Central Perk: Mish's Global Economic Trend Analysis

luni, 3 ianuarie 2011

Mish's Global Economic Trend Analysis

Factories Expand 17 Consecutive Months, Jobs Don't
Uniquely Dysfunctional Relationships; Short and Long-Term Solutions to the Public Union Pension Crisis
The Consumer Becomes "The Consumed"

Factories Expand 17 Consecutive Months, Jobs Don't

Posted: 03 Jan 2011 01:13 PM PST

The latest ISM reports show Factories grow for 17th straight month in December.

Manufacturers produced more goods and booked more orders last month, leading to the fastest growth in factory activity since May.

The Institute for Supply Management said Monday that its index of manufacturing activity rose to 57 in December from 56.6 in the previous month. Any reading over 50 indicates growth. The latest is well above the recession's low of 32.5, hit in December 2008. But it's below the reading of 60.4 in April, the highest level since June 2004.

The report shows that manufacturers carried considerable momentum into the new year. Automakers, computer and electronics companies, and industrial machinery firms showed particular strength, the Tempe, Ariz.-based ISM said.

A survey of Chinese manufacturers last week showed that nation's boom lost a bit of momentum last month. The HSBC China Manufacturing Purchasing Managers Index slipped to 54.4 in December from 55.3 in the previous month, a three-month low. Still, the number indicates China's factories are increasing output.

In the U.S., export orders are still growing, the ISM said, but at a slower pace. ISM's index of export orders was 54.5 in December, down from 57.

A big question for this year is whether the growth will translate into more hiring. According to the ISM, manufacturers are adding jobs, but at a slower pace. Its employment index fell to 55.7 from 57.5. But the ISM's employment index hasn't always been very reliable: the manufacturing sector has actually shed small numbers of jobs for the past four month, according to the Labor Department.

Manufacturing Employment

The BLS Current Statistics report shows November lost 13,000 jobs, October 11,000 jobs, September 6,000 jobs and August 26,000 jobs.

click on any chart below to see a sharper image

In spite of 17 consecutive months of manufacturing expansion, hiring was only up 7 of those months, and not once in the last 4.

Manufacturing Long-Term Trends

The long-term trend suggests it would be a mistake to expect too many jobs out of manufacturing.

For more about jobs please see Jobs Forecast 2011 Calculated Risk vs. Mish

The BLS report for December comes out on January 7th. The January report comes out on February 4th. Those reports could be robust because of retail and service sector hiring, especially the January report.

Normally there are a lot of layoffs in January for obvious seasonal reasons. However, some of the recent hiring by stores might be permanent. If so, some expected layoff may not happen and we could see a couple of really nice looking jobs reports.

However, it would be a mistake to think that stores are going to keep hiring at a brisk pace all year simply because a couple of months look good. Headwinds are enormous and the mess states face is not accounted for. We are not going to spend our way back to prosperity regardless of what Keynesian clowns may think.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Uniquely Dysfunctional Relationships; Short and Long-Term Solutions to the Public Union Pension Crisis

Posted: 03 Jan 2011 09:48 AM PST

"Uniquely Dysfunctional" is an apt description of the relationship between public unions and the corrupt politicians in bed with those unions. The term comes from Fred Siegel, a historian at the Manhattan Institute.

I found the term in Public Workers Face Outrage as Budget Crises Grow.

Ever since Marie Corfield's confrontation with Gov. Chris Christie this fall over the state's education cuts became a YouTube classic, she has received a stream of vituperative e-mails and Facebook postings.

"People I don't even know are calling me horrible names," said Ms. Corfield, an art teacher who had pleaded the case of struggling teachers. "The mantra is that the problem is the unions, the unions, the unions."

It is an angry conversation. And a growing cadre of political leaders and municipal finance experts argue that much of the edifice of municipal and state finance is jury-rigged and, without new revenue, perhaps unsustainable. Too many political leaders, they argue, acted too irresponsibly, failing to either raise taxes or cut spending.

Fred Siegel, a historian at the conservative-leaning Manhattan Institute, has written of the "New Tammany Hall," which he describes as the incestuous alliance between public officials and labor.

