A little economic humor for the holidays…
$5 Gas Not Likely, Says Texas A&M Expert
Having to dig deeper to fill up the gas tank? You are not alone as gas prices have steadily risen in the past few weeks, but the possibility of gas hitting $5 a gallon by summer as many analysts are predicting is very unlikely, says a Texas A&M University economist who has studied oil prices for decades.
John Moroney, professor of economics and an oil analyst for more than 30 years, says the possibility of gas reaching $4 a gallon from its current national average of around $3.45 is possible in the next few months, but not all that likely. As for gas hitting five bucks a gallon, don’t lose sleep about it, he advises.
Oil prices may rise, but a Texas A&M economist says $5 gas is not likely.
“It is true prices have gone up in the last month or so,” he explains.
“Oil prices are now about $100 or so a barrel. For gas to cost $5 a gallon, prices would have to be in the $140-150 a barrel range, and I just don’t see it happening. A series of things would have to happen for that to occur, and I just don’t think it is very likely.”
Moroney has spent much of his career charting oil ups and downs. He authored Power Struggle: World Energy in the 21st Century, a book about energy demands and production several years ago.
One big reason he thinks oil prices will not rise too much over the next few months: oil production is on the rise.
New discoveries of huge oil reserves have been made in the last few years, and production of oil from shale has risen dramatically all over the U.S. and other countries. Gas prices hit a record of $4.11 a gallon in July 2008, and Moroney says he remembers “that time well because West Texas intermediate crude hit $147 a barrel.”
As for now, Moroney notes, “Shale production has been going extremely well and it is leading to more oil in the marketplace,” he says.
“For that reason alone, I don’t think you will see any dramatic shortages happen any time soon.
“The price increases over the past few weeks are fairly normal price fluctuations of oil. Could gas go to $4? It is possible, but not a certainty. Could it go to $5? I just don’t see it happening.
“You have to remember that for the oil producers in the Middle East, their very lives and economies depend on oil. They need the markets to be fairly stable. It is true demand is increasing, but then so is production of oil.
“One thing I have learned over the past 30 years is that predicting oil prices is very, very difficult to do because oil is so sensitive to world events,” he notes. “It is one of the most unpredictable commodities in the world. But I don’t see any huge gas price increases in the near future.”
3 misconceptions that need to die
HT to Sid Raisch for this link — http://www.fool.com/investing/general/2011/10/25/3-misconceptions-that-need-to-die.aspx, Morgan Housel, October 25, 2011
At a conference in Philadelphia earlier this month, a Wharton professor noted that one of the country’s biggest economic problems is a tsunami of misinformation. You can’t have a rational debate when facts are so easily supplanted by overreaching statements, broad generalizations, and misconceptions. And if you can’t have a rational debate, how does anything important get done? As author William Feather once advised, “Beware of the person who can’t be bothered by details.” There seems to be no shortage of those people lately.
Here are three misconceptions that need to be put to rest.
Misconception: Most of what Americans spend their money on is made in China.
Fact: Just 2.7% of personal consumption expenditures go to Chinese-made goods and services. 88.5% of U.S. consumer spending is on American-made goods and services.
I used that statistic in an article last week, and the response from readers was overwhelming:Hogwash. People just didn’t believe it.
The figure comes from a Federal Reserve report. You can read it here.
A common rebuttal I got was, “How can it only be 2.7% when almost everything in Wal-Mart(NYSE: WMT ) is made in China?” Because Wal-Mart’s $260 billion in U.S. revenue isn’t exactly reflective of America’s $14.5 trillion economy. Wal-Mart might sell a broad range of knickknacks, many of which are made in China, but the vast majority of what Americans spend their money on is not knickknacks.
The Bureau of Labor Statistics closely tracks how an average American spends their money in an annual report called the Consumer Expenditure Survey. In 2010, the average American spent 34% of their income on housing, 13% on food, 11% on insurance and pensions, 7% on health care, and 2% on education. Those categories alone make up nearly 70% of total spending, and are comprised almost entirely of American-made goods and services (only 7% of food is imported, according to the USDA).
Even when looking at physical goods alone, Chinese imports still account for just a small fraction of U.S. spending. Just 6.4% of nondurable goods — things like food, clothing and toys — purchased in the U.S. are made in China; 76.2% are made in America. For durable goods — things like cars and furniture — 12% are made in China; 66.6% are made in America.
