vineri, 4 mai 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Payroll Disaster: Nonfarm Payroll +115,000 Establishment Survey But -169,000 Household Survey, Labor Force Drops by 342,000

Posted: 04 May 2012 07:55 AM PDT

Quick Notes About the Unemployment Rate

  • US Unemployment Rate fell .01 to 8.1%
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  • In the last year, the civilian population rose by 3,638,000. Yet the labor force only rose by 945,000. Those not in the labor force rose by 2,693,000.
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  • The Civilian Labor Force fell by 342,000.
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  • Those "Not in Labor Force" increased by 522,000. If you are not in the labor force, you are not counted as unemployed.
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  • Those "Not in Labor Force" is at a new record high of 87,419,000.
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  • By the Household Survey, the number of people employed fell by 169,000.
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  • By the Household Survey, over the course of the last year, the number of people employed rose by 2,237,000.
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  • Participation Rate fell .2 to 63.6%
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  • There are 7,853,000 workers who are working part-time but want full-time work
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  • Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

This month was another disaster. Actual employment fell by 169,000 and the only reason the unemployment rate dropped is the civilian labor force fell by 342,000. These numbers are well past the point of believability and will be revised at some point in my opinion.

Over the past several years people have dropped out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low. Some of this was due to major revisions last month on account of the 2010 census finally factored in. However, most of it is simply economic weakness.

Jobs Report at a Glance

Here is an overview of today's release.

  • US Payrolls +115,000 - Establishment Survey
  • US Unemployment Rate dropped .01 to 8.1% - Household Survey
  • Average workweek for all employees on private nonfarm payrolls was unchanged at 34.5 hours
  • The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.8 hours.
  • Average hourly earnings for all employees in the private sector rose by 1 cent.

Recall that the unemployment rate varies in accordance with the Household Survey not the reported headline jobs number, and not in accordance with the weekly claims data.

April 2012 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) April 2012 Employment Report.

Nonfarm payroll employment rose by 115,000 in April, and the unemployment rate was little changed at 8.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, retail trade, and health care, but declined in transportation and warehousing.

Unemployment Rate - Seasonally Adjusted



Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted



Employment is about where it was just prior to the 2001 recession.

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted



click on chart for sharper image

Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.

Since a recent employment low in February 2010, nonfarm payrolls have expanded by 3.7 million jobs. Of the 8.8 million jobs lost between January 2008 and February 2010, 42 percent have been recovered.

Statistically, 125,000+- jobs a month is enough to keep the unemployment rate flat. For a discussion, please see Question on Jobs: How Many Does It Take to Keep Up With Demographics?

The average employment gain over the last 26 months has been 142,000, barely enough (statistically speaking) to make a dent in the unemployment rate.

Yet, the civilian unemployment rate has fell from 9.8% to 8.1%.

Current Report Jobs



Average Weekly Hours



Index of Aggregate Weekly Hours



Average Hourly Earnings vs. CPI



"Success" of QE2 and Operation Twist

  • Over the past 12 months, average hourly earnings have increased by 1.8 percent. In March, the Consumer Price Index for All Urban Consumers (CPI-U) had an over-the-year increase of 2.6 percent; growth in prices has recently been outpacing growth in earnings.
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  • Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

BLS Birth-Death Model Black Box

The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey.

The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out with a total.

The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance.

Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way.

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another as noted by numerous recent revisions.

Birth Death Model Adjustments For 2011



Birth Death Model Adjustments For 2012



Birth-Death Note

Once again: Do NOT subtract the Birth-Death number from the reported headline number. That approach is statistically invalid.

Household Survey Data



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In the last year, the civilian population rose by 3,638,000. Yet the labor force only rose by 945,000. Those not in the labor force rose by 2,693,000.

That is an amazing "achievement" to say the least, and as noted above most of this is due to economic weakness not census changes.

Decline in Labor Force Factors

  1. Discouraged workers stop looking for jobs
  2. People retire because they cannot find jobs
  3. People go back to school hoping it will improve their chances of getting a job
  4. People stay in school longer because they cannot find a job

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Part Time Status



click on chart for sharper image

There are 7,853,000 workers who are working part-time but want full-time work.

