12/13/03 How Can the PPI Fall, Wholesale Prices Fall, And Commodity Prices Rise?
That’s a darn good question for an early Saturday morning. Before we journey into a black hole, let’s get some light on the subject. In the month of November the Producer Price Index declined for the first time in six months. The explanation is simple. There are too many imported goods, and, when combined with excess manufacturing capacity and insufficient consumer demand, companies lack the ability to raise prices on a sustainable basis. A good example would be the auto industry. In November, passenger car prices had their biggest decline since April. Another example would be computers where prices have declined over 16% from year earlier levels. Until pricing power exists, there will be continued pressure on operating profit margins.
The government stated a major reason for wholesale prices dropping in November was the decline in car prices. That was a contributing factor, but energy prices declined 1.2%, the biggest drop since May. I wondered how that was possible. Gasoline dropped 4.8% and natural gas declined 1.1% in price. Today a barrel of crude oil is $33 and natural gas for January delivery surged 9% yesterday to $7.221 per thousand cubic feet on the New York Mercantile Exchange. It was the highest close since Feb. 28. With respect to natural gas, utilities sign long-term contracts for most of their winter fuel over the summer, and therefore, the consumer does not take such a blow from the recent price run-up. As for the price of gasoline, I have written in the past on the growing margins experienced within the industry. These margins can be reduced, and profits can still remain on firm footing. One more reason for the decline in wholesale prices was the decline in food prices, particularly for beef. Not too long ago I wrote about the beef industry, cattle supplies, and pricing for the industry. I mentioned that supplies would be increasing, that beef prices decline in the winter, and consumers should switch to chicken and turkey and still they would be able to get their protein punch.
Before we move to a broader discussion of commodities, I’d like to touch on the Bush administration’s failed “strong dollar policy.” Of course, we know it is a weak dollar policy. If it were the reverse, I would hope that the dollar would not be trading at an 11-year low against the pound, and that, since February 2002, the greenback would not have declined 30% versus the euro and 20% against the yen. The weaker dollar should promote our exports. It has. They increased 2.6% to about $88 billion in October, the highest level since March 2001. Farm exports were the highest in seven years, the exports for our American-made autos rose to the highest point since March 2000, and exports for capital goods increased to their highest level in two and one-quarter years. The falling dollar should make imports more expensive, and the big exception is China with its fixed yuan versus dollar peg. Our imports rose 2.1% in October to about $130 billion, with the deficit with China amounting to a record $13.6 billion. Taking out China, we still had a deficit for the month of $28.2 billion or about $318 billion on an annualized basis. The problem goes much deeper than just China, and that is what Greenspan was saying the other day. He is correct. We will continue to lose jobs to other countries. We will continue to have $400+ billion trade deficits. So far this year the dollar has fallen in value by about 14% against a market basket of major currencies since the beginning of 2003. The weak dollar policy is certainly not the answer. Our country must innovate and export value-priced products that the world wants to import. We cannot rely on Boeing to export planes in the face of increased competition. We cannot afford to wait 3 or 4 years for the 7E7. In addition, the consumer needs to focus on American-made products. If it means paying a bit more, then consider that a user tax that shall be offset by diminishing job losses and less dependency on foreign capital to fund our deficits. Let the Snowman set a bad example and buy his foreign-made toys for the holidays. He doesn’t know any better.
Since Thanksgiving, there has been a 46% rise in the price of natural gas. That makes the Dow and the Nasdaq look like they are standing still. The chemical, fertilizer, and ammonia industries depend on natural gas as a key ingredient for their products. Their profit margins are endangered. Greg Lebedev, president of the American Chemistry Council, stated “at the moment, the price of natural gas is serving as the single largest brake on the U.S. economy.” That may possibly be a small exaggeration, but he is understandably a bit uptight. Heating oil is on the rise too. It rose over 4 cents to almost 93 cents per gallon, gasoline futures increased over 3 cents to 90 cents a gallon, and I previously mentioned January crude oil futures spiking to $33 a barrel. The Reuters CRB index tracks 17 commodities. It is up about 22% since the end of 1999. During the same time the S&P 500 declined about 28%. Half the stocks in the S&P basic materials index have outperformed the S&P 500 this year. Gold gets most of the headlines, as it traded up to $410 per ounce, and it is the first time in 8 years it has been over the $400 level. Gold is up more than 60% from its low of about $255 an ounce in February 2001. Some of the commodities participating in rising prices have been copper, aluminum, steel, forest products, soybeans, and beef. The increased demand from China is often blamed for rising commodity prices. As with our trade deficit, China has been a large participant but other nations, taken as a whole, outweigh the China factor. Depending on your position in the commodity chain, as it were, can determine the point of view on rising commodity prices. We know beef ranchers have been hurting for years. Gold mining companies have waited many years for a rise in the price of gold. The same can be said for those in the silver industry. Commodity prices have been on a roller coaster ride for years. I remember not too long ago, in the late 1990s, hog prices were so low that producers would try to give the hogs away for nothing rather than incur the cost of shipping to auction and paying the auctioneer. The bottom line is many commodities have risen in price of late; however, the United States is mainly a service-oriented nation with less dependency on manufacturing and farming as a percentage of the GDP. As such, as long as there is slack capacity and slack demand, there is room for the Producer Price Index and for U.S. wholesale prices to decline. To offset the declining margins, companies shall continue with their cost-cutting measures. This means more layoffs.
Speaking of layoffs, the state of California Employment Development Department reported yesterday that 14,400 jobs were lost outside the farm sector in November. They also stated that 72,000 workers left the labor force. The November jobs count does not include employees who took part in the work stoppage affecting Southern California supermarket chains. Matters weren’t too bright in Chicago either. Mayor Daley explained “we’re moving people from permanent to seasonal. And also, the federal and state money has dried up. I just can’t them on the payroll. Simple as that.” He was explaining the layoff notices that went out this week to 270 employees in the city departments of Transportation and Water Management in the first wave of 600 firings.
A new poll in the January issue of MONEY magazine indicates that 58% of investors gave Bush’s economic policies fair-to-poor marks. The Managing Editor, Bob Safian, stated “it was surprising to us in particular that support for the President’s tax cuts was so weak, and that our subscribers don’t seem nearly as worried about federal tax relief as they do a whole host of other issues – from health care to education.” Almost all described their views as either moderate (52%) or conservative (38%). Their median household income is $98,000.
The median of 54 estimates in a Bloomberg News survey stated that economists had forecast a reading of 96 in the December Michigan Sentiment Index. In November the Index was 93.7, the highest in more than a year and a half. The economists were way off the mark as the Index fell to 89.6. I don’t place too much importance on this preliminary number because only 250 households are polled. I am mentioning it because, in my view, economists have misjudged the mindset of our consumers. Job losses have taken their toll. Income levels in the workplace have hardly budged, and that is true for hours worked and that includes overtime. With the sharp decline in the refinancing boom, consumers have limited places to turn. They are strapped. When home prices start to fall, then sentiment will truly turn downward. We must remember that the average American has a greater percentage of net worth in the home than in the stock market.
On a final note, I have been respectful of the wishes expressed by many to please not mention, on a daily basis, the death toll in Iraq. I have been careful in this regard. However, this week there have been several suicide bombings and other attacks. Sir Jeremy Greenstock, mentioned in a speech in London that “ the incidents are going to continue. Some of them will be large and, I am afraid, spectacular.” A total of 312 U.S. soldiers have been killed in action since U.S.-led forces invaded Iraq in March, and 197 of them have perished in guerrilla attacks since Bush declared the major combat over on May 1.
Friday, December 12, 2003
12/12/03 The War Over Homeland Economic Security
The headlines center on the Dow at 10,000. I do not want to minimize the Dow and the Nikkei closing above that level for the first time in I don’t remember when. I could look it up but there are more important matters to cover. Shots are being fired. The bleeding has begun. There will be casualties. This is not in Iraq. It is happening in Washington, DC and on Main Street. There is both a revolt and a revolution. I am not trying to get your attention. That’s strictly up to you.
Greenspan is taking on Bush. This will not be simply a war of words. The fighting is over the economic stability of the United States. We won’t be sending troops. It is a war Bush is destined to lose, and his presidency is at stake. That’s his problem. He created the problems. Greenspan has delivered many speeches on the dangers of protectionism, and has outlined the many downsides to that policy. Even when the EU clobbers his administration on illegal steel tariffs, and finally they are removed due to monetary threats, Bush does not listen. He needs to have it his way. Yesterday the U.S. Commerce Department launched an investigation that could lead to anti-dumping duties on more than $1 billion of wooden bedroom imports from China. We have had bras, textiles, TVs, and now wooden bedroom furniture. Of course, Bush waited until the Chinese Premier Wen Jiabao left the U.S. before raising this increased trade protection measure. Nixon broke into Watergate. Bush has created tradegate to win votes from the states housing the 27 U.S. bedroom furniture makers. The charge is that Chinese imports have been dumped in the U.S. at prices below fair value, and this has caused the closing of dozens of U.S. factories. As Greenspan would tell you, if they weren’t made in China, they’d be manufactured in another country with low-cost labor. This is the world economy. There will be casualties in this world economy, and protectionism will only hurt international trade and create a greater loss of jobs. As Greenspan remarked, “we can shut our part or all foreign competition, but we would pay a price for doing so—perhaps a rather large price.” Bush will lose this war.
