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March 4, 2015

We have to thank University of Wisconsin-Madison economics professor Menzie Chinn, because we don't think that we could have produced a better chart showing the difference in post-recession economic performance of states that adopted labor, tax and regulation policies preferred by Republicans over states that maintained policies preferred by Democrats.

Menzie Chinn Chart, Log coincident indices, relative GDP growth, MI, OH, IN, MN, IL, WI, US, 2010-2014, 2011M01=0

Given his other comments, we don't think that Professor Chinn necessarily intended to demonstrate that point, but that's certainly the inescapable conclusion that one must draw from the level of evidence Chinn has provided. Especially when we illustrate the partisan control of state-level elective institutions for each of these states. The chart below identifies the political party (D = Democrat, R = Republican) controlling each state's Governor's office (Gov), Senate (Sen) or House of Representatives (Rep).

Partisan control of state-level elective institutions for Illinois, Minnesota, Wisconsin, Indiana, Ohio, Michigan, 2007-2015

Looking at the relative economic performance in each of these states and correlating it with partisan control of elective state government offices, we quickly find that Wisconsin is the outlier in the period since 2011. But then, Wisconsin is also the only state to fully switch from Democratic party control to Republican, where the losing party was able to sustain many of its preferred policies, in particular, the state's tax hikes that took effect in both 2010 and 2011, which saddled the state's economy with a tremendous amount of fiscal drag given the negative and outsized impact of the GDP multiplier for taxes.

That extension in harmful economic policies was made possible by the scorched earth campaign of political protests launched by the state's Democratic party and its extremist supporters after they lost power at the end of 2010. Their extremist campaign also increased the uncertainty that the state's businesses faced, amplifying the negative economic climate in the state.

Even though Republican majorities had taken control of each of the state's elective institutions in January 2011, by the summer of 2011, recall elections mounted by the Democratic party's supporters had succeeded in putting the state's Senate within a razor thin one-seat margin of their regaining control of it. At the same time, the state's Democratic party succeeded in initiating a recall election against the state's new Republican governor, Scott Walker, which would take place in June 2012.

Public Employee Labor Union Protest - Source:http://legis.wisconsin.gov/eupdates/asm48/solidarity%20sing%20along.jpg

That uncertainty in large part resulted from the kind of radical leftist extremism shared by many of the state's Democratic party senators. That ideological extremism had first been fully put into evidence back in 2007, where after coming into power after having taken control of Wisconsin's state senate, passed a bill that would double the state's entire tax burden on the eve of the nation falling into deep recession.

In the summer of 2011, many of these same individuals were among those who had fled the state earlier in the year to purposefully obstruct not just the new Republican governor's public employee union reforms, but also the Governor's other economic reforms. That this group could potentially regain power led to a state of political affairs that was sufficient to derail the state Republican party from being able to fully implement its preferred set of labor, tax and regulation policies, as only the Republican public employee union reforms carried forward. Those reforms, by the way, ultimately saved both money and even the jobs of many of the state's public employees who had really been at risk of being laid off because of the state's deteriorating fiscal situation at the beginning of 2011.

Meanwhile, the tax policy of the previous Democratic party majorities in the state would remain untouched until at least July 2013, when the state's next biennial budget would go into effect.

As events transpired, thanks to Scott Walker's victory in the June 2012 gubernatorial recall election and the widening of Republican party control of the state's elective institutions in subsequent elections, July 2013 marks when the state more fully adopted the Republican party's preferred suite of economic policies.

Let's next apply Professor Chinn's preferred form of state comparison time series analysis to the period since July 2013, first over the same time interval.

Menzie Chinn Chart, Log coincident indices, relative GDP growth, MI, OH, IN, MN, IL, WI, US, 2010-2014, 2013M07=0

And now let's zoom in closer to focus on the years of 2013 and 2014, the area shown in the dashed red box in the upper right hand corner of the previous chart.

Menzie Chinn Chart, Log coincident indices, relative GDP growth, MI, OH, IN, MN, IL, WI, US, 2013-2014, 2013M07=0

In these charts, we first confirm that since July 2013, Wisconsin has left its former Democratic party-controlled peers behind.

We see though that the state is still performing well short of the economic performance of its fellow Republican party-controlled regional peers, which may be attributable to their considerably longer head starts in implementing positive economic reforms. Meanwhile, we see that both Illinois and Minnesota have languished under their Democratic party control, with Minnesota having taken a distinct turn to the downside in late 2014. We see also that Wisconsin began outperforming the U.S. as a whole during the period since July 2013, which is significant for this period since that data series reflects the generally improving economic progress of the nation as a whole.

