Central Perk

sâmbătă, 4 septembrie 2010

Mish's Global Economic Trend Analysis

New Job Opportunity - Spitting at the Moon

Posted: 04 Sep 2010 11:30 AM PDT

In multiple posts Paul Krugman is saying "I told you so". For example, please consider Nobody Could Have Predicted

Pictures support the view that stimulus worked as long as it lasted, boosting the economy — which is the same conclusion Adam Posen drew from Japan's experience in the 1990s: Fiscal policy works when it is tried.

But the stimulus wasn't nearly big enough to restore full employment — as I warned from the beginning. And it was set up to fade out in the second half of 2010.

So what was supposed to happen? The invisible cavalry were supposed to ride to the rescue.

I never understood why the Obama administration thought this would happen so soon; history tells us that the effects of a financial crisis on private spending are normally protracted. And sure enough, the cavalry has not arrived.

Stimulus and Full Employment

The idea we can stimulate the economy to full employment is about as silly as silly gets. Krugman wanted double the stimulus we got. Well, we got zero benefit unemployment-wise from the stimulus and in my book infinity times zero is still zero.

Yes, unemployment fell from 10.1% to 9.5% but all of that decrease, if not more than all of that decrease, was a result of a falling participation rate. The bottom line is neither the Fed increasing its balance sheet by $trillions nor a $1.4 trillion deficit did a thing to lower unemployment.

Of course the Keynesian clowns will holler things would have been worse in the absence of stimulus. Really?! Would banks be lending more? Would small businesses be hiring?

Full Employment Made Easy

Krugman wants full employment. I suppose the government could easily employ everyone who does not have a job. Then again, didn't we effectively do just that?

Here is a snip from "Contained Depression" that suggests we did.

We are certainly in a depression. However, 40 million people on food stamps as of August 2010, masks that depression. The cost of the food stamp program is on schedule to exceed $60 billion in fiscal 2010. For comparison purposes, there was just over 11 million on food stamps in 2005.

Please note there are 14.6 million unemployed, but of them 4.5 million of them are receiving regular unemployment benefits and another 4.7 million are receiving extended benefits. Thus 63% of those unemployed are receiving benefits. Being paid while not working also masks the depression.

Spitting at the Moon

Suppose that instead of handing out free money to 9.2 million unemployed, we hire them at minimum wage to spit at the moon. GDP would rise because all government spending by definition adds to GDP, regardless of how unproductive the activity really is.

Such a move would allow Krugman the wonderful opportunity to crow about rising GDP.

Moreover, unemployment would crash to seven percent or so. That would really get Krugman crowing. Yet, would anything have changed about the true state of the economy? Clearly the answer is no.

Suppose government hired all 14.6 million unemployed to spit at the moon. Would that get the economy humming? For any longer than the jobs to spit at the moon lasted?

The above examples may sound absurd, but the the result is much the same whether we hire people to spit at the moon vs. paving roads that don't need to be paved. The main difference is money will run out faster hiring road workers because of the wasted material and equipment costs.

Practical Example

In actual practice, tax credits for housing was an abysmal failure. Would doubling that program have achieved different results? Would wasting the same out of money to repair schools or build new schools have done any better? Once again the answer is no. The only difference in any of these examples is the burn rate at which stimulus money is wasted.

Only Genuine Demand Will Fix Economy

What will get the economy humming is better tax policy, scrapping Davis-Bacon, dumping public union workers wherever possible, slashing defense spending, and letting home prices bottom.

Real demand for housing will step up as soon as there are bargains. Instead we have policies to prop up home prices.

Lesson of Japan

The lesson of Japan is the same as the lesson of home tax credits in the US - Stimulus programs do not work period, regardless of size. In Japan, every program failed. Japan is now in debt to the tune of 200% of GDP.

Some suggest Japan is no worse off for it. Nothing could be further from the truth. Japan squandered massive savings in the stupidest manner possible, building bridges to nowhere, and now its citizens are aging, in need of drawing down their savings.

Unfortunately those savings were squandered.

Japan is poised to blow up, however, the timing is uncertain. Sadly, the US is on the same path and Krugman is hellbent to get us there faster.

Consumer Credit Inflection Point

Let's review Are we "Trending Towards Deflation" or in It?