With respect to the dollar and foreign currencies, Greenspan is taking on Bush. He stated that China might need to end its currency being pegged to the U.S. dollar. In order to prevent its economy from overheating, and not because the 8.3 ratio of the yuan to the greenback would lead to more U.S. jobs and exports. He remarked “a rise in the value of the renminbi (yuan) would be unlikely to have much, if any, effect on the aggregate employment in the United States.” Touching on employment, the FOMC stated today’s economy “would not entirely eliminate currently large margins of unemployed labor and other resources until perhaps the latter part of 2005 or even later.” Wall Street took this comment to mean that interest rates would remain low for at least the next year, and the Dow powered through 10,000. Actually, the Fed was describing the weakness in employment levels. They are reading the entire report issued by the U.S. Department of Labor, and not listening to the rhetoric from Bush on how many jobs have been created over the past few months. The Fed refers to the “substantial slack in ongoing resource utilization.” In English this means plants are running at 75% of capacity, and there isn’t enough business to warrant hiring more workers. The Labor Department describes it more starkly in yesterday’s unadjusted employment data. The real unemployment picture revealed by them stated “the advance number of actual initial claims under state programs, unadjusted, totaled 490,406 in the week ended December 6, an increase of 133,566 from the previous week…the advance adjusted insured unemployment rate was 2.7% during the ending Nov. 29, an increase of 0.4 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 3,429,500, an increase of 488,281 from the preceding week.” Greenspan understands the severity of the labor problem. Bush refers to seasonally adjusted initial claims, and that is simply data for headline news and reflect re-election rhetoric. It is a war of words that Bush will lose. Millions of Americans have lost jobs while Bush has been in the White House. The unadjusted number has grown by 133,566 in this last week alone.
Greenspan has hammered away on Bush’s excessive spending for months. Bush has refused to curtail spending. The Fed has maintained a 1% Fed funds rate, and during this period the consumer price index has remained at a muted level; however, the CPI does not include housing prices, and they have been anything but muted. The single business expense for most Americans is their mortgage payment or rent. House prices have risen for the greater part of 2003 and for all of 2002. At the same time, mortgage rates declined until June 2003. This decline spurred the refinancing boom and helped to explain the tremendous growth in the money supply. M3, for example, almost doubled since 1996. Over the past 2 years the reserve bank credit has grown at about a 10% rate. However, soon after the refinancing boom dropped off a cliff, the weekly money supply began to decline. It is not a coincidence that the growth in consumer credit also has slowed over the past three months. The latest U.S. M-2 money supply is $15 billion below the four-week moving average. There are less funds, less cash in our economy. Some economists will point to the price of gold at multi-year highs and various commodity indexes rising at a 20 or 30% rate, and that indicates to these economists that the Fed is creating more liquidity. The Fed is not buying gold or these commodities. They are entities that trade in many markets around the globe. China could be buying gold, for example, in European markets and the price is rising. That has not increased physical liquidity here. In sum, in the recent past the rate of our nation’s monetary base as well as its money supply was in an upward trend. Over the past three months, the quantitative money supply has been on the decline. The latter may have been created by the drop off in refinancing, consumer credit, foreign investment, Fed interventions, or any possible combination of those factors. The fact is a decline in the money supply will, over time, limit and possibly choke off economic growth, and certainly will offset Bush’s spending habit. This is a war Bush will lose.
The war on removing overtime pay is heating up. It is a war Bush will lose in voting booths. Doug Dority is President of the 1.4 million United Food and Commercial Workers International Union. Dority charged that the Bush overtime plan would be the “largest single pay cut for workers in history…I guess this is George W. Bush’s idea of fairness. Cuts for everybody. Tax cuts for the wealthy. Pay cuts for the workers.” The Bush plan would re-define the exempt occupational categories of “Executive,” “Administrative,” and “Professional” to exempt jobs such as a lead produce clerk in a supermarket or a hospital technician from overtime pay. Bush is banking on refund checks offsetting the furor over the loss of overtime pay. Tax refund checks will be mailed out in the early part of 2004. The tax cuts enacted in July were retroactive to January. As such, the government will refund the over-withheld tax money.
Refunds will clearly help but not everyone. In Contra Costa County, California the 2004-05 budget is projected to have a $23.6 million shortfall. As one school district committee member stated, “they’re going to close schools, that’s a given.” The last time West Contra Costa shuttered a campus was in 1990, and that was due to seismic safety concerns. It is no wonder that the nonpartisan Field Institute annual survey conducted for the Bay Area Council revealed that 38% of area residents feel things are going “somewhat badly” or “very badly” in the Bay Area. That compares to 26% who felt that way a year ago. The 38% is the largest segment of the respondents since the poll taken in 1993. Not surprisingly, the current survey indicated that 61% say the economy has worsened in the past year and 67% say unemployment has gotten worse. Yesterday the unemployment picture became bleaker in Berkeley. Bayer Healthcare AG stated its pharmaceutical division will reorganize its biotechnology research operations and cut 265 jobs, 190 of them at its Berkeley facility.
The headlines center on the Dow at 10,000. I do not want to minimize the Dow and the Nikkei closing above that level for the first time in I don’t remember when. I could look it up but there are more important matters to cover. Shots are being fired. The bleeding has begun. There will be casualties. This is not in Iraq. It is happening in Washington, DC and on Main Street. There is both a revolt and a revolution. I am not trying to get your attention. That’s strictly up to you.
Greenspan is taking on Bush. This will not be simply a war of words. The fighting is over the economic stability of the United States. We won’t be sending troops. It is a war Bush is destined to lose, and his presidency is at stake. That’s his problem. He created the problems. Greenspan has delivered many speeches on the dangers of protectionism, and has outlined the many downsides to that policy. Even when the EU clobbers his administration on illegal steel tariffs, and finally they are removed due to monetary threats, Bush does not listen. He needs to have it his way. Yesterday the U.S. Commerce Department launched an investigation that could lead to anti-dumping duties on more than $1 billion of wooden bedroom imports from China. We have had bras, textiles, TVs, and now wooden bedroom furniture. Of course, Bush waited until the Chinese Premier Wen Jiabao left the U.S. before raising this increased trade protection measure. Nixon broke into Watergate. Bush has created tradegate to win votes from the states housing the 27 U.S. bedroom furniture makers. The charge is that Chinese imports have been dumped in the U.S. at prices below fair value, and this has caused the closing of dozens of U.S. factories. As Greenspan would tell you, if they weren’t made in China, they’d be manufactured in another country with low-cost labor. This is the world economy. There will be casualties in this world economy, and protectionism will only hurt international trade and create a greater loss of jobs. As Greenspan remarked, “we can shut our part or all foreign competition, but we would pay a price for doing so—perhaps a rather large price.” Bush will lose this war.
With respect to the dollar and foreign currencies, Greenspan is taking on Bush. He stated that China might need to end its currency being pegged to the U.S. dollar. In order to prevent its economy from overheating, and not because the 8.3 ratio of the yuan to the greenback would lead to more U.S. jobs and exports. He remarked “a rise in the value of the renminbi (yuan) would be unlikely to have much, if any, effect on the aggregate employment in the United States.” Touching on employment, the FOMC stated today’s economy “would not entirely eliminate currently large margins of unemployed labor and other resources until perhaps the latter part of 2005 or even later.” Wall Street took this comment to mean that interest rates would remain low for at least the next year, and the Dow powered through 10,000. Actually, the Fed was describing the weakness in employment levels. They are reading the entire report issued by the U.S. Department of Labor, and not listening to the rhetoric from Bush on how many jobs have been created over the past few months. The Fed refers to the “substantial slack in ongoing resource utilization.” In English this means plants are running at 75% of capacity, and there isn’t enough business to warrant hiring more workers. The Labor Department describes it more starkly in yesterday’s unadjusted employment data. The real unemployment picture revealed by them stated “the advance number of actual initial claims under state programs, unadjusted, totaled 490,406 in the week ended December 6, an increase of 133,566 from the previous week…the advance adjusted insured unemployment rate was 2.7% during the ending Nov. 29, an increase of 0.4 percentage point from the prior week. The advance unadjusted number for persons claiming UI benefits in state programs totaled 3,429,500, an increase of 488,281 from the preceding week.” Greenspan understands the severity of the labor problem. Bush refers to seasonally adjusted initial claims, and that is simply data for headline news and reflect re-election rhetoric. It is a war of words that Bush will lose. Millions of Americans have lost jobs while Bush has been in the White House. The unadjusted number has grown by 133,566 in this last week alone.
