Lies, Statistics, and Economic Forcasting

I know I briefly mentioned this point earlier in the week, but the matter has gotten worse.

There is seriously bad news on the employment front. First, we had the unemployment report, released yesterday. Because this link only contains the current information, allow me to post the important bits for the benefits of those who might read this in the future. For the week ended January 3, 2004, seasonally adjusted initial claims — the widely reported number — were up 14,000 to 353,000. However, there were actually 546,823 new unemployment claims that week, up 30,431. Now, I don’t know about you, but I think it’s more important to know that there were over half a million people who applied for unemployment checks for the first time, 3,724,660 total claims, and 765,570 making claims under a Federal program for the relatively long term unemployed last week than to harp on “seasonality.”

Now, please scroll down with me to this chart, as taken directly from the DOL link above:

States with an Increase of More than 1,000

AL

+1,043

 

Layoffs in the textile and electrical equipment
industries.

MN

+1,167

 

Layoffs in the manufacturing industry.

RI

+1,170

 

Layoffs in the trade and service industries.

VT

+1,630

 

Layoffs in the manufacturing industry.

IL

+1,919

 

Layoffs in the construction, service, and manufacturing
industries.

ID

+2,351

 

No comment.

KS

+3,240

 

Layoffs in the trade, service, real estate, and manufacturing
industries.

AR

+3,379

 

No comment.

CA

+3,781

 

Layoffs in the motion picture industry.

OH

+3,906

 

Layoffs in the construction industry.

IN

+3,935

 

Layoffs in the manufacturing industry.

IA

+3,937

 

No comment.

WA

+3,958

 

No comment.

OR

+5,245

 

No comment.

NJ

+5,930

 

Layoffs in the transportation, warehousing, food, public
administration, and manufacturing industries.

MA

+7,043

 

No comment.

PA

+13,179

 

Layoffs in the food, textile, primary and fabricated metals,
industrial machinery, transportation, and manufacturing industries.

WI

+16,375

 

Layoffs in the construction, trade, service, transportation,
communications, and public utilities industries, and agriculture.

MI

+20,583

 

Layoffs in the automobile and transportation equipment
industries.

That’s right, the increase in people laid off in Michigan alone was more than the seasonally adjusted rise in first time claims. First time unemployment claims in Michigan rose by a number just short of the entire undergraduate student population at the University of Michigan Ann Arbor campus. The increase in new claims in Wisconsin alone exceeded the seasonally adjusted rise in first time claims, and the Pennsylvania numbers were only slightly better.

There is the first part of the answer to the great economic question: How come the economy looks great on paper, but seems so lousy to me and everybody I know? The stuff on paper is a lie.

But wait, there’s more. It seems that the economy created about 1,000 jobs last month. That falls short of economists’ expectations of 140,000. That is an error of over 99%; an error most of us who still actually have jobs would get fired over. Yes, gaining a thousand jobs is better than losing them — although in a nation of 292 million people, a thousand jobs is a rounding error. But still, a thousand jobs created falls well short of the 100,000 needed just to keep up with additions to the labor force and 200,000 needed to really reduce unemployment.

Hold on, you say, unemployment did drop, from 5.9% to 5.7%. Yes, yes it did. That’s because about 430,000 unemployed people gave up even looking for work. They are now termed “discouraged workers” as opposed to merely “unemployed.”

If enough people get “discouraged,” we’ll have full employment.

Maybe there will be jobs on the Moon.

Now Hiring: Illegal Aliens

Today, President Bush announced an initiative to help illegal alliens get jobs here in the United States. This was announced with rhetoric of “There is an economic need, and it is important that we have an immigration policy that meets those economic needs,” and “So many illegal immigrants are in the country, we need to find a way to resolve that problem in a compassionate and productive way,” and how this proposal would “match willing workers with willing employees.” Or, briefly summarized, “they are here, they are cheap, we may as well make them legal.”

Meanwhile, a research and analysis group released a report concluding that there were 1,236,426 job-cut announcements in 2003. Please remember that these figures do not include all the unannounced job cuts at all the small businesses that do not put out press releases. This same report concluded that there might not be substantial job growth in this country until 2008. It would seem that announced job cuts for 2004 are already off to a roaring start.