Curiously, we observe that unlike the other states, Minnesota went from full Republican control in the years from 2011 through 2012 to full Democratic party control in the years from 2013 through 2014, which perhaps helps account for its better performance in the earlier years and its deteriorating performance in the latter years.

As neat as time series analyses like Professor Chinn's are in measuring relative economic performance, as meaningful analysis, they fall considerably short if only the timing of changes in partisan control of a state governor's office is the only criteria for establishing a baseline for comparison, because of the context that approach lacks. As we've discussed above, the actions of those not in power can indeed have a measurable impact on the progress of a state's economic growth if they have a viable means of reattaining power, and can even be as destructive and harmful in their impact as an especially severe drought that takes years from which to recover.

Which we only mention because Professor Chinn made such an odd and unconnected reference to Kansas' disappointing economic growth since 2011, but doesn't appear to be aware of the unique weather conditions that set the state's agricultural and related nondurable goods industries and its economy on such a separate trajectory from other states, from which it continues to slowly recover.


Ballotpedia. Who Runs the States, Part One: State Partisanship. Figure 19: Visualization of State Partisanship (with Presidential voting) from 1992-2013 -- Alabama-Mississippi and Figure 20: Visualization of State Partisanship (with Presidential voting) from 1992-2013 -- Montana-Wyoming. [Online Article. Accessed 4 March 2015.

Ballotpedia. Gubernatorial and legislative party control of state government. [Online Article. Accessed 4 March 2015.

Federal Reserve Bank of Philadelphia. State Coincident Indexes. Revised Data. [Excel Spreadsheet]. Accessed 4 March 2015.

Federal Reserve Bank of Philadelphia. State Coincident Indicators, Revised Data. [Excel Spreadsheet]. Accessed 4 March 2014.

U.S. Bureau of Economic Analysis. Quarterly Gross Domestic Product by State, 2005-2013 (Prototype Statistics). Table: Real GDP by State, 2005-2013. [Excel Spreadsheet]. Accessed 4 March 2014.

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March 3, 2015

Following its apparent contraction in January 2015, it appears that the U.S. economy continued to contract in February 2015.

We're basing that assertion on the number of publicly-traded U.S. companies that announced they would be reducing their cash dividend payments to their shareholders during the month of February 2015. With 38 companies taking that action, the number is lower than the 57 firms that took similar actions in January 2015, but is still well elevated above the number that would appear to correspond to a shrinking economy.

Monthly Number of Public U.S. Companies Announcing Dividend Cuts, 
January 2004 through Present (February 2015)

We believe that the number of companies cutting their dividends in February 2015 is a better indicator of the current level of distress within the U.S. economy than the higher January 2015 figure, because we suspect that earlier figure was elevated by those companies whose deteriorating business outlook was such that they should have acted to cut their dividends in 2014, but delayed until the new year.

Speaking of which, we think we've identified most of the entities whose stocks trade on the NYSE or NASDAQ stock market exchanges, using data from Seeking Alpha's Market Currents reports (filtered for Dividends) and the Wall Street Journal's daily listing of Dividends Declarations. The table below presents the full list that we were able to assemble from these sources:

