Category Archives: Economy

DIY Economic News for 2018: Some Suggestions and Sources

The gripe noting the emphasis (or narrow focus) on stock market “news” is a recurring one on this blog, but perhaps it’s high time to suggest some sources which will provide a more comprehensive picture than merely stock market numbers and unemployment figures.  Here are a few for your viewing pleasure:

Labor Information:  What we get on television broadcasts and from most print media are national numbers, however this obfuscates the point that not all parts of the country are experiencing employment (and unemployment) in the same way.   To find out more about state and local employment there’s information available from the Bureau of Labor Statistics at this page. Nevada, for example, is in the western region in the BLS categorization of various statistics, and more specifically as the national unemployment rate is 3.9% nationally (October 2017) the Clark County rate is 5.1%.(pdf)  Although employment in the construction sector is up in Clark County, NV, the rate is altogether to close to that of Cleveland, OH  which was 5.2% (pdf)  Unlike Clark County, which saw a decrease in unemployment, Cleveland actually ticked up from 2016’s 5.1% to 5.2%.   Using the handy interactive from the BLS link give will allow a person to see differences within a state, such as the 5.1% unemployment rate in Las Vegas and the 3.9% unemployment rate in the Reno area. (pdf)

A summary of state unemployment rates is available from the Bureau of Labor Statistics. As of November 2017 the lowest unemployment rate in the country is in Hawaii (2.0%) and the highest unemployment rate belongs to Alaska which has a rate of 7.2%.

The BLS also provides employment projections (for the next 10 years) complete with a graphic illustrating the fastest growing occupations.  Presidential climate change denial notwithstanding, we should observe that the two fastest growing occupations are solar photovoltaic  installers (105.3% increase) and wind turbine technicians (96.1% increase).

A few recommended bookmarks:  AFL-CIO website;  UAW website; SEIU website;  Nevadans will want to keep up with Culinary Worker’s news;  the Communications Workers of America is also highly informative.   Labor Notes is also recommended.

Income Information:  For those who don’t have FRED bookmarked — please do, you’ll be pleased with yourself for doing so.  One of the many topics covered and charted is median household income.   A person can also find information about the Income GINI Ratio for Households (by race), and Real Mean Personal Income.   It would be difficult to imagine what information Isn’t available from FRED.

Once in a blue moon the media reports on the release of the Beige Book from the Board of Governors of the Federal Reserve.  It is a compilation of anecdotal reports from each of the Federal Reserve districts, and is useful for those wanting to drill down into regional economic conditions.  It’s published eight times per year, with the next release due out on January 17, 2018.

The St. Louis Fed provides FRED, and the New York Federal Reserve is the go-to place for information about debt, from student to household.  See their Center for Microeconomic Data.  The NY Fed has its own blog, also informative on a variety of topics.   Readers might like to start with the NY Fed’s report on political polarization and consumer expectations.

There’s FRED, the Beige Book, and the NY Fed, and then there’s the Census Bureau, which tracks income inequality.

There are thousands of more sources and links which will prove helpful to those interested in economic trends, and this is by NO means a comprehensive list.  However, I do hope these links will indicate to any reader that there is a wide variety of sources describing our economy going well beyond the narrow focus on stock market numbers and unemployment statistics!

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Filed under Economy, Nevada, Nevada economy, Politics

The Incredible Tax Bill

For once the President* found the precise word.  The recently enacted tax bill is incredible, and so is the President*.

There are some elements of the tax plan which, indeed, are genuinely incredible.  Here are a few —

 The tax plan is predicated on what amounts to economic mythology/ideology, and it is NOT grounded in empirical evidence.  Trickle Down economics is and has always been a theory in search of some evidence, and not a result of the collection and analysis of actual economic data.  The following summation is as good a point at any to discuss the reality of this manufactured ideology:

“The harsh reality is that while this story has been told for – sometimes very eloquently for 30 years, now – we can look back to President Reagan’s tax cuts in 1981. There’s never been a documented case in which it actually worked. The problem is that every time we’ve enacted tax cuts in the last 30 years that have been based on this premise, we’ve had to backpedal as a nation. We’ve had to undo them. Sometimes, as in the case of the Bush tax cuts of 2001, it’s taken a decade of pitched battle for Congress to realize in a bipartisan way that they really had just dug the hole too deep.”

The tax plan benefits approximately 83% of the nation’s income earners, and does little to help the remainder.

“By 2027, more than half of all Americans — 53 percent — would pay more in taxes under the tax bill agreed to by House and Senate Republicans, a new analysis by the Tax Policy Center finds. That year, 82.8 percent of the bill’s benefit would go to the top 1 percent, up from 62.1 under the Senate bill.”

