.comment-link {margin-left:.6em;}
Visit Freedom's Zone Donate To Project Valour

Sunday, May 26, 2013

Memorial Day, 2013

No, they are not forgotten. 

In GA, every year at the National Cemetery in Marietta we have the Avenue of Flags. There is a ceremony, and every grave gets a flag.. This year the honoree group is the Tuskegee Airmen.

There are a lot of graves - close to 19,000 of them. A lot of groups get involved to place the flags, which is done with some ceremony.

No one can ever understand the US or the south without knowing what happens here, and at other cemeteries on Memorial Day.

 It is, of course, not just on Memorial Day. But we have Memorial Day so that everyone who lost someone remembers that we remember.

Thursday, May 16, 2013

About The IRS Bit

Here is the IRS internal report on the matter, which clearly establishes that illegal criteria were used to select cases for processing and that the additional scrutiny was then halted, effectively leaving hundreds of politically selected applications in limbo. 

This is a big deal:
While the team of specialists reviewed applications from a variety of organizations, we determined during our reviews of statistical samples of I.R.C. § 501(c)(4) tax-exempt applications that all cases with Tea Party, Patriots, or 9/12 in their names were forwarded to the team of specialists.
We asked the Acting Commissioner, Tax Exempt and Government Entities Division; the Director, EO; and Determinations Unit personnel if the criteria were influenced by any individual or organization outside the IRS. All of these officials stated that the criteria were not influenced by any individual or organization outside the IRS. Instead, the Determinations Unit developed and implemented inappropriate criteria in part due to insufficient oversight provided by management. Specifically, only first-line management approved references to the Tea Party in the BOLO listing criteria before it was implemented. As a result, inappropriate criteria remained in place for more than 18 months. Determinations Unit employees also did not consider the public perception of using politically sensitive criteria when identifying these cases.Lastly, the criteria developed showed a lack of knowledge in the Determinations Unit of what activities are allowed by I.R.C. § 501(c)(3) and I.R.C. § 501(c)(4) organizations. (A screamer.)
Organizations that applied for tax-exempt status and had their applications forwarded to the team of specialists experienced substantial delays. As of December 17, 2012, many organizations had not received an approval or denial letter for more than two years after they submitted their applications. Some cases have been open during two election cycles (2010 and 2012). 
It actually gets worse from there:
The team of specialists stopped working on potential political cases from October 2010 through November 2011, resulting in a 13-month delay, while they waited for assistance from theTechnical Unit. Figure 5 illustrates significant events and delays concerning potential political cases.  

The Story Is ...

That there are constraints on everything except government power, I guess. 

Economically, it appears that the Fed has little ability to do anything with its QE extravaganza other than run up stocks and keep interest rates lower than they would have been. Okay, it also possesses the ability to drive commodity traders out of gold and into houses. But it doesn't seem able to actually stimulate the economy, because we now are moving into the second month of slack readings. 

Initial unemployment claims are big news because of a sudden SA jump to 360K, but since the 4-week moving average isn't moving and continuing claims continue markedly benign, I wouldn't place undue weight on it. It probably has something to do with inventory/sales ratios, which have been correcting right along at these levels:
The US dollar is too strong for the comfort of some manufacturers given yen moves and China's apparent shift to a weakening yuan. You can't blame the industrial slowdown on foreigners, though, because retailer inventories were too high in March and that's why we have had two slack months of data from the production sector. 

It is worth noting that last year's summer slump turned into a spring slump this year, which is not good. Bad weather and the FICA tax increase are responsible. Industrial production just went through its annual revision. A disappointing -0.5 in April was largely produced by weather shifts which shifted utility output. In March utility output was up 6.4 with an IP index change of +0.3. In April utility output was down 3.4, which shifted the headline. However look at the report! April gave us a string of negatives for all major market groups. Manufacturing was up only 1.3% on the year. Construction was up 1.8% on the year. 

Of the regional surveys, Empire showed up in "May showers" mode, having declined to a negative. Update: Philly Fed came trotting up, wagging its tail enthusiastically and dropped a three-day old dead fish at our feet. -5.2.

The auto boom has worn out, so the major stimulation left at the ground level is composed of fracking and construction, with construction being less than brilliant. It's there and it will continue at higher levels than last year, but it is not soaring through the roof and there are troubling indicators that investors are creating market instability in some places. It looks as if builders have plenty of plans but are trying to roll through building at a measured pace so as not to get out ahead of the market or caught in a cash crunch. In many markets, the average first-time purchaser can't afford any new single-home purchase except for condos/coops. I think builders are carefully rolling their capital.

