Political Calculations
Unexpectedly Intriguing!
March 30, 2017

How much money is the City of Philadelphia collecting from its controversial soda tax? And how does that compare with the amount of money was Philadelphia's mayor and city council counting on collecting from their excise tax on naturally-sweetened, calorie-laden beverages and artificially-sweetened, diet beverages being distributed to the city's grocery and convenience store retailers?

If we go by the claims of the city's officials, they're collecting more revenue than they expected.

For the second consecutive month, the city's Department of Revenue announced the funds collected from the Philadelphia Beverage Tax brought in more money than its projections predicted.

The Revenue Dept. said February yielded $6.4 million in soda tax revenue, and also upped the initial figure for the first month of the year to $5.9 million from $5.7 million, an anticipated adjustment.

The Mayor's Office estimated soda tax revenue in February to amount to $6.3 million, according to the Kenney Administration's budget proposal.

At a total of $12.3 million in revenue collected so far, the beverage tax does not appear to be deterring consumers at the rate that city officials expected nor at the levels Pepsi and others claim.

Back on 15 February 2017, Philadelphia's City Manager Anna Adams indicated that the city would only take in $2.3 million from the soda tax during the entire month of January, which proved to be far below the $5.7 million that it was initially reported to have collected just a week later. That latter figure proved to be just under 97% of the final revised revised figure of $5.9 million that was reported on 23 March 2017.

Given those latter two numbers, that $2.3 million looks like Philadelphia's city manager was playing the same kind of deceptive shell game that corporate CEOs do with deliberately lowballing their company's earnings estimates to make their actual earnings appear better by comparison.

But is that the game that Philadelphia's public officials are playing?

To find out, we would need to know much money that the City of Philadelphia could legitimately have expected to collect through its soda tax in January 2017, and to determine that value, we would need to have a good idea of the quantity of beverages that would be distributed to be sold in the city during that month.

The Philadelphia Inquirer has previously reported that for Philadelphia's new soda tax to perform as the city's officials desire, the city would need to collect an average of $7.7 million per month from the shipments made to the city's beverage distributors.

But, as we recently demonstrated, the actual total value of shipments by beverage manufacturers follows a very regular and very predictable seasonal pattern. That is an important bit of information for two reasons:

  1. Because the taxes collected from Philadelphia's soda tax would be directly proportional to the total value of the beverages being shipped to the city's retailers by local beverage distributors.
  2. Because the seasonal pattern can tell us how much the city would typically need to collect in soda taxes during each month for it to hit its desired tax revenue levels.

With that being the case, we'll assume that the average seasonal pattern that applies for the total value of beverages shipped each month in the U.S over the years from 1992 through 2016 applies for the City of Philadelphia. The chart below illustrates that seasonal pattern.

Value of Beverage Manufacturers' Shipments by Month as Average of Annual Average Value of Shipments, 1992-2016

Our next step will be to visualize how that seasonal pattern would translate into a reasonably approximation of the amount of tax revenue that the city might collect each month from its new soda tax. The following chart reveals what we discovered when we plotted those desired tax revenue levels with respect to the city's actual monthly soda tax collections to date.

Desired vs Actual Estimates of Philadelphia's Monthly Soda Tax Collections, 2017 - Snapshot Final Data for January 2017 with Preliminary Data for February 2017

Based on the seasonal pattern for U.S. beverage distribution, Philadelphia's "Desired Soda Tax Revenues" per month are indicated in blue. Averaged together, the monthly desired tax revenue works out to be $7.7 million. This is the data that corresponds to what Philadelphia's city officials expect to collect from the city's soda tax.

The city's Actual Soda Tax Revenues per month are shown in red. Based on final data for January 2017 and preliminary data for February 2017, Philadelphia's soda tax collections are so far falling anywhere from 6% to 10% short of Philadelphia's city officials desired level of revenue.

This chart also illustrates just how preposterous Philadelphia City Manager Anna Adams' estimate of $2.3 million for the city's soda tax collections in January 2017 was.

Going back to the seasonal pattern data, one factor that we're not taking into account is actual temperature. Since beverage consumption is influenced by temperatures, where greater quantities of beverages are consumed during months characterized by higher temperatures, Philadelphia's weather may affect the city's soda tax collections. That may indeed be the case for February 2017, which was unusually warm in Philadelphia, with average temperatures more than 9 degrees Fahrenheit (5 degrees Celsius) above the month's typical temperatures.

