10.1.14

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Humorous Quote of the Day

Posted: 10 Jan 2014 07:39 PM PST

A tip of the hat goes to Huky Guru at Guru's Blog regarding the non-shocking announcement that "One of the rescued countries provided "misleading" information to the troika as the ECB"
"In some cases, the information was incomplete, particularly in a country, even misleading at the beginning of the program," says the company chaired by Mario Draghi in the European Parliament formulated to evaluate the work of the troika questionnaire.
Guru Commented "Just one country provided misleading information? And it took four years to realize?"

That's pretty funny, but actually it is a sign the ECB thinks the bottom is in. That's when these kind of revelations come out.

Yet, as Guru implies, it likely was every country that received a bailout, that fabricated data.

Going back further still, I find it hard to believe that the ECB and the Brussels nanncrats did not know upfront that Greece was not ready for Eurozone membership, and that Greece lied on its application.

And finally, regardless of what these guys think, it's highly doubtful the crisis is over. The biggest eurozone trials are yet to come.

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

Employment vs. Jobs Discrepancy - December 2013 Data

Posted: 10 Jan 2014 01:02 PM PST

The wide discrepancy between jobs and employment continues for a third month.

Jobs vs. Employment Discussion

Before diving into the details, it is important to understand limits on data, and how the BLS measures jobs in the establishment survey vs. employment in the household survey.

Establishment Survey: If you work one hour that counts as a job. There is no difference between one hour and 50 hours.
Establishment Survey: If you work multiple jobs you are counted twice. Neither the BLS nor ADP  weed out duplicate social security numbers.

Household Survey: If you work one hour or 80 you are employed.
Household Survey: If you work a total of 35 hours you are considered a full time employee. If you work 25 hours at one job and 10 hours at another, you are a fulltime employee.

Following are numbers from today's BLS jobs releases.

December 2013 vs. December Prior Years

CategoryDEC 2008DEC 2009DEC 2010DEC 2011DEC 2012DEC 2013
Employed Household143,369 138,013 139,266 140,836 143,212 144,586
Jobs Establishment134,425 129,373 130,395 132,498 134,691 136,877


Monthly Averages December 2013 vs. December Prior Years

CategoryDEC 2009DEC 2010DEC 2011DEC 2012DEC 2013
Yoy Change Household(5,356)1,253 1,570 2,376 1,374
Yoy Change establishment(5,052)1,022 2,103 2,193 2,186
Monthly Average Household-446104131198115
Monthly Average Establishment-42185175183182


Notice how closely in sync the household survey has been to the establishment survey in terms of average gains or losses. A divergence developed in 2013.

Here is the data I posted last month (I did not check for revisions).

November 2013 vs. November Prior Years

CategoryNov 2008Nov 2009Nov 2010Nov 2011Nov 2012Nov 2013
Employed Household144,100 138,665 139,046 140,771 143,277 144,386
Jobs Establishment135,130 129,593 130,300 132,268 134,472 136,765

Monthly Averages November 2013 vs. November Prior Years

CategoryNov 2009Nov 2010Nov 2011Nov 2012Nov 2013
Yoy Change Household(5,435)381 1,725 2,506 1,109
Yoy Change establishment(5,537)707 1,968 2,204 2,293
Monthly Average Household-4533214420992
Monthly Average Establishment-46159164184191


Last month the discrepancy between reported employment and reported jobs was 191,000 - 92,000 = 99,000.

This month the discrepancy between reported employment and reported jobs is 182,000 - 115,000 = 67,000.

These discrepancies started in 2013.

I asked the BLS to take multiple social security numbers into consideration. They cannot because all they have is raw counts. ADP could, but wouldn't, citing privacy issues.

However, there are no privacy issues. A program would be trivial to write, but most likely one would not even have to do that. A sort utility extracting and counting duplicate social security numbers would suffice.

I believe Obamacare is the reason for the discrepancy.

