Mish's Global Economic Trend Analysis

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Mass Firings Soar at Fastest Pace Since 2010; What's the Impact on Unemployment? Posted: 25 Oct 2012 10:38 AM PDT In precisely the kind of news president Obama does not want heading into the election, Ford (F), Dow Chemical (DOW), DuPont (DD), and Advanced Micro Devices (AMD) all announced mass layoffs this past week as Firings Reach Highest Since 2010. North American companies have announced plans to eliminate 62,600 positions at home and abroad since Sept. 1, the biggest two-month drop since the start of 2010, according to data compiled by Bloomberg. Firings total 158,100 so far this year, more than the 129,000 job cuts in the same period in 2011. "Companies are saying, 'Let's not build up inventories, let's be lean and mean until we know until we have a better idea of what 2013 is going to look like,'" said Janna Sampson, who helps manage more than $3 billion for Oakbrook Investments in Lisle, Illinois. "There is a fear now as companies see that the economic recovery is not picking up." So far, out of 204 S&P 500 companies that have released third-quarter earnings, 120 have reported sales that trailed analysts' estimates, according to data compiled by Bloomberg. More Cuts Those results, similar to the S&P 500's second-quarter performance, signal employers may increase firings over the next two quarters, according to John Challenger, chief executive officer of Challenger, Gray & Christmas Inc., a human resources consulting firm based in Chicago. Sales misses are "a sure prescription for layoffs starting to heat up as companies take immediate action to show their shareholders how responsive they are," Challenger said yesterday by telephone. Firing Details Ford is closing its first European car-assembly factories in 10 years AMD, the second-largest maker of processors for personal computers, said last week it will cut 15 percent of its staff, or about 1,665 jobs, after forecasting fourth-quarter sales that fell short of analysts' estimates. Dow Chemical will close 20 plants in the U.S. and abroad to eliminate about 2,400 jobs DuPont plans to trim 1,500 jobs after third-quarter profit trailed analysts' estimates Cummins Inc. (CMI), a Columbus, Indiana-based engine maker, said it expects to erase as many as 1,500 jobs by the end of 2012 and lowered its forecasts for sales and profit. Kimberly-Clark Corp. (KMB) said this week it plans to cut manufacturing and administrative operations as it exits the diaper business in western and central Europe What's the Impact on Unemployment? In isolation, one would expect the unemployment rate to rise. However, Obamacare is having some peculiar effects on number of hours part-timer can work, which in turn led to a spur in hiring. For details, please see Obama Slashes Four Hours Off Definition of "Full-Time" Employment. Seven Forces at Play Obamacare reduced the number of hours part-timers can work, thus increasing the need for more workers. Seasonal hiring may have been early this year because of Obamacare, skewing the latest job results. Thus part of the recent rise in hiring will likely be revised away The global slowdown reduces the need for workers To combat the contraction in earnings corporations are firing workers, thus the recent mass layoff announcements Companies are also worried about the fiscal cliff and its effect on consumer purchases. The reality is a fiscal cliff is needed and will occur at some point anyway, but no one wants to address the budget now. Forced Retirement Disability Fraud Once the Obamacare effect plays out (perhaps in a month, perhaps it already has), the net effect of the first five forces is for the unemployment rate to rise. However, we still have the issue of "forced retirement" which I describe as people who want a job and need a job but are of retirement age and decide to collect Social Security just to have some money coming in. Forced retirement causes a drop in participation rate, artificially lowering the unemployment rate. Disability Fraud does the same thing. 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.

Fed and ECB Smokescreens to Print Money Posted: 25 Oct 2012 09:11 AM PDT Fresh on the heels of ECB president Mario Draghi's Lies In Defense Bond Purchases, Including a Warning of Deflation comes news of an unexpected rise in Eurozone price inflation. Economists had expected price inflation to drop, instead Eurostat reports Euro area inflation estimated at 2.7% up from 2.6% in August. Looking at the main components of euro area inflation, energy (9.2% compared with 8.9% in August) is expected to have the highest annual rate in September, followed by food, alcohol & tobacco (2.9% compared with 3.0%), services (2.0% compared with 1.8%) and non-energy industrial goods (0.8% compared with 1.1%). Euro Area Inflation click on chart for sharper image Smokescreens to Print Money As with the Fed, apparently the ECB does not consider the two key things people need (food and energy) as important. Instead the ECB appears be worried about deflation in non-energy industrial goods. Appearances are deceiving. All this talk of inflation and deflation is nothing but a smokescreen for the ECB and the Fed to do what they want to do: print money. Both central banks can and do bend their words at will, to make whatever policy decisions they want. ECB president Mario Draghi even went so far as to proclaim fighting deflation gave it a mandate to break the treaty under which it was formed. Draghi's stance has nothing to do with prices or price stability but rather everything to do with the implosion of the eurozone economy, the implosion of eurozone credit, the sorry state of European banks, the rise of radical movements in Greece and Spain, and of course the very existence of the euro itself. He can't come out and say "the ECB does not care about prices right now", and he certainly cannot spout out the reasons as noted in the above paragraph, so instead he spouts outright lies hoping someone will believe him. Source of Inflation While claiming to be "inflation fighters"  the fact of the matter is the true source of inflation is fractional reserve lending and central bank policies. 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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