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Outsourcing May Create U.S. Jobs

Wednesday, March 31, 2004 | 02:56 PM


From today's WSJ:

"U.S. companies sending computer-systems work abroad yielded higher productivity that actually boosted domestic employment by 90,000 across the economy last year, according to an industry-sponsored study.

The analysis, one of the few that attaches detailed dollar values to offshore outsourcing's costs and benefits, was conducted for a coalition of business groups working to combat a growing backlash on Capitol Hill and in statehouses against the loss of U.S. jobs.

Expected to be released today, the study's premise is that U.S. companies' use of foreign workers lowers costs, increases labor productivity and produces income that companies can use to expand both in the U.S. and abroad. It was commissioned by the Information Technology Association of America, an industry membership and lobbying group, which hired the economics consulting firm Global Insight Inc. of Lexington, Mass."

I believe it is both economically incorrect -- as well as a losing argument -- to focus on outsourcing as the primary culprit for the lack of job creation. Either you believe in global trade (as I do), or you don't.

On the other hand, there's nothing wrong with removing the incentives that encourage additional outsourcing. From a tax and regulatory perspective, it should be a level playing field without additional hurdles to creating jobs in the U.S.

When you see that actual numbers involved, they are relatively small. There are other, more significant issues impacting job creation; We will address them shortly.

Estimated new U.S. jobs created from outsourcing abroad, according to an industry study

  2003 2008
Natural Resources & Mining 1,046 1,182
Construction 19,815 75,757
Manufacturing 3,078 25,010
Wholesale Trade 20,456 43,359
Retail Trade 12,552 30,931
Transportation & Utilities 18,895 63,513
Publishing, Software & Communications –24,860 –50,043
Financial Services 5,604 32,066
Professional & Business Services 14,667 31,623
Education & Health Services 18,015 47,260
Leisure, Hospitality & Other Services 4,389 12,506
Government –3,393 4,203
Total Employment 90,264 317,367
Source: Global Insight and North American Industry Classification System


Outsourcing May Create U.S. Jobs
Higher Productivity Allows For Investment in Staffing, Expansion, a Study Finds
WALL STREET JOURNAL, March 30, 2004; Page A2

Outsourcing creates jobs, study says
Industry report says offshore outsourcing will boost economic growth, lower inflation, create jobs

March 30, 2004: 3:53 PM EST

Wednesday, March 31, 2004 | 02:56 PM | Permalink | Comments (4) | TrackBack (2)
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Nader's contributors are GOP members

Wednesday, March 31, 2004 | 11:30 AM


On several occasions, we've noted that Nader will have a significant, perhaps decisive impact on the 2004 elections.

Apparently, we were not alone in this assessment. The Dallas Morning News reports that "Nearly 10 percent of the Nader contributors who have given him at least $250 each have a history of supporting the Republican president, national GOP candidates or the party, according to computer-assisted review of financial records by The Dallas Morning News."

Let me add that this is their right -- anyone can contribute to more than one candidate. What this actually confirms, however, is that other people share our analysis regarding Nader's impact. And, they are voting with their dollars, in a way that benefits the incumbent, not the challenger.

Amusingly, Nader has "won Ben Stein's money." Stein is a television personality and outspoken advocate for the Republican Party, who has "contributed $500 to Nader and $1,000 to Mr. Bush this year. Records indicate that over the last decade, Mr. Stein has given exclusively to the GOP." Stein made TV ads for Mr. Bush in the 2000 election, but they never aired.

via Joe Hills Dispatch

GOP donors double dipping with Nader
Contributors deny that financial support is designed to hurt Kerry

Wayne Slater
The Dallas Morning News, March 26, 2004

Wednesday, March 31, 2004 | 11:30 AM | Permalink | Comments (0) | TrackBack (0)
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Resolving the Controversy between Payroll and Household Surveys

Tuesday, March 30, 2004 | 09:29 AM

The Bureau of Labor Statistics weighs in on what should be a thoroughly resolved debate: Which is the more accurate and reliable measure of Job creations, the Payroll or Household Survey?