Greenspan has hammered away on Bush’s excessive spending for months. Bush has refused to curtail spending. The Fed has maintained a 1% Fed funds rate, and during this period the consumer price index has remained at a muted level; however, the CPI does not include housing prices, and they have been anything but muted. The single business expense for most Americans is their mortgage payment or rent. House prices have risen for the greater part of 2003 and for all of 2002. At the same time, mortgage rates declined until June 2003. This decline spurred the refinancing boom and helped to explain the tremendous growth in the money supply. M3, for example, almost doubled since 1996. Over the past 2 years the reserve bank credit has grown at about a 10% rate. However, soon after the refinancing boom dropped off a cliff, the weekly money supply began to decline. It is not a coincidence that the growth in consumer credit also has slowed over the past three months. The latest U.S. M-2 money supply is $15 billion below the four-week moving average. There are less funds, less cash in our economy. Some economists will point to the price of gold at multi-year highs and various commodity indexes rising at a 20 or 30% rate, and that indicates to these economists that the Fed is creating more liquidity. The Fed is not buying gold or these commodities. They are entities that trade in many markets around the globe. China could be buying gold, for example, in European markets and the price is rising. That has not increased physical liquidity here. In sum, in the recent past the rate of our nation’s monetary base as well as its money supply was in an upward trend. Over the past three months, the quantitative money supply has been on the decline. The latter may have been created by the drop off in refinancing, consumer credit, foreign investment, Fed interventions, or any possible combination of those factors. The fact is a decline in the money supply will, over time, limit and possibly choke off economic growth, and certainly will offset Bush’s spending habit. This is a war Bush will lose.
The war on removing overtime pay is heating up. It is a war Bush will lose in voting booths. Doug Dority is President of the 1.4 million United Food and Commercial Workers International Union. Dority charged that the Bush overtime plan would be the “largest single pay cut for workers in history…I guess this is George W. Bush’s idea of fairness. Cuts for everybody. Tax cuts for the wealthy. Pay cuts for the workers.” The Bush plan would re-define the exempt occupational categories of “Executive,” “Administrative,” and “Professional” to exempt jobs such as a lead produce clerk in a supermarket or a hospital technician from overtime pay. Bush is banking on refund checks offsetting the furor over the loss of overtime pay. Tax refund checks will be mailed out in the early part of 2004. The tax cuts enacted in July were retroactive to January. As such, the government will refund the over-withheld tax money.
Refunds will clearly help but not everyone. In Contra Costa County, California the 2004-05 budget is projected to have a $23.6 million shortfall. As one school district committee member stated, “they’re going to close schools, that’s a given.” The last time West Contra Costa shuttered a campus was in 1990, and that was due to seismic safety concerns. It is no wonder that the nonpartisan Field Institute annual survey conducted for the Bay Area Council revealed that 38% of area residents feel things are going “somewhat badly” or “very badly” in the Bay Area. That compares to 26% who felt that way a year ago. The 38% is the largest segment of the respondents since the poll taken in 1993. Not surprisingly, the current survey indicated that 61% say the economy has worsened in the past year and 67% say unemployment has gotten worse. Yesterday the unemployment picture became bleaker in Berkeley. Bayer Healthcare AG stated its pharmaceutical division will reorganize its biotechnology research operations and cut 265 jobs, 190 of them at its Berkeley facility.
Thursday, December 11, 2003
12/11/03 Hire And Fire
In the beginning of November, without much publicity, Wells Fargo Home and Consumer Finance Group released an unspecified number of temporary and contract workers in Minnesota and other states “to reflect the pace of the market and our current application volume.” I did a little digging (no pun intended) and two weeks earlier another Twin Cities mortgage division of a local bank had let go all of its temporary workers, a dozen employees, and two contract loan underwriters in Minnesota and Michigan. In chats with other companies in the area, I discovered some firms stopped using temporary workers and even college students.
In talking with economists and industry leaders in the mortgage and home construction industries, I have come away with a lack of concern for this nation’s economic future. The general consensus is that housing and mortgage financing jobs will be cut but more people will be added in service sector jobs and, to a lesser extent, manufacturing. I think we should examine this lack of concern.
The housing industry is cyclical. This is nothing new. Over the decades it has been that way. We have just completed the largest up cycle since WW II. Mortgage rates fell to 45-year lows. Yesterday the Mortgage Bankers Association said mortgage requests fell to their lowest level since the week ending June 14, 2002. Home sales have continued at a brisk but somewhat slower pace, and most CEOs of home building companies expect a good year in 2004. With fixed rates moving higher, adjustable rate mortgages are in increased demand, and now comprise about 30% of applications, the highest level in four years. If short- term rates should move higher, the demand will slacken for adjustable rate and hybrid loan applications.
The broad “credit intermediary” job category, which includes the U.S. mortgage industry, lost about 10,000 jobs in October. I anticipate that number will be as least as large in November and December. I believe the Bureau of Labor Statistics would concur with that statement. With total loan volumes off 50% or more from their peak levels, mortgage companies are shifting towards loans for home purchases rather than the refinancing of existing home loans. Basically, that means a good deal less loan volume. Refinancing activity plummeted in July and August as interest rates spiked up. Beginning in September, a lot of the smaller mortgage companies began the process of laying off operational staff members, loan officers on commission, and independent contractors. Many in the industry hold the view that, mortgage brokers without purchase business, shall shut their doors. In sum, some portion of the first round of layoffs that began in August and September has taken place. There is more to come. At Countrywide Financial Corp., national total loan fundings dropped 44% between July and October, but its worldwide employment has dropped only 4.5% in that time period to 34,396. The layoffs will begin to catch up with the reduced level of business. Reductions will occur in contract, overtime and temporary-support areas, and even full-time equivalent positions. Nationally, employers were still catching up with their backlog of business as late as in September; however, beginning in October, cutbacks have begun in earnest. These cutbacks could could approach 200,000. Combining the “real estate Credit” employee category and the “mortgage and non-mortgage loan brokers” employee category, total industry employment rose by 150,000, or 55%, to 422,000, between January 2001 and September 2003. I have not included the carpenters and electricians, etc. hired during this period. In addition, I have not included self-employed workers that might account for at least 25% of total employment in the industry.
Doug Duncan, chief economist with the Mortgage Bankers Association, has stated that the mortgage industry will cut tens of thousands of temporary workers who were hired to handle the crush of homeowners who refinanced their homes in the past couple of years. Duncan said he expects total mortgage volume in the United States to drop by half next year to around $1.5 trillion. According to Wholesale Access Mortgage Research and Consulting, a firm that works with the nation’s 20 largest mortgage lenders, the total number of workers who could lose their jobs in the field is likely to reach 150,000 or more. That number seems low to me. The MBA states that refinancing has fallen by more than 75% since May. Many are of the belief that this decline will dampen consumer spending in that refinancing lowers homeowner’s debt payments and increases household cash flow. If it took place on the way up, so to speak, then the reverse should be true. In my opinion, economists have not adequately considered the ramifications of the aforementioned layoffs and the negative impact on consumer cash flow from sharply reduced refinancing activity.
So where are the labor shortages? With an aging population, there is a growing need for pharmacists and registered nurses. It is anticipated that public schools could require almost 2 million new teachers by 2012. Another area of need has been that of truck drivers. According to the U.S. Department of Labor, this employment sector accounts for about 3.25 million jobs in the United States, and the demand is expected to increase for the next several years.
In the beginning of November, without much publicity, Wells Fargo Home and Consumer Finance Group released an unspecified number of temporary and contract workers in Minnesota and other states “to reflect the pace of the market and our current application volume.” I did a little digging (no pun intended) and two weeks earlier another Twin Cities mortgage division of a local bank had let go all of its temporary workers, a dozen employees, and two contract loan underwriters in Minnesota and Michigan. In chats with other companies in the area, I discovered some firms stopped using temporary workers and even college students.
In talking with economists and industry leaders in the mortgage and home construction industries, I have come away with a lack of concern for this nation’s economic future. The general consensus is that housing and mortgage financing jobs will be cut but more people will be added in service sector jobs and, to a lesser extent, manufacturing. I think we should examine this lack of concern.
The housing industry is cyclical. This is nothing new. Over the decades it has been that way. We have just completed the largest up cycle since WW II. Mortgage rates fell to 45-year lows. Yesterday the Mortgage Bankers Association said mortgage requests fell to their lowest level since the week ending June 14, 2002. Home sales have continued at a brisk but somewhat slower pace, and most CEOs of home building companies expect a good year in 2004. With fixed rates moving higher, adjustable rate mortgages are in increased demand, and now comprise about 30% of applications, the highest level in four years. If short- term rates should move higher, the demand will slacken for adjustable rate and hybrid loan applications.
