Less support for housing?

In a new column entitled “Time to Let Home Prices Fall?”, Tom Petruno of the LA Times writes:

Leave housing to market forces, let prices fall until buyers are motivated to come in, and hope that the economy can stand one final cathartic wave to clear the excesses of the bubble.

He also notes that

a new decline in home values also could force the banking system, and the government, to finally deal realistically with a root cause of the economy’s woes: the gigantic debt load consumers took on over the last two decades.

As measured by the Federal Reserve, the household sector is  reducing its debt, but at a very slow rate. And because domestic hedge funds and nonprofits are folded into the stats for the household sector,  we have no idea whether actual American households are reducing their debt at all.

The question is whether a sharp fall in housing prices would be bracing or destructive.

Why We Struggle: Too Much Housing, Too Little Information Technology

Here’s a chart that to me sums up the past decade.  This was supposed to be the Information Revolution…but what we mostly did was build homes.

Private fixed assets are things like machinery, computers, factories, power plants, housing–all the privately-owned productive assets of the country.  From 1999 to 2009, the real net stock of private fixed assets grew by 26%, the slowest 10-year increase in the post-war period, according to data from the Bureau of Economic Analysis.

That slow growth in real private fixed assets is bad enough.  What’s worse, housing accounted for the majority, 53%,  of the real increase in private fixed assets. By comparison, information technology equipment and software–computers, software, and communications equipment–only accounted for 14% of the increase in productive assets. If we toss in spending by on ‘communications structures’, that gets us up to 16%.

In any case, the net real increase in housing fixed assets was more than triple the net real increase in IT fixed assets.  That may help explain why we are in such dire straits now—plenty of new homes, not enough investment in IT.

That’s why I’m not terribly concerned about the slow pace of recovery in the housing market.  I’d rather see money go to more productive uses.

Some caveats: This analysis does not include government assets or consumer durables.

Stem Cell Research Ruling and Growth

I’ve been writing about countercyclical regulatory policy as a way of boosting U.S. economic growth and innovation. The latest judicial move against stem cell research, though, is just the opposite.  Just to quote from an old colleague of mine at BW, Bruce Einhorn

Asian countries are well-positioned to benefit from the latest setback for stem cell research in the U.S. During the Bush years, countries such as Singapore and China took advantage of the U.S. ban on embryonic stem-cell research by providing a more welcoming environment for scientists to work. See, for example, this story I did back in 2005 about Asian efforts to capitalize on the U.S. ban. Describing what he called the “astonishing” progress made in Asia, Robert A. Goldstein, chief scientific officer at New York-based Juvenile Diabetes Research Foundation International, told me then that many Asian governments were asking themselves: “Since the U.S. doesn’t seem to be taking a lead role, why don’t we?”

With Obama’s election and his easing of restrictions, that question became moot as the U.S. got back in the game. Now, though, the Aug. 23 ruling by U.S. District Judge Royce Lamberth halting U.S. funding for embryonic stem-cell research is a reminder of the uncertainty surrounding the issue in the States. Even if Judge Lambert’s ruling is overturned on appeal, what happens if Sarah Palin, Newt Gingrich, or some other conservative Republican defeats Obama in 2012? Count on a new executive order banning research before the Inauguration Day balls are even over. There’s almost zero chance of any such change in policy in Singapore, China, or other Asian countries aspiring to be centers of stem cell research.

If the U.S. wants to grow, making research harder is not the way to do it.

Top Occupations for the Educated Young

If you are a new college graduate, what kind of job can you expect to get?  That’s obviously a tough question in this economic environment, so I first decided to see where young college grads are working today.  The tables below look at the top occupational groups for young (aged 25-34) holders of bachelor’s degrees and associate degrees.

The first thing to note is that young women and young men still have different occupational patterns. In fact, I was surprised by the size of the gap (maybe I shouldn’t have been surprised, but I was).

For both genders, the top occupational group is management, business, and financial. But almost 40% of young female college grads work in healthcare or educational occupations, compared to 17% for young male college grads.  On the flip side, computer and engineering occupations show up near the top for  young male college grads, but not for females.

  Top Occupations for Young Male College Grads    
    percent of labor force, aged 25-34*
Management, business, and financial occupations 23.1%  
Sales and related occupations   11.1%  
Computer and mathematical science occupations 10.1%  
Education, training, and library occupations   9.1%  
Healthcare and social services occupations   7.4%  
Architecture and engineering occupations   7.3%  
Top Occupations for Young Female College Grads    
    percent of labor force, aged 25-34*
Management, business, and financial occupations 20.5%  
Healthcare and social services occupations   19.6%  
Education, training, and library occupations   19.3%  
Office and administrative support occupations   11.6%  
Sales and related occupations   7.4%  
Arts, design, entertainment, sports, and media occupations 3.8%  
*12 months ending July 2010, bachelor’s degree or higher    
Includes anyone who responded with an occupation,    
 including a small number of people not in the labor force    
Data: Current Population Survey      

And here is the table for young holders of associate degrees.  This includes the associate degree in nursing for registered nurses.

