Carpe Diem

Weak Home Sales, But Improving Inventory Levels

WASHINGTON Existing-home sales resumed tumbling in December and the median price dropped. Home resales fell to a 4.89 million annual rate, a 2.2% decrease from November’s unrevised 5.00 million annual pace, the National Association of Realtors said Thursday. For 2007, existing home sales tumbled 13% to 5.652 million.

Inventories of homes fell 7.4% at the end of December to 3.91 million available for sale, which represented a 9.6-month supply at the current sales pace. There was a 10.1-month supply at the end of November, revised from a previously estimated 10.3 months.


If there’s a bright spot in the housing market, it might be that the “Months supply of homes at the current sales rate” declined in November and December, after increasing for nine consecutive months (see chart above), suggesting an improving balance between the supply of home available for sale and the demand from homebuyers.

The WSJ has this
website available for the “Months Supply” data in 28 major real estate markets, which shows a huge variation around the country, from lows of 5-6 months inventory in Boston, Houston, Dallas, Denver, Nashville, Portland, Raleigh, and Seattle (suggesting fairly health real estate markets with homes selling at rates close to the 2004-2005 average of 4.5 months) to double-digit highs in Miami (29 months!), Orlando (17.5), Las Vegas (18), Detroit (19), and Tampa (16).
Carpe Diem

Resilient U.S. Labor Market Rebounds: Initial Claims for Unemployment Benefits at 3-Month Low

This picture is NOT consistent with an economy in recession:

WASHINGTON – The number of U.S. workers filing new claims for unemployment benefits fell unexpectedly last week for a fourth-straight week, suggesting that a resilient labor market at the start of the year might keep the U.S. economy from sliding into recession.

Initial claims for jobless benefits fell 1,000 to 301,000 in the week ended Jan. 19, the Labor Department said Thursday. That marked the fourth-straight weekly decline to a four-month low. Wall Street economists had expected a sharp increase of 19,000.

The four-week average of new claims tumbled 14,000 to 314,750, the lowest level since Oct. 6 (see chart above, click to enlarge).

Bottom Line: At the onset of the last two recessions (March 2001 and July 1990), initial unemployment claims were close to 400,000, and at the onset of the 1980 and 1981 recessions new claims for unemployment benefits were close to 500,000. This extremely positive news about the health of the U.S. labor market over the last month (301,000 claims) pretty much guarantees that we are not in a recession.

Carpe Diem

Every Major U.S. Bank Was Profitable Last Year

Jan. 22 (Bloomberg)With all the large writedowns and losses announced for the fourth quarter, hardly any attention is being paid to just how profitable U.S. banks really are.

That inattention has raised unnecessary concerns that the banks may be so crippled by losses that they will cut lending to the point it might undermine the U.S. economy.

Some commentators have said the banks are in the worst shape since the Great Depression. That isn’t close to being correct. Every major U.S. bank was profitable in 2007 (see chart above, click to enlarge).

For example:

Citigroup: For the full year 2007, net income was $3.62 billion.

JP Morgan: For the full-year 2007, net income was a record $15.4 billion on record revenue of $71.4 billion.

Bank of America: For the full year, Bank of America reported earnings of $14.98 billion.

Wachovia: For the full year, Wachovia earned $6.31 billion.

Wells Fargo: For all of 2007, Wells Fargo earned $8.06 billion.

Sun Trust: The company had net income of $1.6 billion in 2007.

Regions Bank: For 2007, Regions earned $1.3 billion.

National City: The company reported full-year earnings of $314 million in 2007.

Carpe Diem

Starbucks vs. McDonald’s: Market Discipline

LOS ANGELES (Reuters)Starbucks Corp is testing $1 coffee and free refills in its Seattle outlets as the global gourmet coffee chain grapples with slower consumer spending and rising competition from fast-food rivals.

Starbucks is experimenting with a smaller, “short” $1 cup as well as free refills for brewed coffee. Starbucks charges around $1.50 to $4.00 for a coffee, depending on size and flavor. Regular coffee prices at both McDonald’s and Dunkin’ Donuts start in the low $1 range.

Shares in Starbucks have lost around half their value over the past year (see chart above) amid worries about U.S. consumer spending (Hey, why is McDonald’s stock up then?), over-expansion and competition from fast-food rivals such as McDonald’s Corp that offer specialty coffees.
Carpe Diem

Only 1 Out of 86 Workers Receives Minimum Wage

Russ Roberts at Cafe Hayek says that his students typically think that about 20% of the American labor force is employed at the minimum wage, when the actual percentage of minimum wage workers (1.7 million) was only 2.2% of all hourly-paid workers (76.5 million) in 2006, according to the BLS.

