Political Calculations
Unexpectedly Intriguing!
March 27, 2015

Last week, we explored the history of the right triangle. This week, we're going to add an extra side and two extra dimensions as we consider the four dimensional cube!

Four Dimensional Cube

Or, as Phys.org would describe it: "A rotating two-dimensional projection of the four-dimensional tesseract. The projection appears to change as it rotates even though the four-dimensional polytope is symmetrical because it is warped by the loss of two dimension[s]. [Image] Credit: Wikimedia Commons."

Here's hoping we all don't lose two dimensions and become asymmetrically warped this weekend!

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March 26, 2015

Some time ago, we recognized that the number of companies acting to cut their dividends each month seemed to be a very good and simple predictor of the near real time state of the U.S. economy. Today, we're going to compare our performance against the supposed best economic forecasters of the world: the U.S. Federal Reserve and the Blue Chip Economic Indicators!

How we'll do that is pretty novel. We'll compare what our simple indicator was signaling once a month about the state of the U.S. economy throughout the first quarter of 2015 against the evolution of the actual range of forecasts offered by the Blue Chip Economic Indicators and the Federal Reserve's GDPNow forecast, as documented by the research department at the Federal Reserve Bank of Atlanta as of Wednesday, 25 March 2015.

Let's start with our own analysis, with the snapshot we took of the U.S. economy at the end of 2014, which we posted on 7 January 2015:

In December 2014, the number of publicly-traded U.S. companies announcing that they would reduce their dividend payments jumped up to 25, a level that we believe is consistent with contractionary distress being present within the U.S. economy.

From our observations of the limited data available, having 10 or more companies announce that they are cutting their dividend payments in a single month is sufficient to indicate that there are recessionary conditions in the U.S. economy. When that figure rises above 20 per month, it tends to coincide with some degree of contraction within the U.S. economy, which can impair the nation's GDP.

That's not to say that level of contraction qualifies as a full-bore recession - from all indications, it's more a sign that there is an increased degree of distress within the U.S. economy that is, as yet, too limited in scale, scope or duration to qualify as an official period of recession as might be determined by the National Bureau of Economic Research, which we describe being in a state of microrecession.

Next, here's our first look at how the U.S. economy was performing in the first month of the first quarter of 2015, which we posted on 3 February 2015:

Going by the number of publicly-traded companies that acted to cut their dividends in January 2015, the U.S. economy didn't just experience recessionary conditions during the month. Instead, it outright contracted.

Monthly Number of Public U.S. Companies Announcing Dividend Cuts, 
January 2004 through Present (January 2015)

Or perhaps a better description of what happened is that the U.S. oil industry's efforts to push its luck as far as it could has run out of good luck to push.

By that, we're referring to the consequences of falling oil prices, which are forcing an increasing number of companies tied to oil extraction activities in the United States to take the dramatic step of slashing their dividends. With 57 U.S. companies taking that action in January 2015, the number of companies taking that action in a single month is consistent only with previous months in which the U.S. economy either experienced contraction or in response to major dividend tax rate hikes.

January 2015 saw no major tax rate hikes on dividends, so contraction it is.

Our last snapshot of the state of the U.S. economy was posted on 3 March 2015 and takes us through the month of February 2015, where once again, we find that the U.S. economy was undergoing contraction.

Following its apparent contraction in January 2015, it appears that the U.S. economy continued to contract in February 2015.

We're basing that assertion on the number of publicly-traded U.S. companies that announced they would be reducing their cash dividend payments to their shareholders during the month of February 2015. With 38 companies taking that action, the number is lower than the 57 firms that took similar actions in January 2015, but is still well elevated above the number that would appear to correspond to a shrinking economy.

So there we are. On record as having described the U.S. economy as either experiencing or being in contraction at the beginning of each month in 2015-Q1.