The broad “credit intermediary” job category, which includes the U.S. mortgage industry, lost about 10,000 jobs in October. I anticipate that number will be as least as large in November and December. I believe the Bureau of Labor Statistics would concur with that statement. With total loan volumes off 50% or more from their peak levels, mortgage companies are shifting towards loans for home purchases rather than the refinancing of existing home loans. Basically, that means a good deal less loan volume. Refinancing activity plummeted in July and August as interest rates spiked up. Beginning in September, a lot of the smaller mortgage companies began the process of laying off operational staff members, loan officers on commission, and independent contractors. Many in the industry hold the view that, mortgage brokers without purchase business, shall shut their doors. In sum, some portion of the first round of layoffs that began in August and September has taken place. There is more to come. At Countrywide Financial Corp., national total loan fundings dropped 44% between July and October, but its worldwide employment has dropped only 4.5% in that time period to 34,396. The layoffs will begin to catch up with the reduced level of business. Reductions will occur in contract, overtime and temporary-support areas, and even full-time equivalent positions. Nationally, employers were still catching up with their backlog of business as late as in September; however, beginning in October, cutbacks have begun in earnest. These cutbacks could could approach 200,000. Combining the “real estate Credit” employee category and the “mortgage and non-mortgage loan brokers” employee category, total industry employment rose by 150,000, or 55%, to 422,000, between January 2001 and September 2003. I have not included the carpenters and electricians, etc. hired during this period. In addition, I have not included self-employed workers that might account for at least 25% of total employment in the industry.
Doug Duncan, chief economist with the Mortgage Bankers Association, has stated that the mortgage industry will cut tens of thousands of temporary workers who were hired to handle the crush of homeowners who refinanced their homes in the past couple of years. Duncan said he expects total mortgage volume in the United States to drop by half next year to around $1.5 trillion. According to Wholesale Access Mortgage Research and Consulting, a firm that works with the nation’s 20 largest mortgage lenders, the total number of workers who could lose their jobs in the field is likely to reach 150,000 or more. That number seems low to me. The MBA states that refinancing has fallen by more than 75% since May. Many are of the belief that this decline will dampen consumer spending in that refinancing lowers homeowner’s debt payments and increases household cash flow. If it took place on the way up, so to speak, then the reverse should be true. In my opinion, economists have not adequately considered the ramifications of the aforementioned layoffs and the negative impact on consumer cash flow from sharply reduced refinancing activity.
So where are the labor shortages? With an aging population, there is a growing need for pharmacists and registered nurses. It is anticipated that public schools could require almost 2 million new teachers by 2012. Another area of need has been that of truck drivers. According to the U.S. Department of Labor, this employment sector accounts for about 3.25 million jobs in the United States, and the demand is expected to increase for the next several years.
Wednesday, December 10, 2003
12/10/03 Are You Ready?
You had better get comfortable. This will be a long blog. I want to begin by writing something nice about a government agency. No, I haven’t gone soft. Fair is fair. This agency has cut costs sharply. They reduced staff by 24,000 full-time workers without layoffs, and anticipate another 11,000 job cuts, reducing career employees to 729,000, the fewest since 1994. Today they deliver 24 billion more pieces of mail than they did in 1994. We are talking about our U.S. Postal Service. In 2001 they lost $1.7 billion. In 2002 they lost $676 million. In 2003 they had net income from operations of $900 million. Nearly all of the surplus was used to reduce the agency’s outstanding debt. A round of applause is in order for the agency.
While I’m still nice, a kind word should be spoken for India. This country prepaid $4.2 billion of high cost foreign currency loans during the calendar year. This includes $2.8 billion from the Asian Development Bank and the World Bank and $1.4 billion in high-cost bilateral loans. The government decided to prepay all bilateral debt to partners other than Japan, Germany, the U.S., France, and Russia. The aforementioned prepayments were accomplished through the growing foreign exchange reserves that now exceed $96 billion. India is doing a fine job of financial management, and should be congratulated.
I wish I could have some nice words for the Bush Administration. There is one constituency that helped Bush get elected, and that is the National Rifle Association and its members. The fiscal year 2004 omnibus spending bill(H.R. 2674) is pending in the U.S. Senate. It contains two dangerous provisions. One would reduce the time that the ATF can retain records of approved gun sales from the current 90 days to a maximum of 24 hours. A June 2002 GAO study found that 97% of firearm retrievals initiated during the first six moths of the current 90-day rule could not have been done under a 24-hour rule. A second dangerous provision would prohibit the ATF from finalizing a proposed August 2000 rule that would require gun dealers to conduct an annual physical inventory. The purpose of the proposed rule is to allow dealers to identify missing and stolen firearms and report them to the ATF in a timely fashion. These provisions are clearly anti-public safety and need to be shot down (no pun intended) prior to inclusion in the spending bill.
A new national poll released today by the Sacred Heart University Polling Institute indicates support for the new Medicare legislation is under-whelming. Only 26.8% polled state they support the program. The largest number of respondents feels the legislation offers too little and provides too few benefits. It sometimes is helpful to visit a specific state and focus on its problem area. Some state treasuries are being eaten up by the cost of Medicaid, the state-federal medical insurance program for low-income people. In Massachusetts, one resident in eight is 55 or older. Medicaid consumes $7 billion out of a state budget of $22 billion. According to the Kaiser Family Foundation, the elderly constitute 9% of Medicaid enrollees; however, they account for 27% of the program’s spending. An aging population can only drive costs higher.
My blog would not be complete without a discussion of the unemployment picture. Before starting, I want to reiterate that the Labor Department survey of payrolls shows 8.7 million unemployed, 4.5 million more who are not in the labor force but want to be, and 4.9 million people working part-time when they want full-time work. That adds up to over 18 million people, a stunning number when compared with a total workforce of 130 million people. This is why I write about the problem every day. It’s in every neighborhood except the White House. They don’t have a neighborhood because there is a barbed wire fence surrounding the property. Today’s scorecard reads like this: Eddie Bauer will close 30 stores. JC Penney will close 12 stores. Chevron-Texaco will eliminate 150-200 jobs. American Online will drop 450 workers. SBC Communications will cut 3,000 to 4,000 jobs. Washington Mutual stated 5,400 positions will be eliminated as a result of falling demand in home mortgages, and many more efficiencies are expected in 2004, during a period the company is calling “transitional.” Their chairman, president, and CEO remarked “we are instilling a discipline of operational excellence.” What were they doing before these cost saving opportunities came to their attention? Maybe they had it too easy in the mortgage business, and the money flowed too freely and masked inefficient operations. Do you think this could have taken place at any other companies?
There is good news to report. According to the eSpending report from Goldman Sachs, Harris Interactive, and Nielsen/NetRatings (this must be quite a report if it took three firms to write it), consumers spent $8.5 billion on the holidays in November, an increase of 55% over the prior year. Online shoppers spent $758 million online to buy videos and DVDs, a 133% increase over last year, and $761 million on books, an increase of 61%. Consumers spent 57% more on music and 32% more on toys. The survey indicates more consumers are shopping online and more money is being spent online. Yesterday I mentioned toffee from Enstrom’s of Grand Junction. Today I’d like to drop a really cute gift idea. For the holidays, Petsmart is carrying a glass fish bowl shaped like a fish. It’s great for children and for grownups. I know it is made in China. I apologize for that. Petsmart is a great store to visit, and especially on Saturday, its big pet adoption day. With FAO going out of business, this is the spot to replace it.
I don’t smoke but smoking must be on the decline. Sales of tobacco, once Kentucky’s most profitable commodity, is likely to drop to nearly $400 million for 2004, down from gross sales of $929 million in 1998. At the same time, tobacco exports are rebounding, and prices are at record levels. There is one on-going problem, and that is import and discount cigarettes. They contain almost no U.S. tobacco and now comprise 13% of the market, up from 2 to 3 percent in the mid-1990s.
According to the Bank of Tokyo-Mitsubishi and UBS report, retail sales declined 2.5% in the week ended December 6, and this was the steepest drop since December 2, 2000 when sales fell 2,6% from the preceding week. Retail sales have now dropped below a five-year average pattern. I don’t believe that is a good thing.
Did you read the report from the Commerce Department. They said wholesale inventories in October rose by 2.7% for autos. That made me laugh. That means the auto companies can increase their incentives even more to get rid of their increased inventory. In the meantime, GM and Ford are making new highs in the market. Sears did too before the stock got creamed as a result of lower sales figures. We must not forget the memorable words of Allan Gilmour, Vice Chairman of Ford, who observed “excess capacity and intense competition and lower prices of imports have meant that companies have had to cost cut their way back to profitability.” Maybe the head of the U.S. postal Service should run Ford.
We have a little something in common with Japan. The Conference Board reported bullish numbers for Japan’s leading economic indicators as well as their related composite indexes for October. At the same time, it was reported that the number of employed persons declined and wage and salary income for manufacturing were weak.
