Random Shots for Tuesday, May 20
By Chris ClairExcluding Food and Gas, Things Are Great. Er, Check That. . . .
We’ve already discussed how the government’s funky way of counting made gas prices go down in April. The other neat trick the government pulls when it reports on so-called “core inflation” is it excludes food and energy prices. The logic is that those are more volatile and so less indicative of longer term trends. This smoothing pretty much disregards two items that eat up a good portion of many people’s take-home pay, but no matter. It’s the stuff outside food and energy where things matter, and economic apologists always point to the core PPI figure as evidence that inflation shouldn’t be a major worry.
Tuesday’s figures, then, may give the core folks some cause for concern. From an AP Story: “The 0.2% increase for the department’s Producer Price Index was lower than expectations but the 0.4% rise excluding food [and] energy was double what economists had expected. It left inflation outside of food and energy rising by 3% over the last 12 months, the fastest increase for a 12-month period since late 1991.”
The headline on the New York Times’ website, of course, obfuscates matters: “Wholesale Inflation Slowed in April.”
‘Hello Mr. Fed? This is Your Wake-Up Call
Now even the Fed seems to be noticing price pressures. In a speech before the National Conference on Public Employee Retirement Systems—a group with more than a passing interest in understanding the true implications of inflation—Federal Reserve Vice Chairman Donald Kohn said the Fed’s monetary policy has been appropriate thus far, but acknowledged things can change.
According to Reuters: Kohn sent a clear warning that the Fed is now watching inflation developments closely, and expressed concern that if longer-term inflation expectations edge higher, policy-makers will be facing “a more serious situation.”
In a potentially worrying signal of inflation pressures, a government report on producer prices released on Tuesday showed that so-called core inflation—which strips out volatile food and energy costs—had risen more than expected at the farm and factory gate in April.
Street Tracks
And for once, the markets seemed to interpret bad news as, well, bad news. The Dow Jones Industrial Average was down about 200 points, or roughly 1.5%, at the lunch hour, and the Standard & Poor’s 500 stock index was down 0.9%, or about 13 points.
More on Oil
CNBC spent some time this morning on oil. First, the network interviewed Robert Hirsch, senior energy advisor at economic research firm Management Information Services Inc. in Washington D.C., and Robert McTeer, an economist and former president of the Federal Reserve Bank of Dallas. Mr. Hirsch is firmly in the “peak oil” camp, the group of people who believe world oil production has passed its peak and it’s time to make other arrangements. Mr. McTeer aligns himself with the group of people who believe more drilling will yield more oil in quantities sufficient to reduce the price.
It’s not as though oil companies don’t have the resources to search for oil, and it’s not as though environmental laws are preventing drilling machines from tapping into reserves that in theory would fuel the world for centuries to come. Oil companies have argued that low oil prices historically have not provided the proper incentive to search out new oil fields. That doesn’t seem to be the case now. But in the same way that Saudi Arabia’s and OPEC’s insistence that increased production is not needed may be a sign that they can’t increase production, the fact that the oil companies don’t appear to be scouring the Earth, plowing their record profits into exploration may be a sign that they don’t think there’s much out there worth looking for.
‘They’re Running Out of Oil’
It’s not just me saying that. Boone Pickens had his own take, also on CNBC this morning.
“The Russians are starting to decline now. The Saudis claim they have more oil; they don’t. The president wasted his time to go to Saudi Arabia and say ‘give us more oil.’ They can’t give any more oil. They’re giving all the oil they can. They’re stacking up the money as fast as they can stack it up.”
Which at this rate is pretty fast.
Not So All-Good
Oppenheimer analyst Meredith Whitney disagrees with Jamie Dimon’s assessment of the credit crunch. The head of JP Morgan Chase & Co. said on May 8 that he thought the credit crisis was about 75% over.
Ms. Whitney wrote in a note on Tuesday that more pain lies ahead. Hat tip to the NYT’s DealBook.
Although as Bloomberg pointed out yesterday, some of the current pain has been mitigated by heavy anesthesia.
About That Business Plan. . . .
A couple of stories over the past couple of days don’t paint a rosy picture for online ventures that use advertising to drive revenue. First, it seems advertising revenues are down. Second, in some places they were never “up” as much as some would have had us believe.
From the Times: At Weather.com … [n]ew advertisers are looking to test their ads before committing. “The new advertisers are more cautious about requiring some sort of proof or evidence that something is working,” said Paul Iaffaldano, executive vice president and general manager of the Weather Channel Media Solutions. Existing clients, he said, are continuing to spend, just not at the same pace.
Speaking as someone who surfs the web a lot and almost always ignores ads—and in fact, finds many of them annoying—I understand why advertisers would be wary of committing money to an online presence. As someone whose livelihood depends in some measure on Internet advertising revenue, I’m more than a little concerned.
‘We Don’t Want Nobody Nobody Sent’
I changed one of the links in yesterday’s post about the National Summit on American Competitiveness being hosted here in Chicago. I had put a link to Chicago Alderman Ed Burke’s Wikipedia entry in the part of the post where I wrote, “The city is known for a special kind of entrepreneurship, a city where who you know is more important than any job qualification, or even whether you’re alive or dead.” Much more appropriate, I thought later, would be a link to Cook County Board President Todd Stroger’s entry.
And then, as if on cue this morning, the Sun-Times ran this story about Stroger’s hiring preferences for county positions.
James D’Amico is the county’s new $127,000-a-year director of facilities management, responsible for the upkeep of county buildings. He’s the brother of state Rep. John D’Amico (D-Chicago) and nephew of [39th Ward Chicago Alderman] Margaret Laurino.
Myron Colvin is a $56,609-a-year grant writer in the county’s scandal-plagued job training program known as POET. He’s the brother of state Rep. Marlow Colvin (D-Chicago), Stroger’s best friend. Rep. Colvin spent 21 years working for the county, and now his wife and two brothers are on Stroger’s payroll.
Not that qualified candidates shouldn’t necessarily get a job simply because they know someone. But this is part of a pattern of hiring both in the county and the city that has been well-established over time, and it runs counter to the whole notion of competitiveness and entrepreneurship.
