April 1, 2023

Wall Street Bounces Back

Inflation data, which reinforced expectations that the Federal Reserve will keep its stimulus in place, added to bullish sentiment.

The price of gold jumped after its record daily drop in dollar terms on Monday. U.S.-listed shares of Randgold Resources climbed 1.8 percent to $70.29. The SP 500 materials index rose 1.5 percent, leading the index higher.

The market’s advance followed the SP 500’s drop of more than 2 percent drop on Monday, giving the index its worst one-day percentage loss since November 7. The index is up 10 percent since the start of the year after enjoying a strong first-quarter run.

“It’s a relief rally, and investors … are looking, as they have after any pullback we’ve had in the past several months, to take advantage of it and buy,” said Alan Lancz, president of Alan B. Lancz Associates Inc., an investment advisory firm based in Toledo, Ohio.

Coca-Cola Co shares rose to $42.41, their highest since 1998, and gave the biggest boost to the Dow after a higher-than-expected profit and a deal to unload some distribution territory to five independent U.S. bottlers. ID:L2N0D30HG The stock was up 5.3 percent at $42.23 in late afternoon trading.

The stock of another Dow component Johnson Johnson touched a record high of $83.50 after the healthcare company reported better-than-expected first-quarter earnings. JJ shares shot up 1.7 percent to $83.13.

SP 500 earnings are now expected to have risen 1.8 percent in the first quarter, based on actual results from 42 companies and estimates for the rest.

The Dow Jones industrial average was up 116.49 points, or 0.80 percent, at 14,715.69. The Standard Poor’s 500 Index was up 16.57 points, or 1.07 percent, at 1,568.93. The Nasdaq Composite Index was up 37.34 points, or 1.16 percent, at 3,253.83.

Analysts’ positive views on basic materials companies also helped the sector. The materials index had dropped more than 5 percent in the two previous sessions combined.

On Monday, a drop in the price of gold and other commodities triggered a sharp selloff in stocks. But U.S. stock indexes fell further late in the session after news of two fatal explosions near the finish line of the Boston Marathon.

The SP 500’s slide on Monday took the index back to a range it had held for about a month. Tuesday’s gains set it on track to close above its 14-day moving average

International Paper and Vulcan Materials were among the top performers in the materials sector after bullish analysts’ notes.

Further supporting equities, data showed the U.S. Consumer Price Index fell in March for the first time in four months, giving the Federal Reserve room to maintain its monetary stimulus to speed up economic growth.

Intel Corp, up 2 percent at $21.81, and Yahoo Inc, down 0.1 percent at $23.96, are due to report after the bell.

The semiconductor index was up 1.7 percent.

(Additional reporting by Rodrigo Campos Editing by Kenneth Barry, Nick Zieminski and Jan Paschal)

Article source: http://www.nytimes.com/reuters/2013/04/16/business/16reuters-markets-stocks.html?partner=rss&emc=rss

Today’s Economist: Casey B. Mulligan: The Rise and Fall of Wages


Casey B. Mulligan is an economics professor at the University of Chicago.

Aggregate wage-rate data show no sign of the huge and prolonged demand shock said to have hit the economy in 2008. Instead, they bear the fingerprints of an expanded social-safety net.

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A conventional narrative of the American labor market since 2007 is that the demand for labor collapsed, so that despite a uniformly willing and eager work force, millions of people had to go without jobs. This narrative is an aggregate theory and not primarily about sectoral shifts that would depress demand for some types of labor and increase it for others. If this narrative is accurate, it should be visible in aggregate wage-rate data.

At a minimum, the aggregate demand collapse should have frozen wage rates in dollar terms, so that inflation-adjusted wages would erode with inflation as consumer prices crept up. With the price index for consumer items 8 percent higher at the end of 2011 than it was when the recession began, inflation-adjusted hourly wages should have fallen at least 8 percent over that time frame, if not more.

In my view, the change in aggregate demand has been heavily exaggerated, and the greater impulse affecting the labor market over the last five years has been higher marginal tax rates created by an expanding social safety net of unemployment insurance, food stamps, Medicare and other anti-poverty programs. Those tax rates, as I noted last week, refer “to the extra taxes paid, and subsidies forgone, as a result of working, expressed as a ratio to the income from working.”

