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.

Ten Year Review

January 15, 2016

10 Year Review

Before I begin a performance review, I’ll refer to an article  on the errors of comparing our real world portfolio returns to the optimized returns of a benchmark index.  An index stays fully invested, has no trading costs, taxes or fees.  An index has survivor bias; companies that go out of business or don’t meet the capitalization benchmark of the index are effortlessly replaced, so there is no risk.  Share buybacks benefit an index but not our portfolio.

The article contains some prudent and realistic recommendations: the importance of preserving our savings, a balance of risk and return that will meet our goals, AND our time frame.  As we review the performance of the following portfolio allocations, keep those caveats in mind.  If a model portfolio earned 8% per year, use that as a rough guideline only.

A 60/40 stock/bond portfolio returned an annual 6.3% over the past ten years with a maximum drawdown (MDD) of 30%.
A  50/50 mix returned 6% with an MDD of 25%.
A 40/60 mix returned 5.75% with a MDD of 20%.

A difference of 10% in allocation equalled a .3% in annual return, and a 5% change in MDD.  Let’s put that .3% difference in dollars and cents.  Over a ten year period, a $100,000 portfolio earning .3% extra return per year equalled about $43 extra per month, or about $1.40 per day.  Why is this important?  For whatever reason, some people worry more than others and may be willing to accept a lower return in order to sleep better at night.

Not all ten year periods will have the same response to various allocations.  The majority of ten year periods will include a recession, but this past ten years included the Great Recession. Let’s look at the historical effect of portfolio allocation during the past ten years.  In the chart below you can see the annual returns of various balanced allocation mixes shown in the left column.  At the end of 2009, the 10 year results show the results of two downturns: the 2001 – 2003 swoon and the 2007 – 2009 crash.

Note that the more aggressive 60/40 allocation has a lower return than the cautious 40/60 allocation during the years 2009-2011.  As we move forward in time, the effects of the 2001-2003 swoon diminish and, starting in 2012, the more aggressive allocation earns a better return.

Not shown in the chart are the results of a 100% allocation to stocks during the ten year period 2000-2009, the first column in the chart above.  A 40/60 allocation had a return of 3.8%.  A 100% allocation to large cap stocks had a LOSS OF 1% per year.

During the 10 year period 2007-2016, a 100% allocation to stocks returned 6.8% annually, a 1/2% higher return than the 60/40 mix, but the drawdown was 51%, far more than the 30% drawdown of the 60/40 portfolio.

High Winds or Hurricane?

A person who spends twenty years in retirement can count on at least two market downturns during that time.  Here’s how MDD, or drawdown, can affect a person’s portfolio.  I’ll present a more extreme example to illustrate the point.  Imagine an 80 year old retiree with a portfolio devoted 100% to stocks.  For several years, she had been withdrawing $40,000 from a portfolio that had a balance of $600,000 in the fall of 2007.  Projecting that her portfolio could earn a reasonable return of at least 7% per year, or $42,000, the balance looked secure.

But by March 2009, a period of only 18 months, the high winds had turned to a hurricane.  Her portfolio, her shelter in the storm, had lost 50% of its value, an MDD or drawdown of approximately $300,000.  During those 18 months, she had also withdrawn $60,000 for living expenses, leaving her with a balance of about $240,000 in the spring of 2009, the low point of the stock market.

Only 18 months earlier she had projected that she could maintain a minimum portfolio balance of $600,000. She had gnawed her nails raw as the market lost 20% by the summer of 2008, then sank in September when Lehman Bros. went bankrupt, then continued to lose value during the winter of 2008-09.  When would it end?

In March 2009, she had only 6 years of income left before her savings were gone.  Unable to stand the loss of any more value, she sold her stocks for $240,000 – at exactly the wrong time, as it turned out.  Her $240,000 earned little in a money market, forcing her to: 1) cut back the amount of money she withdrew from her portfolio to about $24,000 per year, and 2) hope she died before she ran out of money.

Of course, most advisors would NOT recommend that an 80 year old devote 100% of their savings to stocks.  BUT, some retirees might – and have – adopted a risky strategy to “whip” a portfolio to get more income or capital appreciation the way a jockey might do with a tired horse.  On the other hand, some 80 year olds with a very low tolerance for any kind of risk might have all of their savings in cash and CDs, a 0/100 allocation.

