After last week's failed breakout attempt, the second week of February 2019 saw the level of the S&P 500 (Index: SPX) broke out above our redzone forecast range on Friday, 15 February 2019, boosted by the speculation of improved prospects for a trade deal being reached between the U.S. and China.

The other big news of the week is that there seems to be a growing consensus at the Fed for no further rate hikes in 2019. In fact, the CME Group's FedWatch Tool is suggesting that investors are giving small, but increased odds of a rate cut in December 2019, though the much greater probability at this point of time is for rates to be held steady at today's Federal Funds Rate target range of 2.25% to 2.50%.

Here's the other headlines of the week that stood apart from the regular noise from the news cycle....

Monday, 11 February 2019

• Oil prices fall 1 percent; slow progress in trade talks counters OPEC cuts
• Fed's Bowman says she is comfortable with policy stance
• Wall Street wavers as investors eye trade talks, growth fears

Tuesday, 12 February 2019

• Oil gains 1 percent after Saudi Arabia pledges more output cuts
• Bigger trouble developing in China: Debt guarantee tangle: China's private firms hit by default contagion
• Fed to finalize plans to end balance sheet runoff 'at coming meetings': Mester
• Denial: No evidence that Fed's balance sheet is behind market swings: Mester
• Wall Street advances on trade hopes, deal to avert government shutdown
• Trump says he could let China trade deal deadline slip, 'not inclined to
• With Shutdown Looming, Border Deal Is Reached ‘in Principle’

Wednesday, 13 February 2019

• Oil gains on Saudi output cuts; rally limited by U.S. output
• U.S. Gulf Coast crude prices rise on falling imports, rising Cushing supply
• Despite falling rates, U.S. mortgage applications fall again
• Fed's Mester sees limited inflation risk from rising wages
• Trump: China trade talks going 'very well' before high-level parley
• Wall Street advances on trade hopes, tame inflation data

Thursday, 14 February 2019

• Weakest U.S. retail sales since 2009 cast pall over economy
• Fed's Brainard says balance sheet trimming should end this year
• Oil prices edge higher as Wall Street recoups losses

Friday, 15 February 2019

• Oil rises over 2 percent to 2019 highs on tightening supplies
• Bigger trouble developing in China:
• China's producer prices slow for seventh straight month, raising deflation fears
• Bigger stimulus developing in China: China's banks throw open spigots in January, lend record 3.23 trillion yuan
• Trump says may extend March 1 deadline for China trade deal
• China says reached consensus on some key issues during U.S. trade talks
• Sputtering auto production sinks U.S. manufacturing output
• Fed policymakers see one U.S. rate hike, or none, as growth slows
• Fed's Bostic: Soft data doesn't change view of above-trend U.S. growth
• Fed's Daly sees no case for rate hike this year: WSJ interview
• Progress in U.S.-China trade talks sparks world stock rally

Elsewhere, Barry Ritholtz scanned the week's markets and economy-related news to identify the positives and negatives, finding six of each, though we wonder if one of the positives (flat inflation) is really a negative....

Two years after it first went into effect, the negative fallout from Philadelphia's controversial soda tax continues to pile up. Here's a short summary of the news that has broken since we last reviewed what has perhaps become the most unpopular tax in the City of Brotherly Love.

A Philadelphia ShopRite convenience store will close, with the owner citing lost business related to the city's soda tax as the primary reason for its closure. The store is located near Philadelphia's city limits, where local residents appear to have taken a good portion of their business across the border to avoid paying the tax. Jeff Brown, the store's owner, whose efforts in bringing supermarkets into impoverished areas of Philadelphia was lauded by President Obama in his 2010 State of the Union address, indicated that reduced sales at all his stores since the soda tax went into effect has cumulatively reduced his total payroll by about 200 jobs, which he has achieved through attrition rather than through layoffs. The store closure is expected to add another 100 jobs to that running total of attrition.

A second independent study has confirmed that net soda consumption among Philadelphia's total population has not meaningfully declined, where "the tax did not improve nutritional intake by encouraging consumers to substitute to healthier beverages". The study's authors, Stephan Seiler, Anna Tuchman, and Song Yao, also found that nearly 100% of the tax is being passed through to Philadelphia consumers, confirmed that many of these shoppers are avoiding the tax by shifting their grocery shopping to stores outside of the city's limits, and that the tax is achieving a disproportionately negative impact by imposing "a relatively larger financial burden on low income/high obesity households that are less likely to engage in cross-shopping at stores outside of the city."

A 116-count federal indictment against International Brotherhood of Electrical Workers president John J. Dougherty (aka "Johnny Doc") and Philadelphia city councilman Robert "Bobby" Henon, among others. In a city like Philadelphia where political corruption scandals are common, that news itself might not stand out, except in this case, because it says quite a lot about the true motivation behind Philadelphia's soda tax.

According to a federal indictment unsealed Wednesday, corrupt Democratic city officials and electricians’ union leaders pushed through the soda tax in 2016 in a revenge feud against the Teamsters union, instead of a motivation to affect public health.