And even in the first years of the bill’s implementation, when it’s an across-the-board tax cut, the benefits of the law would be heavily concentrated among the upper-middle and upper-class Americans, with nearly two-thirds of the benefit going to the richest fifth of Americans in 2018.”

Let’s get realistic about this point.  Nevada has a total population of 2,998,039; with a median home owner value of $191,600.  The median household income is $53,094.  The per capita income is $27,253.   We’ve covered Nevada tax filers previously, with the following result:

1,350,730 Nevadans filed income tax returns in 2015.   27.21% of the Nevada filers reported adjusted gross income between $25,000 and $50,000.  13.5% of filers reported AGI between $50,000 and $75,000. 8.15% reported AGI between $75,000 and $100,000.  Another 10.22% reported an AGI between $100,000 and $200,000.  From this point on the percentage of filers by category drops, those reporting AGI between $200,000 and $500,000 were 2.48% of the filers; those reporting AGI between $500,000 and $1 million were 0.43%, and those reporting over $1 million AGI made up 0.26%.

It doesn’t take any form of complicated arithmetic to discover that giving tax breaks to the top tier income tax filers doesn’t apply to all that many people in the state of  Nevada (or anywhere else for that matter.)  While the definition of  “middle class” seems to vary, the most commonly accepted definition by income asserts  it is  those households  earning between $46,960 and $140,900 annually.  Nevada’s median income ($53,094) fits within that range.   The majority of the benefits included in the current tax scheme do NOT accrue to the majority of Nevada’s income tax filers.

And then there’s the CBO analysis:

“According to the CBO’s calculations, individuals in every tax bracket below $75,000 will experience a year in which they record a net loss — meaning they’ll pay more in taxes, experience diminished services, or both — by 2027.  The lowest income groups will face significant overall losses, and those making between $10,000 and $20,000 a year will face the biggest losses. The CBO estimates that in 2027, taxpayers from this bracket will see an overall loss equivalent to $788.10.”

If ever there was an example of Reverse Robin Hood, this tax scheme would serve nicely.  This is a middle class tax cut only if the middle class is defined in extremely illogical ways — as if $250,000 AGI was anywhere in the “middle.”

The tax plan make corporate tax cuts permanent and individual/family tax cuts temporary.  This is a recipe for disaster in 2027 when someone is asked to pony up the difference between realistic spending and unrealistic assumptions about economic growth.

The tax plan is underpinned by the assumption corporate tax cuts will yield increased wages and increased employment.   A common Republican argument of the moment is that our recovery from the last recession was sluggish, and tax cuts would have made it better.  Another argument could as easily be made:  The recovery was not as robust as it could have been because Republicans refused to enact the kinds of stimulus spending that would have both improved our national infrastructure and boosted consumer expenditures.  Republicans screamed “deficit spending” and “national debt” to the heavens, a tune they now seem to have forgotten as they vote in favor of a $1.4 trillion deficit.

The tax scheme also ignore the obvious.  How many times in this modest little blog have we said: There is ONE and ONLY  ONE reason for any firm to hire anyone at any time — a business only hires personnel when the staffing levels are insufficient to meet the demand for goods or services with an acceptable level of customer/client satisfaction. Regular readers should be able to recite this from memory by now.

We’ve also mused about other ways corporations spend their windfalls — mergers and acquisitions, increased dividends, stock buy-backs, increased investment in financial revenue streams, etc.  It’s not like wage increases and plant expansion are the only options.  In fact, for corporations, especially those for whom  ‘shareholder value” is the driving focus, increasing wages and capital expenditures is the last likely option.  Shareholders are focused on getting a maximum return on their investments and this is not enhanced by increasing labor costs.

The tax plan is riddled with benefits for the wealthy that defy common sense.  For example: Carried interest, increasing the estate tax exemption (Fun Fact: Of the 5,460 estates slated to pay the estate tax this year only 80 of them are small businesses or farms.)  More examples?  There’s the alternative minimum tax which was enacted  to address a concern which may be resurrected by this tax bill:

“Congress enacted the AMT in 1969 amid widespread outrage that many wealthy people paid little or nothing to Washington thanks to clever use of loopholes. But because income thresholds for being subject to the tax weren’t indexed to inflation (until 2012, which didn’t make up for the decades of lost ground), many middle-class people got sucked into paying it. ”

The tax plan is only part of an overall plan to Kill The Beast.  Or, make government so small it could be drowned in a bathtub?  Those who aren’t convinced by now that the next move by this Norquistian Congress is to go after Social Security, Medicare, and Medicaid haven’t been listening to GOP leadership.   Expect the drumbeat of commentary on “entitlements” to increase by leaps and bounds — We have a Huge Deficit! (Which they created) and now We have to cut government spending.  Remember: They are called entitlements because you are entitled to the benefits you’ve been paying for with your payroll taxes all along.

