A Normal Week

February 2, 2020

by Steve Stofka

Tuesday was the first day of President Trump’s impeachment trial. Mr. Trump borrowed former President Clinton’s impeachment playbook and got busy. He flew to Davos, Switzerland to give a speech at the World Economic Forum.

The speech was constructed of many truth stretchers. Instead of boasting about the economy’s strong employment, Mr. Trump had to say that the numbers are the best. They are not. Doesn’t matter. While Mr. Trump’s political opponents are spending time and energy disputing his boasts and lies, he is on to the next speech, the next carefully arranged event.

Facts are musical notes in a score designed to showcase his greatness. Mr. Trump is the bandleader. In politics, performance is key and he is a good performer. He is the boss of facts. Disagreeable facts are out of tune and “fake.” Sit down fake news media. Stop playing.

President Trump cites a statistic that there are more women than men in the workforce for the first time in history. They are not. That happened in 2009 under former President Obama’s watch. This is not a good statistic. It means that men in traditional male jobs are losing their jobs. In 2009, it was the massive unemployment in construction after the housing crisis. Until a year ago, job openings in manufacturing had climbed steadily (BLS, n.d.). In 2019, Mr. Trump’s trade war with China led to thousands of factory job losses and a sharp decline in job openings.

Those who do follow economic numbers know these are truth stretchers or truth wreckers as soon as the words leave Mr. Trump’s lips. That’s a small percentage of the general population. In an age of ready access to information, there is too much information. We struggle to separate the wheat – reliable information from a reputable source – from the chaff – those who shade or hide the truth to push a point of view.

To a casual ear, Mr. Trump sounds like he knows what he is talking about when he says 150 billion of this and 200 million of that. He pulls numbers out of the air just as a magician pulls a quarter from behind a child’s ear. When questioned by reporters, members of his own party answer that they can’t speak to what Mr. Trump says or tweets. They are afraid of retribution. He is the Teflon President. No accountability and no shame. 

A president must perform. A good performer tells enough of the truth to tell a convincing story. Lying is a part of any president’s job. They must lie to foreign leaders as they play the international game of political poker. Presidents lie to hide uncomfortable truths from the American people. They lie to protect themselves, members of their cabinet and party. Until a presidential candidate takes the oath of office, they may not realize the full extent of the lies they must tell. It’s one of the stresses that make the job so difficult.

There is important and unimportant stuff to lie about. Mr. Trump lies about silly stuff that matter only to him. Who cares whether some people think he has small hands? He does. Whether he had a smaller inauguration crowd than Mr. Obama? Mr. Trump cares. Whether he understands the dictator of N. Korea better than everyone else? He does. He insists that he is a better president than George Washington or Abraham Lincoln. Braggadocio?



Bureau of Labor Statistics (BLS). (n.d.). Job Openings: Manufacturing JTS3000JOL. [Web page]. Retrieved from https://fred.stlouisfed.org/series/JTS3000JOL

Photo by Mark Fletcher-Brown on Unsplash

Jobs Affect Elections

September 15, 2019

By Steve Stofka

“It’s the economy, stupid,” James Carville posted in the headquarters of Bill Clinton’s 1992 Presidential campaign. The campaign stayed focused on the concerns of middle and working- class people who were still recovering from the 1990 recession. Jobs can make or break a Presidential campaign.

Each month the BLS reports the net gain or loss in jobs and the unemployment rate for the previous month. These numbers are widely reported. Weeks later the BLS releases the JOLTS report for that same month – a survey of job openings available and the number of employees voluntarily quitting their jobs. When there are a lot of openings, employees have more confidence in finding another job and are more likely to quit one job for another. When job openings are down, employees stick with their jobs and quits go down as well.

President Bush began and ended his eight-year tenure with a loss in job openings. Throughout his two terms, he never achieved the levels during the Clinton years. Here’s a chart of the annual percent gains and losses in job openings.

As job losses mounted in 2007, voter affections turned away from the Republican hands-off style of government. They elected Democrats to the House in the 2006 election, then gave the party all the reins of power after the financial crisis.

As the 2012 election approached, the year-over-year increase in job openings slowed to almost zero and the Obama administration was concerned that a downturn would hurt his chances for re-election. As a former head of the investment firm Bain Capital, Republican candidate Mitt Romney promised to bring his experience, business sense and structure to help a fumbling economic recovery. The Obama team did not diminish Romney’s experience; they used it against him, claiming that Romney’s success had come at the expense of workers. The story line went like this: Bain Capital destroyed other people’s lives by buying companies, laying off a lot of hard-working people and turning all the profits over to Bain’s fat cat clients. The implication was that a Romney presidency would follow the same pattern. Perception matters.