Another way to grasp the value of Chinese-made goods is to look at imports. The U.S. is on track toimport $340 billion worth of goods from China this year, which is 2.3% of our $14.5 trillion economy. Is that a lot? Yes. Is it most of what we spend our money on? Not by a long shot.
Part of the misconception is likely driven by the notion that America’s manufacturing base has been in steep decline. The truth, surprising to many, is that real manufacturing output today is near an all-time high. What’s dropped precipitously in recent decades is manufacturing employment. Technology and automation has allowed American manufacturers to build more stuff with far fewer workers than in the past. One good example: In 1950, a U.S. Steel (NYSE: X ) plant in Gary, Ind., produced 6 million tons of steel with 30,000 workers. Today, it produces 7.5 million tons with 5,000 workers. Output has gone up; employment has dropped like a rock.
Misconception: We owe most of our debt to China.
Fact: China owns 7.8% of U.S. government debt outstanding.
As of August, China owned $1.14 trillion of Treasuries. Government debt stood at $14.6 trillion that month. That’s 7.8%.
Who owns the rest? The largest holder of U.S. debt is the federal government itself. Various government trust funds like the Social Security trust fund own about $4.4 trillion worth of Treasury securities. The Federal Reserve owns another $1.6 trillion. Both are unique owners: Interest paid on debt held by federal trust funds is used to cover a portion of federal spending, and the vast majority of interest earned by the Federal Reserve is remitted back to the U.S. Treasury.
The rest of our debt is owned by state and local governments ($700 billion), private domestic investors ($3.1 trillion), and other non-Chinese foreign investors ($3.5 trillion).
Does China own a lot of our debt? Yes, but it’s a qualified yes. Of all Treasury debt held by foreigners, China is indeed the largest owner ($1.14 trillion), followed by Japan ($937 billion) and the U.K. ($397 billion).
Right there, you can see that Japan and the U.K. combined own more U.S. debt than China. Now, how many times have you heard someone say that we borrow an inordinate amount of money from Japan and the U.K.? I never have. But how often do you hear some version of the “China is our banker” line? Too often, I’d say.
Misconception: We get most of our oil from the Middle East.
Fact: Just 9.2% of oil consumed in the U.S. comes from the Middle East.
According the U.S. Energy Information Administration, the U.S. consumes 19.2 million barrels of petroleum products per day. Of that amount, a net 49% is produced domestically. The rest is imported.
Where is it imported from? Only a small fraction comes from the Middle East, and that fraction has been declining in recent years. So far this year, imports from the Persian Gulf region — which includes Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates — have made up 9.2% of total petroleum supplied to the U.S. In 2001, that number was 14.1%.
The U.S. imports more than twice as much petroleum from Canada and Mexico than it does from the Middle East. Add in the share produced domestically, and the majority of petroleum consumed in the U.S. comes from North America.
This isn’t to belittle our energy situation. The nation still relies on imports for about half of its oil. That’s bad. But should the Middle East get the attention it does when we talk about oil reliance? In terms of security and geopolitical stability, perhaps. In terms of volume, probably not.
A roomful of skeptics
“People will generally accept facts as truth only if the facts agree with what they already believe,” said Andy Rooney. Do these numbers fit with what you already believed? No hard feelings if they don’t. Just let me know why in the comment section below.
Fool contributor Morgan Housel owns shares of Wal-Mart. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Wal-Mart Stores. Motley Fool newsletter services have recommended buying shares of and creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
NASS to Reinstate Several Agricultural Estimates Programs
Issued December 9, 2011 by the Agricultural Statistics Board of the U.S. Department of Agriculture, National Agricultural Statistics Service (NASS).
NASS leadership recently concluded a deliberate review of all programs against mission- and user-based criteria, aimed at finding cost savings and forward-thinking business efficiencies so that timely, accurate and useful data remains available in service to agriculture. In 2011, NASS made several enhancements within its programs and operations to deliver improved results for the American people, including opening a new national operations center in St. Louis that will centralize data collection and service to people who provide and use NASS products and services. These efforts and more over the last year have allowed NASS leadership the flexibility within its budget to retain and reinstate several key reports.