Economists Arnold Kling and Steve Antler both referenced a recent Bureau of Labor Statistics analysis (BLS) on the divergence between the payroll survey and the household survey of employment. The BLS observed:

"As part of its annual review of inter-censal population estimates, the U.S. Census Bureau determined that a downward adjustment should be made to the household survey population controls. This adjustment stemmed from revised estimates of net international migration for 2000 through 2003. In keeping with usual practice, the new controls were used in the survey starting with data for January 2004. Estimates for December 2003 and earlier months were not revised to reflect the new (lower) population controls.

...As a convenience to its data users, BLS created a research series that smoothes the level shifts in employment resulting from the January 2000, 2003, and 2004 population control adjustments."

-Bureau of Labor Statistics

It is somewhat perplexing to see controversy still dogging this statistical oddity.

Federal Reserve Chairman Alan Greenspan has noted that the Payroll survey is much more reliable than the household survey:

"I wish I could say the household survey were the more accurate,'' Alan Greenspan, the Fed chairman, said in his testimony at a House hearing on Feb. 11. "Everything we've looked at suggests that it's the payroll data which are the series which you have to follow.''

That hasn't stopped several economists – arguably with political agendas from claiming the divergence between the two surveys is understating the strength of the economy.

As if Fed Chair Greenspan didn't resolve the issue in his recent statements, the BLS itself has now weighed in. As these following charts make clear, when the household survey is "modified to make it more ‘similar in concept and definition’ to the payroll survey," the divergement all but disappears.

The BLS did this by subtracting from the Household Survey:

1) Total agriculture and related employment;
2) Self-employed, unpaid family and private household workers;
3) Workers absent without pay from their jobs.

BLS then added back in non-agriculture wage and salary multiple job holders.

The use of the broader standard (including farm and unpaid family workers) is what apparently created the divergement, as shown by the Green lines.

Using data "similar in concept and definition" to the Payroll Survey eliminates the phantom missing jobs, as seen in the 10-year chart below:

Household and Payroll Survey employment,
Seasonally Adjusted, 1994-2004


Source: Bureau of Labor Statistics, March 5, 2004

Note the shift moving the Green line (Household Survey, unadjusted) to its new position – the red line (Household Survey, adjusted).

The BLS notes (in 10 year chart above, and 3 year chart below):

“The household series presented here has been smoothed for population control revisions. The "adjusted" household series has been smoothed for population control revisions and adjusted to an employment concept more similar to the payroll survey. Shaded area indicates recession.”

When the same statistical approach is applied to a more recent chart, the discrepancy between the two surveys again disappears:

Household and Payroll Survey employment,
Seasonally Adjusted, March 2001 - February 2004


Source: Bureau of Labor Statistics, March 5, 2004

We believe the comments of the Federal Reserve Chairman Alan Greenspan, when combined with the March 5, 2004 Bureau of Labor Statistics release, has now once and for all, turned the Household/Payroll Survey discrepancy into a “non-issue.”

The argument that the Household Survey more accurately reflects Job creation has been thoroughly discredited. Employ it at your own risk.


Bureau of Labor Statistics

The Two Employment Surveys
Arnold Kling
The Library of Economics and Liberty, March 14, 2004

Reconciliation of household and payroll employment surveys
March 13, 2004

Explaining the Recent Divergence in Payroll and Household Employment Growth
Chinhui Juhn and Simon Potter
Federal Reserve Bank of New York, December 1999

Two Tales of American Jobs
Edmund L. Andrews
New York Times, February 22, 2004

Bureau of Labor Statistics report, March 5, 2004

BLS report, March 5, 2004

Employment Situation Explanatory Note

Tuesday, March 30, 2004 | 09:29 AM | Permalink | Comments (1) | TrackBack (2)
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DVD rentals: $1

Tuesday, March 30, 2004 | 07:10 AM
in Music


We've previously made the argument that DVDs are a much better value for consumers; that 2 hours of audio and video, plus a wealth of special features offers more entertainment bang for the buck than 45 minutes of audio only. Its been our view that DVDs have been cannabilizing CD sales.