The key problem for Bernanke is we have reached the Consumption Inflection Point - No One Wants Credit; Consumer Spending Plans Plunge

Keynesian Policies Fail

Keynesian stimulus measures have failed and will continue to fail. Please see Three Mish Segments on Tech Ticker, on Stimulus, Retail Sales, the Markets, Alternatives for details and an online interview.

We have wasted $2 trillion fighting deflation. It has not produced any jobs.

The correct way to spur growth is by fostering an economy that supports economic growth. For details, please see Bleak Outlook for Small Businesses and Job Creation; Where Obama Went Wrong, and What to do About It.

Keynesian Cures Worse than the Disease

Krugman has the wrong definition and the wrong worry. However, he is correct in his call for deflation. Unfortunately, this will lead to a bunch of "I told you so" kinds of posts from Krugman, in spite of the fact his cures are worse than the disease.

Indeed, Keynesian "cures" are one of the reasons this economy is in the mess it is in.

The final analysis shows that the real threat is not of deflation, but of absurd Keynesian and Monetarist attempts to prevent it. The Greenspan-Bernanke housing bubble (and subsequent crash), and decades of futility in Japan should be proof enough.

Nobody

For another "I Told You So" Krugman post, please consider Nobody

The truth is that some of us were practically screaming back in January 2009 that the administration was proposing too small a program. Start with Stimulus arithmetic (wonkish but important) and work forward. And no, the point isn't that I'm so smart — it is that given the forecasts we had at the time, and given historical experience of recessions after financial crises, it wasn't at all hard to see that the plan was too small. Things have been worse than expected — but not that much worse.

And why does this matter? Because the best chance Obama et al have to change things now is to make the case that we need to do more, and that Republicans stand in the way. Yet here they are, apparently trying to run on the claim that they had it right all along, or something. Is this just boneheaded political strategy? Is it about the egos of the advisers who called it wrong?

I Told You So

The easiest predictions in the whole world were ....

1. Stimulus would fail no matter how big.
2. Krugman would brag "I Told You So".

Three things about Krugman that irk me to no end are ...

His failure to look at the seen and unseen consequences of his proposals
His failure to address the question as to what happens when stimulus ends
His failure to look at structural problems

Ability for government borrowing is not infinite (at least without major economic repercussions). One easy to see problem is interest on the national debt will consume all tax collections if we stay on this path. Moreover, expiration of housing tax credits provides a clear example as to what happens when stimulus ends.

The Invisible Cavlalry

My friend HB has written an excellent article on similar lines. It turns out prosperity is not around the corner after all. Please consider Paul Krugman and the Invisible Cavalry

Averting the Great Depression Again

Throwing money at problems cannot ever work, but that especially holds true when structural problems like union salaries and public pension promises are left intact.

Just because Krugman was correct that stimulus would fail does not make him correct about the reasons why, or what the correct policy actions should have been. The irony as my friend points out, is Krugman's 2009 proclamation "So it seems that we aren't going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government".

Now we need big government to save us again. Spare me the sap. Big government is clearly the problem, not the solution.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Voters Strongly Favor Non-Incumbent GOP Newcomers in Midterm Elections

Posted: 04 Sep 2010 01:14 AM PDT

More than any other class, including Republicans in general, voters have a decided preference for non-incumbent GOP challengers. Moreover, three in four believe an influx of new members would improve Congress, says Gallup.

Please consider Americans Most Likely to Favor GOP Newcomers for Congress

Suppose you had a choice among each of the following four types of candidates for Congress. Which one would you be most likely to vote for?

Republican serving in Congress - 15%
Republican who has not served in Congress - 38%
Democrat who has not served in Congress - 16%
Democrat serving in Congress - 24%
Other - 3%
No Opinion - 4%

Overall, a majority of Americans prefer a Republican candidate (regardless of experience) to a Democrat, 53% to 40%. And a majority also prefer a non-incumbent (regardless of party affiliation) to an incumbent, 54% to 39%.

The fact that Americans who prefer a Republican candidate want one who is new to Congress suggests that these voters want both GOP control of Congress and the new perspectives that come from members with no prior Washington experience. Americans who favor Democratic candidates, on the other hand, apparently are more satisfied with the type of experienced representatives now in Congress.

