Mish's Global Economic Trend Analysis

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• Obama Slashes Four Hours Off Definition of "Full-Time" Employment; Further Explaining Surge in Part-Time Employment
• Wholesale Price Deflation Hits China's Factories
• Italy 2013 Countdown: Rescue Me
• Seamless Easing; Japan "Falling Behind" in Monetary Stimulus, Complains Economy Minister; Humorous Irony of the Day

Obama Slashes Four Hours Off Definition of "Full-Time" Employment; Further Explaining Surge in Part-Time Employment Posted: 22 Oct 2012 11:11 PM PDT The BLS Glossary defines full-time workers as "Persons who work 35 hours or more per week". For monthly reporting, the BLS defines part-time as "those who worked 1 to 34 hours during the survey reference week". With that wording, I am not precisely sure where 34.1 or 34.5 hours fit. Interestingly, the Obamacare mandate says Anyone Who Works 30-Hour Week Is Now 'Full-Time' A little-known section in the Obamacare health reform law defines "full-time" work as averaging only 30 hours per week, a definition that will affect some employers who utilize part-time workers to trim the cost of complying with the Obamacare rule that says businesses with 50 or more workers must provide health insurance or pay a fine. "The term 'full-time employee' means, with respect to any month, an employee who is employed on average at least 30 hours of service per week," section 1513 of the law reads. (Scroll down to section 4, paragraph A.) If an employer has 50 or more "full-time employees" and does not offer health insurance, it must pay a penalty per employee for each month it does not offer coverage. Lookback Period Three Months To One Year The IRS has a publication on Determining Full-Time Status for Purposes of Shared Responsibility for Health Coverage. The key to explaining the recent jump in part-time employment is found in the look-back period. Under the look-back/stability period safe harbor method, an employer would determine each employee's full-time status by looking back at a defined period of not less than three but not more than 12 consecutive calendar months, as chosen by the employer (the measurement period), to determine whether during the measurement period the employee averaged at least 30 hours of service per week. Common sense would dictate employers look back the minimum time (three months), as opposed to a year.  Thus, any employer in his right mind would reduce the hours someone worked from say 34 to something like 25 or 28, just to make sure the average hours worked was under 30. If a lot of corporations did that, and a lot people had reduced hours, then corporations would have had to hire more workers to keep the same total number of hours. Indeed there was a massive surge in part-time employment (+582,000) in October that spawned many conspiracy theories. As noted in September Jobs +114,000; Unemployment Rate 7.8%; Part-Time Workers +582,000; Initial Reaction and Election Impact, the entire .3 percentage point drop in the unemployment rate was based entirely on a surge in part-time employment. Thus, it's looking more-and-more likely that Obamacare is a healthy chunk of the explanation. Acceleration of Trend Many people emailed me that Obamacare did not start the push to part-time employment. Fair enough, but I never said it did. However, Obamacare did accelerate the trend. Moreover, it will now reduce the number of hours part-timers work. The upside is more people will be working, and there is benefit to that even if it does not reflect the true state of unemployment or the economy. Obamacare Employment Recap I have written about this issue three times recently. Here is a recap. Is Obamacare Responsible for the Surge in Part-Time Jobs?   Prepping for Obamacare, Olive Garden and Red Lobster Cut Workers' Hours; Are Other Companies Doing the same?   Mish Obamacare Mailbag: Expect More Part-Time Jobs How to Reduce Unemployment It will be interesting to see if the BLS changes its standard from over 34 hours to 30 hours or more for full-time work. As an aside, it would be easy enough to reduce unemployment to zero. All the government need do is hire everyone in the country who does not have a job to work one hour per week at minimum wage. Voilà! We would have "full employment" in a jiffy. If that seems too radical, the administration can always try dropping the measure of full-time employment to 21 hours while pitching the resultant drop in unemployment as "Good news! Half-time is now full-time." Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com "Wine Country" Economic Conference Hosted By Mish Click on Image to Learn More 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.