The reinstated programs are:
- Annual Reports on Farm Numbers, Land in Farms Reports and Farm Income
- Catfish and Trout Reports (data collection begins Dec. 9; report released Dec. 20)
- Annual Floriculture Report
- January Sheep and Goat Report (data collection begins Dec. 23; report date is Jan. 27)
- July Cattle Report
- Annual Bee and Honey Report (data collection begins Jan. 23; report date is March 30)
- Annual Hops Production Report (data collection begins Dec. 9; report date is Dec. 21)
- Annual Mink Report
- Fruit and Vegetable in season forecast and estimates
- Rice Stocks June Report
Recognizing the importance of NASS’s data products and services to U.S. agriculture, NASS will make available any data that falls outside of the scope of the agricultural estimates programs in the 5-year Census of Agriculture. The next census will be conducted beginning January 2013 to reflect activities in the 2012 calendar year. NASS will publish Federal Register notices reflecting these program changes in the near future.
Well crap, here they go again…
Sorry for the technical jargon in the title, but that just about sums up my feelings on USDA’s latest announcement of their intentions to no longer produce the annual floriculture crops report. After USDA-ERS dropping their situation and outlook reporting several years back and USDA-NASS cutting the nursery crops report to a overy-thrid-year cycle (but not having delivered on even that since 2005), now NASS decides to drop the only green industry report we have left? C’mon Man! (to use the Monday Night Football slogan for dumb plays). Yes, we know funding is tight. But why not go after other row crops that represent far less economic contributions than the green industry?
Now on the surface, this may not seem like a big deal, since we have a LOT of things to worry about in terms of getting our industry back on track in terms of profitability. But this is important, not only pragmatically, but symbolically as well. To me, IMHO, this is a continuation of the blatant lack of respect that USDA has for our industry, in spite of the lip service given to specialty crops. I mean, if specialty crops are so important to USDA’s strategic plan, how will the agency decide on how to allocate resources properly if their is no data to back up their justification(s). The only system that I can think of that they could possibly fall back on is to allocate funding based on the squeaky wheel philosophy. Real nice.
Another important use of that data historically has been it provides vital benchmark data that green industry firms can use in benchmarking and planning efforts and it provides state and national associations with important data with which to combat potentially negative legislation and to help justify potentially beneficial laws and regulations.
I guess this means that the national survey and economic impact study conducted every 5 years by the Green Industry Research Consortium will become all that more valuable. At least it covers all 50 states. Ok, enough ranting, for now…
New economic impact data for the green industry available
Total economic contributions for the United States Green Industry in 2007, including regional economic multiplier effects, were estimated at $175.26 Billion in output (revenue), employment of 1.95 Million full-time and part-time jobs, labor earnings of $53.16 Billion, and $107.16 Billion in value added. Total value added impacts represented 0.76 percent of U.S. Gross Domestic Product in 2007.
The present study updates previous research that evaluated economic impacts of the Green Industry in the United States for 2002 (Hall, Hodges and Haydu, 2005, 2006). National estimates of economic impacts were derived from a variety of information sources, including national and state-level industry statistics from the 2007 U.S. Economic Census (Census Bureau, 2010), other federal government reports, and primary surveys by horticultural economics researchers. Economic impacts for each state were computed using multipliers from the RIMSII Input-output analysis system (USDOC/BEA, 2007), to estimate the indirect effects of industry purchases and induced effects of employee household spending arising from new final demand.
2010 Wholesale Value of Floriculture Crops Increased 3 Percent
The 2010 wholesale value of floriculture crops is up 3 percent from the revised 2009 valuation. The total crop value at wholesale for the 15-State program for all growers with $10,000 or more in sales is estimated at $4.13 billion for 2010, compared with $4.00 billion for 2009. California continues to be the leading State with crops valued at $1.01 billion, up 8 percent from the 2009 value. Florida, the next largest producer is down 1 percent from the prior year to $810 million in wholesale value. These two States account for 44 percent of the 15-State total value. For 2010, the top 5 States are California, Florida, Michigan, Texas, and North Carolina, which account for $2.75 billion, or 66 percent, of the 15-State total value.