One would naturally expect Democrats to prefer Democratic candidates, and Republicans to prefer Republican candidates, and that is the case when looking at the data by party. But partisans' preferences for incumbents versus challengers seem to be influenced by their knowledge that the Democrats currently have a majority in Congress, and thus, more Democrats will be defending House seats this fall. Democrats are more likely to prefer a Democrat who is in Congress to a Democrat who is not, and Republicans are more likely to prefer a Republican outside of Congress to one who is currently serving there. Independents also show a strong preference for Republican non-incumbents.

Strong Anti-Democratic Sentiment

Gallup reports Anti-Democratic Sentiment Aids GOP Lead in 2010 Vote

The Republicans' lead in the congressional generic ballot over the past month may be due as much to voters' rejecting the Democrats as embracing the Republicans. Among voters backing Republican candidates, 44% say their preference is "more a vote against the Democratic candidate," while 48% say it is "more a vote for the Republican candidate."

The 44% of Republican voters who say they are voting more against the Democratic candidate exceeds the level of negative voting against the incumbent party that Gallup measured in the 1994 and 2006 elections, when party control shifted (from the Democrats to the Republicans after the 1994 elections and from the Republicans to the Democrats after the 2006 elections).

GOP Holds Huge Edge In Turnout Related Question

In our third poll topic, Gallup shows Republicans Hold Wide Lead in Key Voter Turnout Measure

Two months before this year's midterm congressional elections, Gallup finds 54% of Republicans, compared with 30% of Democrats, already saying they have given "quite a lot of" or "some" thought to the contests.

Republicans' current level of thought about the elections, from Gallup Daily tracking conducted Aug. 23-29, matches or exceeds that found in October/November of the last three midterm years. By contrast, Democrats are giving far less thought to the elections today than they did in the final weeks before the prior four midterms. As a result, Democrats are on par with independents in current attention levels -- a sharp departure from recent years, when the Democrats exceeded independents on this measure.

The large party gap in "thought" suggests the typical Republican turnout advantage could be larger than usual this year if that gap persists until Election Day. Attention normally spikes as elections approach, and this is likely to occur among Democrats. However, it is unclear whether the Republicans have reached the limit for how much attention they will pay to a midterm election, or whether their attention will rise to perhaps a historic level by November. How this plays out will determine Democrats' ability to catch up to Republicans on this measure before Election Day, and will in turn determine the size of the Republican turnout advantage.

It's a virtual certainty that voters' attention to the election will increase in the coming months. If this increase is proportionate between Republicans and Democrats, then the Republicans will likely maintain a formidable turnout advantage. However, it's also possible that Republicans have merely tuned in early to the elections, leaving less room for their attention to expand -- and thus giving the Democrats an opportunity to narrow the gap by November.

Temper Tantrum?

In Our Quick-Fix Electorate on Real Clear Politics, Eugene Robinson proclaims

...This isn't an "electoral wave," it's a temper tantrum. In the punditry business, it's considered bad form to question the essential wisdom of the American people. But at this point, it's impossible to ignore the obvious: The American people are acting like a bunch of spoiled brats. ...there's no mistaking the public mood, and the truth is that it makes no sense.

On the contrary, this makes perfect sense. The public is fed up with how beholden Obama is to unions. They are fed up with sacrifices they have to make that government workers don't. They are fed up with how well the political class has fared in this election vs. how well they have fared in this election. They are fed up with never-ending wars.

It's not that people prefer Republicans by some huge margin. They don't. They specifically prefer non-incumbent Republicans hoping for a Change. Obama promised "Change you could believe in", but where is it? We are still bogged down in Afghanistan, Obama did not get us out of Guantanamo Bay as promised, but most importantly he did continue the same bailout strategies and surrounded himself with the same economic philosophy and same Wall Street advisors as Bush.

The public is fed up and rightfully so. The anti-union vote is going to be huge, and deservedly so.

I am increasingly confident that Republicans are going to take the House. So be prepared to Kiss Nancy Pelosi goodbye and be prepared to welcome John Boehner as the new House speaker. Perhaps we can get some real change. If not, gridlock is better than what we have seen under Obama.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

SEOmoz Daily SEO Blog

LDA - Is On-Page Optimization the SEO Secret?

Posted: 04 Sep 2010 05:59 AM PDT

Posted by Dana Lookadoo

This post was originally in YOUmoz, and was promoted to the main blog because it provides great value and interest to our community. The author's views are entirely his or her own and may not reflect the views of SEOmoz, Inc.

