Mish's Global Economic Trend Analysis

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• Obama "No Ransom For Crashing Economy"; Republicans Threaten Default; Things Progressing Right on Cue
• Consumers Cut Back on Toilet Paper, Pampers, Huggies; Payroll Tax Bite to Subtract .8% from GDP
• Interactive Map: Job Gains and Losses in the Recovery by Job Type (Healthcare, Education, Mining, Construction, Finance, Real Estate, etc)

Obama "No Ransom For Crashing Economy"; Republicans Threaten Default; Things Progressing Right on Cue Posted: 14 Jan 2013 03:31 PM PST I am pleased to report the debt-limit charade is progressing in order, right on cue, perhaps slightly ahead of schedule. In Trillion Dollar Coin Idea Dies Sudden Death; Treasury, Fed Oppose Using Platinum Coin; Republican Strategy I proposed this seven-stage sequence of events. Politics of the Debate Obama will chastise Congress with talk of financial Armageddon if Congress does not raise the debt ceiling. Congress will pretend to hold the president hostage The secretary of the Treasury will get into the act with its own version of the default debate Perhaps a few payments on non-critical budget items will be temporarily skipped Wall Street will feign panic Constituents will pressure Congress to approve a new debt ceiling Congress will raise the ceiling with another useless warning about next time Obama Chastises Congress With Talk of Financial Armageddon Exhibit 1A: Bloomberg reports Obama: No `Ransom' for Debt Ceiling "The issue here is whether or not America pays its bills," Obama said. "We are not a deadbeat nation." He also issued a warning about the potential tactics that House Republicans in particular are discussing, including demanding a new round of spending cuts attached to each incremental increase in the debt ceiling. "They will not collect a ransom for not crashing the American economy," Obama said. Increase the Debt Ceiling or Else Exhibit 1B: CNBC reports Obama: Congress Must Increase Debt Ceiling or Else President Barack Obama warned Congress on Monday that it must raise the debt ceiling or risk a "self-inflicted wound on the economy." Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner also delivered ominous calls for action. "We've got to stop lurching from crisis to crisis to crisis," Obama told reporters at the White House in the last news conference of his first term. Hours later, Geithner said in a letter to Congress that even a brief default would be "terribly damaging." And Bernanke said "we're not out of the woods yet," despite the deal to avoid the "fiscal cliff." Congress Pretends to Hold the President Hostage Exhibit 2: Politico reports House GOP 'Seriously Entertaining' Debt Default Idea House Republicans are seriously entertaining dramatic steps, including default or shutting down the government, to force President Barack Obama to finally cut spending by the end of March. The idea of allowing the country to default by refusing to increase the debt limit is getting more widespread and serious traction among House Republicans than people realize, though GOP leaders think shutting down the government is the much more likely outcome of the spending fights this winter. "I think it is possible that we would shut down the government to make sure President Obama understands that we're serious," House Republican Conference Chairwoman Cathy McMorris Rodgers of Washington state told us. "We always talk about whether or not we're going to kick the can down the road. I think the mood is that we've come to the end of the road." GOP officials said more than half of their members are prepared to allow default unless Obama agrees to dramatic cuts he has repeatedly said he opposes. Many more members, including some party leaders, are prepared to shut down the government to make their point. House Speaker John Boehner "may need a shutdown just to get it out of their system," said a top GOP leadership adviser. "We might need to do that for member-management purposes — so they have an endgame and can show their constituents they're fighting." Secretary of Treasury Gets Into the Act Exhibit 3A: Bloomberg reports Geithner Says Debt Limit Measures May Run