The Housing Bubble, Illustrated

This graph comes courtesy of the New York Times Week in Review section. Click on the link in the previous sentence for a larger, viewable version. The graphic is presented without further comment.

Also, there have been some believers in fairies and unicorns who have been predicting that corporate capital investment will offset losses in consumer confidence and spending to save the economy, once the housing bubble crashes and consumers find out they can no longer afford their overextended lifestyles. Yeah, right. All my clients boost capital investment when people are not buying stuff and inventories pile up. Then they cut me checks that bounce and I find new clients.

Seriously, I'm trained in psychology, not economics or finance, but I've become more aware of how my training and experience make me at least as competent to offer comment on these things as the so-called experts are. Markets are just the accumulated actions of people and their perceptions, and that's a matter of psychology. People are not rational and information is never perfect.

I did not see the stock bubble-burst coming, not really, in 2000. That was back when I believed what I heard people say on CNBC.

Now I know better.

Real Wages Fail to Match a Rise in Productivity

The New York Times is now reporting on something I've been writing about on this blog. The article spends a fair amount of time musing over the political implications of all this, but I've deleted that stuff from the quoted article below. This is not a political blog, and the point I'm trying to highlight is economic, even if it has political implications.

I've added a little bit of bolded emphasis to a little bit below, but my main point is one I've made before: in the (in my view, highly likely) event of a forthcoming recession, there is not so much economic resilience through which to weather it in America because the last expansion has benefited only a very few Americans:

By STEVEN GREENHOUSE and DAVID LEONHARDT

Published: August 28, 2006

With the economy beginning to slow, the current expansion has a chance to become the first sustained period of economic growth since World War II that fails to offer a prolonged increase in real wages for most workers.

[snip]

The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.

As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.”

Until the last year, stagnating wages were somewhat offset by the rising value of benefits, especially health insurance, which caused overall compensation for most Americans to continue increasing. Since last summer, however, the value of workers’ benefits has also failed to keep pace with inflation, according to government data.

At the very top of the income spectrum, many workers have continued to receive raises that outpace inflation, and the gains have been large enough to keep average income and consumer spending rising.

In a speech on Friday, Ben S. Bernanke, the Federal Reserve chairman, did not specifically discuss wages, but he warned that the unequal distribution of the economy’s spoils could derail the trade liberalization of recent decades. Because recent economic changes “threaten the livelihoods of some workers and the profits of some firms,” Mr. Bernanke said, policy makers must try “to ensure that the benefits of global economic integration are sufficiently widely shared.”

[snip]

“Some people who aren’t partisans say, ‘Yes, the economy’s pretty good, so why are people so agitated and anxious?’ ” said Frank Luntz, a Republican campaign consultant. “The answer is they don’t feel it in their weekly paychecks.”

[snip]

Economists offer various reasons for the stagnation of wages. Although the economy continues to add jobs, global trade, immigration, layoffs and technology — as well as the insecurity caused by them — appear to have eroded workers’ bargaining power.

Trade unions are much weaker than they once were, while the buying power of the minimum wage is at a 50-year low. And health care is far more expensive than it was a decade ago, causing companies to spend more on benefits at the expense of wages.

Together, these forces have caused a growing share of the economy to go to companies instead of workers’ paychecks. In the first quarter of 2006, wages and salaries represented 45 percent of gross domestic product, down from almost 50 percent in the first quarter of 2001 and a record 53.6 percent in the first quarter of 1970, according to the Commerce Department. Each percentage point now equals about $132 billion.

Total employee compensation — wages plus benefits — has fared a little better. Its share was briefly lower than its current level of 56.1 percent in the mid-1990’s and otherwise has not been so low since 1966.

Over the last year, the value of employee benefits has risen only 3.4 percent, while inflation has exceeded 4 percent, according to the Labor Department.

In Europe and Japan, the profit share of economic output is also at or near record levels, noted Larry Hatheway, chief economist for UBS Investment Bank, who said that this highlighted the pressures of globalization on wages. Many Americans, be they apparel workers or software programmers, are facing more competition from China and India.

In another recent report on the boom in profits, economists at Goldman Sachs wrote, “The most important contributor to higher profit margins over the past five years has been a decline in labor’s share of national income.” Low interest rates and the moderate cost of capital goods, like computers, have also played a role, though economists note that an economic slowdown could hurt profits in coming months.

For most of the last century, wages and productivity — the key measure of the economy’s efficiency — have risen together, increasing rapidly through the 1950’s and 60’s and far more slowly in the 1970’s and 80’s.