I have been watching consumer inflation in China very carefully for a better indication of real economic trends. Now the same gauge in the US is flagging a slowdown, to say the least:

The green line looks quite recessionary. This is not a surprise, but think about what the margin pressures do to the bottom lines of Main Street businesses! It's no surprise that NFIB just can't quite escape the recession zone. The interesting thing about the NFIB report is that there are clearly upward pressures on wages, and these pressures clearly are pushing in a different direction than end-user price pressures.

If you think about what is happening, the Fed's effective economic stimulus is actually lessening in real terms because real interest rates are less negative than they used to be. Yet by the time investor equity is chasing yet-to-be-built homes, the ability of the Fed to stimulate the economy by inserting money safely is about nil.

Note that increases in taxes on investment-type income at the beginning of this year, specifically capital gains, would be expected to hit business investment hard in some regions. If you are one of those people who will be left paying over 30% on capital gains, your best return may well be in tax-free bonds, but this removes stimulation from the economy. We will pay for this stupidity for a long time to come. I estimate that US capital gains tax policy shifted potential stable GDP growth down from 1.8-.19% to 1.5-1.6%. That, my friends, is not anything we can live with. 

In sum, the US economy is weaker at this point in the year than it was last year. There is less potential uplift. The economy is struggling along trying to compensate with price cuts wherever it can afford them to boost real incomes. The Fed cannot do anything about this.

I presume the only possible policy response is for the federal government to subpoena all the press phone records from the Wall Street Journal and USA Today.

Tuesday, May 14, 2013

Never Trust A Libertarian Lawyer To Protect The Constitution

Listen guys, I'm not dead, just suffering the agonies of the damned.

But I break my legitimate silence to point out that the Department of Justice apparently violated its own regs with the AP records subpoena, so this is anything but a "nonstory". Apparently the professional law bloggers (one example) are just too busy to bother with reading the law, so here it is, and I publish it below so that the DOJ can get its knickers in a twist and have another person to harass.

My comments in red. Please understand that the subpoena was not issued to AP directly. The subpoena would not have been issued by a court, but by the AG. No negotiations took place. Unless the subpoena was issued last year during the period for which records were requested, then notice and negotiations were required BEFORE the subpoena was issued. It looks as if this was not done because that would have allowed AP to take this to a court and a court would have been unlikely to allow it due to it being overbroad, to say the least. There's that pesky little bit about freedom of the press in the First Amendment, which libertarian lawyers don't worry about but the federal courts do worry about. Holder should have personally approved the subpoena. If the subpoena was issued last year during the period in question, the requirement to investigate all other avenues first was probably violated and the timely subsequent notice was also violated. These regulations have been in effect since 1980. 

