Political Calculations

The Incredibly Incurious Journalism of Jonathan Chait

2012-02-01T06:55:00.002-07:00

What are we to make of journalist, editor and author Jonathan Chait's New York Magazine article "Inequality and the Charles Murray Dodge"?

Here's the particular passage we have in mind as we ask that question:

A more blunt version of this technique was previewed a couple months ago by the American Enterprise Institute’s James Pethokoukis, perhaps the right’s most enthusiastic inequality denier. Pethokoukis cited a chart, compiled by Political Calculations, purporting to show that the only change in inequality results from changed family status. Pethokoukis triumphantly presented this as the “The one chart that explodes the myth of U.S. income inequality,” and used it to segue, as Brooks does today, to Murray’s arguments about family values:

So what we have here, as always in America it seems, is culture trumping economics (though the data don’t take into account how different income groups have different inflation rates, another equalizer). AEI’s Charles Murray has a new book coming out that will expand on how values and culture influence inequality.

But the chart is completely wrong. Reader Jacques Distler pointed out to me that it relies on census data, which only asks households if they earn more than $100,000 a year. Since all the change in income inequality has come within households earning well over that mark, the census data is not going to capture the rise in income inequality. (Think of it this way. Imagine you want to show that basketball centers get taller as you move from high school to college to the NBA. If your tallest category is "six foot two and over,” you’re not going to show much of an effect.)

I e-mailed Lane Kenworthy, an inequality expert, who confirmed this for me. Inequality between the top one percent and everybody else has increased dramatically.

You know, it occurs to us that there are at least three individuals or entities who could have been contacted, but who weren't consulted at all before the assembling of these paragraphs:

Because, if we had been contacted, we could have easily confirmed that while the Current Population Survey that is used to collect income data is indeed sent to households, it collects data for persons and families, in addition to households! It also doesn't limit those who are sent surveys to placing themselves into a "$100,000 or more" category. The individuals who participate in the survey report the amount of their income from all sources.

One important thing to note about the U.S. Census Bureau's reports is that the agency does indeed "top code" its reported income range categories, grouping the people at the very top end of the income spectrum into one income range in its reports. It does this largely for the sake of preserving the confidentiality of those in that topmost range. Otherwise, given how few people there are at those levels, it would be very easy to identify who is who based upon the information they might provide to the Census through the income survey.

And what's more, although the Census reports the Gini Coefficient, a very common and widely accepted measure of income inequality, in a standard table that groups top-end income earners into the category "100,000 and over", its calculation of the Gini Coefficient it reports for persons, families and households uses all the data it collects for persons, families and households respectively.

Better yet, the Census publishes another income distribution table for persons that goes all the way up to the topmost category of "$250,000 or more", breaking it down for both Men and Women (and by race too, if you're really into that sort of thing). In fact, we're very familiar with this data because we used the data for women for a more fun project.

That's significant because individuals with incomes of $250,000 or larger represent the "Top 0.6%" in 2010, so even the data the Census reports extends well up into the territory of the "Top 1%". That means we can indeed use the Census' data to make assessments of how income inequality for individuals is changing over time, because these are the people whom Jonathan Chait feels is most important for making such a determination!

Not that we need to do that trouble anyway - if you want to see increasing income inequality, you can see it at the bottom of the income spectrum as well.

It seems then that relying upon "Reader Jacques Distler" for a technical assessment of the Census' data collection processes, analysis and reporting procedures isn't looking like too sharp a move on Jonathan Chait's part - he clearly didn't know any of this stuff. Perhaps if Chait had thought to actually direct questions to people who actually work with the data he could have found that out sooner, but he just wasn't curious enough! What a strange trait in a "journalist"!

As for Lane Kenworthy, inequality expert, it seems that Chait wasn't curious enough to ask him about the Census' actual data collection, handling and reporting practices, choosing instead to get some confirmation of what would the results be "if" data were collected and handled in the way he describes.

At this writing, we see that Chait's article on the New York Magazine web site has attracted some 70 comments since it was posted at 3:11 PM (Eastern Standard Time). We first became aware of it when one visitor, some four hours later, was curious enough to follow the link Chait provided to our site.

In the last three hours before we posted this article, no one appears to have been curious enough to click through to our site from the link provided Chait's article (could that be a shared characteristic of both Chait and his readers?) We would almost bet at this point that this post will drive more traffic to Chait's article than vice-versa!

You know, it occurs to us that we could have alternatively titled this post "The Incredibly Lazy Journalism of Jonathan Chait" and have still been right on the money.

The Millionaire Decay Function

2012-01-31T12:51:00.000-07:00

Did you know that the most downwardly mobile members of society are millionaires?

It's true, and what's more, we have the data and math to prove it!

Our featured chart today was originally produced by Veronique de Rugy of the Mercatus Institute, which is based upon data from the IRS and analysis by the non-profit Tax Foundation.

Here, the story begins in 1998, when the IRS reports that there were approximately 675,000 tax returns with adjusted gross incomes of $1 million, or more.

[Side note: The traditional definition of a millionaire was someone who had accumulated at least one million dollars in total assets. However, since the word was first documented back in 1826, the effect of inflation is such that perhaps a more modern definition would be those who earn incomes of at least one million dollars in a year. In any case, $45,000 in 1826 dollars is roughly the equivalent of $1 million in 2012, going just by changes in the Consumer Price Index.]

Then, beginning in 1999, following the tax returns filed by the same people, the number of those with incomes over $1 million begins to drop dramatically - by nearly 50% in the first year!

Time After Earning $1 Million
Input Data	Values
Number of Years After Having Earned $1 Million

The Odds of Being a Millionaire
Calculated Results	Values
Odds of Earning $1 Million After Entered Number of Years

And then, it continues, at an ever declining rate, until by 2006, some eight years later, of the 675,000 millionaires of 1998, only 17,000 made a million dollars or more, just 2.5% of the original number.

Expressed a different way, the probability that a millionaire after eight years would be able to make $1 million or more is just 2.5%!

And that's the math our newest tool tries to estimate! Just enter the number of years after which a millionaire has made a million dollars, and we'll give you the odds that they will have done it again!

In a sense, this is very similar to an exponential decay function, such as might apply for things like the decay of radioactive materials, or pesticides. Unlike those things however, the half life of a millionaire is much, much shorter!

One thing we do note from the actual data is that the number of millionaires after nine years begins to increase (38,000 represents 5.6% of the original number of millionaires in 1998). We suspect this is due to a combination of factors, including the effect of inflation from 1999 through 2007 and also the economic expansion that peaked in that year.

It would be very interesting to see how those millionaires have fared in the years since! How many would you think are still making over $1 million per year for the recession years of 2008 through today?

Forecasting GDP: Looking Backwards (2011-Q4) and Forwards (2012-Q1)

2012-01-30T04:12:00.001-07:00

The advance GDP estimate for the fourth quarter of 2011 was released on Friday, 27 January 2012, with that quarter's inflation-adjusted GDP figure being reported at $13,422.4 billion, in terms of constant 2005 U.S. dollars.

That value is just 0.29% higher than what we would forecast using our Modified Limo method for projecting the value of GDP in the next quarter, using the final value of $13,331.6 billion for the third quarter of 2011.

On a side note, since Political Calculations was on our annual year-end hiatus when that final value for 2011-Q3 GDP was reported, and because we had never updated our previous public projection of $13,393.3 billion, the advance figure for 2011-Q4 real GDP is just 0.21% higher than our last posted forecast.

In any case, we anticipate that this figure will be revised lower by the time the BEA's third estimate for 2011-Q4's GDP is recorded.

Looking forward and assuming that the forecast given our Modified Limo methods follows a normal distribution with respect to the trajectory of real GDP, we currently anticipate the following for GDP in the first quarter of 2012, in terms of constant 2005 U.S. dollars:

A 68.2% probability of falling between $13,357.5 billion and $13,640.0 billion.
A 95.0% probability of falling between $13,216.3 billion and $13,781.3 billion.
A 99.7% probability of falling between $13,075.0 billion and $13,922.5 billion.

The midpoint for our forecast range for real GDP in 2012-Q1 is currently $13,498.8 billion. We will revise these projections as the U.S. Bureau of Economic Analysis revises its estimate of real GDP in 2011-Q4. The BEA will release its second and third estimates of real 2011-Q4 GDP in February 2012 and March 2012 respectively.

At present, it appears that our overall forecast of U.S. economic performance remains on track. We continue to anticipate that the most recently reported pace of economic growth will begin decelerating in the first quarter of 2012.

For our GDP forecasts, any major deviation from our projections is an indication that the U.S. economy is undergoing a significant change in its overall economic trajectory, which you can see in our chart above whenever the economy goes through a major turning point. One advantage of our methods is that the results are useful, even on those rare occasions when they turn out to be off target.

If you'd ever like to play along at home, we've created a tool that will calculate the midpoint of our forecast range!

How Good Are Earnings Forecasts?

2012-01-27T04:40:00.001-07:00

How good are stock market earnings forecasts?

Well, if you go by our chart below, which we constructed by sampling data we obtained from S&P roughly one-year apart (at the dates indicated) and mostly looking one-year-ahead in time, the answer is: not good at all!

The moral of the story: future earnings projections are not necessarily very good indications of actual future earnings!

New Jobless Claims: Still on Track, But Increasingly Volatile

2012-01-26T07:29:00.004-07:00

Two weeks ago, we observed that the number of seasonally-adjusted initial unemployment insurance claims being filed each week was still following the same trend it has since 9 April 2011, but that it was becoming increasingly volatile, suggesting that the trend is beginning to break down:

Today's number also underscores the increasing level of volatility in the data - when the current trend was establishing itself, it was characterized by relatively small changes in the number of new jobless claims being filed from week to week.

Today new data marks the fourth time in the last six weeks in which the size of the change in the reported numbers from week to week has exceeded one standard deviation. That's specifically what we're looking at when we suggest that the established trend may be beginning to break down.

The chart below reveals that if anything, that volatility has increased, although it still appears to be following the established trend of an improving (falling) number of claims over time at this point.

If we look just at the micro-trend established since 26 November 2011, when the level of volatility in the data really took off, the data suggests that the rate of improvement in the number of new jobless claims filed each week is leveling off between 370,000 and 380,000.

Hopefully, things will settle back down and the number of new jobless claims filed each will will continue to improve until they reach the average level of 318,000 that was typically recorded in the months prior to the most recent recession.

The President's Failing Focus on Jobs

2012-01-25T04:21:00.006-07:00

In his 2012 State of the Union Address, President Obama sought to "embrace manufacturing". Since the President has been in office for three years now, we thought we would take a look at how well he's done so far in embracing manufacturing, by his own terms.

Our first chart shows the seasonally-adjusted number of individuals employed in the Manufacturing and the closely-related Transportation and Warehousing industries (aka "the supply chain"), which is based upon data collected by the Bureau of Labor Statistics in its Current Employer Survey, as of 22 January 2012, from November 2007 through December 2011.

In the chart above, we've emphasized several points with bold text indicating the number of employed at various points of interest. These points correspond to the month preceding the start of the "Great Recession", the month President Obama was sworn into office, the bottom of job loss for the recession, and the most recent month for which we have data, December 2011.

Here, we find that the number of individuals counted as being employed in the manufacturing and supply chain industries has fallen considerably from November 2007 through the present, with 1,583,000 fewer being employed in Manufacturing and 1,964,000 fewer being employed in Transportation and Warehousing as of December 2011. Together, these two sectors of the U.S. economy represent almost 3 out of 5 of all the jobs that have disappeared from the U.S. economy since November 2007.

Starting the clock from January 2009, we find that 946,000 jobs in manufacturing evaporated before job losses in the economy finally bottomed in February 2010, eight months after the recession officially ended, while the number of individuals employed in the transportation and warehousing industries fell by 1,097,000. Combining these figures, we find that these two sectors of the U.S. economy account for over 47% of the 4,317,000 total jobs that were lost according to the BLS' data during the first 13 months of President Obama's tenure.

Since job losses in U.S. manufacturing and supply chain-related industries bottomed in February 2010, some 617,000 jobs in manufacturing and 328,000 in transportation and warehousing have been added to the U.S. economy. These two sectors account for 35.6%, or a just over 1 out of 3 of the 2,654,000 total jobs that have been added to the U.S. economy since February 2010.

Going by the post-recovery figures, we find that President Obama hasn't been paying much attention to manufacturing, either during the recession or during the recovery, as its share of jobs lost and created has been essentially identical during his three years in office.

If anything, it appears that the President's focus on "creating" jobs has been in any area outside of manufacturing or supply chain-related industries, as these areas have seen a disproportionate gain compared to jobs lost during the President's first three years in office.

But perhaps the bigger story is the extent to which President Obama hasn't been paying attention to boosting jobs in the Transportation and Warehousing sector of the U.S. economy. This is the unglamorous industry that ties together all U.S. manufacturers, from the most upstream makers of parts that go into other products all the way through the final link in the chain that reaches the final consumer, moving and storing manufactured goods as value is added through each stage of manufacturing production.

We'll close by sharing our final chart, spanning all the time the President has been in office at this writing, showing the net change in jobs by industrial sector from January 2009 through December 2011:

Perhaps the President should have "pivoted to jobs" more often in the first three years of his Presidency. Especially those unglamorous ones that don't make for good photo ops, as his agenda today suggests is his real focus....

The Poison Pill

2012-01-24T04:09:00.000-07:00

On 23 December 2011, the Republican party majority in the U.S. House of Representatives caved in on its opposition to President Obama and the Democratic party majority in the Senate's proposal to provide a two-month long extension for the President's payroll tax cut.

Here, the percentage that individuals must pay in their taxes that support Social Security was maintained at 4.2% through the end of February 2012, after which, the rate is set to rise back up to the 6.2% level it had been for the two decades from 1990 through 2010.

With President Obama's State of the Union address scheduled for tonight, there is little doubt that he will seek to extend the payroll tax cut through the end of the year, which will have to be supported by increased deficit spending in order to pay out benefits to today's SOcial Security recipients, which will increase the national debt as the program is set to continue running more deeply in the red.

Given the political damage from the collapse of the Republican's political strategy in December 2011, it seems unlikely that the party's senior leaders will seek to oppose the President's payroll tax cut again. They might be able to get some traction by letting the payroll tax cut expire by cutting federal income (and withholding tax) rates, however that would depend upon the President and Senate Democrats to go along, which seems even more unlikely given their late-year political victory.

If that outcome is not really possible then, perhaps the best strategy that congressional Republicans might follow would be to allow the President and Senate Democrats to have another small victory, but one that would cost them dearly in the November 2012 elections.

It's often said that "people vote their pocketbooks", meaning that economic conditions have a lot to do with the choices people make at the ballot box. For example, if conditions are stable, good, or improving, then it would be more likely that incumbent politicians, such as the President and many Senate Democrats, will hold onto the offices that they hold so dear.

But if conditions are bad or worsening, then they would be more likely to be voted out of office.

The trick then would be to give them the bill they want, but with one key addition - a "poison pill" that they cannot resist ingesting, one that seems like a good idea to them, but that would have the effect of sealing their fate through the damage it might cause to the economy.

It would also have to be something that would have a relatively small effect, because if it works, you'd only want a relatively small mess to have to clean up pretty easily.

To that end, we would suggest raising the federal minimum wage in the U.S. to $8.00 per hour, with the increase taking effect in April 2012.

Even with a growing economy, the amount of that increase would enough to decrease the number of jobs that might otherwise exist in the U.S. economy by roughly 300,000. Since it takes roughly six months for the full effect of a change in the minimum wage to take hold in the economy, that would put the greatest job loss in October 2012, just ahead of the 6 November 2012 election.

Better still, the action would not leave any real political fingerprints, as the reduction in jobs would mostly be in the form of jobs not being created, where the most affected would be teens and young adults, who can have their unemployment more easily concealed since their attendance at school would keep them from being counted as being part of the U.S. workforce.

It's an intriguing idea. And it's very unlikely that the President and Senate Democrats would even consider resisting it, given their beliefs! We wonder if any U.S. politicians have ever tried doing it before....

Using the F-Score to Detect Accounting Fraud

2012-01-23T04:17:00.002-07:00

If you're just an average investor, how can you pick up on whether or not a company is cooking its books?

Craig Newmark recently pointed to one of the neater ways in which someone might be able to determine if the numbers they're examining are following a natural pattern as opposed to an artificially-contrived one using Benford's Law, but unless you have access to reams and reams of internal company data, it's pretty unlikely that you as an individual without that kind of access could find out if something shady might be going on.

But for publicly-traded companies, you can get access to a company's publicly-reported financial statements, such as their annual reports or the 10-K statements they file with the United States Securities and Exchange Commission (SEC). And with that information, you can calculate a company's "fraud score" or "F-Score", which can provide a pretty good indication of whether or not the people inside the company might be manipulating their accounting.

Using math originally developed by Patricia M. DeChow, Weili Ge, Chad R. Larson and Richard G. Sloan in 2007 using data from 1982 through 2002, and updated in 2010 to include all years from 1982 through 2005, we've updated our tool for calculating the F-Score for any publicly-traded company for which you can obtain the indicated data below!

For that, you'll need consecutive years worth of the company's annual data - our tool below provides that using Enron's data for the years 1998 (two years prior), 1999 (one year prior) and 2000 (year of interest).

Income Statement Data
Input Data	Year of Interest	One Year Prior	Two Years Prior
Sales (Revenues)
Net Income Before Extraordinary Items or Cumulative Effect of Accounting Changes
Balance Sheet Statement Data
Input Data	Year of Interest	One Year Prior	Two Years Prior
Cash and Cash Equivalents
Short Term Investments
Receivables (Total)
Inventories (Total)
Property, Plant and Equipment (Total Net)
Total Assets
Preferred Stock (Total)
Total Shareholder's (or Owner's) Equity
Statement of Cash Flows Data
Input Data	Year of Interest	One Year Prior	Two Years Prior
Issuance of Long-Term Debt
Issuance of Common or Preferred Stock

Probability of Accounting Manipulations
Calculated Results	Values
F-Score

Here, a result greater than a value of 1 indicates a statistically higher than expected likelihood that the numbers the company in question has published have been misstated, which is "accountingese" for suggesting that the company's books may have been cooked! The following guide, developed by the F-score's creators, may be used to interpret the tool's results ("F-Score 1" corresponds to the specific model used in our tool):

We should note that the math is somewhat sensitive - the formula's creators indicate it will produce a high frequency of false positives, which means that an F-Score greater than one should be taken as an indication that an average investor should be much more diligent in reviewing a company's business before making investing decisions related to it.

The tool above provides different results from our original version of the F-Score formula, which was based upon the original 2007 math.