In the nine months before the 2016 election, the number of job openings began to decline. That put additional economic pressure on families whose finances had still not recovered following the financial crisis and eight years of an Obama presidency. Surely that led some working-class voters in Michigan, Wisconsin and Pennsylvania to question whether another eight years of a Democratic presidency was good for them. What about this wealthy, inexperienced loudmouth Trump? He didn’t sound like a Republican or Democrat. Yeah, why not? Maybe it will shake things up a bit.  Enough voters pulled the lever in the voting booth and that swung the victory to Trump.

In the past months the growth in job openings has declined. Having gained a victory based partially on economic dissatisfaction, Trump is alert to changes that will affect his support among this disaffected group. As a long-time commentator on CNBC, Trump’s economic advisor, Larry Kudlow, is aware that the JOLTS data reveals the underlying mood of the job market. Job openings matter.

Unable to get action from a divided Congress, Trump wants Fed chairman to lower interest rates. There have been few recessions that began in an election year because they are political dynamite. The recession that began in 1948 almost cost Truman the election. The 1960 recession certainly hurt Vice-President Nixon’s bid for the White House in a close race with the back-bench senator from Massachusetts, John F. Kennedy.

In his bid to unseat President Carter in 1980, Ronald Reagan famously asked whether voters were better off than they were four years earlier. The recession that began that year helped voters decide in favor of Reagan.

Although the 2001 recession started a few months after the election, the implosion of the dot-com boom during 2000 certainly did not help Vice-President Al Gore’s run for the White House. It took a Supreme Court decision and a few hundred votes in Florida to put Bush in the White House.

As I noted earlier, George Bush began and ended his eight years in the White House with significant job losses. Those in 2008 were so large that it convinced voters that Democrats needed a clear mandate to fix the country’s economic problems. After the dust settled, the Dems had retained the house, won a filibuster-proof majority in the Senate and captured the Presidency. Jobs matter.

The 2020 race will mark the 19th Presidential election after World War 2. Recessions have marked only four elections – call it five, if we include the 2000 election.  An election occurs every four years, so it is not surprising that recessions occurred in only 25% of the past twenty elections, right? It’s not just the occurrence of a recession; it’s the start of one that matters.

Presidents and their parties act to fend off economic downturns with fiscal policy or pressure the Fed to enact favorable monetary policy that will delay downturns during an election. Trump’s method of persuasion is not to cajole, but to criticize and denigrate anyone who doesn’t give him what he wants, including the Fed chairman. To Trump, life is a tag-team wrestling match. Chairman Powell can expect more vitriolic tweets in the months to come. Trump will issue more executive orders to give an impression that his administration is doing something. The stock market will probably go up. It usually does in a Presidential election year.

Gobs of Jobs

April 12, 2015

Last week I wrote about the recent flow of investment dollars to markets outside the U.S.  This week emerging markets (EEM, VWO, for example) shot up another 4%.  For the first time since last October, the 30 day average in these two index ETFs just broke above the 100 day average.


Job Openings (JOLTS)

February’s JOLTS report from the BLS, released this past Tuesday, showed that the number of job openings is nearing the heights of the dot com bubble in 2000.

Last week we saw that new claims for unemployment as a percent of people working were at historically low levels.  I’ll show the graph again so I can lay the groundwork for an explanation of why bad things can happen when things get too good.

Here are job openings as a percent of those working. I’ll call it JOE. In 2007, JOE approached 3.5%.  In 2000 and these past few months, it exceeded that.  As openings fall below a previous low point, recessions follow as the economy “corrects course.”  I have noted these transition points on the chart below.  September’s low of 3.3% marks the current low barrier.  Any decline below that level would be cause for worry.

Let’s look at it from another angle.  Below are job openings as a percent of the unemployed who are actively looking for a job.  This metric would give us a rough idea of the skills and pay mismatch.  This looks a bit more tempered. We are not at the high level of 2007 and not even close to the nosebleed level of 2000.

As openings grow, one would expect that some who have been out of the labor force would come back in but that doesn’t seem to be the case this time.  The participation rate remains low.  The reasons for this trend are partly demographic – aging boomers, small GenX population, end of the female labor “wave” into the labor force during the past few decades – but we should expect to see some uptick in the participation rate, some positive upward response to economic growth.

As jobs become harder to fill or applicants want more money to fill those jobs, employers may decide to cut back expansion plans rather than hire people who are are either too costly to train or who might not meet the company’s work standards. Employees who previously tolerated certain conditions or a level of pay at their job now act on their dissatisfaction.  They may leave the job or ask for more money or a change in conditions.  Little by little investment spending ebbs, then declines a bit more, reaches a threshold which triggers layoffs, and another business cycle falls from its peak.


Bank of Japan

Recently the NY Post reported  that the Bank of Japan (BOJ) was buying equities and the author implied that BOJ was pumping up the stock market. The central bank in the U.S. buys only government bonds, not equities.   Warnings of doomsday are popular in financial reporting because people pay attention. The truth just doesn’t get much attention because it is not exciting. I want to help the reader understand how misleading these kind of cross country comparisons can be.