Write your representatives and demand a real investigation.
50.10 - Policy with regard to the issuance of subpoenas to members of the news media, subpoenas for telephone toll records of members of the news media, and the interrogation, indictment, or arrest of, members of the news media.
Because freedom of the press can be no broader than the freedom of reporters to investigate and report the news, the prosecutorial power of the government should not be used in such a way that it impairs a reporter's responsibility to cover as broadly as possible controversial public issues. This policy statement is thus intended to provide protection for the news media from forms of compulsory process, whether civil or criminal, which might impair the news gathering function.
In balancing the concern that the Department of Justice has for the work of the news media and the Department's obligation to the fair administration of justice, the following guidelines shall be adhered to by all members of the Department in all cases:
(a) In determining whether to request issuance of a subpoena to a member of the news media, or for telephone toll records of any member of the news media, the approach in every case must be to strike the proper balance between the public's interest in the free dissemination of ideas and information and the public's interest in effective law enforcement and the fair administration of justice.
(b) All reasonable attempts should be made to obtain information from alternative sources before considering issuing a subpoena to a member of the news media, and similarly all reasonable alternative investigative steps should be taken before considering issuing a subpoena for telephone toll records of any member of the news media.
(c) Negotiations with the media shall be pursued in all cases in which a subpoena to a member of the news media is contemplated. These negotiations should attempt to accommodate the interests of the trial or grand jury with the interests of the media. Where the nature of the investigation permits, the government should make clear what its needs are in a particular case as well as its willingness to respond to particular problems of the media.
(d) Negotiations with the affected member of the news media shall be pursued in all cases in which a subpoena for the telephone toll records of any member of the news media is contemplated where the responsible Assistant Attorney General determines that such negotiations would not pose a substantial threat to the integrity of the investigation in connection with which the records are sought. (Such determination shall be reviewed by the Attorney General when considering a subpoena authorized under paragraph (e) of this section. (Holder's in the bag regardless for this action.)
(e) No subpoena may be issued to any member of the news media or for the telephone toll records of any member of the news media without the express authorization of the Attorney General: (Holder should personally have signed off on this request) Provided, That, if a member of the news media with whom negotiations are conducted under paragraph (c) of this section expressly agrees to provide the material sought, and if that material has already been published or broadcast, the United States Attorney or the responsible Assistant Attorney General, after having been personally satisfied that the requirements of this section have been met, may authorize issuance of the subpoena and shall thereafter submit to the Office of Public Affairs a report detailing the circumstances surrounding the issuance of the subpoena.
(f) In requesting the Attorney General's authorization for a subpoena to a member of the news media, the following principles will apply:
(1) In criminal cases, there should be reasonable grounds to believe, based on information obtained from nonmedia sources, that a crime has occurred, and that the information sought is essential to a successful investigation?particularly with reference to directly establishing guilt or innocence. The subpoena should not be used to obtain peripheral, nonessential, or speculative information.
(2) In civil cases there should be reasonable grounds, based on nonmedia sources, to believe that the information sought is essential to the successful completion of the litigation in a case of substantial importance. The subpoena should not be used to obtain peripheral, nonessential, or speculative information.
(3) The government should have unsuccessfully attempted to obtain the information from alternative nonmedia sources.
(4) The use of subpoenas to members of the news media should, except under exigent circumstances, be limited to the verification of published information and to such surrounding circumstances as relate to the accuracy of the published information.
(5) Even subpoena authorization requests for publicly disclosed information should be treated with care to avoid claims of harassment.
(6) Subpoenas should, wherever possible, be directed at material information regarding a limited subject matter, should cover a reasonably limited period of time, and should avoid requiring production of a large volume of unpublished material. They should give reasonable and timely notice of the demand for documents.
(g) In requesting the Attorney General's authorization for a subpoena for the telephone toll records of members of the news media, the following principles will apply:
(1) There should be reasonable ground to believe that a crime has been committed and that the information sought is essential to the successful investigation of that crime. The subpoena should be as narrowly drawn as possible; it should be directed at relevant information regarding a limited subject matter and should cover a reasonably limited time period. In addition, prior to seeking the Attorney General's authorization, the government should have pursued all reasonable alternative investigation steps as required by paragraph (b) of this section.
(2) When there have been negotiations with a member of the news media whose telephone toll records are to be subpoenaed, the member shall be given reasonable and timely notice of the determination of the Attorney General to authorize the subpoena and that the government intends to issue it.
(3) When the telephone toll records of a member of the news media have been subpoenaed without the notice provided for in paragraph (e)(2) of this section, notification of the subpoena shall be given the member of the news media as soon thereafter as it is determined that such notification will no longer pose a clear and substantial threat to the integrity of the investigation. In any event, such notification shall occur within 45 days of any return made pursuant to the subpoena, except that the responsible Assistant Attorney General may authorize delay of notification for no more than an additional 45 days.
(4) Any information obtained as a result of a subpoena issued for telephone toll records shall be closely held so as to prevent disclosure of the information to unauthorized persons or for improper purposes. (
h) No member of the Department shall subject a member of the news media to questioning as to any offense which he is suspected of having committed in the course of, or arising out of, the coverage or investigation of a news story, or while engaged in the performance of his official duties as a member of the news media, without the express authority of the Attorney General: Provided, however, That where exigent circumstances preclude prior approval, the requirements of paragraph (l) of this section shall be observed.
(i) A member of the Department shall secure the express authority of the Attorney General before a warrant for an arrest is sought, and whenever possible before an arrest not requiring a warrant, of a member of the news media for any offense which he is suspected of having committed in the course of, or arising out of, the coverage or investigation of a news story, or while engaged in the performance of his official duties as a member of the news media.
(j) No member of the Department shall present information to a grand jury seeking a bill of indictment, or file an information, against a member of the news media for any offense which he is suspected of having committed in the course of, or arising out of, the coverage or investigation of a news story, or while engaged in the performance of his official duties as a member of the news media, without the express authority of the Attorney General. (k) In requesting the Attorney General's authorization to question, to arrest or to seek an arrest warrant for, or to present information to a grand jury seeking a bill of indictment or to file an information against, a member of the news media for an offense which he is suspected of having committed during the course of, or arising out of, the coverage or investigation of a news story, or committed while engaged in the performance of his official duties as a member of the news media, a member of the Department shall state all facts necessary for determination of the issues by the Attorney General. A copy of the request shall be sent to the Director of Public Affairs.
(l) When an arrest or questioning of a member of the news media is necessary before prior authorization of the Attorney General can be obtained, notification of the arrest or questioning, the circumstances demonstrating that an exception to the requirement of prior authorization existed, and a statement containing the information that would have been given in requesting prior authorization, shall be communicated immediately to the Attorney General and to the Director of Public Affairs.
(m) In light of the intent of this section to protect freedom of the press, news gathering functions, and news media sources, this policy statement does not apply to demands for purely commercial or financial information unrelated to the news gathering function.
(n) Failure to obtain the prior approval of the Attorney General may constitute grounds for an administrative reprimand or other appropriate disciplinary action. The principles set forth in this section are not intended to create or recognize any legally enforceable right in any person. [Order No. 916-80, 45 FR 76436, Nov. 19, 1980]