This update to our original tool is the result of a collaborative project with Pasi Havia, who was seeking to implement a Finnish-language version of the tool. We owe our thanks to Pasi for his detective work in finding that the formula for calculating a company's F-score had changed from 2007 and for developing the new and improved code to calculate the F-Score!

If you compare the results between Pasi's version and ours above, you'll find that the results between the two tools are nearly identical - the difference comes down to how the rounding for the value of the mathematical constant e in the formula was done (Pasi rounded it to 8 decimal places for the sake of matching the authors' results in their paper, while we just let it run!)

Related Tools at Political Calculations

Predicting Bankruptcy: How likely is it that a publicly traded company will declare bankruptcy in the next year? Our tool for calculating the company's Altman Z-Score can answer! It predicted General Motors failure years before the company failed!
Liquidity: Does that publicly-traded company have enough money flowing through its veins to keep operating?

The Core Business of Planned Parenthood

2012-01-20T04:11:00.000-07:00

How much of the revenue Planned Parenthood generates through its health center affiliates comes from performing abortion procedures?

The question arises because of a chart Planned Parenthood provided in its 2009-10 annual report. In it, Planned Parenthood indicates that abortion services account for just 3% of all the health services it provides:

We suspect this chart was generated to attempt to underemphasize the extent to which Planned Parenthood's provision of abortion services add to its bottom line through the health centers the organization's affiliates operate. [As an aside, that contribution is even visually understated in Planned Parenthood's pie chart, in that abortion services are depicted in a very understated gray tone, where all the other procedures are shown in bright color.]

Since we've already worked out the average price paid for the majority of abortions performed by annual caseload volume of non-hospital abortion providers in the United States for 2008-09, we'll go back to Planned Parenthood's 2008-09 annual report to work out how much of the revenue it generated from abortion services contributed to its overall revenue for all the health services it provided in that year.

Will it be just 3%, as the pie chart depicting all of the health services Planned Parenthood provided in 2009-10 suggests? Our pie chart below provides the answer:

In 2008-09, Planned Parenthood reported that it generated $404.9 million in revenue through the health centers operated by it and its affiliates. Our low end estimate of $135.6 million for the 324,008 abortion services the organization performed in that year would then represent at least one-third of all the revenue generated by the organization through its health centers.

To put that into the context of Planned Parenthood's total revenue for 2008-09, the amount of revenue the organization generates through abortion services would account for 12.3% of all its annual income, or very nearly 1 out of every 8 dollars:

As such, despite representing just 3% of Planned Parenthood's reported number of health services provided each year, abortion represents the core business of the organization.

Previously on Political Calculations

The Volume Pricing of Abortion

2012-01-19T04:43:00.004-07:00

Now that we've revealed the pace at which the most prolific abortion providers in the United States conduct their business, it's time to consider their primary motivating factor behind achieving such economies of scale: revenue.

To do that, we'll need to determine the average amount of money collected for each abortion performed in the United States based upon their annual caseloads. Fortunately, the Guttmacher Institute has once again collected the data we need to construct a model by which we can estimate the average price paid for an abortion in the U.S. depending upon the annual volume of abortions performed by the provider.

We've summarized what we found in the chart below, which applies to all abortions provided in non-hospital settings that are performed at approximately 10 weeks of gestation. (As we noted in our previous post, abortions performed in hospitals predominantly are done for medical reasons, where at least a portion of the price paid might be covered by a patient's health insurance.) This data then encompasses the average prices paid that apply for over 80% of all abortions performed in the United States.

The graph above somewhat resembles a demand curve from economics, where the lowest amount of a quantity demanded corresponds to the highest price, and the greatest amount of a quantity demanded corresponds to the lowest price.

We next took the mathematical relationship we modeled based upon the Guttmacher Institute's data and built a tool, which will allow us to estimate the average price paid for an abortion according to the provider's annual caseload for the procedure. Given the difference between these average prices and the median price charged by non-hospital abortion providers as reported by the Guttmacher Institute, we believe our tool's results will be within 5% of the actual values.

We then went the extra mile to estimate the abortion provider's annual revenue from performing abortions.

Abortion Provider Data
Input Data	Values
Annual Caseload

Average Price Paid and Annual Revenue
Calculated Results	Values
Average Price Paid for Abortion
Annual Revenue for Abortion Provider

For the default data, we find that an abortion provider that performs 1000 abortions per year will collect an average of $484 from each patient, generating over $484,100 in a year.

Plugging in Planned Parenthood's total reported abortion count of 324,008 for 2008 into the tool suggests that the average price paid by a patient at their clinics is $418.61, which would put their annual revenue for performing this volume of abortions at $135,633,517.

That annual revenue figure could actually be higher though, since we omitted later term abortion price data from our model. Consequently, this value would represent a low-end estimate of Planned Parenthood's total revenue from performing abortion procedures in 2008.

Reference

Jones, Rachel K. and Kooistra, Kathryn. Guttmacher Institute. Abortion Incidence and Access to Services in the United States, 2008: TABLE 6. Charges and average amount paid for nonhospital surgical abortions at 10 and 20 weeks’ gestation and for early medication abortions—all by provider type and caseload, 2009. Perspectives on Sexual and Reproductive Health. Volume 43, Issue 1. 10 January 2011.

The Throughput of Abortion Providers

2012-01-18T04:30:00.007-07:00

How many abortion procedures do the highest volume abortion providers perform every day?

Having previously determined the number of abortions performed by the various types of abortion providers in the United States, we're digging deeper into the Guttmacher Institute's report on Abortion Incidence and Access to Services in the United States, 2008 to do some basic math to find out the typical throughput for the various types of abortion providers.

"Throughput" is a term that comes from high volume manufacturing operations, which refers to the amount of material that is processed within a given amount of time, or in the case of computers, the number of operations that are performed within a set time interval.

The question arises because of the great differences we observed in the annual caseloads for the various types of abortion providers. Our first chart below shows the percentage distribution for the 1,793 abortion providers counted in 2008 with the number of abortions procedures performed by each:

As you can see, nearly 70% of all abortions are performed in just 378 abortion clinics, while another 24% are performed in 473 "other" clinics. A balance of just under 6% of the total are split between 942 hospitals and physicians' offices.

But the Guttmacher Institute's researchers went a step future and also determined the number of abortions provided by each type of abortion provider according their annual caseload - the number of abortions performed by each in 2008.

We decided to drill down into the data for abortions performed in dedicated abortion clinics and other clinics, since these two types of abortion providers account for just over 94% of all abortions performed in the United States.

Our next chart shows what we found when we looked at abortions performed in the 378 dedicated abortion clinics in the United States:

Our next chart repeats the same exercise for the "other" clinics. One immediate difference between the two providers is that no clinics that are counted among the 378 dedicated abortion clinics performed fewer than 30 abortions in 2008.

We next determined the following average throughput values by assuming a seven-day per week operating schedule, which might be common for these high-volume abortion providers.

An annual caseload of 30 represents 0.08 abortions per day, or roughly one abortion approximately every 12 days.
An annual caseload of 400 represents 1.1 abortions per day, or 11 abortions every 10 days).
An annual caseload of 1,000 represents roughly 2.7 abortions per day.
An annual caseload of 5,000 represents 13.7 abortions per day.

For the 29 abortion clinics with an annual caseload over 5,000 abortion procedures per year, which performed 188,320 abortion procedures in 2008, the average daily throughput works out to be approximately 17.8 abortions per day.

But for the two "other" clinics that weren't counted among the specialized abortion clinics, but still had an annual caseload exceeding 5,000 abortion procedures per year, the average throughput is approximately 25 per day.

For a standard 8-hour work day, that last throughput value equates to 3.1 per hour.

To put that value into perspective, since most of these procedures represent surgical abortions, if there were only one doctor performing these procedures at these clinics, they would rank among the fastest in the world.

Notes About the Various Types of Abortion Providers

The Guttmacher Institute provides the following description of each type of abortion provider:

Types of Providers and Abortion Caseloads

Clinics. The 378 specialized abortion clinics accounted for 21% of all abortion providers, but performed 70% of all abortions in 2008 (Table 4). Most of these facilities reported 1,000 or more abortions during the year. A total of 473 nonspecialized clinics accounted for 24% of all abortions; some were similar to abortion clinics in having caseloads of 1,000 or more abortions per year. Overall, the number of very large providers (those performing 5,000 or more procedures) increased by more than 50% between surveys: Twenty facilities of this size accounted for 12% of all abortions in 2005¹, whereas 31 such facilities provided 17% of abortions in 2008.

Hospitals. Thirty-four percent of abortion providers were hospitals in 2008, but these facilities accounted for only 4% of all abortions. Many hospitals provide abortions only in cases of fetal anomaly or serious risk to the woman’s health, and a majority (65%) performed fewer than 30 abortions in 2008. Twenty-two hospitals reported 400–999 abortions during the year, and only nine reported 1,000 or more.

Physicians’ offices. Some 19% of providers were physicians’ offices, but these facilities accounted for only 1% of all abortions. A majority of these offices (57%) reported fewer than 30 abortions; our survey may have missed a number of small providers in this category.

Reference

Jones, Rachel K. and Kooistra, Kathryn. Guttmacher Institute. Abortion Incidence and Access to Services in the United States, 2008. Perspectives on Sexual and Reproductive Health. Volume 43, Issue 1. 10 January 2011.

The Providers of Abortion in the U.S.

2012-01-17T04:41:00.002-07:00

Who provides abortions in the United States?

The chart below reveals what we found for the year 2008, which corresponds to the most recent year for the U.S. Centers for Disease Control has published data regarding the racial distribution of who obtains abortions in the U.S., which we referenced in our previous post on the topic. The sources for the information in the chart below is the Guttmacher Institute and Planned Parenthood:

Overall, just over 94% of all abortions in the United States were performed in clinics, as opposed to hospitals or physician offices, with just under 70% of the total of 1,212,350 abortions in the U.S. in 2008 being performed in just 378 specialized abortion clinics. There were 1,793 abortion providers in the United States in 2008.

Planned Parenthood, the largest provider of abortion services in the United States, accounted for 26.7% of all abortions performed in 2008.

Data Sources

Planned Parenthood Federation of America. Fact Sheet. Planned Parenthood Services. September 2010.

Race, Poverty and Abortion

2012-01-16T04:01:00.000-07:00

How are the number of annual abortions in the United States distributed by race? And how does that compare to the distribution of the potential child-bearing (Age 15-44) population of the United States by race? Or for that matter, how does that compare to the racial distribution of the poor in the United States, as measured by enrollment of the non-elderly in Medicaid?

Our chart below provides the demographic snapshot of what we found in answering each question asked above, for the years spanning 2008 through 2010:

Data Sources

Centers for Disease Control and Prevention. Abortion Surveillance - United States 2008. Table 21. Reported Abortions, by Known Race/Ethnicity, Age Group, and Marital Status of Women Who Obtained an Abortion --- Selected States, United States, 2008. 60(SS15);1-41. 25 November 2011.

Kaiser Family Foundation. Distribution of the Nonelderly with Medicaid by Race/Ethnicity, States (2009-2010), U.S. (2010).

U.S. Census Bureau. Statistical Abstract of the United States, 2012. Table 10. Resident Population by Race, Hispanic Origin, and Age: 2000 and 2009.

U.S. Census Bureau. 2009 Population Estimates. T4-2009: Hispanic or Latino by Race.

Technology's End

2012-01-13T04:21:00.001-07:00

All technology eventually becomes obsolete.

Think of things like buggy whips, or Commodore 64 computers, or newspapers, or DVDs. What all these things have in common is that they either have already been replaced by something that works better to satisfy people's needs, or are in the process of being replaced by things that work better to satisfy people's needs.

Some technologies last for a really long time before they become obsolete. Newspapers are a still current example of things that are becoming obsolete that have been around for centuries, but which are unlikely to continue existing in anything like their old, familiar form thanks to the onset of newer, better technologies.

And then some technologies hang on because there really isn't any way they can become obsolete, although technology can be applied to make them better satisfy people's needs.

One example of that is the wheelchair. Designed to make it possible for people who cannot walk to be able to move themselves around, or so that others can move them around more easily, wheelchairs today are essentially unchanged from what they looked like over a hundred years ago.

It's not that technology has been idle. Wheelchairs are now made from different materials so they can hold up to use better than older designs could. Some have been paired with electric motors, which makes it easier for some to move around. Others have been optimized to be used in sporting events.

But no matter its current form, the wheelchair of today would be instantly recognizable to a time traveler from the past for what it is: a chair that rides on wheels for transporting people who can't walk.

But then, suppose that one day, the wheelchair as we have known it suddenly became obsolete. What could possibly replace it?

The day of the wheelchair's technological obsolescence may be here sooner than you think (HT: Core77):

This year, California-based Ekso Bionics will begin shipping their eponymous product, a robotic exoskeleton that will enable paraplegics to do the unthinkable: Walk. New York's Mount Sinai Hospital and other rehabilitation clinics in the U.S. and Europe are expected to purchase commercial models once performance and reliability trials are cleared--trials overseen, interestingly enough, by America's Food & Drug Administration.

Ekso Bionics began as Berkeley Bionics in 2005, and early military cooperation helped the firm produce the HULC, a militarized version of the exoskeleton designed to help able-bodied soldiers tirelessly lug heavy payloads through rugged terrain. Lockheed Martin (whose somewhat creepy company motto is "We Never Forget Who We're Working For") licensed the technology in 2009, freeing the company now known as Ekso to begin focusing on its civilian version. The company's work has since earned it a 2012 Edison Award nomination.

It's hard not to be moved by the video of an early product tester, a woman who has not walked since sustaining a spinal injury nearly 20 years ago. For some reason Ekso has rendered the video unembeddable, but it can be freely viewed here.

Can you imagine what might replace the exoskeleton that makes it possible for paraplegics to walk? Because that's something that will happen someday.

All technology eventually becomes obsolete.

The Number of New Jobless Benefit Claims for the First Week of 2012

2012-01-12T04:04:00.001-07:00

How many people filed for new unemployment insurance benefits in the first week of January 2012?

We'll find out the answer to that question later this morning, but in the meantime, we can make a pretty good guess using our updated forecast chart for the number of seasonally-adjusted initial unemployment insurance claims filed each week!

Assuming the trend established since 9 April 2011 remains intact, and that the variation of individual data points with respect to that mean trend line follows a normal, bell-curve kind of distribution, we can give the following odds that the number of seasonally-adjusted new jobless claims for the week ending 7 January 2012 will fall within the indicated ranges:

There is a 50% chance the number will be above 384,593. Likewise, there is a 50% chance the number will be below 384,593.
There is a 68.3% chance that the number will be between 372,552 and 396,634.
There is a 95.4% chance that the number will be between 360,510 and 408,676.
There is a 99.7% chance that the number will be between 348,469 and 420,717.

Using our statistical control chart-inspired methodology, should the number of seasonally-adjusted initital unemployment insurance claim filings for the week ending 7 January 2012 come in either below 348,469 or above 420,717, it would be an indication that the trend established since 9 April 2011 is potentially breaking down.

As you can see though, it's been going pretty strongly for nearly eight full months now. If it continues through the end of March 2012, it will be very unlikely that we'll see the number of new jobless claims climb above the 400,000 mark, where it spent much of 2011.

In looking deeper at the chart, we see some indications that the established trend may indeed be breaking down. Here, in going from 17 September 2011 to 24 September 2011 and then again from 26 November 2011 to 10 December 2011, we see that the volatility in the number of new unemployment benefit claim filings being recorded each week has increased.

If that continues, the big unknown for us right now is that we don't know yet which way the numbers will break!

Update (12 January 2012, 9:36 AM: Here's the updated chart, incorporating the data from today's report:

Today's new jobless claim value of 399,000 was just outside our 68.3% probability range. Given the BLS' track record in under-reporting the actual number of new jobless claims each week, we can reasonably expect that the figure for the week ending 7 January 2012 will be revised upward in the next report to be 400,000 or higher.

Today's number also underscores the increasing level of volatility in the data - when the current trend was establishing itself, it was characterized by relatively small changes in the number of new jobless claims being filed from week to week.

Today new data marks the fourth time in the last six weeks in which the size of the change in the reported numbers from week to week has exceeded one standard deviation. That's specifically what we're looking at when we suggest that the established trend may be beginning to break down.

Cavalcade of Risk #148

2012-01-11T04:00:00.000-07:00

Welcome to the 148th edition of the Cavalcade of Risk!

For our readers who see our posts through sites that pick up its RSS news feed, the Cavalacade of Risk is a throwback to the early days of social media on the web, where individual bloggers (aka "the host") would solicit other bloggers to contribute posts to which they would link, usually related to a given theme (such as personal finance, or to use today's example, risk.)

In those old days, blog carnivals were a way that new or little known bloggers could attract more traffic to their sites. The bloggers who would host a particular carnival would change with every edition.

Today, blog carnivals are essentially obsolete - they've fully been replaced by what might be described as Social Media 3.0 - where sites like Facebook or Twitter rule in driving traffic to what people might find interesting to read.

Now, since it's fallen to us to host the 148th edition of the Cavalcade of Risk, we should point out that the risk of finding your endeavors becoming obsolete is a very real risk - we can't count the number of blog carnivals that have fallen by the wayside just because no-one thought they were worth continuing.

But the Cavalcade of Risk is a bit different - it has benefited from an organizing force in the form of Insureblog's Hank Stern, who has managed to make it last 148 editions.

Or 149, if you count the next edition, which will be hosted in two weeks time at the NotWithStanding blog!

But to get back to our contribution to this week's Cavalcade of Risk, having a solid organizing force behind an endeavor then is essential for sustaining it over the long term - thus, reducing the risk of obsolescence and having your endeavor fall by the wayside!

Now, onto the Cavalcade of Risk - all those who contributed posts for consideration to this 148th edition of the cavalcade are presented below for your reading pleasure!