Wholesale Price Deflation Hits China's Factories Posted: 22 Oct 2012 09:23 PM PDT Bloomberg reports China's Factories Losing Pricing Power in Earnings Threat. Chinese factories are losing pricing power in the worst wholesale-cost deflation since 2009, signaling corporate earnings may deteriorate further and putting a damper on global inflation pressures. Steelmaker China Oriental Group Co. (581) says falling prices are wiping out profits, while Yunnan Copper Industry Co. (000878) cited the declines for a third-quarter loss. The producer-price index (SHCOMP) fell 3.6 percent in September from a year earlier and may stay negative until the second half of 2013 without large stimulus, according to Mizuho Securities Asia Ltd. With the U.S. reporting the longest stretch in three years that Chinese imports have gone without a price increase, the trend also gives policy makers around the world more room for easing to support faltering global growth. Sluggish earnings growth may prompt the government to reduce corporate taxes to aid earnings and help boost spending after China's expansion slowed for a seventh quarter. "Reduced inflation pressure should expand the space for policy makers to take pro-growth actions in their countries," said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong. Chinese officials are likely to reduce banks' reserve requirements ahead of a Communist Party congress next month, said Shen, who formerly worked at the International Monetary Fund and European Central Bank. Falling earnings have weighed on Chinese stocks this year. The nation's benchmark gauge, the Shanghai Composite Index, has declined 3 percent in 2012, heading for the third straight annual drop. Cure Is Time and Price The cure is time and price, not more misguided monetary stimulus or more infrastructure spending. Yet, not unexpectedly, I counted six sentences in the above article from at least four different analysts or government figures calling for more stimulus of some sort. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Italy 2013 Countdown: Rescue Me Posted: 22 Oct 2012 02:20 PM PDT There is an interesting article in El Mundo by Fabrizio Goria regarding the escalation of problems in Europe. Via Google Translate please consider a few snips from Italy 2013 Countdown. After Spain, Italy. Let us not deceive risk premiums are going down these days. The country is torn by taxes. In one year, VAT rose two percentage points, from 20 to 22%. And the contraction of consumption has been very strong. In a recent IPSOS poll, 68% of Italians admitted spending less on food. And, according to the latest government budget, local politicians have been "invited" to turn off the lights of cities from 2200 hours to spare. A measure that had seen only during the Second World War and during the oil crisis of the 70s. The biggest risk for Italy lies in the elections next year. Berlusconi's party, the People of Freedom, dissolved like sugar because of factional power struggles. The Democratic Party, the center-left is still no clear leader. It is, then, Beppe Grillo, founder of the Movement comedian 5 Stars, which continues to garner consensus. In fact, his movement is second in Italy, behind the Democratic Party and ahead of the People of Freedom. Antieuro, vulgar populist, the modus operandi of Grillo is considered by political pundits as the antithesis of Monti. In any case, more and more Italians who want to Grillo in Parliament. Monti's government keeps repeating that the end of the recession will be held throughout 2013. So say the Treasury and the Bank of Italy. But the International Monetary Fund (IMF) says the opposite. After a contraction of around 2.5% during 2012, it is possible that even in 2013 there is still a recession more than two percentage points. All with a debt on its way to 130% of GDP. Furthermore, according to the IMF, the prospects are not very hopeful: Italy has a 95% chance that in 2017, public debt remains between 120 and 130% of GDP, and only 5% chance of getting a reduction below 105%. These figures, however, do not show well enough what is happening. According to Morgan Stanley, in 2013, Italy will gross issuance of public debt in the amount of 401,000 million euros, with a redemption of 355,000. If 2001 was the year of Greece, the 2012 is Spain. And 2013 will be to Italy. Once Madrid has asked the rescue, international investors will press Italy. Too much debt, too much spending, recession. There seems no alternative to call for help. Rescue Me Note: I could not get Google translate to work directly on the link. However, Google could translate blocks of text. It is going to be interesting to see how any country can be rescued when Angela Merkel placed more roadblocks on banking union. "There will not be any retroactive direct recapitalization," Merkel told a news conference. "If recapitalization is possible, it will only be possible for the future, so I think that when the banking supervisor is in place we won't have any more problems with the Spanish banks, at least I hope not." The chancellor said the supervisory system would have to be effective and the euro zone would have to set up a bank resolution fund to which the banks would contribute if there was to be any direct capital assistance to troubled banks. Merkel denied that the obstacles were intended to avoid any payments having to be approved by the German parliament before the 2013 election, saying the idea had never crossed her mind. Playing politics would not cross Merkel's mind? No one can possibly believe that. Regardless, Greece and Spain are screaming "rescue me", but Spain wants a "no strings attached" rescue without austerity  conditions. For now anyway, and likely up to the German election, Merkel says no dice for Spain. Moreover, 2013 is around the corner and Italy is coming right up with gross public debt issuance in the amount of  401 billion euros and 355 billion in refinancing. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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.

Seamless Easing; Japan "Falling Behind" in Monetary Stimulus, Complains Economy Minister; Humorous Irony of the Day Posted: 22 Oct 2012 08:39 AM PDT If you are in need of a good laugh today, please note Japan's economy minister bitterly complains "Japan is falling behind on monetary stimulus" while simultaneously pointing out the "risk of another credit-rating downgrade" as if more stimulus would make matters better. Where do they find they guys? Japan's Exports Drop 10.3 Percent In related news, Japan Exports Tumble 10%, BOJ to Conduct "Seamless" Easing. Japan's exports fell the most since the aftermath of last year's earthquake as a global slowdown, the yen's strength and a dispute with China increase the odds of a contraction in the world's third-largest economy. Shipments slid 10.3 percent in September from a year earlier, leaving a trade deficit of 558.6 billion yen ($7 billion), the Finance Ministry said in Tokyo today. Economy Minister Seiji Maehara pressed the Bank of Japan for more action yesterday, saying the nation is "falling behind" in monetary stimulus and is at risk of another credit-rating downgrade. "There's a high chance that Japan's economy will have two consecutive quarters of contraction through December," said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo. "The slump in advanced nations is spreading to emerging economies." The decline in shipments, exacerbated by a spat with China over islands in the East China Sea, was the biggest since May last year, when the country was rebuilding supply chains wrecked in the March earthquake and tsunami. Shipments to China, the nation's largest export market, slid 14.1 percent from a year earlier. Exports to the European Union fell 21.1 percent, while those to the U.S. rose 0.9 percent. Auto shipments to all markets dropped 14.6 percent. In a speech in Tokyo today, BOJ Governor Masaaki Shirakawa vowed to conduct "seamless" monetary easing as the Japanese economy is "leveling off." "Seamless Easing" Inquiring minds might be wondering "What the hell is seamless easing?" (as opposed to good old-fashioned QE). It's a good question, and one I cannot answer for sure, but I very much suspect Governor Shirakawa is simply adding superfluous words to make it sound important, so as to appear as if the BOJ is not impotent (which of course it is). I can however, point out the sheer madness of global competitive currency debasement. In that regard, it's actually a good thing to be "falling behind". Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com 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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