Now, please consider last week’s unemployment data as released by the Department of Labor. The data in that url will be replaced with more current figures as time goes by, so please let me point out the relevant numbers for the week ended December 27, 2003. The widely reported number for first time unemployment claims was 339,000. However, this was a seasonally adjusted number.* There were actually 516,501 who followed through on the unpleasant task of walking into the unemployment office and filing a first time claim. Even this figure does not include those who lost part time jobs, professionals who feel small check is not worth the time it takes to fill out the paperwork, and students who might have finished a college degree (and the associated student work placement) in December.

This same Department of Labor is currently trying to finalize rules that would effectively eliminate overtime pay. That’s right, they want to cut the income of our hardest working families, and curtail the creation of new jobs while they are at it: your Lumberghian boss will not hire a new person full time and give them benefits when he can simply make all his existing employees work harder. Your Senator needs to hear from you now.

So let me make sure I understand this correctly. We are in a “jobless recovery,” the Department of Labor is pursuing “reforms” that will thwart job growth, well over a million people were put out of work in “announced layoffs” alone last year, half a million people applied for unemployment benefits in the last week of December, and President Bush wants to normalize the status of illegal aliens working in this country?

That makes less sense than Britney Spears’s ephemeral marriage.

*Much thanks to Seeing the Forest for pointing this out.

Year of the Small Cap

It is January, and that means a parade of financial experts giving their personal opinions — I mean predictions — regarding the new year.

Almost inevitably, one will say that this will be a year where small cap stocks outperform the big ones: that buying stock in relaticely small companies will make you more money than a nice, diversified S&P 500 or Dow 30 index fund. I have listened to this claptrap for a half dozen years now. Here is why it is still wrong.

First, investing in small cap stocks is a dicey game of cat and mouse for small investors. Doing it sucessfully depends on finding a small company that is publicly traded, and hoping some fund manager finds it and buys large quantities of it later, driving up the value of the shares. Oh yes, it also depends on your finding this needle in a haystack without being played by some pump and dump scammer, who tells you that XYZ Corp is the up and coming thing shortly after buying it himself, and sells it shortly after enough foolish people buy it so as to drive up the price.

The second flaw in the “year of the small cap” theory is the chart they will toss up in their defense. It will be a chart of a stock index called the Russell 2000. Russell takes the 3000 biggest cap companies, calls the top thousand a big cap index, and the lower 2000 a small cap index. The first problem with this is that there are over 6000 publicly traded companies, meaning there are 3000 companies smaller than any of those in the Russell 2000.

But wait, there’s another problem with the Russell 2000, and it has to do with being the bottom 2000 of the top 3000. There are two separate schools of stock market thought that say nothing more than Newton’s first law of motion: things tend to keep going the way they are going. Both Momentum Traders and Technical Analysis adherents will tell you that stocks going up are likely to keep going up, and stocks going down are likely to keep going down, although they differ substantially on the details.

Stocks in the Russell 2000 that do well gain market cap, and graduate to the Russell 1000. On the other hand, stocks in the Russell 1000 that do poorly drop in market cap and end up in the Russell 2000. If I were designing an index to decline, it would look a lot like this. It might well go up short term, as it did in 2003, but do not get to thinking the Russell 2000 is a long term investment.

Remind me to republish this post next January.

Happy New Year

Judging from the large display of exercise gear at the front of Target, it is a safe guess that weight loss is on the New Years Resolution list of many people. Never mind the sweaters being clearanced to make room for shorts and sleeveless shirts. In January.

Before I go any further, I would like to say that about 5 years ago I lost about 30 pounds, bringing myself well into the normal BMI range, and I have stayed there. I am not one of those skinny cheerleader types who has never had to lose more than 2 pounds. Nor am I one of those people who talks about what you should do, while consuming a gallon of ice cream, a six pack of beer, and a pack of cigarettes. This does not make me an expert, but I’ve been there.