"Public unions have had no natural adversary; they give politicians political support and get good contracts back," Mr. Siegel said. "It's uniquely dysfunctional."

In California, pension costs now crowd out spending for parks, public schools and state universities; in Illinois, spiraling pension costs threaten the state with insolvency.

And taxpayer resentment simmers.

A white-haired retired undercover police officer, whose wrap-around shades match his black Harley-Davidson jacket, pauses outside the Washington Township municipal building to consider the many targets. He did not want to give his name.

"Christie has all the good intentions in the world but has he hit the right people?" he says. "I understand pulling in belts, but you talking about janitors and cops, or the free-loading freeholder?"

Among the freeloading freeloaders are the cowards like the retired undercover police officer refusing to give their name to the New York Times. I would like to see that person's name and their pension payment posted in the article.

One would think that New Jersey teachers might have the ability to learn. However, judging from repeated powder puff softball questions by teachers that governor Chris Christie can hit out of the ballpark, I have to wonder.

Marie Corfield got what she deserved. Check it out in case you think otherwise.

Governor Chris Christie was straight, direct, and correct in his response to a union teacher in New Jersey who complains about teacher layoffs. Clearly the teacher's union is to blame.

Moreover, it is the same in every state. How teachers cannot see this is a wonder to behold.

For all I know, Marie Corfield is a hard working teacher. However, I can make a case we do not need to teach art at all, and on that basis she should be fired tomorrow.

However, the merits of teaching art is not the point. The point is her amazing sense of entitlement as to what her job is worth as a teacher in general. The same applies even more so to police and fire workers whose pensions are generally larger.

Bankruptcy Solution

One possible solution to this madness in my opinion is bankruptcy. In bankruptcy, the teachers and fire fighters and police can see just what a judge thinks they are worth. My point being, you cannot pay money that is not there.

In many case, city finances are so far gone that bankruptcy is the only option

Amazing Sense of Entitlement

Taxpayers are angry and for good reason. Many do not have the "problem" Marie Corfield bitches about because their problem is worse, no job at all.

While Corfield whines about having to pay $750 dollars a year for family health, dental, and eye-care (for life), most pay far more for far less. Many have no benefits at all.

Where this insane sense of entitlement come? The only possible answer is the union itself. Private workers certainly do not have the same sense of "taxpayers owe me" entitlement that public union members have. That entitlement comes from being part of a union "mob".

These public union-politician "dysfunctional relationships" are fraudulent precisely because there is "no natural adversary", no one looking out for taxpayer interests.

Short and Long-Term Solutions

The long-term solution is the end of collective bargaining for public unions, and indeed the total abolishment of public unions in general.

Unfortunately that does not rectify the ill-gotten gains of public union workers, notably police and fire workers who often retire at age 55 with 80-90% of salary and take another job in the meantime.

The short-term solution to this mess is to tax all public union pension benefits before the age of 62 at 90% , and after the age of 62, tax public union pensions in excess of a certain amount at a very high rate.

I propose these taxes be collected upfront, taken out of retirement checks and the money collected be fed back into public union pension plans to make them solvent. The beauty of my proposal is it could win support of many public union workers who do not have excessive benefits and who might be totally screwed in bankruptcy.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

The Consumer Becomes "The Consumed"

Posted: 03 Jan 2011 01:46 AM PST

Following is one of the more fascinating emails I have ever received. It is from reader Sally Odland who every year partakes in a "different ritual" celebration on New Year's Eve, a tradition she picked up on a trip to Ecuador.

Sally writes ...

Dear Mish,

I can't thank you enough for writing your blog. It's become my go-to stop for rational economic analysis.

Thought you might enjoy these photos of another kind of New Year's celebration....a tradition we picked up on a trip to Ecuador.

Each New Year's Eve, our family explores the detritus of the last week to reveal the essence of the departing year. From trash emerges the effigy of the passing year, which we burn at the stroke of midnight.

This year's cornucopia of discounted personal luxury ads embodied the illusionary idea that we can (must!) buy our way to economic health. In doing so, the consumer becomes "The Consumed".

