Central Perk: Mish's Global Economic Trend Analysis

miercuri, 25 septembrie 2013

Mish's Global Economic Trend Analysis

Economic Idiocy: California Hikes Minimum Wage to $10/Hour by 2016
"No Tapering, More QE, Serious Housing Slowdown" says Saxo Bank Chief Economist
Unhappy Anniversary: Illinois Overtakes California for Second Highest Unemployment Rate in Nation

Economic Idiocy: California Hikes Minimum Wage to $10/Hour by 2016

Posted: 25 Sep 2013 08:34 PM PDT

In a two-step move, in the wrong direction, California signs law raising minimum wage to $10/hour by 2016

California has become the first state in the nation to commit to raising the minimum wage to $10 per hour, although the increase will take place gradually until 2016 under a bill signed into law by Democratic Governor Jerry Brown on Wednesday.

The law raises minimum pay in the most populous state from its current rate of $8 per hour to $9 by July 2014 and $10 by January 2016. The state with the highest minimum wage currently is Washington, where employers must pay at least $9.19 per hour.

State Assemblyman Luis Alejo, who authored the wage hike bill, said the increase would help working people pay for necessities in a state where rising costs have long outpaced wage increases for the poor and working class.

"We have created a system where we pay workers less but need them to spend more," Alejo said in a statement. "That causes middle-class families to fall down the economic ladder. It's the reason our middle class is shrinking and the reason we are facing the largest gap between upper- and lower-income Californians in at least 30 years."

Economic Idiocy

We do not need people to spend more. Realistically, we need people to save more. Higher prices (which are going to be the end result of this move) are all but guaranteed to eat up most of the presumed benefit.

Worse yet, these minimum wage hikes will hurt small businesses the most. Walmart may be able to maintain profit margins by hiking prices a few cents, but many low-volume retailers will feel the pinch.

Economic idiots blanket the California and Illinois state legislatures and the results are easy to spot. Illinois and California are two of the most economically distressed states, with the worst improvements in the unemployment rate during the recovery. Hikes in the minimum wage are guaranteed to make the situation worse.

California, Illinois, US Unemployment Rates

California Seasonally Adjusted Unemployment Rate: Blue
Illinois Seasonally Adjusted Unemployment Rate: Green
U.S. Seasonally Adjusted Unemployment Rate: Red

California and Illinois are two of the most business-unfriendly states you can find, and the results speak for themselves.

Both states nearly always have higher unemployment rates than the national average, and both states perform miserably following every recession.

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

"No Tapering, More QE, Serious Housing Slowdown" says Saxo Bank Chief Economist

Posted: 25 Sep 2013 12:56 PM PDT

With September out of the way, most economists now expect a December tapering event. Steen Jakobsen, chief economist at Saxo Bank in Denmark is not one of them.

Via email, Steen writes ...

More QE, Less growth, Less Inflation and Less Upside

I have mentioned a few times how I see the fourth quarter having a dramatic slow-down effect, mainly due to unemployment rising, but also due to a serious drop in US housing activities. Please see the chart below. It clearly shows not only why housing will fall (correlation with a lag of mortgage rates) but also why we will see more quantitative easing (QE) rather than less.

With Months' Supply and Mortgage Rates Increasing, Sales and Prices Will Collapse in Q4 2013

Tapering will not happen in October or in 2013 for that matter. Not a single economic vector in our model is pointing up. All indicate less growth, less inflation and less upside. The problem? The market is still talking recovery, despite the US this year being barely able to muster 1.5 percent growth after 2.5 percent last year. If this is recovery, I don't want to experience recession.

Non-Tapering Changed Fixed Income's Relative Value Over Equities

Again, we are increasingly confident about our 2.25 percent 10-year US bond rate call by the end of Q4-2013 versus 2.65 percent now. The Federal Open Market Committee's fixed income put issued by the Fed's recent non-tapering act has changed the relative value of fixed income over equities. This story has only just begun.

Alpha-wise, increasingly my Gold calls still see 1525/75 before falling again, and finally I continue to play the US dollar short as the path of least resistance will be a lower US dollar to help refuel emerging market currencies.

Housing Bulls Increasingly Optimistic

Curiously, housing bulls in the US are increasingly optimistic.

For example Bloomberg reports Blackstone Said to Gather $2 Billion for Real Estate. It's important to note that Blackstone is raising money for European real estate (but it also has huge US commitment as well).

More to the point, I find the following Seeking Alpha headline rather amusing: It's Not Too Late To Capitalize On The Real Estate Recovery.

That title reminds me of my 2005 post "It's Too Late"

When you start seeing advertisements saying "It's not too late", or "Act now before it's too late", invariable the bulk of the gains have already been had, and the top is extremely close at hand, if not already gone.

One and Done Tapering?

That was a reasonably bold call by Steen. Another possibility is a "one and done" trivial amount of tapering in December. That is along the lines of what I expected in September.

For further discussion, please see ...

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

Unhappy Anniversary: Illinois Overtakes California for Second Highest Unemployment Rate in Nation

Posted: 25 Sep 2013 11:43 AM PDT

The one state arguably more screwed up than California is Illinois.

Unions, union sympathizers, socialists, and tax-hike proponents are strongly in control of both states. Is it any wonder that perpetual economic difficulties and insurmountable pension underfundings face both states?

Via email, Ted Dabrowski at the Illinois Policy Institute writes ...

Unhappy Anniversary

Six months ago, Illinois overtook California to become the state with the second-highest unemployment rate in the nation, behind only Nevada. It hasn't budged since.

Last week's release from the Bureau of Labor Statistics detailed yet another month of stalled unemployment numbers for Illinois. The state's August unemployment rate remained at 9.2% — 1.9 percentage points above the national average, which fell to 7.3% in August.

Compared to its neighbors, Illinois fared even worse. The state's unemployment rate is now a full 2 percentage points above its neighbors' average, which fell to 7.2% from 7.3% one month earlier.

Illinois' unemployment rate has remained above 9% since December of last year.

Illinois Unemployment Gap

The number of unemployed Illinoisans also remains high, at 602,000. This is the third month in a row the number of unemployed has remained above 600,000.

Illinois' most recent U-6 unemployment rate is 16.1%, meaning more than 1 million Illinoisans are unemployed or underemployed.

Five years after the end of the Great Recession, Illinois still has an unemployment rate nearly 5 percentage points higher than its pre-recession average and there are 147,000 fewer Illinoisans in the labor force compared to August 2007.

The state is still missing 177,000 nonfarm payroll jobs compared to August 2007.

Six months of the second-highest unemployment rate is no anniversary to be proud of.

Ted Dabrowski