Cavalcade of Risk #148

Date Contributed	Post Title	Blog Name	Rating	Remark
2012-01-03	How Much of Your Investment Portfolio Can You Afford to Lose?	Arbor Asset Allocation Model Portfolio	Bb2	Ken Faulkenberry argues that all investors need to have a plan for controlling their investment losses, as a way to avoid losing money!
2012-01-05	Insurance Regulation 2012: Reading the Tea Leaves	Insurance Regulatory Law	Bb2	Van R. Mayhall, III outlines the many ways that insurance regulation will dominate governmental affairs in 2012, particularly at the state level.
2012-01-05	Pollution Coverage in the New York Business Auto Policy	Ask Tim	Bb3	If you're a fuel dealer in New York state, Tim Dodge's contribution will be of special interest to you - for everyone else though, not so much! (Somebody needs to ask Tim more interesting questions....)
2012-01-05	The Year in Review: Weird Claims in 2011	Risk Management for the 21st Century	Aa2	Nancy Germond reviews the wacky year that was to identify the most unexpected risks that resulted in big settlements!
2012-01-05	Insurance Policies to Avoid at All Costs	Free Money Wisdom	Bb3	Jon the Saver really doesn't like three different kinds of insurance: extended warranties, credit card life insurance and ID theft insurance. That's pretty much it....
2012-01-06	Health, Risk and History	Insureblog	Bb2	Hank Stern points to a blog post at Frank Jacobs' wonderful Strange Maps blog, which features a map dividing 19th century American into medical insurance underwriting zones.
2012-01-07	The Ineffectiveness of Asset Testing for Public Health Insurance Eligibility	Colorado Health Insurance Insider	Bb2	Louise Norris protests against state legislators' attempts to apply means testing to Medicaid recipients, which would keep people with millions in assets, but not in the form of income, from drawing Medicaid benefits, arguing that the federal government's grants to the state prohibit the practice.
2012-01-08	Geographical Areas for Insurance Underwriting	Chatswood Consulting Limited	Ba2	Russell Hutchinson picks up on Hank Stern's map pointer, and reveals that what seems to be a strange concept from history to Hank in the U.S. is not so strange elsewhere in the world (and provides examples!)
2012-01-09	Health Wonk Review, OSHA, State Reports, and the Single Best Thing for Your Health	Workers' Comp Insider	Ab2	Julie Ferguson offers her own homemade blog carnival expansion for the Cavalcade of Risk, complete with links to a number of workers' comp-related links from around the web and blogosphere! And best of all, a video that describes the single best thing you can do for your health in 2012!

Say, What Are Those Ratings?

Blog Post Rating System for Blog Carnivals
Topicality [Capital Letter]	Information Quality [Small Letter]	Readability [Number]
A - Fully On Topic B - Related Topic C - Way Off Topic D - Spam	a - Makes You Smarter b - Makes You Informed c - Makes You Stupider	1 - Highly Readable 2 - Average Quality 3 - Potentially Painful

Every so often, the Cavalcade of Risk's hosts have to deal with the problem of people contributing posts that are either totally unrelated spam or that don't have much to do with the concept of risk. Normally, they ignore those kinds of posts, but still have to go to the time and trouble of reading and reviewing them only to find out that they wasted their time because the contributor chose to ignore the guidelines for contributing posts to each edition of the Cavalcade of Risk.

So, back when we first hosted the Cavalcade of Risk (Edition #66), we concocted the idea of adapting the rating system for bonds and other debt instruments to evaluate the quality of posts contributed to the Cavalcade! The table showing our Blog Post Rating System for Blog Carnivals describes how to interpret the ratings we've awarded above!

Apparently, the message got out this week, because we didn't have to downgrade any contributions to the dreaded Dc3 rating. But then, others weren't so lucky for the previous editions of the Cavalcade of Risk we've hosted:

Only Adults Need Apply....

2012-01-10T04:16:00.001-07:00

The big news on the jobs front is that the unemployment rate for December 2012 fell to its lowest rate since early 2009, reaching 8.5% following a massive revision in U.S. employment data covering the period from January 2007 through December 2011.

But even with that revised data, and the apparent surge in job growth for the month of December, both teens (Age 16-19) and young adults (Age 20-24) saw no gains for the final month of 2011 and, in fact, saw their numbers in the U.S. workforce decline.

All of the net gain in the number of employed Americans was concentrated among individuals Age 25 or older in December 2011.

Worse, if we look at the total number of jobs lost by age group since total employment peaked in the United States in November 2007, we find that American teens have seen little-to-no improvement in their number of employed since December 2009 when, by all appearances from the revised jobs data, the maximum number of jobs lost in the U.S, economy occurred.

By comparison, both young adults (Age 20-24) and adults (Age 25 and older) have seen their numbers increase in the U.S. workforce during that time.

This lack of improvement in the employment situation for U.S. teenagers over the last two years very likely explains President Obama's new initiative to get corporations, non-profits and government agencies to hire 250,000 teens for summer jobs in 2012.

Because obviously, none of the President's previous pivots to jobs ever worked for helping American teens get work....

S&P 500 Dividends: The Futures Flatline... Again

2012-01-09T03:49:00.002-07:00

The stock market's forward looking economic prediction for the next six to nine months of 2012, in one picture:

Commentary from today's picture:

Between 9 December 2011 and 9 January 2011, the expected future for S&P 500 dividend payments have essentially "flatlined". This repeats the year-end pattern we saw in 2010.

In early 2011, the U.S. economy slowed down into what we describe as a "microrecession", characterized by very low economic growth rates, which lasted through 2011Q3.

The U.S. didn't leave those economic doldrums until the fourth quarter of 2011.

Is this a signal that forward looking investors believe the U.S. economy is about to repeat that performance?

Your Paycheck in 2012

2012-01-06T04:15:00.000-07:00

How much money will you really take home from your paycheck in 2012?

To find out, we've created the tool below so you can run the numbers that matter the most for you! In addition to finding out how much money Uncle Sam will be taking straight out of your paycheck for income tax withholding and FICA (which we've broken down into your Social Security and Medicare tax components), our tool will also work in your 401(k) or 403(b) retirement plan contributions, as well as the effect of any flexible spending account arrangements you may have set up through your employer.

Better yet, our tool will also let you see how you take home pay might change if you earn a raise during the year!

Just enter the indicated data into our tool, and we'll run your numbers for 2012, or at least your numbers through February 2012, depending upon what happens with that temporary Social Security payroll tax cut. If and when that changes, we'll post a new version of the tool!

Your Paycheck and Tax Withholding Data
Category	Input Data	Values
Basic Pay Data	Current Annual Pay
Basic Pay Data	Pay Period
Federal Withholding Data	Filing Status
Federal Withholding Data	Number of Withholding Allowances
401(k) or 403(b) Contributions	Pre-Tax Contributions (%)
401(k) or 403(b) Contributions	After Tax Contributions (%)
Flexible Spending Account Annual Contribution Data	Health Care Spending Account
Flexible Spending Account Annual Contribution Data	Dependent Care Spending Account
What if You Had a Raise?	Desired Raise (%)

Your Paycheck Data
Category	Calculated Results	Values
Basic Income Data	Proposed Annual Salary (Including Raise!)
Basic Income Data	Typical Paycheck Amount
Federal Tax Withholding Amounts	U.S. Federal Income Taxes
	U.S. Social Security Taxes
	U.S. Medicare Taxes
401(k) or 403(b) Contributions	Pre-Tax Contributions
	After-Tax Contributions
	Total Contributions
Flexible Spending Account Contributions	Health Care Spending Account
Flexible Spending Account Contributions	Dependent Care Spending Account
Take Home Pay Estimate	Net Paycheck Amount

That's all well and good, but how does your paycheck compare to what it would have looked like in 2010, the last year before the Social Security payroll tax cut? And for that matter, when both Single and Married tax filers had lower federal income tax withholding rates in place as well? Did you really get the benefit of that full 2.0% reduction of your income more in your pocket? Our results table below shows how you take-home pay would have been....

Compared to 2010
Category	Calculated Results	Values
Major Changes	Payroll Tax Cut "Savings" per Paycheck (*)
	Change in Income Taxes Withheld per Paycheck
	Net Gain (+) or Loss (-) to You per Paycheck
	Your Personal "Stimulus" (Percentage of Income)

(*) As part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, the taxes collected from all Americans with wage or salary income to support Social Security was reduced by 2.0%, from 6.2% to 4.2%. This change only affects what individuals see on their paychecks, as the employers' portion of these taxes will remain at 6.2% of their employees' wage or salary incomes.

To make up any resulting shortfall in the Social Security tax collections used to pay benefits to today's Social Security recipients, the U.S. Treasury will increase its borrowing to cover the cost of providing those benefits at their current level. The Social Security payroll tax cut was extended for most wage and salary earners through February 2012 by the Temporary Payroll Tax Cut Continuation Act of 2011.

As for why President Obama's promise of a 2.0% payroll tax cut really doesn't add up to 2.0% of your salary or wage income, see the charts here (if you file as Single) and here (if you file as Married), for the explanation of those tax withholding dynamics....

And remember, one of the consequences of not putting that extra 2.0% of your paycheck into Social Security is that the program will run more deeply in the red, which will force the government to have to borrow more money just to pay benefits to today's Social Security recipients.

Our advice: if you'd like to put Social Security on a more sound footing, and keep your take-home pay from being reduced by 2.0% when the temporary Social Security payroll tax cut is set to expire in February 2012, have your U.S. Representative or Senators reduce all the other income tax rates (and withholding tax rates) by 2.0% (or more). As far as President Obama is concerned, it will make no difference to how much money the federal government will borrow on his watch.

Previously on Political Calculations

We've been in the business of calculating people's paychecks (not including state income tax withholding) since 2005!

But before we forget, your employer pays a lot more to keep you on the payroll than just your paycheck! The tool below shows how much it costs to employ you in 2011-12!

How Much Does It Really Cost to Employ You? (2011-12 Edition)

Meet the Married Rich of 2012!

2012-01-05T03:56:00.001-07:00

We're following up our look at the payroll and income tax withholding plight of Single tax filers today with a look at the plight of those who have their income taxes withheld at the IRS' initial 2012 married tax rates:

Once again, we're comparing the initial tax withholding rates for 2012 against those that applied in 2010, the last year before the employee's portion of the Social Security FICA payroll taxes of 6.2% of the employee's income was "temporarily" reduced to 4.2%.

What we find is that the benefits of extending the Social Security payroll tax cut into 2012 is limited to roughly 51% of those who might choose the Married filing status for their federal tax withholding, namely those whose incomes might fall between $7,900 and $78,800.

For all practical purposes, no individual who has their taxes withheld under the Married filing status whose income equals or exceeds $78,800 can expect to see any meaningful increase in their take-home pay with respect to what they might have done under the tax withholding rules of 2010. The increase in the income tax withholding rates will offset the reduction in they might otherwise see from the payroll tax cut.

In the chart above, we've used two different shading levels to indicate the range of incomes for which the 2.0% income surtax incorporated into the December 2011 temporary payroll tax cut extension might apply.

The lighter gray zone indicates the incomes where a married individual's income may be affected by the surtax while the darker gray zone indicates the incomes where a married couple will definitely be exposed to the surtax (since married filers combine the incomes of two people, it's possible for their combined income to be above the $110,100 level, yet still not be individually subject to the new 2.0% surtax.)

All in all, we're not sure it's worth forcing Social Security to run more deeply in the red for the sake putting a smidgen more take-home money into just 51-53% of American income earners' paychecks. It would benefit way more people, and put way more disposable income into the economy, if the federal government would let the temporary Social Security payroll tax cut expire and cut regular income and withholding tax rates across the board by 2-3% instead.

But if nothing else, at least we now know that President Obama's definition of who is "rich" really starts at $37,500 for single tax filers and $78,800 for married tax filers.

References

Internal Revenue Service. Payroll Tax Cut Temporarily Extended into 2012. IRS-2011-124. 23 December 2011.

Internal Revenue Service. Early Release Copies of the 2010 Percentage Method Tables for Income Withholding. Notice 1036. Released December 2011.

Internal Revenue Service. Early Release Copies of the 2010 Percentage Method Withholding and Advance Earned Income Credit Payment Tables. Notice 1036. Released November 2009.

Internal Revenue Service - Statistics of Income Division. 2009 Individual Complete Report (Publication 1304), Table 1.2 - All Returns: Adjusted Gross Income, Exemptions, Deductions, and Tax Items: Size of Adjusted Gross Income and Marital Status. [Excel Spreadsheet]. Accessed 2 January 2012.

Meet the Rich of 2012

2012-01-04T04:15:00.002-07:00

Two days before Christmas 2011, the U.S. Congress acted to pass a temporary extension of the Social Security payroll tax cut that had originally been passed a year earlier, and which had been set to expire at the end of 2011. To celebrate the occasion, the White House issued the following statement describing who would benefit from extending the Social Security payroll tax cut:

President Obama today signed into law a two month extension of the payroll tax cut, which means that 160 million American workers will not see their paychecks shrink starting Jan 1, 2012. The President thanked Congress for ending the stalemate and urged them to keep working to reach an agreement that extends this tax cut as well as unemployment insurance through all of 2012, saying it is the right thing to do for American families and for the economy, and called it "a boost that we very much need right now."

While technically true, we find that the White House's statement is misleading.

The part that's true is that had the Social Security payroll tax cut that had originally passed into law as part of the Job Creation Act of 2010, as many as 160 million individuals would indeed have seen their paychecks shrink as the Social Security payroll tax would have risen back to the level it was in 2010.

The only problem is that just over half of those wage and salary earning individuals ever saw any benefit from the Social Security payroll tax cut on their paychecks in the first place!

We'll illustrate why that was the case with the following chart, which presents the withholding income tax rates for individuals having money withheld at the "Single" tax filing status rates throughout the year for both 2010 and 2012.

The 2012 withholding tax rates shown in the chart above are nearly identical to those for 2011 - the only difference is that the incomes at which the withholding tax rates apply for 2012 have been adjusted upward slightly from 2011's levels to account for the effect of inflation over the past year.

What we find is that for all practical purposes, the only individuals who really benefitted from the payroll tax cut of 2010 were individuals with incomes between $6,050 and $37,500.

Assuming that the income distribution given by the IRS' adjusted gross income data for single tax filers from 2009 is representative of today's single tax filers, we estimate that roughly 53% of the wage and salary earners who have their taxes withheld at the Single filing status will see any significant benefit on their paychecks from the extension of the Social Security payroll tax cut. At least, as compared to what their paychecks would have looked like for earning the identical incomes in 2010, before the temporary Social Security payroll tax cut was enacted.

Much of the same math applied for 2011, which is a major reason why there was so little economic "stimulus" from the payroll tax cut - instead of having more money to take home, a very large percentage of individuals took home less money after all tax withholding from their paychecks than they would have in 2010.

And for all practical purposes in 2012, almost all individuals with incomes above $37,500 will see the federal government's withholding and payroll taxes claim a larger share of their paychecks than they would have seen in 2010. With almost exactly the same economic benefit from the "stimulative" effect desired by President Obama.

But at least now the pain of higher federal taxes taking more money out of every paycheck is being spread among all those single tax filers with incomes above $37,500.

Meet the rich of 2012!

References

Internal Revenue Service. Payroll Tax Cut Temporarily Extended into 2012. IRS-2011-124. 23 December 2011.

White House. President Obama: Extending Payroll Tax Cut Is a "Boost We Need Right Now". 23 December 2011.

Median Adjusted Gross Incomes by Tax Filling Status

2012-01-03T03:51:00.006-07:00

Sometimes, as we work on our various projects, we stumble across data that's kind of interesting in and of itself.

To that end, today's example of that would appear to provide more evidence that social factors have more to do with the perceived rise in income inequality in the United States over time than do economic factors:

In the chart above, we've presented the median adjusted gross incomes we've estimated for 2009's income tax filers according to their tax filing status. The number in parentheses below each column in the chart indicates the number of tax returns filed in 2009 for each group.

It would seem that just marital status has a lot to do with the observed differences between the various kinds of income tax filers.

Data Source

U.S. Internal Revenue Service Statistics of Income Division. 2009 Individual Complete Report (Publication 1304), Table 1.2. [Excel Spreadsheet]. Accessed 2 January 2012.

Solving the Biggest Civil Rights Crisis of 2012

2012-01-02T04:34:00.001-07:00

Welcome to 2012! We're kicking off the new year by solving the biggest civil rights crisis in America today, at least according to the United States Department of Justice: the racial disparity in the percentage of individuals without current photo identification needed for voting in South Carolina!

The editorialists of the Wall Street Journal were a bit taken aback by the apparent priorities of the U.S. DOJ:

Eric Holder must be amazed that President Obama was elected and he could become Attorney General. That's a fair inference after the Attorney General last Friday blocked South Carolina's voter ID law on grounds that it would hurt minorities. What a political abuse of law.

In a letter to South Carolina's government, Assistant Attorney General for Civil Rights Thomas Perez called the state law—which would require voters to present one of five forms of photo ID at the polls—a violation of Section 5 of the 1965 Voting Rights Act. Overall, he noted, 8.4% of the state's registered white voters lack current photo ID, compared to 10% of nonwhite voters.

This is the yawning chasm the Justice Department is now using to justify the unprecedented federal intrusion into state election law, and the first denial of a "pre-clearance" Voting Rights request since 1994.

According to the 2010 U.S. Census, 66.2% of South Carolina's 4,625,364 entire population were racially classified as being "White alone", while 27.9% were racially classified as being "Black or African American alone", who make up the lion's share of the state's "non-white" population. We will assume these percentages hold for the state's voting age population, which would put the number of individuals Age 18 or older at 3,544,890.

Simple multiplication then tells us that there are approximately 2,346,717 "whites" and 989,024 "blacks" of voting age in South Carolina.

Using Assistant Attorney General Thomas Perez' figures, we can now estimate the number of each racial subset of South Carolina's voting population that he claims lacks current photo identification. For whites, that works out to be 201,818 individuals, while for blacks, the number estimated to not have current photo identification is 98,902, bringing the combined total of current photo-ID-less potential voters to 300,720.

These figures assume that 100% of the state's voting age population is registered to vote. In reality, an estimated 65.6% of South Carolina's voting age population actually voted in the 2008 election, which suggests that the actual number of registered voters in the state who might be affected by not having a current photo ID will be nearly one-third smaller than our figures suggest. We'll assume the 100% figure for our remaining calculations however, because they would represent a worst-case scenario.

Using those larger numbers then, all it would take to make the percentage of blacks without current photo IDs be equal to the percentage of whites without current photo IDs to achieve Assistant Attorney General Thomas Perez' vision of perfect racial equality is for 13,846 blacks to take the simple action of renewing the photo IDs they have previously been issued by the state of South Carolina, and which have since expired.

After all, common sense tells us that individuals who have previously been able to obtain valid state-issued photo identification should have a pretty simple time doing so again. Apparently, the state's Department of Motor Vehicles will even pick you up and drive you to their office for the sake of getting you a valid and current photo ID to support your desire to vote in the last days to register ahead of an election!

Going back to the numbers, South Carolina's Department of Elections reports that 240,000 state voters lacked current ID cards as of October 2011. The state's Department of Motor Vehicles has indicated that 200,000 of those represent a combination of individuals whose existing photo IDs have expired (most often), or who have moved to other states, or who have passed away.

For those who haven't moved to other states or died, perhaps the easiest solution for obtaining a current photo ID would be to follow the directions provided by South Carolina's Department of Motor Vehicles for renewing their expired driver's license to make them current.