I expected real wage rates (and hourly labor productivity) to rise in the short term, and to do so a couple of percentage points above the previous upward trend made possible by continuing progress of the productivity of labor and capital.

Marginal tax rates increase real wage rates a few percentage points in the short term because, with more help during unemployment, employees at struggling businesses have less reason to make some of the concessions in wages and working conditions that can help the employer to retain employees affordably.

As I explain in “The Redistribution Recession,” wage rates would quickly fall back toward the trend line when some of the temporary safety-net measures began to expire, which was two or three years after the recession began.

Those safety-net expansions that were permanent would eventually reduce average real wage rates, as people out of work reduced their human capital investment. This reduction might reflect people who, because they no longer practice a trade, lose contacts in the workplace or no longer maintain a wardrobe or tools they need for work. (For more on this effect, see especially the literature on women’s wage trends.) Unfortunately, these wage reductions do not encourage employers to hire because they derive from reductions in productivity.

The black series in Chart 1 below shows aggregate real wage rates measured as inflation-adjusted employee compensation (including fringe benefits like health insurance) per hour worked. I have removed an upward trend, because for short-run analysis it is interesting to look at deviations from trends. Under normal conditions real wages can increase with productivity even while the amount of labor is neither rising nor falling.

The trend adjustment is 0.5 percent a year, based on the average rate of growth of total factor productivity during the four years before the recession. Without the trend adjustment, the black series would increase two percentage points more through 2011 than shown.The trend adjustment is 0.5 percent a year, based on the average rate of growth of total factor productivity during the four years before the recession. Without the trend adjustment, the black series would increase two percentage points more through 2011 than shown.

The chart also shows in red the marginal tax rate on labor income measured in my book for a typical household head or spouse based on the ever-changing eligibility and benefit rules for safety-net programs. Sure enough, real hourly compensation increased during the recession and did so about a quarter after marginal tax rates began their increase.

Marginal tax rates were high and fairly flat during 2009 and early 2010 as the “stimulus” law was in full force. During this time, real wages failed to fall back anywhere close to their prerecession values. Only when some of the stimulus provisions began to expire, reflected in a marginal tax rate that falls to 44 or 45 percent from 48 percent, did real wage rates decline quickly and significantly.

Even after the decline in late 2010 and early 2011, it looks as though real wage rates are about where the previous trend line was, rather than being the several percentage points below what one might expect after a huge, prolonged demand shock.

A few economists have used Census Bureau wage data, which ignore the fringe benefits from employment, to show that wages fell during 2010 and 2011. It is incorrect to ignore fringe benefits (I discuss this and other wage measurement issues in Chapter 2 of “The Redistribution Recession”), but the choice of series is just a quibble, because none of the aggregate wage measures display a cumulative decline that would be commensurate with the huge, prolonged demand collapse said to have occurred.

A magnifying glass is not required to see a decline in after-tax real wage rates. The after-tax real wage rate (calculated as the product of real hourly compensation and one minus the marginal tax rate) shown in black in Chart 2 reflects the net financial reward per hour of working, taking into account taxes and safety-net subsidies.

TKTKTKTKThe after-tax real wage series has been adjusted for a trend of 0.5 percent a year.

Marginal tax-rate changes, such as those created by an expanding social safety net, cause deviations between the real hourly compensation shown in Chart 1 and the after-tax series shown in Chart 2. In theory, the downward marginal tax rate effect on after-tax real wages exceeds the upward effect on real hourly compensation.

In fact, after-tax real wages fell a startling 12 percent below the trend line during the first two years of the recession (note that each tick in Chart 2 is twice as large as each tick in Chart 1). They rebounded somewhat as marginal tax rates came off their stimulus highs but still remain six or seven percentage points below the trend line.

The quantity of labor — hours worked per capita including zeros for people not working – is shown as a red series in Chart 2. Remarkably, labor and after-tax real wage rates collapse together, hit bottom together and exhibit a partial recovery together.

Helping the poor and unemployed is intrinsically valuable, but is not free. It has made labor more expensive and depresses employment.

