joi, 23 aprilie 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Spain's Unemployment Rate Increases to 23.7%; 114,300 Jobs Vanish in First Quarter, Public Sector Jobs Rise

Posted: 23 Apr 2015 03:28 PM PDT

The economic recovery in Spain has gone from jobless to jobloss. Spain shed 114,300 jobs in the first quarter of 2015.

Via translation from El Pais, Spain's Unemployment Rate Rose Slightly in the First Quarter.

The economic recovery has not been enough to create jobs. In the first three months of the year, the economy shed 114,300 jobs. The result has been a slight increase in the unemployment rate from 23.7% to 23.78% according to the Labour Force Survey (EPA) published by the National Employment Institute.

The rise in unemployment could have been higher if not for the significant decline in the labor force. This group has fallen by 127,400 people to 22.9 million.

As was the case in the previous quarter, again, the labor kick is a decline in private employment (143,500), since the public has grown to 29,200 jobs.

Spain Unemployment Rate



Key Points

  • Employed: 17.454 million
  • Unemployed: 5.444 million 
  • Labor Force: 22.9 million
  • Unemployment Rate: 23.78%
  • Youth Unemployment: 50.1%

Those are horrific numbers. The unemployment rate would be higher except for a decline in the labor force coupled with public sector hiring (likely an election ploy given national elections this Autumn).

The only way Spain can grow and hit budget deficit targets is via numbers like these. In fact, I strongly suspect Spain will miss its budget deficit target because of public sector spending.

How long before Spanish citizens have had enough? The next national election may be telling.

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

Kansas City Fed Manufacturing Report: Nearly a Clean Negative Sweep; US Dollar Effect in Spotlight

Posted: 23 Apr 2015 10:27 AM PDT

Inquiring minds are digging into the Federal Reserve Manufacturing Report for the 10th District Region.

10th District Summary



Note the near clean sweep in the negative sense. Actually, inventories of materials rising in the midst of a decline in orders is not a good thing either.

New orders, backlog of orders, employment, and length of workweek have all crashed. Prices paid and received are deflationary.

US Dollar Effect in Spotlight

Effect of the strength of the US dollar is notable in the comments

  1. We are experiencing more volatility on revenue monthly. One month may be much higher than previous month or year and then the next month may be much lower, etc.
  2. The durable goods sector just isn't very good, impacted mightily by the price of oil. We are reducing headcount and spending where possible in an effort to withstand this phase of the economy for however long it lasts.
  3. Competition for business is fierce especially with the low cost labor and better logistics from Mexico. We are finding more and more customers moving manufacturing operations to Mexico.
  4. The manufacturers in the energy producing states are struggling to make adjustments given the speed at with oil prices dropped.
  5. Raw material suppliers have announced large increases in price, however, they keep moving the effective dates back. These announced increases are not supported by actual cost increases. Their sales are down so we are not taking the announced increases are seriously. If they do go into effect, our larger inventories will be a cushion.
  6. West coast port disputes have us out of stock on key items. No information available on when we will receive products. We will look at reducing our employee count next month if we do not receive goods in April.
  7. We import dry bulk cement from Asia and Europe so the strong dollar has given us more buying power. We also export the same type products to Canada where the strong dollar has hurt our margins and made it harder to compete.
  8. The strong dollar is good in that it's driving down commodity prices, but bad because it is making us less competitive globally. We're making fewer products but making more money on them. It has been bad for our employees because we have less work (and fewer employees). Overall , it's a negative for us.
  9. The stronger dollar is undoubtedly creating more opportunity for foreign manufacturers. The impact has only begun to be felt in our bookings.

Comments number two, three, and nine are telling.

Recession?

I stick with my assessment made in January and commented on twice recently.


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

New Home Sales Down 11.4% Overall, 15.8% in South; Median Price Declines

Posted: 23 Apr 2015 08:58 AM PDT

The Bloomberg consensus estimate for new homes sales was an overly-optimistic 518,000. Instead, it's bad news again as new home sales fell a very steep 11.4 percent to a 481,000 annual rate.

  • New home sales -11.4%
  • New homes sales in South -15.8%, West -3.4%, Midwest +5.6%, -33.3% Northeast
  • Median price fell 1.5% to $277,400.
  • Year-on-year, the median price is down 1.7%.
  • Sales are up 19.4% year over year, a discrepancy that points to price discounting by builders
  • Today's report echoes last week's housing starts & permits data and points to stubborn weakness in the new homes market.

New Home Sales in Thousands



The Northeast contributes the least. The South contributes the most followed by the West so weather is not a significant factor.

Above New Home Sales table from Census.Gov.

Single Family Home Sales



Everyone seems to expect a return to the bubble years even though it's pretty clear where the range really belongs.

Demographically speaking, as boomers age, their houses will add to existing supply as they downsize, then pass away.

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

Seven Year Negative Returns in Stocks and Bonds; Fraudulent Promises

Posted: 23 Apr 2015 12:05 AM PDT

It is extremely refreshing to see a large, prominent, and historically accurate fund manager lay it on the line.

GMO does that quarter after quarter, with no-nonsense projections.

As of March 31, their 7-Year Asset Class Real Return Forecast is as follows.



Serious Question for Pension Plans

Given pension plan assumptions of 7-8% annualized returns how many of them can survive negative returns for seven years? It's important to note that GMO is talking about "real" inflation-adjusted returns with an assumption of mean-reversion inflation to 2.2% over 15 years.

Still, that leaves US equities at zero to -1% returns and US bonds at negative 2.4% returns.

Even if GMO is wrong by say 3%, many pension plans will be in deep serious trouble at those returns.

Illinois Pension Plans

I keep harping about this issue, but it's an important one. In the state of Illinois, and in spite of an enormous rally in the stock market since 2009, Illinois pension plans are only 39% funded.

A "Special Pension Briefing" last November, shows the Illinois State Retirement Systems are in dismal shape.

Unfunded Liabilities

  • Teachers' Retirement System (TRS): $61.6 Billion
  • State Retirement Systems (SERS): $26.2 Billion
  • State Universities Retirement System (SURS): $21.6 Billion
  • Judicial Retirement System (JRS): $1.5 Billion
  • General Assembly Retirement System (GARS): $0.3 Billion

The above numbers show actuarial (smoothed) asset valuations.

Liability Trends - Not Smoothed




In spite of the massive stock market rally, Illinois liabilities increased every year since 2011.

For still more details, please see Illinois Pension Plans 39% Funded; Taxpayers On the Hook for $105 Billion in Liabilities; It Will Get Worse!.

Any notion that pension shortfalls can be balanced on the backs of Illinois taxpayers needs to vanish now.

How did Illinois plans became so underfunded?

In general, by promising far more than can possibly be delivered.

Summary of Liabilities and Unfunded Ratios




click on any chart for sharper image

Congratulations go to the Illinois General Assembly Retirement System (GARS) for having one of the worst, (if not the worst) pension plan in the entire nation. It is 16% funded.

No doubt, that increases the pressure of the General Assembly to put the burden of bailing out the system on the backs of Illinois taxpayers.

Fraudulent Promises

Pension promises were not made in good faith.

Rather, pension promises were the direct result of coercion by public unions on legislators, mayors, and other officials willing to accept bribes because they shared in the ill-gotten gains of backroom deals at taxpayer expense.

Illinois taxpayers cannot be held accountable for coercion of public officials by public unions. Fraudulent promises will be held "null and void" in any "non-stacked" court of law in the nation.

Given the 31% funding of the Illinois Judicial Pension Plan (JRS), the sorry state of Illinois pensions is likely headed to federal courts.

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

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