Pro Tip:  This assessment of voters was made in 2006, and not all that much has changed since –

“Regular voters also are older than those who are not registered. More than four-in-ten of those ages 50 and older (42%) are regular voters, about double the proportion of 18-29 year-olds (22%). Among those between the ages of 30 and 49, more than a third (35%) reliably go to the polls ­ a fact that is consistent with previous research that found voting is a habit acquired with age.”

Now, who is most likely to be quite concerned with saving Social Security and Medicare? There’s a reason  Social Security and Medicare form the third rail of American politics.

A final point.  The Republicans have given away their cards.  When Democrats called for increased spending on health programs, Republicans pointed to the deficit. When Democrats called for increased infrastructure spending, Republicans pointed to the deficit.  Now, the deficit (all $1.4 trillion of it) is the responsibility of the Republicans.  They’ve given away the revenue.  Now the Democrats have the Tax the Corporations card in hand.  And who among the GOP wants to run on a platform of saving those cash-hoarding multi-national corporations?  Good luck with that.

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Filed under Economy, Nevada economy, Politics, Taxation

What Big Victory?

There’s a steady drum beat of pundits and politicians telling me the passage of the TaxScam is a great, wonderful, awesome, fabulous, stupendous, magnificent piece  of legislative action.   Okay, I am certainly not the brightest bulb in the great chandelier, but I’m no dim candle either, and I can tell the difference between tax reform and a tax heist giveaway, handout, bequest, benefaction, and contribution to the top income earners when I see it.  Further, I am truly tired of pounding out the fact-of-life:  Trickle Down Economics is a HOAX.

What the Congress is voting on today isn’t a tax reform bill, it is purely and simply the enaction of economic mythology and political ideology.  There is much economic theorizing asserting the efficacy of tax cuts toward encouraging economic growth, but the numbers (those pesky facts) haven’t substantiated the claim, and the recent example of Kansas offers a real time look at some very dismal prospects.

Making the tax system more rational isn’t best served by a code that includes the Corker Kickback, exceptions for private airplanes,  golf courses, and doesn’t incorporate provisions for exempting state and local taxes.   And, we’ve covered the Carried Interest issue before.   The advice from the EPI back in January 2014 still holds:

“These investment advisors and hedge fund managers can take advantage of this tax structure because they are often compensated through a scheme that, in part, pays them according to the returns on the fund. The industry standard for hedge fund managers is “two and twenty,” which is shorthand for an “overhead” fee of 2% of capital under management plus carried interest (often called a “carry”) of 20% of the returns on the fund. Thus a $100 million fund earning 20% would pay its fund manager $2 million for overhead and $4 million in carry. The carry portion of their compensation is treated under the tax code as capital gains for the fund manager and is taxable at the much lower capital gains tax rate of 15%.” [EPI] (emphasis added)

However, rest assured Nevada’s Republican members of the 15th Congress will vote in favor of retaining the carried interest loophole, and other egregious portions of the Trump Family Property and Legacy Protection Act.  Paris Hilton’s wealth will be preserved.  And for this we may now expect an onslaught on “spending” as in Republican attempts to dismantle Social Security, Medicare, and Medicaid.

As the Republicans hiss out “entitlements” as if the word was a synonym for undeserved welfare, most Americans are quite aware they’ve been paying into Social Security — yes,  to restate the obvious, people are entitled to receive their Social Security benefits — they’ve been paying for them all along.

The point will come when the GOP will cry out, “Oh, we have to cut government spending, because Social Security is going broke! Medicare is out of control.  Medicaid will bankrupt the nation — look at the national debt!”   Really — the way to fix these issues is to re-visit and revise the mess made in the 15th Congress, repeal the TaxScam, and do some revisions targeted at helping middle income Americans.

Some suggestions:

Enact tax cuts 80+% of the benefits go to working middle and lower income Americans who will actually go out and spend the benefits on washing machines, cars, groceries, rent or home mortgages, and who support our economy.

Close the carried interest loophole.  It was never a good idea and it certainly isn’t now.