Given its track record to date, in a funny way, Philadelphia's city officials may be counting on global warming to get the tax revenues they desire from their new soda tax!

Previously on Political Calculations

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March 29, 2017

A lot of business and economic data shows seasonal patterns. One example of data that shows a remarkably seasonal pattern is the total value of shipments delivered by beverage manufacturers to their distributor customers, which often precedes the actual consumption of these bottled and canned drinks by their end consumers in anywhere from a matter of days to several weeks.

The following chart shows that data for U.S. beverage manufacturers for each month from January 1992 through January 2017.

Total Value of Beverage Manufacturers' Shipments, Not Seasonally Adjusted,  January 1992-January 2017

In this chart, we can see that the not seasonally-adjusted data follows a remarkable similar pattern from year to year, which has strongly persisted over time even as the rolling 12-month average of these shipments has more than doubled from 1992 through 2016. Perhaps more remarkably, we can see the overall magnitude in the swings from one season to the next grow in size as the total value of shipments has increased.

To better visualize that seasonal variation, we calculated the mean value of beverages shipped each month by their U.S. manufacturers in each year, then calculated the percentage that each month's total shipment value represents with respect to that average value, where a value of 100% would coincide with a month's shipments being equal to the annual average for the year in which it occurred. The results of that math are shown in the following chart.

Value of Beverage Manufacturers' Shipments by Month as Average of Annual Average Value of Shipments, 1992-2016

With the data indexed with respect to each year's average total shipment value, we see that the seasonal swings are really pretty consistent over time, where the increasing magnitude indicated by the first chart is a result of the same size percentage swings being applied to the increased overall value of shipments.

At the same time, we see that January in each year marks the lowest number of shipments, coming in at roughly 85% of the average monthly value recorded during the year. The value of shipments then predictably increases through March, holds flat in April, then resumes increasing before typically peaking in June. Much of this pattern coincides with rising temperatures in the U.S. as the weather transitions from winter to spring and then to summer, which represents the peak period for manufactured beverage consumption in the U.S.

In July, the total value of beverage shipments falls in each year before rising to peak once more in August, which is then followed by a relatively steady decline in each following month through December. The cycle then repeats with the value of beverage shipments crashing to their January lows in the next year.

The June-July-August peak-dip-peak is also remarkable in showing the advance delivery of beverages ahead of their periods of peak consumption, where June shipments supply consumption during the U.S.' Fourth of July holiday and the August shipments are supporting consumption during the period of the U.S. Labor Day holiday, which falls on the first Monday in September each year.

This data is something that we dug up as part of another project, which we will get to in the very near future. For now, we thought it was perhaps interesting enough to present on its own as a data visualization exercise, and because major U.S.-owned beverage manufacturers like Coca Cola (NYSE: KO), PepsiCo (NYSE: PEP), Dr. Pepper Snapple Group (NYSE: DPS), National Beverage Corporation (NASDAQ: FIZZ) and a considerable number of smaller public firms, private firms and foreign-owned beverage manufacturers with U.S. production facilities could use a hug!

Data Source

U.S. Census Bureau. Beverage Manufacturing: U.S. Total, Not Seasonally Adjusted Value of Shipments [Millions of Dollars], Period: 1992 to 2017. Manufacturers' Shipments, Inventories, and Orders. [Online Database]. Data Extracted on: 28 March 2017.

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March 28, 2017

We're tied up with other projects today, but for some quick fun, we threw together the following chart showing the trajectory of the Dow Jones Industrial Average (DJIA) since 8 November 2016 (a.k.a. "The Age of Trump"), where we've noted some unusual winning and losing streaks in just the past two months....

Longest Winning and Losing Streaks in the Dow Jones Industrial Average From 8 November 2016 Through 27 March 2017

Going back to 2 May 1885, there have been a total of 4 winning streaks where the DJIA closed higher than its previous day's close over 12 consecutive trading days, with the fourth just having ended on 27 February 2017.

By contrast, there have been 43 losing streaks where the DJIA closed lower than it's previous day's closing value on 43 separate occasions since 2 May 1885, where the current losing streak through yesterday, 27 March 2017 may not yet be over.