And to help "nudge" them in the right direction, we would recommend that Assistant Attorney General Thomas Perez take steps to prevent these particular individuals from doing things like boarding aircraft, buying alcohol, tobacco or firearms, depositing a check at a bank, applying for a loan, or voting in a union election, to name just a few ways the government might use its power to compel such people to eliminate the specific racial disparity of which he is so concerned.

At least then, perhaps Assistant Attorney General Thomas Perez will feel like he is achieving something meaningful in his career!

Data Sources and References

U.S. Census Bureau. 2010 Census Data. Accessed 2 January 2012.

File, Thom and Crissey, Sarah. Voting and Registration in the Election of November 2008. Current Population Reports. U.S. Census Bureau. May 2010.

Howden, Lindsay M. and Meyer, Julie A. Age and Sex Composition: 2010. 2010 Census Briefs. May 2011.

Wall Street Journal. Holder's Racial Politics. 30 December 2011.

Counting Down to Christmas...

2011-12-23T04:07:00.001-07:00

Have a Merry Christmas and a Happy New Year - we'll see you again in 2012! Until then, for the sake of all those people who are spending way too much time wrapping presents this season, here's our official countdown clock until the big day....

Should You Wait to Take Social Security?

2011-12-22T04:40:00.000-07:00

Does it pay to delay taking Social Security benefits?

Let's say you're considering one of three options: taking early retirement at Age 62, retiring at the traditional Age 65, or really holding off on retiring until you've reached Age 70. Which choice might be better for you?

The question matters because people who wait longer before drawing Social Security benefits can draw larger benefits than those who don't wait.

To find the answer, we've tapped Social Security's estimate of the maximum possible Social Security benefits that would be paid for individuals choosing to begin receiving payments in the first month after they've reached each of these ages in January 2012.

We then projected the accumulated total amount of benefits each individual would receive all the way out to Age 100.

But since most Americans won't live quite that long, we also projected how much longer a typical American can expect to live once they've reached the age at which they begin receiving Social Security benefits.

We've presented our results in the following chart, where we've used a solid line to indicate the portion of benefits that would be accumulated based upon a typical American's likely remaining life expectancy, and a dashed line to cover the period from that age all the way out to Age 100.

What we find is that based upon the typical life expectancy for most Americans, it does indeed pay to wait longer to draw Social Security benefits after becoming eligible.

For example, an individual who waits until the traditional Age 65 to begin receiving Social Security benefits will accumulate more money from the program than an individual who begins drawing benefits at Age 62 by the time both have reached Age 77. Since most Americans who reach either age can expect to live into their 80s, they would do better to wait than to take early retirement.

Likewise, by the time an individual reaches Age 82, they will have accumulated more benefits from Social Security by having waited to start receiving them at Age 70 than they will have by beginning to take them at Age 65.

There are two big wild cards in all this however. First is the major unknown of how long you will actually live - if you knew that, then you would know exactly which option might be better for your situation.

That's also complicated by whether or not you have a spouse. In that case, your Social Security benefits would continue to be paid to them in the form of survivor's benefits throughout the rest of their lives, which matters because they might live long beyond your years. That factor would argue in favor of waiting.

The second big wild card however is whether you have another source of income that can carry you from Age 62 through Age 70. Whether that's from regular retirement income that you set aside throughout your working years or from a job, both of which might be at the mercy of the economy, you might find it necessary to begin drawing benefits long before you would otherwise have chosen to do so in an ideal world.

How Much Does It Cost to Own an ETF?

2011-12-21T04:38:00.001-07:00

If you're an investor looking to possibly put your money into an Exchange Traded Fund (ETF), how much can you expect that will that cost you?

ETFs are a lot like mutual funds, in that they are made up of a number of individual stock or bond holdings and have operating expenses that will be charged against your account, but they're not exactly. Unlike mutual funds, which are only allowed to change hands at the end of a business day, you can actively trade an ETF - placing market orders to buy and sell at any time when the market is open, just like the shares of stock or bonds you might own.

Combined, those characteristics make an ETF something of a hybrid between mutual funds and regular stocks. Which means that figuring out how much it costs you to own an ETF is a little more involved than looking at the fund's Operating Expense Ratio.

If you're shopping for an ETF, and you're looking to minimize your costs as a way to help maximize your return on your investment, you'll also need to consider the funds Bid-Ask Spread, the value of any trading commission you might have to pay, as well as how long you plan to keep your money in the ETF and also how much money you'll keep in the ETF.

Fortunately, our newest tool is here to do the job for you! Based on math presented by Michael Iachini in the Winter 2011 edition of Charles Schwab's On Investing magazine (the link will work once the print edition is published online), our latest tool can help you find out how much it owning an ETF will really cost you!

Just enter the relevant data below, and we'll do the rest!

ETF and Investment Information
Input Data	Values
ETF Operating Expense Ratio [%]
ETF Bid-Ask Spread [%]
Commission per Trade [$]
Time You Plan to Hold the ETF [years]
Amount You Plan to Invest in the ETF [$]

Annual Cost of Owning an ETF
Calculated Results	Values
Your Annual Cost of Ownership [%]
Your Annual Cost of Ownership [$]

Using the default values in the tool, we find that the approximate annual ownership cost for investing $10,000 for half a year in an ETF with an Operating Expense Ratio of 0.10%, a Bid-Ask Spread of 0.15% and a per-trade commission of $8.95 is 0.76%, or $75.80.

Different ETFs and different brokers however will have very different numbers. Using our tool will help give you a good way to compare the relative costs of owning those ETFs when it matters most: before you choose to invest in them!

Image Credit: The Digerati Life

Building Your Groupon Discount Promotion

2011-12-20T04:03:00.003-07:00

If you run a business and are looking at running a marketing campaign offering discounts on your products or services through social media marketing sites like Groupon or Living Social, what kind of discounts can you really afford to offer?

That question comes up because of a recent story from the United Kingdom, where Woodley baker Rachel Brown was forced to make 102,000 cupcakes to satisfy a torrent of customers who took advantage of the discount she had offered via Groupon, losing $20,000 in the process. Mashable's Stan Schroeder reports:

Group discounts can be a nice thing for both the seller and the customers, but you have to know your limits. A UK baker learned that the hard way, when she was forced to bake 102,000 cupcakes, after offering a 75% cupcake discount on Groupon.

The discount obviously sounded too good to Grouponers, 8,500 of whom signed up to buy 12 cupcakes for £6.50 ($10), down from the standard £26 ($40) price. Rachel Brown, who operates the Need a Cake bakery in Woodley (near Reading, UK), had to hire extra workers and try to bake the cupcakes to satisfy the swarming customers.

"Without doubt, it was my worst ever business decision. We had thousands of orders pouring in that really we hadn’t expected to have. A much larger company would have difficulty coping," said Brown, who lost up to £12,500 ($20,000) on the deal.

There's a lot that went wrong for our cupcake-baking heroine, but thanks to the folks at TheDealMix, who developed the formulas, we can now present a tool using simplified math that can help any business owner set up a deal for discounts to avoid the pitfalls into which Rachel Brown's bakery fell.

Just answer the following questions as they apply for your business - our tool will do the rest to help ensure that your business can handle the demand from your deal while still running in the black!

Data About Your Business' Promotion
Input Data	Values
How much does your average customer typically spend on the goods or services you'll be featuring in your promotion?
What is your cost for the goods and services you'll be promoting?
What amount, above your Cost of Goods Sold, will you add to the offer price for your promotion?
What percentage of your business' capacity do you use when not running a promotion?
How many monthly transactions do you have on average when not running a promotion?
How many months would you like to run your promotion?

Your Promotion
Calculated Results	Values
Your Promotion (aka "The Deal")
Total Number of Deals to Offer

Our tool's results are designed to ensure that your business can afford to support the discount promotion you're thinking about running in two ways. First, by adding a positive amount to your Cost of Goods or Services Sold, you'll avoid the situation where you might discount your promoted item too greatly.

Second, by placing a limit on the number of deals that will be offered through your promotion, you'll largely avoid having to go to extraordinary means to satisfy customer demand should your promotion prove to be extremely popular.

And now, you shouldn't have to worry about whatever the equivalent of losing $20,000 to bake 102,000 cupcakes is for your business!

S&P 500: In the Zone!

2011-12-19T04:11:00.003-07:00

Nobody can predict where stock prices will go next, can they? Especially given the volatility of stock prices, especially in today's market, where the market can swing by more than 3% in any given day, right?

It's just not possible, is it?

To really find out, we ran a two-year long experiment, from April 2009 through April 2011, to see if we could forecast the average value of stock prices for a month at the end of the previous month. Here were our final results:

As you can see, we offered a split final forecast option for April 2011. Here's what we believed would happen instead:

What we believe is likely is that stock prices will track upward from the average level of 1304 they recorded in March 2011 toward the 1393-1429 level our primary method would forecast as the noise currently in the market subsides.

And that's what happened. In April 2011, stock prices did indeed track upward, rising to an average level of 1331 for the month, with the S&P closing the month at 1363.61.

We took the next several months off from offering public forecasts of where the S&P 500 would head next, but by 26 September 2011, we couldn't resist any more, and posted the following chart, which presents a graphical prediction that happens to cover the period through the end of 2011:

And here's what the updated chart looks like, through the end of 16 December 2011:

What can we say? We're still in the zone! And that concludes, for real this time, our public experiment in forecasting the future for the S&P 500!

The Invisible Hand App

2011-12-16T04:32:00.001-07:00

If you use Google's Chrome web browser, there's a relatively new app that can make shopping a lot more economical: InvisibleHand.

When you're reviewing a commercial web site when shopping for a product, such as airline tickets, rental cars, or even dog food, InvisibleHand will let you know if you can buy the product more cheaply at other sources and link to them. We snapped the screen shot below to show what the discreet prompt looks like when it finds a lower price, which appears at the top of the browser window:

We've only been test driving it for a little while, but our initial impression is that the app is pretty cool! The app is free and versions are also available for the Firefox, Safari and Internet Explorer web browsers from InvisibleHand's web site.

Elsewhere on the Web

Carolyn Nicander Mohr offers a positive review of the InvisibleHand app.

C|net's Rafe Needleman reconsiders his initial positive review for the app based upon privacy issues related to cross-site data leakage, where his search for a product on one site was unknowingly communicated to Amazon's site.

Revisiting the U.S. Housing Bubble

2011-12-15T04:43:00.002-07:00

Once upon a time, we developed a better method for detecting housing bubbles. Today, we're going back to the data mines to do some refinement and to see where things stand today!

Our first chart shows the relationship between median new house prices in the United States and median household income for the years from 1967 through 2010.

Here, we've revised our earlier look to better define the major trends evident in the data. Here, we see one major trend running from 1970 through 1986, then a second trend running from 1987 through 1999. After 1999, we see the housing bubble beginning its inflation phase as the relationship between median new house prices and median household income became decoupled, running through 2007. Since then, the U.S. housing bubble has been in its deflation phase, which appears to still be ongoing, as the relationship between the median prices of new houses and median household income remains decoupled.

One important thing to note is the shift in the trend that occurred after 1986. We believe this shift was triggered by the Tax Reform Act of 1986, which eliminated a number of debt-related tax deductions, but which left the long-standing mortgage interest deduction in place, even increasing the amount of the deduction.

The changes brought about by the Tax Reform Act of 1986 had two main effects. First, it incentivized home ownership by enhancing the tax benefits associated with owning property and having a mortgage. Second, in eliminating the favorable treatment of other debt interest, it made the home mortgage the primary channel by which people would choose to accumulate debt thanks to the interest on that debt being tax advantaged.

These changes however are not the cause of the U.S. housing bubble, as there is no correlation between the shift in trend and the beginning of the bubble in 2000. More interestingly though, we see that both trends would project nearly the same median new home price given the current level of the U.S. median household income.

Looking at the more recent trend that was defined in the period from 1987 through 1999, we can see that the relative affordability of a median new home in 2010 is still well elevated above where it would have been during that period. The following chart shows the percentage deviation between the 1987-1999 trend and actual median new home prices from 1987 through 2010, which gives a sense of how overpriced the median new home has been since 1999 thanks to the U.S. housing bubble:

Here, we see that the relative affordability of the median new home with respect to where it typically was from 1987 through 1999 peaked in 2005, with a percentage deviation of 25.7%. Since then, the median price of a new home has fallen, bottoming in 2009 at a level 11.9% over where the linear trend that ran from 1987 through 1999 would place it, before bouncing back up to be 14.4% higher than the level of the projected trend in 2010.

What's interesting to us is that it appears that we stumbled directly into something that looks very much like the Case-Shiller house price index!

Here, looking at both the 10-city and 20-city composite indices, we find that our representation above closely follows the pattern traced out by the Case-Shiller 20-city composite data - at least with respect to the linear trend we created in the chart for the period from 1987 through 1999.

But unlike the Case-Shiller data, because our method correlates house prices with household income data, it will better communicate the relative affordability of homes in the U.S. over time!

Since the Case-Shiller data has been updated more recently than the Census data, it appears that house prices in the U.S. have resumed falling in 2011. And even though those falling prices are making homes more affordable today, they would have to fall by roughly another 12-14% before they would be in the same ballpark for affordability that they were in the years from 1987 through 1999.

Or as the projected trend works out to be from our first chart, the same level of affordability that they were for Americans in the years from 1970 through 1986 as well.

Data Sources

U.S. Census. Median and Average Sales Prices of New Homes Sold in United States. http://www.census.gov/const/uspriceann.pdf. Accessed 13 December 2011.

U.S. Census. Current Population Survey, Annual Social and Economic Supplements. Table H-5. Race and Hispanic Origin of Householder--Households by Median and Mean Income: 1967 to 2010. [Excel spreadsheet]. Accessed 13 December 2011.

Standard and Poor. Case Shiller Seasonally Adjusted Home Price Index Levels, September 2011. [Excel spreadsheet]. Accessed 13 December 2011.

How Many Calories Are You Really Eating?

2011-12-14T04:56:00.000-07:00

How many calories does your body need to maintain its current weight? Or rather, if we were to take your current weight level and assume that you're consuming enough Calories to maintain it, how many Calories is that per day?

Your Personal Data
Input Data	Values
Age [years]
Weight [lb]
Height [in]
Gender
Your Daily Activity Level

Approximate Daily Calorie Requirements
Calculated Results	Values
Basal "Resting" Metabolic Rate [Calories]
Estimated Total Calories Consumed per Day

Math is a wonderful thing and yes, we can use it to work out approximately how many Calories you're eating every day! Our tool below uses the math developed by M.D. Mifflin, S.T. St. Jeor, L.A. Hill, B.J. Scott, S.A. Daugherty and Y.O. Koh in their 1990 paper "A new predictive equation for resting energy expenditure in healthy individuals" to estimate your basal metabolic rate, or rather, the number of Calories your body would consume when it's "resting", which we then mashed with the old Harris-Benedict approximations for taking your daily level of physical activity into account.

All you need to do is to enter your age, gender, weight and your approximate level of daily physical activity into our tool below. Unless you're a true athlete, with lots of lean muscle mass that burns even more Calories, or perhaps have a thyroid condition that directly affects your metabolic rate, you can expect the results to be pretty close to the actual ballpark in which your body burns Calories to maintain your current weight!

Best of all, if you're getting set to do something about your weight or fitness level, you now have some idea of how many Calories you're really consuming every day!

And really, that might be the most surprising result you'll find out from our tool!

Snapshots of the Expected Future Dividends for the S&P 500

2011-12-13T05:21:00.002-07:00

A quick story in two snapshots. First, the expected future trailing year dividends for the S&P 500 through the fourth quarter of 2012:

Second, the tax rates that apply to dividend income from 2003 through 2012, and the expected tax rates that will apply for 2013 onward, given current law in the U.S.:

What effect do you think those much higher tax rates will have upon stock prices beginning in 2013? Especially since the long-term capital gains tax rate will be so much less? Here's what history says, but remember, it ends badly, except perhaps for the insiders....

Speaking of which, here's what they're up to today!

U.S.-China Trade: Reaching an Inflection Point

2011-12-12T04:18:00.001-07:00

In October 2011, China set a new record for its exports to the United States, with the value of its goods and services being imported into the U.S. reaching an all-time high of $37.807 billion.

Unfortunately, the year over year growth rate of China's exports to the U.S. indicates that the U.S. economy, while doing a bit better than the months of May through September 2011, is still near recessionary levels.

Worse, we find that the year over year growth rate of U.S. exports to China has also reached near-recessionary levels, even as the value of the goods and services exported by the U.S. to China is still on track to peak by December 2011.

What we suspect is that the respective growth rates of the trade between the two nations are reaching a near-simultaneous inflection point, where instead of growing, which we would expect if the economies of China and the U.S. were both healthy, they are instead set to go flat or to become negative, as both nations would appear to be now experiencing near recessionary conditions.

It would seem that not even the kind of massive Keynesian economic stimulus spending that China engaged in back in 2009 and 2010 is sustainable for more than a couple of years, as all bubbles end. It's only ever a question of when and how....

Scheduling the Next U.S. Recession

2011-12-09T04:11:00.002-07:00

Thanks to the Fed's excursion into Zero Interest Rate Policy (aka "ZIRP"), we can't use our dedicated tool that reckons the odds of a recession up to a year in the future.

But we can do the next best thing and listen to what the stock market is trying to tell us:

Here, we find that the private sector of the U.S. economy is set to slow down in a big way going into the second quarter of 2012, which we see as the decrease in that quarter's expected dividends per share.

Keep in mind the extremely slow growth of just once cent per share from the second to third quarters of 2011 directly coincided with what we've described as a microrecession in the United States, which we've since confirmed using international trade data.

But what does that mean for jobs? After all, as we've seen previously, the big job losses following the beginning of a recession often occur quite a bit after it has begun.

Fortunately, we have another tool we can use to predict how the U.S. unemployment rate will change, up to two years in the future! The relationship between inflation-adjusted motor gasoline prices and the unemployment rate in the U.S.!

Here, we've shifted the red curve indicating the level of real motor gasoline prices in the U.S. some two years into the future. Here, we see that the recently announced unemployment rate of 8.6% for the U.S. is right about exactly where the gas prices of two years ago would predict they would be.

(Technically, they had been higher than anticipated until the most recent employment situation report, but then, remember the U.S. went through that whole microrecession thing!)

Looking into the future, we see that the unemployment rate through 2012 is likely to fall into the range between 8.5% and 9.0%. But very early in 2013, it would seem set to skyrocket back up over the 10% mark, after beginning to rise sharply toward the end of 2012.

That won't be any microrecession. And now, you can't say you weren't warned about what now looks like is coming this way!