Enact tax reforms that address the modern economy — not the horse and buggy days.  Support solar, wind, and alternative energy sources and research.  One of the fastest growing jobs in the US today is “wind turbine technician.”  Continuing to subsidize fossil fuels is tantamount to protecting the buggy whip factory owners.   Just to hammer the point a bit further:  “Increases in Job Opportunities:”  Solar Photovoltaic installers  — 105% increase; Wind Turbine Technicians — 98%; Home health aides — 47%; Personal Care aides — 37%; Physician Assistants — 37%; Nurse Practitioners — 36%; and interestingly enough Bicycle Repair Specialists — 29%.

Forget the territorial tax regime — all that does is incentivize corporations to move their operations overseas.

This would be a start.  There’s nothing simple about a tax code — there never was and there never will be.  Piling up stacks of paper to illustrate the density of the code isn’t instructive, all it demonstrates is that we have an extremely complex economy.  We use taxation as a lever to encourage or discourage certain decisions.   In this instance we are encouraging the behavior of hedge fund managers (notoriously short term thinkers) and multi-national corporations.  This didn’t work so well in 2007-2008 and it surpasses all reason why anyone would think a repetition would have any different result.

But we can count on Senator Dean Heller and Representative Mark Amodei to march right in line with the GOP leadership…straight into the next bubble, the next crisis, and the next recession — only this time the resources of the federal government will be depleted in the face of adversity.  In slightly less modest terms, it’s a recipe for more debt which will eventually lead to the necessity of incurring even more debt.

And they’re still coming after Social Security and Medicare.  Be prepared.

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Filed under Economy, Politics, Taxation

Nevada and the Tax Scam: Debts Debts and More Debts

The Bureau of Economic Analysis has some important numbers for the state of Nevada.  As of September 26, 2017 the agency reports Nevada’s per capita personal income was $43,567 ranking 32nd in the US and 88% of the national average.  However, the numbers don’t signify as much as they could without looking at the trends in which they occur.

“The 2016 PCPI reflected an increase of 1.0 percent from 2015. The 2015-2016 national change was 1.6 percent. In 2006, the PCPI of Nevada was $39,930 and ranked 15th in the United States. The 2006-2016 compound annual growth rate of PCPI was 0.9 percent. The compound annual growth rate for the nation was 2.6 percent.”

There are at least two things to unpack from this. First, it’s evident Nevada took a wallop from the Great Recession in the wake of the Housing Bubble and Wall Street Casino collapse. Secondly, Nevada’s per capita personal income isn’t growing at a pace which would make anyone too confident of increased disposable income for Nevada consumers.   In fact, it makes one think we’re going to be looking at increased levels of household indebtedness — again.

Another number to toss into this mix is the inflation rate, ranging in 2017 from about 1.6% to 2.7%.  And now we come to the inflated promises of the President* and the members of the 115th Congress who claim that their tax plan will “put more money into consumers’ pockets.”  Not. So. Fast.

It’s no secret the Tax Bill benefits those in the upper income brackets far more than it does those in the lower quintiles of the tax brackets.  Nor is it any surprise that the pass through benefits inserted into the bill are a windfall for a select group of businesses which in most circumstances don’t really qualify for the brand “small business.”  Therefore, it’s hard to visualize how this plan truly benefits the “average” Nevada taxpayer.

It’s even harder to see how the bill would create the kind of growth necessary for the bill to “pay for itself.”  The conclusion of the Tax Policy Center isn’t exactly comforting:

TPC has also released an analysis of the macroeconomic effects of the Tax Cuts and Jobs Act as passed by the Senate on December 2, 2017. We find the legislation would boost US gross domestic product (GDP) 0.7 percent in 2018, have little effect on GDP in 2027, and boost GDP 0.1 percent in 2037.

If you’re thinking this isn’t enough to boost the per capita personal income level in Nevada, except for a chosen few, you’re probably right on target. Nor is there much reason to believe the Growth Fairy will wave her wand more strenuously anywhere else in the country.  What do people do when wages and salaries don’t increase by all that much, inflation creeps up, and those people want to maintain their standards of living? The borrow.  And this is where DB starts jumping up and down again sounding alarms.

Look, for example, at the NY Fed Report from February 2017: (pdf)

Aggregate household debt balances increased substantially in the fourth quarter of 2016. As of December 31, 2016, total household indebtedness was $12.58 trillion, a $226 billion (1.8%) increase from the third quarter of 2016. Overall household debt remains just 0.8% below its 2008Q3 peak of $12.68 trillion, but is now 12.8% above the 2013Q2 trough.