The gender difference here is enormous.  For young women with associate degrees, more than half are in health and social services occupations or office and administrative support occupations.  But  surprisingly, those two occupational groups are low on the list for young men with associate degrees, and don’t even show up on the top six.

  Top Occupations for Young Male Associate Degree Holders  
    percent of labor force, aged 25-34*
Installation, maintenance, and repair occupations 11.3%  
Sales and related occupations   11.2%  
Management, business, and financial occupations 10.5%  
Construction and extraction occupations   9.7%  
Protective service occupations   6.9%  
Transportation and material moving occupations 6.6%  
Top Occupations for Young Female Associate Degree Holders  
    percent of labor force, aged 25-34*
Healthcare and social services occupations   32.3%  
Office and administrative support occupations   24.0%  
Sales and related occupations   8.9%  
Management, business, and financial occupations 8.3%  
Food preparation and serving related occupations 4.7%  
Education, training, and library occupations   3.6%  
*12 months ending July 2010, associate degree and not a bachelor’s degree  
Includes anyone who responded with an occupation,    
 including a small number of people not in the labor force    
Data: Current Population Survey      

P.S. I did the tables differently for this post. Better or worse?

Defense Implications of Misleading Manufacturing Capacity Data

I’m following up my industrial production post. As calculated by the Federal Reserve, U.S manufacturing capacity today is 82% higher than it was in 1990.

The same pattern shows up in Fed data on individual industries. According to the Fed,  domestic manufacturing capacity in the motor vehicles industry is 66% higher than it was in 1990.  Similarly, the Fed figures suggest that domestic production capacity has risen over the past 20 years in the aerospace, machinery, chemical, electrical equipment, and especially computer industries.

What’s going on here? Both production and capacity are defined in terms of the value of shipments from a plant. That is, from the perspective of the Fed, a factory that makes all the components of a machine in-house is absolutely indistinguishable from a factory that imports all the components and simply assembles them into the final product.

Or, to put it a different way, an aircraft factory that builds all the components of a plane–wings, avionics, seats–is indistinguishable from  a factory that imports the components and ships the assembled plane.

Why does this matter for defense?  The source data  for most of the Fed’s capacity numbers comes from the Census Survey on Capacity Utilization (now quarterly). Here’s the form, and here’s the instructions. Companies are asked to estimate the value of their shipments each quarter, and their full production capability, defined in terms of shipments.

But then manufacturers are also asked for their National Emergency Production. This question was put on the form “at the request of the Department of Defense.”  The manufacturers are told to

Estimate the market value of production for this plant as if it had been operating under national emergency conditions for the quarter .

But here’s the kicker. In estimating national emergency production, the manufacturers are told to assume that

funding, labor, materials, components, utilities, etc. are fully available to you and your suppliers.

As worded, this question makes no distinction between foreign and domestic suppliers. And while Washington may have the ability to impose a national emergency on American plants, the U.S. has no such power over suppliers in China, Mexico, Japan, or any other country. We can’t order Chinese plants onto emergency footing.

As a result, the answer to this question will give a misleading rosy picture of the emergency capabilities of the U.S. manufacturing sector in the case of a natural disaster or major war.

Sometimes bad data is worse than no data…this is one of those times.

Interesting statistic on communications

From a new FCC report

The most data-intensive 1% of residential consumers appear to account for roughly 25% of all traffic, the top 3% consume 40%, the top 10% consume 70%, and the top 20% of users consume 80% of all data 

So the top 3% of residential users consume 40% of the data traffic. Is it fair or unfair to price by usage? 

Industrial production gain not as good as it looks

Today the Federal Reserve announced that manufacturing output rose 1.1% in July, led by an 9.9% gain in the output of motor vehicles and parts. Over the past year, the output of motor vehicles and parts rose by 32.6%.

But remember, this is an output gain, not a value-added gain. Output measures the number of motor vehicles and parts leaving domestic factories. But it doesn’t take into account any increase in offshoring–that is, use of imported parts.

It turns out that over the past year, imports of motor vehicle “parts, engines, bodies and chassis” rose by 79%. Yowza.

The implication is that there are a lot more imported parts and engines going into ‘American-built ‘ cars and trucks.  So value-added in the domestic auto industry–which is what really matters–went up less, maybe a lot less, than 32.6%.



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