February 24, 2008
Iceland and Taiwan to Slash Corporate Tax Rates
Dan Mitchell at the CATO Institute has a new piece about the latest examples of the trend towards lower tax rates on productive activity around the world. In this case it is Iceland and Taiwan slashing tax rates. You can read the piece by clicking on this link.
Iceland, which currently has a 36 percent flat tax on labor income, a 10 percent flat tax on capital income, and a corporate tax rate of just 18 percent, has just announced a reduction in the corporate tax rate from 18 per cent to 15 per cent.
Meanwhile, Taiwan (current 25 percent corporate tax rate compared with a 39 percent-plus US rate) plans to slash the corporate rate to 17.5 percent and reduce personal income tax rates.
These governments are not driven by ideology--free market or otherwise. They are reducing tax rates on productive capital because they have decided that they must do so to actively compete for the capital that will drive higher productivity and paychecks for their workers. Like it or not, capital owners today can move their capital wherever in the world it will earn the best risk-adjusted return. It costs little to do so. And it is virtually undetectable by anyone when they do it. This makes it much more difficult to craft a tax policy that achieves distributional, or fairness, goals and raises the stakes, in terms of lost jobs and paychecks, when policy makers inadvertently drive capital offshore.
Worth keeping in mind as we get closer to the election this fall.
JR
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February 22, 2008
Speaking April 18th at Financial Advisor Symposium, Las Vegas
4th ANNUAL FINANCIAL ADVISOR SYMPOSIUM Las Vegas – April 16-18, 2008
On April 18th, I'll be the closing Keynote speaker at the 4th Annual Financial Advisor Symposium in Las Vegas. This is part of a three-day symposium (April 16-18) targeting financial advisors, but is open to the public. I'll be talking about global perspectives on investing and will discuss the current economic domestic challenges, such as the credit crunch and the housing crisis.
JR
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February 14, 2008
International Trade Deficit: 58.8 billion (-4.3 billion)
(February 14, 2008) - The Department of Commerce released its U.S. International Trade in Goods and Services Report this morning for December 2007, reporting that total December exports of $144.3 billion and imports of $203.1 billion resulted in a $58.8 billion goods and services deficit, down from from the revised November estimate of $63.1 billion. December exports were $2.2 billion more than November exports of $142.2 billion; December imports were $2.2 billion less than November imports of $205.3 billion.
In December, the goods deficit decreased $4.6 billion from November to $68.2 billion, and the services surplus decreased $0.2 billion to $9.5 billion. Exports of goods increased $2.3 billion to $103.1 billion, and imports of goods decreased $2.3 billion to $171.3 billion. Exports of services decreased $0.1 billion to $41.2 billion, and imports of services increased $0.1 billion to $31.8 billion.
In December, the goods and services deficit was down $1.5 billion from December 2006. Exports were up $17.2 billion, or 13.6%, and imports were up $15.7 billion, or 8.4%.
JR
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February 13, 2008
Real Estate Foreclosure Sales
(February 13, 2008) - Want to see some really ugly numbers? RealtyTrac released its foreclosure sales data by metropolitan area this morning. The findings, discussed in a story Forbes ran this morning called "Foreclosures Hurt Housing Market Further" are detailed below.
I put together the following chart using Associated Press data on the proportion of U.S. home sales in 2007 and 2006 that resulted from foreclosures, accessed here, so you can see what's going on.
As I have been arguing, the black hole that the U.S. real estate market has fallen into is an asset market issue, not a GDP story. All the $600 checks in the world are not going to fix it--it has to be cured with asset market medicine. The GDP data that we use to define a recession don't capture the pain of falling property values. It shows up on families' balance sheets as illiquid assets and falling net worth. The bond market will come back to life only when fixed-income investors feel comfortable understanding and valuing future cash flow again. When that happens, as it always does, the property markets will stabilize too.
Meanwhile, if you are selling a house I hope you live in Vermont; if you are buying one I hope you are shopping in Nevada, like me.
JR
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Advance January 2008 Retail Sales $382.9 billion, +0.3%
(February 13, 2008) - The Census Bureau released its Advance Monthly Sales for Retail and Food Services Report for January 2008 this morning, announcing advance January retail and food sales of $382.9 billion, adjusted for seasonal variation and holiday and trading-day differences but not for price changes. This figure was an increase of 0.3% from the previous month and 3.9% year-over-year. The November/December percent change was unrevised from -0.4%.