Total foreign exchange product volume at the Chicago Mercantile Exchange is up 48% in this year’s fourth quarter versus year-ago levels. This week new daily volume records have been set. Much of this activity has reflected the continued uncertainty about the future value of the dollar. It would appear that trading is getting a bit frothy, and a respite might be nice at this junction.
U.S. and Mexican officials are discussing an agreement that would allow millions of Mexicans to return home and still collect U.S. Social Security benefits. GOP Rep. Ron Paul of Texas, my favorite member of Congress, remarked “talk about an incentive for illegal immigration. How many more would break the law to come to this country if promised U.S. government paychecks for life?” The Bush administration supports such an accord as a way to improve U.S.-Mexican relations.
The personal consumption expenditures index rose by a slim 1.2% for the 12 months ending October. Everything is okay, stated the Fed. Heck, we have low inflation. Disinflation is not a predominant concern. 15,000 temporary workers were hired in October and another 21,000 in November. Productivity is robust, and we have plenty of slack in our resources to accommodate future increased demand, and the Fed’s policy will continue to be friendly for a considerable period of time. I am as happy as a pig wallowing in manure. It doesn’t get any better than this. Can you stand the smell? How do you like the Fed’s brakes on the money supply? They do screetch a bit. Are you ready for that annoying sound until the election of 2004 comes around?
You had better get comfortable. This will be a long blog. I want to begin by writing something nice about a government agency. No, I haven’t gone soft. Fair is fair. This agency has cut costs sharply. They reduced staff by 24,000 full-time workers without layoffs, and anticipate another 11,000 job cuts, reducing career employees to 729,000, the fewest since 1994. Today they deliver 24 billion more pieces of mail than they did in 1994. We are talking about our U.S. Postal Service. In 2001 they lost $1.7 billion. In 2002 they lost $676 million. In 2003 they had net income from operations of $900 million. Nearly all of the surplus was used to reduce the agency’s outstanding debt. A round of applause is in order for the agency.
While I’m still nice, a kind word should be spoken for India. This country prepaid $4.2 billion of high cost foreign currency loans during the calendar year. This includes $2.8 billion from the Asian Development Bank and the World Bank and $1.4 billion in high-cost bilateral loans. The government decided to prepay all bilateral debt to partners other than Japan, Germany, the U.S., France, and Russia. The aforementioned prepayments were accomplished through the growing foreign exchange reserves that now exceed $96 billion. India is doing a fine job of financial management, and should be congratulated.
I wish I could have some nice words for the Bush Administration. There is one constituency that helped Bush get elected, and that is the National Rifle Association and its members. The fiscal year 2004 omnibus spending bill(H.R. 2674) is pending in the U.S. Senate. It contains two dangerous provisions. One would reduce the time that the ATF can retain records of approved gun sales from the current 90 days to a maximum of 24 hours. A June 2002 GAO study found that 97% of firearm retrievals initiated during the first six moths of the current 90-day rule could not have been done under a 24-hour rule. A second dangerous provision would prohibit the ATF from finalizing a proposed August 2000 rule that would require gun dealers to conduct an annual physical inventory. The purpose of the proposed rule is to allow dealers to identify missing and stolen firearms and report them to the ATF in a timely fashion. These provisions are clearly anti-public safety and need to be shot down (no pun intended) prior to inclusion in the spending bill.
A new national poll released today by the Sacred Heart University Polling Institute indicates support for the new Medicare legislation is under-whelming. Only 26.8% polled state they support the program. The largest number of respondents feels the legislation offers too little and provides too few benefits. It sometimes is helpful to visit a specific state and focus on its problem area. Some state treasuries are being eaten up by the cost of Medicaid, the state-federal medical insurance program for low-income people. In Massachusetts, one resident in eight is 55 or older. Medicaid consumes $7 billion out of a state budget of $22 billion. According to the Kaiser Family Foundation, the elderly constitute 9% of Medicaid enrollees; however, they account for 27% of the program’s spending. An aging population can only drive costs higher.
My blog would not be complete without a discussion of the unemployment picture. Before starting, I want to reiterate that the Labor Department survey of payrolls shows 8.7 million unemployed, 4.5 million more who are not in the labor force but want to be, and 4.9 million people working part-time when they want full-time work. That adds up to over 18 million people, a stunning number when compared with a total workforce of 130 million people. This is why I write about the problem every day. It’s in every neighborhood except the White House. They don’t have a neighborhood because there is a barbed wire fence surrounding the property. Today’s scorecard reads like this: Eddie Bauer will close 30 stores. JC Penney will close 12 stores. Chevron-Texaco will eliminate 150-200 jobs. American Online will drop 450 workers. SBC Communications will cut 3,000 to 4,000 jobs. Washington Mutual stated 5,400 positions will be eliminated as a result of falling demand in home mortgages, and many more efficiencies are expected in 2004, during a period the company is calling “transitional.” Their chairman, president, and CEO remarked “we are instilling a discipline of operational excellence.” What were they doing before these cost saving opportunities came to their attention? Maybe they had it too easy in the mortgage business, and the money flowed too freely and masked inefficient operations. Do you think this could have taken place at any other companies?
There is good news to report. According to the eSpending report from Goldman Sachs, Harris Interactive, and Nielsen/NetRatings (this must be quite a report if it took three firms to write it), consumers spent $8.5 billion on the holidays in November, an increase of 55% over the prior year. Online shoppers spent $758 million online to buy videos and DVDs, a 133% increase over last year, and $761 million on books, an increase of 61%. Consumers spent 57% more on music and 32% more on toys. The survey indicates more consumers are shopping online and more money is being spent online. Yesterday I mentioned toffee from Enstrom’s of Grand Junction. Today I’d like to drop a really cute gift idea. For the holidays, Petsmart is carrying a glass fish bowl shaped like a fish. It’s great for children and for grownups. I know it is made in China. I apologize for that. Petsmart is a great store to visit, and especially on Saturday, its big pet adoption day. With FAO going out of business, this is the spot to replace it.
I don’t smoke but smoking must be on the decline. Sales of tobacco, once Kentucky’s most profitable commodity, is likely to drop to nearly $400 million for 2004, down from gross sales of $929 million in 1998. At the same time, tobacco exports are rebounding, and prices are at record levels. There is one on-going problem, and that is import and discount cigarettes. They contain almost no U.S. tobacco and now comprise 13% of the market, up from 2 to 3 percent in the mid-1990s.
According to the Bank of Tokyo-Mitsubishi and UBS report, retail sales declined 2.5% in the week ended December 6, and this was the steepest drop since December 2, 2000 when sales fell 2,6% from the preceding week. Retail sales have now dropped below a five-year average pattern. I don’t believe that is a good thing.
Did you read the report from the Commerce Department. They said wholesale inventories in October rose by 2.7% for autos. That made me laugh. That means the auto companies can increase their incentives even more to get rid of their increased inventory. In the meantime, GM and Ford are making new highs in the market. Sears did too before the stock got creamed as a result of lower sales figures. We must not forget the memorable words of Allan Gilmour, Vice Chairman of Ford, who observed “excess capacity and intense competition and lower prices of imports have meant that companies have had to cost cut their way back to profitability.” Maybe the head of the U.S. postal Service should run Ford.
We have a little something in common with Japan. The Conference Board reported bullish numbers for Japan’s leading economic indicators as well as their related composite indexes for October. At the same time, it was reported that the number of employed persons declined and wage and salary income for manufacturing were weak.
Total foreign exchange product volume at the Chicago Mercantile Exchange is up 48% in this year’s fourth quarter versus year-ago levels. This week new daily volume records have been set. Much of this activity has reflected the continued uncertainty about the future value of the dollar. It would appear that trading is getting a bit frothy, and a respite might be nice at this junction.
U.S. and Mexican officials are discussing an agreement that would allow millions of Mexicans to return home and still collect U.S. Social Security benefits. GOP Rep. Ron Paul of Texas, my favorite member of Congress, remarked “talk about an incentive for illegal immigration. How many more would break the law to come to this country if promised U.S. government paychecks for life?” The Bush administration supports such an accord as a way to improve U.S.-Mexican relations.
The personal consumption expenditures index rose by a slim 1.2% for the 12 months ending October. Everything is okay, stated the Fed. Heck, we have low inflation. Disinflation is not a predominant concern. 15,000 temporary workers were hired in October and another 21,000 in November. Productivity is robust, and we have plenty of slack in our resources to accommodate future increased demand, and the Fed’s policy will continue to be friendly for a considerable period of time. I am as happy as a pig wallowing in manure. It doesn’t get any better than this. Can you stand the smell? How do you like the Fed’s brakes on the money supply? They do screetch a bit. Are you ready for that annoying sound until the election of 2004 comes around?
Tuesday, December 09, 2003
12/9/03 Smile For The Camera
Over the weekend there were thousands of Santas in malls and shopping centers. Everyone was having a jolly old time. Children were having their picture taken with Old Nick, and parents, relatives, and friends were beaming with delight. Optimism is in the air. As Michael Medved would say, it’s the greatest place on God’s green earth. But how green is it?