Table A-15



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Table A-15 is where one can find a better approximation of what the unemployment rate really is.

Notice I said "better" approximation not to be confused with "good" approximation.

The official unemployment rate is 8.1%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 14.5%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Grossly Distorted Statistics

Given the complete distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers.

Digging under the surface, the drop in the unemployment rate over the past two years is nothing but a statistical mirage. Things are much worse than the reported numbers indicate.

Note the drop in U-6 unemployment this month as the Civilian Labor Force fell by 342,000. This is beyond statistical noise, to the point of pure statistical bullsheet.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Spotlight Australia: Collapse in Service Sector; Unrelenting Discount Wars; Catastrophic Decline in Profits; Stranded Merchandise in Warehouses

Posted: 04 May 2012 12:05 AM PDT

Australia in in grim shape. Retailers are going under, home prices are sinking, and there is an enormous collapse in the entire service sector.

Collapse in Service Sector

Markit reports Australia Services Sector Slumps in April
KEY FINDINGS

  • The latest seasonally adjusted Australian Industry Group/Commonwealth Bank Australian Performance of Services Index (Australian PSI®) slumped by 7.4 points to 39.6 in April (readings below 50 indicate a contraction in activity with the distance from 50 indicative of the strength of the decline). This was the lowest monthly reading since March 2009.
  • The sharp fall in the Australian PSI® was driven by declines in the sales and new orders components of the index, which are now both at their lowest levels in almost three years.
  • Reports of weak trading conditions were widespread across all services sub-sectors and all states.
  • Consistent with these reports and with the latest weakening in Australian inflation (with headline inflation just 1.6% p.a. in the March quarter), the input prices and average wages and selling prices indices are now back at or below the levels seen during the Global Financial Crisis.

The sharp fall in the Australian PSI® was driven by especially large declines in the activity indices of the finance & insurance, personal & recreational services and health & community services sub-sectors.

NEW ORDERS

  • On a seasonally adjusted basis, new orders contracted further in April.
  • The new orders sub-index fell by 11.9 points to 35.8, which is similar to the levels seen following the Global Financial Crisis in 2009.
  • On a non-seasonally adjusted basis, new orders declined across all service sub-sectors in April, with particularly sharp declines reported in the health & community services and personal & recreational services sub-sectors.
Price Squeeze

Check out the enormous margin squeeze on Australian service sector businesses.



click on chart for sharper image

Input prices have risen for 110 consecutive months and wages have risen for 33 consecutive months, but sales, new orders, and selling prices have collapsed.

Catastrophic Decline in Profit

The Age reports Retailers hit fast-forward in a race to the bottom
THE unrelenting and deep discounting war being fought in the retail sector has notched up its second victim in a week, with Harvey Norman revealing its pre-tax profit slumped 44 per cent in the March quarter.

Sales for the first nine months of this financial year have fallen nearly 7 per cent.

Only last week, rival electronics and entertainment retailer JB Hi-Fi - which released its own disappointing sales and profit forecast due to the double punch of price deflation and price competition - named Harvey Norman as one of the main culprits of the race to the bottom.
Advertisement: Story continues below

Yesterday, Harvey Norman said the technology category continued to be challenged by declining average selling prices, with global sales falling 6.7 per cent to $4.39 billion for the nine months to March 31.

Comparable-store sales, which take out the contribution of new stores, slipped 6.6 per cent.

Australia, the company's key region, led the decline, and showed a worsening trend through the nine months. First-quarter sales were down 2.9 per cent, but that accelerated to a 10.2 per cent fall in the second quarter, and sales in the third quarter were down 9.2 per cent.

Third-quarter, like-for-like sales were down 7.9 per cent in New Zealand, 5 per cent weaker in Slovenia-Croatia and 1.3 per cent stronger in Ireland.

The knock-on effect to pre-tax profit has been catastrophic.
Stranded Merchandise in Warehouses

Please consider Freight firm fails at cost of 1000 jobs
RETAILERS and building suppliers across the country have been left with large amounts of stock stranded in the warehouses of collapsed transport firm 1st Fleet.
The express freight and warehousing company yesterday sacked its entire workforce, of 600 permanent employees and 400 sub-contractors.