Now let’s imagine that our retiree had a cautious 40/60 balanced mix.  She would have had a drawdown of 20%, or $120,000, during the Great Recession.  After withdrawals for living expenses, she still had a balance of about $420,000 in March 2009. At a conservative estimate of a 5.5% annual return, she could have prudently drawn down her portfolio $25,000 – $30,000 for a year and waited. This is important for seniors: an allocation that allows some temporary flexibility in the withdrawal amount from a portfolio.

By the end of 2009, her portfolio had gained about 24%.  After living expenses of about $22,000 taken from the portfolio during the last 9 months of 2009, she had a balance of more than $500,000.  Her balanced allocation allowed her to wait longer for the market to recover.

In 2010, she could once again take her $40,000 living expense withdrawal and still have a $530,000 portfolio balance by the end of that year.  She has weathered the worst of the storm. At the end of 2016, she continued to take out $40,000 (adjusted upward for inflation) and still has a portfolio balance of $486,000.

Finally, her 40/60 allocation mix kept to a rule I have mentioned from time to time: the five year rule. If she wanted to take approximately $40,000 from the portfolio each year, she should have a minimum of 5 years, or $200,000 in bonds and cash – the “60” in the 40/60 allocation mix.  In the fall of 2007, she had $360,000 (60% of $600,000) in less erratic value investments.  This rule helped her withstand the storm winds of the Great Recession.


Seniors at Risk

Although the number of loans to those 65+ are less than 7% of the total of student loans, a shocking 40% of these loans are in default.  Most of these loans were cosigned by seniors for their children or grandchildren. The law allows the Federal Government to garnish or lien Social Security and other federal payments to cure the loan defaults.  Readers with a WSJ subscription can read the article here or Google the topic.


Hot Housing Markets

In a recent analysis, western cities rule Zillow’s top 10 housing markets for valuation increases.


Take this job and shove it!

The latest JOLTS report from the Labor Dept. shows the highest quits rate in private industry since the housing boom in 2006. Employees confident of finding another job are more willing to voluntarily leave their job, and have driven the rate up to 2.4% from a low of 1.4% in the 2nd half of 2009.

Statista compiles data from around the world, including this revealing tidbit: 26% of jobs in the U.S. are unfilled after 60 days, the highest percentage in the developed world. Germany ranks 2nd at 20%, and our neighbor to the north, Canada, comes in at nearly 19%.

What lies behind this data is a mismatch.  Employers may be requiring skills that job applicants don’t have.  Job applicants may want more money or other benefits than employers are willing to pay.


Obamacare Repeal

The Committe for a Responsible Federal Budget (CRFB) – yep, it’s a mouthful – has projected costs to repeal Obamacare in whole and in part.  Using both conventional, or static, budget scoring and dynamic scoring (google it if you’re interested), they guesstimate a 10 year cost of $150 to $350 billion for full repeal of the ACA.

Repeal of ACA’s insurance coverage would actually save a lot of money, more than $1.5 trillion. The net effect is a cost, not a savings, because of the $2 trillion in tax revenue on higher incomes that is built into the ACA law.

CRFB analysts have put a lot of work into these projections, including a breakdown of repealing just parts of Obamacare or delaying repeal of certain ACA provisions.  Since the Republican Congress is likely to keep some provisions, readers who are interested might want to come back to this link in the coming weeks as the discussion of this issue unfolds.

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.

Dance Partners

January 18, 2015

When investors are grumpy, good news is not good enough or it is too good.  Confidence among small businesses climbed to levels not seen since late 2006 and the positive sentiment was broadly based, including new hiring and plans for expansion.

On the other hand…December’s 9/10% decline in retail sales was a surprise after a strong November.  However, a closer look at the retail figures shows some real positives.  The year-over-year gain was 2.6%, above the 1.7% core inflation rate, indicative of modestly  growing demand.

Excluding retail gas sales, retail sales gained 4.8% over last year.

Now, let’s put gas sales in some historical perspective.  In January 2007, the price of a gallon of gasoline was $2.10, about the same as it is now.  On average, we are driving more fuel efficient vehicles than in 2007, yet total retail gas sales are 25% higher now.

Every six weeks, the Federal Reserve releases their Beige Book survey of economic conditions around the country.  They also reported moderate growth in employment and sales.  They noted that flat wage growth and low inflation reduces any urgency in raising rates.  Friday’s release of the CPI confirmed the low inflation rate.  Including gas and food, the yearly increase was only .7%.  Core inflation, which excludes gas and food prices, rose 1.7%.  Consumer sentiment is nearing the levels of the early to mid-1980s, the beginning of a period of strong growth.

