Morning Report – Disappointing retail sales 5/13/15

Markets are flattish this morning after a disappointing retail sales number. Bonds and MBS are up after European bond markets mount a small rally.

Retail Sales were flat in April after an upward-revised increase of 1.1% in March. While economists had hoped that consumers would spend their gasoline savings at the mall, they aren’t – they are paying down debt. The control group number, which strips out some of the more volatile elements and is an input to GDP was flat as well. Expect strategists to start taking down Q2 GDP estimates and moving out their forecast for the first rate hike.

Mortgage Applications fell 3.5% last week, which was unsurprising given the bond market sell off. Purchases were down .2%, while refis were down 5.9%. The 30 year fixed rate mortgage increased 7 basis points last week.

Who says the US cannot compete in low value-added manufacturing? It turns out we can, at least in energy-intensive manufacturing. Cheap natural gas in the US are offsetting the cheap labor costs overseas (which are rising) and manufacturing is returning. Case in point: plastics. It isn’t just the cheaper electricity – it is the feedstocks that come from natural gas. This will do more to turn around our economy than anything will.

Have the world’s central bankers painted themselves into a monetary corner? Basically, the issue is that they don’t have any more ammo since we are already at the zero bound. I would point out that interest rate cycles are very, very long and the US economy spent the 30s through the mid 50s with exceptionally low interest rates.

32 Responses

  1. Frist!

    Take that, KW! 🙂



    The increasing shortage of skilled employees is addressed.


    • Mark:

      The increasing shortage of skilled employees is addressed.

      I don’t understand this:

      The federal government and state governments also play an active role in mitigating the talent shortage. For example, the U.S. government has supported state-wide apprenticeship programs, provided grants to community colleges, and distributed tax credits and loans to companies that hire skilled workers.

      If there is a shortage of skilled workers, why in the world would the government think it needs to provide incentives to companies to hire the few that are around?


      • Scott, I won’t debate federal funding with you because I think it is a state and local issue. So I will take your question to be “Why would Austin need to provide incentives to companies?” Then the answer is that Austin is training the workforce the companies need and thus becoming more competitive in the global market. In fact, Austin has extremely low unemployment and high foreign trade surpluses, taken as a stand alone. So Austin can close its CC and shut down 78000 students a year and be like some dying Ohio town, or not.

        Here is an article from Industry Week citing the shortage and bemoaning the fact that manufacturers used to have apprentice programs but that financialization of industry has done the short sighted butchering of the training programs.

        The return of apprentice training as a norm would probably be a game changer.


        • MarK;

          So Austin can close its CC and shut down 78000 students a year and be like some dying Ohio town, or not.

          What I was questioning was the fact that, as the article claimed, they are providing tax incentives and loans to companies that hire skilled workers. If the problem that ostensibly needs to be addressed is a lack of supply of skilled workers, not a lack of demand for them, then it makes no sense for the government to go out and artificially increase demand by handing out loans and tax breaks to companies in order to get them to hire skilled workers. You do that when there exists an over supply of workers and no demand for them.


        • Scott – I misunderstood. That is curious.

          All – no POTUS in my lifetime sent his kids to public school in DC but the Bush twins went to Austin High in my daughter Jen’s class. Jen was yearbook editor in ’91 and Barbara Bush was newspaper editor and they often collaborated. Barbara was a good student and went to Harvard. Jenna was a good student and went to UT, where she finally outgrew partying and did quite well.

          The aversion has generally been to DC schools and their security issues in particular. I recall that they were on drug and gun search protocols sometime in the last 30 years.

          So some POTUS sometime will get wise to this recurring criticism from his/her opponents and send the kids across the river to McLean where the schools are great and pay the out of district tuition.


        • Mark:

          Here is an article from Industry Week…

          I read it along with the link inside it to another article by the same guy.

          He destroys any credibility with me he might have had when he says stupid things like:

          Another problem created by financialization is there is less money available for government investment in the real economy.

