone layer was going to fry us, gender-bending chemicals were going to decimate sperm counts, swine flu, bird flu and Ebola virus were going to wipe us all out. In 1992, the United Nations Earth Summit in Rio de Janeiro opened its agenda for the twenty-first century with the words `Humanity stands at a defining moment in history. We are confronted with a perpetuation of disparities between and within nations, a worsening of poverty, hunger, ill health and illiteracy, and the continuing deterioration of the ecosystems on which we depend for our well-being.'

By then I had begun to notice that this terrible future was not all that bad. In fact every single one of the dooms I had been threatened with had proved either false or exaggerated. The population explosion was slowing down, famine had largely been conquered, India was exporting food, cancer rates were falling not rising, the Sahel was greening, the climate was warming, oil was abundant, air pollution was falling fast, nuclear disarmament was proceeding apace, forests were thriving, sperm counts had not fallen. And above all, prosperity and freedom were advancing at the expense of poverty and tyranny.

I began to pay attention and a few years ago I started to research a book on the subject. I was astounded by what I discovered. Global per capita income, corrected for inflation, had trebled in my lifetime, life expectancy had increased by one third, child mortality had fallen by two-thirds, the population growth rate had halved. More people had got out of poverty than in all of human history before. When I was born, 36% of Americans had air conditioning. Today 79% of Americans below the poverty line had air conditioning. The emissions of pollutants from a car were down by 98%. The time you had to work on the average wage to buy an hour of artificial light to read by was down from 8 seconds to half a second.

Not only are human beings wealthier, they are also healthier, wiser, happier, more tolerant, less violent, more equal. Check it out - the data are clear. Yet if anything the pessimists had only grown more certain, shrill and apocalyptic."

HT: Coyote Blog

Quotes of the Day: Consumer Sovereignty

1. “There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”

~Sam Walton


2. “It is not the employer who pays the wages. Employers only handle the money. It is the customer who pays the wages.”

~Henry Ford


3. "Consumers are the kings and queens of the market economy, and ultimately they reign supreme over corporations and their employees. In a market economy, it is consumers, not businesses, who ultimately make all of the decisions. When they vote in the marketplace with their dollars, consumers decide which products, businesses, and industries survive—and which ones fail. It is therefore consumers who indirectly but ultimately make the hiring and firing decisions, not corporations. After all, corporations can make no money, hire no people, and pay no taxes unless somebody, sooner or later, buys their products." 

~Mark Perry

Markets in Everything: No-Cash Restaurants

NEW YORK -- At the Greenwich Village restaurant Commerce, cash is off the menu.  In the latest encroachment of credit and debit cards onto the greenback's turf, the high-end New York City restaurant said goodbye to dollars and cents this week. The message to diners: Tip in cash if you wish, but otherwise, your money is no good here.  New York magazine ridiculed the restaurant, saying it should rename itself "e-Commerce."

HT: E. Frank Stephenson