Where did the missing 312,000 people from the Labor Force go last month? I know where 80,000 of them went but not the rest. I am worried about them. See here why.

In July and August the latest jobs report shows 312,000 FEWER people counted as a part of the labor force (either were working and retired or were not working and exited the labor force, or became "disabled" and started collecting benefits).  The number is highlighted in yellow.

Much has been made of the fact that this is due to demographic trends---aging baby boom population retiring in large numbers and as that same group gets older they are susceptible to work related injuries. 

I have not doubt this is true. Just wondered how many of those 312,000 were a part of this demographic group?

Took a screenshot of the data from the Social Security Online database of the data isolated just for people who officially retired or started collecting disability benefits.

Look at the highlighted numbers for July and August. Subtract the two and you get 79,813. Subtract that from 312,000 and you have 232,187 people who exited the workforce for reasons OTHER than the ones stated above.

That's a lot of people.  Why did they exit and where did they go?  Have not seem any solid  analysis from real economist yet on that question.  

The Sales Tax Holiday for back to school shopping is nice, but the real money is in tariffs levied on imported back to school items. How about a "Tariff Holiday". See here how much that adds up to.

Here is a nice graphic showing common back to school items parents purchase and the tariffs, in percent, that are embedded in the price you pay for these items.

A tariff is the same thing as a tax and is levied on an item when it is imported into the US.  The over-all goal of a tariff is increase the price of the imported good in order to make it more comparable to the price of the same (or similar) domestically produced good.  The assumption is the price of the imported good is too low for domestic producers to match.

While the State you live in might give you a break during the Sales Tax Holiday, the Federal government keeps on charging you.  A "Tariff Holiday" would REALLY help low income parents buy what they need for their kids.  How about it, Congress?

It really adds up, doesn't it?

Source: The Foundry (Heritage Foundation)

Note: Tariffs are applied to the cost of the good at the time of import, not on the retail price.

Example: Tennis shoes.  If the import price of the shoes is $10 then the 20% tariff is applied on the $10 not, say, a $20 retail price at Payless Shoes.

The way GDP is calculated has been revised. See this graph and explanation as to how much has been added and why...Good Stuff!!

My blogosphere friend The New Arthurian Economics has this graph comparing the old method (Blue Line) of calculating GDP to the new one (Red Line).  The biggest change is classifying Research and Development spending (in business and entertainment ) from an expense, which is not counted in GDP, to "fixed investment" This mostly mostly affects the "I" in our GDP equation = C+I+G+N(x), but there is some impact on "C" as well. This recalculation results in a new, higher level of GDP than previously calculated.

In short, some things, tangible and intangible, that used to be considered as a one time expense and not counted in GDP are now considered to be an integral part of the on-going value of the finished good or service.

Source: The New Arthurian  Economics

Here is the link to the Bureau of Economic Analysis breakdown of the changes. It is in PPT form so it is relatively easy to scroll through to get the gist of the changes.

Here are the major changes as mentioned in the above link:

1. Expenditures by business, government, and nonprofit institutions serving households (NPISH)for research and development (R&D) are recognized as fixed investment. The new treatment improves BEA’s measures of fixed investment and allows users to better measure the effects of innovation and intangible assets on the economy. 

2. Similarly, expenditures by private enterprises for the creation of entertainment, literary, and artistic originals are recognized as fixed investment, further expanding BEA’s measures of intangible assets. 

3. In the NIPA fixed investment tables, a new category of investment, "intellectual property products," consists of research and development; entertainment, literary, and artistic originals; and software.

Great video here of a modern TESLA auto manufacturing facility. Time to play "I spy with my little eye an auto worker"...

Terrific video showing the manufacturing process for the Tesla.  Any worker you see appears to be more facilitator than craftsman.

I see lots of jobs here but they are largely unseen.  They are behind the scenes programming and maintaining the real labor force that largely builds cars--the robotics.  Jobs that need (for the most part) brain/analytical skills as opposed to physical/skill tradesman skills.

Manufacturing is healthy, but manufacturing jobs are transforming from a tool based economy to an i-pad based one.  A bit of exaggeration...OR IS IT???

Economy, Indiana..Firewood, Rabbits and Corn and Corn and Corn....

Here I am in Economy, Indiana.  It is just Northeast of Indianapolis.  Most definitely Corn Country.  The only businesses I saw as I passed through was a place that sold firewood ("Firewood For Sale: Govt Approved") and one that advertised "Rabbits for Sale".


Here is my daughter, Laura, standing at the edge of a field.  Think it is about harvesting time.