Here is a comparison of the holdings of the U.S., Japanese and European central banks.  Look closely at the holdings of insurance and pension funds in the U.S. and Japan.  Notice that U.S. pension funds (which are government funds or private funds guaranteed and regulated by the U.S. government) have 9% equity holdings while Japan’s insurance and pension funds have only 2%.   Combining the holdings of the central bank and insurance and pension funds, we find that Japan has 4% in stock assets while the U.S. has 9% of its assets in stocks.  Contrary to this reporter’s implications, it is the U.S. government that is pumping up the stock market far more than the Bank of Japan.

The author quotes a Wall St. Journal article from March 11, 2015: “The Bank of Japan’s aggressive purchasing of stock funds” but only seven months ago, on August 12, 2014, that same newspaper reported: “As Tokyo shares fall back from their recent highs, the Bank of Japan has been significantly stepping up its purchases of domestic exchange traded funds.” [my emphasis]
Note the difference in wording.  The earlier article notes that BOJ is buying domestic equities, particularly ETFs, which are baskets of stocks.  The later article leaves out these important distinctions, leading a reader to believe that BOJ policy might be pumping up the U.S. equity market or any market, for that matter. The data does not support that contention.

What U.S. investors should be concerned about (I mentioned this in last week’s blog) is that federally guaranteed pension plans and government pension plans are finding it difficult in this low interest rate environment to meet their projected benchmark returns of 7% to 8%.  A more realistic goal is 5% to 6% for a large fund with a balanced risk profile.  Pension plans are having to take on more risk at a time when boomers are retiring and wanting the money promised in those pension plans.  These investment pools can not afford to wait five years for asset values to recover from a severe downturn, making them more likely to adjust their equity or bond positions as quickly as they can in the case of a crisis of confidence in these markets.  Be aware of the underlying environment we are living in.

Central Banks

September 14, 2014

This week I’ll take a look at the latest JOLTS report from the BLS and an annual assessment of  global financial risks by the Bank of International Settlements.



The BLS releases their Job Openings and Labor Turnover Survey (JOLTS) with a one month lag.  This past week’s release covered survey data for July.  The number of employees quitting their jobs is regarded as a sign of confidence in finding another job.  When it is rising, confidence is increasing.  The latest survey is optimistic.

The number of job openings have accelerated since the January lows.  In June, they passed the peak reached in 2007.

However, since May, the growth of job openings in the private sector has stalled.

The number of new hires continues to increase but we should put this in perspective.  The hire rate, of percentage of new hires to the total number of employees, has only just surpassed the lows of the early 2000s after the dot com bust and the 2001 recession.  This “churn” rate is still low, even below the level at the start of the 2008 Recession.


Consumer Credit

Auto sales and the loans to finance them have been strong but consumers have been slow to crank up the balances on their credit cards.  Although the latest consumer credit report indicates that consumers have loosened their wallets in the past few months, the overall picture is rather flat.



China reported growth in factory output that was below all estimates at 6.9% and below target growth of 7.5%.  The Purchasing Managers Index, a barometer of industrial production,  shows that both China and Brazil are hovering at the neutral mark while the global index shows moderate growth.  Home prices in China have fallen for 4 months in a row.  As growth momentum slows, the clamor quickens for more easing by the central bank.


Bank of International Settlements Annual Report

The Bank of International Settlements (BIS) is the clearing house for central banks around the world, including the Federal Reserve and the European Central Bank. It is the central banker’s central bank that facilitates and monitors money and debt flows among the nations.  The BIS has cast a particularly watchful eye on Asian economies, who are about 15 years into their financial cycle.

Their annual June 2014 report sounds a word of caution, emphasizing that central bankers should focus more on the financial cycle than the business cycle as they construct and administer monetary policy:

To return to sustainable and balanced growth, policies need to go beyond their traditional focus on the business cycle and take a longer-term perspective – one in which the financial cycle takes centre stage. They need to address head-on the structural deficiencies and resource misallocations masked by strong financial booms and revealed only in the subsequent busts. The only source of lasting prosperity is a stronger supply side. It is essential to move away from debt as the main engine of growth.

In Chapter 4 the BIS notes the high levels of private sector debt relative to output, particularly in emerging economies. In a low interest environment, households and companies “feast” on debt, leaving them particularly vulnerable when interest rates rise to more normal levels.  International companies in emerging markets can tap the global securities market for funding and much of this private debt remains off the radar of the central bank in a country’s economy.

