Monday, October 04, 2010
Beginning The Week On A Downer
And then, I have been spending an outsize amount of time on the SuperDoc's regulatory problems. That is an epic saga that would fill a book by itself. I'm going to end up with three books, in reality. It is difficult to fathom how the US government believes it creates jobs by bleeding businesses dry with this nonsense. SuperDoc had to lay off. Most practices are laying off some administrative workers. And that's before the almost 30% cut in Medicare reimbursements which is scheduled to occur at the end of this year.
But on to economics:
I really wanted to see the August Manufacturer's Shipments, Inventories and Orders report. It is here, and it is not that great. I am currently focusing more on shipment trends than order trends, because the order trends are going to follow shipment trends for all the feed-through.
From June through August, shipments ran -0.5, +1.2, -0.6. This may not seem significant, but with unfilled orders we are went +0.6, +1.1, -1.1.
Primary: -1.4, -0.2, 0.0.
Fabricated: -0.8, -1.4, 0.5.
Note that year-to-date 2010/2009 increases are +36.2% for primary and only +5.0% for fabricated.
+1.4 > -3.2 > +3.7. Yoy YTD this category is only up 5.2%. It is the last category to rebound out of inventory cycles, and yes, it has something to do with fabricated metals. Because right now there should be a benefit to buying under this year's tax treatment than next year's, this category may be getting a temporary bounce. But one would hope not, because it isn't that great!
-1.1 > -0.1 > +0.3. This surely does not indicate strength in final demand. A look at the food category confirms: -0.2 > 0.0 > 0.0.
There is some non-durable strength in pulp and paperboard containers, although paperboard fell in August. And ag chem is still strong. Ag chem is up 41.1% YTD YoY, by far the strongest category. Autos are up about 22% YTD YoY, with trucks up 24.9%.
There is clearly some boggling going on. Page 6 of this report has a nice tabular summary of shipments, new orders, unfilled orders and total inventories by major category. Notice how tightly the consumer goods are chained. Manufacturers haven't overrun demand, which is good. But one can see why they are so cautious also: (This is just new orders):
Last week the personal income and outlays report was published for August. The headline looked good - income +0.5, and real disposable income having rebounded 0.2%, after having fallen 0.2% in July. But the underlying details were discouraging. By far the largest single source of additional income (these numbers are annualized) was personal current transfer receipts (payments to individuals by government). That increased 35.8 billion, of which 20.6 billion was the extension of unemployment benefits. So between July (when unemployment benefits are estimated to have dropped 17.1 billion and real disposable personal incomes fell 0.2% ) and August, unemployment benefits accounted for a big part of the change. You can estimate the rate of change of wages and salaries (growth in jobs and increase in wage and salary payments) from the "contributions" for government social insurance, and they did increase, but by less than the July increase.
Another way to look at this is that taxes (social insurance +3.1 billion and current taxes +7.2 billion) increased at only 1/3rd the rate of payments by the government to individuals. Obviously, this is unsustainable. We are going to have a decent few months in the stores, but basically that's coming from government payments to individuals, and the unemployment benefits are temporary.
Which brings us back to final demand, which is going to be contingent on incomes. In August, private wage and salary payments increased about 26 billion, while government wage and salary payment decreased about 5 billion. So the net increase was about 21 billion. Government payments to individuals increased close to 36 billion, but about 20 billion of the increase was temporary. The rest is probably Social Security/Disability. Staring at a situation in which the long-term welfare payments are increasing at about 4/5ths of the rate of the tax base is pretty scary.
Oh, and the pending home sales report was released. Just take a look at the regional indexes compared to 2009. They are significantly below the 2009 trend in all four areas. We have trouble ahead.
Update: This chart was created from BEA's Personal Incomes Table 2.1, which you can access here. This shows normalized time series for total wages and salaries (doesn't count benefits), private wages and salaries, government wages and salaries, and personal current transfers split into the temporary (unemployment) and Social insurance.
I really put this table up for Carl at NOFP, who is just constantly tortured by tax fallacies.
Here you see that the real problem is the constantly rising ratio of benefits. When GDP Q3 data becomes available I'll do a much more comprehensive breakdown. The bottom line is that most of our problem is demographic. Adding a stagnant economy doesn't make anything better, because even if you stop paying extended unemployment benefits (and those drop out in Q1 next year), those unemployed people still won't be earning wages and paying taxes.
You can also see that this problem was clearly evident long before the current downturn.
For those who hate numbers:
When you "normalize", you adjust series of different levels to a constant level in order to easily see how they have varied over time in relation to each other. Thus, obviously total wages and salaries are much higher than the social benefits paid, but the normalized series above shows that social benefits have constantly risen in proportion to wages paid, and that they started this epic divergence in the 1990s. The narrowing of the gap at the end of the 1990s really represented a demographic bump relating mostly to the Great Depression. There is also a demographic blip from the Spanish flu (1918-1919). So although most of the public believes that Clinton raised taxes and closed the deficit, almost all of the improvement was really demographic.
With an informed electorate, this would be a scandal. But with an informed electorate, this would never have happened.
...making testing simple and cheaper...
That's probably one of the fastest technological ways forward. How much faster would diagnoses be if we had yearly full-body MRI scans, and used AI to track the changes year over year? Can't do that, though--liability keeps the MRI equipment expensive and the AI unattainable.
CRE will take another hit. The sheer number of
medical offices and related businesses shot
through the roof over the last 20 years. This
is the next shoe to drop, despite the ever increasing
need as the population gets older.
If the 30% cut were to go into effect, it would drop a lot of Medicare reimbursements close to Medicaid levels. And the problem with that is that doctors generally have to limit their Medicaid patients to stay afloat.
That's why CBO and CMS doubt that the cut will go into effect. But down the line, the current healthcare bill mandates very steep Medicare cuts, and when that happens, I guess the old folks get cut off.
In relatively recent periods, certain types of medical care became very hard to get or unobtainable for some in some localities/states. Some states responded legislatively. If that is blocked, I suspect that certain specialties will once again be in very short supply.
offices but in the therapists. Physical, occupational,
etc. A lot of these clinics are owned by Doctors
who then refer their patients to them. They know exactly what the insurers will pay and cut off the patient at that time. Those therapists jobs pay very well, but when the funds get cut those jobs will go away or be done by lower paid employees. I know 4-5 therapists in my small circle of friends. They don't have a clue what is coming and aren't prepared for life outside of their field.
The English people have become sheep because only sheep would accept this system and still claim to be a democracy.
I am in a bit of a foul mood on this topic. I just started Sally Pipes book "The Truth about ObamaCare" this morning. It kind of ruins the day for anyone who is less than 9 months away from Medicare.
I thought MRI costs were largely a reflection of actual manufacturing, installation, and site-prep costs. At least the first of these might be subject to normal economies of scale if the number of machines went *up* significantly.
Precisely so. The existing MRI technology is inherently expensive. But there's so much legal liability in interpreting the results that there's no call for increasing the numbers. So we don't get the normal innovations in technology and manufacturing.
The unwillingness of the Medicare and insurance systems to pay for innovative tests plays a role too, I'd guess.
The whole system is designed to punish innovation except along well-worn pharmaceutical and surgical ruts.
And then, I have been spending an outsize amount of time on the SuperDoc's regulatory problems. That is an epic saga that would fill a book by itself.
I would love to see some more posts on this, specifically demonstrating how we are strangled by this nonsense.
Best wishes for the health of the Chief.
The Chief's intestinal zoo has been vastly reduced. The big critter was sent for biopsy, which is predicted to be normal.
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