          He doesn’t know what he is talking about. Federal tax revenues in 2014 were almost 3 times greater in constant dollars than in 1970, and a graph of revenues in each year from 1970 to 2014 would show a nearly uninterrupted trend upward. Per capita tax revenues were 1.4 times greater in 2014 than in 1970, and again shows nearly uninterrupted annual growth. The notion that the government has less money to “invest” today than in the past, much less that it is due to “financialization”, is plainly false.

          And, of course, this:

          The Dodd/Frank legislation is simply not enough to stop them from repeating their past crimes. At this point, if the big banks got into financial trouble again the taxpayers would still have to bail them out – and they are still too big to fail. At a minimum we need to bring back the Glass-Stiegel law that separates the standard banking from the investing part of the banks, and risky instruments like credit default swaps and derivatives should not be protected by the FDIC (you taxpayers).

          He obviously has no idea what he is talking about with regard to the 2008 crisis, D/F, or derivatives. I see no reason to have confidence that he knows what he is talking about with regard to anything else he says.


        • the FDIC (you taxpayers).

          Good point on his financial “expertise”. Last I knew the FDIC was funded directly through the chartered banks.

          But what light does that shed on the shortage of skilled labor? I think apprentice programs are a good idea and I remember when we had them.


        • Mark:

          But what light does that shed on the shortage of skilled labor? I think apprentice programs are a good idea and I remember when we had them.

          To be honest my first reaction to your original link was that if manufacturers lack skilled labor, then they should start training people themselves to have the needed skills rather than relying on someone else (government) to do so. So I agree with you. I guess I just found the idea of blaming “Wall Street” for the lack of such training programs to be less than compelling.


  3. I wonder how much of this skills gap could be addressed with better vocational training in high school.


    • Brent mused:

      I wonder how much of this skills gap could be addressed with better vocational training in high school.

      I think the answer is “some”. But CC certification programs are generally more responsive to local employer needs than are high schools. Brent, this is in part because of the capital needed to have automation shop classes as opposed to woodworking and in even larger part because of teacher certification requirements which would not permit a mere master electrician teaching the practical circuitry of heavy equipment. CCs can bring in local engineers and technicians to lead hands on training because they are not restricted in this way, and they can usually find local funding for appropriate training environments.


  4. Look, I usually can’t get here during the day. And I’m technically taking a class right now. 😉

    Can’t learn about Active Directory and be frist!

    But, good job!


  5. It takes true chutzpah for President Obama to lecture others about sending their kids to private school:

    “And what’s happened in our economy is that those who are doing better and better — more skilled, more educated, luckier, having greater advantages
    — are withdrawing from sort of the commons — kids start going to private schools; kids start working out at private clubs instead of the public parks. An anti-government ideology then disinvests from those common goods and those things that draw us together. And that, in part, contributes to the fact that there’s less opportunity for our kids, all of our kids.”

    In reality, the withdrawal from the commons was preceded by the decline of the commons when the people running them decided to start working for themselves rather than for those they were ostensibly serving. After that, the commons were written off by those who could afford to go elsewhere.

    Obama himself acknowledges that the public schools aren’t fit to send his his kids to, and given the per pupil rate of spending in DC, it’s not a problem of insufficient money.

    “Obama made his comments on NBC’s “Today” show in response to a woman who asked whether Malia and Sasha Obama “would get the same kind of education at a D.C. public school” that they would get at the D.C. private school that has educated generations of the city’s elite.

    “I’ll be blunt with you: The answer is no, right now,” Obama said. D.C. public schools “are struggling,” he said, but they “have made some important strides over the last several years to move in the direction of reform. There are some terrific individual schools in the D.C. system.” ”


    • An anti-government ideology then disinvests from those common goods and those things that draw us together.

      The idea that “common goods” like schools and parks have been “disinvested” in is utterly absurd. Elizabeth Warren has nothing on O when it comes to saying knowingly false things.