For now, stocks and oil prices are dance partners.  In a week of negative sentiment, traders were watching the 1975 level on the SP500.  This was mid-December’s bottom, a short-term key level of support.  After Thursday’s close near 1990, stocks rallied on the strong consumer sentiment and a report from the International Energy Agency that lower prices are causing some oil production cuts. Fourth quarter earnings season has just begun but if volatility in oil prices remains strong, this may drive market sentiment at least as much as earnings reports.


Job Openings (JOLTS)

November’s job openings showed a slight increase, getting ever closer to the 5 million mark and nearing an all time high set in the beginning of 2001 as the dot-com boom was ending.  This summer open positions surpassed the mark set in June 2007 at the end of the housing boom.

The  economy grows stronger on many fronts – labor, retail, housing and industrial production – and is near multi-year high marks without the help of a widespread boom in any one sector of the economy.  The surge in oil  shale production is confined to a few states.


Portfolio Allocation

As the market remains somewhat volatile, it’s time to revisit a familiar theme – allocation.  Let’s look at a selection of portfolios with moderate allocation. How much difference has there been between a portfolio with 60% stocks and 40% bonds (60/40), and one with 40% stocks, 60% bonds (40/60)?

Earlier in the year, I mentioned a site  that can backtest a pretend portfolio.  In the free version, the re-balancing rules are fairly simple but it does allow us to make some comparisons of long term trends.

All of the following tests include the years 2000 – 2014, a period which covers two downturns.  The first, from 2000 to 2003, was a protracted decline after the dot com bubble.  The second, from late 2007 to 2009, was severe.

The test includes an annual re-balancing to get to the target percentages, and assumes a modest investment of $100 each year into a $10,000+ portfolio.  Because of the two downturns, it’s no surprise that the portfolio weighted toward bonds did better than the portfolio weighted toward stocks.

The difference between the 60/40 and 40/60 was about 7/10% in annual return.  If we were to use intermediate term bonds as a proxy for the bond component of the portfolio, the difference would be even less.  In the middle range of allocation models, the differences in returns over a long period of time are probably smaller than what we worry about.

The importance of moderate allocation is illustrated by the following two examples.  Let’s consider the period from 1995 – 2014, which includes three market rises and two downturns.  Note the ratio: three up to two down.  If we compare a portfolio of all stocks to a balanced portfolio of 50% stocks and 50% long term bonds, we see that it is only in the past five years that the all stock portfolio finally meets the return of the balanced portfolio.

Long term bonds are especially sensitive to changes in interest rates so let’s look at a balanced portfolio of stocks and intermediate term bonds.

In this case, it is only in the past two years that the total return of the all stock portfolio has outperformed the balanced portfolio.  One of the those years included an unusual 30% gain in one year.  In short, it is hard to argue against a balanced portfolio over a long period of time.

Lastly, the example below shows a slight advantage to re-balancing a portfolio.  However, the additional .2% gain each year should not cause us to lose sleep if we forgot to do this for a few months.


Oil Prices

Oil suppliers are pumping down their inventories as global demand for oil weakens.  More product, less demand = lower prices. In a standard economic model, customers want more of a good at a lower price.  Suppliers are less willing to supply a good at a lower price.  Eventually, suppliers and customers reach an equilibrium at a certain price.

What happens in a price war does not follow this simplified textbook model.  Suppliers with deep reserves try to drive out other suppliers by flooding, or at least over supplying, the market, thus driving the price down.  More units are bought but at lower prices, so the value of gross sales may be lower even though the units sold is higher than before.  The profit on each unit sold, or marginal profit, gets lower and may get negative for a time till the more vulnerable suppliers leave the market.

The governments of Venezuela, Russia and Nigeria depend on oil revenues for much of their income.  Should oil prices stay below $50 for half a year or more, these countries will be pressed to curtail social benefit programs and infrastructure projects.  The interest rates on their bonds will increase as investors price in a greater risk of default.

Sudden changes produce fractures.  Fractures produce frictions. Frictions dissipate in a cascade of minor adjustments or suddenly in a violent upheaval.

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?

Follow The Money

June 14th, 2014

This week I’ll take a look at some near-term trends in small business, labor, oil and housing and a few long-term trends in income and debt.

Small Business

Huzzah, huzzah!  The monthly survey of small business owners by the National Federation of Independent Businesses (NFIB) broke through the 96 level after cracking the 95 level last month.  Sentiment has not been this good since mid-2007.  Hiring plans have been on the rise for the past several months and owners are reporting rising sales.