There are several important truths I have learned about weight loss. The most important of these is: Every diet that works requires drastic reduction or complete elimination of refined sugar. What? You didn’t think Dean Ornish and the rest of the low-fat crowd meant that you could drop pounds by switching from Snickers to Twizzlers, did you? I am not telling you that Atkins is the way to go, although low-carb is how I did it. I am telling you that sugar is a bigger enemy than fat. Even the USDA says “Some dietary fat is needed for good health.”

The second great diet truth is: Diet foods are for the most part a waste of time and money. Low fat or low carb, the number of items I have found that defy this rule can be counted on my fingers, despite the fact that diet foods are an almost $6 Billion industry. I believe the effectiveness of the low-fat diet is inversely related to the marketing of reduced fat foods. Think about it: 20 years ago we didn’t have fat-free cookies or low-fat mayo; the only dairy products on a low-fat diet were skim milk and some varieties of yogurt — oh, and some really nasty margarine; eating low-fat meant lots of fruits and veggies, with some lean meat. Yeah, you could eat bread or a baked potato, but what would you put on it? If my theory holds true, low-carb diets will become less effective as more ersatz bread and other sugar alcohols sweetened products become available and more dieters use them as a crutch.

Another diet truth is that Calories do matter. Counting grams of this or that is usually a proxy for calories. I personally find that a read of the nutrition panel can talk me out of consuming most things I shouldn’t. Oh, and don’t forget to figure out how many servings are in the container, or how much you are likely to consume at one time.

All the experts say you can’t lose weight and keep it off without exercise, right? Alright, then here is a truth and a half about exercise: Exercise is not fun, and sports are not exercise. Ooooh did I say something unpopular? Even professional athletes have to work out. If pros don’t get enough exercise playing their respective sports, what makes you think you are getting a workout on the sporting field? Furthermore, if you exercise for fun, you will be demotivated when it stops being fun. If you exercise because of the way you look (or want to look), all you have to do is look in a mirror to be motivated. Oh yeah, and don’t think that a good workout means you deserve a treat.

The final diet truth is the heaviest of them all: Your current weight is the result of your current diet. You can lose lots of weight, but if you return to the way of eating that made you fat in the first place you will gain it all back. If you seriously think you have some medical problem which causes you to gain weight or inhibits your ability to lose weight, stop griping about it and see a doctor.

You don’t need spandex to lose weight unless that motivates you somehow. But you might want to wait on the shorts until spring; chances are they will be on clearance by the time it’s warm enough to wear them.

This is improvement?

The economy is great. All the numbers say so, right? So it must be true. GDP is up, way up. Despite all the unemployed people you know, the official unemployment rate is under 6%, so what’s the problem?

So then, how can the numbers be that good and yet, up close, things look so bleak? How come all the State governments are cutting and scraping and scrounging to make ends meet? How come we still on a semi-monthly basis get these heartbreaking stories of family working as hard as they can and still struggling? Or worse, pounding the pavement and still can’t find work more than part time and barely exceeding minimum wage? At what point is there enough anecdotal evidence that we start trying to find data?

The official unemployment numbers undercount millions of people who want jobs. The 4.9 million people who took part-time jobs to put food on the table until something full time (maybe even *gasp* with benefits!) don’t count. the 9.6 million people who call themselves “self-employed” regardless of whether or not they are actually making a living don’t count. The 1.9 million people (up 20% from last year) who have been out of work so long they aren’t looking real hard anymore — “discouraged workers” — don’t count. People who decided to go back to school, update their skills, and live off loans or other student financial aid don’t count. People who have signed on with a “temp” agency, picking up temporary work and possible “working interviews” don’t count. People who have managed to get themselves declared “disabled” regardless of their ability to work don’t count.

It’s a lot less work to just say that you only count if you lost a full time job, are not employed in any way, and are seeking a new full time job. Two out of three isn’t good enough.

Oh yeah, and it seems that jobs aren’t getting any easier to come by. Nevertheless, we have political candidates who are convinced that somehow jobs can be created by tax incentives and home ownership. Sorry, people being able to afford houses is the result of a good economy, not the cause.

Best New Year’s wishes from the ShortWoman. Have a very nice New Years Eve, and be vigilant but don’t panic! Unless of course you see someone carrying an almanac.

Moo!