Yes, this dry as dust account is saying that levels of household debt are perilously close to what they were just before the Bubble splattered all over our economy in 2008.  There are a couple of reasons not to panic — quite yet.  The level of debt delinquencies hasn’t approached the 2008 level, and we’re seeing fewer bankruptcy filings.  [CNN Money]  There are a few more dessicated sentences from the Fed of note:

“…while comparable in nominal aggregate size, the composition of current household debt is very different from that in 2008. We pointed out in a recent press briefing that debt balances are evolving; mortgages now have a much smaller share than in 2008, auto and student loans have increased in their share, and balances are increasingly shifting towards more creditworthy and older borrowers.”

Read: Mortgage debt is down, student and automobile debt is up. Banks are lending to older borrowers with better credit.  This situation is fine for the banks and those who invest in them, it isn’t exactly cause for young people to rejoice.

At the risk of sounding alarmist — we do need to watch the effects of those automobile loans on the financial sector because those loans (like the mortgages before them) are sold into secondary markets (securitized) and there are some initial warning signs.

One industry analysis doesn’t provide all the comfort I’d care to feel at the moment:

In fact, S&P Global Ratings has issued 881 upgrades and no defaults or downgrades on the subprime auto ABS deals it’s rated from 2004 to present. However, the company ran a stress test simulating what another financial crisis-like event would look like today and found that subprime losses would rise 1.67 times higher than S&P’s baseline expectations for the economy. So while the markets are stable, there are certainly economic factors to watch for.  “Yes, losses are going up from 2015 and 2016, and are even approaching recessionary levels,” Amy Martin, S&P’s senior director, told Auto Finance News. “But you have to look at it relative to what’s happening with the ratings, and the ratings are very stable.”

Yes, auto loans are up, increasing the transactions in the secondary market, but we should all relax because the ratings are stable? The last time we put our faith in the ratings agencies every investment bank on Wall Street fell into its own sink hole.

If I’m a little shaky on the subject of auto loans and their securitization, I’m even less enthusiastic about what’s been happening on the student loan front.  Again, from the NY Fed which as a good track record for keeping tabs on the student loan situation:

Interestingly, though the difference in default rates between two- and four-year private college students is not large (less than 5 percentage points at age thirty-three), this is not the case for public college students. Default rates for community college (two-year public college) students are nearly 25 percentage points higher than those for their counterparts in four-year public colleges. The chart below also shows that while for-profit students have the highest default rates, the default rates of community college students are not too different from those of for-profit students (36 percent versus 42 percent for two-year and 39 percent for four-year for-profit students, respectively, at age thirty‑three).

And now comes the trap: While the administration and GOP controlled Congress make it harder for students to escape the clutches of student loan purveyors, the default rates are ominous.  Further, once in the student loan trap it becomes harder for younger people to become those “older creditworthy” souls to whom banks want to offer mortgages. The following assessment isn’t all that encouraging for the housing market:

“At any given age, holding debt is associated with a lower rate of homeownership, irrespective of degree type. While the homeownership gap between debt-holding and non-debt-holding bachelor’s-plus students remains relatively constant, that for associate degree students expands with age. Associate degree students who take on debt buy homes at almost the same rate as those who never went to college until they reach age twenty-five, when their homeownership rate rises above that of those who never went to college. At age thirty-three, the non-college-goers are almost 4 percentage points behind their peers who enrolled in associate degree programs and took on student debt, while lagging behind debt-free bachelor’s-plus students by 25 percentage points.”

The situation isn’t immediately indicative of economic peril BUT there are some points to remember.  While home-ownership is down (banks are looking for older more creditworthy borrowers) auto loans and student debt are up, and student indebtedness is linked to a reduction in home-ownership.  Meanwhile, the per capital personal income keeps slogging upward at a pace making garden snails look swift.   If you are wondering  from whence comes the fuel for the Growth Fairy — so am I.

Thus far the only elements I see emanating from this GOP controlled Congress are an untoward enthusiasm for giving tax breaks to those who need them the least, an equally unpropitious capacity to ignore trends in household indebtedness, coupled with an almost vexatious tendency to put the burdens on younger generations of Americans for whom education is increasingly costly.

If Nevadans are suspicious of Republican claims of “fiscal responsibility” it’s because they should be.

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Filed under Economy, Nevada economy, Politics

Competition: GOP announces US is losing when it’s in first place.

The President is on my TV again, telling me tax cuts for corporations and high income individuals will make “America competitive again.”  The unanswered questions: (1) Who says we aren’t competitive NOW? and (2) with WHOM?

Only those who haven’t been paying attention or have a vested interest in painting the US economy as “non-competitive” for the purpose of getting American families to bail out the big boys would have missed this item from USA Today in September 2017:

“The U.S. is the second-most competitive economy in the world, its highest ranking in eight years, the World Economic Forum said Tuesday as the country’s innovation edge and business optimism bolstered its standing.