How do I recap the SEOmoz PRO Seminar session on Uncovering a Hidden Technique for SEO? The title is so attractive that it produces Pavlonian symptoms as we salivate at the thought of uncovering a hidden SEO treasure. Ben Hendrickson of SEOmoz presented a model which appears to show how Google may assigning relevance to keyword terms based on context - topical relevance.

Is Latent Dirichlet Allocation (LDA) that hidden jackpot?

1st - LDA is not new nor something SEOmoz invented. The Information Retrieval model has been around for 7 or 8 years, and IR geeks have talked about it before. There are a number of resources, as well as nay saying, about LDA and Google's possible use of it.

2nd - What is new is SEOmoz's LDA Topics Tool that produces a relevancy score based off a query (search term). It enables one to play with words that may increase a page's relevancy in the eyes of Google. It shows words that help Google determine how relevant the page is to a user's search query.

Game Changer?

Kyle Stone tweeted that the LDA tool is a game changer, and many retweeted.

SEOmoz LDA tool = game changer

Is SEOmoz's LDA tool a game changer? That's yet to be seen. The goal is to report Ben's research as presented at the Mozinar and how a layman (myself) interprets such. Rand is going to do a follow-up post to explain more.

Why all the hype?

The SEO Challenge

SEOs face the continual challenge of figuring out Google's hidden ranking algorithms. How do we rank higher? Which signals are the most important? We know search engines are "learning models" that attempt to understand "context” of words. Google has said for years that webmasters should concentrate most on providing good relevant (contextual) content.

There are ways to rank higher. Is it as easy as 1, 2, 3?

Create quality copy with keyword(s) on the page along with associated anchor text links.
Get good links.
What Ben talked about in this session.

LDA - Topic Modeling & Analysis

Latent Dirichlet Allocation, in layman's terms, translates to "topic modeling." In search geek terms, LDA is the following formula:

LDA Formula

(Did you digest that? Don't worry; Mozzers groaned and laughed at the same time. PLUS: Scientist Hendrickson delivered this session after lunch!)

LDA Simplified - Here is Ben's way of explaining topic modeling:

LDA Formula Simplified

(Okay, I was once proud that I got an A in Logic and Combinatorics - discrete math/set theory. However, that computer science class now feels like basic math compared to this formula.)

It made more sense when Rand Fishkin joined Ben on stage and when Todd Freisen moderated and deciphered during Q&A. (Manuela Sanches of Brazil was sitting next to me and said that Ben's "presentation needed subtitles!")

The objective of LDA, from my deciphering of Greek, is to understand how Google is using semantic contextual analysis combined with other signals, to define topics/concepts. It's how Google analyzes the words on a page to determine the "set" to which a word belongs - how relevant a search query is to pages in its database.

For example: How does Google assign relevance to the word "orange" on a page? They determine orange is related to the fruit set or to the color set by page context.

LDA Defined:

"Latent Dirichlet Allocation (Blei et al, 2003) is a powerful learning algorithm for automatically and jointly clustering words into "topics" and documents into mixtures of topics. It has been successfully applied to model change in scientific fields over time (Griffiths and Steyver, 2004; Hall, et al. 2008).

A topic model is, roughly, a hierarchical Bayesian model that associates with each document a probability distribution over "topics", which are in turn distributions over words."

Bayesian - ah, a term I recognize!! Bayesian spam filtering is a method used to detect spam. It draws off a database and learns the meaning of words. It's "trained" by us when we mark an email as spam. It looks at incoming emails and calculates the probability that the content of an email is contextually spammy.

I found a PowerPoint presentation about Bayesian Inference Techniques by Microsoft Research from 2004 that presents the possibility of using LDA. Go to slide 54 and read:

"Can we build a general-purpose inference engine which automates these procedures?"

Microsoft has been looking at LDA models. Do search engines use it as one of their primary methods?

Ben sampled over 8 million documents with approx. 1,000 queries. He believes Google is using LDA topic modeling to determine (learn) what words mean by their associations with, relevance to, other words on the page. (Other factors are included.) Ben called the results a "co-occurrence explanation" that use a "cosine similarity."

SEO Takeaway:

Results that are higher in Google SERPs, in general, have more topical content.
Search engines do APPEAR to apply semantic analysisÂ… when indexing a page and determining the intent of the words on the page.