Here are the undisputed facts: In October of 2001, a dairy farm in Washington bought a cow from a Canadian source. On December 9, that same cow was slaughtered and sent for processing. By this time it was a “downer” cow — one sufficiently ill that could no longer stand up. On December 23, it was announced that after testing, the cow in question was found to have bovine spongiform encephalopathy (BSE), otherwise known as mad cow disease. In response, there was a recall of 20 cows worth of meat, reportedly about 10,000 pounds, “to reassure the public” and with an “overabundance of caution.” Oh, you didn’t know it was legal to sell cows too sick to stand up and make food out of them? Blame Congress. There is still time to send a letter before they get back to work after Christmas (January 20. It must be nice.)

Here’s where things get dicey. Once it was clear that chopping up very sick animals and feeding them to animals who are not sick was a bad idea — an idea which should have been common sense — both the United States and Canada banned the use of cow parts in cow food back in 1997. That’s 6 years ago. The problem is that the official American records on this cow indicate that it was born in 1999, 4 years ago.

Or was she? One of the links above says 5 years. One source even claims the cow was 12 years old! Today they are saying the Canadian paperwork shows the cow was 6, maybe even 6 and a half. So then, is it even plausible that somebody made an honest mistake? Or did somebody deliberately make the cow out to be 2 years younger than it was? And in that case, who did it and on which side of the Canada-America border? Who should be expecting the fraud lawsuit Monday morning?

Oh, but don’t pin all the blame on the cattle brokers. It seems that the bad-stuff-in-feed ban isn’t enforced as well as it probably should be. In fact, even officials admit there is now only 99% compliance. You wouldn’t think it was hard to keep cow parts out of the feed mix, but apparently it is!

After we figure out little details like where the cow came from, when it was really born, and how the heck it came to have a terrible brain eating illness that can be transmitted to humans who eat it, the next step will be to track down every cow that shared a feeding trough with it. Most of these cows are likely to still be alive. Perhaps insane, but alive. Be skeptical if absolutely none of the cattle in question turn out to be infected.

These guys suddenly don’t seem as wacky as they used to.

Diversity and Diversification

Diversity is a good thing. Diversity in nature makes all the different plants and animals in a given area into a sustainable ecosystem; a pond of nothing but frogs would not last long. Diversity in your assets buffers you against market drops; a portfolio of nothing but Enron stock would not make a good nestegg. Diversity in the workplace keeps businesses from making stupid cross-cultural mistakes; a Yom Kippur grocery sale would go over about as well as the apocryphal sale of the Chevy Nova in Spanish speaking nations.

Sometimes we try to impose artificial diversity — or artificial lack of diversity. For example, we plant a field of nothing but corn because it would be terribly confusing to separate ripe corn from ripe potatos; we accept the premise that this situation is unsustainable without human intervention. Or, we implement a program to insure that a school has a student population more closely mimicing the overall American population.

As the State of the Union address approaches, you will be hearing more about Bush’s ideas for the “ownership society,” an idea he has actually been building towards for some time. The short version of this policy is that not only is diversity good, but it is a good idea for all kinds of people to own things: “that American workers aspire to be owners — of stock for their retirement, homes, businesses, good health insurance, and skills they need to navigate multiple changes of jobs and careers.” And who is stupid enough to disagree with that thesis? Particularly if there is not much talk about the actual proposals?

Recent Fannie Mae ads are already towing the line on this issue. Those of you who have been reading the ShortWoman for a while know my opinion of such warm, fluffy idiocy. Again, the central idea is that everybody should own a house. Anybody foolish enough to ask why is greeted with a stare of disbelief and a speech about tax deductions and biggest asset the typical American has and stability. Never mind the tax deduction being smaller than the money spent, never mind a mortgage being the biggest liability the typical American has, never mind that quite simply there are reasons people might not want or need to own real estate. Indeed, although new legislation would help 40,000 low-income families with the downpayment on a house, these people are the most likely to find themselves buried under a house in serious need of Norm that they can neither afford to fix nor sell.