But in recent years, the productivity gains have continued while the pay increases have not kept up. Worker productivity rose 16.6 percent from 2000 to 2005, while total compensation for the median worker rose 7.2 percent, according to Labor Department statistics analyzed by the Economic Policy Institute, a liberal research group. Benefits accounted for most of the increase.

“If I had to sum it up,” said Jared Bernstein, a senior economist at the institute, “it comes down to bargaining power and the lack of ability of many in the work force to claim their fair share of growth.”

Nominal wages have accelerated in the last year, but the spike in oil costs has eaten up the gains. Now the job market appears to be weakening, after a protracted series of interest-rate increases by the Federal Reserve.

Unless these trends reverse, the current expansion may lack even an extended period of modest wage growth like one that occurred in the mid-1980’s.

The most recent recession ended in late 2001. Hourly wages continued to rise in 2002 and peaked in early 2003, largely on the lingering strength of the 1990’s boom.

Average family income, adjusted for inflation, has continued to advance at a good clip, a fact Mr. Bush has cited when speaking about the economy. But these gains are a result mainly of increases at the top of the income spectrum that pull up the overall numbers. Even for workers at the 90th percentile of earners — making about $80,000 a year — inflation has outpaced their pay increases over the last three years, according to the Labor Department.

“There are two economies out there,” Mr. Cook, the political analyst, said. “One has been just white hot, going great guns. Those are the people who have benefited from globalization, technology, greater productivity and higher corporate earnings.

“And then there’s the working stiffs,’’ he added, “who just don’t feel like they’re getting ahead despite the fact that they’re working very hard. And there are a lot more people in that group than the other group.”

In 2004, the top 1 percent of earners — a group that includes many chief executives — received 11.2 percent of all wage income, up from 8.7 percent a decade earlier and less than 6 percent three decades ago, according to Emmanuel Saez and Thomas Piketty, economists who analyzed the tax data.

Fed Chief Punts, Orders Pina Colada

When one has no clue what to do, it's best not to do or say anything notable or quotable. Fed Chairman Bernanke followed that rule today. Instead of signaling anything about monetary policy, he gave a political speech:

Mr. Bernanke didn't comment on monetary policy, instead addressing issues concerning the "unprecedented" pace of global economic integration, giving traders who delayed their end-of-summer vacations for the speech -- just in case the Fed chief dropped any bombshells -- the all clear to abandon ship.

"The market didn't get any sense of direction from Bernanke," said Hugh Johnson, chief investment officer at Johnson Illington Advisors. A lack of major economic or corporate news has left "the markets very directionless," he said.

Well, at least we can all enjoy our Labor Day vacations. Oh, and speaking of Labor Day, what did Bernanke have to say in his homily (bloldface emphasis added):

The current episode of global economic integration is moving at an unprecedented pace, forging the basis for productivity growth and a reduction in global poverty, Federal Reserve Chairman Ben Bernanke said Friday.

But in prepared remarks to global monetary officials and private-sector economists, he urged policy-makers to make sure the benefits of globalization are widely shared in order to stem protectionist sentiment.

"Economic and technological changes are likely to shrink effective distances still further in coming years, creating the potential for continued improvements in productivity and living standards and for a reduction in global poverty," Mr. Bernanke said in a speech to the Federal Reserve Bank of Kansas City's annual conference in Jackson Hole, Wyo. (See the full text of Bernanke's prepared remarks¹.)

The subject of this year's event is globalization and its effect on policy. Mr. Bernanke's speech is his first at Jackson Hole since becoming Fed chairman in February.

He didn't address the economic and monetary policy outlook in his prepared speech. The Fed earlier this month paused its two-year tightening campaign with the Fed funds rate at 5.25%. Economists increasingly think the funds rate will peak there, though upcoming inflation and employment reports will be critical in determining the outcome of the September Fed meeting.

Mr. Bernanke noted in his speech that globalization, for all its benefits, leads to some dislocation among certain workers and firms, and "the natural reaction of those so affected is to resist change, for example, by seeking the passage of protectionist measures." He noted that current global tensions and terrorism risks also threaten to constrain globalization.

It's a frequent theme in my writing that I don't regard the notion of the "social responsibility of business" to be a punchline. I'm not a University of Chicago guy. I'm a Wharton guy. I do think that part of responsible business calculation involves assessing the impact of business decisions on people, their lives and their communities. I'm not an anti-WTO protester type, and neither am I one to evaluate strategic business options soley on the basis of what can be reflected numerically on an income statement during a given quarter.