Rand tweeted an explanation (in 140 x 4) as follows:

Rand's tweets explaining LDA

Dana's LDA Catwalk Metaphor for Topic Modeling:

Imagine the words on your page as walking down the fashion runway in Paris. Your keyword phrase is "dressed" in semantic accessories, words that correlate to and dress up your topic. Associated words bring meaning to and highlight the fashion model's outfit. Adjectives, modifiers and synonyms are like jewelry, hats, and shoes. The combination can transform your base layers (your target terms) from casual or conservative business attire into a sexy night-on-the-town ensemble.

Combinations and permutations of words on a page "dress" your skinny or curvy fashion model. Relevant words provide Google with an image of what she is wearing and the catwalk upon which she struts. LDA refers back to what Google already knows about these "accessories" (words) and their previous association with the topic terms related to fashion.

Enter Topical Ambiguity - I just broke the "rules" for context with the catwalk metaphor by referring to modeling in two contexts on this page:

I used "modeling" terms that relate to the "fashion industry" set.
The catwalk metaphor is irrelevant content that is off-topic for discussing "LDA topic modeling."

Google Algorithm Exposed?

Ben clearly said that LDA is an ATTEMPT to explain the SERPs. His scenario, a quote from his presentation slides, follows:

One of us needs to implement it so we can:

1) See how it applies to pages
2) See if it helps explain SERPs
One-two-three-not-it.

LDA is not LSI.

There were some tweets claiming SEOmoz was bringing back LSI or snakeoil. Ben clarified that LDA is not LSI, which deals more with keyword density. He explained that he is NOT talking about loading keywords on a page but about the relevance of the topics within the page. He said that:

"LSI doesn’t have the same bias toward simple explanations. LSI breaks down as you try to scale up the number of topics."

The LDA tool deals with context, semantic relevancy, not density - in addition to some other random factors. Example:

If SEOmoz has a page all about "SEO" and "tools," and there is another word on the page that can be explained by a word that is more related to SEO topic, then the related word would be used. Meaning, "seo tools" doesn't have to be repeated over and over, and the related word would be interpreted by Google as being relevant.

Ben, who appears to have the brain of a search engine, noted that it "appears" LDA is what Google is heading for in the near future. He said (paraphrased):

If they are not doing it, they seem to be doing something that has the same output. They are probably already using it.

Rand deciphered:

It’s a super weird coincidence if Google is not using it.

Are On-Page Signals Stronger than Links?

Are we heading toward more emphasis of on-page topic modeling? I'm not an IR geek, but I do plan to spend more energy focusing on understanding how search engines retrieve informaton. We are dealing with a semantic Web. LDA may indicate that good old on-page optimization sends stronger signals than links.

SEOmoz's LDA tool attempts to show how relevant content is to a chosen keyword. It computes relevance of queries.

The following shows how relevant SEOmoz's Tools page is to Aaron Wall's SEO Book Tools page.

seo tools relevance for SEOmoz & SEO Book

The score at the top is an indicator of how relevant the content on that page is according to LDA.

Aaron's content is 72%* relevant for the query "seo tools."
SEOmoz's tools page is 40%* relevant.

*NOTE: (I inserted the logos.) You can run the same pages and get different results. The results are similar in that SEO Book always scored as more topically relevant, but the percentage varies. Is this the random Monte Carlo algorithm at work? Ben?

Mozinar Question:

"How do we execute this for SEO?"

Ben's Answer:

"I don't actually do SEO. I write code."

That's up to us, the SEOs, to play and test in our Google playground.

Use the tool to decide if you can win with LDA to optimize your on-page signals.

Use the LDA Topics Tool to return words that could be used on a page for a query.
Then determine who is ranking for that term.
Simply write content that is highly on-topic based off the findings you observe.

If you are not performing that well in the SERPs, think about classic on-page optimization. In the example above, rather than putting another instance of "seo tools" on the page, LDA shows there are better ways to tell Google that you are about that topic. The tool provides a way to measure that.

IMPORTANT: There is a threshold at which too many related words will appear as too spammy. LDA is not something to be used to game Google.

Test the LDA Tool out for yourself, and draw your own conclusions.