JOLTS (Job Openings and Labor Turnover Survey)

The Job Openings report from the Bureau of Labor Statistics (BLS) has a one month delay so the data released this past week was for April.  The number of job openings was 40,000 higher than expected, coming in close to 4.5 million.  As a percent of the workforce, job openings are approaching pre-recession highs.

The decline in construction job openings is a disappointment.  We are near the same level as 2003, a weak year of economic growth.  We should expect to see an uptick in job openings in next month’s report, confirming that projects put on hold during the severe winter in the eastern part of the country are again on track.  Further declines would indicate a spreading malaise.


Gross Domestic Income

On a quarterly basis Gross Domestic Income, GDI, and Gross Domestic Product, GDP, differ somewhat but over the long run closely track each other.  Following up on two previous posts on Thomas Piketty’s book Capital in the 21st Century, I wondered what percent of GDI goes to pay employee compensation.  As we can see in the chart below, total compensation for human labor has been dwindling to post WW2 levels.

This is total compensation, including benefits.  Wage and salary income as a percent of total national income has declined steadily.

As a percent of total income, employee benefits have more than tripled since the end of World War 2 and now comprise more than 10% of the country’s income.

Demographic shifts have contributed to the decline of labor income.  The post war boomer generation, 80 million strong and 25% of the population, contributes to the trend as they save for retirement. As capital gains, interest and dividend income increase, this reduces the share of wage and salary income.

Economic changes have been a major factor in the decline of labor income.  Capital investments in technology, both in hardware and software, have reduced the need for labor for a given level of production.  Capital investment demands income to pay back the investment. For most of the 20th Century, machines replaced human muscle in farming, manufacturing and construction.  In the past two decades, machines are increasingly replacing mental muscle.

How we count labor income has changed.  Tax law changes in 1986 and 1993 reduced the amounts that are included as compensation but the overall effect of these changes is relatively minor.

If we divide the country’s total employee compensation by the number of employees, we might ask “What recession?”  Average annual compensation has climbed from $38-54K in a dozen years.  That’s almost a 50% raise for every employee!

Of course, everyone has not had a 50% increase in income over the past 12 years.  Human capital, the educational and technical training that an employee has to offer, has earned an increasing premium in the past three decades. Those with more of this capital have captured more benefit from the dwindling pool of labor needed for the nation’s production.

Average disposable income tells a more accurate story of the majority of people in this country.  Disposable income is what’s left over after taxes.  The trend is downward.

How do we cope with flat income growth?  Charge it!  It’s the Amurikin way! Per capita Household Debt has increased 75% in the past 13 years.  After a decline from the rather high levels before the recession began in late 2007, per capita debt has leveled off in the past two years.

Rising house prices and stock market values have increased net worth.  As a percent of net worth, household debt has declined to the more sustainable levels of the 1990s.

The percentage of disposable income needed to service that debt is at thirty year lows, meaning that there is room for growth.

In response to the hostilities in Iraq, oil prices have been on the rise.  Historically, a rise in oil prices leads to a rise in prices at the pump which takes an extra bite out of disposable income and puts a damper on consumer spending growth.


Oil Prices

A blog by Greg McIsaac at the Washington Monthly in May 2012 presents an interesting historical summary of oil prices and production.  The American love of simplicity leads many to credit one man, the President, for the rise and fall in gasoline prices, although the President has little, if any, influence on oil pricing. McIsaac notes The combination of lower energy prices and increased energy efficiency in the 1980s reduced US expenditures on energy by nearly 6 percent of GDP.  Deregulation of energy prices begun under the Carter Administration were largely credited to the Reagan administration.   He writes “crediting Reagan with falling energy prices of the 1980s exaggerates the roles of both Reagan and deregulation and obscures the larger influence of conservation and increased production outside the US.”  Production actually fell for several years after regulatory controls were lifted.

Further increases in oil prices will no doubt be blamed on this President.  The one thing that each outgoing President bequeaths to the newcomer before the inauguration is the Presidential donkey suit.



Redfin Research Center reports a sharp decline in the number of houses sold through May. After a 7.6% year-over-year decline in April, home sales slid 10% from May 2013 levels.  Real estate agents are reporting a shift from a seller’s market to a buyer’s market.



Small business accounts for approximately 60% of new jobs and optimistic sentiment among small business owners is growing.  The labor market continues to show continuing strength in the number of job openings and a decline in new unemployment claims.  Disposable income growth is flat but the portion of income needed to service debt is very low.  Rising oil prices and a slowing housing market will crimp economic growth.
Next week I’ll look at a complex topic – is the stock market fairly valued?  

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. , 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.