  6. “Come on, I’m the president. What president is going to send his kids to a public school? Really, they ought to just have private tutors.”


  7. Though, frankly, most public schools offer decent vocational training. Many public schools here offer complex technical training that can lead to certifications for networking or Microsoft software or Cisco hardware or what have you. The problem is, nobody has to take those courses, and nobody has to pursue a career in those areas once they decide to flit on to something else. The problem is not the schools so much as it society at large, and parents in particular. STEM is pushed here in a way it never was when I was a kid.

    We do not have a culture that romanticizes engineers. We have a culture where kids are way more interested in sexting and acting out television-worthy melodramas and playing X-box than in whatever career might be able to sustain their hobbies in the future. There will always be exceptions, but as long as our rich, pampered culture can support kids hanging out at home and taking nowhere jobs so they can support their social life and video game habits (with help from mom and dad) we’re not going to develop a surplus of engineering and high-skilled technical talent.


    • KW, are you talking from experience about 20 something stay-at-home slackers?

      I do know one, currently. But I only know one. Small sample for me.

      However, my recovering alcoholic son lived with me until he was 26. He got a networking certification from ACC while he was lead singer for one of Austin’s then 8000 registered bands. He now has been making over six figures at Dell for many years, at the age of 45. I required him to take 6 hours a semester toward his certification and make Bs or better. He paid his own tuition, which was very cheap then. He drove old cars I provided. He had part time networking jobs while he pursued the music and the certification. It finally worked out for him.

      The three girls with good grades at major colleges were easier, of course. The STEM girl had the best jobs early, and later, as well.


  8. from JNC’s link: “We don’t dispute that the free market is the greatest producer of wealth in history — it has lifted billions of people out of poverty. ”

    Obama said that. too bad his base thinks it’s a lie.


  9. Well, more about future stay-at-home slackers. The general high school population of today. There are many exceptions, but my fundamental point is the opportunity is there, at CC or even in high school. The real problem is the motivation of kids and parents to prep themselves for future careers. All school systems want more funding, always, but the problem with a paucity of available engineers and high-skilled workers, to the degree it exists, is not about schools not having enough money to offer votech or STEM or what have you. A motivated teenager can get a number of certifications (for free!) in high school. Couldn’t do that at the schools I went to in the 80s, I’ll tell you that. We didn’t even have a computer in the school. We had a typing lab filled with IBM Selectrics from the 70s, though.


  10. Carter was dumb enough to send Amy to DC’s public schools. At least for a while.

    Has Obama or his daughters ever attended a public school, elementary, high school or college?


  11. Saw this kind of stuff all the time on DKos on the run up to The Abomination.

    Weird how when individuals don’t feel price pressure neither do prescribers.

    Voters love top down rationing and ALWAYS vote for those that vow to ration the most.


  12. “no POTUS in my lifetime sent his kids to public school in DC”

    Carter did.

    “Amy Carter stayed in public schools in Washington throughout her four years in Washington. First she went to Stevens Elementary and then to Hardy Middle, also a predominantly black school.

    Here’s what Jimmy later said: “I derived useful information from Amy as she described her experience in the public schools. What would improve the lunch program? How could we help the children who could not speak English? Were the students being immunized against contagious diseases? What was being done to challenge the bright students in the class or to give extra help to the slow ones? Some of these were the normal questions of interest to any family, but we were in a unique position to act on the ideas.””

    “The aversion has generally been to DC schools and their security issues in particular.”

    Except that in this case Obama was honest enough to admit that if they wanted to make it work they could have from a security standpoint and the reason that they didn’t was the quality of the education provided in the DC public schools.

    Apparently he’s not willing to take one for the commons.