Financial booms in which surging asset prices and rapid credit growth reinforce each other tend to be driven by prolonged accommodative monetary and financial conditions, often in combination with financial innovation. Loose financing conditions, in turn, feed into the real economy, leading to excessive leverage in some sectors and overinvestment in the industries particularly in vogue, such as real estate. If a shock hits the economy, overextended households or firms often find themselves unable to service their debt. Sectoral misallocations built up during the boom further aggravate this vicious cycle.

While there is no consensus on the definition of a financial cycle, the peak of each cycle is marked by some degree of stress that encompasses a region of the world and can have a global effect.  Emphasizing the global component of financial cycles, the BIS is indirectly encouraging central bankers to communicate with each other.  Money flows largely ignore national borders.  It is not enough for a central banker to sit back, confident in the sage and prudent policies of their nation. Each banker should ask themselves: what are the neighbors doing that could impact my nation’s economy and financial soundness?

Financial cycles tend to last 15 – 20 years, two to three times the length of the business cycle.  It takes time to build up high levels of debt, to lower credit standards and become complacent about downside risks. There may be no clearly identifiable cause that precipitates a financial crisis.

Different regions have different cycles.  More advanced western economies have been on a downward recovery phase after the crisis of 2008 while emerging economies in the east are near the apex of their cycle.  Asian economies experienced their last peak at the start of the millenium.  They have had 15 years to inflate asset and property prices, to lower credit standards and accumulate debt, all hallmarks of a developing environment for a financial crisis.

The report notes that borrowers in China are especially vulnerable to rising interest rates but that many economies in the region would be pushed into crisis should interest rates rise just 2.5%, as they did a decade ago.



Employee confidence and hiring are strong but private sector hiring may be stalling.  The next crisis?  Look east, young man.

Summer Signs

July 13, 2014

Small Business

Optimism has been on the rise among small business owners surveyed monthly by the National Federal of Independent Businesses (NFIB).  Anticipating a growing confidence, consensus estimates were for a reading of 97 to 98, topping May’s reading of 96.8.  Tuesday’s disappointing report of 95 dampened spirits.  The fallback was primarily in expectations for an improving economy.  Mitigating that reversal of sentiment was a mildly positive uptick in hiring plans. The majority of job growth comes from small and medium sized companies.

Job Openings and Labor Turnover Survey (JOLTS)

Speaking of job growth…There is a one month lag in the JOLTS report from the Bureau of Labor Statistics so this week’s report summarized May’s data.  The number of job openings continues to climb as does the number of people who feel confident enough to voluntarily quit their job.  Job openings have surpassed 2007 levels. If I were President, I would greet everyone with a hand shake and “Hi, job openings have surpassed 2007 levels.  Nice to meet you.”

Still, the number of voluntary quits is barely above the low point of the early 2000s downturn.  Let’s not mention that.

We can look at the number of job quits to unemployment, or the ratio of voluntary to involuntary unemployment.  This metric reveals a certain level of confidence among workers as well as the availability of jobs.  That confidence among workers is relatively low.  The early 2000s look like a nirvana compared to the sentiment now.  The country looks positively depressed using this metric.

If I were President, if I were a Congressman or Senator, I would post this chart on the wall in my office and on the chambers of Congress where it would remind myself and every other person in that chamber that part of my job is to help that confidence level rise.  Instead, most of our elected representatives are voicing or crafting a position on immigration ahead of the midterm elections.  Washington is the site of the largest Punch and Judy show on earth.  Like the little train, I will keep repeating to myself “I think I can, I think I can…stay optimistic.”


Government Programs

Most social benefit programs are on autopilot, leaving Congress with little discretion in determining the amount of money that flows out of the U.S. Treasury.  These programs include Social Security, Temporary Assistance to Needy Families, Food Stamps, Unemployment Benefits, etc.   Enacted over the past eighty years, the ghosts of Congresses past are ever present in the many Federal agencies that administer these programs.

During the recent recession, payments under social programs shot up, consuming more than 70% of all revenues to the government.  Political acrimony in this country switched into high gear as the U.S. government became the largest insurance agency in the world. As the economy improved, spending fell below the 60% threshold but has hovered around that level.

 That percentage will surely rise as the boomer generation retires, taking an ever increasing share of revenues to pay out Social Security, Medicare and Medicaid benefits.  As the percentage rises again toward the levels of the recession, we can expect that social benefit spending will take center stage in the 2016 Presidential election.


Back in ye olden days, soothsayers used chicken bones and tea leaves to foretell the future.  We now have powerful computers, sophisticated algorithms and statistical techniques to look through the foggy glass of our crystal ball.  Less sophisticated algorithms are called rules of thumb.  In the board game Monopoly, a good rule of thumb is that it is wiser to build hotels on St. James, Tennessee and New York Ave than on the marquee properties Park Place and Boardwalk.