Now comes another economic assault on high priced CDs: $1 DVD rentals. A company called DVD Station has set up kiosks in retailers such as Altitunes (located in a few dozen airports) offering DVD rentals for the low low price of one dollar a day.

That's right, $1 per day. This is their ordinary price, and not a promotion or special.

It makes a whole lotta sense once they reach a critical mass in airports: Pick up a DVD at your departing airport, watch it on your laptop while you fly, return it when you land at the next airport. For a buck. Maybe Jet Blue or some other airline will buy them.

As far as CDs are concerned, this is a bad thing. Any discretionary entertainment offering which competes with CD sales at a lower price point ultimately pressures the music sales, while indirectly referencing the artificially inflated prices of CDs. This is yet another example of the music industry getting outflanked in the battle for the consumer's entertainment time and money.

One cannot help but be amazed at the mismanagement the industry has inflicted upon itself.


DVD Station's background can be found here.

Tuesday, March 30, 2004 | 07:10 AM | Permalink | Comments (6) | TrackBack (2)
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CDs or DVDs: 2 for $25

Tuesday, March 30, 2004 | 06:45 AM


Altitunes is a Music retailer located almost exclusively in airports. Not exactly the most competitve of retail spaces -- captive audience and all that.

The one non-airport location is Grand Central Station -- right across from my office. I walk by it a few times aweek. Their latest promotion is 2 CDs or DVDs for $25.

This may not be the best pure sale prices -- Target regularly runs $7.99 CD and $9.99 DVD sales, and this week, Best Buy is advertising a "3 DVDs for $20 sale."

But it points out an interesting conundrum facing the music industry: The competitve pressures they have been facing from the Film industry are actually increasing.

If DVDs -- with 2+ hours audio/video, plus many extra features, interviews, fan items -- can be sold at the price point of 3 for $20, then why can't CDs? Even if the BestBuy promotion is a loss leader (I'm not sure it is) -- there is something unequivocally broken about the CD pricing model.


Tuesday, March 30, 2004 | 06:45 AM | Permalink | Comments (0) | TrackBack (1)
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Rally Follow Up

Monday, March 29, 2004 | 02:25 PM

In our view, the internals of Thursday’s rally were noteworthy: Nasdaq was up 3%, the largest percentage gain since July 7, 2003. Volume also rose 7%, to 1.97 billion shares, which was the first substantial gain on higher volume since January. Even more impressive, in our opinion: the advance/decline stats (2.78 : 1) and up/down volume (13 : 1) indicate a substantial amount of buying, following last Monday’s substantial amount of selling. That is indicative to us of a change in sentiment from extreme fear to a more Bullish levels.

The rally was followed by a low volume pullback Friday. This was not at all unexpected, and indeed, suggests a healthy bit of fear. Today’s follow through, while nice, may not be what is often called a Reversal Confirmation Day. It is widely ascribed to IBD publisher William O’Neill, who has tracked reversal rallies for over 30 years. In O'Neill’s opinion, a reversal that sticks will be followed by a confirmation day: a 1-2% increase in the major indexes on greater than average volume.

But here’s the rub: O'Neill states these confirmation rallies must occur on the 4th thru 10th day after the initial up session. I have no idea why this is, but it is hard to argue with O'Neill’s 30-year history of correlated statistical evidence. Days 4 thru 10 start Wednesday, March 31st and run to Thursday, April 8th.

To reconfirm our Bullish leanings, we will be watching several specific factors over the next few weeks:

1) Confirmation day mentioned above;

2) Internals, which have weakened during the sell off of the past 10 weeks. We want to see the internals re-assert themselves as the markets move back towards their January highs;

3) Resistance in the form of overhead supply; How resilient markets are as they approach these levels will provide insight into how renewed buyer’s appetites are for accumulating equities;

4) Market reaction to news is also worth watching. This includes both geopolitical news (i.e., terrorism), pre-announcements, and earnings releases;

5) Equity Fund Inflows were dramatically lower in March than January. It would bode well if these revved up again.