We won't have the data for March 2015 until after the month has ended, but our early indication from our tracking of the actual announcements of firms that have acted to cut their dividends during the month is consistent with an ongoing period of contraction in the U.S. economy. We continue to believe the data indicates that the U.S. entered 2015 experiencing contraction and that it has experienced negative economic growth during the first quarter of 2015.

Now, let's see how that compares with the forecasts of the Blue Chippers and the evolution of the Fed's GDPNow indicator as it stood on 25 March 2015:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2015 was 0.2 percent on March 25, down from 0.3 percent on March 17. Following this morning's advance report on durable goods manufacturing from the U.S. Census Bureau, the nowcasts for real equipment investment and real inventory investment declined slightly.

Evolution of Atlanta Fed GDPNow real GDP forecast for 2015: Q1 - 25 March 2015

Here, we see that back in mid-to-late January 2015, which is consistent with where it entered the year, the "Blue Chip Consensus" forecast ranged from a low of 2.5% to a high of 3.4%, and was centered on a GDP growth rate of 3.0%. By the time of our second observation in early February, in which we declared that the U.S. economy was contracting, the range of the Blue Chip forecasts had widened to run from 2.1% to 3.5%, with the mid-range consensus set at 2.7%. One month later, as we indicated that the U.S. economy was continuing to experience contraction in 2015-Q1, the Blue Chippers were indicating the likely range for annualized GDP growth was now anywhere from 1.6% to 3.2%, with an overall consensus of 2.5%.

By contrast, the Fed's GDPNow forecast always ran to the low side of the range of the Blue Chip forecasts, starting at about 2.1% at the time of our contraction call in early February 2015 and falling to 1.2% at the time of our "continued contraction" call in early March 2015. Now at the end of the month, it is just 0.2% away from agreeing with our long-established assessment that the U.S. economy has been undergoing a period of economic contraction.

The difference, of course, is that we got there months ago with our very simple national economic health indicator.

Going back to 7 January 2015, you really have to feel sorry for the people who relied upon "most economists" or President Obama's Council of Economic Advisors to get their sense of the state of the U.S. economy going into the first quarter of 2015.

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March 25, 2015

We've been exploring data found in the U.S. Bureau of Labor Statistics and U.S. Census Bureau's Consumer Expenditure Survey, which has provided a window into the annual consumer expenditures of American households (or rather, "consumer units") since 1984. Today, we thought it was time to take a look at how the major categories of that spending has evolved over the thirty years for which we have data.

Our first chart shows the average annual amounts that American households spend on things like housing, transportation, food and alcoholic beverages, life insurance and pension savings (IRAs, 401(k), Social Security), health care, apparel and other consumer products and services, entertainment (including reading), education and also how much they donate to charitable organizations.

Average Annual Expenditures per Consumer Unit, 1984-2013

Next, we calculated the percentage share of these major categories with respect to the average annual total expenditures of U.S. consumer units, which reveals how much Americans have changed how much they spend on these major categories over the thirty years from 1984 through 2013:

Percent Share of Average Annual Expenditures per Consumer Unit, 1984-2013

Because we've already demonstrated that in real terms, the total amount of money that the average American household spends on their annual expenditures has been essentially flat over the past 30 years, this chart reveals how Americans have shifted their spending over that time, increasing the share of money they spend on housing, life insurance and pension savings, health care, charitable contributions and education, while reducing the share of money the spend on transportation, food and alcoholic beverages, apparel, and other products and services, and entertainment.

Speaking of which, note the trends for health care and entertainment, which are nearly equal to one another from 1984 through 2008, but which diverge beginning in 2009. It is as if Americans are increasingly paying their increasingly higher health care insurance bills and expenses with money they might previously have spent on entertainment related expenditures, which means that the efforts of so many Hollywood celebrities to push Obamacare onto financially illiterate consumers has backfired on their industry.