Out by Mid-February U.S. Treasury Secretary Timothy F. Geithner said so-called extraordinary measures the Obama administration is taking to avoid breaching the federal debt ceiling would work only until mid-February to early March and warned that a failure by Congress to raise the limit could "impose severe economic hardship" on the country. "Congress should act as early as possible to extend normal borrowing authority in order to avoid the risk of default and any interruption in payments," Geithner said in a letter today to House Speaker John Boehner and other congressional leaders. The letter was released by the Treasury Department. Fed Gets Into the Act Apologies offered for not explicitly naming the Fed as point 4 of an 8-point scenario. Instead I offer the Fed as exhibit 3B, lumping the Fed and Treasury together. Exhibit 3B: Bernanke Says 'We're Not Out of the Woods' Despite 'Fiscal Cliff' Deal Although the "fiscal cliff" deal made "some progress" in resolving the nation's debt problem, "we're not out of the woods yet," Federal Reserve Chairman Ben Bernanke said Monday. "We are approaching a number of other fiscal critical watersheds," Bernanke told the University of Michigan's Gerald R. Ford School of Public Policy. "We have the funding of the government, we have the so called sequester…and we have the infamous debt ceiling which will come into play." Echoing comments made earlier in the day by President Barack Obama, Bernanke said raising the debt ceiling merely gives the government the ability to pay its existing bills. "It doesn't create new deficits, it doesn't create new spending," he said. He said it was like a family deciding that to save money, it won't pay its credit card bill. Progress or Lies? Bernanke states that "some progress" has been made. While technically true, it's rather like removing one grain of sand from the Sahara Desert on a mission to remove all the sand, calling the effort "progress". Clearly we are proceeding along the lines of my 7-point scenario. However, things are a bit ahead of schedule. What to Expect Next Allegedly, money will not run out until mid-February. So there is plenty of time for Obama to get back into the act, Republicans to reiterate "we really mean it" when they don't, and for the Treasury, the Fed, and Obama to preach more financial Armageddon talk. Somewhere along the line, Wall Street will feign panic over the mess. You can also put into the bank another Obama Twitter campaign, with Obama telling everyone to "Tweet" about irresponsible Republicans. Also expect an Obama initiated Email campaign telling constituents to call or Email Congress demanding action. I do expect Republicans to hold out until pressure from constituents comes in and Wall Street has a hissy fit (which could be as little as 50 points on the S&P). Eventually, Republicans will cave in with some announced "compromise" to cut some trivial amount from the budget, with promises to negotiate harder next time. Both sides will declare victory. Why bother? 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.

Consumers Cut Back on Toilet Paper, Pampers, Huggies; Payroll Tax Bite to Subtract .8% from GDP Posted: 14 Jan 2013 10:18 AM PST For some reason, many people are surprised to see a drop in their first paycheck of the year.  Yet, everyone should have known the payroll tax deduction was supposed end January 1, 2013. Perhaps people put faith in the notion that when it comes to politics, "temporary" typically means permanent. Of course, some people were likely oblivious to the whole thing, simply not paying attention to the original proposal and when it was set to expire. To be fair, a temporary two-year Congressional measure that lasts precisely two years, might easily be considered "unexpected". Consumers Cut Back on TP, Pampers, Huggies, Purina Regardless of what people thought or expected, the Payroll Tax Takes a New Bite. A temporary cut in Social Security withholdings gave Americans hundreds of extra dollars to spend over the past two years. But Congress allowed that break to expire during the wrangling over the fiscal cliff, meaning that Social Security taxes have reverted to 6.2% of salary from the temporary 