Switzerland retained its No. 1 ranking, according to the forum’s global competitiveness report for 2017-18. Rounding out the top 10 behind the U.S. among 137 countries are Singapore, the Netherlands, Germany, Hong Kong, Sweden, the United Kingdom, Japan and Finland.

The U.S. moved up from third place last year. It lost its top status during the financial crisis and recession of 2007-09, and fell as low as No. 7 in 2012-2013 before steadily climbing the past few years.”

What’s keeping us at the top of the st?  Business acumen and  innovation. What’s a drag on the economy?  We’re about 19th in health and educational institutions, scratching for points in the categories of public trust and corporate ethics, and 83rd in macroeconomic environment — econ-speak for debt. [USAT] So, the Republicans have a wonderful plan to increase debts by $1.4 trillion?  And, this is going to “make us competitive?”

And with whom are we “competing?”  Is it Switzerland with a GDP of $297 billion? Singapore with a $659.8 billion GDP? Netherlands at $770.8 billion?  Or, Hong Kong at $320.9 billion?  Sweden at $511 billion? Finland at $236.79 billion?  These countries aren’t even close to the American GDP.

Germany is closer at $3.467 trillion GDP,  the UK’s GDP is $2.619 trillion, and Japan’s GDP is $4.939 trillion.  China is closer to the US in terms of GDP at $11.2 trillion.  The US GDP is $18.57 trillion.  If you’ve guessed the three largest economies on this planet are (1) USA (2) China, and (3) Japan you win the prize.  [World Bank]

It’s really hard to argue that the USA isn’t “competitive” when it’s winning the race.  The current GOP contention is rather like arguing the man and woman who won the New York Marathon weren’t “really competitive?”

However, this won’t stop the GOP from beating the drum and continually repeating the assertion that “we aren’t competitive” until they can get people to believe them.  It “feels” like we aren’t competing because manufacturing jobs have moved overseas — but there’s nothing in the GOP tax bill that prevents this, in fact territorial taxation schemes (such as the one in the tax bill) actually encourage overseas investment.  It “feels” like we aren’t competitive because wages have been stagnant — but giving most of the tax cut benefits to those who need them the least (corporations stuffed with cash, high income earners) isn’t going to address that problem either.

I’m waiting for some intrepid reporter to ask the Administration or some of its supporters like Senator Dean Heller and Representative Mark Amodei,  how is it that we are almost at the top of the World Economic Forum’s competitiveness chart, and at the top of the GDP statistics, and yet the GOP still says “we aren’t competitive?”

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Filed under Economy, energy policy, Politics

More Drivel: Trump, Trade, and Unicorns

For those who haven’t had enough of the Trumpian penchant for stringing together cliches, generalizations, buzz words, dog whistles, and nonsense, there’s a heavy dose of all the above in the Pensacola Speech…including “America First” isolationism.  Evidently, the United States of America will be “great again” when we posture, pose, and pound our way to the elimination of international trade agreements.  Gone the Trans Pacific Partnership.

Lovely.  The TPP was a flawed proposal, but it was a close version of what the Chinese thought it was — a way to contain Chinese influence in the region.  So, instead of ongoing negotiations we have the increasing importance of the Regional Comprehensive Economic Partnership spearheaded by (Guess Who?) China. [CNBC]

“The mainland is already the biggest trading partner for the bulk of Asian countries, but it’s gradually increasing its political and economic sway by leading projects that impact the region. Those included the Asian Infrastructure Investment Bank and the “One Belt, One Road” infrastructure program.”  [CNBC]

The Australians have figured this out, with one analysis observing the TPP model was better fitted to large developed economies (read: US, Australia, Japan) but without US participation and leadership, the Chinese version RCEP is currently the only game in town.

“We will hopefully keep NAFTA…” he said in Pensacola, but the talks are stalled.  As of November 22, 2017 the outlook wasn’t all that optimistic healthy:

“The United States, Mexico and Canada failed to resolve any major differences in a fifth round of talks to rework the NAFTA trade deal, drawing a swift complaint from the Trump administration on Tuesday that the lack of progress could doom the process.” [Fortune]

And more:

U.S. President Donald Trump has threatened to withdraw from NAFTA unless he can rework it in favor of the United States, arguing that the pact has hollowed out U.S. manufacturing and caused a trade deficit of over $60 billion with Mexico.  The U.S. official expressed frustration that Mexico and Canada were not engaging in talks on the auto content proposal and others aimed at “rebalancing” trade in the region. [Fortune]

Here’s a Pro Tip:  In order to negotiate you have to have a partner.  In this case, partners. If the partners are not at the table then instead of a “reworked” agreement in favor of the US we have nothing.   Trump is also wrong to assume that NAFTA is the only game in town:

“This year, for the first time, 94% of goods moved tax-free across borders in the Pacific Alliance, a trading bloc that includes Mexico, Colombia, Chile and Peru. Formed in 2011, it accounts for half of all trade in the region and covers about 200 million people.