Retail trade sales, not including autos, were up 0.4% (±0.7%) from December 2007 and were 3.8 % (±0.8%) above last year. Gasoline station sales were up 23.0% (±2.8%) from January 2007 and sales of nonstore retailers were up 10.6 percent (±2.0%) from last year.
Although the numbers don't have a blue flame coming out behind them, they are not as butt-ugly as people had been expecting--so the stock market had a very good day (DJIA +178, or +1.5%; NASDAQ +2.3%).
Remember, however, that these numbers are not adjusted for price changes. The CPI increased 4.1% in the 12 months ending in December, which erases any real growth in the numbers. And the 23% increase in gasoline station sales is all price due to rising oil prices. If we subtract gasoline station ($36.3 billion) sales from the total ($348.3 billion), we can calculate a retail and food service except gasoline stations number ($312.0 billion), which has increased by +2.8% over the last 12 months--less than inflation.
I think this may be the ugliest number we see this time around, with some improvement in February and March. That would make the Q1/08 number come in between 1.5-2.0%, high enough to keep the Q1 GDP number out of recession territory. If that happens, of course, our leaders in Washington will be quick to attribute the gains to the stimulus package they signed today, even though the first checks won't hit the street until May. Good timing, guys!
JR
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China Energy Conservation by Shifting from Manufacturing to IT
(February 13, 2008) - My last post about China's growing energy demand may have given you the impression that there is no energy conservation going on. Quite the contrary. The focus of China's economic policies today is to reduce dependence on energy-intensive sectors, reduce pollution and increase employment by investing heavily in the high-speed communications, information technology and education sectors. The impact of this strategy on reduced energy per unit of output is outlined in an interesting article titled
Taking out 1 billion tons of CO2. This is not likely to reduce the estimates from the previous post, however. China's energy demand is driven by its tremendous economic growth. At 10% per year, GDP will double in just over 7 years and quadruple in 15 years.
Implications:
1. Oil and coal prices are not going down over time.
2. The stability of the Gulf region will remain top priority.
3. We need lots of R&D on new energy technology.
4. There are tremendous investment opportunities in clean energy and IT.
5. Educate the heck out of your children, especially in math and science.
JR
AbstractChina's 11th Five-Year Plan (FYP) sets an ambitious target for energy-efficiency improvement: energy intensity of the country's gross domestic product (GDP) should be reduced by 20% from 2005 to 2010 [National Development and Reform Commission (NDRC), 2006. Overview of the 11th Five Year Plan for National Economic and Social Development. NDRC, Beijing]. This is the first time that a quantitative and binding target has been set for energy efficiency, and signals a major shift in China's strategic thinking about its long-term economic and energy development. The 20% energy-intensity target also translates into an annual reduction of over 1.5 billion tons of CO2 by 2010, making the Chinese effort one of the most significant carbon mitigation efforts in the world today. While it is still too early to tell whether China will achieve this target, this paper attempts to understand the trend in energy intensity in China and to explore a variety of options toward meeting the 20% target using a detailed end-use energy model.
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Interesting Article - China Energy Demand Estimates re Too Low
(February 13, 2008) - There is an interesting article in the current issue of the Energy Policy journal titled
A critical review of IEA's oil demand forecast for China. The authors, Nel and Cooper from the Institute for Energy Studies, at the University of Johannesburg, South Africa , conclude that current estimates may understate China's oil demand by as much as 10 million barrels per day in 2025. I have copied the abstract below. I hope it gets our policy (not)makers attention about the importance of energy R&D.
JR
AbstractChina has a rapidly growing economy with a rapidly increasing demand for oil. The International Energy Agency (IEA) investigated possible future oil demand scenarios for China in the 2006 World Energy Outlook. The debate on whether oil supplies will be constrained in the near future, because of limited new discoveries, raises the concern that the oil industry may not be able to produce sufficient oil to meet this demand.
This paper examines the historical relationship between economic growth and oil consumption in a number of countries. Logistic curve characteristics are observed in the relationship between per capita economic activity and oil consumption. This research has determined that the minimum statistical (lower-bound) annual oil consumption for developed countries is 11 barrels per capita. Despite the increase reported in total energy efficiency, no developed country has been able to reduce oil consumption below this lower limit. Indeed, the IEA projections to 2030 for the OECD countries show no reduction in oil demand on a per capita basis. If this lower limit is applied to China, it is clear that the IEA projections for China are under-estimating the growth in demand for oil.
