Wednesday, January 23, 2013

On the reading list: Indur M. Goklany's "Humanity Unbound."

It's on our reading list. Goklany provides what appears to be a welcome antidote to the nostrums of the green economy --  a thorough historical look at the contributions of conventional energy to well-being. For green energy to work it would have to supplant the tremendous progress humankind has made thanks to fossil fuels.

Wednesday, January 16, 2013

FRB: Beige Book Boston District January 15, 2013


First District--Boston

Economic activity in the First District continues to grow modestly, according to business contacts. Most retailers and the tourism industry cite year-over-year increases in demand. Aside from some firms with industry-specific or customer-specific issues, First District manufacturers also report growth in sales from a year ago. Similarly, consulting and advertising firms are ahead of a year earlier, although a couple of companies with fast growth over the last few years have recently seen business level off. Commercial real estate contacts are somewhat downbeat; office leasing is slow and demand for commercial real estate loans and pipelines for commercial construction activity are weaker than in recent reports. Residential real estate markets continue to recover, with both sales and prices in November above year-earlier levels. In all sectors, most respondents are holding their selling prices level. Contacts say their hiring depends on demand growth; as a result, most firms are doing little to no hiring, but some firms are expanding headcounts substantially. Notwithstanding ongoing concerns with uncertainty, contacts generally expect continued modest growth in 2013. 

Retail and Tourism
One contact reports a small single-digit year-over-year decrease in December sales while the others cite increases ranging from near zero to 7 percent. Demand remains strong for clothing, shoes, and furniture. Responding retail firms expect to hold their selling prices steady based on an absence of price increases at the wholesale level. These contacts anticipate that 2013 will be characterized by low single-digit growth in sales.

The tourism industry ended 2012:Q4 on a high note, establishing new records for hotel room occupancy rates and revenues. Strong domestic and international corporate business travel and international leisure travel account for much of this performance. Restaurants saw less spending on corporate entertaining and end-of-year holiday events. Advance hotel booking data indicate that the strong trend in business travel will continue, leading to an expectation that occupancy rates will hold level in 2013 compared to the high benchmark established in 2012.
Manufacturing and Related Services
Manufacturing in New England continues to expand at a modest pace according to First District contacts. Of 11 responding firms, seven report higher sales in the fourth quarter than in the same period a year earlier, although in some cases the gains are quite modest. Two contacts in the semiconductor industry continue to report a cyclical downturn in their business. A contact in aerospace says that sales of parts for new airplanes are extremely strong but depressed conditions in the aftermarket have spread from the United States to Europe. A contact in the chemical industry says that while sales in pounds fell, the pricing picture improved so much that sales in dollars are up. Sales of frozen fish continue to be weak. The "fiscal cliff" was an explicit problem for a computer firm that sells almost exclusively to Defense Department customers who are worried about sequestration.

Only five of the 11 respondents report significant hiring. Firms with rapidly growing sales are hiring, but firms in slow-growth industries are not. A biotech firm with 3,500 U.S. employees plans to add another 1,000 over the coming year, about half domestically. The computer supplier with customers dependent on defense spending cut its staffing by 10 percent to 15 percent over the period from June to September. A contact in the chemical industry reports both good and bad news about the labor market. On one hand, he says that for the first time since the crisis began, workers are voluntarily leaving to take new jobs. The bad news is that he is having great difficulty filling low-skill jobs. He says that drug test fails are much more common than in the past; in addition, a large number of workers quit almost immediately after taking the job. The contact speculates that both of these hiring problems may result from behaviors developed during extended periods of unemployment.

As with employment, capital spending is generally slow except for firms in growth industries, with four firms reporting increases and four reporting decreases in spending. One diversified manufacturer of parts for the aerospace and auto industries reports that business units within the firm failed to spend their planned capex allocations in 2012.

The outlook continues to be uncertain for most of our contacts. Only one firm, the defense supplier, cites the fiscal cliff as a serious problem and even they expect some resolution in the new year.

Selected Business Services
Consulting and advertising contacts in the First District report generally positive results for the fourth quarter. Several contacts report modest growth, while two contacts--whose firms have experienced rapid growth over the past two years--experienced a leveling off. Marketing and advertising contacts report a slight uptick during the fourth quarter and are confident that business conditions have finally stabilized after the recession, which hit them with a lag. Two contacts with exposure to health care note robust demand for services related to health-care IT implementation and drug-impacts research. At the same time, firms focused on the pharmaceutical industry have experienced slow growth, although one contact expects that pharmaceuticals will start to emerge from its rough spell in 2013. Economic consulting remains strong because of high levels of complex high-stakes litigation; management and strategy consulting contacts report flat business conditions as clients uncertain about fiscal policy and the macroeconomy remain reluctant to invest in consulting services.