“We are trading as a group of countries in agreement on free trade,” Mexico’s foreign minister, Luis Videgaray,said Wednesday evening in New York. Videgaray spoke alongside the presidents of Colombia and Chile, as well as a Peru’s trade minister.” [CNNMoney]

In other words, watch what happens in the Pacific Alliance, and the South American trade bloc Mercosur.   And, the current  trade negotiations between Mexico and Argentina likely aren’t founded on Mexican reaction to Trump’s continual references to His Wall, but are more likely the result of comments like the ones he made in Pensacola — that NAFTA should benefit the US, and everyone else gets the hind quarters.  Moving from the general to the specific issues with agricultural trade between Mexico and South American nations:

“Mexico bought 100,800 tonnes of yellow corn from Brazil in September and 41,000 from Argentina — a drop in the ocean compared with the 10.5m tonnes bought from the US. But so far this year, it has bought 11 per cent more of the commodity from the two South American countries than in all of 2016, according to government data.” [FinancialTimes]

Pro Tip Number Two: Always assume a negotiator has a back up plan, and it probably won’t be the one you want.  Are we Great yet?  Have we rounded up all those Unicorns Trump said we were going to get?

Unicorn driven negotiations aren’t successful.  The Trump administration appears to believe a tenuous notion: if you start with a Unicorn then you can negotiate your way into getting the Unicorn.  Unicorn 1: The US gets 80+% content on cars in NAFTA (even though auto manufacturers say this will make their autos noncompetitive in the marketplace.}  Saying, “I want my Unicorn, and I’m walking away if I don’t get it,” assumes there’s a Unicorn in the first place, and you can get the thing in the second.

Those who persist in believing there are Unicorns may explain their elusiveness by saying they must all be grazing somewhere else.  Fine.  However, the Trump administration chasing its trade Unicorns would be well advised to remember that if they exist but are elusive it’s because they have other pastures in which to play.  The Chinese are more than willing to step in to fill the vacuum created by the loss of American leadership in the TPP, and the Mexicans are perfectly willing to increase their trade with Pacific Alliance and Mercosur partners in South America.  They’ve already done so.

The rhetorical sound track of Trump speeches in which we are promised Unicorns (American Made, America First, American Work) is a thin and tinny cover for inept trade talks during which bluster replaces substance and the Unicorns are no more substantial than the empty promises.

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Shopping Season: Ghosts of Christmas Past and Yet To Come

Retailers were pleased with 2016’s holiday shoppers and their willingness to open their wallets.  However, interspersed with the congratulatory messages about sales numbers there were some words of warning:

These are also the worst of times for retail. National chains including Macy’sSearsJ.C. Penney’sKohl’s and Barnes & Noble all suffered absolutely brutal holiday seasons, calling into question what — if anything — they can do to right the ship and compete more effectively in an increasingly digital world.  [RD Jan 2017]

By April 10, 2017 the sounds were still ominous:

There have been nine retail bankruptcies in 2017—as many as all of 2016. J.C. Penney, RadioShack, Macy’s, and Sears have each announced more than 100 store closures. Sports Authority has liquidated, and Payless has filed for bankruptcy. Last week, several apparel companies’ stocks hit new multi-year lows, including Lululemon, Urban Outfitters, and American Eagle, and Ralph Lauren announced that it is closing its flagship Polo store on Fifth Avenue, one of several brands to abandon that iconic thoroughfare.  [Atlantic]

Part of the explanation is obvious — for example mobile shopping increased from 2% of spending to 20% from 2010 to 2016.  The increases in e-commerce is also readily apparent.  The enthusiasm of developers for shopping malls caused massive “over-building” and this fad has collapsed in a heap.  It isn’t more explicitly stated than this:

The number of malls in the U.S. grew more than twice as fast as the population between 1970 and 2015, according to Cowen and Company’s research analysts. By one measure of consumerist plentitude—shopping center “gross leasable area”—the U.S. has 40 percent more shopping space per capita than Canada, five times more the the U.K., and 10 times more than Germany. So it’s no surprise that the Great Recession provided such a devastating blow: Mall visits declined 50 percent between 2010 and 2013, according to the real-estate research firm Cushman and Wakefield, and they’ve kept falling every year since.   [Atlantic]