These factors should provide insight into how the market will behave as it approaches recent highs. We will be watching for divergences, and will keep investors abreast as things progress over the next four weeks.

Monday, March 29, 2004 | 02:25 PM | Permalink | Comments (1) | TrackBack (0)
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Chart of the Week: % of NYSE Stocks at 30 Day Highs

Monday, March 29, 2004 | 11:11 AM

Looking at the issues on the NYSE (stock only) at 30 day highs, we find similar readings to the 2002 and 2003 lows. This confirms our previous oversold/bullish readings of last week. As the markets build on their bounce off the 200-day moving averages, we expect more movement back up before down.

% of NYSE Stocks at 30 Day Highs
Source: Technimentals

Technimental’s Kevin Lane notes: “We would expect the market to try and retest recent highs given these oversold readings. We will see if internals re-assert themselves or stay weakened, relative to their recent high readings. Lower readings on a test would set up for a classic breadth divergence and lead to a bigger correction than what we recently witnessed.” We agree.

Random Items:
S&P to float-adjust its indexes
Shifting Opinions On Iraq
The ripple effect of prices at the pump
Is Condi The Problem?
Graphical History of Baseball

Quote of the Day:
“Little minds are tamed and subdued by misfortune; great minds rise above them.”
-Washington Irving

Monday, March 29, 2004 | 11:11 AM | Permalink | Comments (0) | TrackBack (0)
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*Programming note

Monday, March 29, 2004 | 06:24 AM

I believe we've beaten Geopolitics to death for now. I'd like to give it a rest --at least for a while.

With your kind indulgence, I'd like to focus this week on two relevant issues: 1) the Labor and Jobs market; and 2) the wholly unrelated but fascinating issue of the Music/Film industry's economic claims.

If you want an overview, here are most of the posts in each category:




There's a typepad glitch I'm trying to have fixed -- any post labelled with multiple categories does not show up this way (but should). Hopefully, we will have this fixed soon . . .

Monday, March 29, 2004 | 06:24 AM | Permalink | Comments (0) | TrackBack (0)
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4 Year Cycle

Sunday, March 28, 2004 | 07:27 AM

The S&P 500 overlayed against each President's term, 1949 -1996


As this chart makes clear, the beginning of a President's term is often the worst for the markets. That's because all newly elected Presidents want to get the painful economic medicine down, and pray for a full blown expansion, oh, say around re-election time. This is not per se bad or evil, its simply Human nature -- ignore it at your own financial peril.

We've done a lot of commentary on Politics and the market the past few weeks. I'm ready to move that to the backburner for a while -- at least until the next major poll or interesting issue arises.

The election is still 8 months away; Pace yourselves!

This week, I plan on focusing on some interesting Job Creation issues I've been playing with. Also, in light of some absurd new proposed legislation, I'd also like to resurrect our analysis on the Music Industry, and how they are actually killing themselves.

Sunday, March 28, 2004 | 07:27 AM | Permalink | Comments (0) | TrackBack (0)
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Barron's picks up "Geopolitics Ate My Portfolio"

Saturday, March 27, 2004 | 06:42 AM


Our somewhat snarky comments from Thursday, "Geopolitical Tensions Ate My Portfolio," got picked up by Barron's. Heady company too -- Leuthold Group, Morgan Stanley, Goldman Sachs. (Not too shabby -- I'm humbled).

The analysis, the writing process, is a reward in itself -- no, really, it is -- but its always nice to have the work validated by people who's opinions you respect.

Now if I can only get Kudlow to see the inherent flaws in the Supply Side argument . . .

Was Thursday's Rally a One-Day Wonder?
Eric J. Savitz
Barron's, MONDAY, MARCH 29, 2004

Saturday, March 27, 2004 | 06:42 AM | Permalink | Comments (0) | TrackBack (0)
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