Contacts report little to no cost increases and are keeping their prices relatively unchanged. One exception is an advertising firm where health insurance costs rose 12 percent in 2012. Some contacts report no hiring, consistent with a lack of demand growth, while others report net hiring in the low single digits. Plans for future hiring are modest, with contacts generally expecting zero to low single-digit workforce increases in 2013.

Most contacts expect growth to pick up in 2013, with the exception of a government contractor, who is too uncertain about the future of fiscal policy to offer any forecast. No one expects another recession and overall they express a sense of cautious optimism.

Commercial Real Estate
Across most of the First District, leasing activity in the final weeks of 2012 is described as very light, driven by a combination of seasonal factors and uncertainty stemming from fiscal cliff negotiations. However, a Portland contact notes an uptick in leasing activity in that city in December, especially in the warehouse sector, although office fundamentals remain flat amid slow employment growth. Boston's warehouse market improved as well, while the city's office vacancy rate remains high--also attributed to slow employment growth--and the trend toward office downsizing persists. In Hartford, the fate of large downtown properties that experienced foreclosure in 2012 remains uncertain; a key question is whether current owners will reinvest in the properties or resell them as is. Demand for commercial real estate loans in the region appears to be softening, while the pipeline of new construction projects in Boston has diminished significantly since the last report.

Most contacts in the region are cautiously optimistic that commercial real estate fundamentals will improve in 2013. However, growth expectations remain very modest and some contacts note downside risks to growth from pending fiscal contraction and ongoing political uncertainty, even taking into account the recently-enacted federal tax deal.

Residential Real Estate
Across the First District, contacts report strong year-over-year growth in sales for November in both single-family home and condominium markets. Similar to previous reports, contacts attribute continued growth in sales to low interest rates, affordable prices, and rising rents. Contacts say that buyers have become more confident about purchasing a home as economic conditions continue to improve. As buyer activity increased, inventory levels fell throughout the region. Contacts argue that declining inventory levels have now translated into higher prices in most areas. The median sale price of homes rose year-over-year across the First District, with some states experiencing significant increases. 

In terms of outlooks for the coming year, contacts continue to feel positive about improvements in home values and strong sales. Significant year-over-year growth in sales is expected for the most of 2013, although a warm winter last year coupled with a potentially harsher winter this year may soften year-over-year growth in the coming months. In Massachusetts and the Greater Boston area, contacts express concern that dwindling inventory levels will discourage buyers and even potentially deter some sellers who would like to purchase a replacement home before listing their current one; at the same time, they express worry about prices appreciating too quickly, but say they are not concerned with ongoing moderate price appreciation. Notwithstanding these potential concerns, contacts across the region are generally very optimistic about the strength of the housing market in 2013.

Thursday, January 3, 2013

David G. Tuerck on Fox25 discussing the "Fiscal Cliff" deal

Boston News, Weather, Sports | FOX 25 | MyFoxBoston Video Link.

Response to the Union of Concerned Scientists' "Critique" of BHI's RPS studies

Elliott Negin,
Director of News & Commentary
Union of Concerned Scientists
Huffington Post

Dear Mr. Negin:

I write this letter to you to correct your statements and misrepresentation of our studies that you presented to your readers in an article titled Koch Brothers Fund Bogus Studies to Kill Renewable Energy on December 7th 2012.

You state that I ‘essentially conceded’ that we ‘fudged’ our findings due to the funding of groups that utilized our findings or assumptions you make about our funding. This could not be further from the truth, and as I will detail here, your deceptive selections of our papers and incorrect statements are misleading your readers.

As with all of our Renewable Portfolio Standard (RPS) reports the donors and funders of the project wish to remain anonymous, but as I will demonstrate, none of our numbers are ‘fudged.’ We use rigorous analysis and a dynamic economic model with an 11-year track record to produce accurate ranges for the estimated costs that states are likely to experience due to RPS polices. The fact is that by mandating that utilities produce electricity by using more costly and less efficient methods, electricity costs will rise. These price increases are not immaterial and will have direct effect on decisions faced by both residents and businesses in the state.

I do not question the findings or independence of the Union of Concerned Scientists, or yourself, due to the eight Anonymous donations of more than $100,000, or donations from ClimateWorks Foundation, EarthShare or The Energy Foundation of the same size. (1) To do so would be to commit the motive fallacy which always seems to be used by those with no legs to stand on. Questioning funding sources is the ‘red herring’ to avoid any serious discussion on methodical issues in a study. But I do question your findings based on incorrect information and misleading statements.