It’s no mystery why mall visits would decline in the wake of the Housing Bubble/Wall Street Casino collapse, what we should be asking is why the mall visits have kept falling every year since.   And we’re back to the convenience of e-commerce, mobile shopping, and overbuilding argument.  There’s another element involved, and it may be hidden in plain sight, i.e. in the comments from Cowen’s retail recommendations. (pdf)

At the end of the first quarter of 2017 Cowen’s was embellishing its five year store analysis report segment with a rain shower graphic, warning that retailers like JC Penney, and Macy’s might need to close some 20-30% of their stores,  and Kohl’s might look to decrease its operations by about 10%.  There was another rain cloud for malls, associated with the prediction saying 20% of malls would need to be transformed from current operations or closed outright.   So, what received the sunshine graphics?  “Speed, service, and branding,” along with “deep value.”   What’s “deep value?”  Read Cheap.

Outside one questionable thesis stating that the middle class is shrinking because its membership is moving up into upper income brackets, most analysis describes the declines in sectors of the retail market as it relates to the middle income squeeze.

“It’s hard not to see the invisible hand of income inequality reflected in the fortunes of the retail sector. As the gulf between the rich and poor grows, and the middle class shrinks, retailers serving the former are seeing big growth, while those aiming with a middle-class clientele are struggling to bounce back.

The numbers don’t lie: wealth distribution is more uneven than ever. And the middle class is getting smaller with each passing year: According to a study by Pew Research, “From 2000 to 2014 the share of adults living in middle-income households fell in 203 of the 229 U.S. metropolitan areas” examined in the study.  And that bodes poorly for the economy as a whole, as the report suggests that “a struggling middle class could be holding back the potential for future economic growth.” [Balance]

About whom are we speaking?

While discounters and high-end luxury have thrived, department stores serving a more middle-class customer base have struggled. Macy’s (M), Kohl’s (KSS) and Nordstrom (JWN) and single-brand retailers like The Gap (GPS) had terrible quarters and struggled with declining foot traffic and inventory issues.  [Balance] (Aug 2016)

Nordstrum’s as of last February? “Nordstrom continued to see greater difficulties in its premium namesake brand. The Nordstrom brand saw comparable sales fall 2.7%, leading to a 1.1% drop in segment revenue. Strength in women’s apparel and beauty weren’t enough to pull the overall company’s number higher, and the East was the best region geographically. However, the discount Nordstrom Rack concept kept doing well. Revenue was up double-digit percentages for the quarter, and comparable-store sales were up 4.3%.”  [Fool]

The latest news from Macy’s: “Macy’s is looking to use the crucial holiday shopping season as a springboard to reverse 11 straight quarters of same-store sales contraction. A decline in foot traffic at malls and the rise of e-commerce has shaken investor confidence in department stores and led Gennette to slash costs, close stores and reduce inventory. Macy’s is also seeking monetize some of its real estate holdings.”

What do these retail giants have in common?  They both catered to middle and upper middle income shoppers.   Thus no one should be surprised to find job numbers moving up in general while retailers weren’t sharing the optimism. [Dive]  Even Macy’s recent announcement of seasonal hiring was tempered by saying the jobs were temporary.

The Republican offerings on this subject?  Enact a tax scheme which overwhelmingly benefits corporations and upper income individuals.   This is a perfect way to exacerbate the current retail situation wherein the elite stores are doing well, and Dollar General is expanding for everyone else.

Enact a tax scheme which is “territorial” the antithesis of keeping jobs in the United States:  “ It could give a permanent preference to foreign income and lead companies to shift more profits to tax havens knowing that they could permanently avoid virtually all taxation on such profits.”  Again, a permanent tax cut for corporations while raising taxation revenue from everyone else who isn’t a millionaire or billionaire.

So, retail employees, who earn an average of $22,900 per year or about $11.00 per hour, and a third of whom work part time, will see the Great Squeeze continue.   It remains to be seen if those retailers who target middle income earners (Sears, Nordstrum, JCP) will be able to stave off the onslaught of online, e-commerce, deep discount shopping.  And, the GOP will continue to believe in the Growth Fairy coming to the rescue of their highly specious arguments for Trickle Down Hoax economics.   A prediction for the 4th quarter of 2017:  Elves who spent the holiday season cutting prices may see short term gains with yet more indications we’re looking at some more long term losses for middle income America.  In the competition between the Growth Fairy and the Discount Elf — bet on the Elf.

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