***
DISCLAIMER: I'm not claiming this methodology has uncovered hidden SEO treasures. Time, testing and playing around with a new SEOmoz tool while observing the SERPs will reveal the answer. In the meantime, I'm going to dress up my pages and accessorize them with relevant terms that make them dazzle so they look good climbing the Google catwalk.

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Daily Snapshot: Honoring the American Worker

Your Daily Snapshot for
Saturday, September 4, 2010

Your Weekly Address: Honoring the American Worker

The President talks about his fight to make America work for the middle class and make sure hard work is rewarded -- rather than greed and recklessness. Watch the video.

Seth's Blog : Sometimes, price is an attitude

[You're getting this note because you subscribed to Seth Godin's blog.]

Sometimes, price is an attitude

Passed a store the other day. The sign read 99 CENTS! And the subtitle was, "Everything $1 and up".

The 99 cent store was never popular because there's some magical power about the price that is a penny less than a dollar. No, it's because it represents an attitude, that this stuff is CHEAP. Not absolute cheap, just relatively cheap. Not even a good value, just cheap. Cheap compared to its non-cheap competition.

At the other end of the spectrum, the prices at the Hermes store appear to be missing a decimal point or two. The attitude is, "wow, this stuff is expensive." It's not about what you get, it's about how it feels to pay that much.

• Email to a friend •

•

Tip 5: A link is worth 1,000 words

Hello

Did you know that some major corporations have publicly admitted to using robots to write content for their websites? In today's lesson we discuss that, and why Google puts so much weight on links.

Read it online at
http://www.seobook.com/learn-seo/link-1000-words.php

Tomorrow we will cover an easy way to get great links.

Cheers,
Aaron Wall

P.S. To appreciate all the different ways people try to spam Google, read this PDF created by Google's Amit Singhal in 2004, paying particular attention to slides 15 through 26
http://training.seobook.com/bonuses/haifa.pdf

P.P.S. Did you know my private coaching club, "SEO BOOK CONFIDENTIAL", is an exclusive insiders group of some of the most influential and successful SEOs in the world? We quietly generate literally millions online for our clients and our own businesses——so can you imagine what it'd be like having us take a look at your SEO project?

Well here's the best part: inside the "SEO BOOK CONFIDENTIAL" forum, you'll be able to post all your problems and questions. You'll get specific advice from me and all the other top-level SEOs in our exclusive club. (Some of these guys charge upwards of $500 per hour... plus, even if you had the money to hire them, they're booked solid, so you couldn't anyway).

You'll also get the best of my free tools, exclusive premium tools, time-saving tutorials and cutting edge tips.

To discover more about our friendly community of SEOs——and how you can be getting one-to-one advice from us in the next five minutes——follow this link:
http://www.seobook.com/4973.html

-------------------------

To unsubscribe from the list follow this link http://www.seobook.com/autoresponder/unsubscribe/1/382346/e8da281c68153bd8937fe6a6e56c119d

vineri, 3 septembrie 2010

Mish's Global Economic Trend Analysis

Understanding Reality - You Don't Know What You've Lost Till Its Gone
Reflections on the "Recovery"
Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface

Understanding Reality - You Don't Know What You've Lost Till Its Gone

Posted: 03 Sep 2010 05:27 PM PDT

As everyone should know by now, my main concern with unions is specifically with public unions. While I do not care for unions at all, and never have, at least with private unions, someone other than corrupt politicians buying votes is bargaining at the other end of the table.

In the case of public unions, if politicians strike a bad deal, taxpayers foot the bill. In the case of private corporations, if management strikes a bad deal, the company goes bankrupt, shareholders take a hit, or the jobs move elsewhere, as soon as the contract is up.

Except in few cases every now and again, private unions just cannot seem to understand this simple economic fact.

Machinists Union Pickets Cessna Aircraft

The Kansas Wichita Eagle highlights the typical union response, public or private, in Cessna's initial offer to Machinists includes wage cut

Machinist union members at Cessna Aircraft picketed near the company's plant in southwest Wichita on Thursday to protest jobs being sent outside the city.

Members fought strong, gusty afternoon winds and carried signs that read "Keep it Made in Wichita," "Outsourcing is Treason" and "We built the Air Capital," as they picketed at K-42 and Hoover roads. Some carried American flags.