First, you quote our paper:

“assumed that the Energy Information Administration’s projected renewable energy price estimates are too low,”

Which is true, but you leave out the part of the story that does not fit your caricature of findings that disagree with your belief. In our research we found that EIA estimates were in the lower range of levelized energy costs and higher in capacity factor for renewable energies for the nation as a whole. For this reason we included them in our paper, as the ‘low case’ to fully represent the huge range of possibilities that this policy could have. We also included other creditable estimates in our modeling to represent a ‘high case’, as well as a combination of the two sets to calculate our ‘medium case’. Additionally, in our calculations we use state specific information when it is available. For example actual wind power farms in Kansas have capacity factors close to 40 percent, higher than EIA estimates, which we utilized to improve our results.

Secondly, to continue the quote above:

“…and that cost containment measures embedded in state polices will fail.”

But again you fail to include any of our discussion of why they are likely to fail, and regardless should not be included in an examination of the policies. In researching the cost caps, we were unable to find any examples of effective, enforceable cost caps for RPS or Renewable Energy Standards (RES) being enforced. This is not particularly surprising, as most policies have step-up mechanisms and the larger costs are likely to be incurred as the policies are fully implemented. But it does begin to show a trend. Furthermore, most cost containment measures are worded such that the decision to implement them is more likely to be a political decision then an economic one.

For example, in Missouri the Missouri Public Service Commission (MPSC), which is the department responsible for measuring the cost cap, as well as ensuring the RPS is fully implemented, should determine the rate increase “by estimating and comparing the electric utility’s cost of compliance with least-cost renewable generation and the cost of continuing to generate or purchase from entirely nonrenewable sources.” Additionally, “future environmental regulatory risk including that of greenhouse gas regulations should be taken into account.”(2) If a MPSC analyst can determine the least cost energy of a theoretical power plant, the cost of a theoretical purchase contract, AND determine the cost of all possible future environmental regulations, then the analyst would be wasting his skills.

Aside from the points mentioned above about the cost-cap provisions, they are irrelevant to the goal of our study, which is to estimate the cost of compliance to a RPS in the time frame legislated. There are three possible outcomes of the RPS. It is (1) met in the timeframe required, (2) the cost cap provision is enacted and the RPS is not met in the timeframe required or (3) the RPS is not met due to technical impossibilities. Our studies measure (1) as (2) is more based on political science, requiring large assumptions, than economics while (3) is not relevant to policy discussion.

Thirdly, you reference your colleague’s ‘fact check’ of our Michigan RPS analysis. This ‘fact check’ plays fast and loose with the facts, making false claims and entirely misrepresenting our study. I will supply the summary corrections again for you here.

You said we “ignored the fact that the state already has a standard in place, enabling them to inflate the costs of implementing the stronger standard.” This would be a valid critique, if it were true. In fact, in Graphic 2 of the paper we compare the two polices side by side, including the results of the difference between the two policies.

Next you stated that we “made questionable assumptions about renewable energy technologies--often citing out-of-date, controversial or unsubstantiated material to support their assertions--instead of using real-world cost and performance data from local projects.” As stated above, we use a range of estimate to provide a better interval that we are confident the results will be in. In Mr. Deyette’s ‘fact-check’, he suggests we use capacity factors for wind power based on the Great Lakes region. The number he suggests is within our range of estimates, which is one of the most defensible reasons for using ranges. No one knows what the capacity factor of wind will be in 2025, we make assumptions about the range to provide a range of net costs as guidance.

Finally, you allege we “failed to factor in the new standard's benefits, including economic development, job growth, cleaner air and reduced carbon pollution.” We go to lengths in both the papers and the STAMP® documentation to show this is not true, and your statement is uninformed. As we state in the paper:

“The jobs that are lost due to higher energy costs are not as easy to identify as the jobs created by new energy construction projects, but they are just as important. While Public Act 295 might generate visible new jobs and construction projects, our projections clearly indicate that Michigan electricity ratepayers will pay higher rates, face fewer employment opportunities, and see investment redirected to other states.”

The STAMP® model does account for the benefits of the policy. More jobs and investment will be seen in some sectors of the Michigan economy, mainly in those related to the installation and building of green energy. But the higher electric prices would have larger negative effects on the state, leading to the net negative costs we report.

Your haphazard analysis which makes-up facts and consistently misconstrues statements is an insult to your readers and a sad inquiry into our paper. I would be happy to discuss any methodical questions or concerns you have with our papers in an effort to improve them, but accusing me of ‘fudging’ studies for money based on ignorant facts is disappointing.


Michael Head
Research Economist
The Beacon Hill Institute at Suffolk University

cc: Joanna Zelman, Editor, Green Department, Huffington Post.
1 Union of Concerned Scientists, Annual Report (2011);14,
2 Missouri Register 35 (16):1190 August 16, 2010.