Elsewhere on the Web

Doug Short compares the track record of two leading economic indicators and notes that the two have diverged in recent months, with one signalling recession and the other chirping along merrily - only one can be right!...

Your Maximum and Target Heart Rate

2011-12-08T04:48:00.000-07:00

How many times per minute should your heart beat while you're exercising?

Age and Gender Data
Input Data	Values
Your Age
Your Gender

Your Maximum and Target Heart Rates
Calculated Results	Beats per Minute
Your Maximum Heart Rate
Your Target Heart Rate Range

It used to be really easy to calculate what your maximum and target heart rate for working out should be - you just took your age, subtracted it from 220 and that gave you your maximum heart rate. You would then try to keep your heart rate between 50% to 80% of that number to get the best cardiac workout that medical professionals could recommend.

But then, while that math works for men, it turns out that math doesn't work for women!

Fortunately, a new math formula for finding the maximum and target heart rates for women has been developed: all a woman needs to do is to subtract 88% of their age from 206 to find their maximum heart rate number, then keep their pulse rate between 50% and 80% of that result while exercising!

Since that really isn't the kind of math that people can do in their heads, our latest tool is designed to take your head out of the picture, so you can focus on that workout of yours, regardless of whether you're a man or a woman!

Just enter the indicated data into the tool, and we'll tell you just how fast you need to get your blood pumping while you're working out on that new-fangled treadmill....

So there you go - now give us 20!

Image Credit: NASA's G-Trainer. Why, it's our tax dollars at work!

Winter 2011 Edition: Who Owns the U.S. National Debt?

2011-12-07T03:21:00.000-07:00

As of the end of the U.S. federal government's 2011 fiscal year on 30 September 2011, the United States' total public debt outstanding was recorded to be approximately $14.790 trillion. From the end of the U.S. government's Fiscal Year 2010, the amount of the U.S. national debt has increased by 9.1% in just one year, or $1.2 trillion.

The chart below provides a preliminary look at who the biggest holders of all the U.S. government's public debt outstanding were as of 30 September 2011:

Comparing this new chart with ones we've previously featured, we've broken out the U.S. Federal Reserve's holdings from the U.S. Individuals and Institutions category, reflecting the Federal Reserve's massive purchases of U.S. Treasuries as part of its quantitative easing programs.

Overall, in the year from 30 September 2010 to 30 September 2011, the U.S. Federal Reserve increased its purchases of U.S. government-issued debt from $966 billion to $1,773 billion, an 83.5% year-over-year increase.

These figures only include the value of securities issued by the U.S. Treasury or other federal government agencies. It does not include mortgage-backed securities, such as those issued by government-supported enterprises such as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac).

Our look at who owned the largest shares of the U.S. national debt is only preliminary since the data for foreign nations will be revised at some time in 2012.

How Much Will Upcoming Revisions Change This Picture?

We've created an animated version of our two primary charts revealing the major holders of U.S. government issued debt through the end of Fiscal Year 2010, our original version and the updated version incorporating the U.S. Treasury's revised data, to help give an idea of how much the values and percentage shares presented in our new chart above might change when the data spanning Fiscal Year 2011 is revised:

Note that the biggest change is that the share of U.S. government-issued debt held by China increases at the expense of the originally reported level of U.S. Treasuries held in the U.K. We anticipate a similar change when the data is revised in 2012, although this year, Europe's ongoing debt crisis might be playing a role in inflating the U.K.'s reported share of U.S. Treasury securities as well.

Previously on Political Calculations

Who Owns the U.S. National Debt To Whom Does the U.S. Government Really Owe Money? Summer Update: To Whom Does the U.S. Really Owe Money

Data Sources:

Board of Governors of the Federal Reserve System. Monthly Report on Credit and Liquidity Programs and the Balance Sheet, October 2011. Table 1. Assets, liabilities, and capital of the Federal Reserve System.

Board of Governors of the Federal Reserve System. Monthly Report on Credit and Liquidity Programs and the Balance Sheet, October 2010. Table 1. Assets, liabilities, and capital of the Federal Reserve System.

U.S. Treasury Department. Major Foreign Holders of Treasury Securities. Accessed 6 December 2011.

U.S. Treasury Department. Monthly Statement of the Public Debt of the United States, September 30, 2011. Table III – Detail of Treasury Securities Outstanding, September 30, 2011.

Can Increasing the Minimum Wage Boost GDP?

2011-12-06T04:44:00.004-07:00

Does increasing the minimum wage increase GDP?

Bloggingstocks' Joseph Lazaro outlined the theory that it might back on 1 August 2009, shortly after the U.S. federal minimum wage reached its current level of $7.25 per hour (emphasis ours):

... the U.S. Federal Reserve will be monitoring prices and costs to see if the higher minimum wage is creating inflation havoc at a time when U.S. businesses least need another concern to deal with. Businesses have enough to worry about; and some are struggling just to maintain operations for another quarter or two -- the recession has been that damaging.

But the Fed will also be looking for signs of another side-effect, and this one is a positive one: a GDP boost. That's because millions of workers are going to get a raise that they otherwise would not have gotten, and that will increase their purchasing power.

The significance? Some of those increased-pay workers will choose to spend -- perhaps buying a washer or drier, making a down payment on a used car, or paying down a debt. It's quite possible -- although in these "frugal consumer" economic times no one is certain- - that the wage hike will increase U.S. GDP, serving as a small engine of growth as the U.S. economy inches back toward health.

It's an intriguing possibility isn't it? But has it worked out that way?

One way we can find out if boosting the federal minimum wage has boosted GDP is by examining the economic fortunes of the people most likely to be earning minimum wages in the United States: teenagers and young adults!

Together, individuals between the ages of 15 and 24 have consistently made up approximately one half of all minimum wage earners, so we should be able to use the personal income data the U.S. Census has collected and published for this age group for each year since 1994.

First, let's consider the population of 15-24 year olds in the United States, and the number of those individuals counted as having income from 1994 through 2010.

Over this time, the federal minimum wage has increased from $4.25 per hour in 1994, to $4.75 in 1996 and then 50 $5.15 per hour in 1997, where it held level until 2007. Beginning in 2007, it was increased by 70 cents per hour once a year up until it reached its current level of $7.25 per hour in 2009.

What we see however is that the number of teens and young adults with incomes has fallen over time. Our next chart shows the percentage of Americans between the ages of 15 and 24 who were counted as having income in the U.S. Census' Current Population Survey for each year from 1994 through 2010.

In this chart, we find that the percentage of teens and young adults who had incomes peaked in 1995, with 75.3% of the entire Age 15-24 population counted as having earned income in that year, which has since fallen to 59.9% as of 2010.

So far, both these charts indicate that the number of teens and young adults in the U.S. workforce has fallen from 1995 through 2010 - these charts don't tell us anything about how teens and young adults might have benefited from higher pay obtained through a rising minimum wage over time!

For that, we'll dig deeper in the U.S. Census' data and extract the data for the aggregate amount of income earned by individuals Age 15-24. Since one way of measuring the U.S. Gross Domestic Product is to add up all the income earned by people in the United States, we can use the Census' estimate of the aggregate income earned by U.S. teens and young adults to represent their contribution to the U.S.' GDP.

The easiest way to do that is to compare the amount of income earned by all U.S. teens and young adults in 1995, when the percent share of teens in the U.S. workforce peaked with the total amount of income earned by all U.S. teens and young adults in 2010, the most recent year for which we have data.

Coincidentally, selecting these particular years for comparision works especially well for our purposes, since it spans the increases in the U.S. minimum wage from $4.25 per hour to $7.25 per hour, with 1995 being one year before the first minimum wage increase in our period of interest occurred, and 2010 being one year after the most recent increase in the U.S. minimum wage took place.

We'll also adjust the numbers to account for the effect of inflation, using an animated chart to show the results.

What we find in examining this chart is that for the 15 year span from 1995 to 2010, the nominal aggregate income of U.S. teens and young adults increased by 14.75%, from roughly $302.9 billion to $347.5 billion.

But most remarkably, in terms of constant 2010 U.S. dollars, the aggregate income of U.S. teens and young adults fell by 0.56% from $349.5 billion in 1995 to $347.5 billion in 2010. For all practical purposes, despite a 70.6% increase in the nominal value of the U.S. federal minimum wage from $4.25 to $7.25 (a 21.8% increase in real terms), the total amount of income collectively earned by the predominant earners of the U.S. minimum wage in the United States is unchanged.

Let's take a step backwards and consider the nominal income distribution of teens and young adults in both 1995 and 2010 in nominal terms.

Our next animated chart shows how many thousands of Age 15-24 individuals the U.S. Census counted within each $2,500 increment of total money income in both 1995 and 2010.

Here, we find that the distribution of income has shifted primarily at the lower end of the income spectrum. Our final chart quantifies the changes for each of the U.S. Census' measured income increments.

Here, we note that an individual earning the U.S. federal minimum wage of $7.25 per hour in 2010 who works full time (2,080 hours per year = 8 hours a day, 5 days per week, 52 weeks per year), would earn $15,080 in a year. That puts all the income affected by increases in the U.S. federal minimum wage over time below this level.

What we find is that this income range at the lowest end of the income spectrum for Americans between the ages of 15 and 24 is the only income range where there have been reductions in the number of individuals with incomes between 1995 and 2010.

We also find that the number of individuals with incomes below $15,000 has fallen by 5,045,000 from 1995 to 2010. Meanwhile, we find that the number of Age 15-24 individuals with incomes over $15,000, which would be considered to be largely unaffected by increases in the U.S. federal minimum wage over time, has increased by 3,105,000.

Overall, there are 1,940,000 fewer individuals between the ages of 15 and 24 with incomes in 2010 than in 1995.

Consequently, we find that increasing the federal minimum wage has failed to increase GDP over time. Worse, we find that increasing the federal minimum wage has actually increased income inequality within the Age 15-24 population from 1995 through 2010, as the same aggregate income, when adjusted for inflation, is effectively being spread among nearly two million fewer people.

Returning to Joseph Lazzaro's thoughts on the topic:

... if the Fed and other organizations can verify that the minimum wage increase has boosted GDP without a loss of jobs, or inflation, Congress may to consider another decision in the quarters ahead: a decision to raise the federal minimum wage again, this time to $8.25 per hour.

In our view, the only reason the U.S. Congress would choose to increase the federal minimum wage again would be to ensure the onset of a new recession.

This concludes our annual anniversary post, where we celebrate the biggest ideas we've developed during the past year! This year's anniversary post was a bit unique in that it combines two of the areas in which we've made a mark (or left one!): the real impact of minimum wages on the U.S. teen population and the real nature of income inequality in the United States.

As for the biggest ideas we've developed in previous years, here's the list:

2005: A Year's Worth of Tools - we celebrated our first anniversary by listing all the tools we created in our first year. There were just 48 back then. Today, there are over 259....
2006: The S&P 500 At Your Fingertips - the most popular tool we've ever created, allowing users to calculate the rate of return for investments in the S&P 500, both with and without the effects of inflation, and with and without the reinvestment of dividends, between any two months since January 1871.
2007: The Sun, In the Center - we identify the primary driver of stock prices and describe a whole new way to visualize where they're going (especially in periods of order!)
2008: Acceleration, Amplification and Shifting Time - we apply elements of chaos theory to describe and predict how stock prices will change, even in periods of disorder.
2009: The Trigger Point for Taxes - we work out both when, and by how much, U.S. politicians are likely to change the top U.S. income tax rate.
2010: The Zero Deficit Line - a whole new way to find out how much federal government spending Americans can really afford!

Thank you for joining us for our anniversary! We appreciate that there are a lot of ways you can choose to spend your time, and we greatly appreciate your willingness to share so much of it with us over the past year.

A Four Year Milestone for U.S. Jobs

2011-12-05T04:15:00.002-07:00

Four years ago, the number of employed Americans peaked at 146,584,000 in November 2007, just ahead of the U.S. economy itself peaking in December 2007, which marked the starting point for the nation's most recent economic recession.

Through November 2011, four years later, the number of employed Americans has fallen to 140,480,000. Just over six million fewer Americans are working today than were four years ago.

Overall, the jobs situation in November 2011 brightened for most Americans from October 2011, especially for those Age 25 and older, whose numbers in the U.S. workforce grew by 405,000 during the month.

Young adults however were on the losing side of the employment picture however, as 145,000 fewer individuals between the ages of 20 and 24 were counted as being employed than were in October 2011. That's disappointing because young adults had been seeing the largest gains in the number of employed in each month since July 2011, at least, until now.

Meanwhile, the employment situation of American teens continued to improve very slowly, as only 18,000 additional individuals between the ages of 16 and 19 were counted as having jobs in November 2011.

Today, the jobs lost by teens account for nearly 1 in 4 of all jobs lost since the United States entered into recession in December 2007. That's remarkable because teens represented just 3.1% of the entire U.S. workforce in November 2011. Four years ago, teens made up just 4.0% of the 6,004,000 member larger U.S. workforce.

Continuing to break down the data, young adults today represent 9.4% of the U.S. workforce, while accounting for 13.1% of the total number of jobs lost in the U.S. economy since November 2007.

Adults Age 25 or older make up the remaining 87.5% of today's U.S. workforce. Through November 2011, these individuals account for 62.0% of all the jobs that have been lost in the last four years.

Only in Washington

2011-12-02T04:25:00.000-07:00

If you live in the state of Washington, and you would like to do "work that matters", the State of Washington might have just the right job for you!

The inside joke here is that prior to the passage of Initiative 1183 on 8 November 2011, only the State of Washington could operate liquor stores. As a result, all the employees of the state's liquor store outlets were really employees of the state government. Because of the initiative's passage, the state is being forced by its voters to get out of the liquor business.

But apparently, the State of Washington still feels that its liquor store jobs are doing "work that matters"! (We agree, but we'll still drink to the privatization of liquor sales in Washington!...)

HT: Stefan Sharkansky.

New Jobless Claims: Still On Track

2011-12-01T07:33:00.006-07:00

Today's news that the number of initial claims for unemployment insurance benefits being filed for the week ending 26 November 2011 ticked back up over the 400,000 mark is right on track with the prediction we published over a month ago.

Here's that prediction:

... since that slowly downward trending line is currently projected to stay above the 400,000 level through the end of 2011, we can therefore expect that there is over a 50% probability that the number of new, seasonally adjusted initial unemployment claims will be above the 400,000 mark through the end of the year.

In fact, what we can expect as we go forward in time is that we'll see an increasing number of times in the weeks ahead where the number of new jobless benefit claim filings will fall below the 400,000 mark, as the number of layoffs from U.S. employers each week continues to decline gradually.

Lo and behold, that's pretty much exactly what has happened so far in the time between 21 October 2011 and today, as shown in our chart below, which adjusts the trend line slightly:

For the six most recent observations of the number of new jobless claims, which cover the period of time since we made our prediction, three have been at or above the 400,000 mark, while three have been under.

We also see that the mean trend line has shifted to be slightly steeper, which suggests that the number of initial unemployment insurance claim filings each week will be more likely to fall under the 400,000 mark in the weeks ahead.

Meanwhile, Bloomberg reports that the uptick in new jobless claims is "unexpected":

Jobless claims climbed by 6,000 to 402,000 in the week ended Nov. 26 that included the Thanksgiving holiday, Labor Department figures showed today in Washington. The median forecast of 43 economists in a Bloomberg News survey called for a drop to 390,000. The number of people on unemployment benefit rolls and those getting extended payments increased.

Whoops! There's 43 economists whose forecasting ability is now in doubt, which is a shame because the number of new jobless claims filed each week is perhaps the easiest of all economic data to forecast while its basic trend is intact!

And at present, it appears that the current trend for weekly new jobless claims remains well in force.

The Effect of Quantitative Easing on Stock Prices

2011-11-30T04:51:00.005-07:00

What effect did the Federal Reserve's quantitative easing programs have on U.S. stock prices in the three years from November 2008, when it was first suggested, and today?

To find out, we'll do an event analysis - we'll match up the level of stock prices as measured by the S&P 500 with the timing of the Federal Reserve's announcements and implementation of its two rounds of quantitative easing (aka "QE1" and "QE2").

The Federal Reserve Bank of St. Louis maintains a timeline of the events and policy actions that have been taken with respect to the financial crises since 2007. Here are the key milestones with respect to the Fed's quantitative easing programs, along with some other notable events. Our chart below shows the overall timeline over the past three years:

Beginning the timeline:

A. 25 November 2008

The Federal Reserve Board announces a new program to purchase direct obligations of housing related government-sponsored enterprises (GSEs)—Fannie Mae, Freddie Mac and Federal Home Loan Banks—and MBS backed by the GSEs. Purchases of up to $100 billion in GSE direct obligations will be conducted as auctions among Federal Reserve primary dealers. Purchases of up to $500 billion in MBS will be conducted by asset managers.

B. 16 December 2008

The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.

C. 28 January 2009

The Federal Reserve continues to purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant. The Committee also is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets.

D. 13 February 2009

U.S. Congress approves President Barack Obama's "Stimulus Package". The measure will inject an estimated $787 billion (the CBO estimates that $821 billion was actually spent) into the U.S. economy through a variety of tax credits, transfers to support state government programs and "shovel ready" infrastructure projects. The measure is signed into law on 17 February 2009.

E. 9 March 2009

The stock market bottoms. After this point, stock prices begin rising as the rate at which business conditions are worsening begins to decelerate.

F. 18 March 2009

The FOMC votes to maintain the target range for the effective federal funds at 0 to 0.25 percent. In addition, the FOMC decides to increase the size of the Federal Reserve's balance sheet by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. The FOMC also decides to purchase up to $300 billion of longer-term Treasury securities over the next six months to help improve conditions in private credit markets. Finally, the FOMC announces that it anticipates expanding the range of eligible collateral for the TALF (Term Asset-Backed Securities Loan Facility).

The Federal Reserve Bank of New York releases more information on the Federal Reserve's plan to purchase Treasury securities. The Desk will concentrate its purchases in nominal maturities ranging from 2 to 10 years. The purchases will be conducted with the Federal Reserve's primary dealers through a series of competitive auctions and will occur two to three times a week. The Desk plans to hold the first purchase operation late next week.

G. 16 March 2010

The FOMC announces that "The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

"In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral."

H. 31 March 2010

QE1 ends.

At first, investors appeared to have shared the Fed's assessment that it had successfully combatted the deflationary forces that had appeared set to overrun the U.S. economy, as stock prices continued to rise for nearly a month after the end of QE1. But over the next several months, expectations for deflationary conditions in the U.S. re-established themselves, sending stock prices approximately 10-15% lower. The Fed responded to the resurgence of deflationary expectations by launching a new round of quantitative easing, now known as QE2.