I heard a guy mention a negative correlation between early summer oil prices and stock market direction for the rest of the year. In other words, if one goes up the other goes down. I have a healthy skepticism of indicators but this one intrigued me since it made sense.  Oil is essentially a tax on our pocketbooks, on the economy.  If oil goes up, it is going to drive up supplier prices, hurt the profits of many companies, reduce discretionary income and drag down economic growth. The market will react to that upward or downward pressure in the next few quarters. But a correlation between six weeks of trading in summer and the market’s direction the rest of the year? Is that backed up by data, I wondered, or is that just an old saw?   I used the SP500 (SPY) as a proxy for the stock market, the U.S. Oil Fund (USO) as a proxy for the oil market and threw in Long Term Treasuries (TLT) into the mix.  I’ll explain why the treasuries in a minute.

A chart of recent history shows that there is some truth to that rule of thumb.  When oil (gray bars) has dropped in price in the first six weeks of summer trading, the stock market has gained (yellow bars) during the rest of the year in five out of the past seven years.   A flip of a coin will come up heads 50% of the time, tails 50% of the time. An investor who can beat those 50/50 chances by a margin of 5 wins to 2 losses will do very well.

Whether this negative correlation is anything but happenstance is anyone’s guess.  If you look at the chart again, you’ll see that there is also a negative correlation between long term Treasuries (TLT) and oil the the first half of summer trading. When one is up, the other is down.  The last year these two moved in tandem was – gulp! – in the summer of 2008.  Oh, and this year.  We know what happened in the fall of 2008.  So, is this the sign of an impending financial catastrophe?  Let me go throw some chicken bones and I’ll let you know.



Small business sentiment eased back from its recent optimism.  Spending on government social programs exacerbates political tensions and aging boomers will add fuel to the fire.  Job openings and confidence continue to rise from historically low levels.  Do summer oil prices signal market sentiment?

Net Worth, Labor Productivity And Political Pay

May 10th, 2014

This week I’ll look at some short term mixed signals in economic activity, and long term trends in labor productivity and household net worth.  In advance of the mid term election season in the U.S., I’ll look at several aspects of the money machine that drives elections.


For almost a year, I’ve been tracking a composite index, a Constant Weighted Purchasing Index, based on the Purchasing Manager’s Index produced by the Institute for Supply Management (ISM).  Based on key elements of ISM’s manufacturing and non-manufacturing monthly indexes, it is less erratic than the ISM indexes and gives fewer false signals of recession and recovery.  After reaching a low of 53.5 last month, the CWPI of manufacturing and service industries is on the rise again.  During this recovery this index of economic activity has shown a regular wave pattern.  If that continues, we should expect to see four to five months of rising activity before the next lull in late summer or early fall.  Any deviation from that pattern would be cause for concern if falling and optimism if rising.

The winter probably prolonged the recent downturn in the index.  In the manufacturing sector, new orders and employment are strong.  In the services sector, which comprises most of the economy, new orders are strong but employment growth has slowed to a tepid pace.

This week the Bureau of Labor Statistics released their estimate of Productivity growth for the first quarter.  One of the metrics is the per hour growth in productivity, which is key to the overall growth of the economy.  As seen in the chart below, the last time annual productivity growth was above 2% was in the 3rd quarter of 2010.  To show the historical trend, I took the 3 quarter moving average of the year over year growth rate.  We can see a remarkable shift downward in productivity.

Recovery after recessions are marked by a spike in growth above 3% simply because the comparison base during the recession is so weak. What the chart shows is the shift from steady growth of 3% to a much weaker growth pattern since the 2008 recession.  In testimony before the Senate Finance Committee, Fed chairwoman Janet Yellen stated that we may have to adjust our expectations to continuing slow growth.  The erosion of productivity growth has probably prompted concerns in the Fed Open Market Committee.


JOLTS – Job openings

Continuing on from labor productivity, let’s look at a trend in job openings.  With a month lag, the Bureau of Labor Statistics (BLS) reports on the number of job openings around the country. Preceding a recession, the number of job openings begins to decline.  Recovery is marked by an increase in openings. March’s report showed a slight increase in job openings, near the high of the recovery and closer to late 2005 levels.

When we look at the ratio of job openings to the unemployed, the picture is less encouraging.  The unemployed do not include discouraged job seekers.  If we included those, we the readers might get discouraged.  Almost five years after the official end of the recession, we are barely above the low point of the recession of the early 2000s.

When Fed chairwoman Janet Yellen speaks of weaknesses in the labor market that will require continued central bank support, this is one of the metrics that the Fed is no doubt keeping an eye on.


Household Net Worth

For many of us, our net worth includes family, friends, pets, interests and passions but the Federal Reserve doesn’t count these in its quarterly Flow of Funds report.  In early March, the Fed released its annual Flow of Funds report, which includes estimated net worth and debt levels of households, business and governments in the U.S.  Below is a chart of household, business and government debt levels from that report.