This research has determined that this under-estimation could be as high as 10 million barrels per day by 2025. If proponents of Peak Oil such as Laherrere, Campbell and Deffeyes are correct about the predicted peak in oil production before 2020 then the implications of this reassessment of China's oil demand will have profound implications for mankind.
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February 9, 2008
Why We Love E. coli
(February 9, 2008) - Okay, this is the last one of these strange energy articles I will post today--maybe.
An article in Microbial Biotechnology, E. coli a future source of energy? reports research results of a very creative Texas A&M professor who has found a way to genetically tweak a strain of E. coli bacteria (by altering 6 of its 5000 genes) to create a mini hydrogen-producing factory powered by sugar that produce 140 times more hydrogen than the un-tweaked version.
This is how we are going to solve the energy shortage and power future growth.
JR
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This is cool. It's the new black!
(February 9, 2008) - In a paper I wrote for the journal of Asia's BOAO Forum I suggested that we don't have an energy shortage--we have a knowledge shortage. There is more potential in the water running in your bathtub (in the bonds that hold the particles together in the water) than the US consumes in a year.
One of the ways I suggested to increase sustainable energy supplies would be to develop strategies that increase the absorption of solar flux by genetically altering crops to suppress their ability to deflect green wavelengths of light (there is research going on to do just this). This would make plants appear black, of course, which might not please everyone. Here is an interesting article about new research results that would do the same thing for man-made structures by creating a coating that yields "the new black."
A side-view scanning electron micrograph of the darkest material at a high magnification. The nanotubes are vertically aligned, forming a highly porous nanostructure.
Researchers develop darkest manmade material. Researchers at Rensselaer Polytechnic Institute and Rice University have created the darkest material ever made by man. The material, a thin coating comprised of low-density arrays of loosely vertically-aligned carbon nanotubes, absorbs more than 99.9 percent of light and one day could be used to boost the effectiveness and efficiency of solar energy conversion, infrared sensors and other devices. The researchers who developed the material have applied for a Guinness World Record for their efforts.
These are the ways we are going to solve the world's growing need for energy.
JR
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Interesting - For Network Theory Geeks (Okay, I'm one too.) Preferential Attachment
(February 9, 2008) - From the journal Proceedings of the National Academy of Sciences, Why the rich get richer.
A new theory shows how wealth, in different forms, can stick to some but not to others. The findings have implications ranging from the design of the Internet to economics.Real-world data -- whether distributions of wealth, size of earthquakes or number of connections on a computer network -- often follow power-law distributions rather than the familiar bell-shaped curve. In a power-law distribution, large events are reasonably common compared to smaller events.
Networks often show power laws. They can be caused by the "rich get richer" effect, also known as "preferential attachment," where nodes gain new connections in proportion to how many they already have. That means some nodes end up with many more connections than others. The phenomenon is well known, but had been assumed to be just a fundamental property of networks.
Raissa D'Souza, an assistant professor at the Department of Mechanical and Aeronautical Engineering and the Center for Computational Science and Engineering at UC Davis, together with colleagues at Microsoft Research in Redmond, Wash., UCLA and Cornell University, looked at how "preferential attachment" can arise in networks.
"'The rich get richer' makes sense for wealth, but why would it happen for Internet routers?" she said.
D'Souza and colleagues found that they could make tradeoffs between the network distance between nodes and the number of connections between them. By tweaking the conditions, they could make preferential attachment -- a power-law distribution of the number of connections -- stronger or weaker.
These tradeoffs in networks are an underlying principle behind preferential attachment, D'Souza said. The general framework could be extended to all kinds of different networks, in biology, engineering, computer science or social sciences.
"It's exciting because it shows the origins of something that we had assumed as axiomatic," D'Souza said.
The other authors on the study, which is published online in the journal Proceedings of the National Academy of Sciences, are Christian Borgs and Jennifer T. Chayes at Microsoft Research, Noam Berger at UCLA and Robert D. Keinberg at Cornell University. A figure from the study will also be used for the cover art of the April 10 print issue of the journal.
I am convinced that network theory, applied to the information network we call the economy, is critical to understanding questions of periodic network failure, such as recessions, depressions, stock market and real estate bubbles. the most interesting work in this area has been done by Barabasi, Strogatz, and Watts, which are referenced in the John's Bookshelf section of the Rutledge Capital website.
JR
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February 8, 2008
December Wholesale Trade - Sales Down but Inventories Very Low
(February 8, 2008) - The December report on Wholesale Trade: Sales and Inventories, released today by the Census Bureau, was about medium ugly, with falling sales but very low inventories. You can get a PDF file of the full report here.