From Wikipedia: 2010 census 

As of the census^[2] of 2010, there were 187 people, 73 households, and 47 families residing in the town. The population density was 1,870.0 inhabitants per square mile (722.0 /km²). There were 89 housing units at an average density of 890.0 per square mile (343.6 /km²). The racial makeup of the town was 98.4% White and 1.6% from two or more races. Hispanic or Latino of any race were 2.1% of the population.

There were 73 households of which 31.5% had children under the age of 18 living with them, 50.7% were married couples living together, 11.0% had a female householder with no husband present, 2.7% had a male householder with no wife present, and 35.6% were non-families. 28.8% of all households were made up of individuals and 15.1% had someone living alone who was 65 years of age or older. The average household size was 2.56 and the average family size was 3.17.

The median age in the town was 38.6 years. 25.1% of residents were under the age of 18; 7.5% were between the ages of 18 and 24; 27.3% were from 25 to 44; 27.4% were from 45 to 64; and 12.8% were 65 years of age or older. The gender makeup of the town was 48.1% male and 51.9% female.

Coming and Going: The number of retirees exiting the labor market is greater than the number of people entering the labor market. This can't be good, can it???

Highlighted above are the number of "Retired Workers" (only) in January 2012 and in June 2013. If you subtract the two, this will give you the number of people who officially retired and may or may not have left the workforce between those two dates.  I will presume they left the work force for this exercise.

37,504,073 minus 35,752,299 = 1,751,744.  To get a monthly average, divide that by 18.

This means 97,320 people, on average, are exiting the labor force each month to retire.

From January 2012 the Labor Force went from 154,356,000 to 155,798,000 (see highlighted numbers below) ---an increase of 1,442,000.  To get a monthly average, divide by 18.  The Labor Force is the sum of the number of employed PLUS the number of unemployed, as defined by the BLS.

Source: BLS

Divide that by 18 months and the average increase in the labor force each month was 80,111.

This means 80,111 new people, on average each month, entered  the Labor Force in the past 18 months.

Just using these two major pieces of data on labor market movement, we can easily see more people are exiting the Labor Force, on net, than are entering.

This is one of the contributing factors to the decline of the unemployment rate in the past 18 months. The job creation alone we have experienced is not enough to credit the decline.

I hope this helps provides some clarity regarding this important issue.

Nice current event example illustrating a Negative Externality. Water treatment plants in England are polluting the waterways

Here is a current and relevant example of a market not taking into account "Negative Externalities" in the production of a good.

If the production of a good imposes a cost on others that is not paid for by the producers and/or the consumers of that good, then it is said to have created a negative externality..  To correct for this externality the government can internalize that cost by imposing taxes or penalties on either the producers or consumers of the good.  This will "internalize the external cost" of production and consumption of the good.

In the example below, water treatment plants are pouring refuse into the public waterways for "free" instead of paying for proper clean up of that refuse by installing the equipment necessary to clean it.  The dirty water is polluting areas that others use for recreational or other purposes.

The article suggest the fines are not high enough for the polluters to changer their behavior.  The fines are cheaper to pay than installing the necessary equipment.

Revealed: how UK water companies are polluting Britain's rivers and beaches  Utilities face 'pitiful' fines despite huge profits, with sewage spills cited as causing particular distress

""The most persistent and frequent polluters of England's rivers and beaches are the nation's 10 biggest water companies, an Observerinvestigation has revealed. 

The companies, which are responsible for treating waste water and delivering clean supplies, have been punished for more than 1,000 incidents in the past nine years, but fined a total of only £3.5m. 

The revelations have raised concern that the financial penalties are far too low to change the behaviour of an industry that generates billions of pounds in profits and shareholder dividends. The charge is backed by the Sentencing Council for England and Wales, which is proposing major hikes in penalties. 

Pollution incidents, which have included sewage illegally pouring into a harbour for more than a year, and managers destroying records, show no sign of declining, according to data obtained from the Environment Agency (EA) under freedom of information rules. Only a third of the 1,000 incidents led to a fine (of an average of just £10,800); the rest resulted in cautions.
"In law, the 'polluter pays' principle is supposed to deter companies from damaging the environment, but in this case the penalties appear to be so pitiful that water companies seem to be accepting them as the price of doing business," Joan Walley MP, chair of the Environmental Audit Committee (EAC), told the Observer. "The sentencing council must ensure that courts take into account the profits made from environmental crimes, and that fines have a sufficient deterrent effect."""

Here is a PowerPoint I created to show how this plays out in a supply and demand graph.  Key concept in AP Microeconomics!!

Social Welfare Analysis---Negative Externalities

Uploaded by Gene on WizIQ Tutorials

Nice graph showing the declining US manufacturers ("The Big 3") share of the car/truck market. I am looking for help to explain the 1980's and half of the 90's.

