How Much Should We Pay to Save a Steel Mill Job?

Posted November 16, 2018 by Brian Gottlob
Categories: International trade, manufacturing, Tariffs, Uncategorized

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There are about 86,000 steel mill jobs in the United States, down from a decade ago when it was about 100,000. At its nadir in early 2017, steel mill jobs were under 81,000. About 6,000 jobs have come back since tariffs were introduced, but the producer price index (PPI) for steel mill products also soared as a result. The value of U.S. steel mill output was about $78 billion before tariffs while the producer price index for steel mill products has risen just over 20% since tariffs . Those numbers imply a cost of tariffs to purchasers of U.S. steel mill products (U.S. companies and governments) of about $16 billion, as well as a cost per job saved of about $2.7 million. If instead of tariffs the U.S. had offered each of the 6,000 laid-off steel mill workers a generous $100,000 stipend per year for 3 years to replace lost pay and benefits and to retrain, it would have cost $1.8 billion, saving U.S. companies and governments $14.2 billion in tariff-related costs. A  less than 1% surcharge on imported and U.S. steel mill products could have paid for such a policy without adding to government debt. I’m not arguing for such a policy but that 1% seems like a small price to pay to avoid punishing 20% price hikes.

Steel Prices and Emp

It’s a Good Time to Be a Bank

Posted October 15, 2018 by Brian Gottlob
Categories: Banks, regulation, tax cuts, Uncategorized

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It’s a good time to be a bank, well a BIG bank anyway. Bank of America’s Q3 profits are up by 32%, JPMorgan/Chase’s by 24%, Wells Fargo by 32% in the 3rd quarter.  Higher interest rates, a strong economy and needed (for smaller banks) regulatory relief have helped but the biggest contributor has been the reduction in the corporate tax rate.  Industry-wide Q3 results have not yet been reported but looking at Q2 and Q1 2018 data compared to 2017 shows the impact of tax cuts.  While banks pre-tax income was up by 12-13% in 2018, net income was up 27-28% because applicable income taxes (federal & state) were down more than 20%.

Bank Earnings

The banking industry has been perhaps the biggest beneficiary of the Trump administration’s initiatives.  Earlier this year I examined over 400 press releases announcing how companies would be using the proceeds from corporate tax cuts and highlighting employee bonuses, minimum wage hikes, etc. (the releases were remarkable in their similarity as were the benefits accruing to employees – a small percentage but more about that in a future post).  Despite banks being only about 1% of all business enterprises thy accounted for just over 30% of the press releases highlighting worker and civic benefits of the tax cut.

press releases

Protectionist Fallacies and Promises

Posted October 11, 2018 by Brian Gottlob
Categories: E, Employment Growth, International trade, manufacturing, Uncategorized

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Repetez moi: “tariffs are stupid.” Our President, who should know better, said the U.S. has collected billions of dollars from China as a result of the tariffs placed on imported goods. Well no, not exactly, actually not even close. Those billions of dollars have been collected from U.S. companies and manufacturers importing products and materials (like aluminum and steel, electronics, etc.) for use in the products and services that they sell. Tariffs have already cost Ford Motor Co. $1 billion in profit. U.S. consumers are also paying, until recently only on a few products (the CPI for laundry equipment was falling for about 10 years but is up 13% over the past year) but who will soon see prices on more products affected, as tariffs are placed on more products. Auto workers who were promised protectionist policies would spur manufacturing job growth must be disappointed as growth has fallen since 2017 and has been negative since mid-2017. Obviously, there are other influences on emp. growth in autos but protectionism isn’t helping. NAFTA version 2 (which looks a lot like NAFTA version 1) is hailed as the next savior for employment. Why not, those protectionist promises have worked-out so well thus far.

auto manuf emp

Is NH’s Labor Deficit Turning?