Sales of merchant wholesalers, seasonally adjustment at current price changes, were $376.6 billion, down 0.7 percent (+/-0.5%) from November level but were up 10.6 percent (+/-1.3%) from the December 2006 level. The November preliminary estimate was revised downward $1.1 billion or 0.3 percent. December durable goods sales were down 2.0 percent (+/-0.8%) from last month, but were up 1.6 percent (+/-2.0%) from a year ago. Compared to November, electronic goods sales were down 4.3 percent and computer, peripheral equipment and software sales were down 4.0 percent. Nondurable goods sales were up 0.4 percent (+/-0.7%) from November and were up 19.3 percent (+/-2.0%) from last year.
Total inventories (seasonally adjusted in current dollars) were $411.6 billion at the end of December, up 1.1 percent (+/-0.3%) from the revised November level and up 6.1 percent (+/-1.5%) from a year ago. Durable goods inventories were up 0.9 percent (+/-0.3%) from November and up 1.9 percent (+/-1.7%) from last December. Motor vehicle, parts and supplies inventories were up 3.5 percent from last month. Nondurable goods inventories increased 1.6 percent (+/-0.5%) from November and 13.6 percent (+/-2.8%) from a year ago. The December inventories/sales ratio was 1.09. The December 2006 ratio was 1.14.
The upward revision in November and increase in December inventories will support a modest upward revision in Q4/GDP. In addition, the current low inventory levels will allow some inventory rebuilding in the next few months, once wholesalers are convinced that their retail customers are growing again. Hope it doesn't take long!
JR
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Interesting - Another Nail in the Biofuel Coffin
(February 8, 2008) - A second article from Science magazine, Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land Use Change by Searchinger, Heimlich , Houghton, Dong, Elobeid, Fabiosa, Tokgoz, Hayes, and Yu, (who would have to book an entire restaurant to get together to discuss the article) identifies the long-term negative impact of converting land to biofuel growth. The abstract follows:
Most prior studies have found that substituting biofuels for gasoline will reduce greenhouse gases because biofuels sequester carbon through the growth of the feedstock. These analyses have failed to count the carbon emissions that occur as farmers worldwide respond to higher prices and convert forest and grassland to new cropland to replace the grain (or cropland) diverted to biofuels. Using a worldwide agricultural model to estimate emissions from land use change, we found that corn-based ethanol, instead of producing a 20% savings, nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. Biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50%. This result raises concerns about large biofuel mandates and highlights the value of using waste products.
Interesting.
JR
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Interesting - Clearing Land to Grow Biofuel Increases Net Carbon Emissions by 17-420x.
(February 8, 2008) - As regular readers will know, I am not a fan of policies that would would undermine global growth in the name of global warming. Near the top of my list, just below cap-and-trade scams, are the massive biofuel programs that have driven up food prices everywhere and dramatically reduced the real incomes of low-income people both in and outside the US.
The current issue of Science magazine has a teaser for an upcoming article, Land Clearing and the Biofuel Carbon Debt, by Fargione, Hill, Tilman, Polasky and Hawthorne which shows that large-scale biofuel operations actually increase carbon emissions by altering patterns of land-use. The abstract is below:
Increasing energy use, climate change, and carbon dioxide (CO2) emissions from fossil fuels make switching to low-carbon fuels a high priority. Biofuels are a potential low-carbon energy source, but whether biofuels offer carbon savings depends on how they are produced. Converting rainforests, peatlands, savannas, or grasslands to produce food-based biofuels in Brazil, Southeast Asia, and the United States creates a ‘biofuel carbon debt’ by releasing 17 to 420 times more CO2 than the annual greenhouse gas (GHG) reductions these biofuels provide by displacing fossil fuels. In contrast, biofuels made from waste biomass or from biomass grown on abandoned agricultural lands planted with perennials incur little or no carbon debt and offer immediate and sustained GHG advantages.
Interesting.
JR
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Interesting - Internet, Exports and Growth in Low and Middle-income Countries
(February 8, 2008) - As you know, I believe the most useful way to look at the economy is as a highly-connected information network. The information networks for market economies, which use prices to transmit information on relative scarcities, are extremely efficient compared with non-market command and control systems. That is one of the reasons why a number of low-income countries, which have increasingly allowed prices to clear markets, have grown so fast in recent years.