Bernanke's speech is fine, and I expect that over the long term, globalization should lead to reduction in poverty, but if it does so, it won't be because of any magical invisible hand, it will be because leaders make responsible decisions about how to disseminate prosperity while simultaneously promoting safe and healthy working conditions, etc.

When we abdicate moral responsibility or thinking to some magical free market ideology, we take ourselves off the hook. There is always regulation. The fight is always over who benefits from the regulation, and whose voice is heard when the regulations are decided. Living within spitting distance of Washington, DC, perhaps I have fewer illusions about this than many others do.

It is highly profitable in a given quarter or year for businesses to seek out virtual slave labor across the world, and to fight against any trade barriers or regulations that might limit or blunt such exploitation. Making such virtual slave labor available bids down mass market wealth internationally, and the result is weakness in Western economies.

That's why the Fed is in such a bind today: the housing market is busting, the American middle class is weak and not highly prosperous in real terms by historical standards, consumer confidence may very well go south, and there's not a lot of broad economic strength or capital distributed throughout the population to forestall an ugly recession, especially when global energy prices may be set for continuing inflation due to diminishing global reserves and international instability. The Fed is flirting with that old bugaboo, stagflation, and rather than make any market signals, today we get a political speech.

Nothing's been solved, but hey: I, for one, hope to enjoy a lazy end of August.

You May Be Smart, But Can You Do This?

Coffee breaks gets weirder and weirder. . .

Um. . . About That Soft Landing. . .

Empasis added to the original AP text via bolded type:

Existing Home Sales Drop in July

By JEANNINE AVERSA
The Associated Press
Wednesday, August 23, 2006; 10:35 AM

WASHINGTON -- Sales of previously owned homes plunged in July to the lowest level in 2 1/2 years and the inventory of unsold homes climbed to a new record high, fresh signs that the housing market has lost steam.

The National Association of Realtors reported Wednesday that sales of existing homes and condominiums dropped by 4.1 percent in July from June to a seasonally adjusted annual rate of 6.33 million. That was the lowest level since January 2004.

The latest snapshot of housing activity was weaker than analysts anticipated. Economists were forecasting the pace of sales to fall to 6.55 million.

"The housing sector is fragile," said David Lereah, the association's chief economist.

The median price of a home sold last month was $230,000. That was up just 0.9 percent from the same month last year and marked the smallest year-over-year increase since May 1995. The median price is the middle point, where half sell for more and half sell for less.

The inventory of unsold homes in July rose to a record high of 3.86 million. At the current sales pace, it would take 7.3 months to exhaust that overhang. That is the longest period to exhaust the supply of home since the spring of 1993.

On Wall Street, the weak housing report dragged stocks down. The Dow Jones were down 8 points in morning trading.

By region, sales dropped by 5.4 percent in the Northeast. They fell by 5.9 percent in the Midwest and 1.2 percent in the South. Sales declined by 6.4 percent in the West.

Wednesday's report shows that the bloom is off the rose.

For five years running, home sales had hit record highs as low mortgage rates lured buyers. But the housing sector has lost steam this year as mortgage rates have gone up and would-be buyers have grown cautious amid high energy prices and a slowing economy.

Against that backdrop, the Federal Reserve earlier this month decided to halt a rate-raising campaign that had pushed interest rates steadily higher over the last two-plus years to fend off inflation.

The Fed's goal is to raise rates sufficiently to thwart inflation but not enough to hurt the economy.

One of the things that Federal Reserve Board Chairman Ben Bernanke and his colleagues are watching closely is the housing slowdown. If home prices and sales were to crash, that could spell big trouble for the overall economy. Thus far, Bernanke has said the market's slowdown has been fairly orderly and smooth.

Lereah said he still expects a "soft landing" for the once high-flying housing sector. But he urged the Fed to leave interest rates alone and refrain from bumping them up again _ as some analysts have said is a possibility.

The housing sector's transition from a red-hot market to a cool one has important implications for the overall economy.

Consumers who watched their homes rise rapidly in value over the last several years felt wealthy and more inclined to spend. They also borrowed against their homes _ treating them like ATMs _ to support their spending ways.

Two words to the Fed: good luck. Spit on the end of that thread all you want: stuffing it through that needle won't be easy. Soft landing? All the inside analysts are already acknowledging there will be no such thing. This talk about a "soft landing" is moving beyond the wishful thinking stage to the level of propagandistic confidence building. I don't think it's going to work.

One other thing: those median home sales statistics hide a reality of this market: the high end of the real estate market is not feeling the pinch the way the middle band is. The weight of this bursting bubble is being borne by the middle class and working people. Luxury spending is healthier than mass market spending. Since real wages have been stagnant over the recent (ahem) "recovery," and set to remain so, consumer confidence has been bouyed entirely by the real estate market wealth effect. Now with that mirage evaporating, the middle class and just-making-it working families are feeling the pinch the most. Luxury home sales are actually distorting the numbers through that median home sales figure. In other words, this AP article is painting a rosier picture of what's happening out there than is really the case.

Business Travellers and Data Security

Here's an eye-opener. Be a little paranoid about your data when you travel and use business center computers and wireless networks:

Web Surfing in Public Places Is a Way to Court Trouble

By Susan Stellin

Any business traveler who has logged on to a wireless network at the airport, printed a document at a hotel business center or checked e-mail messages at a public terminal has probably wondered, at least fleetingly, “Is this safe?”

Although obsessing about computer security is a bit like worrying about a toddler — potential hazards lurk everywhere and you can drive yourself crazy trying to avoid them — the fact is, business travelers take certain risks with the things they do on most trips.

“If you go into the average hotel and sit down in the business center and have a look at their computer, I’m sure you’ll find some interesting things that people shouldn’t have left behind,” said Paul Stamp, a security analyst with Forrester Research.

“The first step companies need to do is to educate people about how valuable the data is and also how small the circles are in which they travel,” he said, noting how loudly many people discuss business on cellphones, without a thought for who may be nearby.

Or what may be in the air. Robert Vamosi, a senior editor with the online technology publisher CNET, said wireless networks at airports — or for that matter, hotels or cafes — are not as secure as most people think.

“Someone may have some software on their computer that allows them to look at all the wireless transactions going on around them and capture packets that are floating between the laptop and the wireless access point,” he said.

These software programs are called packet sniffers and many can be downloaded free online. They are typically set up to capture passwords, credit card numbers and bank account information — which is why Mr. Vamosi says shopping on the Web is not a great way to kill time during a flight delay.

“Where I’d draw the line is putting in your bank account information or credit card number,” he said, adding that checking e-mail messages probably is not that risky, but if you want to be cautious, change your password once you are on a secure connection again.

That said, if you gain access to your corporate network through a V.P.N., or virtual private network, you are safer using public hot spots, because your data is encrypted as it travels between Gate 17 and your office’s server, where it is decoded before going to its destination.

In other words, your communications are automatically encoded by software on your computer so the data looks like gibberish to anyone trying to intercept it. If your company does not offer a V.P.N. for employees working away from the office, there are services you can subscribe to for about $10 a month that do the same thing.

Michael Sellitto, a graduate student studying international security at Harvard, said that even though he encrypted any sensitive data on his laptop, he planned to sign up for a service like HotSpotVPN to add another level of security when he is traveling, especially when using poorly protected networks at cafes and hotels.

“The problem is, the really good people have written sniffer programs so that the less-sophisticated people have access to the same technology,” Mr. Sellitto said. “Say a Microsoft Word document gets transmitted. The sniffer program will collect that and someone could open it up on their computer.”

While it is hard to say how likely it is that someone is lurking on a public network, many public networks do not have adequate security.

Last fall, InfoWorld magazine published an article about a security researcher who managed to collect more than 100 passwords, per stay, at hotels with lax security (about half the hotels she tested).

Gathering reliable statistics about security breaches is notoriously difficult, since companies are reluctant to reveal this information. Still, the most recent computer crime and security survey, conducted annually by the Computer Security Institute with the Federal Bureau of Investigation, found that the average loss from computer security incidents in 2005 was $167,713 per respondent (based on 313 companies and organizations that answered the question).

As Jim Louderback, editor of PC Magazine, noted, the statistics may not matter given the problems one data breach can cause.

“Even if it’s 1 or 2 percent,” he said. “You don’t want to run that risk.”

Using a public computer can also mean courting trouble, because data viewed while surfing the Web, printing a document or opening an e-mail attachment is generally stored on the computer — meaning it could be accessible to the next person who sits down. (To remove traces of your work, delete any documents you have viewed, clear the browser cache and the history file and empty the trash before you walk away.)

“You also run the risk that somebody has loaded a program on there that can capture your log-ins and passwords,” Mr. Louderback said, recalling an incident a few years ago when a Queens resident was caught installing this type of “key logger” software on computers at several Kinko’s locations in New York.

One way to foil these programs, which record what you type and can send the transcript to a hacker, is to use a password manager like RoboForm. This $30 software encrypts all your user names and passwords for various Web sites, then enters the data at the click of a mouse when you are prompted to log in.

Chuckles: Will Ferrell Spoofs an Apple Ad

I couldn't resist:

Does Money Buy Happiness?

Not according to this Wall Street Journal column (online subscription required):

In recent years, economists and psychologists have turned their attention to "happiness research" -- and the results are a little disturbing if your life's goals are a bigger paycheck and a fatter nest egg. Money alone, it seems, just doesn't buy a whole lot of happiness.

• It's all relative. To be sure, high-income earners often express greater satisfaction with their lives. In a 2004 survey, 43% of those with family incomes of $90,000 or more reported being "very happy," versus 22% for those with incomes below $20,000.

But the truth, it seems, is messier than such surveys suggest. Yes, if you live in poverty, more money can bolster your happiness.

"But once you're safe and warm and fed, it makes surprisingly little difference," says David Schkade, professor of management at the University of California at San Diego. "Once you get to the lower-middle class, then it takes a lot of income to make a difference. Income does matter, just not as much as people think."

Indeed, despite rising standards of living, just 30% of Americans described themselves as "very happy" in the late 1990s, down from 34% in the early 1970s, according to a study by economics professors David Blanchflower and Andrew Oswald that appeared in the Journal of Public Economics in July 2004.

Faced with this sort of data, researchers have speculated that our happiness is influenced not by our absolute level of wealth and income, but rather by how our financial situation compares with friends and colleagues.

[snip]

This raises the question: If more money won't make us much happier, what will? Here are four pointers.

• Keep your commute short. Tempted to use your latest pay raise to buy a big house in a distant suburb? Don't do it.

While we often adjust amazingly well to life's hardships, commuting is an exception. "You can't adapt to commuting, because it's entirely unpredictable," says Daniel Gilbert, author of "Stumbling on Happiness" and a psychology professor at Harvard University. "Driving in traffic is a different kind of hell every day."

• Choose time over money. Cutting back the hours you work will likely leave you happier, even if it means less pay.

What about the fall in your standard of living? It may hurt less than you imagine. True, you are thrilled when you buy a new car. Soon enough, however, the good feelings fade and you're taking the new car for granted. Academics call this "hedonic adaptation."

• Think carefully about how you spend your dollars. While a new car may not boost your happiness for long, maybe a trip to Europe would.

"Money itself doesn't make you happy," Prof. Gilbert says. "What can make you happy is what you do with it. There's a lot of data that suggests experiences are better than durable goods."

The car might seem like the better purchase, because it has lasting value. But, in fact, it sits in the driveway, slowly deteriorating. "Experiences don't hang around long enough to disappoint you," Prof. Gilbert says. "What you have left are wonderful memories."

• Use your leisure time wisely. Surveys show that leisure is better for your happiness than work. But much also depends on how you spend your leisure time.

Passive activities like watching television usually don't make folks as happy as eating. A good meal, in turn, doesn't rank quite as highly as active leisure activities, such as socializing with friends.

"Going to a dinner at a nice restaurant, where you're going to see friends and eat good food, is one of the best combinations," Prof. Schkade says. "The French know what they're doing, when it comes to how to enjoy a good meal."

Distributed Versus Centralized Leadership

I've been meaning to write about this for a while, but haven't because I need to sit and focus to work out my ideas. But then I realized, that's what writing is for!

Some ideas:

• The rise of information technology has made information available to the widest reaches of organizations.
• Such information used to be the sole possession of a management class of experts.
• These experts made decisions for organizations because they had the necessary information. They tended to control the actions of their organization members more directly. That's what "supervision" was all about: watching over someone, from the latin roots of the English word.
• I'll call this model of organization Centralized Leadership, emphasizing decisions made by experts who watch over and control the actions of others.

So, far. so good. This is pretty familiar territory for a lot of people. Now there's more:

• But in the information age, there is now too much information for any one person to be the sole expert anymore. Front line organization workers now know more about how to do their jobs than their supervisors often do, and they have access to information systems that enable them, potentially, to make meaningful decisions once made only by managers and supervisors.
• This changes the role of management to what I'm calling a Distributed Leadership model. Leaders in the new environment are no longer the highest subject matter experts with all the information. Information systems now hold and distribute information relevant to decision making. Effective leaders in this environment are now the coaches who teach organization members the best approach to decision making, informed by organizational priorities, strategy and values.
  

Even this is relatively familiar territory, so far. But what is this "Distributed Leadership" idea?

• Because front line organization members have access to information and are making decisions, not only do they obtain decision making guidance and coaching from their managers, but they perform something of the same role for each other. Mini-experts ask other mini-experts for help and guidance all the time, especially when they work closely together.
  
• In other words, the function of leadership is no longer the wholly owned role of the manager or boss in an organization chart. The practice of good leadership - the guidance and development of others in support of peak performance toward some larger, organizational goal - is now distributed throughout the organization.
  
• The distinction, therefore, between designated "leaders" and those who are led in an organization is becoming less meaningful due to the continuing implications of making more decision relevant information available to those anywhere in an organization.
  

This then has the following implication:

• Therefore, the most successful leaders in organizations where information is highly distributed (a category that now includes most modern businesses) are those who can not only guide others in making wise decisions with the information available to them, but those who can also guide others in the practice of distributed, lateral leadership.
  
• Accordingly, the best managers and supervisors now define their role as one where they must teach team members to recognize and encourage the talents and abilities of those around them, fostering each other's mutual growth.

Conclusion:

• The most effective information age leaders are coaches and teachers of peer-leadership practice among their direct reports. The Information Age is an age of Distributed Leadership for the most effective leaders and organizations.
  

This Guy Wouldn't Quit

Recent Expansion Shows Weakest Job Growth in 40 Years?

Via email, from Hale Stewart. If his analysis is correct, and we're coming off the weakest job expansion in 40 years, then the US economy is rather vulnerable and not so very resilient, should the fall of the housing market have a real effect on consumer confidence, coupled with inflationary pressure:

From the BLS:

Total nonfarm payroll employment increased by 113,000 in July, and the unemployment rate rose to 4.8 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Job gains occurred in several service-providing industries, including professional and business services, health care, and food services. Employment also rose in mining. Average hourly earnings rose by 7 cents, or 0.4 percent, in July

So, once again the official number comes in low. This has been a consistent trend for this entire expansion. But how does this expansion stack up? Maybe it's really a good recovery from a historical perspective.

Well - no. From a historical perspective, this expansion has the worst record of job creation in 40 years.

Below are the beginning and ending dates for every economic expansion since 1961. I have not included the first expansion after 1981 because of the second contraction which occurred shortly after the end the first recession. In addition, I have included the beginning number of establishment jobs, the end number of establishment jobs, total jobs gained and the compound rate of establishment job growth for each expansion. The information comes from the Bureau of Labor Statistics website.

2/61 - 12/69
Beginning number of jobs: 53,556,000
Ending number of jobs: 71,240,000
Total Jobs Created: 17,684,000
Compound rate of establishment job growth: 3.283%

11/70 - 11/73
Beginning number of jobs: 70,409,000
Ending number of jobs: 77,909,000
Total Jobs Created: 7,500,000
Compound rate of establishment job growth: 3.43%

3/75 - 1/80
Beginning number of jobs: 76,649,000
Ending number of jobs: 90,800,000
Total Jobs Created: 14,151,000
Compound rate of establishment job growth: 3.56%

11/82 - 7/90
Beginning number of jobs: 88,770,000
Ending number of jobs: 109,773,000
Total Jobs Created: 21,003,000
Compound rate of establishment job growth: 2.8%

3/91 - 3/01
Beginning number of jobs: 108,542,000
Ending number of jobs: 132,504,000
Total Jobs Created: 23,962,000
Compound rate of establishment job growth: 2.01%

11/01 - ?
Beginning number of jobs: 130,883,000
Ending number of jobs: 135,343,000
Total Jobs Created: 4,460,000
Compound rate of establishment job growth: .71%

Notice there are two expansions of shorter duration that created 1.7 times and 3.2 times the number of establishment jobs as the recent expansion.

Because all of these expansions lasted various lengths of time, the compound rate of job growth is the best way to compare one expansion to another.

Music: Sarah Vaughn

Longtime subscribers to "What's Up, Doc?" will know I've often recommended music or done little movie reviews. Here's a little classic Sarah Vaughn from 1951. Have a great weekend!

Economy Watch: Why the Real Estate Obsession?

The Big Picture answers the question:

Mortgage Apps drop 29% Y-Y

We were recently asked why we have become so "Real Estate obsessed."

That's the wrong question. Given how significant Housing has been to job creation and consumer spending, the right question is "Why aren't you more obsessed with Real Estate."

Let's look at the most recent mortgage data as an example: This morning, the Mortgage Bankers Association (MBA) released its Weekly Mortgage App Survey (week ending July 28) called the Market Composite Index. Its a measure of mortgage loan application volume.

The most recent data showed a sequential decrease of 1.2% (seasonally adjusteded) -- the lowest the index has been since May 2002. It was the 3rd straight week of slumping overall mortgage activity, despite interest rate declines over the same timeframe.

On an unadjusted basis, the Index decreased 29.0% compared with the same week one year earlier.

Hence, our obsession.

Mortgage apps are but one of many indicators of the ongoing housing market slowdown. New Home Sales were down 11% in the past year, while Existing Home Sales were down 8.9%. Both Housing starts (down 11%) and Home Builders' Sentiment Index (down over half -- off 41 points in the past year to 39) to levels also suggesting a dramatic cooling in Real Estate.

As the same blog pointed out last year, half of new American jobs created during the most recent wave of growth have been real estate related. Rising home values have fueled consumer confidence through the famous wealth effect, but if that fades, based purely on consumer emotion and perception, consumer spending could cool quite notably. Every American industry, and the world economy, will feel the effects.

Content is King (Again)

The Wall Street Journal is reporting that AOL has made a strategic shift to give away AOL software and email accounts in order to keep people interfacing with the Internet under the AOL umbrella of brands. This shift has been a long time coming, as sales of Internet access through AOL were sinking. That means the company that built its brand on providing Internet access has officially become a content and advertising sales company. Content is, once again, king.

Because content is king, the keepers of the cables and infrastructure on the Internet - the telecoms like Verizon and at&t - want to be able to chop up differential, preferred ease of access to premium-paying content providers, leaving small players, innovators and non-profits in the sloooooow lane. That's what the whole fight about "net neutrality" is about. If the telecoms get their way, further suppressing small business innovation by letting the big players get preferrred access to future customers, expect many more American businesses to suffer what Ford is now experiencing as time goes by. Unfortunately, however, many big boardrooms don't think about the long term as clearly as they review the short term.

Here's a little piece of the Wall Street Journal article today (online subscription required):

Time Warner Swings to a Profit,
Announces Major Shift at AOL

A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
August 2, 2006 9:09 a.m.

Time Warner Inc. said it swung to a profit in the second quarter after it recorded a charge for settling securities litigation a year earlier, and the company announced that AOL will give away email accounts and software to broadband users in a major strategy shift aiming to draw more advertising dollars.

For the quarter, the New York-based cable and media concern reported net income of $1.01 billion, or 24 cents a share, compared with a year earlier, when the company posted a loss of $409 million, or nine cents a share, on a litigation-related charge. Its cable-and-networks segment led profit growth.

Time Warner said its adjusted operating income before depreciation and amortization, which now includes the impact of the Adelphia acquisition, will rise by a low double-digit amount.

Time Warner's cable-television business grew, thanks to more high-speed Internet and digital-phone customers, offsetting weakness at AOL. Advertising, though a relatively small part of AOL's revenue, saw a 40% boost in the second quarter, while the unit's overall revenue declined 2%.

"We've listened to our customers, and many of them want to keep using these AOL products when they migrate to broadband -- but not pay extra for them,'' said Jeff Bewkes, Time Warner's president and chief operating officer.

Toyota Passes Ford in US Sales

Well, I've been writing about the influence of rising energy costs on US consumers, and about the growth opportunities for businesses that help the trend toward green products, even reducing carbon emissions. Enter Toyota, winning in the US based on fuel efficiency. And Ford continues to flounder. Now comes this from Bloomberg:

Toyota Passes Ford, Leads Asian Brands to U.S. Record (Update2)

Aug. 2 (Bloomberg) -- Toyota Motor Corp. outsold Ford Motor Co. in July to rank as the No. 2 automaker in the U.S. for the first time, helping Asia-based companies win record market share as buyers shift to fuel-efficient models.

Toyota, which trails only General Motors Corp. in global sales, sold 241,826 vehicles in the U.S., up 12 percent from a year earlier, and 427 more than Ford. Gains of 6 percent for Honda Motor Co. and 6.2 percent for Hyundai Motor Co. helped the Asian companies boost their market share to 41.4 percent from 33.1 percent a year earlier, according to Bloomberg data.

``It's a different world. GM by itself used to have half the U.S. market,'' said Walter McManus, director of the University of Michigan's Office for the Study of Automotive Transportation. ``Sales are being driven by fuel costs, fuel efficiency, passenger cars. Toyota, and Honda to a lesser extent, added trucks but kept solid portfolios of cars.''

Toyota has benefited this year from demand for fuel- efficient cars such as the Corolla and Scion models and RAV4 small sport-utility vehicles as gasoline prices have stayed near $3 a gallon. As Toyota prepares to add capacity to build about 500,000 more cars and trucks in North America, GM and Ford are cutting a combined 60,000 U.S. union jobs and closing 26 locations to try and halt losses in the region.

The US is losing the innovation battle by failing to accept reality: energy costs are not going to come down much over the longer term unless new technologies are created. And yet, the oil lobby fights tooth and nail for any regulatory giveaways it can get to maintain its death grip on windfall profits and federal giveaways for as long as it can. I see a lot of this, with my proximity to Washington DC, in ways many people just don't see. The selfish, protectionist instincts of big American businesses are killing innovative American business writ large.

Real leadership accepts reality, and actualy leads businesses in directions that not only serve profits and shareholders, but the common good. These are not and need not be divergent goals. We used to know that in American business, historically. But now, American business has lost much or all of its former good sense. I agree with Leo Hindery: America's leadership class in business has lost its moral compass. It's good business to do, well, good business.

Here's an example of another well paid for, well lobbied giveaway to the oil lobby, passed by the US SEnate, but not yet cleared through the House of Representatives. The Gulf coast is so overdeveloped, with so few wetlands left intact, that another big hurricane season (as predicted) could bring more havoc and death again this summer. More offshore drilling will only weaken the Gulf Coast area's coastal integrity. From the Wall Street Journal (subscription online required):

Senate Clears Gulf-Drilling Bill,
Setting Up Showdown With House

By LAURA MECKLER
August 2, 2006

WASHINGTON -- The Senate approved legislation that would open 8.3 million acres in the Gulf of Mexico to oil-and-gas exploration, splitting with the House over the scope of new drilling and casting final passage into doubt.

A House-passed energy bill would allow drilling up and down the Pacific and Atlantic coasts, 356 million acres in all, lifting a moratorium that has been in place for a quarter-century. Senate Democrats vowed to block any compromise, insisting that the House accept the Senate version.

The Senate bill passed 71-25, with supporters saying it will increase domestic supply and ultimately drive down the price of gasoline. "In this case, the benefit so outweighs the risks... that we should have a stampede, not a vote," said Sen. Pete Domenici (R., N.M.), chairman of the energy committee. The oil and natural gas available has "USA stamped all over it," he said, but "we have been sitting idly by year after year saying no, no, no because we want a moratorium to protect against something that needed no protection."

Lengthy negotiations produced a measure that could clear the Senate -- where drilling bills have died in the past. The bill provides protections for Florida, barring any drilling within 125 miles of the state's coastline, with the buffer zone even greater in some areas. It allows Louisiana and three other Gulf states -- Texas, Mississippi and Alabama -- to share in energy-production royalties for the first time; at present, the money goes entirely to the federal government.

That money will be "so important" in helping rebuild and secure the coastline, said Sen. Mary Landrieu (D., La.), who helped pull the deal together.

Senate Majority Leader Bill Frist engineered the debate to bar any amendments to the bill, denying lawmakers the chance to try to attach conservation and other measures to the legislation.

Opponents objected to the royalty provisions, which would provide tens of millions of dollars for coastal restoration, saying it was a windfall for four states at the expense of the others. Sen. Mark Dayton (D., Minn.) called it "nothing more than a special-interest boondoggle."

Over the next 10 years, the measure would generate $1.5 billion in royalties, according to an estimate by the Congressional Budget Office. The federal government would keep half, with 37.5% going to the Gulf Coast states and 12.5% going to land- and water-conservation funds in all 50 states.

The measure drew opposition from environmentalists, who want to keep the drilling restrictions in place to protect fragile coastlines. It was supported by business groups, who argued that additional supply will bring down prices.

Quotes of Note

"Self-pity in its early stages is as snug as a feather mattress. Only when it hardens does it become uncomfortable." -- Maya Angelou

"If you practice an art, be proud of it and make it proud of you . It may break your heart, but it will fill your heart before it breaks it; it will make you a person in your own right." -- Maxwell Anderson

"Not to engage in the pursuit of ideas is to live like ants instead of like men." -- Mortimer Adler