Cessna and the Machinists union are in the midst of contract negotiations. The current contract expires Sept. 19. About 2,300 hourly workers at Cessna are covered by the agreement. Hawker Beechcraft also has reopened negotiations with the union as it considers sending work to Louisiana, Mississippi and outside the country.

Cessna's initial proposal is for a 10-year agreement that cuts wages 4.2 percent, weakens job security, replaces the pension plan with a 401(k) plan and increases the share of the cost of health insurance paid by the workers to 30 percent, said union spokesman Bob Wood.

"There's no job security in the current proposal," Wood said.

"Wichita is based on aircraft," said Cynthia Hise. "If you don't get a good contract...." Darren Hise finished her sentence. "It's going to hurt the whole economy in Wichita."

Reflections on Job Security

Here's the deal. The Hise's and the union in general, appears ready willing and able to "hurt the whole Wichita economy" if they do not get what they want.

I have to ask "How stupid is that?"

The answer is "tremendously stupid".

It is far better to have a good paying job and no job security than no job at all and no prospects of a job. That's what it boils down to, and like it or not, that is the economic reality.

I do not know what salaries are, but a 10 year contract with only a 4.2% pay cut does not strike me as a bad deal. Those who think otherwise need to compare it to the alternative: seeing all the jobs go to Louisiana, Mississippi, or outside the country.

By the way, wouldn't residents of Louisiana and Mississippi be very grateful for those job, regardless of what the salary was? I think so. So the bottom line is this mess, is the unions would be to blame and only the unions to blame if Cessna moves elsewhere. The union will also be responsible for wrecking the entire local economy if it happens.

Take the contract and run! It's for 10 years! Because .... You Don't Know What You've Lost Till Its Gone, Then It's Too Late. In this case, it will be gone forever.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Reflections on the "Recovery"

Posted: 03 Sep 2010 12:43 PM PDT

One year ago the official unemployment rate was 9.7%. Today it is 9.6%.

One year ago U-6 unemployment was 16.8%. Today U-6 is 16.7%

click on chart for sharper image

For more details on the jobs report, please see Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface

For all the trillions of dollars in stimulus and additional trillions of dollars in bank bailouts and trillions of dollars of expansion of the Fed's balance sheet, this is all we have to show for it.

Moreover, the economy is clearly slowing already by many economic reports including new home sales, existing home sales, the regional Fed manufacturing surveys, sentiment measures, and consumer spending trends. The only major discrepancy is ISM.

This week, none of that matters. However, I would like to point out that bear market rallies end, not on bad news, but on good news. It will be interesting to see how much more good news there is, and the market's reaction to it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface

Posted: 03 Sep 2010 09:08 AM PDT

This morning the BLS reported a decrease of 64,000 jobs. However, that reflects a decrease of 114,000 temporary census workers.

Excluding the census effect, government lost 7,000 jobs. Were the trend to continue, this would be a good thing because Firing Public Union Workers Creates Real Jobs.

Unfortunately, politicians and Keynesian clown economists will not see it that way. Indeed there is a $26 billion bill giving money to the states to keep bureaucrats employed. This is unfortunate because we need to shed government jobs.

Birth-Death Model

Hidden beneath the surface the BLS Black Box - Birth Death Model added 115,000 jobs, a number likely to be revised lower in coming years. Please note you cannot directly subtract the number from the total because of the way the BLS computes its overall number.

Participation Rate Effects

The civilian labor force participation rate (64.7 percent) and the employment-population ratio (58.5 percent) were essentially unchanged from last month's report. However, these measures have declined by 0.5 percentage points and 0.3 points, respectively, since April.

The drop in participation rate this year is the only reason the unemployment rate is not over 10%. The drop in participation rates is not that surprising because some of the long-term unemployed stopped looking jobs, or opted for retirement.

Nonetheless, I still do not think the top in the unemployment rate is in and expect it may rise substantially later this year as the recovery heads into a coma and states are forced to cut back workers unless Congress does substantially more to support states.

Employment and Recessions

Calculated Risk has a great chart showing the effects of census hiring as well as the extremely weak hiring in this recovery.

click on chart for sharper image

The dotted lines tell the real story about how pathetic a jobs recovery this has been. Bear in mind it has taken $trillions in stimulus to produce this.

June, July Revisions

The change in total nonfarm payroll employment for June was revised from -221,000 to -175,000, and the change for July was revised from -131,000 to -54,000.