The first graph (from Carpe Diem) shows the change in market share for the US auto market between "The Big Three" and foreign producers from 1961 to 2012.  From start to finish, the steady decline in US share and the rise of the foreign share is quite dramatic.  The US producer share of vehicles produced went from over 80% to about 44%. Almost half as much.

However, upon closer inspection I noticed 3 distinct segments that were not prominent before I doctored the graph (apologies to Dr Perry).  I put directional arrows to show these segments. Don't confuse these arrows with mathematically correct trend-lines---I just eye-balled them.

I found the center segment to be a curious one.  From 1981 to 1996 the respective market shares stayed remarkably constant. On either side of this 16 year segment US share decreased significantly, more so post-1996.

Why the pause?  I am too lazy tonight to Google it.  Any educated/informed guesses?

Here is a list of the Top 15 companies that shelter profits offshore to avoid US taxes. I bet you love many of them. I hate when that happens...

Here is a list of the Top 15 US companies with corporate profits "sheltered" in offshore subsidiaries ostensibly to avoid US taxes. There is an estimated $1.7 Trillion dollars in profits held offshore by the Top 100 US multi-nationals.

These 15 companies account for 66% of those profits ($776B/$1.2T).  This is according to a Left leaning organization called US PRIG.

Source: US PRIG

Why are First Class passengers boarded first on an airplane? Why would you WANT to board first? Thoughts of a career Coach Flyer. Help me understand, please..

I read this short article on the eternal problem airlines have in getting airplanes boarded in a timely and efficient manner.  One comment toward the end  made sense to me and  made me wonder. I will put into my own words.

Why do First Class flyers get seated first and why would they want to? (Disclosure:  I have NEVER (not even once) flown in First Class).

You are guaranteed adequate overhead space.  You have to endure the awkward stares and the wayward bags of the great unwashed (me) as we slowly shuffle past you.   I am sure people and kids say the darnedest things to you as well and class envy rears its ugly head.

Why would you not want to board AFTER everyone else? Seems like it would send a power statement (isn't that why you fly First Class in the first place?) to those of us in coach---this ain't leaving until we are on board.

"Cut the price and you will sell more!!" is a common statement from students when studying Supply and Demand dynamics. This has more stretch to it than an Elastic band...

I produce widgets.  Under current market conditions, I produce and sell 1,000 widgets a day for $10.00 each. My daily revenue therefore is $10,000 (1,000 X $10).

Students often say "Cut the price so you can sell more and make more money!"  On its face, it makes sense BUT you have to consider (1) what your competition will do and (2) how many additional units will you sell as a result of the price cut.

If I cut my price 10% to $9.00 with the expectation that I will sell and additional 20% more widgets (200) then my revenue will be $10,800.  SWEET! I increased my revenues $800.  Hold on.  What will my competition think about this?  They won't want to lose existing customers, so they will match my price decrease to maintain their customer base.  If I end up gaining no new customers then my revenues will be $9.00 X 1,000 widgets = $9,000.  I am worse off.

Let's assume I am the only producer of widgets.  If I cut my price to increase revenues, I need to know not only my existing customers buying habits but my potential customers as well.  I need to ask myself 2 questions:

(1) How sensitive are my existing customers to a change in price relative to how many ADDITIONAL widgets they will buy from me?

(2)  How sensitive are potential customers to a change in price relative to how may widgets they will buy in the first place.

If I reduce my price 10% and increase the quantity demanded for widgets by 5%, then my new revenues will be $9.00 X 1050 = $9,450. I am worse off.

If I reduce my price 10% and increase the quantity demanded by 15%, then my new revenues will be $9.00 X 1,150 = $10,350.  I am better off.

Changes in Prices tend to induce changes in Quantity Demanded (on the demand side) of a good and/or service.  How responsive the demand side is to changes in prices determines the good or services relative "Elasticity".

Elasticity is a concept in Microeconomics we will cover in depth in class.

The purpose of this blog entry is to eliminate the bias you might have towards the simplistic statement that established our premise "Cut the price so you can sell more and make more money!".

Now you know... :)

There is inflation going on in your toilet paper right under your, err, eyes...See here how you are getting short changed...

Nice examples of "hidden inflation" in this article.  If a producer reduces the size of the offering in a good but charges the same price as before, well, you are getting less of the product for a higher price if you look at it on a per unit basis (sheets of tissues, ounces of cereal, etc).

However, this could be offset if there is measurable quality improvements in the product that compensate for the reduced quantity.

I think the inflationary effect of decreasing the quantity is stronger than the moderating effect of quality improvements.  That is just a hunch based on the fact that one  is very easy to measure (how many sheets are there in a roll, box, etc) and the other is more subjective (how much does this improve my restroom experience).  Yikes! I don't really want to do that marketing experiment.