Rising stock prices and recovering home values have boosted the net worth of households.

As you can see in the chart below, the percent change in net worth has only significantly dipped below zero in the last two recessions.

The severity of this last dip was due to the falls in both the housing and stock markets.  The curious thing is why earlier stock market drops in the 1970s and early 1980s did not produce a significant percentage drop in household net worth. In those earlier periods, increases in home prices were about 4%, similar to the level of economic growth, and not enough to offset significant drops in the stock market.

So what has changed in the past two recessions?  The introduction of IRA accounts in the 1980s prompted individuals to put more of their savings in the stock market instead of bonds, CDs and savings accounts. Downturns in the stock market in the past two recessions affected household balance sheets to a greater degree.  Inflation was greater during the 1970s, 80s and 90s, raising the value of all assets.  China’s growing dominance in the international market was not a factor in the stock market drop in 2000 – 2003.  It was only admitted to the World Trade Organization in 2001.  In an odd coincidence, the past twenty years and particularly the past 15 years are marked by a growing and pervasive inflence of the internet in all aspects of our lives.

If we chart the change in a broad stock market index like the SP500 along with the percent change in net worth over the past seven years, we see a loose correlation using 40% of the change in the stock market.  Rises and falls in the stock market produce a material change in the paper net worth of households and can significantly lead to a change in “mood” among consumers, something the economist John Maynard Keynes called “animal spirits.”

Because the swelling demographic tide of the Boomer generation has a significant part of their retirement nest egg in the stock market, price movements in the markets have probably had a greater effect on total net worth in the past decade.


Party Favors

Now for everyone’s favorite dinner topic – political contributions.  Who contributed the most to the 2012 Presidential campaign?
a) the evil Koch Bros
b) gambling king Sheldon Adelson who almost single-handedly bankrolled the Newt Gingrich campaign
c) hedge fund billionaire George Soros, the  “Octopus” of liberal causes
d) the socialist commie labor unions.

Answer:  Whatever answer suits your political message or opinion.

On the one hand, campaign contributions can be what economists call a “rich” data set so that an analyst can tease out several conclusions or summaries, sometimes contradictory, from the data set.  On the other hand, some “social welfare” organizations do not have to reveal donor lists.  An investigator wishing to discover the myriad channels of political contributions must don their spelunking equipment before descending into the caverns of political finance.   In some cases private IRS data is released by accident, revealing dense networks linking moneyed individuals.

The Federal Election Commission (FEC) maintains a compilation of individual and group contributions to political campaigns.  OpenSecrets.org , a project of the Center for Responsive Politics, summarizes the data.  There we find that Sheldon and Miriam Adelson contributed $30 million through the Republican Restore Our Future PAC  and $20 million to the Republic PAC American Crossroads.

The Democratic PAC Priorities USA did not have a single donor as generous as the Adelsons.  George Soros ponied up $1 million along with many others, including Hollywood movie mogul Steven Spielberg, but the most generous donor contributed only $5 million, punk change when compared to the Adelson’s commitment to Republican causes and candidates.

In the 2012 Presidential race, the Obama campaign drew in so many more individual contributions than the Romney team that outside spending by political action groups was the only way to close the money gap.  Pony up they did, outspending the Obama campaign $419 million to $131 million. The NY Times summarized the outside spending with links to the various groups.

Despite their relatively low percentage of the work force, labor unions are major contributors to the Democratic effort.  A WSJ article in July 2012 revealed the extent of their political activity.  The bulk of union campaign spending is not reported to the FEC but is  reported to the Labor Dept. In total, unions disclosed that they spent over $200 million per year from 2005 – 2011.  54% of the spending reported to the Labor Dept was on state and local campaigns.

As a block then, are unions the largest contributors to Democratic campaigns?  Some “napkin math” would get us to a guesstimate of  $90 to $100 million a year on national campaigns, so surely they are at the top, aren’t they?  Not so fast, you conclusion jumper, you.

As transparent as the unions are, contributors to Republican causes are not.  Corporate political spending like that of the private U.S. Chamber of Commerce are not disclosed, as are many other corporate political and lobbying efforts.  These are some of the largest corporations in the world with vast resources and a strongly vested interest in policy decisions that will affect their bottom line.  Most of those contributions are hidden.

As this midterm election approaches rest assured, gentle reader, that you can confidently say – no matter what your political persuasion – that you have data to back up your opinion that the other side is buying the election.  You can hold your head high, confident in the soundness of your opinions.  And don’t we all sleep better at night, knowing that we are right?

Employment, Obamacare and the Market

April 13, 2014

Nasdaq, Biotech and the Market

The recent declines in the market have come despite positive reports in employment and  manufacturing in the past few weeks.  Nasdaq market is off about 7% from its high on March 6th and some biotech indexes have lost 8% in the past few weeks. A bellwether in the tech industry is Apple whose stock is down about 9% since the beginning of the year, and 4% in the past few weeks.