Our final chart stacks these percentage shares to reveal how they fit into the whole of annual consumer expenditures for the average American household:

Major Categories of Consumer Expenditures as Share of Average Annual Total Expenditures per Consumer Unit, 1984-2013

In this chart, we've ranked the major categories from greatest percentage share reduction at the top (in green) to greatest percentage share increase at the bottom (in purple) from 1984 through 2013.

Data Sources

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 1984-1991. [Text Document]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 1992-1999. [Text Document]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 2000-2005. [Excel Spreadsheet]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. 2006-2012. [Excel Spreadsheet]. Accessed 23 March 2015.

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. 2013 Current Combined Expenditure, Share, and Standard Error Tables. Region of Residence. [Excel Spreadsheet]. Accessed 23 March 2015.

If you're one of those people (such as "Seeking Alpha commenters") who would like to see any the data we've presented above in real terms, you're welcome to do that math yourself. All you need is the data from the original sources we've linked above and the relevant Consumer Price Index data, which we've linked below, to do the math you want to do - it's super easy!

U.S. Bureau of Labor Statistics. Consumer Price Index - All Urban Consumers (CPI-U), All Items, All Cities, Non-Seasonally Adjusted. CPI Detailed Report Tables. Table 24. [Online Database]. Accessed 24 March 2015.

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March 24, 2015

Unlike a lot of analysts, we've always approached the Patient Protection and Affordable Care Act, which is perhaps better known as "Obamacare", from the perspective of personal finance. We care about what President Obama's "signature" achievement in office means to the bottom lines of ordinary Americans, which is to say that we care more than President Obama does about such things.

Because of that approach, we've recognized from the very beginning that for a lot of Americans, it would make significantly more sense to take a pass on buying the kind of "affordable" health insurance coverage that would be marketed to consumers in favor of paying a much more affordable "penalty" tax when they file their annual tax returns.

2014 was the first year in which Americans were mandated by the law to either pay health insurance premiums or pay higher income taxes. Let's see how real people are making that choice under the terms of the law:

WASHINGTON—A special enrollment period to obtain health insurance for millions of uninsured people who owe a tax penalty under the Affordable Care Act is off to a slow start.

The health law requires most Americans to have insurance or pay a fine at tax time. The open enrollment period under the health law ended Feb. 15, but the Obama administration said it would allow people who discover they owe a fine to sign up for coverage through April, at the end of the tax season.

Major tax-preparation firms say many customers are paying the penalty and not getting health insurance. It is still early, since the special enrollment period launched Sunday, but research also suggests that many people who lack health insurance will pay the penalty and not get covered this year.

Only 12% of uninsured people would buy policies if informed of the penalty, according to a survey of 3,000 adults polled through Feb. 24 by McKinsey & Co.’s Center for U.S. Health System Reform.

At H&R Block Inc., “our analysis indicates that a significant percentage of taxpayers whose household members were not covered for at least a portion of 2014 are opting” to pay the penalty, said Mark Ciaramitaro, a vice president of health-care enrollment services at the tax-preparation firm.

If it helps provide more insight into what's going on here, let's revisit our tool that applies specifically for those who will be making this personal finance choice during the remainder of the 2014 tax filing season. If you're considering buying health insurance between now and Thursday, 30 April 2015, our tool below will estimate what doing so may potentially cost you in 2015 (that's for 2015 only - the math won't apply for other years):

Your Household Data
Input Data Values
Year in Which Insurance Coverage Will Apply
Your Total Household Income, or Modified Adjusted Gross Income (If Known)
Number of Household Members
Number of Children in Household
Your State's Health Insurance Exchange Data
Select Your State (Select "United States" If Your Territory Isn't Listed)
Subsidized Monthly Premium for the Health Insurance Plan You're Considering Purchasing (This is the amount that Healthcare.gov or your state's health insurance exchange will indicate as your cost.)