Toilet-Tissue 'Desheeting' Shrinks Rolls, Plumps Margins

Improved Product Means Fewer Sheets Needed to 'Get the Job Done,' Company Says

Kimberly-Clark Corp. KMB -0.08% recently rolled out new Kleenex tissue that it says is 15% "bulkier."It's also stingier. Each box has 13% fewer sheets than before. 

Consumer products makers call this "desheeting"—reducing the number of sheets of toilet paper or tissues in each package while holding retail prices constant. Earlier this week, Kimberly-Clark executives told analysts that they expect the practice to benefit the company's consumer-tissue unit in the second half of the year. 

Companies, particularly in the food business, have long shrunk packages as an alternative to hiking prices in the face of higher raw-material costs. Cereal boxes and bags of chips have in many cases become lighter over the years in what the food industry refers to as taking "weight out." A regular Snickers bar now weighs 1.86 ounces, down from 2.07 ounces in the past, which Mars says was done to cut calories to 250 per bar. Tropicana Pure Premium orange juice is now sold in 59 ounce bottles, versus 64 ounce cartons prior to 2010. 

The practice also has been a tried and true strategy for makers of tissue and toilet paper, allowing companies to quietly, and effectively, raise prices per unit.

Note: I do understand the difference between inflation and an increase in prices, especially if it is just one good/service or even a group of goods/services.  Just wanted to point out the difficulty and potential pitfalls in the way the government calculates the overall inflation rate.

Toyota is making a version of the Segway. Set themselves up to be mocked. I am happy to oblige them...

Toyota Has Made Its Own Version Of The Segway

Saw this headline. Will companies never learn.  Toyota has set themselves up to be mocked, considering the lawsuits that have been filed in regards to the acceleration issues they had a couple of years ago with the Camry.

I am happy to oblige them.

I discovered there is a Bermuda Triangle for Manufacturing Jobs in the US. This one graph will amaze you!

Was reading this short article on a potential manufacturing renaissance in the US.  As always, I try to connect this to jobs in that sector.

Using the St Louis Federal Reserve data and graph maker, I looked at the employment of "Production and Non-Supervisory Employees" (fancy way of saying "blue collar" front line manufacturing jobs) as far back as the data went.

The high point for employment of blue collar workers was 1980 (blue dot at the apex).

We now have as just about as many workers employed in front line production jobs as we did in 1940.  Read that again.  Amazing!

When I looked at the graph I could not help notice the triangle it formed and making the analogy of the Bermuda Triangle. Once manufacturing entered a period of globalization, the jobs disappeared never to be found again. But that does not stop people from looking for the wreckage to raise.

Blood boil time...See here why all those Corporate Profits you hear about that are "hoarded overseas" are not really overseas but in use HERE in the US of A. They just managed to avoid the taxman in doing so... Read it and weep...

Here is an excerpt from this brief "Are U.S. Firms Really Holding Too Much Cash?" (Via Tim Taylor) that tells part of the story regarding corporate "hoarding" of profits overseas to avoid US taxes (bold and underlined I did for emphasis):

"...It is also important to recognize that the “overseas” money owned by foreign subsidiaries need not be invested abroad, but instead can be held at U.S. banks, in U.S. dollars, or invested in U.S. securities.  

For example, according to SEC filings, $58 billion of Microsoft’s total cash holding of $66.6 billion is held by foreign subsidiaries. Surprisingly, about 93 percent of Microsoft’s cash held by foreign subsidiaries in 2012 was invested in U.S. government bonds, corporate bonds, and mortgage-based securities. 

The assets of Apple Operations International, Apple’s Irish subsidiary, are managed in Reno, Nevada, by employees at one of its wholly owned subsidiaries, Braeburn Capital, according to a Senate report, with the funds held in bank accounts in New York...."

 Don't hear much about this do, ya?  Corporate profits are really only keep outside the US  in accounting terms, not in practice.  They make their way back to the US to be used domestically in a whole host of ways.

Think about this.  Microsoft (and most other multinationals) earns profits in overseas subsidiaries, keep them there to AVOID US taxes, but are able to invest those profits in US government bonds (debt) which PAY Microsoft interest (out of general tax revenues).  The interest is paid to the foreign subsidiary of the US company.  Not sure if THAT is taxed either...

The briefing paper cited above is a GREAT primer on the sheltering of profits by US multinationals and how the issue is more nuanced and complex than presented in the media.

It also has a link to another longer and more detailed paper on the subject. Found HERE.

Both are worth the time to read if you are really interested in the topic.