I. 10 August 2010: The FOMC agrees to keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.
J. 27 August 2010: Federal Reserve chairman Ben Bernanke states that "The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly", and that he believes "that additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions."

The Fed's first announcement was aimed at reassuring investors that the Fed wouldn't seek to immediately unload the securities it had bought up in its first round of quantitative easing, which could negatively impact markets in that a sudden increase in the supply of these securities being unloaded would push their prices downward.

But that wasn't enough to assure investors, which eventually led Fed Chairman Ben Bernanke to firmly commit to a new round of quantitative easing.

Here, it appears that the announcement that the Fed would indeed initiate a new round of quantitative easing had a strong effect upon stock prices, leading them higher well before the program actually went into effect. The lack of a similar effect when the Fed first announced it would initiate QE1 might be attributable to the unfamiliarity of investors at the time with what the Fed might be able to achieve with such a program, which had never previously been attempted in the United States. The Fed's apparent "success" with its previous round of quantitative easing gave it credibility among investors ahead of the second round, who responded positively.

Resuming the timeline:

K. 3 November 2010: The FOMC announces its decision to expand its holdings of securities in order to promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings and to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.
L. 22 June 2011: The FOMC announces that "The Committee continues to anticipate that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The Committee will complete its purchases of $600 billion of longer-term Treasury securities by the end of this month and will maintain its existing policy of reinvesting principal payments from its securities holdings. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.
M. 30 June 2011: QE2 ends, with no immediate plans for a third round of quantitative easing.

Since QE2 ended, stock prices have been fairly volatile, with the S&P 500 ranging from a high of 1353.22 on 7 July 2011 to a low of 1099.23 on 3 October 2011. At present, they're approximately 10% below where they were shortly after the end of QE2, as the S&P 500 closed at 1192.55 on 28 November 2011.

The Fed's "turning on" and "turning off" of its quantitative easing programs gives us the ability to measure how much they've affected stock prices in the United States. Judging by how much stock prices have changed from the "on" to "off" conditions, we estimate that the Federal Reserve's quantitative easing programs, which have affected investors' expectations of future inflation, contributed approximately 10-15% to the value of stock prices when "on".

One interesting observation we have is that it appears that investors "buy into" the Fed's initial assessment that there's no additional need for its quantitative easing programs for up to about a month afterward. And then, they adjust their perceptions to reflect changing conditions.

It would be interesting to observe the stock trades of Federal Reserve officials to see if they have the same kind of investing "luck" as the members of the U.S. Congress or their staffs.

From Brazil, With Love

2011-11-29T04:29:00.001-07:00

How dependent has the United States government under President Barack Obama become upon borrowing money from foreign sources to support its spending?

Would you believe the answer is: "enough to exclude a long-time U.S. manufacturer from consideration for a defense contract in favor of a foreign-based manufacturer, despite the U.S. manufacturer having invested considerable time and profits earned from their other products to develop a product that specifically satisfies the government's needs?"

AINonline's Chris Pocock reports:

The U.S. Air Force has apparently chosen the Embraer Super Tucano to meet the Light Air Support (LAS) requirement. Hawker Beechcraft's AT-6 was the other contender. No official announcement has yet been made, but Hawker Beechcraft said it received a letter from the USAF that excluded the AT-6 from the hotly contested competition. The company is protesting the decision to the U.S. Government Accountability Office (GAO).

The LAS competition was designed to produce an alternative to jet combat aircraft for counter-insurgency operations. The Air Force planned to buy 15 aircraft for a training school at Eglin AFB, Fla., but had not confirmed plans to equip any of its own squadrons.

However, the U.S. was expected to supply or sell LAS aircraft to various countries, starting with 20 for Afghanistan. It was this potential that led Hawker Beechcraft and partners to spend “more than $100 million to meet the Air Force's specific requirements,” the company said.

Last month, Hawker Beechcraft completed weapons drop tests with the AT-6, a modification of the successful T-6 primary trainer on which all U.S. military pilots graduate.

Meanwhile, Embraer teamed with Sierra Nevada Corp to offer the EMB-314 Super Tucano, and said it would assemble the aircraft in a new facility at Jacksonville, Fla.

Manufacturing.net carries the Associated Press' article, which describes the size of the contract, as well as the Hawker Beechcraft's investment in its AT-6 program (emphasis ours):

WICHITA, Kan. (AP) -- The Air Force has notified Hawker Beechcraft Corp. that its Beechcraft AT-6 has been excluded from competition to build a light attack aircraft, a contract worth nearly $1 billion, the company said.

The company had hoped to its AT-6, an armed version of its T-6 trainer, would be chosen for the Light AirSupport Counter Insurgency aircraft for the Afghanistan National Army Corps. The chosen aircraft also would be used as a light attack armed reconnaissance aircraft for the U.S. Air Force.

The piston planes are designed for counterinsurgency, close air support, armed overwatch and homeland security, The Wichita Eagle reported (http://bit.ly/ud7FDM).

Hawker Beechcraft officials said in a news release that they were "confounded and troubled" by the Air Force's decision. The company said it is asking the Air Force for an explanation and will explore all options.

Hawker Beechcraft said it had been working with the Air Force for two years and had invested more than $100 million to meet the Air Force's requirements for the plane. It noted that the Beechcraft AT-6 had been found capable of meeting the requirements in a demonstration program led by the Air National Guard.

It's all the more remarkable because the U.S. company has been laying off its workers given the current economic climate.

By contrast, Hawker Beechcraft's competition for the defense contract, Brazil's Embraer, is under investigation by the SEC into possible corrupt practices. The Wall Street Journal's Paulo Winterstein reports:

Brazil's Embraer SA, the world's No. 4 aircraft maker, said Friday that an investigation by the U.S. Securities and Exchange Commission into possible corrupt practices shouldn't hurt the company's chances of selling planes to the U.S. military.

The company said Thursday that it was subpoenaed by the SEC, but Chief Executive Frederico Curado said Friday the investigation in itself shouldn't affect its ongoing bid to sell Super Tucano aircraft to the U.S. Air Force. Mr. Curado said he expects the government to announce a decision within "weeks" on a contract reportedly valued at $1.5 billion.

"This is a new process for us but as far as we understand it, the investigation won't have an impact," he said in a conference call with journalists. "Restrictions in dealings with the U.S. government would come only after a conviction."

Embraer said that the SEC and U.S. Justice Department are investigating possible breaches of the U.S. Foreign Corrupt Practices Act, which prohibits company officials from making payments to government officers to get or keep business. The company declined to give details beyond saying that the investigation is related to Embraer business dealings in three countries.

So how does the United States' federal government's need to borrow large amounts of money from foreign sources perhaps come into play in stacking the deck against of a mid-size U.S. manufacturer against the fourth-largest maker of aircraft in the world for a U.S. defense contract?

As the fifth largest major foreign holder of U.S. debt, one whose share of that debt has been growing consistently for several years, the Obama administration may well have made a strategic decision to favor Brazil's Embraer company as a reward for Brazil's growing ranking among all foreign holders of U.S. government-issued debt.

With a good portion of Embraer's Super Tucano aircraft being manufactured outside the United States, the move will increase the U.S.' trade deficit in goods and services with Brazil, which in turn, will be balanced by the U.S. government's "export" of U.S. Treasury securities to Brazil.

The move is strategic because developing Brazil as a major holder of U.S. government-issued debt would offset China's outsize influence over the United States given its status as the largest foreign holder of U.S. Treasury securities. Since China has previously flexed its muscles with respect to its interests through the markets for U.S. Treasuries, the Obama administration is likely seeking to reduce its potential influence.

That influence is substantial. Through the end of September 2011, the U.S. Treasury reports that China holds $1.15 trillion in U.S. government-issued securities directly, and another $109 billion indirectly through Hong Kong. Meanwhile, a very large portion of the United Kingdom's reported U.S. government debt holdings of $421.6 billion are actually controlled by Chinese interests. The figure currently recorded for the U.K. is largely a consequence of the nation's position as a major international banking center, which will be revised in several months time to reflect actual holdings by nation.

The bottom line is that if a comparatively small U.S. manufacturer of airplanes with a major investment in its future to develop an aircraft that can do what the U.S. government wants and can demonstrate that's the case needs to be pushed aside in favor of a foreign manufacturer with considerable ethical issues regarding its business practices, and if doing so will help it borrow more money to spend, then that's what the Obama administration will do.

Lackluster GDP in 2011-Q3, More in 2011-Q4

2011-11-28T04:48:00.001-07:00

The U.S. Bureau of Economic Analysis has revised its initial estimate of GDP in the third quarter of GDP downward. We've adjusted our GDP forecast for the fourth quarter of 2011 accordingly.

Using our preferred Modified Limo method for forecasting GDP, we anticipate that U.S. GDP for the fourth quarter of 2011 has roughly a 68% probability of being between $13,252.9 billion and $13,533.7 billion in terms of constant 2005 U.S. dollars. It has a 99.7% probability of falling between $12,972.5 billion and $13,814.5 billion. The midpoint for our forecast range for GDP in 2011-Q4 using the data available to us now is $13,393.3 billion, in terms of constant 2005 U.S. dollars.

Looking at where U.S. GDP for the third quarter of 2011 has now been adjusted, we note that the midpoint of our forecast range for this quarter is now within 0.28% of where the BEA has revised its GDP estimate.

There will be one more scheduled revision of GDP data for this quarter. We will update our forecast for 2011-Q4 GDP accordingly when this third estimate is released.

Looking backward, our GDP temperature gauges show how the United States' economy has performed over the past three to four quarters with respect to its historical performance since 1980.

In these charts, the temperature spectrum runs from the "cold" purple range, indicating recessionary conditions, through the "cool" blue range, the "comfortable" green range, which indicates solid economic growth, and on through the more "heated" yellow range on up to the "overheated" red range, which are self-explanatory.

Of these two charts, the Two-Quarter GDP Temperature Gauge provides the better indication of how the U.S. economy has performed over time. We present the One-Quarter GDP Temperature Gauge since its data corresponds to the annualized GDP growth rates reported for each quarter in the media.

Here, the Two-Quarter GDP Temperature Gauge, which covers the two-quarter long intervals of 2010-Q3 through 2011-Q1 (two periods ago), 2010-Q4 through 2011-Q2 (one period ago) and 2011-Q1 through 2011-Q3 (the most recent period) reveals that the U.S. economy over the past year has ranged from recessionary levels, as indicated by the very "cold" purple color to near-recessionary levels, as indicated by the "cool" blue color, which are characterized by lackluster economic growth.

Since the U.S. economy's performance is largely driven by inertia, we anticipate that this lackluster performance will continue well into 2012.

Thanksgiving 2011: What to Do with the Leftovers?

2011-11-25T04:29:00.000-07:00

It's the age old American dilemma of what to do with the remains of the bird following the Thanksgiving holiday, while not doing any more to continue sending your Body Mass Index in the wrong direction. This year, we're featuring Cooking Light's recipe suggestions for what to do with all that's left behind!

Turkey burnout is insidious. One minute your bird is beautiful and fragrant, floating majestically to the table, its crisp skin glistening. You could eat every last bite all by yourself. But in a twinkling―or, to be exact, after a couple of servings―the feast loses its luster. By the time the candles have been snuffed, the good china put away, and the wine glasses washed, what's left of your 20-pounder looks like just one more responsibility. Worse, the week ahead looms with the dreary prospects of turkey hash, turkey supreme, and turkey a la king. For a moment, you consider getting a really big dog.

Not to sound unsympathetic, but snap out of it! Strip that bird straightaway with a sharp knife, and quickly refrigerate the white and dark meat in separate airtight containers (for up to five days or freeze for up to two months). Don't labor over the bones and fatty "parson's nose," telling yourself you'll boil them down into soup stock―you know you won't be in the mood for that anytime soon. Toss 'em, and be done with it. Feel better? You should. You've cleared the slate for a fresh approach to this versatile, forgiving meat and stocked a ready-to-use supply.

These recipes give your leftovers a new life, without ever resorting to a turkey-noodle surprise.

Cooking Light's recipe suggestions include:

Enjoy!

Happy Thanksgiving!

2011-11-24T04:47:00.003-07:00

We couldn't resist sharing the following image, stolen from here, which brings our love of food, math and Thanksgiving all together:

Have a Happy Turkey Day!

Thanksgiving 2011: Eat, Fry, Love

2011-11-23T04:23:00.000-07:00

What happens when State Farm gets together with William Shatner to create a "turkey fryer fire cautionary tale"?

If you're planning to deep fry your turkey this Thanksgiving, the answer is public service announcement magic!

Have a Happy Thanksgiving!

The Post Turkey Apocalypse, Part 2

2011-11-22T04:37:00.004-07:00

How can a 1.2% decline in the number of turkeys produced result in a 21.9% increase in their price?

That's the question we're tackling today as we continue to survey the post-Turkey apocalypse world. Here, we're going to look at the pre-apocalyptic world of 2007 and compare it with the post-apocalyptic world of 2010. The animated chart below shows what we find when we look at the production of "Big Turkey" (aka "America's 20 largest turkey producers") in before and after snapshots:

In this chart, we can see that turkey production has largely just shifted among the 20 largest producers in the United States between 2007 and 2010.

In fact, if we add up the number of pounds of live turkeys processed by each of the Top 20 turkey producers, we find that this figure increased for "Big Turkey" from 2007 to 2010, from 6,858 million pounds to 6,971 million pounds, an increase of just 1.6% over those four years. So clearly, "Big Turkey" isn't responsible for the decline in the number of turkeys produced in the United States.

But the decline in the number of pounds of turkeys processed by "Combined Smaller Producers" is! Here, we find that these smaller turkey producers account for a decline of 568 million pounds of annual production between 2007 and 2010, as their combined total fell from 704 million pounds in 2007 to 136 million pounds in 2010.

Basically, the fallout from the 2007 recession significantly hurt small turkey producers who, in addition to having to deal with reduced demand for their products from people whose economic livelihoods were most affected by the recession, have also been hit by rising costs of production, especially in the form of higher prices for feed corn, thanks to the government's increasing ethanol mandates.

This double whammy is responsible for hurting the ability of smaller turkey producers to remain in business, as many have been squeezed out of the market for turkeys altogether. And in the absence of competition from those smaller businesses, "Big Turkey" has the ability to significantly hike its prices to American consumers, most of which goes to cover their own increased costs of operations.

That situation could be easily reversed. It only takes a President who pays more than lip service to the needs of typical Americans and small businesses, instead of being out to stack the deck against them!

The Post Turkey Apocalypse, Part 1

2011-11-21T04:54:00.002-07:00

It's time once again for Political Calculations' week-long celebration of the most American of American holidays: Thanksgiving!

But this year, we're looking over a grim scene following the aftermath of what we described as the Turkey Apocalypse last year. Has the situation for America's Thanksgiving holiday gotten any better in the following year?

Let's start by looking at the number of turkeys produced in the United States through 2010. Here, we find that the number of turkeys fell by 3 million, or 1.2%, to 244 million, the lowest level recorded since 1989, the year for which our National Turkey Federation first provides data.

That's a small drop compared to the previous year's decimation, which was the largest ever recorded over a single year period of time.

Let's next look at how much America's turkey farmer's are getting per turkey.

Here, after looking at both nominal and inflation-adjusted prices, we find that U.S. turkey producers raked in more money per turkey produced in 2010 than ever before, with the dollar amount of income from each turkey produced rising in real terms by $3.22, from $14.69 to $17.91. That's a 21.9% year over year increase!

Using our Supply or Demand tool, the combination of that apparent increase in price with a decrease in quantity tells us that the price of turkeys has increased in 2010 due to a relative decrease in their supply.

But how can a 1.2% decline in the number of turkeys produced result in a 21.9% increase in their price? We'll tackle that question in our next Thanksgiving week post!

Markets in Everything: Useless Devices

2011-11-18T03:54:00.001-07:00

How much demand can there be for a machine that's utterly useless?

Believe it or not, more than you might ever have thought, because Brett Coulthard, the hobbyist who devised the contraption depicted in the video above, is making the leap into entrepreneurship by launching the Frivolous Engineering Company (HT: Core77).

And like many entrepreneurs, he's encountering many challenges as he gets set to introduce a new, improved version of the original useless device, the "Ultimate Useless Machine":

The good news is that all the parts have arrived and production of Version 2 of the Useless Machine has begun, and our on-line store should be up and running in the next few days.

Bad news: Now that production has started we're getting a better idea of the actual labor costs for making the machines and we've had to bump up the price for the 'pre-soldered' Machines from $40 to $45.

The big problem Frivolous Engineering has right now is a shortage of qualified labor. I'm trying to hire someone who is good at soldering but until then (and depending on demand) the pre-soldered machines will most likely be produced only in limited quantities.

Hopefully, he'll get those problems straightened out soon - keep your eyes posted on the new company's website for more details on how to buy the ultimate useless machine for that special someone this holiday season!

The Distribution of Income for U.S. Women in 2010

2011-11-17T04:11:00.002-07:00

According to Forbes, Oprah Winfrey earned approximately $290 million in 2010.

That is, quite possibly, the highest income earned by any American in 2010. Going by data from the Social Security Administration, only 81 people in the United States had wage or salary income above $50 million in 2010. Since we can safely assume that most of those individuals at this highest end of the income spectrum would be clustered near the $50,000,000 mark, the odds that Oprah Winfrey actually earned the highest income of anyone in the U.S. in 2010 are very good.

It's all the more remarkable because of how Oprah Winfrey derives her income: by developing and providing entertainment media that successfully targets American women. In a sense, Oprah's annual income represents the direct transfer of the income earned by lower-earning women to her.

To get a sense of the scale of that transfer, we've tapped the U.S. Census' data on the total money income distribution of women in the United States in 2010. Our results are presented in the chart below:

If you're one of the 125,084,000 American women Age 15 or older who earned income of any type in 2010, you can see how you compare with all other women by entering your 2010 income into the tool below. Our tool will tell you what percentage of American women earn as much, or less than you!

Annual Income Data for 2010
Input Data	Values
Your Annual Total Money Income

Your Income Percentile Ranking Among U.S. Women
Your Income Percentile
Approximate Number of American Women Who...
... Earn Your Income or Less
... Earn More Than You

The default income entered in the tool is the approximate median total money income for all women Age 15 or older in the U.S, regardless of whether they work full or part time, or even if they don't work at all or simply volunteer and earn no income. As the estimated median point, half of all women in the United States will have incomes below this mark, while half will have incomes above that amount!

Of course, if you're Oprah, you'll find that 100% of American women earned as much, or less than you. Make that "much less" than you!

We'll close with one final tidbit of information. Oprah Winfrey's estimated $290 million income in 2010 represents 0.0092% of all the income earned by women in the United States in 2010.