The larger market, the SP500, has declined about 4% in the past six trading days, prompting the inevitable “the sky is falling” comments on CNBC.  The decline has not even reached the 5% level of what is considered a normal intermediate correction and already the sky is falling. It sells advertising.  The broader market is at about the same level as mid-January.  Ho-hum news like that does not sell advertising.

Both the tech-heavy Nasdaq and the smaller sub-sector of biotech are attractive to momentum investors who ride a wave of sentiment till the wave appears to be turning back out to sea.  In the broader market, expectations for earnings growth are focused on the second half of the year, not this quarter whose results are expected to be rather lackluster.  The 7-1/2% rise in February and early March might have been a bit frothy.

The aluminum company Alcoa kicks off each earnings season.  Because aluminum in used in so many products Alcoa has become a canary in the coal mine, signalling strength or weakness in the global economy.  On Tuesday, Alcoa reported slightly less revenues than forecast but way overshot profit expectations.  This helped stabilize a market that had lost 2.3% in the past two trading days.

On Thursday, the banking giant JPMorgan announced quarterly profit and revenues that were more than 8% below expectations.  Revenues from mortgages dropped a whopping 68% from last year, while interest income from consumer loans and banking fell 25%.  Investors had been expecting declines but not this severe.  JPMorgan’s stock has lost 5% in the past week, giving it a yield of 2.8% but it may need to come down a bit more to entice wary investors.  Johnson and Johnson, which actually makes tangible things that people need, want and buy every week, pays a yield of 2.7%.  Given the choice and assuming a bit of caution, what would you do?

The banking sector makes up about a sixth of the market value of the SP500, competing with the technology sector for first place (Bloomberg) The technology sector has enriched our lives immensely in the past two decades and deserves to have a significant portion of market value.  The financial sector – not so much.  They are like that one in the family that everyone wishes would just settle down and act responsibly.


Jolts and New Unemployment Claims 

February’s Job Openings report (JOLTS) recorded a milestone, passing the 4 million mark and – finally, after six years – surpassing the number of job openings at the start of the recession.  The number of Quits shows that there still is not much confidence among employees that they can find a better job if they leave their current employment.

New unemployment claims dropped to 300,000 this week; the steadier 4 week average is at 316,000.  As a percent of the workforce, the number of new claims for unemployment is near historic lows, surpassed only by the tech and housing bubbles.


Full-time Employee

A 1986 study of Current Population Survey (CPS) data by the Bureau of Labor Statistics (BLS) found that “well over half of employed Americans work the standard [40 hour] schedule.”  The median hours worked by full time employees changed little at just a bit over 40 hours. The average hours worked by full time employees was 42.5.  The study noted that between 1973 and 1985 the number of full time workers who worked 35 to 39 hours actually declined.

A paper published in 2000 by a BLS economist noted that the Current Population Survey (CPS) that the Census Bureau conducts is the more reliable data when compared to the average work week hours that the BLS publishes each month as part of their Establishment Survey of businesses.  The Establishment survey is taken from employment records but does not properly capture the data on people who work more than one job.  In that survey, a person working two part time jobs at 20 hours each is treated as though they were two people working two part time jobs. The CPS treats that person as one person working 40 hours a week.  Writing in 2000, the author noted that the work week had changed little from 1964 – 1999.

Fast forward to 2013 and the BLS reports that full time workers work an average of 42.5 hours, the same as the 1986 study.  More than 68% of workers reported working 40 or more hours a week.

The House recently passed H.R.2575, titled the “Save American Workers Act of 2014” – I’ll bet the people who write the titles for these bills love their jobs.  I always envision several twenty-somethings sitting in a conference room with pizza and some poetic lubricant and having a “Name That Bill” contest.  I digress.  This bill defines a full time employee as one who works on average 40 hours a week, not the 30 hours currently defined under the Affordable Care Act.

When I first started doing research on this I was biased toward a compromise of 35 hours as the definition of a full time employee.  My gut instinct was that fewer full time employees work a 40 hour week than they did 30 years ago.   The data from the BLS doesn’t support my gut instinct.



A monthly survey of small businesses by NFIB reported an upswing in confidence in March after a fairly severe decline in February.  That’s the good news.  The bad news is that optimism among small business owners can not seem to break the 95 index since 2007.  According to the U.S. Small Business Administration 2/3rds of new jobs come from small businesses. “Since 1990, as big business eliminated 4 million jobs, small businesses added 8 million new jobs.”

This is the first full year that all the provisions of the ACA, aka Obamacare, take effect.  Millions of small businesses around the country who provide health insurance for their employees are getting their annual business health insurance renewal packages.  For twelve years, my small business has provided health care for employees.  When I received the renewal package a few weeks ago, I was disappointed to find several changes that made comparisons with last year’s costs a bit more difficult.  As an aside, this health insurance carrier has always been the most competitive among five prominent health insurance carriers in the state.