Article source: http://economix.blogs.nytimes.com/2012/10/03/the-rise-and-fall-of-wages/?partner=rss&emc=rss

China Bends to U.S. Complaint on Solar Panels, but Weighs Retaliation

HONG KONG — Chinese solar panel makers plan to shift some of their production to South Korea, Taiwan and the United States in hopes of defusing a trade case pending against them in Washington, according to industry executives.

But at the same time, the Chinese industry is considering retaliating by filing a trade case of its own with China’s Commerce Ministry.

The most likely target would be American exports to China of polysilicon — a prime ingredient in solar panels — Chinese industry executives and officials said on Monday. American manufacturers exported about $873 million of polysilicon to China last year, nearly as much in dollar terms as the value of the solar panels that China shipped to the United States.

The Chinese moves come after the United States Commerce Department opened a trade case against China’s solar panel makers earlier this month, at the request of SolarWorld Industries America and six other American solar companies.

The Commerce Department said it was considering punitive tariffs of 50 to 250 percent on Chinese solar panels, based on preliminary evidence that China was “dumping” solar panels in the United States below the cost of making and marketing them. The department is also investigating whether the Chinese government is breaking international trade rules by subsidizing the export of solar panels — if such a finding was made, it could result in additional tariffs.

Having hired trade lawyers to advise them on the Commerce Department case, Chinese solar panel manufacturers are increasingly gloomy about their chances of winning it, said Ocean Yuan, the president of Grape Solar, a big importer of Chinese solar panels that is based in Eugene, Ore.

Mr. Yuan said that Grape Solar was already negotiating with several Chinese manufacturers, whom he declined to identify, to perform final assembly of solar modules in Oregon. That would be the last step in new supply chains the Chinese industry intends to set up that would start in China then run through South Korea and Taiwan in hopes of avoid any new tariffs.

But because final assembly of solar panels is relatively low-tech manual labor, any Chinese expansion into Oregon would be unlikely to add many valuable American jobs.

Currently, the only Chinese solar panel assembly site in the United States is near Phoenix and owned by Suntech Power. That plant has a capacity equal to about 3 percent of the American market for solar panels.

Even before the filing of the trade case, Suntech had begun preparations to increase output at that operation, planning to add a work shift and double the size of the factory. But that will expand the current work force to 260, from 110 now. And even then, its capacity would serve only a small fraction of the American market. By contrast, companies based in China supplied more than 40 percent of the American market for installed panels in the third quarter of this year, according to GTM Research, a renewable energy consulting firm based in Boston.

Meanwhile, the Chinese solar panel industry is seeking legal advice on filing its own antidumping and antisubsidy trade case against the United States, industry executives in Beijing said Monday.

The most likely target would be American exports of polysilicon, the main material used in making conventional solar panels, said Wang Shijiang, a manager at the China Photovoltaic Industry Alliance based in Beijing.

The manufacture of polysilicon requires enormous amounts of energy — so much electricity that it typically takes the first year of operation of the panel to generate as much power as was required to make the polysilicon in it. The process requires superheating large volumes of material in electric-arc furnaces, including the melting of quartzite rock at more than 3,600 degrees Fahrenheit.

The United States is one of the world’s largest producers of polysilicon, in states like Tennessee and Washington, because it has access to a lot of inexpensive hydroelectric power. And most of that polysilicon is exported.

China’s own polysilicon industry is controversial because it relies heavily on electricity generated by coal-fired power plants, and because weak environmental controls at Chinese polysilicon factories have resulted in toxic spills that have fouled streams and rivers.

Article source: http://www.nytimes.com/2011/11/22/business/global/china-bends-to-us-complaint-on-solar-panels-but-also-plans-retaliation.html?partner=rss&emc=rss

Economix Blog: Uwe E. Reinhardt: The Role of Prices in Health-Care Spending


Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

The term “health care” evokes different images in people’s minds. To patients who find a miraculous cure, health care may be almost sacred. For physicians, nurses and other health care professionals it is a compassionate human activity. To hard-nosed economists, health care represents just another exchange of favors embedded in a wider market economy that consists of exchanging favors.