The Justice Department’s indictment reveals how Philadelphia Councilman Robert Henon, who was on the payroll of Mr. Dougherty’s union, introduced the soda-tax proposal as payback against the Teamsters for criticizing Mr. Dougherty in a political advertisement a year earlier.

The Teamsters opposed the soda tax because they believed it would cost them jobs by reducing demand for soft drinks.

When aides to Democratic Mayor Jim Kenney tried to explain to Mr. Dougherty the public health benefits of the soda tax, the indictment alleges, the union leader replied, “You don’t have to explain to me. I don’t give a f–.” He predicted it would “cost the Teamsters 100 jobs in Philly.”

A very predictable negative outcome that Philadelphia Mayor Jim Kenney neither disputed at the time nor sought to diminish in the time since, all while Kenney's claims that positive public health benefits would be achieved from imposing the city's soda tax are proving to be unfounded in practice.

Dougherty's support for the controversial tax was essential because of the IBEW Local 98's money and political influence within the city, where the union's backing often made the difference between candidates winning elections or not. In addition, Johnny Doc's influence extends to appointed positions, including gifts to judges, who might then be counted upon to back the union-supported positions such as on the soda tax when its legality was challenged in court. The full magnitude of the unfurling political scandal as it relates to how the Philadelphia's soda tax was passed and survived legal challenge is not yet known.

Finally, with eleven months of Philadelphia Beverage Tax revenue now counted for 2018 (taxes assessed in December 2018 and collected in January 2019 will be reported either later this month or early in March 2019), we anticipate that the full year's tax collections will fall short of its second year target.

From January through November 2018, Philadelphia's Beverage Tax has accumulated $70,348,376 in the city's coffers, which is nearly $8.5 million short of the city's $78.8 million target. The most the city has ever collected from its soda tax in a single month was $7,567,159 in September 2017, so if it were to collect that much once again, it still would fall about one million dollars short.

Meanwhile, Philadelphia's original revenue target for its controversial tax on the distribution of sweetened beverages for retail sale in the city was $92.4 million, where actual revenues of $77.8 million would be 84% of that figure. In 2017, Wharton Business School Professor of Finance and Public Policy Robert Inman indicated the Philadelphia Beverage Tax could be considered a success if it collected 85% to 90% of the city's original revenue target.

It will almost certainly miss clearing that low bar needed to be considered successful in 2018. The only question now is by how much will it fall short?

Previously on Political Calculations

We've been covering the story of Philadelphia's flawed soda tax on roughly a monthly basis from almost the very beginning, where our coverage began as something of a natural extension from one of the stories we featured as part of our Examples of Junk Science Series. The linked list below will take you through all our in-near-real-time analysis of the impact of the tax, which at this writing, has still to reach its end.

• Examples of Junk Science: Taxing Treats
• Philadelphia Soda Tax Crushes Soft Drink Sales
• The Tax Incidence and Deadweight Loss of Philadelphia's Soda Tax
• Philadelphia's Soda Tax Collections Are Falling Short
• Philly's Soda Tax Collections Continue to Fall Short of Goals
• Jobs Gained and Lost from Philadelphia's Soda Tax
• Philadelphia Soda Sales Volume Down 34% Since Tax
• Philadelphia Soda Tax to Shrink City's Economy by $20 Million
• Big Miss for Philadelphia's Beverage Tax
• Odds and Ends for Philadelphia's Soda Tax
• Legal Jeopardy for Philadelphia's Soda Tax
• Soda Tax Driving Philadelphians To Drink?
• Philadelphia Soda Tax Collections Start Fiscal Year in Deep Hole
• Philadelphia Soda Tax Collections Continues Falling Flat
• A Natural Experiment for Philadelphia's Soda Tax
• Philadelphia Soda Tax $20 Million Short with One Month to Go in First Year
• Philadelphia Soda Tax Falls 15% Short of Target
• Philadelphia Mayor Scales Back Soda Tax Ambitions
• Philadelphia Soda Tax Boosts City's Alcohol Sales
• Philadelphia Soda Tax Collections Falling Further Short in Year 2
• Philadelphia Soda Tax Underperforming Lowered Expectations
• PA Supreme Court Rules Philly Soda Tax Legal
• Philadelphians Sure Drink a Lot More Alcohol Since the City's Soda Tax Was Imposed
  
• Philly's Soda Tax Impact on City's Calorie Consumption
• Tax Avoidance and the Philadelphia Soda Tax
• Philadelphia Rebuild Paying Price for Soda Tax Shortfalls
• Philadelphia's Soda Tax Isn't Working
• Hits Keep Piling Up Against Philadelphia Soda Tax

Image Credit: Ashkan Forouzani

Happy Valentine's Day to all lovers of math!

We used Microsoft Excel to generate the charts to go along with each equation, where convincing it to draw a proper circle on an x-y scatter plot for the "O" was especially challenging. If you ever want to attempt it yourself, we found Tushar Mehta's instructions to be invaluable!