It collapsed with debts worth tens of millions of dollars, triggered by the withdrawal of its lead banker, Coface, from its Australian portfolio.

Near midnight on Tuesday, night-shift workers at company depots were confronted by the firm's administrators and security guards, who locked them out and changed the locks. In Melbourne, most found out they no longer had a job when they turned up for the 7am shift.
Neil Chambers from the Victorian Transport Association said the economic climate for transport and logistics companies was as bad as during the 2008 financial crisis. "1st Fleet is almost like the tip of the iceberg," he said, with wafer-thin margins sending small transport firms to the wall.
RBA downgrades Australian Growth Forecasts, More Rate Cuts Likely

The Australian reports RBA downgrades Australian growth forecasts, more rate cuts likely
THE Reserve Bank of Australia dramatically downgraded its growth forecasts for the Australian economy, sparking the prospect that more interest rate cuts could be ordered in the next few months.

In its quarterly Statement of Monetary Policy, the RBA said that the domestic economy would now grow by just 2.75 per cent by June, down from its forecast of 3.5 per cent delivered just three months ago.

The economy is then predicted to bounce back slightly to 3 per cent by the end of 2012.
The RBA has also softened its inflation forecasts, which economists predict will likely bring on more interest rate cuts.
Not Dramatic Enough

I have no idea what the RBA is smoking but "growth" is not in the picture, nor is a year-end bounce.

Does the RBA even believe what they are saying? If they did, they would not have cut by a half, surprising nearly every economist in the country.

Alternatively, they are monetarist clowns who actually believe they can fine tune the economy with monetary policy even though the enormous property bubble proves otherwise.

Australia in Recession

Australia is now in recession and it will be a long, harsh one, no matter what the RBA does or doesn't do. Retail prices are too high, wages are too high, real estate prices are too high, and belief in policy makers is too high.

Many Australians have been emailing me for years that Australia is recession proof., that housing is in short supply and Chinese exports will keep the economy humming.

Reality is about to set in big, big-time.

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

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

California has 12% of US Population, 33% of Welfare Recipients; Texas is Best State to Do Business; California, Illinois, and New York the Worst; Where Does Your State Rank?

Posted: 03 May 2012 10:15 PM PDT

Chief Executive's eighth annual survey of best states to do business shows Another Triumph for Texas
In Chief Executive's eighth annual survey of CEO opinion of Best and Worst States in which to do business, Texas easily clinched the No. 1 rank, the eighth successive time it has done so. California earns the dubious honor of being ranked dead last for the eighth consecutive year.

This year, 650 business leaders responded to our annual survey, up from 550 in 2011. CEOs were asked to grade states in which they do business among a variety of areas, including tax and regulation, quality of workforce and living environment. The Lone Star State was given high marks foremost for its business-friendly tax and regulatory environment. But its workforce quality, second only to Utah's, is also highly regarded.

Florida moved up from number three last year to number two.

It is perhaps no coincidence that Texas and Florida have the highest net migration of people to their states from 2001 to 2009. (By contrast, New York and California lost over 1.6 million and 1.5 million in net migration out of the states, respectively, over the same period.)

It may be no accident that most of the states in the top 20 are also right-to-work states, as labor force flexibility is highly sought after when a business seeks a location.

California's enduring place of perpetual decline continues in this year's ranking. Once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell. The economy, which used to outperform the rest of the country, now substantially underperforms. And its status as the most ruinously contentious place to operate remains undisturbed in eight years. Its unemployment rate, at 10.9 percent, is higher than every other state except Nevada and Rhode Island.

With 12 percent of America's population, California has one-third of the nation's welfare recipients. Each year, the evidence that businesses are leaving California or avoid locating there because of the high cost of doing business due to excessive state taxes and stringent regulations, grows.
Bottom 10



Please consider a Slideshow of the Bottom 10.

Illinois is trying hard for that top spot, but California and New York are tough competition.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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