Posted September 19, 2018 by Brian Gottlob
Categories: Demographics, Employment Growth, Labor Force, Labor Force Participation, Uncategorized

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Aside from the ups and downs of business cycles, the growth rate of New Hampshire’s (and the nation’s) labor force and labor force participation rate has been on a consistent, downward trend. The rising percentage of NH’s population in age groups with traditionally lower rates of labor force participation along with slower overall population growth are key contributors. The two trends go a long way toward explaining why economic growth has been slower over much of the past two decades than during earlier time periods. As I noted in earlier posts, with NH’s extremely low birth rates, net in-migration to the state is critical for population, labor force, and ultimately employment growth. Net state-to-state in-migration to NH is resuming in age groups with higher labor force participation and one consequence is a recent increase in the working-age population, as well as labor force participation in the state (chart), enabling stronger job growth in NH. It is early but the trend is very encouraging.

Particption and Population

“How Did You Go Bankrupt?”

Posted August 13, 2018 by Brian Gottlob
Categories: Debt, Federal Deficit, Federal Spending, Fiscal Policy, Tax Revenue, Uncategorized

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How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.”   Ernest Hemingway, The Sun Also Rises

This is the literary version of a concern issued many times by the noted economist Rudiger Dornbusch, who liked to say: “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.”

Last Friday’s release of the U.S. “Monthly Treasury Report” shows a continuation of the twin trends of declining revenue and increasing expenditures.

corp taxes and deficit

This is the sort of fiscal stimulus that so many lawmakers argued against as the economy was being pummeled during the “great recession.”  Why is this pro-cyclical rather than counter-cyclical policy now a good idea for those same lawmakers?  Historically the U.S. fills its coffers during good times so we are better able to deal with bad times.  Rising deficits in a strong economy should be more upsetting than the latest presidential tweet. What makes the current situation so unusual and more worrying is the low short-term interest rates and the high (and rising) level of federal debt.  As interest rates rise the high levels of federal government, corporate and household debt will reveal the folly of credit-inflated growth.

July 2018 Deficit

Price Pressures are Building in the U.S. Economy

Posted August 10, 2018 by Brian Gottlob
Categories: consumers, Interest Rates, prices, U,S, Economy, Uncategorized

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There is disagreement among economists over how big a threat is rising inflation. A tame consumer price index and modest U.S. wage growth have many economists arguing against further interest rate increases in 2018. But there are signs that higher prices are working their way into the economy. The most obvious example is in goods that are affected by the trade war (skirmish?) between the U.S. and just about every other nation on earth.  Steel, aluminum, lumber, and washing machines are examples that have increased the price of building materials for new homes, laundry equipment, beverages in cans, and some other consumer goods. Even if the self-inflicted harm of a trade war disappears, however, consumers are likely to begin feeling price hikes. So much of what consumers purchase is transported via truck that recent increases in transportation costs (see graphic), unless abated, will soon affect consumer prices.

Truck Transportation Prices

We see this with gasoline price spikes and their resulting impact on grocery prices. Today, strong demand and worker shortages in the trucking industry are dramatically raising the cost of truck transportation services that will eventually work their way into consumer prices.

More Workers are Quitting Their Jobs and Getting Better Pay

Posted August 7, 2018 by Brian Gottlob
Categories: job growth, Uncategorized, Unemployment, wages

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U.S. job growth remains strong while real wage growth remains tepid despite a 3.9 percent unemployment rate nationally, but things may be changing. It is unlikely that companies can hold the line on wages – and depress real wage growth – when low unemployment encourages workers to quit their jobs in search of a higher salary. The rate at which workers are voluntarily leaving their jobs (the “quit rate”) is as high as it has been in 17 years (see graphic) as measured by the U.S. Bureau of Labor Statistics  “Job Openings and Labor Turnover Survey” (JOLTS).Quit Rate

This indicates a strong labor market where workers are confident that if they leave their job they can easily find another. The prospect for higher wages is a big reason. The Federal Reserve Bank of Atlanta’s wage measure for job switchers — people who leave one employer for another — reached 4.4% in March and is at 3.9% in June, well above wage growth for workers overall. It is a good environment for workers facing stagnating real wage growth to start looking for better pay, forcing firms to boost compensation to attract and retain employees. Although this is good for consumer spending, corporate profit margins may get pinched unless employers can cut costs elsewhere.


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