Unfortunately, when the Administration speaks of “ownership,” they really mean it in the therapist’s definition: “responsibility.” When you “take ownership” of something, you are “responsible” for it, responsible for needed changes to it. The Administration does not want you to just own your house, they want you to own your retirement (privatize social security, an idea which should have been completely debunked by this chart); they want you to own your healthcare; they want the unemployed to take responsibility for finding a new job. Here’s the problem: “For starters, the very people who lack the decent health insurance, the money for retraining, and the secure nest eggs are short of adequate earnings from which to take out savings. So most of the tax breaks, like the rest of the Bush tax program, will go to people who don’t really need them, while those who rely on genuine help will come up short.”

They aren’t interested in you owning assets; they are interested in you being responsible for liabilities. If the Administration had any stake in broad ownership of actual property, they would encourage more policies that promote small business, a proven wealth generator that even creates jobs.

Doc, it hurts when I do this.

As the calendar ticks over into 2004, a plethora of interesing, trivial, important, annoying, and otherwise simply new things happen. For one thing, in the middle of cold and flu season just like every year, many Americans change private health plans. This is rarely a completely voluntary choice: either a decision was made by a pointy-haired boss, or the family made a decision balancing cost and benefits to change coverage back in an open enrollment period some months ago.

Families and pointy-haired bosses are not the only ones making hard decisions about health care. Doctors and clinics are making tough choices too. They too have to balance money and healthcare. Among other things, they must decide which health plans and insurance companies pay enough that they can afford to provide treatment.

Many doctors are still in the business to serve others, but even they admit that they can’t afford to provide care below cost forever. A non-trivial number of doctors, like Susan Hershberg Adelman, MD, have determined that it is simply no longer possible to provide medical treatment the poor without joining them in poverty. Her figures citing that over a third of area hospitals have closed in the last 25 years is particularly damning inasmuch as Michigan prohibits for-profit hospitals: no money is being siphoned off to a corporate profit statement and an over-hefty CEO salary.

Reasons she states for closing her own practice include the fact that Medicaid in Michigan only pays 38% of the billed amount. Nor is this an unusual reimbursement figure. Try paying 38% of your bills and see what happens. She also cites high (and rising) malpractice insurance rates and the dreaded “unfunded government mandates.” You hear a lot about those unfunded mandates lately, not just in medicine, but in the costs of implementing DHS Code Orange and No Child Left Behind too. Although she does not mention stringent and sometimes contradictory regulations, that surely played a role too. She specifically does not see a single payer system as an answer because, “If we change to a single payer system, Washington no doubt will franchise it out to the same private insurers that state Medicaid programs contract with today.”

Ah, but some of you are asking why this matters. Record poverty levels, particularly among children, aren’t enough reason for you? How about the fact that long term unemployment is relegating even educated professionals into the ranks of the poor, the uninsured, and the underinsured? How sure are you that your family will not need Medicaid and a doctor like Dr. Adelman in the next 5 years?

American corporations might be able to get computers programmed and research done in India. However, we cannot outsource medical care to foreign nations. The time has come to seriously discuss how to balance “stemming the rise in health care expenditures” with “paying enough for medical care that it will still be available next year.”

Preamble to 2004

Just about all of Generation X can recite this, but not without hearing that song in their heads:

We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America.”

This week there have been events pertinent to most of the line items in that paragraph. Let’s start with establishing justice. This week an appeals court ruled that the Bill of Rights applies to everyone, and not even the President has the authority to arbitrarily declare that certain people do not get due process of law. Specifically, Jose Padilla has the right to a speedy, public trial with lawyers and everything. Furthermore, a different appeals court declared that those folks held at Guantanamo Bay for the last year and a half deserve lawyers too. Even if you think all these people should be executed and burn in hell, they deserve the same rights of due process that you deserve, mister law abiding citizen. If they can pick up some random guy who happens to be Muslim at the airport and lock him up incommunicado for 18 months on skimpy evidence, what is there stopping them from doing the same to you?

Moving on to domestic tranquility and the common defense, we have another “look out!” warning that doesn’t rate an increase in the terrorist warning system to orange. All we are allowed to know is that we should be alert but don’t panic in New York, Los Angeles, and Washington, DC. Oh, and be wary at the airport too. Never mind that Bush’s hand picked Chairman of the 9/11 Probe Committee says the whole thing could have and should have been prevented. Let’s not forget the nutcase shooting at passing cars and school busses in Ohio. Things don’t sound very tranquil on the domestic front.

