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Paying the Same for Less

On January 6, 2011, in Economy, Our Culture, Personal, by Tim

This video about manufacturers reducing product content while keeping the price the same has been popping up all over the place lately, the example of consumers getting reamed on their toilet paper purchases apparently striking quite close to home for many.

I often wonder how this is accounted for by the Labor Department when they collect grocery store price data as we’ve noticed many similar changes at Costco and other stores.

Was it just my imagination or are there now three less rolls of paper towels in the Kirkland package that still sells for about $14? We stopped buying Frosted Miniwheats when that box shrunk and the price didn’t, but I’m not sure we can go without our jumbo paper towels.

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The Future of Global Auto Sales

On December 27, 2010, in Asia, Economy, by Tim

Among the many other important developments in the global economy in recent years, China passed the U.S. as the world’s leading buyer of automobiles, the graphic below from this item at The Economist projecting that trend into the future.

It’s not clear what, if any, impact will be felt at car showrooms in China in the months ahead as the central bank raises interest rates further in 2011 following their Christmas Day surprise rate hike that is dominating the financial news this morning.

Perhaps more important than monetary policy next year will be efforts to limit traffic congestion in major cities. This report at MarketWatch details recently announced plans to limit the number of auto sales by restricting the issuance of license plates using a lottery system. It’s shaping up to be an interesting year ahead in the Middle Kingdom.

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Retail Sales and Producer Prices Up 0.8%

On December 14, 2010, in Economy, by Tim

Both retail sales and producer prices came in a little hot this morning, making the Fed’s deliberations over monetary policy today all the more interesting. The Census Bureau reported(.pdf) that retailers saw higher sales totals for the fifth straight month, up 0.8 percent in November after an upwardly revised gain of 1.7 percent in October. Over the last four months, retail sales are now rising at an annualized rate of over 13 percent. Yikes!

Meanwhile, the Labor Department reported that producer prices rose at their fastest pace in ten months, up 0.8 percent in November for the fifth straight monthly gain. Here too, the annualized four month increase is a bit on the high side at over 8 percent. Of course, for a de-flation averse central bank, today’s data is probably welcomed news.

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Those Guys Get Some Wicked Pensions…

On December 7, 2010, in Our Culture, by Tim

Spotted over at NetNet, this very creative video about the California Public Employees Retirement System may be slightly exaggerating the lifestyle, but the numbers are all too real based on data at the California $100K pension club that now numbers 9,111.

Once again, this is a case where it would be a lot funnier if the numbers weren’t true.

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Consumers “Max and Walk”

On December 1, 2010, in Debt, Our Culture, by Tim

More evidence of the decline of Western civilization comes in the form of consumers thinking more and more like banks – opting to give less weight to the morality of financial decisions and more weight to the bottom line – as an increasing number of Americans choose to max out their credit cards and then walk away from the debt as detailed by Nicholas Carrol in this story at the Huffington Post.

After twenty years of helping family and friends work their way out of dire financial straits, I am used to explaining that an unplanned default on credit cards is not a crime, it’s only a civil law matter — a breach of contract. People were legally naive.

The Great Recession started with the same general naivety. By 2010 the conversations had changed, to credit card users telling me about their plans to deliberately max out their credit lines and then default. Some of the plans are surprisingly sophisticated, and nowadays I routinely find myself saying “You did what? And it worked? Never mind — don’t tell me any more.”

In short, consumers are learning to out-think the banks’ anti-default computer programming. With continuing recession at the consumer level, this becomes particularly relevant in December, since the Christmas season is when the banks’ algorithms stagger under the weight of unpredictable buying patterns.

There’s more in this report about how the banks have become increasingly sophisticated in detecting when a borrower is in serious trouble but has yet to default and about borrowers being able to outsmart the banks. Look for the banks to get back out in front of the situation and remain one step ahead once they’ve gotten past the foreclosure mess.

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We’re All Bethlehemers Now

On December 1, 2010, in Economy, by Tim

I’ll have to add Bill Gross’ latest missive to the list of references for an upcoming article about the nonsensical conventional wisdom that the lack of “aggregate demand” is the proximate cause for the world’s economic troubles. That is, like in the Great Depression, it doesn’t matter how you got there – if it’s a one-decade easy money credit orgy or a multi-decade one – if demand isn’t growing fast enough, that’s the problem you’ve got to solve.

Well we’re living here in Allentown
And they’re closing all the factories down
Out in Bethlehem they’re killing time
Filling out forms
Standing in line
And we’re living here in Allentown

– Billy Joel, 1982

We’re all Allentowners now. Granted, 90% of the workforce is still reporting for work on time, but our standard of living, our confidence in the future – we’re standing in line in Allentown. Lost in the policy debate surrounding the elections and the subsequent demonization of the Federal Reserve’s Quantitative Easing (“QE2”) policies has been any recognition of why we no longer live on Ronald Reagan’s shining hill or how we might possibly reclaim higher ground. There are two fundamental explanations:

1) The global economy is suffering from a lack of aggregate demand. In simple English that means that consumers are not buying enough things and that companies are not hiring enough people because of it. Growth slows down, especially in developed as opposed to developing countries, and the steel mills of Allentown, USA and Sheffield, England close down.
…
2) With insufficient demand, nations compete furiously for their share of the diminishing global growth pie. All look to borrow growth from somewhere else … At some point in the 1970s to 1980s, however, the rest of the world began to catch up. Japan produced better cars than Detroit, the Iron Curtain fell, and the rise of China was soon to rock American/developed economies out of their presumption that the world was their export oyster. Billy Joel’s Allentown was transformed from an iron and coke/chromium steel behemoth into an unemployment center, filling out forms – standing in line.

Wow, that song was written 28 years ago … about a town that was about 20 minutes away from where I grew up and about ten minutes away from Bethlehem Steel, the town that everyone thought Joel was referring to but didn’t rhyme nicely with anything…

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