Archive for the ‘Uncategorized’ category

R.I.P the American Made Sedan

November 28, 2018

In the last six years the share of light vehicle sales (sedans, station wagons, SUVs, pickups, minvans) in the U.S. that were autos (sedans and station wagons ) versus light trucks (pickups, minivans, SUVs) has declined by 20%.  Autos are now about 30% of all light vehicle sales, in 1990 the percentage was 65%.  Of the top 5 selling light vehicles in the U.S. in 2017, only the Toyota Camry is a sedan and there was not a single American made sedan in the top 20 selling vehiclesShare of Autos

By far, the top selling vehicle is the Ford F series pickup, selling more than twice the number of the top selling sedan, and 60% more than the next best selling vehicle (the Chevrolet Silverado pickup).  The market has clearly changed, helped by lower gasoline prices, recent changes in CAFÉ (fuel efficiency) standards, and most importantly consumer preferences.  GM recently announced the closing of several manufacturing facilities.  I worked on 2 energy projects in Lordstown, OH where GM built its (once) popular Chevy Cruz and it is painful to hear that GM will be closing that facility after what was a period of renewed optimism in the region.

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

November 16, 2018

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

October 15, 2018

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

October 11, 2018

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?

September 19, 2018

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?”

August 13, 2018

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

August 10, 2018

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.


%d bloggers like this: