U.S. Birth Rate Falls to 100-Year Low

August 28, 2010

http://www.usatoday.com/news/health/2010-08-27-birth-decline_N.htm?loc=interstitialskip

Now for a little good news for a change.  As reported in the above-linked USAToday article, the National Center for Health Statistics reported on Friday that the birth rate fell in the U.S. in 2009 by 2.7% to 13.5 births per 1,000 people, its lowest level in a century. 

“When the economy is bad and people are uncomfortable about their financial future, they tend to postpone having children. We saw that in the Great Depression in the 1930s and we’re seeing that in the Great Recession today,” said Andrew Cherlin, a sociology professor at Johns Hopkins University.

This is great news – a significant improvement from the 14.14 birth rate at the time that I wrote Five Short Blasts – but still above the rate of 12.73 needed to reach stability in the native population.  But just as significantly, as the professor observed above, it’s proof that peoples’ decisions about whether to have more children is indeed influenced by economic conditions.  I have had people argue that there is no such effect, and they offer the example of single mothers on food stamps and welfare who continue to have more and more children.  While there may be isolated examples like that, the overall decline in the birth rate is proof that they are wrong.  This is significant because it’s proof that population management policies aimed at achieving stability through economic incentives, as I proposed in Five Short Blasts, will indeed work without the need to resort to coercive, draconian measures like the one-child policy employed by China.

But, alas, the article goes on to bemoan falling birth rates as some sort of economic threat:

The downward trend invites worrisome comparisons to Japan and its lost decade of choked growth in the 1990s and very low birth rates. Births in Japan fell 2% in 2009 after a slight rise in 2008, its government has said. 

Not so in Britain, where the population took its biggest jump in almost half a century last year and the fertility rate is at its highest level since 1973. France’s birth rate also has been rising; Germany’s birth rate is lower but rising as well. 

“Our birth rate is still higher than the birth rate in many wealthy countries and we also have many immigrants entering the country. So we do not need to be worried yet about a birth dearth” that would crimp the nation’s ability to take care of its growing elderly population, Cherlin said.

 Very true, we do not have to worry about a “birth dearth” if nothing changes.  However, we do have to worry about the consequences of overpopulation, not least of which is declining per capita consumption and a corresponding rise in unemployment and poverty.

I’ll take the “birth dearth” any day.


2nd Qtr. GDP Hints at Slow-Motion Depression

August 28, 2010

The Commerce Department released it’s latest revision to 2nd quarter GDP yesterday, cutting it from an annual growth rate of 2.4% to just 1.6%.  So I’ve revised my figures for real per capita GDP, both with and without stimulus spending.  (It’s important to track the latter as an indication of what’s happening in the underlying economy, and what will happen when the stimulus spending ends.)  Here’s the updated chart:

Real Per Capita GDP

Strip away the stimulus spending, and real per capita GDP (GDP adjusted for population growth) fell at an annual rate of 3.8%.  This is faster than the rate of decline during any quarter of the financial melt-down that took place from the 1st quarter of 2008 through the 3rd quarter of 2009.  Real per capita GDP, with stimulus spending factored out, is now down by 8.7% from its peak in the 4th quarter of 2007.  Over the last five years, dating back to the 3rd quarter of 2005, real per capita GDP with stimulus spending removed has risen in only five quarters out of twenty. 

GDP declines during the Great Depression were much worse:

  • 1930:  – 8.6%
  • 1931:  – 6.4%
  • 1932:  – 13%
  • 1933:  – 1.3%

A decline of 3.8% (with stimulus spending factored out) doesn’t rise to these levels.  But a decline of 8.7% from its peak 2-1/2 years ago does, although it’s happening at a slower pace.  So it begs the question:  is the U.S. trapped in a slow-motion version of the 1930s Great Depression?  As the stimulus spending winds down by the end of this year, we’ll have a better idea.  But given the huge decline in the housing market following the expiration of the tax credits, the soaring trade deficit, the slow-down in manufacturing and rising first-time jobless claims, it’s not looking good.


More Band-Aids for Trade Policy Arterial Bleed

August 26, 2010

http://www.reuters.com/article/idUSTRE67P0M620100826

The above-linked Reuters article details yet another in the long-running series of “get tough” trade initiatives that are designed more to create the impression of doing something about our trade imbalance and less about doing anything substantive about it. 

I don’t need to go on.  The first comment at the end of the article is mine and pretty much says it all.


You Heard It Here First – 2nd Qtr. GDP Stoked by Stimulus Spending

August 24, 2010

http://www.reuters.com/article/economicNews/idUSN2426976220100824

Forgive me for taking a moment to toot my own horn but, in the Reuters article for which I’ve provided a link above, Reuters has finally taken note of the same thing I reported on August 5th – that 2nd quarter GDP was propped up by enormous stimulus spending, without which the economy may very well have sunk back into recession.  (See https://petemurphy.wordpress.com/2010/08/05/shocking-2nd-quarter-gdp-report-points-to-further-recession/)

The real story here is that, with stimulus spending ebbing fast, the economy is in very serious trouble, a point that each new economic report seems to be driving home.  And with each passing day, the Obama administration seems increasingly delusional in its belief that the economy is slowly on the mend.  No wonder that Obama supporters are rapidly losing faith.  Just as sadly, Republicans seem just as clueless about the need to fix broken trade policy.  Batten down the hatches.  We’re in for a hell of a storm!


$US-MXN Exchange Rate vs. U.S. Balance of Trade with Mexico

August 24, 2010

Continuing my series that examines the correlation (or lack thereof) between currency exchange rate and its effect on the balance of trade between the U.S. and various nations, we now turn our attention to Mexico.   Here’s the chart of currency exchange rate (between the dollar and the Mexican peso, or “MXN”) vs. the balance of trade between the U.S. and Mexico.

$US-MXN Rate vs Balance of Trade

This is the strangest chart we’ve seen yet, for a lot of reasons.  First of all, in 1993, Mexico devalued their currency by a factor of 1,000, lopping three zeroes from the value of the peso.  Secondly, the North American Free Trade Agreement (NAFTA) went into effect at the beginning of 1994.  The result is that a tidy surplus of trade with Mexico instantly vanished, to be replaced by a rapidly exploding trade deficit.

So, from 1990 through 2009, the American dollar actually soared by almost 5,000%, and our balance of trade went from surplus to a huge deficit.  This is what economics would predict.  However, when we do a year-by-year analysis, we find little correlation between exchange rate and the balance of trade.  There were some years in which the dollar fell; yet the trade deficit continued to worsen dramatically.  Exactly 50% of the time, the balance of trade moved as economists would predict in reaction to changes in currency valuation, while it moved in the opposite direction the other 50% of the time.  For this reason, I’ve given the exchange rate between the U.S. and Mexico a score of “no correlation” on our correlation tracking chart:

Theory Correlation Score

This may not seem fair, since there seems to be a strong correlation when the whole 19-year time span is considered.  A much stronger dollar coincides with a much worse balance of trade.  But “coincides” seems to be a good choice of words because it seems to be nothing more than pure coincidence.  The fact is that a long-term trend of deteriorating economic conditions in Mexico has continued to erode the value of their currency, in spite of their enormous trade surplus with the U.S., keeping wages depressed and exacerbating the trade imbalance.  Under normal circumstances, such a large trade surplus should have resulted in rising wages in Mexico, eventually leading to the restoration of something closer to a balance of trade.  But Mexico’s slow but steady backward march from developing nation to 3rd world status prevents normal economic mechanisms from functioning.

So Mexico lands right on the trend line that has been taking shape as we’ve added more countries to this analysis.  The balance of trade with nations with a relatively low population density seem to respond as economists would predict to currency valuation changes, as evidenced by a correlation score greater than 0.5.  But, for more densely populated nations, the correlation falls below 0.5 and there is no tendency whatsoever for trade imbalances to improve in response to a falling dollar.

Next up:  the U.K.

*****

Currency exchange rate data provided by www.oanda.com/


$US-DEM/EUR Exchange Rate vs U.S. Balance of Trade with Germany

August 17, 2010

Continuing our series of examining the effect of exchange rate on the balance of trade between the U.S. and its major trading partners, we now turn our attention to Germany.  Previously, we have seen that the effect of changes in the exchange rate on the balance of trade has been as economists would predict when the U.S. is dealing with countries roughly equal in population density or less densely populated – countries like Australia, Canada, Brazil and Colombia.  When the dollar falls, our balance of trade improves, and vice versa.  However, the predicted effect seems to break down when dealing with nations far more densely populated – nations like Japan and China.  Changes in the currency exchange rate seem to have no effect whatsoever or, if anything, yield the opposite effect.  That is, a decline in the dollar is more likely to result in a worsening of America’s balance of trade.  Or more likely, a worsening trade deficit yields a decline in the dollar, as economists would predict, but that decline is powerless to offset the effects of population density disparity and reverse the deficit, contrary to what economists would predict.

So let’s see what happens in America’s trade with Germany, another nation far more densely populated than the U.S., by a factor of 7.  Here’s a chart of the U.S. balance of trade with Germany vs. the exchange rate between the dollar and the Deutschmark (prior to 1998) and the dollar and Euro (following the adoption of the Euro in 1998). 

$US-DEM&EUR Rate vs Balance of Trade

In the case of Germany, there is no correlation, positive or negative, whatsoever.  Exactly 50% of the time, the balance of trade responded as predicted by economists in response to changes in the exchange rate.  But the other 50% of the time, changes in the exchange rate yielded the opposite result.  And look at the changes over the full period of time for each currency.  From 1990 to 1997, a small 7% rise in the dollar (from 1.61 DEMs to 1.73 DEMS) resulted in a 62% worse trade deficit – much worse than the small rise in the dollar would predict.  But from 1998 through 2009, a 21% decline in the dollar from .92 EURs to .727 EURs yielded only a 7.6% improvement in the trade deficit.  By far, most of that decline in the deficit was due to the global economic crisis that took hold in late 2008.  If we take away 2009 trade results, a 21% decline in the dollar actually resulted in a 40% worse trade deficit with Germany.  Were it not for the global economic crisis in 2009, we would conclude that the effect of a falling dollar is actually contrary to what economists predict. 

Here’s an update of the correlation tracking mechanism, with these results for Germany now included:

Theory Correlation Score

As you can see, a trend is taking shape.  When dealing with countries of similar population density, the correlation score tends to be greater than .5, indicating that changes in exchange rate produce the changes in trade balance that ecnomists predict.  But, when the trading partner is more densely populated (and the break seems to occur at about 2.0, when nations are at least twice as densely populated as the U.S.), the effect breaks down, and a weakening dollar has virtually no effect on reversing trade deficits. 

On the other hand, my theory of the effect of population density on per capita consumption and on trade imbalances has accurately predicted in all but one case so far (trade between the U.S. and Colombia) whether the trade imbalance would be a surplus or deficit. 

Next up:  Mexico.

*****

Exchange rate data provided by http://www.oanda.com/


June Trade Deficit Hi-Lites Futility of Obama Trade Policy

August 13, 2010

http://www.census.gov/foreign-trade/Press-Release/current_press_release/ft900.pdf

I’ve been gone for a couple of days and am just catching up on Wednesday’s news about the trade deficit.  (A link to the report is provided above.)  I just about fell over when I heard the report on the news.  The trade deficit exploded in June to $49.9 billion from $42 billion in May, by far the worst montly trade deficit since the beginning of the global financial crisis in October, 2008. 

As bad as it sounds, the details are even worse.  Swings in the deficit have often been the result of a big change in oil imports.  But, in June, petroleum imports actually fell by almost a billion dollars.  The deficit in non-petroleum goods exploded by 24% from $32.2 billion in May to $40 billion in June. 

Exports fell by 2.2%, though exports remain pretty much on track for meeting the president’s goal of doubling exports in five years.  But any improvement in exports has been swamped by imports.  Here’s the charts:

Obamas Goal to Double Exports, 1st year          Obamas Goal to Double Exports

Those two charts don’t look all that alarming until the balance of trade is plotted:

Balance of Trade

When the president took office, the trade deficit was in free-fall, right along with the rest of the global economy.  Four months after he took office, it fell to less than $25 billion – little more than a third of its all-time high before the onset of the recession.  This alone probably had more to do with stabilizing the economy than anything associated with the stimulus plan.  But since then, in only 13 months, the trade deficit has more than doubled and the economy is on the brink of sinking back into recession. 

The president’s economic strategy is in shambles.  He naively counted on nations like China, Germany and Japan to honor their pledges to depend less on exports and more on growth in their domestic economies.  And he crossed his fingers and proclaimed that we’ll double exports in five years.  All in the hope of restoring some balance to the global economy.  Predictably, this strategy is proving to be an abysmal failure.  What little boost manufacturing has gotten from some growth in exports has been dwarfed by a tidal wave of imports.  Unemployment remains stubbornly high and a mountain of stimulus spending has barely kept GDP out of the red.  The economy stands once again at the brink.


Time to Modify the 14th Amendment

August 9, 2010

http://www.npr.org/templates/story/story.php?storyId=129007120

The Sunday morning political talk shows like ABC’s “This Week” (hosted yesterday by Christiane Amanpour) and NBC’s “Meet the Press” all took note of Lindsey Graham’s recent proposal to modify the 14th amendment so that children born to illegal immigrants aren’t automatically granted citizenship, removing a lure for people to enter the U.S. illegally to have “anchor babies.”  Almost universally, he and fellow Republicans are being derided as extremists, willing to play games with the U.S. Constitution in a cynical bid to score points with constituents riled up by the whole Arizona immigration law debate. 

They are not extremists; Lindsey Graham should be commended for taking on an issue that’s long, long overdue; the majority of Americans agree; and, though the constitution is a work of genius, it’s rapidly becoming antiquated and ambiguous.  Our founding fathers could never envision the day when money would be equated with “speech,” when multi-national corporations would be considered “the people,” and when invading hordes would be granted citizenship. 

If the founding fathers were all-knowing, the constitution wouldn’t need to have been amended in 1868 with the 14th amendment to assure that southern states would grant citizenship to slaves and their children, people brought here forcibly.  Nor could the writers of the 14th amendment have envisioned that, one day, their amendment would be used to lure people here illegally.  Consider that, under the 14th amendment, any children born to the families of an invading army, if born on U.S. soil, would automatically be granted citizenship, even if the invading country were eventually defeated and driven out.  The situation with illegal immigrants is little different. 

In addition, at a time when our founding fathers scarcely understood the extent of the still-unexplored western reaches of our continent, they could never possibly conceive of the day when our land would become so populated that we’d be utterly dependent on hostile, foreign sources of energy for our very survival while congress sat idly by and did nothing about it.  Not to mention the effect upon the economy, steadily driving more of our people into poverty and dependence on government assistance.  If they could have envisioned such a time, they may very well have included in the constitution a provision for congress to enact population policy and manage our population.  (See https://petemurphy.wordpress.com/more-good-stuff/29th-amendment-to-the-constitution-of-the-united-states/)

I was particularly struck by the very last two paragraphs of the above-linked article:

But Rep. Brian Bilbray (R-CA) says it’s been more than a century since the Supreme Court has weighed in on the issue — and it’s long overdue. Bilbray has been fighting since the 1990s to change the 14th Amendment citizenship clause. He says in these tough economic times, the law must be reviewed.

“When you say there’s not enough to go around for those who are here legally — or those playing by the rules — you sort of say, ‘Why do we continue to have an enticement to encourage people to break the law?'” he says.

Unbelievable!  A politician who understands the crux of the situation!  Clearly, there’s not enough to go around – not enough jobs, not enough energy, not enough capacity in the environment to absorb greenhouse gases.  I could go on.  And if there’s not enough to go around, why in the world do we encourage more and more to come here? 

A couple of years ago, as an independent, I encourage others to vote for our president, based on his promise to begin fixing broken trade policy and based on the fact that there was no difference between him and his opponent on the subject of illegal immigration.  Since then, the president has reneged on his promise and has actively worked to thwart efforts to stem the tide of illegal immigration.  And since then, Republicans have been shifting their stance on illegal immigration, sensing that a solid majority of Americans, even including a large minority of Hispanics, want to see illegal immigration addressed without resorting to amnesty for illegals. 

I hope that the Republicans are serious about this effort and not just pandering to the electorate.  The constitution is in serious need of modernization and the 14th amendment would be a perfect place to start.


Employment Level Falls for 3rd Straight Month in July

August 6, 2010

http://www.bls.gov/news.release/empsit.nr0.htm

As reported by the Bureau of Labor Statistics this morning (link to the report provided above), the economy shed 131,000 jobs in July while the unemployment rate held steady at 9.5%.  (Already sounds a little fishy, doesn’t it?)  It was expected that this report would show a net loss of jobs because of the exodus of census workers, but the loss was bigger than expected because of weaker-than-expected hiring in the private sector.

Dig into the details and you’ll find that the news is even worse.  The unemployment rate held steady at 9.5% thanks to another 181,000 workers mysteriously vanishing from the labor force in spite of the fact that population growth piled on another 120,000 workers.  Worst of all is that the employment level fell by another 159,000 workers – the third straight monthly decline.  The employment level is now little changed from its level exactly one year ago in July. 

If we hold the labor force at a steady percentage of the population, the real unemployment rate actually rose in July by 0.2% to 11.7%, while the more inclusive measure, U6, rose to 20.7%.  The number of unemployed Americans rose by almost 300,000 to 18.377 million. 

Here’s the calculation and the charts:

Unemployment Calculation

Unemployment Chart

Unemployed Americans

Labor Force & Employment Level

Here’s a summary of job gains/losses in various sectors of the economy in July (extracted from the BLS report):

  • Manufacturing:  + 36,000
  • Health care:  + 27,000
  • Transportation & Warehousing:  + 12,000
  • Mining:  + 7,000
  • Construction:  – 11,000
  • Professional & business services:  – 13,000
  • Financial services:  – 17,000
  • Government:  – 202,000

Manufacturing continues to be a bright spot, but at far too slow a pace.  And much of this hiring has been due to inventory rebuilding, which can’t go on forever.

The U.S. tends to think of itself as a “services” economy.  If that’s true, the trend in services employment isn’t a good omen. 

Is it any wonder that the reported departure of Christine Romer from the president’s economic team comes on the same morning that this report was released?  Heads have started to roll.  Look for Larry Summers to be the next one to leave.  After all, the president has to at least appear to be doing something, right?

And let’s not forget that, regardless of how you feel about the “stimulus plan,” that spending has no doubt propped up employment.  And that stimulus spending will soon be coming to an end.  Then what?  Look for the employment picture to get even uglier unless the president comes up with a new stimulus plan or unless he actually does something to fix our incredibly stupid trade policy.  But that’s not going to happen. 

If you have a job out there, you’d better hold on tight.


Shocking 2nd Quarter GDP Report Points to Further Recession

August 5, 2010

I posted a few days ago when the 2nd quarter GDP report was released, and promised to follow up when I could get back to my desk and crunch the numbers to arrive at per capita GDP, with and without stimulus spending. 

I was so shocked at the results that I had to double and triple-check the figures!  Remember that the government reported that real GDP (adjusted for inflation) rose at an annual rate of 2.4% in the 2nd quarter, a pretty anemic report.  When expressed in per capita terms, accounting for population growth, real per capita GDP rose at an annual rate of only 1.5%.  But the really shocking news is just how much the stimulus plan spending contributed to that anemic report.  In the 2nd quarter, Economic Recovery Act spending soared to $182 billion, raising the total amount of stimulus money spent so far by 58% in one month! 

It’s important to track what the underlying economy is doing with this stimulus spending stripped away, because the stimulus spending is going to end soon.  If this spending is stripped out of the GDP report, real per capita GDP fell in the 2nd quarter by 3.6%, the worst rate of decline since the economic crisis began in 2008!  Here’s the chart:

Real Per Capita GDP

I can’t account for the explosion of stimulus spending in the 2nd quarter.  It may be due to the homebuyer tax credits that expired at the end of June.  There’s also the possibility that there was simply some “catch up” in reporting in the 2nd quarter.  Regardless, this is an absolutely devastating GDP report and portends extremely serious problems for the economy when the stimulus plan has run its course. 

You may recall that I’ve been predicting another massive stimulus plan to follow on the heels of this one.  But there’s simply no appetite in Congress for passing another.  Well, I read rumors this morning that the Obama administration plans to bypass Congress in August and effectively implement another $800 billion in stimulus by ordering Fannie Mae and Freddie Mac to forgive part of the balance on mortgages that are “under water.”  He can do this without Congress’ approval.   (Here’s a link:  http://blogs.reuters.com/james-pethokoukis/2010/08/05/an-august-surprise-from-obama/)

None of this comes as a surprise.  The stimulus bill bought Obama time to make real fixes to the economy – primarily fixes to our trade policy that would correct trade imbalances and bring home millions of high-paying manufacturing jobs.  But no fixes were made.  Now the stimulus money is spent and there’s nothing to show for it. 

As if the 2nd quarter GDP report wasn’t bad enough, analysts are already expecting a significant downgrade when the next revision comes out next month, lowering their forecasts to 1.7%.  All indications are that the economy is in serious trouble.  Like I said in my last post, look for the economic you-know-what to start hitting the fan in coming months.