Those revisions look good but it is important to note where the revisions comes from. The loss of government jobs in June was revised from -252,000 to -236,000 and July from -202 to -161,000.

Major Discrepancies

The BLS jobs report for August does not match ADP payroll estimates. Moreover, neither the BLS jobs report nor the ADP jobs report is consistent with the hot ISM number reported Wednesday. Both the BLS (details below) and ADP have a decline in manufacturing employment while ISM had a rise.

Please see Rosenberg says "ISM Flunks Sniff Test "; Cashin calls ISM "an Outlier"; ADP, Other Data Does Not Confirm for more details that suggest the ISM number is nonsense.

Part-Time Employment

The number of involuntary part-time workers increased by 331,000 over the month to 8.9 million. In January, the number of employees working "part-time for economic reasons" was 8.6 million.

Now for this month's report ....

July 2010 Report

Please consider the Bureau of Labor Statistics (BLS) July 2010 Employment Report.

Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000).

Unemployment Rate - Seasonally Adjusted

Nonfarm Payroll Employment - Seasonally Adjusted

Since September 2009, temporary help services employment has risen by 362,000.

Establishment Data

click on chart for sharper image

Highlights

54,000 jobs were lost
19,000 construction jobs were added
27,000 manufacturing jobs were lost
38,000 service providing jobs were added
67,00 retail trade jobs were added
20,000 professional and business services jobs were added
45,000 education and health services jobs were added
13,000 leisure and hospitality jobs were added
121,000 government jobs were lost. Of them, 143,000 were temporary census workers

Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.

Index of Aggregate Weekly Hours

Production and non-supervisory work hours rose .1 to 33.5 hours (from a revised lower hours total of 33.4 hours). Average hourly earnings rose $.03 at $19.08.

Birth Death Model Revisions 2009

click on chart for sharper image

Birth Death Model Revisions 2010

click on chart for sharper image

Birth/Death Model Revisions

The BLS Birth/Death Model methodology is so screwed up and there have been so many revisions and up it is pointless to further comment other than to repeat a few general statements.

Please note that one cannot subtract or add birth death revisions to the reported totals and get a meaningful answer. One set of numbers is seasonally adjusted the other is not. In the black box the BLS combines the two coming out with a total. The Birth Death numbers influence the overall totals but the math is not as simple as it appears and the effect is nowhere near as big as it might logically appear at first glance.

BLS Black Box

For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals).

Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another.

Household Data

The number of unemployed persons (14.9 million) and the unemployment rate (9.6 percent) were little changed in August. From May through August, the jobless rate remained in the range of 9.5 to 9.7 percent.

The number of long-term unemployed (those jobless for 27 weeks and over) declined by 323,000 over the month to 6.2 million. In August, 42.0 percent of unemployed persons had been jobless for 27 weeks or more.

In August, the civilian labor force participation rate (64.7 percent) and the employment-population ratio (58.5 percent) were essentially unchanged.

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 331,000 over the month to 8.9 million. These individuals were working part time because their hours had been cut back or because they were unable to find a fulltime job.

[Mish Note: In January the number was 8.3 million]

Persons Not in the Labor Force

About 2.4 million persons were marginally attached to the labor force in August, little changed from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the
survey.

Table A-8 Part Time Status

click on chart for sharper image

The key take-away is there are 8,860,00 workers whose hours may rise before those companies start hiring more workers.

Table A-15

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

click on chart for sharper image

Grim Statistics

The official unemployment rate is 9.6%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

It reflects how unemployment feels to the average Joe on the street. U-6 is 16.7%, up .2 from last month.

Looking ahead, there is no driver for jobs. Moreover, states are in forced cutback mode on account of shrinking revenues and unfunded pension obligations. Shrinking government jobs and benefits at the state and local level is a much needed adjustment. Those cutbacks will weigh on employment and consumer spending for quite some time.

Expect to see structurally high unemployment for years to come.

Keep in mind that huge cuts in public sector jobs and benefits at the city, county, and state level are on the way. These are badly needed adjustments. However, economists will not see it that way, nor will the politicians.

Recap

The private sector hiring increase of 67,000 is very weak for a recovery. That number is not enough to keep the unemployment rate steady. However, the unemployment rate comes from the Household Survey (a phone survey), not from actual payroll data.

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