Central Perk: Mish's Global Economic Trend Analysis

joi, 18 octombrie 2012

Mish's Global Economic Trend Analysis

Graphical Look at Trends in Weekly Unemployment Claims
Philly Fed Rises But Details Very Weak; Future Expectations Plunge
Brookings Institute On Looming Fiscal Cliff: Little Room for Optimism
China’s Economy Slows, Power Output Falls to Four-Month Low but Premier Upbeat on Economy; Enormous Headwinds

Graphical Look at Trends in Weekly Unemployment Claims

Posted: 18 Oct 2012 08:34 PM PDT

As expected, weekly unemployment claims bounced sharply higher this week, up a whopping 46,000 from last week's revised figure of 342,000.

Last week, recall that the Labor Department reported a four-year low of 339,000 first-time claims. It was not a real number.

As I noted a week ago in So Much For Today's Surprising "Drop" In Weekly Jobless Claims; California Forgot to Report 30,000 Claims ...

I still think Friday's jobs report will be revised away, but I am positive today's "surprising" report will be (for the simple reason California forgot to report 30,000 claims).

Actually, the report isn't worthless, it's simply erroneous. Add back in 30,000 claims and the number is 369,000 right about where it has been for some time.

Economists were thus expecting about 370,000 claims this week, but amusingly claims shot all the way back to 388,000.

So much for conspiracy theories regarding unemployment claim numbers.

To better understand real trends we need to look at the 4-week moving averages of claims to help smooth out things like weather-related incidents (and California ineptitude).

4-Week Moving Average Trends 2009-2012

To put trends into a visual perspective, I asked Doug Short at Advisor Perspective for a year-by-year breakout, as shown above.

Note that weekly claims headed sharply lower in April of 2009 two months prior to the official end of the recession. There was a slow but relatively steady improvement in 2010, and a choppier improvement in 2011.

In 2012, there is has been no improvement since mid-February, and minimal improvement since the start of the year.

Weekly Claims 2005-2008

The four-year moving average of claims was 331,000 when the recession started. It is 365,500 today.

At no point has the 4-week average of claims dropped below 360,000 since early 2008.

Where To From Here?

If you are expecting a big jump in weekly claims prior to the recession, I doubt you get it. Indeed, if you stake the claim as I have, that the recession has already started, you already didn't get it.

Moreover, corporations are running pretty lean employee-wise and housing starts are bottoming (if not already bottomed), so one should not expect to see a similar spike in claims as we saw in mid-2008 and 2009.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Philly Fed Rises But Details Very Weak; Future Expectations Plunge

Posted: 18 Oct 2012 12:38 PM PDT

Inquiring minds digging into the latest Philly Fed Manufacturing Report will quickly discover the rise from last month is really a mirage.

click on chart for sharper image

Index and Details

The previous overall diffusion index rose from -1.9 to +5.7.

However ...

New orders fell into from +1 to -.6
The number of employees sunk further into contraction
The average work week fell further into contraction
Prices paid rose substantially vs. prices received. This shows inability to pass on costs, thus reflects a squeeze on profit margins
Inventories are up, but shipments are still in contraction following an enormous plunge in shipments last month

6-Month Expectations

I recently said expectations looking six month out were wildly optimistic and they were (and still are).

Note the plunge in expectations from 41.2 to 21.6.
New Order expectations fell from 49.4 to 21.1
Shipment expectations fell from 42.9 to 20.6
Number of employees fell from 21.4 to 8.0

Doug Short at Advisor Perspectives has an interesting series of Philly Fed Charts. For example, here is a graph of current vs future expectations.

click on chart for sharper image

Doug writes "The average absolute monthly change across this data series is 7.9, which suggests that the 7.6 point change from last month is not highly significant .... The latest Future reading has shown a substantial decline of 19.6 points following last month's 28.7 point surge."

This was a very weak report but billed as "stronger than expected".

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Brookings Institute On Looming Fiscal Cliff: Little Room for Optimism

Posted: 18 Oct 2012 09:46 AM PDT

Brookings Institute Senior Fellow Ron Haskins discusses the Looming Fiscal Cliff in the following video.

About 30 seconds in, Haskins' stated "the fiscal cliff is kind of the opposite of Keynesian economics". I was thinking here we go again, another person thinks we cannot do anything about this "now".

Having played it entirely, it is clear Haskins is not supportive of the Keynesian view, rather, he is disgusted as to why we are where we are, blaming Congress, the president, an partisan politics.