Friday, May 03, 2013

Some Relationship Graphs

Because the M_O_M fudge factor is hanging by a thread (although I still believe it exists):

This is a long-term series showing the relationship between YoY changes in employment as measured by the Household and Establishment series, plus the relationship between the two. 

Short version of the same:

I've been agonizing over the seeming correlation of the green and the red/blue. Yikes! However recently this has looked a bit more favorable, esp. considering the low initial claims.

The above graph is really a proxy for real disposable income changes (which is where the M_O_M fudge factor comes in):

The orange is annual real disposable income change, and the purple is the quarterly. Both show YoY changes. Obviously the quarterly is more sensitive.

As you can see, last year was harrowingly close. The big rise at the end of the year was really due to incomes being brought forward, which will have a natural giveback this year, compounded by the FICA tax increase. Against that we have only two real growth factors - increased incomes from employment and increased incomes from retirements. The government retirement bonus per retiree is very BIG! So the M_O_M fudge factor implies that government retirees will have a net add (in the short term).

Also, the fact that we did have a contraction last year by some measures helps us now. But yet - throughout this entire recovery sequence, we have never returned to a non-recessionary real disposable income trend. We are solidly in recession territory and apparently will remain in recession territory, which is why I cannot see the Fed's actions as getting us into long-term stability. Despite the Fed's best pumping efforts, the only thing they seem to be able to achieve is prevention of collapse, and this year, it's very fragile.

The best possible future trajectory would be emergence into 70s type inflation. Not a very lovely prospect, but.... Otherwise, Japan.

Is the M_O_M fudge factor debunked? Manufacturing seems to say so. YoY drops in new orders plus unfilled orders have never been a good sign. This, btw, doesn't even have much of a relationship to sequesters yet. When YoY YTD shipments for ag-chem. paper, and pharmaceuticals are all down 3% or more, you have a completely different problem. YoY YTD unfilled orders for motor vehicles are down 4.7%.

I feel like a fool for insisting that the US economy doesn't fall out this year, but I still think it will see-saw. I won't give up until unfilled orders for fabricated metals totally collapses. This does mean that Canada's in trouble, though. We have gained MV production at their expense!   

One Of The Strangest Employment Reports I've Ever Seen

Really, this thing is about unique. On the whole it's good news (consonant with the longer trend in initial claims), but the underlying detail is odder than heck. 

Well, I will be going through this thing with a fine toothed comb this weekend, but here's a hint as to how weird it is:

Table A-8:
In one month, using SA figures we have the following moves:
This has to be the first clue as to what we are really seeing. First, the Establishment survey loss in construction workers is not right, so probably the construction work is showing up in the self-employed portion. Really bad March weather probably shifted all these gains over a month. The self-employed group has been ratcheting up and down rather unpredictably - February's total was similar to April's total, but March's was way down.