Your Annual Health Insurance Results
Calculated Results Values
For Health Insurance (Premium Only, No Co-Pays or Deductibles)
For the Alternative Tax If You Don't Purchase Health Insurance (And Not Provided by Your Employer)
Potential Savings or Costs If You Choose to Pay the Tax Instead of the Premium
Your Potential Savings (or Costs, if Negative)
The Bottom Line

One important thing to keep in mind is that you won't get any meaningful benefit for having health insurance until after you've paid your annual deductible, which is the amount of out-of-pocket expenses for health care services that you agree to pay as part of the coverage level you select for your health insurance coverage. That means that you could be out-of-pocket on both your premiums and your deductibles before your Obamacare policy even begins to cover a portion of your actual health care expenses, so unless you can reasonably expect that you will have such large expenses (such as if you're expecting a baby or have a pre-existing condition), you should carefully weigh our tool's results.

Here's how one real person made their choice:

Richard Gonzalez, 59 years old, of Navarre, Fla., found out he will pay a $250 penalty for going without insurance. The retired employee of United Parcel Service Inc. said he won’t take advantage of the special enrollment period because it is cheaper for him to pay out-of-pocket for health care than to buy insurance on the exchange. He said he shopped on the exchange but would have to pay $400 a month for a plan with a $6,000 deductible.

“I think it’s wrong I have to pay the penalty,” said Mr. Gonzalez. “But it beats paying more than $10,000 a year.”

Richard Gonzalez appears to be a savvy consumer - we're pretty sure that he'll be more than capable of finding an appropriate and much more affordable alternative - including some where he might even avoid having to pay the tax as well!

As for other scenarios you might consider running in our tool above, you might consider the health insurance premium costs shared by "ScottinSC" via Twitter. And speaking of which, is it any wonder that one of the Patient Protection and Affordable Care Act's and President Obama's biggest boosters in the media is no longer describing the law as "affordable" in its headlines?

We confirm then that Americans can actually do the math for themselves when it comes to the Affordable Care Act. We're just happy to have developed a timely tool for making that personal finance math a lot easier to do!

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority (such as a licensed insurance broker, medical professional or legal services provider) with specialized knowledge who can apply it to the particular circumstances of your case.

Note that we didn't include "Healthcare.gov Navigator" or "community organizer" in the category of "competent authority".

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March 23, 2015

Now that we've established both how to calculate Irving Fisher's consumption-based measure of the size of the nation's economy as it matters to ordinary Americans (the national dividend) and compared that result with the alternative production-based measure of the national income of Gross Domestic Product (GDP) developed by other economists, the next question we'll address is how well does the national dividend line up with the incomes earned by the ultimate end consumers?

We'll do that as simply as possible, in nominal terms, by determining the correlation of the average annual total expenditures per consumer unit, which is the near equivalent of a U.S. household, with median household income over the thirty year span for which we have data for both series. The chart below shows the result of that very simple linear regression analysis.

The Almost Perfect Correlation Between Average Annual Total Expenditures per Consumer Unit and 
Median Household Income, 1984-2013

What we find is an almost perfect correlation for the years from 1984 through 2013, where the relatively small deviations from the otherwise nearly 1:1 linear trend are easily explained by the following factors:

Otherwise, with such an almost perfect 1:1 correlation, we confirm that our consumption-based national dividend for the U.S. almost perfectly represents the national economy as experienced by its most typical and ultimate end consumer representative: the median U.S. household.

Data Sources

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Total Average Annual Expenditures. 1984-2013. [Online Database]. Accessed 14 March 2015.

U.S. Census Bureau. Income, Poverty, and Health Insurance in the United States: 2013 (P60-249). Current Population Survey. Annual Social and Economic Supplement (ASEC). Table H-5. Race and Hispanic Origin of Householder -- Households by Median and Mean Income. [Excel Spreadsheet]. 16 September 2014. Accessed 21 March 2015.

Previously on Political Calculations

Once upon a time, last Wednesday, we solved a problem that had stymied economists since 1906. And we made it look easy!

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Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

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Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.