He failed to address the role of the Fed or fractional reserve lending, but he is against can-kicking exercises.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

China’s Economy Slows, Power Output Falls to Four-Month Low but Premier Upbeat on Economy; Enormous Headwinds

Posted: 18 Oct 2012 01:25 AM PDT

A rally in Asia is underway this morning as Wen Jiabao, China's premier is upbeat on China's economy

Wen Jiabao, China's premier, has given his most optimistic assessment of the Chinese economy since the start of the year, saying that it had stabilised and that the government's target of 7.5 per cent annual growth was well within reach.

Mr Wen's comments, published in a statement on the government's main website on Wednesday, came a day before China releases its third-quarter GDP data. The data are widely expected to show growth slowing from the 7.6 per cent recorded in the second quarter and marking the country's seventh straight quarterly slowdown.

Before previous data releases this year Mr Wen warned that the Chinese economy faced "downward pressure" because of the lingering impact of the global financial crisis.

But in the comments released on Wednesday he struck a more upbeat tone: "The economy in the third quarter was quite good. We can now say with confidence that the growth of the Chinese economy is basically stabilising . . . As policies are implemented and hit their mark, the Chinese economy will stabilise further."

He added that he was sure the economy would achieve the government's full-year target of 7.5 per cent growth.

Power Output Drops As Growth Slows 7th Quarter

Bloomberg reported China Power Output Falls to Four-Month Low Amid Slowing Economy

China's power output in September fell to the lowest level in four months as economic growth slowed for a seventh quarter.

Electricity production was 391 billion kilowatt-hours, the least since 390 billion in May, data from the National Bureau of Statistics showed today in Beijing. The figure was down 11 percent from August and up 1.5 percent from a year ago, according to the data.

The world's second-biggest economy expanded 7.4 percent from a year earlier in the three months ended September, the statistics bureau also said today.

Enormous Headwinds

China has massive property bubbles, an infrastructure building bubble, and is overly committed on exports with the EU in a massive recession and the US in recession as well (at least by my estimation, slowing by other estimates).

Moreover, numerous shadow-banking and ponzi loan schemes have collapsed this year. Worse yet, the bubble-busting collapse of shadow-banking schemes is likely just getting started.

In response, China has announced various infrastructure stimulus measures, but all that does is prolong the inevitable collapse in the unsustainable infrastructure-building model.

Infrastructure building in China is already at the point of malinvestment. The projects will never be economically viable.

China's move to a consumption model away from exports and fixed investment is going to be painful. The collapse of shadow banking and the breakup of state-owned-enterprises will be key issues in the coming decade.

Power Struggle of a Different Order

Yet, China can stimulate for a while just as the US can and did (increasing headaches down the road), but do not expect much more with a major regime change coming up.

Please consider the New York Times article In China, a Power Struggle of a Different Order.

As the Communist Party in China prepares for a once-in-a-decade leadership transition next month, it is also planning to take a giant step — to break up the monopolies enjoyed by its gargantuan state-owned enterprises.

Prime Minister Wen Jiabao vowed in a speech this year that Beijing would pursue breaking up state monopolies. "We must move ahead with reform of the railway, power and other industries," Mr. Wen said, "complete and implement policies and measures aimed at promoting the development of the nonstate economy, break monopolies and lower industry thresholds for new entrants."

All signs indicate that the next leaders of China — Xi Jinping is widely expected to replace Hu Jintao as president and Li Keqiang is poised to succeed Mr. Wen as prime minister — will stick to that script. Critics say that the sheer size and market dominance of state-owned enterprises creates a drag on the Chinese economy, with vast opportunities for corruption and waste and higher costs for consumers.

Once the new party leadership is in place, it will be under enormous pressure to break the grip of inefficient state companies and to reinvigorate China's three-decade economic miracle. But there is a deep division within the party on such economic policies.

The increasingly powerful state-owned companies are a monster of the party's own creation. After languishing through the 1990s, China's state sector came roaring back over the past decade to take control of vast swaths of the economy.

Today, state companies and affiliated businesses account for more than half of China's economic output and employment. Of the 70 companies in mainland China that are on the 2012 Fortune Global 500 list , 65 are state-owned.

The NYT article is well worth a read in entirety. It discusses many of the issues and battles raised long ago by Michael Pettis at China Financial Markets.

Huge Battle Brewing

Pettis has been on top of the SOE issue for quite a long time. Here are a few more links worth reviewing regarding the battle looming over the SOE breakup as well as future expected growth of China.

Whether or not China meets its full-year (revised lower) target is essentially irrelevant. What happens over the next few years is what matters. And on that score I think China bulls will be shocked how anemic Chinese growth will be.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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