  13. Reposting NoVA’s piece from PL because it’s worth reading:

    “You Should Be Angry About Jade Helm Even If You’re Not Crazy
    William M. Arkin
    5/13/15 2:34pm”


    • This sounds about right to me:

      Justice Kagan’s remarks are consistent with my view that we have not one but two Supreme Courts. One is a political court, in which the justices play the aristocratic element in a mixed political regime. Today our aristocratic element consists not of landed nobles but the cognitive elite well represented in judiciary by those who graduated from the nation’s best law schools. But like the aristocratic element that Aristotle described long ago, one of its functions is to restrain the democratic element, here represented by the state and federal legislatures. The other is a legal court where the justices act as real lawyers.

      In the legal court, justices largely agree on their methods of judicial resolution. Substantial deliberation may thus be mutually profitable. Bankruptcy and the Employment Retirement Security Act are paradigm cases for this court. Generally these cases are decided with a high degree of consensus, if not unanimity. In the political court, many, if not most of the justices, simply have preferences rather than serious methods, and their preferences sharply diverge, now along partisan lines. Given their lack of a common legal language, let alone shared preferences, there is no more reason for deliberation at the Court in these cases than there would be among politicians on a congressional committee. Less reason, in fact, because more often than legislation, cases have binary outcomes and do not allow for compromises that take time to forge.

      The only way to go back to one Supreme Court is for the justices to approach constitutional issues– even those that stir passions like same-sex marriage–with the same formal rigor that they do bankruptcy and ERISA. Until that time, we will have two Courts, where the political nature of one is less apparent to the public because of the legal nature of the other.


  14. Lulz.

    “Sen. Brown is a standup guy and I’m confident that after he’s has a chance to take a look at the comments he made yesterday that he’ll find a way to apologize,” White House press secretary Josh Earnest said on MSNBC on Wednesday.

    Can’t decide which his worse,that Obama’s such a thin-skinned pussy that he’s demanding this or that his sycophants think this is necessary.


  15. That’s a very good analysis Scott. I’ve often thought though that the celebrity culture is the “aristocratic” element in US society in terms of setting taste and social mores.


  16. I find it funny how the left never entertains the idea that the Fed might have contributed to the problem..


  17. @troll: “Can’t decide which his worse,that Obama’s such a thin-skinned pussy that he’s demanding this or that his sycophants think this is necessary.”

    What’s sad is that Obama can’t address the issue by just saying: “That’s retarded.”

    But it goes back to what I said about contemporary feminism laboring to alienate everybody. Obama is only disagreeing with Warren because she’s a woman? This seems highly unlikely, and an ill-advised thing to be telling reporters if you’re a womyn. But eventually, all men are the enemy, I guess. Any male progressive aligning themselves with Sherrod Brown better be prepared. Their turn will come.


  18. @jnc4p: “You Should Be Angry About Jade Helm Even If You’re Not Crazy”

    The whole thing seems boneheaded, but my immediate reaction to the whole “using soccer moms as target practice” is they were being politically correct, and would presumably have gotten in much more trouble if it had been a muslim woman in a burka pointing a gun.

    Gotta wonder what the lady who modeled for the picture thinks of all this. 😉


  19. You can’t parody the left on campus.

    ““Ovid’s ‘Metamorphoses’ is a fixture of Lit Hum, but like so many texts in the Western canon, it contains triggering and offensive material that marginalizes student identities in the classroom,” wrote the four students, who are members of Columbia’s Multicultural Affairs Advisory Board. “These texts, wrought with histories and narratives of exclusion and oppression, can be difficult to read and discuss as a survivor, a person of color, or a student from a low-income background.””

    This must be why Michelle Obama is worried about low income people and minorities not being welcome at a museum. They can’t handle the experience without a trigger warning.


  20. Broads, can’t live with ‘me…


  21. I’m glad we’re finally getting to the point where our colleges realize it as unjust and unfair to ask students to think about anything challenging, or teach them any history or literature that might challenge them, or inform them in some way that might pollute their established ideological purity.

    Math, being used for capitalism, is inherently offensive to everybody who is not super-rich, so I hope colleges can be obligated to abandon their oppressive and paternalistic math courses and replace them with some course to help white males embrace how terrible they are based on their genetic makeup, gender and lineage.


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