Countries around the world are also waking up to the importance of Internet access to growth. The current issue of Information Economics and Policy contains an interesting article by George Clarke from The World Bank, ScienceDirect - Information Economics and Policy : Has the internet increased exports for firms from low and middle-income countries. I have copied the abstract below.
Many commentators have suggested that the internet is one of the forces driving globalization. This paper assesses one aspect of these claims, looking at whether internet access appears to affect the export performance using data from enterprises in low and middle-income economies in Eastern Europe and Central Asia. The paper finds a strong correlation between exporting and internet access at the enterprise level. Moreover, this correlation remains after controlling factors that might affect both exports and internet connectivity and self-selectivity.
JR
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February 4, 2008
December Factory Orders +2.3%; Durable Goods 5%; Capital goods 11.3%
(February 4, 2008) - The full report on Manufacturers' Shipments, Inventories and Orders, released today, showed December factory orders +2.3%, or $10.1 billion, after a 1.7% November increase. Orders increased six of the past seven months.
Shipments decreased $1.2 billion, or 0.3%, to $427.5 billion. Unfilled orders, up 31 of the last 32 months, increased $20.0 billion, or 2.5%, to $808.7 billion. The unfilled orders-to-shipments ratio was 5.43, up from 5.31 in November. Inventories increased $4.0 billion or 0.8% to $528.1 billion. The inventories-to-shipments ratio was 1.24, which is not an excessive level.
Durable goods orders in December increased $10.9 billion, or 5.0%, to $226.1 billion. New orders for manufactured nondurable goods decreased $0.8 billion, or 0.4%, to $215.5 billion.
New orders for capital goods were up +11.3%, a sharp acceleration from 2.8% for all of 2007. Unfilled orders for capital goods increased 21.7% in 2007.
So where is the recession everybody is talking about? A recession requires at least 2 consecutive quarters of negative GDP growth. I remain convinced that we will see no negative growth quarters at all this year.
JR
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China Bank Sets Aside (Tiny) Subprime Reserves
(February 4, 2008) - China's biggest bank, Industrial & Commercial Bank of China (ICBC), has set aside reserves equal to 30 percent of its $1.2 billion in subprime holdings to cover possible losses. ICBC has 8.6 trillion yuan ($1.2 trillion) in assets and reported 22.5 billion yuan ($3 billion) in profits for the quarter ending in September.
It is important to put this in perspective. ICBC's subprime holdings are just 0.1% of total assets. Today's announcement, 30% of $1.2 billion, or $400 million, is less than 2 weeks' of ICBC's earnings.
In January, investors sold Chinese bank shares after a news report that Bank of China, the country's No. 2 lender, might record a loss for 2007 due to subprime problems. Bank of China said in October it held subprime debt valued at $7.95 billion. Bank of China and ICBC have China's largest holdings of subprime mortgage debt. China Construction Bank, holds about $1 billion in subprime debt and has set aside reserves to cover a possible 40 percent loss.
I'm not saying there are no loan problems for China's banks; just that to the extent there are problems they will be largely home-grown. Chinese banks, like other Chinese businesses, have historically faced tight restrictions on their ability to invest in foreign assets. It looks like this may be one case where tight regulation may have kept banks out of trouble. These rules are becoming less restrictive, as China's companies make more foreign investments in line with the government's "going out" program. Worth keeping an eye on down the road.
JR
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Car and Truck Sales
(February 4, 2008) - January Motor Vehicle Sales, including both domestic and imported autos and light trucks, ran at a 15.2 million annual rate, the weakest number since July.
January domestic light vehicle sales, 11.7 million at an annual rate, were down -6% from December and -8% from a year ago. Domestic autos fell -8% to 5.1 million, light trucks -5% to 6.6 million. This Compares to average domestic sales of 12.4 million in 2007, 12.8 million in 2006.
Domestic vehicle sales are slowing due partly to stronger import demand for fuel efficient imports. Foreign market share grew to 23% in 2007 compared with 22% in 2006 and 20% in 2005.
As I will discuss in a later post, the drop in auto sales is in line with the recent drop in used car prices, which I view as the best single indicator of family liquidity.
JR
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February 1, 2008
December New Construction Down 12.3%
(February 2, 2008) - The U.S. Census Bureau of the Department of Commerce announced today in its December 2007 Construction Report that construction spending during December 2007 was estimated at a seasonally adjusted annual rate of $1,140.2 billion, 1.1 percent (±1.3%)* below the revised November estimate of $1,153.0 billion. The December figure is 2.3 percent (±1.9%) below the December 2006 estimate of $1,167.3 billion. The value of construction spending in 2007 was $1,161.3 billion, 2.6 percent (±1.4%) below the $1,192.2 billion spent in 2006.