4.2%. Kari Barker, an accountant in Salt Lake City, recently received her first 2013 paycheck and realized that she and her husband will take home $250 less every month. "I used to be a diapers snob and would only buy Pampers or Huggies," Ms. Barker said. "Now I buy Target's house brand, because it's two-thirds the cost." Procter & Gamble Co. (PG), which owns Charmin, Pampers and other brands, declined to comment, citing the company's scheduled earnings report this month. Huggies maker Kimberly-Clark Corp. (KMB) also declined to comment. Roberton Williams, a tax economist and the Sol Price Fellow at the Tax Policy Center in Washington, said the expiration of the payroll-tax cut will leave the average American household with $18 to $20 less to spend each week, or $900 to $1,000 a year. For the country's consumers as a whole, Mr. Williams said, that is a decline of $120 billion from last year. The total comes to about 0.8% of U.S. gross domestic product and is nearly equivalent to the most recent full-year sales at P&G, J.C. Penney Co. (JCP) and McDonald's Corp. (MCD) combined. Edward Riggle, a 61-year-old in Virginia Beach, Va., said he noticed a nearly $40 increase in the amount of Social Security tax withheld on his recent pay stub. Mr. Riggle, a Vietnam War veteran who retired from the Navy in 1991 and now works at a military call center, calculated that he will pay $1,036 more in Social Security tax this year, a large unexpected decrease in his take-home pay. In response, Mr. Riggle said he changed the withholding amounts for his federal and state taxes to make sure no excess cash is kept from his paychecks and is looking to save money on regular purchases. On a recent shopping trip, Mr. Riggle and his wife decided not to buy their usual Charmin toilet paper and Purina One dog food, choosing less-expensive versions instead. Payroll Tax Bite to Subtract .8% from GDP Bear in mind that analysts at J.P. Morgan reduced 4th quarter GDP estimates to .8% from 1.5%. Analysts at Morgan Stanley cut their forecast to 0.7% from 1.5%. (For details, please see Global PC Shipments Decline 6.4%; Best Buy Sales Flat; Toys R Us Sales Decline 4.5%; 4th Quarter GDP Estimate Reduced to .8% from 1.5%). Note that GDP is already well below the stall rate, which economists generally consider to be 2%.  Thus, a .8% hit to GDP may contract growth, especially if consumers pull back hard in the first quarter. If GDP does go negative, expect to hear ridiculous terms bantered about such as "technical recession". 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.

Interactive Map: Job Gains and Losses in the Recovery by Job Type (Healthcare, Education, Mining, Construction, Finance, Real Estate, etc) Posted: 14 Jan 2013 12:07 AM PST Inquiring minds are investigating job creation and losses during the economic recovery. Data for following Tableau Software interactive map is courtesy of Economic Modeling Specialists. The interactive map below may take a while to load. Please give it time on a slow connection. Map Usage Notes Hover your cursor over any line to see additional information. You can also select a single category from the drop-down boxes to isolate a particular type of job. Number and Types of Jobs Since 2007 Description 2007 Jobs 2008 Jobs 2009 Jobs 2010 Jobs 2011 Jobs 2012 Jobs Agriculture, Forestry, Fishing and Hunting 1,922,790 1,869,078 1,839,432 1,834,643 1,859,107 1,857,019 Mining, Quarrying, and Oil and Gas Extraction 677,207 729,813 658,373 667,226 745,595 784,070 Utilities 549,539 557,983 560,714 551,287 549,921 556,529 Construction 9,954,961 9,423,176 8,214,435 7,633,863 7,607,315 7,594,530 Manufacturing 14,093,901 13,629,742 12,051,829 11,712,063 11,920,262 12,116,646 Wholesale Trade 6,180,035 6,133,949 5,738,315 5,634,236 5,711,683 5,817,036 Retail Trade 16,279,661 16,040,307 15,262,809 15,158,575 15,338,727 15,427,475 Transportation and Warehousing 4,942,074 4,904,568 4,601,110 4,544,128 4,664,351 4,763,272 Information 3,181,035 3,129,245 2,949,820 2,838,954 2,808,734 2,801,533 Finance and Insurance 6,462,141 6,308,789 6,058,519 5,976,245 6,042,862 6,081,019 Real Estate and Rental and Leasing 2,767,868 2,699,430 2,553,130 