Publicly Traded U.S. Companies Cutting Dividends in February 2015
Date Company Symbol Old Dividends per Share New Dividends per Share Percent Change
2-Feb-2015 North Eur Oil Royalty Tr NRT $0.39000 $0.35000 -10.3%
2-Feb-2015 EV Energy Partners EVEP $0.77400 $0.50000 -35.4%
4-Feb-2015 EV Energy Partners LP EVEP $0.77400 $0.50000 -35.4%
4-Feb-2015 Nuveen Lgn/Sh Cmdty TR Fd CTF $0.13500 $0.11900 -11.9%
5-Feb-2015 Sabine Royalty Tr UBI SBR $0.28281 $0.27708 -2.0%
5-Feb-2015 Magic Software MGIC $0.09500 $0.08100 -14.7%
6-Feb-2015 Alon USA Partners L.P. ALDW $1.02000 $0.70000 -31.4%
6-Feb-2015 Chesapeake Granite Wash CHKR $0.50790 $0.44960 -11.5%
6-Feb-2015 ECA Marcellus Trust I ECT $0.20300 $0.18000 -11.3%
6-Feb-2015 Evolution Petroleum EPM $0.10000 $0.05000 -50.0%
6-Feb-2015 STRATS Sers 2006-1 P&G . Ser 2006-1 GJR $0.01570 $0.01535 -2.2%
6-Feb-2015 STRATS Tr Allstate 2006-3 GJT $0.01752 $0.01708 -2.5%
9-Feb-2015 Northern Tier Energy LP NTI $1.00000 $0.49000 -51.0%
9-Feb-2015 Whiting USA Trust I WHX $0.50934 $0.28308 -44.4%
9-Feb-2015 Whiting USA Trust II WHZ $0.64201 $0.32726 -49.0%
10-Feb-2015 Medley Capital MCC $0.37000 $0.30000 -18.9%
10-Feb-2015 Oaktree Capital Group OAK $0.62000 $0.56000 -9.7%
10-Feb-2015 PPLUS FR Call Ser GSC-2 PYT $0.19583 $0.19167 -2.1%
11-Feb-2015 Fifth St Finance FSC $0.09170 $0.06000 -34.6%
11-Feb-2015 KKR KKR $0.45000 $0.35000 -22.2%
12-Feb-2015 Ellington Financial EFC $0.25278 $0.25000 -1.1%
12-Feb-2015 SunTr Banks Dep. Shs STIA $0.77000 $0.65000 -15.6%
12-Feb-2015 Pengrowth Energy PGH $0.04000 $0.02000 -50.0%
13-Feb-2015 Deswell Industries DSWL $0.05000 $0.03500 -30.0%
18-Feb-2015 Cross Timbers Royalty Tr CRT $0.16025 $0.15170 -5.3%
18-Feb-2015 Hugoton Royalty Tr Un HGT $0.03968 $0.03609 -9.0%
18-Feb-2015 Permian Basin PBT $0.03673 $0.03146 -14.3%
19-Feb-2015 MetLife Floating Ser A META $0.25278 $0.25000 -1.1%
20-Feb-2015 CVR Energy CVI $0.75000 $0.50000 -33.3%
20-Feb-2015 CVR Refining L.P. CVRR $0.54000 $0.37000 -31.5%
20-Feb-2015 Dom Res Black Warrior Tr DOM $0.18065 $0.17455 -3.4%
20-Feb-2015 Vanguard Natural Rscs VNR $0.21000 $0.11750 -44.0%
26-Feb-2015 Mesa Royalty Tr MTR $0.16336 $0.07262 -55.5%
26-Feb-2015 Pacific Coast Oil Trust ROYT $0.03212 $0.00614 -80.9%
26-Feb-2015 Safe Bulkers SB $0.04000 $0.02000 -50.0%
28-Feb-2015 Full Circle Capital FULL $0.06700 $0.03500 -47.8%
28-Feb-2015 Lamar Advertising Co LAMR $0.84000 $0.68000 -19.0%
28-Feb-2015 TICC Capital Corp TICC $0.29000 $0.27000 -6.9%

The list predominantly consists of small, oil industry or other natural resource extraction-related firms, which is connected to the large and so-far sustained decline in global oil prices that began in July 2014 that has negatively affected their revenues. There are also a number of financial firms on the list that have also declined with these industries, along with a sprinkling of firms in other industries, such as software and advertising.

That these firms are small is a key reason why stock market indices have not followed suit. The dividend cuts represented by these firms simply are not big enough to even move the needle for market capitalization weighted indices like the S&P 500.

That is perhaps surprising considering how dramatically the index' expected future earnings per share through 2015 has changed over the past three months. However, that can be easily explained as most larger companies operate with greater margins of safety that allow them to absorb volatility in their expected earnings without cutting promised dividends, at least in the short term, which is why their stock prices haven't collapsed along with their projected earnings. Which is just what we should expect to happen since expectations for dividends per share, and not earnings, are the fundamental driver of stock prices.

So far, those cuts in expected future earnings haven't really transformed into cuts in expected future dividends. What they do represent however is a much more difficult business environment for the U.S. oil industry, where the distress is forcing dramatic cuts to extraction and to exploration activities, which is already negatively impacting other businesses that support the industry as these companies are instituting massive cuts to their spending as they struggle to remain solvent.

Under U.S. law, firms that will be laying off significant numbers of workers must provide their affected employees at least 60 days of notice in advance of the layoffs taking effect. Since January and February 2015 has seen many announcements of such mass layoffs in the industry, which will extend beyond mere oil workers, we should see a considerable increase in the number of Americans filing initial unemployment insurance claims in March and April 2015 should the recent rebound in oil prices not prove to be sufficient to forestall tens of thousands of pending layoffs in the industry.