Image Sources

The inset images on our chart were taken from the U.S. government's Homelessness Resource Center and Girlshealth.gov web sites!

The 2011 Microrecession in U.S.-China Trade Data

2011-11-16T03:55:00.004-07:00

Last week, the U.S. Census Bureau issued the latest data it collects on the balance of trade of goods and services between the United States and China. The chart below shows what we find when tracking the year-over-year growth in the amount of U.S. imports from China and U.S. exports to China from January 1985 through September 2011, which provides an indication of the relative economic health of both nations.

What we find in the chart above is that the rate of growth of what the U.S. imports from China was very low in September 2011, at what we would describe as being "near-recessionary" values, continuing the pattern we've been observing since June 2011.

This indicates that the economic sluggishness most people perceived during the summer of 2011 was real, because a growing economy would tend to pull in more imports.

But we also see that China's economy is also going through its own slowdown, although it appears to still be growing more strongly than the U.S. economy.

Switching over to our doubling rate charts, we see that U.S. exports have sustainably doubled in value four times since January 1985, and are nearing the fifth doubling line:

We observe that the pattern of U.S. export to China since 2008 is very different from the preceding 23 years - it appears as though U.S. exports to China have begun following a seasonal pattern, with the peak in exports occurring in December.

Meanwhile, we find that China's exports to the United States have been growing at a much slower pace since 2008:

The U.S.' imports from China typically follow a seasonal pattern, with the peak occurring between the months of August through October, which coincides with the stocking of consumer goods for the Christmas shopping season in the United States. Although the value of the goods and services the U.S. imports from China is at near record levels (they hit an all-time high in August 2011), the quantity of goods being imported from China into the U.S. is falling.

So how can the value of what the U.S. imports from China be near its all-time record while the volume of goods being shipped is falling? Easy! It's because the value of the U.S. dollar is falling with respect to the value of China's currency:

To put it bluntly, the falling value of the dollar is making it relatively more expensive to buy imports from China than it was a year ago. And that's why U.S. port traffic is down, and U.S. port employees are working less, even though the U.S. appears to be spending more money on Chinese imports this year as compared to last.

And most paradoxically, President Obama is demanding China do more to allow the U.S. dollar to fall with respect to the Chinese yuan, even though it's clearly already happening and is producing the effects he desires.

But then, it's not like President Obama pays much attention to serious economic matters of any kind, unless they reinforce his mispreconceptions.

Image Credit: The Economist

Income Inequality by Age Group in 2010

2011-11-15T04:43:00.000-07:00

Which age group in the U.S. has the greatest amount of income inequality among its members? The choices are:

Age 15-24
Age 25-34
Age 35-44
Age 45-54
Age 55-64
Age 65-74
Age 75 and older

We won't keep you in suspense - the chart below reveals the answer!

Are you surprised to see that teens and young adults between that ages of 15 and 24 have the greatest amount of income inequality, as measured by the Gini Coefficient?

If it helps understand why, consider that this age group really represents the point at which Americans enter into their first jobs. It covers everyone from those who haven't graduated from high school, but are working in part-time, minimum wage level jobs on up through recent college graduates in difficult, high paying disciplines like petroleum engineering.

Meanwhile, we see that the level of income inequality drops dramatically for adults between the ages of 25 and 34, which corresponds to individuals who have fully entered into their careers. The amount of income inequality by age group then increases through Age 65-74.

To a large extent, what you're seeing here is the effect of education level upon the lifetime earnings of individuals, where those with higher levels of education tend to have greater income growth over time.

But that doesn't explain it all. Most individuals hit their peak earning years in their mid-to-late 40s, which wouldn't explain why income inequality continues to increase for older individuals.

Here, we need to consider the role of investment income. Assuming that the most successful income earners also consistently save or invest a portion of their income over time, if they realize positive rates of return, they can continue boosting their income above and beyond what they earn through wages and salaries.

That's a big reason why we see that individuals Age 65-74 have the second greatest amount of income inequality by age group - the most successful individuals are benefiting from a lifetime of saving and investing, while others within this age group earn much lower amounts of income, or none, through investing.

We next see that income inequality falls dramatically from Age 65-74 to Age 75 and older. This drop largely corresponds to the depletion of retirement savings that individuals set aside during their working years, which reduces the amount of income they might receive from the reduced principal they have invested.

Meanwhile, for this age group, individuals who were less successful in establishing retirement savings benefit from government income transfer programs like Social Security, which provides disproportionately large benefits to the people who earned the lowest incomes during their working years.

We'll close by sharing Payscale.com's chart showing the typical incomes earned by individuals just graduating college with degrees in the top-paying fields of 2011:

Best Undergrad College Degrees By Salary

Methodology
Annual pay for Bachelors graduates without higher degrees. Typical starting graduates have 2 years of experience; mid-career have 15 years. See full methodology for more.

Data Source

U.S. Census. Current Population Survey. Annual Social and Economic Supplement. Table PINC-01. Selected Characteristics of People 15 Years Old and Over by Total Money Income in 2010, Work Experience in 2010, Race, Hispanic Origin and Sex. Accessed 13 November 2011.

The S&P 500 Through 11/11/11: Continuing on Track

2011-11-14T04:12:00.001-07:00

Since our last update, the S&P 500 has largely continued to move on track:

We can confirm however that investors appear to have shifted their attention to the fourth quarter of 2012, rather than 2012-Q3, in setting their forward-looking focus for setting today's stock prices:

Given small increases in the expected rate of growth of dividends per share in the fourth quarter of 2012 that have occurred since our last public update, we can expect stock prices to run to the high side of the forecast range shown on our first chart (as the purple zone). We may adjust this zone accordingly to account for that change in our next update.

Since is this the first time in a while that we've shown both these charts together, we'd like to point out that it they seem to provide a pretty good evidence demonstrating what's called the "unit root hypothesis" in economics, where the effect of a shock (in this case, the emergence of deflationary expectations at specific points of time from April-August 2010, and later in March-April 2011, and more significantly in July 2011), resulted in a significant, and so far, permanent shift in stock prices.

Overall, the trajectory of stock prices with respect to their underlying dividends per share over time more resembles a Lévy flight than they do the result of Brownian motion.

11/11/11: Creepy Number Day

2011-11-11T04:11:00.001-07:00

Try this math at 11:11 AM today!

Take the last 2 digits of the year you were born, then add the age you will be this year.

If the result creeps you out, well, that's because you're an idiot. Before you feel insulted by this 411 though, don't you have bigger things to worry about?....

Whose Income Should You Tax?

2011-11-10T04:12:00.001-07:00

Pretend for a moment that you've just been elected to public office and that you now have the power to choose whose income you're going to tax to pay for all the vital government programs you believe should be supported. If you want to keep those vital government programs on a sound financial footing, without jeopardizing the well-being of the people who rely on those programs in hard economic times, upon whose income should you most rely for your income tax revenue?

The Top 50%'s income.
The Top 1%'s income.
The Top 0.1%'s income.

Before you answer, consider the following chart, which is based on data from the IRS, as collected by the Tax Foundation:

The answer should be obvious, unless perhaps you're a member of the California State Legislature. Fortunately, the Tax Foundation has a golden opportunity just for you! Jumping straight to the conclusion:

A state that faces economic decline and an exodus of population has two choices. One is to ramp up state spending on education and infrastructure and offer targeted tax incentives for selected industries, and hope that these inducements will lure people back. All state governments do this to some extent, notwithstanding the risk. At best, however, these investments will take decades to pay off. At worst, the fate of Michigan could be more common: people take their degrees from the excellent state schools and use the excellent roads to drive to other states where there are jobs.

The other choice is to reduce reliance on burdensome and volatile revenue sources, prioritize state services and pare back on the non-essential, and set out a welcome mat of a simple, transparent, neutral, and stable state tax system for all. If tax increases have to occur, structure them in a way that spreads the burden and addresses spending growth. Such a choice will not generate billions of dollars immediately to recover from years of borrowing and spending beyond means. But it will lay the groundwork for long-term economic growth and ensure that the Golden State's tarnished decade will not continue forever.

P.S. U.S. Congress members - the same rules apply at the federal level!

How Much Might Producing More (or Less) Oil Change Its Price?

2011-11-09T04:03:00.001-07:00

Environmental Economics' John Whitehead greedily sharpened his old pencil following a statement Texas governor and GOP presidential candidate Rick Perry made in New Hampshire:

Rick Perry in the Union Leader:

We can create hundreds of thousands of jobs and increase our oil output by 25 percent if we fully develop oil and gas shale formations in the Northeast, mountain West and Southwest. I also support drilling in Alaska’s Arctic National Wildlife Refuge coastal plain (ANWR), offshore expansion in the Beaufort and Chukchi Seas, and development of the National Petroleum Reserve in Alaska, all of which would maintain the Trans-Alaska Pipeline System. This will create more than 185,000 U.S. jobs. ...

Additionally, our families, communities and employers will benefit from more affordable energy prices as we increase the domestic supply. American manufacturing will experience a tremendous boost if we control electricity prices and get a handle on the cost of fuel for transportation fleets.

Doing the back of the envelope (and not worrying about whether the 25% increase in oil output is realistic) with these data:

daily world oil production = Q = 89,123,026 [barrels]
25% of daily U.S. oil production = dQ = 2,422,000
oil price = P = $90
demand elasticity = ed = -0.1
supply elasticity = es = 0.2
dp = ((P*dQ)/Q)/(-ed + es)

The world price of a barrel of oil would fall by $8.20 as a result of a 25% increase in U.S. production. If gas prices are about 70% due to the price of oil and gas costs $3.35 per gallon, then the oil price share of gas is about $2.35. Cross-multiplication tells me that the oil price share of the price of a gallon of gas would fall to $2.13 and we'd enjoy and $0.22 drop in the cost per gallon. Filling up a 20 gallon tank you'd save about $4. Doing this every week you'd save about $200/year.

In the interest of saving what's left of the pencil nub that John uses for his back-of-the-envelope math, not to mention sparing the world of yet another disturbing display of greed-driven pencil sharpening, we've built our latest tool to do John's quick math for estimating how much the price of a barrel of oil might change if the supply of oil being produced were suddenly changed!

Just update the data below or substitute your own values as you see fit!

Oil Production and Economic Data
Input Data	Values
Daily Oil Production Data
Change in Amount of Oil Production [Positive if increase, negative if decrease]
Oil Price (per Barrel)
Demand Elasticity
Supply Elasticity

Estimated Price Change
Calculated Results	Values
Projected Change in the Price of a Barrel of Oil

If you're playing along at home, John offered the following updates and insights into his back-of-the-envelope math:

Update at 8:42 a.m.: The price change formula above is for linear demand and supply curves which will lead to an upper bound on the price changes. After reviewing Hahn and Passell, I tried the formula for constant elasticity demand and supply curves and find a similar result. The price of a barrel of oil falls by $7.70.

Also, I used the short run demand elasticity for gasoline, not oil, and made a guess at the supply elasticity for oil. Using the long run elasticities in Hahn and Passell, ed = -0.48 and es = 0.36 and linear demand and supply, yields a price change of $2.60 per barrel, $0.07 per gallon and savings of about $75/year.

Drop your corrections in the comments section!

See, you've been invited! He'd love to hear from you!

Connecting the Dots for Ethanol, In Pictures

2011-11-08T03:59:00.000-07:00

Let's start with some corn facts:

In 2005, the U.S. produced 42 percent of the world’s corn. Over 50 percent of the U.S. crop is produced in Iowa, Minnesota, Nebraska or Illinois. Other states in which corn is grown include Kentucky, Ohio, Indiana, Wisconsin, South Dakota, Wisconsin and Missouri. In 2005, over 58 percent of the U.S. corn crop was used for feed. The remaining U.S. crop was split between exports (25 percent) and food, seed or industrial uses such as ethanol production (17 percent).

How much of the U.S. corn crop is used for feed today?

If the percentage of the U.S. corn crop used for feed has been shrinking over time, where is the rest of the U.S. corn crop going instead?

How might that change have affected the price of corn?

And how might that have affected the cost of meat produced from corn-fed livestock?

Now, who is most responsible for that problem?

Do you suppose the U.S. Congress will propose a "meat transaction tax" to deal with the problem of rising meat inequality instead of actually stopping doing the stupid things that created the problem in the first place?

Previously on Political Calculations

Image Credits: The Big Picture, Agri-Pulse, The E-xchange, Soyatech, State of Texas Window on State Government, U.S. State Department.

October 2011 Jobs: A Surge for Young Adults?

2011-11-07T03:50:00.001-07:00

In terms of jobs gained, October 2011 appeared to be the best month for young adults (Age 20-24) since the United States economy peaked before entering into recession in December 2007.

The October 2011 Employment Situation Report indicates that the number of employed individuals between the ages of 20 and 24 increased to 13,357,000, up 285,000 from the previous month.

In fact, that's the third largest month-over-month increase for Age 20-24 individuals ever recorded. Only January 1990's increase of 864,000 over December 1989 and June 1983's increase of 357,000 over May 1983 are higher.

As such, we strongly suspect that gain in the number of employed is somewhat of a statistical outlier, perhaps strongly affected by sampling errors in the surveyed data. We're not certain however, given that almost all of the improvement in the past several months has been concentrated within this age grouping.

If it is a real phenomenon, we'll have to ask why have individuals in this age range have seemingly and suddenly become so attractive to employers, especially as compared to individuals of all other ages? A ramp up in part-time hiring in advance of the holiday shopping season might explain it, but if that's the case, we can look for lots of disappointment beginning in early 2012 if the economy begins sputtering as expected.

Speaking of individuals in of all those other ages, the October 2011 jobs data for teens (Age 16-19) and adults (Age 25+) was much more lackluster. Teens saw their numbers in the U.S. workforce increase by just 45,000, while adults saw their numbers fall by 53,000.

On the whole, October 2011 saw a net gain of 277,000, with the overall unemployment rate falling to 9.0% from 9.1% in September 2011. We'll know as early as next month if the data for young adults this month is real or if other factors have influenced the recorded data.

The Value of Data Visualization, Explained

2011-11-04T04:26:00.000-07:00

Via the invaluable Core77:

The Value of Data Visualization from Column Five on Vimeo.

Elsewhere on the Web

The PR Coach: Infographics: Here's How to Make Them Work Best

SpyreStudios: The Anatomy of an Infographic: 5 Steps To Create A Powerful Visual

Smashing Magazine: The Dos and Don'ts of Infographic Design

180 Years of the U.S. National Debt Burden per Capita

2011-11-03T06:59:00.005-07:00

In 1831, the National Debt Burden per Capita, or rather the ratio of the United States' national debt per capita and GDP, multiplied by 1 billion), dropped below a value of 3 for the first time in its history [1]. In 2011, the U.S.' National Debt Burden per Capita has risen above that level.

Let's look at what happened to the U.S.' National Debt Burden per Capita in between, shall we?

Wars and depressions largely characterize the periods of time where there have been significant run-ups in the level of the U.S. National Debt Burden per Capita, with the debt taken on to support the costs of the U.S. Civil War and World War II being the most significant.

In looking at today's level of the National Debt Burden per Capita, we see that it is perhaps most comparable to the Great Depression.

Throughout all this time, we'll note that the National Debt Burden per Capita has only fallen when the United States government curtailed its elevated level of spending. Typically, that has been solely the result of spending cuts following periods of conflict, rather than tax increases [2].

Political Calculations' The U.S. Economy at Your Fingertips tool puts all this data, and more, at your fingertips, covering the period from 1791 through 2010 (at this writing)!

Notes

[1] Prior to 1831, the national debt burden per capita was considerably higher, thanks largely to the debt taken on by the new nation to pay for the costs of the Revolutionary War and the War of 1812.

[2] Before 1913, there was no income tax in the United States, yet the federal government in those days succeeded in lowering the National Debt Burden per Capita by controlling its spending. That may be a lesson that today's politicians can well afford to learn.

Dividend Futures: A Rocky Road Ahead

2011-11-02T06:20:00.006-07:00

Yesterday, in projecting where U.S. GDP will most likely be in the months ahead, we closed our post with the following comment:

Overall, the U.S. economy is continuing to perform as expected. We anticipate that growth will continue at a similar pace to 2011-Q3 through the end of the year, however we expect that the U.S. economy will begin to slow significantly in the second quarter of 2012, based upon dividend futures data for the S&P 500.

The only problem with that comment is the link, where we pointed back to a post from June 2011, which was based on analysis when we only had the dividend futures for the S&P 500 through the end of the second quarter of 2012 available to us.

Since we now have dividend futures data available to us through the fourth quarter of 2012, the chart below updates the future we see:

Typically, when the economy and stock market are growing, quarterly dividends per share will rise from quarter to quarter, peaking each year in the fourth quarter (as a number of companies that pay their dividends annually issue their dividends at this time.)

When there's a deviation in that pattern, it indicates that something else is happening. For example, if you the historical data recorded through this point of 2011, you see that quarterly dividends per share stall out at $6.49 and $6.50 per share between the second and third quarters of 2011. This period of time coincides with what we've previously described as a microrecession, which has been characterized by low economic growth.

We should also note that dividends per share are a bit of a lagging indicator - economy-driven changes tend to show up in the dividend data a quarter later.

Getting back to the present, what's unusual in the chart above is that the dividends currently expected to be paid out in 2012 are deviating from the basic pattern that would be consistent with steady economic growth. There are two places in the chart above that suggest that the road ahead for the U.S. economy will be rocky in 2012, which we see as the dips in the amount of the quarterly dividends expected to be paid in the second quarter of 2012 and again in the fourth quarter of 2012.

What the S&P 500's dividend futures are signaling is that these quarters will be pretty lackluster in terms of overall economic growth. Given the lagging effect of the dividends, we currently expect the U.S. economy to begin slowing significantly in the first quarter of 2012, recover a bit, then fall back in the second half of the year.

If it helps put things into a larger perspective, it's perhaps easier to see what dividends per share look like in good times and not-so-good times by considering the historical data for the S&P 500's quarterly cash dividends per share going back to 1988, which Standard and Poor makes easily available in their Earnings and Estimates spreadsheet (which is available under the "S&P 500 Monthly Performance" section in their Market Attributes Series).

In this chart, we've emphasized the deflation phase of the "Dot Com" stock market bubble - in addition to containing a recession, the period of time following the official end of the recession in November 2001 was characterized by what has been described as a "jobless recovery".

In this case, economic recovery in the U.S. didn't really take hold until the U.S. government acted to correct the imbalance it had created in the markets that led to the formation of the "Dot Com" Bubble in the first place. Both the U.S. economy and the stock market began growing steadily again immediately afterward.

What do you suppose the U.S. government has done now that will apparently have to wait until after 2012 to be corrected?

