• economic news summary, stock markets and presidential elections

    Stock Markets and the Presidential Election

    Jan 6 • Behavioral Economics, Economic Growth, Economic History, Economic Thinkers, Financial Markets, Government, US Presidential Election • 130 Views

    The warning that past performance is no guarantee of future results was particularly true for 2015. Up during Year 3 for the past 17 four year presidential cycles, in 2015 the S&P 500 was down 0.73%. The Dow also has not had a decline during a pre-election year since 1939.

    You can see (below) that Year 1 of the 4-year presidential cycle has been the least likely time for the S&P 500 to go up:

    Election economics and the S&P 500

    From: Federatedinvestors.com

    Where are we going? To some election cycle analysis (that might not be useful but is interesting).

    Presidents and Stock Markets

    During 2012, former NY Times financial columnist Floyd Norris assessed stock market performance between 1900 and 2012. His goal was to see if we could predict presidential elections. His conclusion? When the stock market soars, so too will the incumbent political party…probably.

    Election economics and the Dow Industrial Average

    From: NY Times

    Our Bottom Line: Stock Market Indices

    Since we’ve used the Dow and the S&P 500 as stock market yardsticks, we should take a brief look at them. Both can be called barometers of stock market activity.

    First published in 1896, the Dow Jones Industrial Average has been composed of 30 major firms since 1928. We could call the Dow a stock “Hall of Fame” because its components, all pacesetting companies, are removed from the average when they decline.

    Much more recent, the S&P was created in 1957 and rapidly became a “world standard” for market performance because of its 500 leading companies. Also an index that is updated as the economy and firms evolve, it has seven industry groups:

    • Materials
    • Energy
    • Consumer Discretionary
    • Industrials
    • Utilities
    • Telecom Svc
    • Consumer Staples
    • Health Care
    • Financials
    • Information Tech

    And finally, xkcd has provided an alternative image of market activity.

    new stock markets and stock market activity

    From: xkcd

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  • economic news summary and recession shopping

    Our Shopping Behavior During the Great Recession

    Jan 5 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Labor, Lifestyle, Macroeconomic Measurement, Thinking Economically • 101 Views

    Asked about the cost of food shopping during the Great Recession, many of us would say we spent less.

    Not necessarily.

    Where are we going? To the changing cost of time.

    The Cost of Food Shopping

    During October 2009, unemployment peaked at 10 percent. With households experiencing cutbacks at work, troubled stock markets and a declining GDP, they changed how they bought their food. Rather than organics and premium brands, they searched for coupons, purchased sale items, bought in bulk, and visited multiple stores.

    Based on slightly more than 4.2 million transactions for food with a barcode from 112,837 households over 32 consecutive months, researchers from Northwestern University concluded that while the dollar cost of food shopping declined, its time cost increased. People had to look through newspapers and online for coupons. They needed to identify sale items and stores with cheaper merchandize. Speaking economically, we could say the economy was experiencing “intratemporal reallocation.” More simply, we switched how we used our time.

    The reason? The recession made time less valuable. Whereas pre-recession we used more money and less time for food shopping, during the recession, the tradeoff changed. The marginal value of the dollar went up while the marginal value of time went down. As a result, especially for the jobless, time spending ascended.

    You can see below how our shopping behavior changed from 2008 onward. And, even before the Great Recession (12/2007-6/2009), the over-65 cohort (yellow line) engaged in time-consuming shopping.

    Life cycle and business cycle changes in the cost of time and shopping

    From: “The Elasticity of Substitution Between Time and Market Goods: Evidence from the Great Recession”

     

    Our Bottom Line: The Cost of Time

    Economists have actually calculated that the cost of time declines by 27 percent by the time we are elderly. In Venezuela, Hugo Chavez catered to individuals with more time when his price controls created long lines. Smart businesses make coupons somewhat difficult to access so those of us who have more money and less time pay full price.

    Whether looking at the business cycle or the life cycle, the cost of time influences the dollars we spend.

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  • economic news summary and missing productivity

    Why We Should Worry About U.S. Productivity Growth

    Jan 4 • Businesses, Demand, Supply, and Markets, Economic Growth, Economic History, Economic Thinkers, Innovation, Labor, Lifestyle, Macroeconomic Measurement, Thinking Economically • 107 Views

    At the beginning of the 20th century, in one place, teams of workers gradually assembled a car. The chassis took 12 hours to finish while magneto production required 15 minutes and 29 workers. (A magneto helped to start the ignition.)

    Imagine people’s astonishment when the Ford Motor Company experimented with conveyor belts that streamed parts to the worker. Yes, they suspected they would slice some time off production. But the results were stupendous. Using 14 workers doing repetitive tasks, magneto assembly time plunged to five minutes. Chassis production time dropped from 12 hours to 2.3. The result? Output soared and per car cost dropped. By the mid-1920s, the lowest priced Model-T was $260.

    An economist would say that productivity had created an affordable car.

    Productivity from moving assembly line

    Magneto production on one of Ford’s first moving assembly lines. From: Car and Driver

    Where are we going? To why our productivity growth slowdown is a 2016 worry.