Spending on private construction was at a seasonally adjusted annual rate of $842.4 billion, 1.0 percent (±1.6%)* below the
revised November estimate of $850.8 billion. Residential construction was at a seasonally adjusted annual rate of $462.0 billion
in December, 2.8 percent (±1.3%) below the revised November estimate of $475.1 billion. Nonresidential construction was at a
seasonally adjusted annual rate of $380.4 billion in December, 1.3 percent (±1.6%)* above the revised November estimate of
$375.6 billion.
The value of private construction in 2007 was $874.0 billion, 6.7 percent (±1.4%) below the $937.0 billion spent in 2006.
Residential construction in 2007 was $524.1 billion, 18.3 percent (±1.8%) below the 2006 figure of $641.3 billion and
nonresidential construction was $349.8 billion, 18.3 percent (±1.4%) above the $295.7 billion in 2006.
JR
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Nonfarm Payrolls Down 17,000; or Up 635,000? Take Your Pick.
(February 1, 2008) - The Department of Labor released their January employment report, The Employment Situation: January 2008, this morning, reporting that nonfarm payroll employment and the unemployment rate were essentially unchanged in January at 138.1 million nonfarm payrolls--17,000 fewer than in December--and only a 0.1% decrease in the unemployment rate to 4.9%. The change in nonfarm payroll employment (-17,000) reflected declines in construction and manufacturing and job growth in health care. The number of unemployed persons (7.6 million) and the unemployment rate (4.9%) were essentially unchanged in January; average hourly earnings rose by 4 cents, or 0.2%.
While we should always be cautious about small changes in monthly data--the 138.1 million total nonfarm employment number reported this month is probably only accurate to within ±200,000 jobs--this report is especially confusing. The headline number, -17,000 jobs for the month, indicates a slowing economy with 51,000 job losses in goods industries not quite offset by 34,000 new jobs in the service sector. And on the surface, the household data show a 42,000 decrease in jobs from 153,866,000 in December to 153,824,000 in January. Both numbers are in sharp contrast to Wednesday's ADP National Employment Report, which reported a 130,000 job increase in January, made up of -11,000 in the goods producing sector and +141,000 in the service sector.
The answer lies in the footnotes. On page 5, the BLS report describes significant revisions in the January establishment data which lie behind the -17,000 figure. This was an especially meaningful revision to reflect new payroll job benchmarks. In addition, establishment survey data were updated to the new March 2007 North American Industry Classifications System (NAICS) from the 2002 NAICS basis. They also revised post-January 1990 data using new seasonal adjustment factors. (Confused yet?) On net, these changes revised the March 2007 total nonfarm employment figure downward by 293,000 (284,000 seasonally adjusted). Using these revised figures, December employment increased by 82,000, more than four times the previously reported +18,000.
The BLS also revised the population estimates used to produce the numbers from the Household Survey. These revisions reduced estimated population in December by 745,000; the estimated labor force by 637,000; employment by 598,000; and unemployed by 40,000. They did not, however, revise the 2007 monthly numbers to reflect these changes; i.e. the December 2007/January 2008 comparison (-42,000) in the report has no meaning whatsoever. In a footnote on page 7, the BLS calculated the effect of these revisions on the monthly comparisons, which suggest that January employment actually increased by an incredible 635,000 jobs.
Although the BLS report receives most of the attention in the press, it is based on limited survey data. Household data are collected from a survey of 60,000 households; payroll data are collected from payroll records for 160,000 businesses and government agencies covering 400,000 individual work sites. The ADP estimates reported Wednesday are drawn from actual payroll data from 500,000 payrolls covering over 24 million workers.
Bottom line: the Labor Department has absolutely no idea what happened in the labor market in January. My sense is that total employment is increasing at or below the roughly 100,000 job per month increase we need to absorb increases in the labor force. This is consistent with GDP growth of about 2%.
JR
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January Manufacturing ISM Report: PMI at 50.7% (+2.3%)
(February 1, 2008) - The January Manufacturing ISM Report showed a 2.3% increase in the PMI to 50.7%, indicating the manufacturing sector strengthened during January.
This suggests slow but positive growth, based on significant increases in production, new orders and inventories. Prices also increased sharply (+8.0%) driven by food, energy and commodity prices.
JR
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