I am very sorry to report that 32% of Americans spent refund checks from the Bush tax cuts. According to the Cambridge Consumer Credit Index, those folks purchased consumer goods. Specifically, 20% of Americans used the money on everyday purchases, while 10% spent on “something they always wanted to buy” and 2% used the money for other kinds of purchases. Of those surveyed, 18% deposited the refund checks into savings accounts; 48% used the money to pay off bills and credit cards. Only 2% invested the money in stocks, bonds, or mutual funds. It should be noted that 68% of Americans did not receive any refunds as a result of the income tax cut legislation.
While the Dow was nearing 10,000 yesterday, the House adjourned without re-authorizing a program to help the nation’s unemployed. House Speaker Dennis Hastert spoke on the House floor and remarked “the economic growth rate hit 8.2% in the last quarter. The Dow Jones has reached its highest level in 18 months. And the job rate shows the best signs of improvement in two years.” On the other hand, Rep. Steny Hoyer, D-Md., stated “I know the president and our Republican colleagues would like nothing more than to pronounce our economy healed and to unfurl the banner reading, ‘Mission Accomplished,’ but it is plain that millions of Americans continue to be hurting.” With the program not extended, an estimated 2.1 million people will lose their aid. In California, 66,696 will lose their federal jobless benefits as of December 21, and an estimated 339,000 more state residents will be cut off between January and June. We must remember that, in November, there were 2 million unemployed persons looking for work in our country for 27 weeks or longer, and another 1.5 million persons marginally attached to the labor force, and not to be forgotten, the 457,000 discouraged workers. For these folks, the United States is not looking so green.
The Dollar Index, often overlooked, is not so green. This Index charts the U.S. dollar against a basket of six currencies of U.S. trading partners, and yesterday it traded at the weakest point in six years. This decline should come as no surprise as the euro traded above 1.22, the pound at an 11 year high versus the dollar, and the yen made another 3-year high against the dollar, and this despite the Bank of Japan, on behalf of the Ministry of Finance, having sold a record $166 billion yen this year.
With the heavy snowstorm along the East coast, the price of crude oil traded back up to the $31 per barrel level. Yesterday natural gas in New York had its biggest one-day rally in more than nine months on forecasts for another cold wave hitting our shores. Gas for January delivery rose 13% to $6.902 per million BTU. It was the biggest rally since Feb. 24. This increase was on top of last week’s 25% rise in price. According to the Energy Information Administration, homeowners in the Midwest will spend an average $848 this winter for natural gas, an increase of 6.1%. When your paycheck only goes up by a penny, and that’s not very green, the increase in natural gas prices can hurt the pocket book.
For those in the South, you can look forward to a jolt as well. GM, our great automotive manufacturer, is losing over a billion dollars a year at their Spring Hill, Tennessee plant. This facility employs 5,647 people making Saturns. Unlike GM’s other plants, Spring Hill’s hourly workers are exempted from temporary layoffs. I said are and not will continue to be. The Saturn division has lost money in 12 of the past 13 years. The workers take 30 hours to build a vehicle, about eight hours more than Honda’s small-car plant in Lordstown, Ohio, stated Harbours & Associates, experts in vehicle manufacturing. GM is trying to change the present employment contract at Spring Hill. I believe Saturn is an endangered car, and so are the 5,647 employees who would be wise to save for a rainy day and cut back on holiday gift giving.
The large weekend snowstorm hurt sales at department stores, but many consumers were cuddly in front of their TV sets. HSN, the home-shopping network, had a record-breaking sales day on Saturday with more than $30 million worth of goods purchased. The previous record was $16.9 million set in December 2002.
Christmas time does bring a smile to candy manufacturers. Christmas is the third-largest period for candy sales, trailing Halloween and Easter. According to the National Confectioners Association, holidays can account for as much as 40% of annual candy revenues. I know Enstrom Candies of Grand Junction, Colorado turns out the best toffee confection one can possibly imagine. They make the world a better place.
As we know, Bush signed the new Medicare legislation. The CBO estimates the states will save $17 billion in Medicaid cost over the next decade. I do not think so. There is a ‘clawback’ provision requiring states to return to the federal government a significant portion of their savings starting in 2006. In Minnesota, Medicaid Director Mary Kennedy stated “ we’re going to be in effect billed for what the federal government assumes we have saved by not being the direct provider of the benefit.” Mike Fogarty, CEO of the Oklahoma Health Care Authority, added “it’s definitely going to put some states in a quandry when in order to preserve the benefit to their own citizens they’re going to have to supplement the Medicare system with a 100% state benefit.” Many states providing comprehensive drug benefits for dual-eligibles with few restrictions have reason to have serious worries. This Medicare bill will take the smiles off millions of people. The true costs are not known. Even the CBO has stated it could cost as much as $2 trillion in its second decade. The CBO is always low in its cost estimates. CBO Director Douglas Holtz-Eakin stated yesterday it is impossible to know exactly what will happen but said it is “highly unlikely that we’ll end up on the course we’ve set.” I have to believe Bush knew that while he signed the bill and brought smiles to the face of many, including his own.
As the Dow approaches 10,000, please be careful not to smile too much. As the Fed discusses maintaining the short-term interest rates at 1%, they have been slowly but surely cutting off the growth in the money supply. It is the only method the Fed has to offset the spending habit exhibited by Bush and the Congress. The Fed has warned Washington to cut back spending, but they smile and ignore the warnings. Starting in October. The money supply growth dwindled. It continued through November, and into the present in December. The refi money has dwindled to a trickle. The child credit money is behind us. The tax credit money is accounted for. There has never been a time on Wall Street when stocks continued to rise in the face of a serious slowing, and in some cases a contraction, of the money supply. I suggest you shift your attention from one percent rates, a 10,000 Dow, to the money supply. The latter will not bring a smile to your face. The good news is you have two more weeks to sit on Santa’s lap. Please smile for the camera.
Over the weekend there were thousands of Santas in malls and shopping centers. Everyone was having a jolly old time. Children were having their picture taken with Old Nick, and parents, relatives, and friends were beaming with delight. Optimism is in the air. As Michael Medved would say, it’s the greatest place on God’s green earth. But how green is it?
I am very sorry to report that 32% of Americans spent refund checks from the Bush tax cuts. According to the Cambridge Consumer Credit Index, those folks purchased consumer goods. Specifically, 20% of Americans used the money on everyday purchases, while 10% spent on “something they always wanted to buy” and 2% used the money for other kinds of purchases. Of those surveyed, 18% deposited the refund checks into savings accounts; 48% used the money to pay off bills and credit cards. Only 2% invested the money in stocks, bonds, or mutual funds. It should be noted that 68% of Americans did not receive any refunds as a result of the income tax cut legislation.
While the Dow was nearing 10,000 yesterday, the House adjourned without re-authorizing a program to help the nation’s unemployed. House Speaker Dennis Hastert spoke on the House floor and remarked “the economic growth rate hit 8.2% in the last quarter. The Dow Jones has reached its highest level in 18 months. And the job rate shows the best signs of improvement in two years.” On the other hand, Rep. Steny Hoyer, D-Md., stated “I know the president and our Republican colleagues would like nothing more than to pronounce our economy healed and to unfurl the banner reading, ‘Mission Accomplished,’ but it is plain that millions of Americans continue to be hurting.” With the program not extended, an estimated 2.1 million people will lose their aid. In California, 66,696 will lose their federal jobless benefits as of December 21, and an estimated 339,000 more state residents will be cut off between January and June. We must remember that, in November, there were 2 million unemployed persons looking for work in our country for 27 weeks or longer, and another 1.5 million persons marginally attached to the labor force, and not to be forgotten, the 457,000 discouraged workers. For these folks, the United States is not looking so green.
The Dollar Index, often overlooked, is not so green. This Index charts the U.S. dollar against a basket of six currencies of U.S. trading partners, and yesterday it traded at the weakest point in six years. This decline should come as no surprise as the euro traded above 1.22, the pound at an 11 year high versus the dollar, and the yen made another 3-year high against the dollar, and this despite the Bank of Japan, on behalf of the Ministry of Finance, having sold a record $166 billion yen this year.
With the heavy snowstorm along the East coast, the price of crude oil traded back up to the $31 per barrel level. Yesterday natural gas in New York had its biggest one-day rally in more than nine months on forecasts for another cold wave hitting our shores. Gas for January delivery rose 13% to $6.902 per million BTU. It was the biggest rally since Feb. 24. This increase was on top of last week’s 25% rise in price. According to the Energy Information Administration, homeowners in the Midwest will spend an average $848 this winter for natural gas, an increase of 6.1%. When your paycheck only goes up by a penny, and that’s not very green, the increase in natural gas prices can hurt the pocket book.