As a wild guess, Obamacare moves are shaping a lot of the stats we see. State governments are making changes rather industriously  to deal with the requirements, and I'm guessing that includes a lot of contracting. Also government retirements must be in high gear with corresponding shifts to contracting fueled by the government medical benefit problem.

The self-employed shift is mirrored by the non-ag part-time for economic conditions number, which rose 249,000 from March to April, but just remains lower than in January or February. So this really is going to be mostly in construction! The February-April gain in non-ag employment is close to 180,000, which makes quite a bit of sense. 

The establishment survey (Table B-1) shows a two month gain of 300,000 in non-ag, and the difference is mostly in government, which may be due to timing factors. However the establishment survey shows a net loss in construction jobs, which is not credible (but of course, the establishment survey tends not to pick up contractors). The establishment survey shows no manufacturing gains but large relative gains in services, of which a very large gain in department store employment???!!!, a very large gain in restaurants and a very large gain in temps. 
There is often a timing problem for government employment, because many of them use a monthly payroll system, whereas the household survey uses the reference week. Because of the big gap between reported government employment in the two surveys, I think most of the difference between the Establishment and Household surveys fall into two categories - government retirements and casual construction employment. They move in different directions, so the two-month gain for Establishment of 300K and the two-month gain for Household of 177K are not really that different. Note - this is comparing non-ag from Table B-1 to non-ag from Table A-8. 

Note: The broadest measure of employment we have is from Table A-1, and there YoY SA jobs increased by 1.65 million. YoY non-SA non-ag from Table A-8  jobs increased by nearly 1.9 million, which is very close indeed to YoY non-SA non-ag from Table B-1 at 2.09 million. On the same basis, private industry employment in Table A-8 increased 1.6 million, but private industry employment in Table B-1 increased  2.18 million.

Wednesday, May 01, 2013

A Whole Lotta US Stuff Wednesday

A) ADP employment report. At +119,000. I suppose this is a disappointment from consensus, but after the weakness in the manufacturing surveys, it's really hard to call it a surprise. This is lower than March's initial figure of 158,000 revised down to 131,000, but since ADP has manufacturing losing 10K jobs, it makes sense. ADP does have construction employment rising by 15K, which is a good omen for construction spending later.

I'll update this as the drama rolls in and time allows today. 

B) No surprise on Markit US Mfrg PMI. Significant slowing from March, but not contracting.New order growth fell from 55.4 to 51.5, but new export orders were unchanged at 51.8. Thus the weakness is domestic. Only a very minor rise in finished goods inventories, so the story is just slackness.

C) Watching Ward's on auto sales - they are currently projecting a slight SAAR drop. I don't think it matters whether it comes in at 15.4 or 15.1 - the point is that it does seem likely that maybe we reached the natural high point on US auto sales, so that stops pushing us along this year. This may be something to watch
Update: Well, it had to happen sooner or later. Auto sales fell below the 15 million SAAR mark at 14.9. Lowest YoY DSR growth since August 2011:

D) ISM manufacturing okay. A headline of 50.7 doesn't say a whole lot, but customer inventories were reported down. Both new orders and backlog of orders is reported to have increased, which makes a continued slump in May unlikely. 50.7 matches August of last year, which was preceded by 50.2 and 50.5 in June/July 2012.

E) Construction spending dropped 1.7% in March from February? Total private construction dropped?

Not particularly brilliant, right? We were sort of shooting for the "better than 20010" range. This is not quite the green of spring. 

F) This winter was notably colder than the prior two in the US (and spring colder yet), so it's been a bit hard to compare oil usage. Today's 12.4 million dollar total commercial petroleum build is rather hefty, and the four week total product supplied YoY is -2.7.  This suggests that the trucking tonnage report for April won't be that great. So far in April rail figures have been disappointing. YTD compared to last year, total rail traffic is up only 0.7%. Last year intermodal was very strong, but this year it seems to be slowly weakening.

Light note: When one is contemplating a series of less-than-brilliant economic reports, it is somewhat unsettling to read this headline on Bloomberg: Amgen Drugs May Boost Survival During a Nuclear Attack

 Well, it depends: I've had this bookmarked, might as well throw it in here:
Net trailer orders for March were down 6% month-over-month and 12% year-over-year. This update on industry performance was reported in the latest State of the Industry: U.S. Trailers published by ACT Research Co.

This page is powered by Blogger. Isn't yours?