Mish's Global Economic Trend Analysis

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• Credit Boom in China Could Trigger Bigger Crisis Than 2008; Three Things China Wants, Eight Things China Needs
• Expect Another Leap in Healthcare Costs; New Obamashock Rules: Obamacare Expanded to Cover Mental Health and Addiction
• Establishment Survey: +204K Jobs, Household Survey: -735K Jobs; How Federal Layoffs Distorted the Picture

Credit Boom in China Could Trigger Bigger Crisis Than 2008; Three Things China Wants, Eight Things China Needs Posted: 08 Nov 2013 06:17 PM PST In case you think all is well with China and the Yuan will soon replace the dollar as the world's reserve currency, you may wish to reconsider. Credit growth in China is expanding at a massive rate on nonviable projects, and that is the only reason China has been able to meet its growth targets. Marc Faber believes China could spark a bigger crisis than in 2008. An alarming credit boom in China could trigger a global financial crisis that would make the one in 2008 look mild by comparison, says old gloomy eyes, Marc Faber. "If I am telling you that we had a credit crisis in 2008 because we had too much credit in the economy, then there is that much more credit as a percentage of the economy now," the author of The Gloom, Boom & Doom Report told CNBC late Thursday. "So we are in a worse position than we were back then." China, in particular, has seen credit as a percentage of the economy jump 50% in the last four and a half years, said Faber, the "fastest credit growth you can image in the whole of Asia." Meanwhile, Deutsche Bank strategist John-Paul Smith told clients on Wednesday that China's growth model continues to be based on "ever-expanding debt, which leaves the country and financial markets very vulnerable to any potential loss of from investors and lenders." It Can't Be Done I have been preaching a similar message as Faber for years, most recently on November 6, in It Can't Be Done. Three Things China Wants 7.2% growth No rise in unemployment Strengthening of the ruling party. Eight Things China Needs To Do Cleanup its banking sector Curtail rampant credit growth Privatize State-Owned-Enterprises (SOEs) Rein in monetary growth Eliminate dependence on nonviable infrastructure projects as a means of growth Writeoff bad debts Float the renmimbi (yuan) Undertake massive economic and political reforms What China wants is impossible. And the longer China waits to do what needs to be done, the bigger the eventual crisis. 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.

Expect Another Leap in Healthcare Costs; New Obamashock Rules: Obamacare Expanded to Cover Mental Health and Addiction Posted: 08 Nov 2013 12:47 PM PST If you are already stunned by rising Obamashock! healthcare costs, you can expect still more shocks thanks to new rules and expanded coverage for mental health and addiction programs. A few snips from the New York Times article Rules to Require Equal Coverage for Mental Ills will explain. The Obama administration on Friday will complete a generation-long effort to require insurers to cover care for mental health and addiction just like physical illnesses when it issues long-awaited regulations defining parity in benefits and treatment. The rules, which will apply to almost all forms of insurance, will have far-reaching consequences for many Americans. In the White House, the regulations are also seen as critical to President Obama's program for curbing gun violence by addressing an issue on which there is bipartisan agreement: Making treatment more available to those with mental illness could reduce killings, including mass murders. According to administration officials, the rule would ensure that health plans' co-payments, deductibles and limits on visits to health care providers are not more restrictive or less generous for mental health benefits than for medical and surgical benefits. Significantly, the regulations would clarify how parity applies to residential treatments and outpatient services, where much of the care for people with addictions or mental illnesses occurs. Insurance companies have raised concerns about the expense involved in paying for the lengthy and intensive courses of treatment that the final regulations address. But experts have said the rules are not expected to significantly add to the cost of coverage because so few patients require these levels of care. Former Representative Patrick J. Kennedy of Rhode Island, a co-sponsor of the 2008 law, said the rules could particularly help veterans. "No one stands to gain more from true parity than the men and women who have served our country and now need treatment for the invisible wounds they have brought home from Iraq and Afghanistan," he said. State insurance commissioners will apparently have the primary responsibility for seeing that commercial insurers comply with the parity standards. They already have their hands full, however, enforcing new insurance market rules, and in some states insurance regulators are considered close to the industry. "We need enforcement," Mr. Kennedy said in an interview. "The notion of delegating this to the states, which are looking to the federal government for direction, is problematic."  