    Productivity Growth

    U.S. productivity growth has been declining:

    Slowing U.S. productivity growth

    A Productivity Mystery

    No one is sure why U.S. productivity growth has been declining.

    Unpaid services

    One possibility is the understated output for unpaid services. We could look for example at Wikipedia. During the 1990s, having purchased an economy set of the Encyclopedia Britannica for $1500I would have boosted the recorded output of the U.S. economy. Now though, when I use Wikipedia to read about the history of Britannica, I give the U.S. Department of Commerce no indication that a service had been produced.

    Similarly, a record of national output could exclude data about any of the following:

    Productivity omissions

    From: “Beyond Goods and Services: The (Unmeasured) Rise of the Data-Driven Economy” (2012)

    Capital

    It is also possible that the productivity problem is capital. Defined as the tools, equipment and inventory that we use to make goods and services, our capital stock has been growing more slowly. Less of a boost in capital can mean a decline in the growth of output.

    Innovation

    Or we could have an innovation pullback. Whether from less entrepreneurial zeal or a dearth of new technology, the problem could be creativity. A University of Maryland economist says that since the 1980s we’ve had insufficient “creative destruction” through which firms die and more successful start-ups ascend. To that we could add economist Tyler Cowen’s hypothesis in The Great Stagnation that, having picked all of the low hanging fruit, innovation has plateaued.

    Princeton economist and former Fed Vice Chair Alan Blinder perfect sums up our productivity woes at the end of a WSJ column: Asking whether we really have a technology slowdown or just a temporary hiatus, he says, “Tune in 20 years from now to find out. In the meantime, worry.”

    Our Bottom Line: Why Productivity Matters

    Because productivity is all about getting more output per unit of input, our standard of living has been able to rise during the last century. And that returns us to where we began. One result of more productivity was the Model T and the countless ways that an affordable auto elevated our standard of living.

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  • everyday economics of gas consumption

    The Mystery of the Missing Gasoline Savings

    Jan 3 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic History, Government, Households, International Trade and Finance, Labor, Lifestyle, Thinking Economically • 131 Views

    Yesterday, the average price of gasoline in the U.S. was down to $1.99 from $3.67 eighteen months ago. Most of us immediately think of the reason is the plunging price of crude. However, since the oil itself accounts for less than half of what we pay, state and federal taxes and refinery issues matter also:

    Gasoline prices breakdown

    From: EIA

     

    Taxes and refinery issues mean that where you live affects what you spend on gas:

    regional gasoline prices

    Knowing where we live helps us solve the mystery of where our gas savings go.

     

    Who Spends What On Gas

    Because people in the Midwest and South do the most driving and have the lowest prices, they are enjoying the plunge the most.

    You can see below that geography determined whether the decline in gas prices had a high or a low impact:

    gas prices impact

    In addition to geography, the impact of the price change depends on income. For those who earn the least, the price change has the greatest impact because it represents a higher proportion of their discretionary income. Individuals in the bottom quintiles experienced the equivalent of a 2.1 percent income increase from 2013 to 2014. The income impact was much smaller for those who earn more.

    All of this takes us to a JP Morgan study of the spending changes of 25 million debit and credit cardholders and then one million of what they called a core group. Very different from what we have read in the media, they conclude that we are indeed spending 80 percent of what we save on gas. But depending on where they live and what they earn, the numbers vary immensely among their account holders.

    The chart below tells us where that money is going:

    gas prices

    From: JP Morgan

    I guess that solves the mystery…or maybe not if the evidence accumulates that we are saving and not spending the extra gas dollars. But we will save that for another day.

    Our Bottom Line: Marginal Propensity to Consume

    The gas saving mystery takes us to what economists call the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). Whenever we have extra income, we can either spend or save each extra (marginal) dollar. Adding together the MPC and the MPS, the total is one. Based on the JP Morgan report, we can say that the MPC for each gas dollar we put in our pocket is .8.

    But, as we have seen, since it depends on the geography and demography of many millions of people, the answer to where our gas savings are going has been a mystery.

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  • The econlife.com economics news summary

    Weekly News Roundup: From Soap Operas to Stock Markets

    Jan 2 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Economic Growth, Economic History, Economic Humor, Economic Thinkers, Education, Entertainment, Financial Markets, fiscal policy, Gender Issues, Government, Innovation, Lifestyle, Thinking Economically • 94 Views

    Posts Roundup

    economic news summary and Alaska's Dutch disease Sunday 12.27.15

    Getting sick from oil…more

    economic news summary and stock market insight Monday 12.28.15

    What stock markets teach us…more

    economic news summary and gender gap Tuesday 12.29.15

    The soap opera that shrunk the gender gap…more

    economic news summary and pay what you want Wednesday 12.30.15

    What happens when we choose our own price…more

    economic news summary and changing times globally Thursday 12.31.15

    When countries control the time…more

    everyday economics and top ten list Friday 01.01.16

    More from our top ten lists…more

    Ideas Roundup

    • economic humor
    • externalities
    • profit
    • self-signaling
    • behavioral economics
    • maximizing revenue
    • gender gap
    • fertility rate
    • stock markets
    • return on investment
    • innovation
    • creative destruction
    • Dutch disease
    • fiscal policy

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