For those in the South, you can look forward to a jolt as well. GM, our great automotive manufacturer, is losing over a billion dollars a year at their Spring Hill, Tennessee plant. This facility employs 5,647 people making Saturns. Unlike GM’s other plants, Spring Hill’s hourly workers are exempted from temporary layoffs. I said are and not will continue to be. The Saturn division has lost money in 12 of the past 13 years. The workers take 30 hours to build a vehicle, about eight hours more than Honda’s small-car plant in Lordstown, Ohio, stated Harbours & Associates, experts in vehicle manufacturing. GM is trying to change the present employment contract at Spring Hill. I believe Saturn is an endangered car, and so are the 5,647 employees who would be wise to save for a rainy day and cut back on holiday gift giving.
The large weekend snowstorm hurt sales at department stores, but many consumers were cuddly in front of their TV sets. HSN, the home-shopping network, had a record-breaking sales day on Saturday with more than $30 million worth of goods purchased. The previous record was $16.9 million set in December 2002.
Christmas time does bring a smile to candy manufacturers. Christmas is the third-largest period for candy sales, trailing Halloween and Easter. According to the National Confectioners Association, holidays can account for as much as 40% of annual candy revenues. I know Enstrom Candies of Grand Junction, Colorado turns out the best toffee confection one can possibly imagine. They make the world a better place.
As we know, Bush signed the new Medicare legislation. The CBO estimates the states will save $17 billion in Medicaid cost over the next decade. I do not think so. There is a ‘clawback’ provision requiring states to return to the federal government a significant portion of their savings starting in 2006. In Minnesota, Medicaid Director Mary Kennedy stated “ we’re going to be in effect billed for what the federal government assumes we have saved by not being the direct provider of the benefit.” Mike Fogarty, CEO of the Oklahoma Health Care Authority, added “it’s definitely going to put some states in a quandry when in order to preserve the benefit to their own citizens they’re going to have to supplement the Medicare system with a 100% state benefit.” Many states providing comprehensive drug benefits for dual-eligibles with few restrictions have reason to have serious worries. This Medicare bill will take the smiles off millions of people. The true costs are not known. Even the CBO has stated it could cost as much as $2 trillion in its second decade. The CBO is always low in its cost estimates. CBO Director Douglas Holtz-Eakin stated yesterday it is impossible to know exactly what will happen but said it is “highly unlikely that we’ll end up on the course we’ve set.” I have to believe Bush knew that while he signed the bill and brought smiles to the face of many, including his own.
As the Dow approaches 10,000, please be careful not to smile too much. As the Fed discusses maintaining the short-term interest rates at 1%, they have been slowly but surely cutting off the growth in the money supply. It is the only method the Fed has to offset the spending habit exhibited by Bush and the Congress. The Fed has warned Washington to cut back spending, but they smile and ignore the warnings. Starting in October. The money supply growth dwindled. It continued through November, and into the present in December. The refi money has dwindled to a trickle. The child credit money is behind us. The tax credit money is accounted for. There has never been a time on Wall Street when stocks continued to rise in the face of a serious slowing, and in some cases a contraction, of the money supply. I suggest you shift your attention from one percent rates, a 10,000 Dow, to the money supply. The latter will not bring a smile to your face. The good news is you have two more weeks to sit on Santa’s lap. Please smile for the camera.
Monday, December 08, 2003
12/8/03 Sharing Rising Healthcare Costs In the Workplace
According to a nationwide survey of 3,000 businesses, both large and small, by Mercer Human Resource Consulting, total health benefit cost per employee for active employees has risen from $3,817 in 1998 to $6,215 in 2003. The annual change in average total health benefit cost was 6.1% in 1998 and in 2003 was 10.1%, down from 14.7% in the prior year. This coming year is expected to be the fourth consecutive year of double-digit premium hikes. Mercer Consulting stated “employers had been absorbing a lot of the cost increases. It seemed like in 2003, they got pretty darn aggressive in shifting those costs to employees.” The average contribution from a single employee on an HMO plan rose from 31% to 35% in 2003, and the family contribution increased from 50% to 57%. For some employees, those higher contributions may mean a reduction in total compensation because salaries have increased on average by just 3%. Family coverage for the PPO plans increased from 53% last year to 58% in 2003, while single family coverage remained unchanged at 27%, according to the survey. In dollars, the average U.S. worker paid $101 per month for an HMO and $82 for a PPO plan in 2003. Families paid $352 for the HMO and $381 for the PPO. Employees will be hard pressed to share a greater burden of the healthcare costs in the workplace. They can’t afford the costs when an hourly income increases by a mere penny and/or salaries rise at or below the rate of inflation. There isn’t enough employee cash flow to fund increased cost-sharing measures in the workplace.
According to U.S. government figures, China exported $108.6 billion worth of goods to the U.S. in the first 9 months of 2003. In contrast, U.S. companies sold only $18.9 billion of worth of goods in China. If that troubles you, discontinue the purchase of goods made in China.
It’s no wonder the American consumer continues to purchase cars from GM, F, and Chrysler. According to CNW Marketing Research, GM spent $4,406 per vehicle on incentives in November up from $4,312 in October. Ford spent $4,396 up from October’s $4,271. Chrysler’s incentives increased to $4,351 from $4,235. The good news is that the incentives might be increased for December. The goal for the Big Three is to provide an incentive in every pot for the holidays. They are on a roll, and hopefully will not slow down at this point in time.
Gift cards are a growing business. According to Bain & Co., Americans are expected to spend $45 billion on gift cards this year, up 18% from 2002. Statistics show that 16% of people who receive a gift card never use the entire balance. On the other hand, more than 50% of gift cards are redeemed within a month. A spokesperson for Louisville, Ky.-based Stored Value Systems, a company that designs gift card programs, stated that business is growing at 40% a year. A key factor in the success has been the knowledge that one in seven people who receive a gift card become repeat customers at the place where they cash it.
The Oncologist is a bimonthly international peer-reviewed journal for physicians devoted to cancer patient care. This journal reported that “today in America, one in three women and one in two men will develop cancer in their lifetime…the average age for males diagnosed with cancer is 68 and is 65 for females, and approximately 9.6 million people in the United States are living with cancer. For all cancer sites African American males and Caucasian females have the highest rates.”
According to a survey conducted in November by Kurt Salmon, 84% of consumers have said they plan to shop at discounters, such as, WalMart, compared with 28% who stated they plan to shop at department stores. According to Customer Growth Partners LLC, only 19% of retail sales will be compiled in malls in 2003, down from 39% in 1995.
Researchers at IBM are releasing a nanotech paper at today’s industry conference in Washington, D.C. The IBM scientists believe they are the first to use naturally forming patterns of molecules not as circuits that have to be connected o larger wires, but as stencils that light can be shone through to create circuitry in silicon. Chuck Black of IBM stated that “we don’t just give a nice picture of some sort of material. That’s often where nanotech presentations will end. We take that pattern that nature gives us and have done something with it. We understand it and we know how to build things with it.” IBM predicts prototype devices using the technique could emerge in three to five years.
John DeStefano, five-term mayor of New Haven, Conn. and president of the National League of Cities: “It’s rather bizarre that the federal government is not satisfied with driving itself into deficit, they’ve got to drive us into deficit too.”
According to a nationwide survey of 3,000 businesses, both large and small, by Mercer Human Resource Consulting, total health benefit cost per employee for active employees has risen from $3,817 in 1998 to $6,215 in 2003. The annual change in average total health benefit cost was 6.1% in 1998 and in 2003 was 10.1%, down from 14.7% in the prior year. This coming year is expected to be the fourth consecutive year of double-digit premium hikes. Mercer Consulting stated “employers had been absorbing a lot of the cost increases. It seemed like in 2003, they got pretty darn aggressive in shifting those costs to employees.” The average contribution from a single employee on an HMO plan rose from 31% to 35% in 2003, and the family contribution increased from 50% to 57%. For some employees, those higher contributions may mean a reduction in total compensation because salaries have increased on average by just 3%. Family coverage for the PPO plans increased from 53% last year to 58% in 2003, while single family coverage remained unchanged at 27%, according to the survey. In dollars, the average U.S. worker paid $101 per month for an HMO and $82 for a PPO plan in 2003. Families paid $352 for the HMO and $381 for the PPO. Employees will be hard pressed to share a greater burden of the healthcare costs in the workplace. They can’t afford the costs when an hourly income increases by a mere penny and/or salaries rise at or below the rate of inflation. There isn’t enough employee cash flow to fund increased cost-sharing measures in the workplace.
According to U.S. government figures, China exported $108.6 billion worth of goods to the U.S. in the first 9 months of 2003. In contrast, U.S. companies sold only $18.9 billion of worth of goods in China. If that troubles you, discontinue the purchase of goods made in China.