The number of producers for 2010, at 6,126, is down 7 percent in the 15 States compared with the revised 2009 count of 6,561. The number of producers with sales of $100,000 or more dropped 7 percent to 2,706 for 2010 from 2,918 in 2009. In the 15-State program, total covered area for floriculture crop production was 725 million square feet. However, these data are not comparable with the 2009 revised area of 807 million square feet because the 2009 data was collected in conjunction with the Census of Horticultural Specialties and included area used for production of nursery crops as well as floriculture crops.
For the rest of the report, click here.
Setting the stage for growth in 2011
The latest from Robert Barr in this week’s SAF Trend Tracker:
The nature of this recession – caused by a financial panic – means that the recovery is not playing by the customary script this time. Housing, for example, usually leads the economy out of a recession, as low interest rates spur new residential construction and home sales. But the number of troubled properties on the market remains high, even though much of the excess supply is concentrated in just a few markets. In terms of being a source of strong economic growth, housing will likely sit on the sidelines for a few more years.
The good news is that the economy is growing, albeit at a slower pace than we’d hope – and too slow a rate to bring down the unemployment rate, for now. In fact, the unemployment rate climbed in November to 9.8%, up from 9.6% in each of the three previous months. But the labor markets are always a lagging indicator of economic recovery.
Other important figures reflecting conditions more “upstream” in generating economic growth tell a different and much more positive story. For instance, corporate profits are up 28% over year-ago levels (fueling the stock market improvement). And business investment in software and equipment is booming, up 19% in the past year. That’s the strongest four quarters of growth in that segment in 26 years – even surpassing the build-up to Y2K. These developments do follow the usual story for economic recovery, as business owners, prodded by lower interest rates, add to business investment. As entrepreneurial activity and investment grow, corporate America lays the groundwork for stronger economic growth in the coming quarters.
Mix the strong activity here with the relatively strong kick-off to the holiday shopping season, and you get a strong sense that the recovery is in fact taking root – and that fears of a “double-dip” recession are overblown. And not only are the early reports from the nation’s large retailers positive, they also indicate that consumers are spending money on themselves, too – in contrast to the last few holiday seasons, when spending was more constrained.
Finally, the tax compromise that was coming together in early December could, if enacted according to the announced framework, provide some important fuel to stronger economic growth. The extension for two years of the current set of income tax rates – rather than the increase currently slated to go into effect on New Year’s Day – not only helps the entrepreneurial segment, but it ends some uncertainty, at least for now, about tax rates. The one-year cut in the Social Security payroll tax also generates a bit more cash for households, but, more importantly for economic growth, the investment expense provisions and the lower capital gains tax, currently at 15 percent, should prove to be an important business incentive.
Robert Barr is an economist based in Virginia.
Sources: Bureau of Labor Statistics (Dec 3, 2010); Bureau of Economic Analysis (Nov 23, 2010); Moody’s Analytics.
Is the U.S. facing an inevitable tax crisis?
Is shifting demography moving the United States closer and closer to a state, federal and municipal tax crisis? The Bureau of Labor Statistics makes it clear that the heavy lifting in both personal earnings and consumption in the United States peaks in a bell shaped curve right at about age fifty. That is when our consumer spending and earnings are at their height. It would follow then that the Internal Revenue Service would depend heavily on folks forty to sixty years old. You might even narrow it down more to forty-five to fifty-five years old. The same would follow for states that are dependent on sales and consumption taxes and local governments that get big revenue from big houses. It is also interesting that the peak birth years for the huge Baby Boomer Generation were 1957 through1964 when United States live birth numbers exceeded four million per year. This super-imposes the very top of the Boomer birth bubble directly over the most productive tax paying years in the age continuum at this writing. You could consider it serendipitous that the current financial crisis in the United States occurred at exactly the time when we had a huge block of high rolling Baby Boomer tax payers to pay into the system and bail us out. As the Baby Boomers age out of their premium tax paying years Generation X ages in. Generation X was born 1965 to 1984 and is currently aged 26 to 45 years old. Generation X is 11% smaller than the Baby Boomers with about nine million fewer people. It simply does not have the critical mass to produce or consume at the level of the Baby Boomers and will not be able to pay taxes at the level of the Baby Boomers. Can you see where this is going?