Don't Worry "Experts" Say Costs Won't Rise "Significantly" Note the slant by the NYT. People want to curb gun violence and this will do it.  It will help veterans.  It won't cost much. Supposedly costs won't rise much because few people demand mental health services. Well, watch what happens when you mandate expanded "free" services. And if by some amazing miracle additional free services do not increase costs, it's important to note that a small percentage of people are responsible for huge portions of overall costs. Cumulative Distribution of Personal Healthcare Spending Facts and Figures Top 1% Spend Over 20% of Total Costs Top 5% Spend About 50% of Total Costs Those numbers are from a 2012 study on the Concentration of Healthcare Spending by the National Institute for Health Care Management (NIHCM). Obamashock! Apology Yesterday, the president made a quasi-apology for the holes and gaps in the law. Link if video does not play: Exclusive: Obama personally apologizes for Americans losing health coverage After the Non-Apology CNN discuses Obamacare: After Obama's apology, talk of solutions and -- still -- the website As the president expressed regret in an exclusive interview with NBC News on Thursday, there already were plans being developed in Congress to address the matter as well as steps the administration might take to resolve the issue without reopening the politically charged healthcare law legislatively. Health Secretary Kathleen Sebelius said there is no specific plan at the moment when asked in Atlanta on Friday what the administration was considering. One priority, she said, is to identify those customers as well as approaches for solutions. "But there is no specific option right now," she said. More on Obamashock! My Personal Experience - Obamashock! More Obamashock! Glitches Hit Paper, Phone Applications; Obamacare Glitch Great Quotes 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.

Establishment Survey: +204K Jobs, Household Survey: -735K Jobs; How Federal Layoffs Distorted the Picture Posted: 08 Nov 2013 10:01 AM PST Initial Reaction The already wide discrepancies between the household survey and the establishment survey took a wild leap today. The establishment survey showed a gain of 204,000 jobs but the household survey showed a drop in employment of -735,000. However, the BLS states that on unadjusted basis 448,000 of the drop in employment was due to temporary federal layoffs during the budget negotiations. Because of the way the BLS calculates overall numbers, one cannot subtract the seasonally unadjusted number of -448,000 from the reported seasonally adjusted number of -735,000 and arrive at any kind of meaningful number. Important Note: I will go through my normal calculations, but they are very distorted by the temporary layoffs. How Federal Layoffs Distorted the Picture The BLS reports "Estimates of the unemployed by reason, such as temporary layoff and job leavers, do not sum to the official seasonally adjusted measure of total unemployed because they are independently seasonally adjusted. Household survey data for federal workers are available only on a not seasonally adjusted basis. As a result, over-the-month changes in federal worker data series cannot be compared with seasonally adjusted over-the-month changes in total employed and unemployed." From the Commissioner's Statement Some federal workers who were not at work during the entire reference week in October were not classified as unemployed on temporary layoff. Our review of the data indicates that most of these workers should have been classified as unemployed on temporary layoff. Such a misclassification is an example of nonsampling error and can occur when respondents misunderstand questions or interviewers record answers incorrectly. According to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reassign survey responses. If the federal workers who were recorded as employed but absent from work had been classified as unemployed on temporary layoff, the overall unemployment rate would have been slightly, but not substantively, higher than reported. Revisions This was the fourth straight month of revisions to the establishment survey. The first two revisions were significantly lower. Last month, the revision was slightly higher and I commented "Perhaps the BLS has numbers they are happy with now." So much for that idea. Today, the BLS reports "August revised up by 45,000 (from +193,000 to +238,000), and the employment change for September revised up by 15,000 (from +148,000 to +163,000). The unemployment rate rose 0.1 to 7.3% (but according to the BLS it should have been higher due to estimated nonsampling error as noted in the commissioner's statement above). It's the household survey that determines the unemployment rate, not the establishment survey. So let's take a look at the factors. Explaining the Unemployment Rate Unemployment rate rose by 0.1 percentage points Employment fell by 735,000 Those in the labor force fell by 720,000 The civilian population rose by 213,000. The Participation Rate (The labor force as a percent of the civilian noninstitutional population) fell to 62.8%, smashing the previous low (tied last month) of 63.2% dating back to 1979. Employment fell more than the labor force, so the unemployment rate rose. October BLS Jobs Statistics at a Glance Payrolls +204,000 - Establishment Survey US Employment -735,000 - Household Survey US Unemployment +17,000 - Household Survey Involuntary Part-Time Work +124,000 - Household Survey Voluntary Part-Time Work -181,000 - Household Survey Baseline Unemployment Rate +0.1 to 7.3% - Household Survey U-6 unemployment +0.2 to 13.8% - Household Survey Civilian Labor Force -720,000 - Household Survey Not in Labor Force +932,000 - Household Survey Participation Rate -0.4 at 62.8 - Household Survey Quick Notes About the Unemployment Rate The unemployment rate varies in accordance with the Household Survey, not the reported headline jobs number, and not in accordance with the weekly claims data. In the last year, those "not" in the labor force rose by 3,134,000 Over the course of the last year, the number of people employed rose by a mere 240,000 (an average of 20,000 a month) In the last year the number of unemployed fell from 12,248,000 to 11,272,000 (a drop of 976,000) Percentage of long-term unemployment (27 weeks or more) is 36.1%, a decrease of 0.8 from last month. The mean duration of unemployment is 36.1 weeks, a decline of 0.8. Once someone loses a job it is still very difficult to find another. 8,050,000 workers who are working part-time but want full-time work. A year ago there were 8,286,000. This is a volatile series. October 2013 Jobs Report Please consider the Bureau of Labor Statistics (BLS) October 2013 Employment Report. Total nonfarm payroll employment rose by 204,000 in October, and the unemployment rate was little changed at 7.3 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in leisure and hospitality, retail trade, professional and technical services, manufacturing, and health care. Click on Any Chart in this Report to See a Sharper Image Unemployment Rate - Seasonally Adjusted Employment History Since January 2009 click on chart for sharper image Change from Previous Month by Job Type Hours and Wages Average weekly hours of all private employees remained at 34.4 hours. Average weekly hours of all private service-providing employees was flat at 33.3 hours. Average hourly earnings of production and non-supervisory private workers rose $0.02 to $20.26. Average hourly earnings of private service-providing employees rose $0.02 to $20.04. Real wages have been declining. Add in increases in state taxes and the average Joe has been hammered pretty badly. For 2013, one needs to factor in the increase in payroll taxes for Social Security. For further discussion of income distribution, please see What's "Really" Behind Gross Inequalities In Income Distribution? BLS Birth-Death Model Black Box The BLS Birth/Death Model is an estimation by the BLS as to how many jobs the economy created that were not picked up in the payroll survey. The Birth-Death numbers are not seasonally adjusted, while the reported headline number is. In the black box the BLS combines the two, coming up with a total. The Birth Death number influences the overall totals, but the math is not as simple as it appears. Moreover, the effect is nowhere near as big as it might logically appear at first glance. Do not add or subtract the Birth-Death numbers from the reported headline totals. It does not work that way. 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 as noted by numerous recent revisions. Birth Death Model Adjustments For 2012 Birth Death Model Adjustments For 2013 Birth-Death Notes Once again: Do NOT subtract the Birth-Death number from the reported headline number. That approach is statistically invalid. In general, analysts attribute much more to birth-death numbers than they should. Except at economic turns, BLS Birth/Death errors are reasonably small. For a discussion of how little birth-death numbers affect actual monthly reporting, please see BLS Birth/Death Model Yet Again. Table 15 BLS Alternate Measures of Unemployment click on chart for sharper image Table A-15 is where one can find a better approximation of what the unemployment rate really is. Notice I said "better" approximation not to be confused with "good" approximation. The official unemployment rate is 7.3%. However, if you start counting all the people who 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. U-6 is much higher at 13.8%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years. Labor Force Factors Discouraged workers stop looking for jobs People retire because they cannot find jobs People go back to school hoping it will improve their chances of getting a job People stay in school longer because they cannot find a job Disability and disability fraud Were it not for people dropping out of the labor force, the unemployment rate would be over 9%. In addition, there are 8,050,000 workers who are working part-time but want full-time work. Grossly Distorted Statistics Digging under the surface, much of the drop in the unemployment rate over the past two years is nothing but a statistical mirage coupled with a massive increase in part-time jobs starting in October 2012 as a result of Obamacare legislation. Moreover, as noted above, this month's numbers are extremely distorted due to temporary layoffs. Next month we will have a better understanding of various factors including the unemployment rate. 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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