Data Source

Standard & Poor. Monthly Dividend Action Report. [Excel Spreadsheet]. Accessed 2 March 2015.

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March 2, 2015

Where do Americans get the income they earn each year?

According to the IRS, via the Tax Foundation, the answer is to be found in the interactive chart below, which shows the IRS' preliminary data for how many billions of dollars Americans earned in 2012 through salaries and wages, capital gains, taxable pensions, dividends, unemployment benefits, et cetera....

One thing we should note about this particular data is that the figure for Wages and Salaries is increased by the business incomes earned by the owners of S-corporations and sole proprietorships, where the owners of these kinds of small businesses report add their net business income to their actual personal income on their annual personal income tax returns, which the IRS does not differentiate by source in their statistics of income reports.

This post is really an excuse for us to test drive Tableau's free public app for visually presenting data online, while we're awaiting the release of the data we track for other projects! As for Tableau's graphing app, our initial impression is that it's a little quirky, but it looks to have some interesting capabilities.

Meanwhile, behind the scenes, we have taken the January 2015 inflation data released by the U.S. Bureau of Labor Statistics just last Thursday (26 February 2015) to update our S&P 500 At Your Fingertips and our Investing Through Time tools through January 2015. And before you ask, we'll be doing the same with our Quarterly S&P 500 Data Since 1871 tool through 2014 once the earnings data for that year is finalized after March 2015 - remember, the data for the fourth quarter of that year is still being reported during the first quarter of this one, so it doesn't make sense to update that particular tool until it's all done!


February 27, 2015

Perhaps the only thing cooler that the JPL's image of the dwarf planet Ceres taken by the Dawn probe....

Ceres - Source: http://www.jpl.nasa.gov/news/news.php?feature=4491

Would be if the folks at JPL had to finish Obi Wan Kenobi's "That's no moon..." quote.

It certainly beats seeing faces on Mars!


February 26, 2015
States surrounding Wisconsin - Source: https://www.sba.gov/offices/regional/v

As econoblog readers, we follow Econbrowser pretty regularly, mainly for Jim Hamilton's insights, but recently, we've begun paying closer attention to the comments of his co-blogger, Menzie Chinn, who is an economics professor at the University of Wisconsin-Madison.

That's primarily because of the recent rise to prominence of Wisconsin state governor Scott Walker in 2016 presidential polling, whose performance in office Chinn has often criticized. Normally, we're entertained by Chinn's analysis, since it frequently involves comparisons of the job growth between Wisconsin and its western neighbor Minnesota since Walker was sworn into office in January 2011, which we find funny because of all the states surrounding Wisconsin, the composition of Wisconsin's economy is much less similar to Minnesota than it is to any of the states with which the state shares waterfront footage on Lake Michigan, which is something that one might think an economics professor at the University of Wisconsin-Madison would know.

Recently, Chinn has commented on two issues facing Wisconsin that are connected to each other: the state's reduction in tax collections following the implementation of Governor Walker's tax cuts in 2014 and also the Governor's proposed cuts in state funding supporting the University of Wisconsin, which follows from the state's reduced tax revenues.

Let's look first at Wisconsin's tax collections. Our first chart shows the rolling four quarter total we calculated for the state's tax collections as reported by the U.S. Census Bureau from 1995 through the end of the third quarter of 2014, which at this writing, is the most recent data available. We've annoted the chart to indicate periods of recession (the shaded vertical red bands) and also who was serving as the state's governor (in black text) and also the timing of when the state implemented major changes in its tax policies (in red text).

Rolling Four Quarter Total Wisconsin State Taxes Collected in Each Quarter, 1995-2014

As you might expect, we see that recessions are bad for tax collections, that tax collections tend to rise following tax rate hikes and tend to fall after tax rate cuts are implemented.

But changes in tax rates affect more than just state tax collections. They can also impact the relative performance of the state's economy, which can affect the growth rate of its GDP and its level of employment. Our next chart looks at the raw numbers for Wisconsin's state GDP through the fourth quarter of 2013 (the most recent data available from the U.S. Bureau of Economic Analysis).

Wisconsin State Gross Domestic Product (GDP) in Each Quarter, 1995-2014

Our next chart repeats that exercise for the trailing twelve month average of Wisconsin's total employment level for each quarter from 1995 through 2014 as reported by the U.S. Bureau of Labor Statistics.