Should the current losing streak extend a ninth day, it will mark just the twelfth time in the last 132 years where the Dow has dipped for that many days in a row.

Data Source

Williamson, Samuel H. "Daily Closing Values of the DJA in the United States, 1885 to Present," MeasuringWorth, 2017. URL: http://www.measuringworth.com/DJA/. Accessed 28 March 2017.

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March 27, 2017

We've had a remarkably good run in forecasting where the S&P 500 was likely to go over the past several months, but that almost perfect track record came to an end on Tuesday, 21 March 2017 when investors suddenly shifted their forward-looking attention away from 2017-Q2 to focus more strongly upon the more distant future of 2017-Q3.

Alternative Futures - S&P 500 - 2017Q1 - Standard Model - Snapshot on 24 March 2017

While we had anticipated that the volatility of the S&P 500 would be very likely to increase, the timing of the "screeching halt" to which the S&P 500's extraordinarily low level of volatility over the last several months came as its "history-setting trading streak" ended on 21 March 2017 caught us by surprise. You can see that surprise in the chart above where we had shown our short-term forecast range (the red-lined box) extending through 22 March 2017.

However, the dynamics that coincided with that sudden shift were those that we described in our notes last week. At present, we think that investors are still splitting their attention between 2017-Q2 and 2017-Q3 in setting current-day stock prices, but are currently placing a higher weighting on 2017-Q3 in doing so, which given where stock prices were, meant that stock prices would fall.

Right now, given the level of stock prices between the two alternative trajectories that the S&P 500 would be following if investors were exclusively focused on either 2017-Q2 or 2017-Q3 in setting their future expectations, we think that investors are now placing a 62% probability that the Fed will be compelled by poor economic data to delay its next intended increase short term U.S. interest rates into that more distant quarter.

The significant difference in the future expectations for 2017-Q2 and for 2017-Q3 is what will lead the S&P 500 to experience higher-than-recent levels of volatility during the next several months, where good news will lead investors to focus in the nearer term (as the Fed will be more likely to next hike interest rates sooner), and where bad news will lead investors to focus on the more distant future, where the Fed will delay its next rate hike.

Next week, we'll show you what that potential trading range will look like over 2017-Q2. Until then, here are the headlines that we identified as noteworthy over Week 4 of March 2017.

Monday, 20 March 2017
Tuesday, 21 March 2017
Wednesday, 22 March 2017
Thursday, 23 March 2017
Friday, 24 March 2017

For a bigger picture of the week's more notable news, Barry Ritholtz lists the week's positives and negatives for the U.S. economy and markets. (Spoiler alert: the week had more negatives than positives!)

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March 24, 2017

Not long ago, Core77's Rain Noe ordered a battery from Staples that was delivered to his home in a box that was way bigger than the battery enclosed inside.

It turns out that delivery was the unintended consequence of a decision by Staples, one that actually saves the company quite a lot of money, to both standardize the size of the corrugated (cardboard) packaging in which in ships goods to its online customers and to automate as much of the packaging operations at its fulfillment center as it can. A Core77 reader found a two minute-long video that describes how Staples fulfillment center packages the goods it ships.

So how did this choice by Staples lead to such a seemingly wasteful mismatch between the size of ordered good and the size of the packaging in which it was delivered? Rain explains:

... it appears that Staples has chosen the sizes of corrugated Z-fold most common to their order, with my tiny battery being an anomaly.

But that's not the end of the story. Packsize, the maker of the automated packaging equipment that Staples uses, recognizes the opportunity it has to benefit in the market from continuing to minimize the waste that results from shipping products to customers in oversize packages by better tailoring its on-demand packaging product line to produce "right-sized" boxes.

And that's the future of packaging. As for Packsize, the company often contracts with its customers to provide them its packaging machines at no cost, where its revenue comes from selling the Z-fold corrugated cardboard packing material used by the machines to the companies that acquire them. Or as Rain notes:

It looks like the razor-and-handle business model works well here.

Speaking of which, if you weren't already familiar with the BBC's 50 Things That Made the Modern Economy series of podcasts, here are links to a few of its episodes that directly overlap with the modern business of packing and shipping:

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