Making the comparison difficult was a change in age banding.  What’s that, you ask?  In my state, business health plans were age banded in 5 year increments; e.g. a 50 year old and a 54 year old would pay the same rate for a particular policy.  Now the age banding is in one year increments.  If I compared the cost for a 45 year old employee last year with the rate for a 46 year old employee this year, the rate increase was a modest 5%.  Not bad.  But if I compare a 48 year old employee’s rate last year with a 49 year old employee this year, costs have risen 11%.   The provider for my company no longer offers the same high deductible ($3000) plan we had, offering a choice between an even higher deductible ($4500) plan or one with a much lower deductible ($1200).  Again, this makes the comparison more difficult.   Changes like this make cost planning more difficult and are less likely to encourage small businesses to bother offering health coverage to their employees.

Out of curiosity, I took a look at 2002 prices. The company long ago abandoned the no deductible plan we had in 2002 simply because it became unaffordable – this was while George Bush was President.  A plan similar to the HMO plan we had in 2002 – $20 copay, $50 specialist, $0 routine physical, no deductible, $2000 Max OOP –  now costs 270% what it did 12 years ago, an annual increase of more than 8%.  An HMO plan as generous as the one we had in 2002 is no longer available, so a more accurate comparison is that health insurance has tripled in twelve years.   It is no wonder that many small businesses either offer no health insurance or cap benefits at a certain amount that reduces the affordability and availability of insurance for many employees.

Until the unemployment rate decreases further, employees and job applicants are unlikely to exert much pressure for benefits from small business employers, a far different scenario than the heady days of the mid-2000s when unemployment was low and employers had to bargain to get decent employees.  There is no one single powerful voice for  many small businesses, other than the NFIB,  which makes it unlikely that Congress or state representatives will get their collective heads out of their butts and address the myriad regulatory and cost burdens that are far more onerous on small business owners.  Because of that we can expect incremental employment gains.

Betraying the lack of long term confidence in the economy and in response to employment burdens, employers increasingly turn to temporary workers, who make up less than 2% of the work force.

As an economy recovers from recession, it is normal for job gains to be distributed unevenly so that the increase in temporary workers is far above their share of the workforce.  Employers are understandably cautious and don’t want to make long term commitments.  Gains in temporary employment as a percent of total job gains should decline below 10%, indicating a stabilizing work force.

For the past two decades of recoveries and relatively healthy growth the average percentage is 7.4% (adjusted for census employment).  The percentage finally fell below this average in early 2012, rose back above it for a few months then stayed under the average till January 2013.  Since February of last year, that percentage has been rising again, crossing above the 10% mark in January, an inexorable evaporation of confidence.

For the past year, repair and maintenance employment has flatlined at 1999 levels, indicating a lack of investment in commercial property and production equipment.

Specialty trade contractors in the construction industries are at 1998 levels despite an increase in population of 40 million.

While not alarming these trends indicate an underlying malaise in the workforce  that will continue to hamper solid growth.  Those ambitious and earnest folks in Washington, eager to make a difference and advance their political careers, continue to create more fixes which make the problem worse.  Imagine a car out of gas.  People out here on Main St. are pushing while the politicians keep hopping in the car to figure out what’s wrong, making the car that much more difficult to push.  At this rate, it is going to be slow going.

Job Openings – March

A couple of weeks ago, the Bureau of Labor Statistics (BLS) issued their March JOLTS (Job Opening and Labor Turnover Survey) report showing a continuing increase in job openings. Below is a Federal Reserve historical graph incorporating the latest March data.

Graphing the quarterly data evens out the monthly fluctuations and shows the upward trend.

While the trend is upward, we have come from a deep trough and we still have a long way to go to get to a healthy job market.  The number of job openings is about the same as in 2004 but the population has grown by 20 million since 2004.

The stock market is inextricably chained to the labor market.  In the graph below, we can see the similarity in trends between the S&P500 and the job openings.

The stock market attempts to anticipate the health of the job market.  In the spring of 2006, job openings halted their decline then rose and the market resumed upward in anticipation of a continued climb in job openings.  As job openings reversed and resumed their decline in 2007, it was a harbinger of the coming economic cliff.

January JOLTS

As a followup to my blog on the February jobs report and the job openings for December, here is the job openings report – JOLTS – for January from the Bureau of Labor Statistics:

The number of job openings in January was 3.5 million, unchanged from
December. Although the number of job openings remained
below the 4.3 million openings when the recession began in December
2007, the number of job openings has increased 45 percent since the
end of the recession in June 2009.

These are seasonally adjusted figures. As the graph shows there is steady but stuttering progress.