There are stages in our lives when different things are expected of us and understanding what is expected of us is very important. When we are born we are totally reliant on others. We eat a lot and produce nothing. If we were left alone we would die. We gradually become more and more self-reliant as we age. In theory at least when we are in our twenties we begin to make our own way. We can provide for ourselves. What we eat is on par with what we produce. As we age through our thirties we begin to produce more than we eat so we provide for others who are producing less than they eat. As we age through our forties the dependence of others, both young and old, on our ability to produce a lot more than we eat becomes very great and peaks at age fifty when we are at the height of our producing. Between fifty and sixty our production begins to diminish as does the reliance of others on our ability to provide. Between sixty and eighty we tend to be self reliant, meeting our own needs. After eighty the total dependence starts all over again. We can no longer effectively produce but we still eat and require care. This principal of reliance and provision can be found in families, cultures and countries throughout the world. It is a very old principal that dates back to early man. It is a natural balance. This principal is so powerful it drives economies and provides health to nations.
So what does Generation X have to do with this principal? Generation X is small owing in large part to the reduced fertility in the U.S. between 1965 and 1984. It has about nine million fewer people in its ranks than the Baby Boomer Generation it follows and about eleven million fewer people than Generation Y right behind it. Generation X, now twenty six to forty-five years old, is taking over the role of the Nation’s provider and it can’t possibly succeed because it doesn’t have the critical mass. As a nation we will begin to feel this phenomenon intensify over the next ten years as we try to tax this generation to meet our needs. Federal, state and local taxes will all suffer-big time. Democrats and Republicans will point fingers at each other for over spending but the real issue will be tax revenues will drop like a stone when Generation X is expected to do the heavy lifting.
So are we headed for a tax crisis here in the United States? It looks that way. But wait, before you fall on a sword there are a few bright demographic facts that could save the day. One is the fact that most of the millions of Latino immigrants that poured into our country to fill the entry level labor demand unmet by Generation X are about the same age as Generation X. If they advance socio-economically at an accelerated pace it could be problem solved. In addition, according to Pew Research in a October 2009 study, the African American culture in the United States is experiencing unprecedented economic growth in recent years. Latinos and African Americans make up close to thirty percent of the total United States population. Their collective contribution to state, federal and local taxes could be significant. Lastly, Generation Y born from 1985 to 2004 is beginning to flood the workforce and because they are facing fifty percent unemployment many are starting their own businesses out of necessity. Baby Boomers did the same thing in the seventies. Small businesses are the building blocks for a healthy economy.
Source: Demographic Journal
Latest USDA-NASS Floriculture Crops report released
Highlights from the latest Floriculture Crops report:
The 2008 wholesale value of floriculture crops is down 2 percent from the revised 2007 valuation. The total crop value at wholesale for the 15-State program for all growers with $10,000 or more in sales is estimated at $4.22 billion for 2008, compared with $4.32 billion for 2007. California continues to be the leading State with crops valued at $1.02 billion, but is down 2 percent from the 2007 value. Florida, the next largest producer, is down 5 percent from the prior year to $922 million in wholesale value. These two States account for 46 percent of the 15-State total value. For 2008, the top 5 States are California, Florida, Michigan, Texas, and North Carolina, which account for $2.80 billion, or 66 percent, of the 15-State total value.
The number of producers for 2008, at 7,189, is down 3 percent in the 15 States compared with the revised 2007 count of 7,387. The number of producers with sales of $100,000 or more dropped 5 percent to 2,967 for 2008 from 3,136 in 2007.
In the 15-State program, total covered area for floriculture crop production was 729 million square feet, 5 percent less than the revised 2007 figure. Greenhouse space for 2008, at 414 million square feet, is down 2 percent from 2007. This accounts for 57 percent of the total covered area. Shade and temporary cover is down 8 percent, to 314 million square feet. Open ground totaled 33,150 acres, 5 percent less than the revised 2007 total.
The average peak number of hired workers employed on operations in the 15-State program in 2008 is 17.0, down 1 percent from a revised 17.2 in 2007. A total of 5,313 operations hired workers during 2008, compared with 5,460 a year earlier. Overall, 74 percent of operations used some hired labor during 2008, the same as in 2007.
Click here for the full report.