Projecting Fourth Quarter 2011's GDP

2011-11-01T07:18:00.004-07:00

On 3 October 2011, we offered the following forecast for where GDP in the third quarter of 2011 would be recorded:

Assuming that the deviation between our modified limo forecast value and actual GDP can be described by a normal distribution, we estimate a 68.2% probability of the BEA recording real GDP for 2011-Q3 somewhere between $13,160.1 billion and $13,439.5 billion, and a 95% probability of it falling between $13,020.4 billion and $13,579.2 billion. There is a 99.7% probability of 2011-Q3's GDP figure being recorded somewhere between $12,880.8 billion and $13,718.8 billion.

Although only the first advance estimate of GDP for 2011Q3 has been released so far, here's the tale of the tape:

Real GDP in 2011-Q3 was well within our forecast range, as the advance estimate for U.S. GDP in the quarter is $13,352.8 billion (in terms of constant 2005 U.S. dollars). Compared to the midpoint of our forecast range, $13,299.8 billion, the advance estimate for 2011-Q3 real GDP was just 0.4% higher.

Using the advance GDP estimate for the third quarter of 2011, which will be revised at least twice more before being "finalized" (pending later revisions), we can reasonably project that the inflation-adjusted value of U.S. GDP for the fourth quarter of 2011 to be between $13,275.3 and $13,556.7 billion (in terms of constant 2005 U.S. dollars). We estimate a near-70% probability of 2011-Q4 GDP falling between these values.

We project a 99.7% likelihood that 2011-Q4 GDP will be between $12,994.0 and $13,838.0.

On a technical note, we will revise our forecast when the third estimate of 2011-Q3 GDP is released in two months time.

Overall, the U.S. economy is continuing to perform as expected. We anticipate that growth will continue at a similar pace to 2011-Q3 through the end of the year, however we expect that the U.S. economy will begin to slow significantly in the second quarter of 2012, based upon dividend futures data for the S&P 500.

Happy Halloween! Now, Have a Seat....

2011-10-31T05:47:00.012-07:00

Halloween means many things to many people. For kids, its the opportunity to dress up and score big in the candy department. For others, its the opportunity to go out and raise a little hell by partying until sunrise.

But unlike other candy consumption-oriented holidays or party-oriented holidays, Halloween combines the two with an environment of fear.

It is, perhaps, the only holiday where the participants are virtually required to approach a stranger's house for the purpose of seeking treats or fun. And that's where the fear starts, because what if that house belongs to that recent transplant from Transylvania whose hospitality is such they invite you in.

And once on the inside, they invite you to "make yourself comfortable and have a seat". You were already a little uncomfortable, but now, your spook-o-meter is about to spike because of their taste in furniture, because, well, the chair to which you've been directed to sit looks something like the following examples.

If a chair is seemingly formed by the impact of a human body having been dropped or thrown from a great height, how comfortable would you be sitting in it? Ezra Tazari's "Free Fall" chair forces you to confront that prospect.

Better yet, how will would you be to sit in Thomas Feichtner's M3 chair? Here's the concept:

Liberated from the demands normally made on a mass-produced item, this design experiments with functionality, structural engineering and material. Both its back and its armrests are mere tangents of the construction, the functions of which are only discovered via actual use. With a seating surface floating within the construction and legs extending far to the sides, the M3 is most assuredly not a chair that saves space—it is much rather one which creates a space [of exactly one cubic meter; hence the name of the piece]

Yes, being asked to sit in a Thomas Feichtner M3 chair is the same as being asked to fit yourself inside a box. Scared yet?

What's more inviting than being asked to sit in a chair that's also a storage unit for closet hanger? Which we note says a lot about what the chair's owner thinks about their guest's seating requirements. We suppose that being asked to hang around in a closet might be, but for those fearless souls seeking a new sitting experience, the Coat Check chair might fit the bill.

What if your host is really a cyborg from the future who has been sent back in time to terminate you? Perhaps then you should think twice about sitting in Philipp Aduatz' "melt" chair, which looks to be made from liquid metal. Just watch out for when the chairs arms form into, well, arms....

What if the chair in which you've been asked to sit resembles a creature more than a chair - making it more of a furniture organism, if you will? Eyal Hirsh's "Pet Stool" adds a plush appendage to the more traditional three-legged stool....

Say, did you ever wonder what happened to your old bike? The one that disappeared from your yard one day when you were a kid? Bruno Urh's "Chair for Janez Suhadolc" re-configures it for stationary seating purposes, but still keeps your old bike's "chafing" seat at the center of the sitting experience.

And speaking of bike seats:

Jeremy Petrus collaborated with Italian bike saddle manufacturer Selle Royal to create the "Mishmash" chair presented above.

Hey, remember that chair made from coat hangers? We bet you'd really rather sit on that one than this concept, envisioned by Italian design firm Stylemylife, which takes the same concept down a different path:

Let's call that one a throne of bones. And don't you just love the decor! You'll be very comfortable chatting with your neighbor there....

Meanwhile, you might quite literally be sucked into a separate dimension if you dare sit in Artem Zigert's "Mechanical Perspective" chair:

Finally, via Barry Ritholtz, a ginormous infographic that describes how sitting is killing you!

Maybe you should think twice before taking that offered seat....

Why Chairs and Halloween?

What can we say? We have some odd holiday traditions here at Political Calculations. For us, nothing says Halloween or a trip to the corporate suites of Goldman Sachs quite like a super scary chair!

Inside the Stock Market's October 2011 Rally

2011-10-28T06:35:00.004-07:00

Yesterday's 3.4% gain in the S&P 500 marked the biggest gain in a month of gains. Since 3 October 2011, when the S&P closed just below 1100 at 1099.23, the S&P 500 has risen 16.9%, or 185.36 points, through the end of 27 October 2011 to close at 1284.59.

As you can see in the chart above, stock prices have pretty consistently trended upward during the month. And although the European debt deal is being credited for the one day gain, that doesn't explain the rise in stock prices over the past month, given the uncertainty surrounding the progress in working toward the deal announced on 27 October 2011.

And if we look at the change in the rates of growth of both stock prices and the S&P 500's underlying dividends per share, we see that average stock prices during October 2011 would appear to be below the level that the change in dividends projected for the third quarter of 2012 would put them (remember, investors always look forward in time!):

But that's the average of stock prices for the month-to-date for October 2011. What if we just considered where stock prices closed on 27 October 2011?

Here, we see that stock prices have indeed caught up, and have even slightly passed where the change in the growth rate for dividends per share for the third quarter of 2012 would put them!

And that's after stock prices for September 2011 were almost exactly where the projected future for the second quarter of 2012 would put them.

What has happened during the month of October 2011 is that investors setting today's stock prices have shifted their focus forward in time from the second quarter of 2012 to the third quarter of 2012. The market has risen in response to that shift in forward-looking focus.

We would then describe the Euro deal as little more than a noise event. Since stock prices have overshot where dividends would place them, we would anticipate that the market will flatten out or fall back a bit in the immediate future as the effect of this news-driven event fades with time.

On the whole however, we can expect November 2011's stock prices to be higher on average than they were in October 2011, and if not for the overshooting effect of the European debt deal noise event, we would expect slowly rising stock prices for the month.

The Top 1% vs the S&P 500

2011-10-27T04:10:00.005-07:00

According to a CBO report, the top 1% of income earners saw a 275% increase in their inflation-adjusted, after-tax income between 1979 and 2007.

By our quick math, that 275% increase works out to be an annualized rate of change of 4.83% over the CBO's oddly cherry-picked 28 year period from 1979 through 2007 (click the links for the years to understand why).

By contrast, our S&P 500 at Your Fingertips tool indicates that if the Top 1% had just invested their after-tax income in an S&P 500 index fund in January 1979 and then let it ride to December 2007 as the stock market peaked, fully reinvesting dividends all that time, they would have seen an inflation-adjusted, tax-free rate of return of 8.70%.

And that's without even bothering to work! If taxed at the maximum 1979 capital gains tax rate of 28%, their after-tax income would represent an annualized rate of return of 6.26% annually. Or rather, a 448% increase in their inflation-adjusted, after-tax income!*

So clearly, the Top 1% were total suckers for even bothering to put their money to work at all doing those other things they apparently did during those 28 years that pushed their effective rate of returns down. Like work!

[* Not really, and for the record, the analysis presented in this post is wrong, on purpose, although we suspect that certain people who will be really irritated by this post won't be able to explain why. If it helps, sometimes, we post things just to upset certain people, who like to think they know it all, but who are really short in the mental horsepower department, among others!]

The Real Story Behind "Rising" U.S. Income Inequality

2011-10-26T04:40:00.005-07:00

Why is income inequality rising for U.S. families and households, but not for individual Americans?

Having now shown that there has been absolutely no significant change in the level of inequality among U.S. individual income earners from 1994 through 2010, we thought we'd take a step back and look at the data for U.S. families and for households to examine those trends over time.

The chart below shows what we find for each grouping of Americans according to their Gini Coefficient, where a value of 0 indicates perfect equality (everyone has the same income) and a value of 1 indicates perfect inequality (one person has all the income, while everyone else has none):

In the chart above, we've adjusted the vertical scale to zoom in on the data, which magnifies the amount of any change from one data point to the next.

Starting with the topmost line on the chart, shown in red, which applies to all individual income earners in the United States, we see that this group contains the greatest degree of inequality by income, according to its Gini ratio. Here, there is no meaningful change in the amount of measured income inequality for the personal income distribution for the years from 1994 through 2010 (or if you really want to stretch, there has been a very slight decline in individual income inequality over that time - in our view, it is too slight to be meaningful as it may be the result of natural variation from year to year.)

The next line down, shown in green, applies to all households in the United States. Here we see that compared to U.S. individuals, U.S. households experience less income inequality. However, we see that there has been a slowly rising trend toward greater inequality from 1994 through 2010.

Meanwhile, the next line down, shown in blue, applies to all U.S. families. Here, we see the greatest amount of equality for incomes earned in the United States, and we also see that like the trend for U.S. households, there has been a slowly rising trend toward greater income inequality in the period from 1994 through 2010.

If that sounds familiar, that's because the income inequality data for both families and households has been what has typically been presented in a very biased media as evidence that the "rich are getting richer" over time, especially as these claims are being used by academics and activists to justify an ever-increasing amount of intervention by the government to combat this so-called "problem".

But here's the thing. We have already confirmed that there has been absolutely no meaningful change in the inequality of individual income earners in the years from 1994 through 2010. If income inequality in the U.S. was really driven by economic factors, this is where we would see it, because paychecks (or dividend checks, or checks for capital gains, etc.) are made out to individuals, not to families and not to households.

It would seem then that the real complaint of such people isn't about rising income inequality, but rather, how people choose to group themselves together into their families and households.

With a near rock-steady level of income inequality among individual income earners over time, it is only possible for income inequality to rise among families and households if the most successful income earners group themselves into families and households and if the least successful income earners likewise group themselves together into families and households as well.

Think about it. The reason that the income inequality levels recorded for families and households are lower than those for individuals are because most families and households may have one high income earner, who is balanced out by individuals within the families or households who have low or no incomes.

But, if people with very high income earning potential join together to form families and households, and increasingly do so over time, perhaps because such people might have things in common that make forming themselves into families and households an attractive proposition, then income inequality among families and households will increase.

The same holds true for the opposite end of the income earning spectrum. If people with really low income earning potential join together to form families and households, or perhaps if they choose to split apart, and increasingly do so over time, then the resulting low income family and household will also make income inequality among families and households rise, even though there has been no real change in the amount of actual income inequality among individuals.

Now for the bigger picture. Ivan Kitov has done an extended analysis of the U.S. Census' income data back to 1947. He found the following related to the personal income distribution (PID) for the U.S. since 1960 (emphasis ours):

In fact, the Gini curve associated with the fine PIDs is a constant near 0.51 between 1960 and 2005 despite a significant increase in the GPI/GDP ratio and the portion of people with income during this period (see Figure 1). This is a crucial observation because of the famous discussion on the increasing inequality in the USA as presented by the Gini coefficient for households (US CB, 2000). Obviously, the increasing G for households reflects some changes in their composition, i.e. social processes, but not economic processes as defined by distribution of personal incomes.

In short, it's those social processes, which have driven demographic changes within U.S. households, that are almost exclusively behind the observed increase in family and household income inequality observed in the U.S. since the 1960s.

Surprisingly, many economists are still hypothesizing on what might be the cause of rising income inequality among families and households. From the discussion however, it's pretty clear that just about all of them may not be aware of the Gini coefficient data that applies to the personal, or individual, income distribution data that makes it possible to eliminate the proposed alternatives as serious contenders for explaining what we observe.

We hate to be the ones to tell you guys, but the econophysicists have solved this puzzle....

The Shocking Trend In U.S. Individual Income Inequality, 1994-2010

2011-10-25T04:06:00.000-07:00

Perhaps the most common measure of income inequality in a nation is the Gini Coefficient (aka the "Gini Ratio"), which ranks the amount of inequality there is in a country on a scale from 0, which represents perfect equality, where everyone would have an equal share of the nation's income, to a value of 1, which represents perfect inequality, where one person would have all the income, but everyone else has none.

So now, thanks to so much media attention being focused on the Occupy Wall Street "movement" (aka "politically-oriented publicity stunt"), where many activists (aka "not-too-bright people") appear to be upset at "the Top 1%" (aka "really high income earners"), who they claim have "gotten too rich" (aka "earned a high income by doing things that satisfy other people's needs"), we thought we'd use the "Gini coefficient" (aka "a well-established mathematically-based method for measuring inequality") to find out how out of whack things have become in the United States over the years.

Or more specifically, the years from 1994 through 2010, for which the U.S. Census has published detailed data related to the incomes earned by Americans based on their annual surveys of the U.S. population. Our chart showing the trend in income inequality for all individuals as measured by the Gini ratio for these years is below:

We were shocked to see the overall trend from 1994 through 2010 take the path it has, because it's so completely contrary to what we keep hearing in the news.

We only ask that someone ask the media for their reaction to this disturbing data!

Data Sources

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of Persons 15 Years and Over, By Total Money Income in 1994, Work Experience in 1994 and Sex. September 1995.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of Persons 15 Years and Over, By Total Money Income in 1995, Work Experience in 1995 and Sex. September 1996.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of Persons 15 Years and Over, By Total Money Income in 1996, Work Experience in 1996 and Sex. September 1997.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of Persons 15 Years and Over, By Total Money Income in 1997, Work Experience in 1997 and Sex. September 1998.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of Persons 15 Years and Over, By Total Money Income in 1998, Work Experience in 1998 and Sex. September 1999.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 1999, Work Experience in 1999, Race, Hispanic Origin, and Sex. September 2000.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2000, Work Experience in 2000, Race, Hispanic Origin, and Sex. September 2001.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2001, Work Experience in 2001, Race, Hispanic Origin, and Sex. September 2002.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2002, Work Experience in 2002, Race, Hispanic Origin, and Sex. September 2003.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2003, Work Experience in 2003, Race, Hispanic Origin, and Sex. September 2004.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2004, Work Experience in 2004, Race, Hispanic Origin, and Sex. September 2005.

U.S. Census. Current Population Survey. Annual Demographic Survey, March Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2005, Work Experience in 2005, Race, Hispanic Origin, and Sex. September 2006.

U.S. Census. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2006, Work Experience in 2006, Race, Hispanic Origin, and Sex. September 2007.

U.S. Census. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2007, Work Experience in 2007, Race, Hispanic Origin, and Sex. September 2008.

U.S. Census. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2008, Work Experience in 2008, Race, Hispanic Origin, and Sex. September 2009.

U.S. Census. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2009, Work Experience in 2009, Race, Hispanic Origin, and Sex. September 2010.

U.S. Census. Current Population Survey. Annual Social and Economic (ASEC) Supplement. Table PINC-01. Selected Characteristics of People 15 Years and Over By Total Money Income in 2010, Work Experience in 2010, Race, Hispanic Origin, and Sex. September 2011.

What Driving the S&P 500?

2011-10-24T04:24:00.001-07:00

Previously, we've shown that the stock market's expected dividends per share are the fundamental driver of today's stock prices. In fact, we even worked out the basic math:

In the equation above "P" refers to the average stock prices for a given month, while "D" refers to the stock market's trailing year dividends per share. "s" refers to how many months ahead we might be looking to see where the stock market's trailing year dividends per share are expected to be at that point in time. "Current" means now (or your period of interest) and "current - 12 months" indicates a value that was recorded 12 months earlier (or 1 month earlier, or 13 months earlier, as whatever the case may be.)

But "m", our amplification factor, is something we've empirically observed. Typically, or at least through much of the current century, we've found its value ranges between 6.0 to 12.0, and we most often select the mid-range value of 9.0 for use in forecasting where stock prices are headed.

But what affects the actual value of this amplification factor? We've previously observed that it can vary substantially, as this single component in our math absorbs what we describe as "noise" in the market, but what if it has its own fundamental component?

We ask that question today because we think we're on to something. The chart below, updated from the version we posted one month ago, shows the game that's afoot (the only changes are that we finalized the data point for September 2011 and added a new data point covering this point in time through October 2011):

Right now, trailing year dividends per share for the S&P 500 are retracing the exact same levels they first recorded in the years from June 2003 through December 2007. But, stock prices aren't at the same level as they were during that period. They are instead about 14-16% below that earlier trajectory.

The last time that happened, was the months of May through September 2010. And what made those months unique is that they fell in the gap between the Federal Reserve's QE 1.0 and QE 2.0 programs, where the Federal Reserve used a strategy of "quantitative easing" to actively fight the prospects for deflationary conditions taking hold in the U.S. economy during the months that these programs ran.

During the five months from May through September 2010, the Federal Reserve had no quantitative easing program in place to combat deflationary conditions from taking hold in the U.S. economy. In the absence of those programs, expectations for deflationary conditions returned to the U.S. economy.

By contrast, the period from June 2003 through December 2007 was characterized by relatively steady inflationary conditions. Coincidentally, about the same level that we briefly recorded in January through May of 2011.

In our math, the only way we can have approximately the same changes in the growth rate of dividends per share and the approximately the same dividends per share without having the same average stock prices is for the value of the amplification factor, m, to be different. And what appears to be different during the periods of interest we've described above is the expectations of investors with respect to the future rate of inflation.

Ultimately, if we're right, we'll be able to more precisely quantify the value of "m" for use in our stock market math, rather than just going by empirical observations. We'll be better able to forecast where stock prices will go next, which is saying something because we're already pretty good at that.

But then, as we said last month too, we're pretty sure that most investors today would really rather not be part of the science experiment we need to run to get better at that. After all, it took some pretty scary bouts of deflationary pressures for us to notice there might be some sort of connection....