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The chart below illustrates this exchange. Some members of society surrender real resources — their time, amplified by their skill or the health care products they produce — to the process of patient care, which is meant to improve the patients’ quality of life. In return, society issues these providers of real health care resources generalized claims (money) on all the things included in gross domestic product.

Thus, the health care sector of any country always has the dual goals of enhancing the quality of life of patients as well as enhancing the quality of life of the providers of health care, and, charity care aside, patients are at once objects of compassion and biological structures yielding cash.

We express the generalized claims given to the providers of real health care resources either in dollar terms per-capita or as a percentage of G.D.P. The chart below illustrates the fraction of G.D.P. ceded to the providers of health care in a number of different countries over the last three decades.

Although not all countries can be featured in such a chart, the fact is that no other country cedes quite the slice of its G.D.P. to the providers of health care as does the United States. Current projections are that health care will claim every fifth dollar (19.8 percent to be precise) of G.D.P. in the United States by 2020.

Organization for Economic Cooperation and Development, 2011

It follows from the first chart that the claim on G.D.P. that a nation cedes to its providers of real health care resources does not tell us what real resources patients receive in return, let alone what value these resources have to patients (see, for example, this report).

That is because the size of the claim on G.D.P. depends not only on the quantity of real resources surrendered to the process of health care, but also the price paid the providers per unit of real resource. In theory, it would be quite possible that in two otherwise identical countries exactly the same real resources are surrendered to health care and yet the slice of G.D.P. ceded to the providers of these resources in return could differ.

In this regard, a study by Miriam Laugesen and Sherry Glied, published last week in the health-policy journal Health Affairs warrants careful review. The authors assert:

Higher health care prices in the United States are a crucial reason that the nation’s health spending is so much higher than that of other countries. Our study compared physicians’ fees paid by public and private payers for primary care office visits and hip replacements in Australia, Canada, France, Germany, the United Kingdom and the United States. We also compared physicians’ incomes net of practice expenses, differences in financing the cost of medical education and the relative contribution of payments per physician and of physician supply in the countries’ national spending on physician services.

Public and private payers paid somewhat higher fees to United States primary care physicians for office visits (27 percent more for public, 70 percent more for private) and much higher fees to orthopedic physicians for hip replacements (70 percent more for public, 120 percent more for private) than public and private payers paid these physicians’ counterparts in other countries. U.S. primary care and orthopedic physicians also earned higher incomes ($186,582 and $442,450, respectively) than their foreign counterparts. We conclude that the higher fees, rather than factors such as higher practice costs, volume of services or tuition expenses, were the main drivers of higher U.S. spending, particularly in orthopedics.

Other studies point in the same direction. An early one, “U.S. Health Care Costs: The Untold Story,” by the health economist Mark Pauly, was also published in Health Affairs. Professor Pauly showed that a good many nations in Europe actually transferred more real human health-care resources to patients than did Americans – suggesting that the real-resource cost of European health care is higher than it is in the United States (or was, at the time of the study). But these other nations paid physicians and other health personnel less than do Americans.

Higher physician income, of course, cannot explain all or most of the total higher health spending in the United States, as payments for “physician- and clinical services” constitute only about 20 percent to total current health spending ($538 billion out of a total of $2.7 trillion in 2011) and close to half of those payments tend to go for practice expenses, including support staff, malpractice insurance and claims processing.

But prices of other, non-physician health-care services and products in the United States also seem to be higher than elsewhere, as is suggested by the annual surveys of health care prices conducted by the International Federation of Health Plans in their comparative price reports.

None of these cross-national studies are perfect, but together they do suggest that Americans pay more for individual health care services – not only physician services – than do residents of other countries, and that this must contribute to the higher level of health spending in the United States.

What one should make of this finding is another matter. Professor Laugesen and Ms. Glied refrain from going down that route. They merely present the facts as they see them.

Critics of this study will properly point out the enormous methodological hurdles one faces in making cross-national comparisons of this sort. But it is not a compelling argument to suggest that because a study of this sort cannot be done perfectly it should be ignored. My response to the critics: Try to do better!

Article source: http://feeds.nytimes.com/click.phdo?i=4ab1e57db59d9a35f12497332be92339