Wishing you true prosperity in 2011.

Sally Odland
Croton-on-Hudson, NY

click on any image for a sharper view

I feel obliged to point out the exceptionally funny fine print "Once In A Lifetime" just above the words "Twice Yearly Sale" in the second and third photos.

Sally Writes ...

Effigy was collaborative montage assembled - literally - at the 11th hour by me, my husband Bruce, sons Max and Michael and Max's girlfriend Susannah. My sons laid the fire. Photos shot by Bruce.

Face was cut from NY Times Magazine issue "The Lives They Lived". It is Philippa Foot, moral philosopher, author of "Natural Goodness".

Her face was the right size and shape. However, her philosophy is strangely relevant to the theme.

From the article: She "became troubled by a central assumption of 20th-century moral philosophy: that facts and values are logically independent."

Sally

The Trolley Problem

Please consider the New York Times article Philippa Foot, Renowned Philosopher, Dies at 90

Philippa Foot, a philosopher who argued that moral judgments have a rational basis, and who introduced the renowned ethical thought experiment known as the Trolley Problem, died at her home in Oxford, England, on Oct. 3, her 90th birthday.

In 1967, in the essay "The Problem of Abortion and the Doctrine of the Double Effect," she discussed, using a series of provocative examples, the moral distinctions between intended and unintended consequences, between doing and allowing, and between positive and negative duties — the duty not to inflict harm weighed against the duty to render aid.

The most arresting of her examples, offered in just a few sentences, was the ethical dilemma faced by the driver of a runaway trolley hurtling toward five track workers. By diverting the trolley to a spur where just one worker is on the track, the driver can save five lives.

Clearly, the driver should divert the trolley and kill one worker rather than five.

But what about a surgeon who could also save five lives — by killing a patient and distributing the patient's organs to five other patients who would otherwise die? The math is the same, but here, instead of having to choose between two negative duties — the imperative not to inflict harm — as the driver does, the doctor weighs a negative duty against the positive duty of rendering aid.

The philosopher Judith Jarvis Thomson added two complications to the Trolley Problem that are now inseparable from it.

Suppose, she suggested, that the bystander observes the impending trolley disaster from a footbridge over the tracks and realizes that by throwing a heavy weight in front of the trolley he can stop it.

As it happens, the only available weight is a fat man standing next to him. Most respondents presented with the problem saw a moral distinction between throwing the switch and throwing the man on the tracks, even though the end result, in lives saved, was identical.

The paradoxes suggested by the Trolley Problem and its variants have engaged not only moral philosophers but neuroscientists, economists and evolutionary psychologists. It also inspired a subdiscipline jokingly known as trolleyology, whose swelling body of commentary "makes the Talmud look like CliffsNotes," the philosopher Kwame Anthony Appiah wrote in his book "Experiments in Ethics" (2008).

Global Progression of "Being Consumed By Consumption"

Philosophical pontifications aside, it is fascinating to watch the global progression of "Being Consumed By Consumption".

The property bubble in the US, Ireland, and Spain took its toll. Yet, "It's Different Here" thinking runs deep in Australia, Canada, and China.

It's not different anywhere.

Once home prices exceed people's ability to pay for them and/or home prices exceed the cost of renting, crashes are all but inevitable. I do not care what commodity prices are or how many people allegedly want to move someplace (think Miami, Phoenix, Las Vegas, Vancouver, Sydney, Shanghai), home prices exceeding rental prices or wage growth by multiple standard deviations is a sign of a bubble that will pop.

Miami, Phoenix, and Las Vegas have seen crashes. So will Vancouver, Sydney, and Shanghai. Indeed, the longer the delay, the bigger the crash.

The warning signs of over-consumption in Australia, Canada, the UK, and China are flashing red. However, it's far to late to do anything about them. The interest rate match has been lit in Australia and China, but it is irrelevant.

Interest rates hikes or not, global property bubbles and consumerism in general are going up in flames just as the trash of reader Sally Odland did at the stroke of midnight on new year's eve.

Happy New Year