Durable Goods Were Up in December; New Home Sales Were Down 17.3% in 2006

In two separate releases, the Commerce Department showed some strength in manufacturing. House sales did a bit better in December, but were way below a year ago. Particularly relevant to Wichita, new orders for aircraft and aircraft parts excluding defense orders were up by $3.8 billion.
To quote the Wall Street Journal, "A surge in aircraft orders accounted for a large part of the gain, but orders for "core" capital goods excluding defense and aircraft were also up at a good clip."

NBC is wroth about a breach of its rules: What about the shareholders' money?

Victor Jung used to be the treasurer at NBC Universal. According to this morning's Wall Street Journal. He has been charged with stealing some $800,000 over a six month period. Mr. Jung set up a corporation "NBCU Media Productions LLC and wired transferred funds from a GE account" to bank accounts in its name. These accounts financed some fancy flings and a place in the Hamptons.

He was arrested 6:00 A.M. yesterday.

I wonder what he was thinking? "They won't notice $800,000: it's rounding error."

Of course, maybe he is innocent. Perhaps in the wacky world of the media, he was simply facilitating the extravagence of his superiors.

The unsung hero of the piece is the internal auditor who caught him. Internal auditing has been booming after the wakiness of the internet boom went out of fashion. What was ordinary business practice was seen to be just plain silly when that bubble burst. Sarbanes Oxley has super charged the boom. The most recent figures I saw had internal auditors' salaries growing in double digits. The demand outstrips the applicants off into the future.

Most interesting in this news story is NBC Universal's reaction:

Consider its public statement: "NBC Universal is committed to and vigilant about the enforcement of its compliance policies. When we discovered the potential integrity breach, we promptly brought it to the appropriate authorities and are cooperating fully with the investigation. We will continue to monitor the situation to its resolution."

That is a far cry from "That blankety blank stole the shareholders' money and we want every red cent back!" Perhaps the flack under the NBC peacock is singing a song for his grey flannel superiors at GE where the corporate culture is probably a lot less flamboyant.

In general, the return to corporate sanity after the internet bubble burst is salutary. But I also wonder whether in the post Sarbanes-Oxley world, companies are worrying more about following the rules, than growing the value of their businesses?

Click Here to See the Oil Price's Ups and Downs

Crude oil prices dropped two dollars today after reports that inventories are up. The Wall Street Journal has provided this graph of its history in real terms and in nominal terms. The real price is the price adjusted to the U.S. price level in January, 2007.

Is My Understanding of the English Language Becoming Obsolete?

In today's Wall Street Journal, Joe Dickerson, an analyst at Atlantic Equities LLP, is quoted saying that J.P. Morgan "is making tangible progress on leveraging its diverse business model to the bottom line." Atlantic Equities is a London independent research firm.

What does he mean? By "diverse business model," does he mean that J.P. Morgan has multiple business models? Or does he mean that the bank's business model is based on a diversity of business (each with its own business model)?

I have a personal preference for the more straightforward verb "lever" over the rethreaded noun, "leverage." Whatever my preference, I know I am spitting into the wind on this one. That said, how does one lever a diverse business model to a bottom line? That is not a matter of levering or amplifying.

So what does he mean? My hunch is that J.P. Morgan has made progress integrating banks it has bought and achieving some economies of scope between such diverse businesses as securities trading, investment banking, retail banking, and credit cards. And perhaps he is right.

If I were an investor in J.P. Morgan, my worry would be this: The bank is gaining an earnings boost from over levered consumers who are falling back on their credit cards lines. Will that interest income disappear in the future when some of those balances evaporate into loan loss reserves?

National Employment

The national unemployment rate was 4.5 percent and national payrolls grew by 167,000 jobs in December. In November, Wichita's unemployment rate fell to three tenths percent below the national employment rate.

Although the transportation sector (which includes the aircraft industry) lost five thousand jobs nationwide, the losses were overwhelmingly were among firms producing motor vehicles and parts. The American automotive industry is suffering from both a declining vehicle market and stiff foreign competition. Employment in motor vehicles and parts has declined 4.9 percent over the last twelve months while jobs in the rest of the transportation equipment sector increased by two percent.

Overall, employment is doing well. Jobs were 1.4 percent higher in December, 2006 than in December, 2005. This steady growth seems to be holding up despite the economy's slower second half growth (see the chart.)

The Wichita Job Market

Wichita's unemployment rate dropped to 4.2 percent from 4.4 percent from October to November. This reflected strong growth in payrolls in the metropolitan area. In the Bureau of Labor Statistics' November Metropolitan Employment Report, businesses reported 294.4 thousand workers on their payrolls. This was a full thousand more than in October. Jobs grew 1.8 percent over November last year.

The job growth reflects the continuing strength of the local economy, particularly the aircraft industry. That industry's unfilled orders have grown. The job growth is the more impressive given that Raytheon Aircraft has been operating under a job freeze while its pending sale was being resolved.

"Booms, Technological Bubbles and Busts."

Milton Friedman died yesterday.

When I was in graduate school in the late 1960s, many of my peers were disciples of Mao and romanticized that thug Che Guevara. They carried around with them The Thoughts of Chairman Mao ("The Little Red Book") as if it were a badge of honor. I vividly remember the ugliness at the American Economic Association meetings when Friedman gave his Nobel Laureate lecture amid angry prrotests and demonstrations.

The "Little Green Book" (his Capitalism and Freedom) was the first book that made me think critically and creatively in economics. From today's vantage point, it appears to have won the long war with "The Little Red Book." His ideas have seized the commanding heights. It is a great irony that the best words to put on his tomestone would be those of John Maynard Keynes, the dominant intellectual force in economics from 1936 to the 1970s and the king whom Friedman deposed:

"The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood . . . Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

- J.M. Keynes, General Theory, ch. 24.

Today's Wall Street Journal is a must read. Not only is there a lead editorial on Uncle Milton (no surprise) and a front page article, but they published a new article by Friedman himself ("Why Money Matters") on the editorial page that is a gem. It could as easily have been titled "Booms, Technological Bubbles and Busts." Personally, I can't imaging still writing so lucidly and perceptively at 94. In fact, still breathing would be an accomplishment.

Fellow economist Michael Boskin leaves us with the image of Milton and Rose dancing at her birthday. The perfect signature on a full and fruitful life!

Pray for his soul and the wife who has lost a soulmate. May he be smiling down at us from the true commanding heights.

Borrowing by Consumers Eases, But Credit-Card Balances Jump

The Wall Street Journal reports that American consumers' debt fell somewhat in September despite a rise in credit card debt. Yet debt burdens are rising as consumers rely more heavily on morgaging their homes and reduce their exposure by pulling back on credit card debt. The Wall Strret Journal reports, "As of the second quarter, mortgage payments had reached 11.6% of disposable income, the highest level since at least 1980. Consumer-debt payments had fallen to 6.5% of disposable income, the lowest level since late 2000."

As houses become more difficult to sell in the previously hot real estate markets, less mortgage financing will bleed through to consumer spending. A slowdown in both consumer spending and new housing is translating into slower U.S. growth. Will the housing bubble burst into a recession? It is too early to make that call.

Wichita Unemployment Rate Falls Below the National Average

The Wichita unemployment rate dropped to 4.4 percent in September. September's jobless rate was below the national average of 4.6 percent. This news was contained this morning's Bureau of Labor Statistics metropolitan area report.

There were forty eight hundred more jobs in the Wichita metropolitan area in September than a year ago.