It’s no wonder the American consumer continues to purchase cars from GM, F, and Chrysler. According to CNW Marketing Research, GM spent $4,406 per vehicle on incentives in November up from $4,312 in October. Ford spent $4,396 up from October’s $4,271. Chrysler’s incentives increased to $4,351 from $4,235. The good news is that the incentives might be increased for December. The goal for the Big Three is to provide an incentive in every pot for the holidays. They are on a roll, and hopefully will not slow down at this point in time.
Gift cards are a growing business. According to Bain & Co., Americans are expected to spend $45 billion on gift cards this year, up 18% from 2002. Statistics show that 16% of people who receive a gift card never use the entire balance. On the other hand, more than 50% of gift cards are redeemed within a month. A spokesperson for Louisville, Ky.-based Stored Value Systems, a company that designs gift card programs, stated that business is growing at 40% a year. A key factor in the success has been the knowledge that one in seven people who receive a gift card become repeat customers at the place where they cash it.
The Oncologist is a bimonthly international peer-reviewed journal for physicians devoted to cancer patient care. This journal reported that “today in America, one in three women and one in two men will develop cancer in their lifetime…the average age for males diagnosed with cancer is 68 and is 65 for females, and approximately 9.6 million people in the United States are living with cancer. For all cancer sites African American males and Caucasian females have the highest rates.”
According to a survey conducted in November by Kurt Salmon, 84% of consumers have said they plan to shop at discounters, such as, WalMart, compared with 28% who stated they plan to shop at department stores. According to Customer Growth Partners LLC, only 19% of retail sales will be compiled in malls in 2003, down from 39% in 1995.
Researchers at IBM are releasing a nanotech paper at today’s industry conference in Washington, D.C. The IBM scientists believe they are the first to use naturally forming patterns of molecules not as circuits that have to be connected o larger wires, but as stencils that light can be shone through to create circuitry in silicon. Chuck Black of IBM stated that “we don’t just give a nice picture of some sort of material. That’s often where nanotech presentations will end. We take that pattern that nature gives us and have done something with it. We understand it and we know how to build things with it.” IBM predicts prototype devices using the technique could emerge in three to five years.
John DeStefano, five-term mayor of New Haven, Conn. and president of the National League of Cities: “It’s rather bizarre that the federal government is not satisfied with driving itself into deficit, they’ve got to drive us into deficit too.”
Sunday, December 07, 2003
12/7/03 A White Christmas
Last year a snowstorm hit the eastern seaboard in the first week of December, and placed a damper on the retail sector as weekly sales at the major chain stores declined 2.3% during this time. The industry never found its legs, and the shopping season was a major disappointment. Will history repeat as the snow blankets the coast from Maine to Virginia and North Carolina? Consumer confidence was much reduced last year as Americans worried about a possible war with Iraq and the economy was weaker. Will the present snowstorm delay purchases at the chains and/or will consumers turn increasingly to the convenience of shopping online? According to Jupiter Research, Internet retail sales this holiday season are expected to increase 21% to $16.8 billion. According to the latest American Customer Satisfaction Index update published by the University of Michigan, satisfaction with Internet retailers rose 6 percentage points during 2002 to 83 on a scale of 100, and this compares with an unchanged rating of 75 for bricks and mortar retailers.
According to the American Express Retail Index on Internet shopping, 54% of those polled will log on this holiday season to compare prices, browse, and potentially purchase gifts. This is up from 46% of shoppers surveyed last year. The polling was taken before the snow began to fall. The survey found that, of those surfing the Net during the holiday season, 31% plan to purchase gifts on the Internet, up from 18% last year. American Express found that this year 62% of online shoppers shall be using the Net to compare prices, up from 56% last year. A whopping 78% say deep discounts will motivate them, while 53% stated they are motivated to buy only by offers of free delivery or gift-wrapping. The survey found that the average age of the typical holiday shopper using the Internet is 42 years old with an average household income of $64,500. Interestingly, 72% of online shoppers are 18 to 49 years old while 26% are 50 years and older.
Meanwhile, it is noteworthy to look at the service Americans use to get onto the Internet. According to the Yankee Group, there will be 51.5 million dial-up households at the end of this December, down from 54.5 million a year ago. Consumers are changing from slow dial-up service to DSL and cable lines. SBC Communications recently cut its lowest broadband price to $26.95 per month. SBC stated that about 70% of DSL subscribers have moved up from the slow dial-up connection. The service offers download speeds better than 6 times as fast as dial-up modems. The nation’s broadband leader, Comcast, briefly offered a $19.95 monthly rate in a few markets. Bruce Leichtman’s Durham, NC firm conducts research on broadband products and services. He remarked “deals are nice to attract customers. But it’s a whole different game to retain them.”
In re-reading the Bureau of Labor statistics, I was struck by the fact that only 328,000 net new jobs have been created since July. More importantly, revised data reveal that average monthly employment during the third quarter was 82,000 jobs below the second quarter’s monthly employment average. Considering the recent strength in the economy, this data is more than disappointing. The press has been fed the idea by this Administration that non-farm employment growth is a lagging indicator. Employment growth goes side by side with economic growth. Such was the case following the recessions of 1973-75 and 1981-82, and only the 1990-91 recession was an exception.
We should learn by now that one cannot always believe what appears in print or on the TV screen. Before Saturday, the Oklahoma football team had trailed six minutes all season. The undefeated Sooners were hailed as one of the best football teams in history. Kansas State entered the game as a two-touchdown underdog. The Wildcats won the biggest game of their 108 years of football. They crushed this almighty team from Oklahoma 35-7, and the win earned them a trip to the Fiesta Bowl in Tempe, Arizona on Jan. 2. It can get your mind wondering. What will be the next big upset in the United States? Thinking on a snowy Sunday is a good thing.
Last year a snowstorm hit the eastern seaboard in the first week of December, and placed a damper on the retail sector as weekly sales at the major chain stores declined 2.3% during this time. The industry never found its legs, and the shopping season was a major disappointment. Will history repeat as the snow blankets the coast from Maine to Virginia and North Carolina? Consumer confidence was much reduced last year as Americans worried about a possible war with Iraq and the economy was weaker. Will the present snowstorm delay purchases at the chains and/or will consumers turn increasingly to the convenience of shopping online? According to Jupiter Research, Internet retail sales this holiday season are expected to increase 21% to $16.8 billion. According to the latest American Customer Satisfaction Index update published by the University of Michigan, satisfaction with Internet retailers rose 6 percentage points during 2002 to 83 on a scale of 100, and this compares with an unchanged rating of 75 for bricks and mortar retailers.
According to the American Express Retail Index on Internet shopping, 54% of those polled will log on this holiday season to compare prices, browse, and potentially purchase gifts. This is up from 46% of shoppers surveyed last year. The polling was taken before the snow began to fall. The survey found that, of those surfing the Net during the holiday season, 31% plan to purchase gifts on the Internet, up from 18% last year. American Express found that this year 62% of online shoppers shall be using the Net to compare prices, up from 56% last year. A whopping 78% say deep discounts will motivate them, while 53% stated they are motivated to buy only by offers of free delivery or gift-wrapping. The survey found that the average age of the typical holiday shopper using the Internet is 42 years old with an average household income of $64,500. Interestingly, 72% of online shoppers are 18 to 49 years old while 26% are 50 years and older.
Meanwhile, it is noteworthy to look at the service Americans use to get onto the Internet. According to the Yankee Group, there will be 51.5 million dial-up households at the end of this December, down from 54.5 million a year ago. Consumers are changing from slow dial-up service to DSL and cable lines. SBC Communications recently cut its lowest broadband price to $26.95 per month. SBC stated that about 70% of DSL subscribers have moved up from the slow dial-up connection. The service offers download speeds better than 6 times as fast as dial-up modems. The nation’s broadband leader, Comcast, briefly offered a $19.95 monthly rate in a few markets. Bruce Leichtman’s Durham, NC firm conducts research on broadband products and services. He remarked “deals are nice to attract customers. But it’s a whole different game to retain them.”
In re-reading the Bureau of Labor statistics, I was struck by the fact that only 328,000 net new jobs have been created since July. More importantly, revised data reveal that average monthly employment during the third quarter was 82,000 jobs below the second quarter’s monthly employment average. Considering the recent strength in the economy, this data is more than disappointing. The press has been fed the idea by this Administration that non-farm employment growth is a lagging indicator. Employment growth goes side by side with economic growth. Such was the case following the recessions of 1973-75 and 1981-82, and only the 1990-91 recession was an exception.
We should learn by now that one cannot always believe what appears in print or on the TV screen. Before Saturday, the Oklahoma football team had trailed six minutes all season. The undefeated Sooners were hailed as one of the best football teams in history. Kansas State entered the game as a two-touchdown underdog. The Wildcats won the biggest game of their 108 years of football. They crushed this almighty team from Oklahoma 35-7, and the win earned them a trip to the Fiesta Bowl in Tempe, Arizona on Jan. 2. It can get your mind wondering. What will be the next big upset in the United States? Thinking on a snowy Sunday is a good thing.
Subscribe to:
Posts (Atom)