Wisconsin Trailing Year Average Total Employment in Each Quarter, 1995-2014

In the employment chart, we've also indicated the trajectory that employment levels in Wisconsin was following after bottoming during the recession, for the period from 2010 through 2012.

One of the more interesting observations that Professor Chinn has provided is that Wisconsin's employment levels have lagged those of both the U.S. and Minnesota during the first years of Governor Walker's first term in office. Chinn however neglects to mention in his comments that Governor Walker faced extreme political opposition to his actions to resolve a massive budget deficit that he inherited from the state's previous governor, Jim Doyle.

Here, Doyle had imposed $2.2 billion of new taxes in his 2009-2011 biennial state budget, with $1.1 billion of that hitting in 2010 and the remaining $1.1 billion increase hitting taxpayers in 2011. A good portion of these taxes was expected to be used to sustain the increased spending benefiting Doyle's political supporters employed in the state's various government agencies and other institutions, such as the University of Wisconsin, which were set to receive a massive, but temporary inflow of funds from President Obama's 2009 economic stimulus program.

That extreme opposition even extended to a number of state senators representing the state's Democratic party, who fled the state rather than to allow votes on measures to restore fiscal balance to the state's government, which effectively shut down the state's legislature and preventing Governor Walker from implementing pro-economic growth measures.

After they did return and Walker was successful in breaking the power of the state's public employee unions, whose interests were being represented by the state senators who acted to flee the state rather than fulfill their responsibilities as elected legislators, they retaliated by forcing a recall election. Combined with the recall of a number of state senators in Walker's political party during the summer of 2011, the combination was enough to block Walker from being able to implement a significant portion of his pro-growth economic agenda during the period covered by Wisconsin's 2011-2013 biennial budget.

Until, that is, after the gubernatorial recall election in June 2012, which Governor Walker won. Following that victory, Walker began to make measurable progress in implementing his long-delayed economic reforms, with both economic growth rates and employment levels picking up considerably after June 2013, which is when Wisconsin's next biennial budget shaped according to Governor Walker's priorities went into effect.

You can see that happen in our next chart showing how the state's year-over-year GDP and employment growth rates have evolved since 1995.

Wisconsin State Employment and GDP Year Over Year Growth Rates, 1996-2014

Note that the trend for the state's economic growth tends to precede the trend for the state's employment growth. Note also that the long delay in improvement in the state's GDP and employment levels after Governor Walker's election were a direct consequence of the perverse success that the political opposition to Governor Walker had in obstructing the implementation of the Governor's pro-growth policies, where the interests of public employee unions and other left-wing interests were put ahead of those of regular Wisconsinites.

Now that we've established that the implementation of Governor Walker's preferred economic policies was greatly delayed as a result of the political shenanigans of his opposition, let's look next at a key measure of how the state's tax policies affect its most productive citizens - the average amount of taxes collected per employed Wisconsinite:

Wisconsin State Taxes Collected per Employed Person, 1995-2014

This chart confirms that Governor Walker's tax cuts, when adjusted to account for the effect of inflation, have only returned to the level they were during most of the term of the preceding governor, Jim Doyle. Or rather, the part of Governor Doyle's term before he succeeded in imposing that dramatic $2.2 billion worth of tax hikes in 2010 and 2011.

As we noted before, much of the money collected through those new, higher taxes went to benefit Governor Doyle's political supporters employed at various government agencies and at state-funded institutions, such as the University of Wisconsin-Madison, so we'll close on an interesting footnote.

In Fall 2009, the University of Wisconsin-Madison employed 2,017 faculty and 16,507 administrative staff. In Fall 2010, funded in part by Governor Doyle's new taxes and benefiting from President Obama's economic "stimulus", the number of faculty members increased by 10 to 2,027, while the number of administrative staff increased by 836 to 17,343. Since Fall 2011, of the 19,527 faculty, grad students and staff reported as being employed at the University of Wisconsin-Madison, where 2,200 are faculty and another 2,000 or so are grad student/teaching assistants, we can infer that the size of the university's administrative staff has increased to around 17,527, which represents an approximate 1,020 increase in the number of administrative staff since Fall 2009.

Coincidentally, Professor Chinn reports that the University of Wisconsin-Madison's Chancellor Becky Blanks has said that the Governor's proposed reduction in funding for the institution could require it to shed some 1,083 staff positions.

Well, that would be about right, wouldn't it? Just thought we'd take a quick moment to connect the appropriate dots....

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