Meanwhile, if you haven't yet geeked out enough, do check out Hannah Fry's discussion of the Mathematics of Love from 2014....

P.S. If you're accessing this article on a site that republishes our RSS news feed, you might be seeing the charts at the top of the post in reverse order. If you would like to see them in their proper order, please click through to our site!...

Together, Texas and California are home to over one out of five teens between the ages of 16 and 19 in the United States. Of the two states, California's teen population is larger than that of Texas, although its population has been slowly declining in recent years while Texas' teen population has been growing. The following chart shows the population trends for working-age teens in both states from 2003 through 2018, where we find that Texas has grown from having three-fifths of California's teen population to nearly four-fifths.

Since we're focusing on working-age teens in both states, let's next look at teen employment levels in both states from 2003 through 2018.

In this chart, we see that California's working teen population plummeted by 40% from 2007 through 2011, before flattening out through 2014. It went on to rebound somewhat in 2015, but has stagnated at roughly 27% below its 2007 peak in all the years since.

By contrast, Texas saw a 29% decline in working teens from 2006 to 2011, but has since largely recovered. More remarkably, the number of working teens in Texas has periodically surpassed the number in California, in 2014 and again in 2017, despite having a teen population that is considerable smaller than that of California.

That's a pretty remarkable observation, so we've calculated the employment-to-population ratio for working-age teens in California and Texas from 2003 through 2018, showing the results in the next chart.

Here, we see that both states start out in a similar place, where from 2003 to 2005, the share of the teen population with jobs in California and Texas was about the same.

Since 2006 however, a persistent gap has opened up, with a larger share of Texas' teen population working as compared to California. In 2018, 28.1% of Texas' working-age teen population were earning paychecks, while only 22.7% of California's Age 16-19 population had jobs.

How big is that difference? If the same share of its teen population were working as in Texas, over 108,000 more Californian teens would have had jobs in 2018. At the same time, if the same share of its teen population were working as in California, over 84,000 fewer Texan teens would have jobs in the same year.

According to the BLS' preliminary data for 2018, California had 457,000 employed teens while Texas had 440,000.

There is, of course, one big difference between the two states that affects whether employers in each state even consider hiring teens to work for them.

That's far from the only difference between the two states however, where things like the composition of the two states' economies and the rates at which different industries in each state are growing also play a role in determining whether there are sufficient jobs that teens can land.

Teen employment is a positive factor that help boost household incomes, help the teens gain experience that will translate into higher incomes later in life, and can even reduce the amount of student loan debt that a college bound teen might otherwise have to take on. Which state's teens do you suppose are coming out ahead?

References

Bureau of Labor Statistics. Local Area Unemployment Statistics: Expanded State Employment Demographic Data. [PDF Documents: 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018 (Preliminary)]. Accessed 8 February 2019. [Note: The BLS has data that goes back to 1999, but it changed its survey methodology in 2003, making it difficult to make valid comparisons with data collected in earlier years.]

Bureau of Labor Statistics Wage and Hour Division. History of Federal Minimum Wage Rates Under the Fair Labor Standards Act, 1938-2009. [Online Article]. Accessed 8 February 2019.

State of California Department of Industrial Relations. History of California Minimum Wage. [Online Articel]. Accessed 8 February 2019.

Texas Workforce Commission. Texas Minimum Wage Law. [Online Article]. Accessed 8 February 2019.

In November 2018, the year-over-year growth rate of the value of goods imported by the U.S. from China dropped into negative territory.

That observation comes from our analysis of the U.S. Census Bureau's report on the U.S.' trade in goods with China, which had been delayed for over a month due to the partial U.S. government shut down. It marks the first month since the U.S.-China trade war began on 22 March 2018 where we can point to a month where the total value of goods that the U.S. imported from China dropped below the value reported a year earlier, where the U.S. had largely been able to avoid following China's fate in that respect. Until November 2018.

The following chart shows that development and also reveals that the year-over-year growth rate of the value of U.S. exports to China became more negative in November 2018. That outcome largely occurred as a consequence of China's retaliatory tariffs on U.S.-produced soybeans, which has prompted China's soybean buyers to effectively boycott the 2018 U.S. crop (until they began making some relatively small buys in December 2018).

Taking a step back to look at the combined value of goods and services directly traded between the U.S. and China, we find the size of the gap between where that level of trade is today with respect to where it would likely be in the absence of the trade war between the two nations opened up in November 2018, increasing by over 50% from $1.6 billion in the previous month to $2.5 billion.

In percentage terms, November 2018's level of direct trade between the two nations is a little over 4% below where we estimate it might otherwise be based on the pre-trade war trend for this data.

References

Board of Governors of the Federal Reserve System. China / U.S. Foreign Exchange Rate. G.5 Foreign Exchange Rates. Accessed 7 February 2019.

U.S. Census Bureau. Trade in Goods with China. Accessed 7 February 2019.

U.S. Census Bureau. U.S. Trade Online. Accessed 7 February 2019.