However, hourly-paid workers (76.5 million) in the 2006 BLS study are only about half of the total labor force of about 146 million, and therefore minimum wage workers represent fewer than 1.2% of all workers (not just hourly workers). In other words, only about 1 out of every 86 American workers receives the minimum wage.
Carpe Diem

Fiscal Policy: Too Little, Always Too Late

“The history of anti-recession efforts is that they are almost always initiated too late to do any good. The chart above (click to enlarge), based on recession timelines from the National Bureau of Economic Research, shows the enactment of stimulus plans is a fairly accurate indicator that we have hit the bottom of the business cycle, meaning the economy will improve even if the government does nothing.”

~Bruce Bartlett in today’s NY Times

Note that the chart above shows only the legislative lag for fiscal policy, i.e. the time it takes for Congress and the President to design and implement anti-recession fiscal policy. There is also an “impact lag,” which is the time period between passing fiscal stimulus policy (dates are listed above) and when that new fiscal policy change actually starts to have an impact on the economy, which could be another six months or more. By that time, the recession will almost always be over, and the fiscal stimulus will not only be unnecessary, but could actually be destabilizing.

Carpe Diem

What Did the Market Bring Us in a Generation? Lots

A recent CD post had this quote from Hillary Clinton in 1996:

“The unfettered free market has been the most radically destructive force in American life in the last generation.”

The Dispatches from TJICistan blog responds to Hillary:

What did the market bring us in the generation between 1966 and 1996?

In Cars: Airbags, antilock brakes, front wheel drive, unibody construction with greater rollover protection

In computer hardware: Altairs, Tandys, Atari 800s, Apple IIs, Macintoshes, 386 clones, 486s, pentiums, 1.0 Gigahertz desktop machines.

In computer software: WordPerfect, Microsoft Word, the Macintosh OS, Windows, Oracle, Netscape navigator

In retail shopping: Costco, Target, Barnes and Nobles superstores, Amazon.com, Starbucks

In publishing: An explosion of books like never before seen in the history of mankind. Similarly, an explosion of magazines.

In medicine: Cheap and effective laser eye surgery, Prozac and other SSRIs that have brought relief and happiness to tens of millions, cancer treatments, massive advances in animal medicine
in food: the rise of organic food, cruelty free eggs and meat, Whole Foods, Trader Joes

The list goes on and on and on.

Carpe Diem

Rise of Chávez Sends Rich Venezuelans to Florida

NY Times: Venezuelan president Hugo Chávez has tightened his grip on the country’s political institutions, imposing his socialist vision and threatening to assert greater state control over many parts of the economy.

Result: A wave of Venezuelans, mostly from the middle and upper classes, have fled to the United States. Weston, a suburb west of Fort Lauderdale, has become so popular with Venezuelan immigrants, it is known as “Westonzuela.”

The Venezuelan community in the United States has grown more than 94% this decade, from 91,507 in 2000, the year after Mr. Chávez took office, to 177,866 in 2006. Much of that rise has occurred in South Florida, making the Venezuelan community one of the fastest growing Latino subpopulations in the region this decade. In many ways, the Venezuelan influx is reminiscent of the Cuban migration spurred by Fidel Castro’s overthrow of Fulgencio Batista in 1959 and his imposition of a socialist state.


Note: Venezuela ranks #148 out of 157 countries for the Heritage/WSJ 2008 Index of Economic Freedom, just barely ahead of other “socialist paradises” like Iran, Burma, Libya, Cuba and N. Korea.

Bottom Line: The main difference between capitalism and socialism? Capitalism works.
Carpe Diem

Outsourcing IN India, Not TO India: IBM #1 Provider

From today’s NY Times Technology section:

India’s IT services market is forecast to grow to US$10.73 billion by 2011, at a five-year compound annual growth rate of 23.2%, as outsourcing emerges as a more favored option for companies in India.

As companies are finding it more difficult to hire and retain staff in their IT departments, they are looking at external service providers as an option, hoping to also cut down costs, and better manage growth in the process. A number of large Indian banks and telecommunications service providers are already outsourcing key IT operations.

IBM, Tata Consultancy Services (TCS) and Wipro together accounted for 26.1% of IT services vendor market share in India last year. IBM was the top vendor, with 11.2% market share. TCS and Wipro occupy the second and third positions with 10.9 and 4.1 percent market shares, respectively.

Isn’t it interesting that:

1. Indian companies are now increasingly outsourcing IT services, TO other Indian (and U.S.-based) companies IN India.

2. U.S.-based IBM is the #1 provider of IT outsourcing services IN India for Indian-based companies.

It’s a flat, flat, flat, flat world.