2,477,330 2,439,220 2,467,061 Professional, Scientific, and Technical Services 8,970,748 9,110,964 8,789,436 8,744,022 8,951,222 9,202,138 Management of Companies and Enterprises 1,839,616 1,895,417 1,855,139 1,854,778 1,914,543 1,949,283 Admin and Support and Waste Management 9,301,860 8,892,117 8,081,998 8,311,872 8,626,800 8,934,731 Educational Services (Private) 3,317,313 3,413,586 3,504,764 3,575,972 3,666,851 3,760,523 Health Care and Social Assistance 16,304,386 16,716,857 17,036,693 17,301,036 17,506,396 17,848,232 Arts, Entertainment, and Recreation 2,375,489 2,389,692 2,337,992 2,313,773 2,336,448 2,342,772 Accommodation and Food Services 11,615,709 11,643,560 11,306,013 11,322,307 11,588,412 11,875,069 Other Services (except Public Administration) 7,502,059 7,522,620 7,451,832 7,398,326 7,478,030 7,525,044 Government 24,187,207 24,510,271 24,568,231 24,561,911 24,253,390 24,152,210 Unclassified Industry 216,926 208,532 173,872 152,667 173,741 186,339 Total 152,642,524 151,729,695 145,594,456 144,565,212 146,183,610 148,042,530 Gains and Losses Since End of 2007 Description 2012 - 2007 Agriculture, Forestry, Fishing and Hunting -65,771 Mining, Quarrying, and Oil and Gas Extraction 106,863 Utilities 6,990 Construction -2,360,431 Manufacturing -1,977,255 Wholesale Trade -362,999 Retail Trade -852,186 Transportation and Warehousing -178,802 Information -379,502 Finance and Insurance -381,122 Real Estate and Rental and Leasing -300,807 Professional, Scientific, and Technical Services 231,390 Management of Companies and Enterprises 109,667 Administrative and Support and Waste Management and Remediation Services -367,129 Educational Services (Private) 443,210 Health Care and Social Assistance 1,543,846 Arts, Entertainment, and Recreation -32,717 Accommodation and Food Services 259,360 Other Services (except Public Administration) 22,985 Government -34,997 Unclassified Industry -30,587 Total -4,599,994 Job Winners Healthcare gained jobs every year since 2007, a total of  1,543,846 Private Education Services gained every year since 2007, a total of 443,210 Mining and Quarrying gained every year since 2007, a total of 106,863  Job Losers Construction lost jobs every year since 2007, a total of -2,360,431 Information lost jobs every year since 2007, a total of  -379,502 Government lost jobs every year since 200, a total of -34,997 Real Estate lost jobs every year from 2007-2011, a total of -300,807 since 2007 Manufacturing has gained jobs two consecutive years but the 2007-2012 total is -1,977,255 Retail Trade has gained jobs two consecutive years but the 2007-2012 total is -852,186 Lost and Gone Forever The three largest net losers (construction, manufacturing, retail trade) have a net combined total of -5,189,872 since 2007. Most of those jobs are lost and gone forever. Another 300,807 real estate jobs are lost and gone forever, as are 381,122 Finance and Insurance jobs, and  379,502 Information jobs. Economic Modeling Data Notes Data is yearly, so the period 2007-2012 is from the beginning of 2007 to the end of 2012. Snapshots below are from end-of year numbers. Data is from multiple sources as explained below so it will not exactly match BLS reported numbers. Comments from Economic Modeling Specialists "Our data is used by many to research and understand regional employment trends and dynamics. It's composed of comprehensive information on industries, occupations, demographics — as well as things like occupational skills, education, training, and even the names and size of companies in your region broken down by industry. To do this we link nearly 90 data sources — from federal sources like the Bureau of Labor Statistics to state and private sources. If you've ever worked with this sort of information, you know it can be hard to collect and present. It's also often incomplete and outdated. So we organize the data, bring it up to date, and build software and reports around it so you can put it to use more quickly and effectively" Thanks to Economic Modeling Specialists and Mike Klaczynski at Tableau Software for this post. 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.

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