The general welfare isn’t looking too good either. As I have discussed before, poverty is up, bankruptcies are at record levels, consumer debt is high, the trade deficit is funneling money out of the country, and the dollar is at historical lows.

Christmas is just a few days away, and retailers are still waiting for the register to ring. It seems that the luxury and electronic retailers are doing fine, but the discounters and clothiers are not. My theory is that the typical discount store shopper has run out of money and finally maxed out the credit cards. They are waiting for the December 23 “Oh please get it off our shelves” sale.

Let’s not forget this item: experts tell us that “Structural change in the economy means many jobs are never going to come back.” Not just manufacturing jobs that are being done by machines and cheap foreign labor, but good jobs in finance, computers, and the courts. Make no mistake, Generation X now has a history of making jobs where there have been none. We were told when we graduated college that we were pathetic, apathetic slobs who would be the first generation to not do as well as their parents. Left unsaid was “…and you should be ashamed of yourselves.” We shrugged, exhaled loudly, and created the internet bubble. There was no such thing as a “web designer” when we were in high school. I don’t know if we are prepared to do it again.

California is no closer to ending the grocery workers strike. They are still wrangling about health care costs. Interestingly enough, the Congressional Budget Office is also concerned about health care costs, saying that we’d better make serious changes to Medicaid and Medicare, or accept that taxes will be really high in a decade when the Baby Boomers start to retire. So much for the blessings of liberty for ourselves and our posterity.

Here’s wishing a happy 2004 for the Land of the Free and the Home of the Brave.

Pork and Beans

There is still time to write your Senator. If you are too lazy, use this handy form.

It seems that the Omnibus Spending Bill has yet to pass the Senate, let alone be signed by the President. How ironic that our elected officials can let something as important as funding most non-military functions of the United States slide until after the holidays. No rush, after all, this spending bill is for the 2004 fiscal year — which started October 1, 2003. The irony is that this spending bill would effectively eliminate overtime as we know it, allowing your boss to make you work as long as he likes, only pay you for 40 hours per week, and make a vague promise to give you some free time within the next year or so at his whim. Anybody who says this is good for families is either lying or not thinking about it. This isn’t even good for the economy, since it provides disincentive to hire more workers, and doesn’t put any more money in the pockets of the existing workers who are theoretically boosting productivity.

But wait! There’s more! As a bonus, 80,000 people would stop receiving unemployment benefits effective December 21, 2003. Merry Christmas. Scrooge would indeed be proud.

Don’t like beans? Sample some of the pork then. There is plenty to go around. Start with hundreds of millions for FBI information technology, prison construction, and a “classified defense department project.” There are tens of millions of dollars for such projects as a voucher system for Washington, DC public school students to attend private school (you know what I think of that), an indoor rain forest in Iowa, and increased border patrols. Mere millions for youth golf programs, a police athletic league, the “International Fertilizer Development Center” and “an international narcotics control law enforcement academy in Roswell, NM.” Hundreds of thousands are made available for lubricant research, shopping centers, traffic lights, museum construction, special interest groups, documentary film production, “streetscaping,” trout genome mapping, a ballet school, and similar projects you would think could raise money on the local level. This enterprising Congressman managed to rake in $34 million for one county alone. That’s over 25% what the entire State of Utah managed to haul in. I guess pork is only bad when it’s in somebody else’s district.

Of course, Senator Reid is quick to point out that part of the problem is the various measures that the President insisted must be in this bill. Pardon me for pointint out that the President does not write legislation, he just signs or vetoes it. Oh wait, Mr. Bush has yet to veto a single thing.

This thing is so bad nobody likes it. Unions don’t like it. School administrators don’t like it. Liberals don’t like it. Fiscal conservatives don’t like it. And the ink is barely dry on the darn thing. If past legislation is any example, yet more egregious abuses of tax dollars may yet be discovered in its pages.

I bet the best job this bill creates will be as a golf pro.