Obamacare Effect

Prior to Obamacare
34 hours worked = 1 parttime job household survey
34 hours worked = 1 job establishment survey

Enter obamacare
Person cut back to 25 hours and takes a second job for 10 hours
Here is the new math

25 + 10 = 1 fulltime job on the household survey.
25 + 10 = 2 jobs on the establishment survey.

In my example, the household survey totals up all the hours and says, voilla! (35 hours = full time). So a few extra hours that people pick up working 2 part time jobs now throws someone into full time status – thus no surge in part-time employment, but there is a surge in jobs.

Establishment Survey Jobs Surge Ended This Month

Interestingly, the surge in jobs in the establishment survey ended today. See Big Miss: Nonfarm Payrolls +74,000 vs. 205,000 Expected; Unemployment Rate 6.7% as Labor Force Shrinks by 347,000.

Two Possibilities

  1. Perhaps today's weak job report is a one-time thing. Some economists blamed the weather. 
  2. The other possibility is the Obamacare effect has mostly played out, and Establishment Survey results going forward  will not get a multiple job boost for the rest of the year.

If the Obamacare multiple job surge has indeed played out, monthly establishment survey job gains are going to be weaker than most expect for 2014.

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

Greece Industrial Production Declines 5th Consecutive Month, Unemployment New High of 27.8%; How Long Can Greek Coalition Last?

Posted: 10 Jan 2014 10:26 AM PST

Those expecting an uptick in Greek GDP received some sobering news this past week. Macropolis reports Unemployment hit new high of 27.8 pct in October, set to rise further.
According to the Hellenic Statistical Agency (ELSTAT), the seasonally adjusted jobless rate in October stood at 27.8 percent from an upwards revised 27.7 percent in the month of September. After the previous months' revisions, the October rate now holds the new high.

Women lead the way in the unemployment stakes with 32.1 percent lacking jobs compared to 24.7 percent for men.

All age groups are severely impacted by the devastating impact of the Greek depression with the unemployment rate having roughly tripled for each bracket compared to October 2009. For 25-34 year olds it stands at 37.8 percent from 13; for 35-44 at 23.8 percent from 8.3; 20.3 percent for the 45-54 age group and 16.6 percent for the 55-64 year olds. Youth unemployment impacts more than half of those between 15 and 24 looking for a job with the rate standing at 57.9 percent.
Greek Industrial Production Declines 5th Consecutive Month

RT reports Greek Industrial Output Downturn Worsens In November.
Greece's industrial production decreased for the fifth consecutive month in November, and at a faster pace than in the previous month, with all of the major industrial sectors recording decline in activity, data released by the Hellenic Statistical Authority showed Thursday.

Industrial production fell a working-day adjusted 6.1 percent on an annual basis in November, following the previous month's 4.7 percent decrease.

Sequentially, industrial production dropped 4.8 percent in November, after falling 7.9 percent in October, the agency said.

During the January-November period, overall industrial production dropped 3.9 percent from the corresponding period of last year.
With these kinds of numbers I keep wondering how long the coalition government of Prime Minister Antonis Samaras can last.

Coalition Majority Reduced to Three Seats

Reuters reports Fragile Greek coalition's majority shrinks
Prime Minister Antonis Samaras's majority of 26 seats after last year's election has dwindled to the point where it raises the risk of political instability that could hamper recovery and Greece's ability to meet targets for its international bailout.

Samaras expelled lawmaker Byron Polydoras from the conservatives' parliamentary group after he refused to back the new tax law demanded by Greece's lenders.

His expulsion reduces the parliamentary group of Samaras' conservative-Socialist coalition government to 153 in the 300-seat parliament.
Samaras's coalition falls when three more seats go. Polls show that opposition party Syriza would likely win the next election.

Syriza party leader Alexis Tsipras has vowed to scrap the country's bailout agreement as noted in Prisoner's Dilemma Game in Greece.

Given Greece's current account surplus (ignoring interest on bailout debt), Greece would indeed be in a good position to default.

When they do, and I believe they will, it will be interesting to watch the reactions of nannycrats in Brussels and Angela Merkel supporters in Germany.

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

Big Miss: Nonfarm Payrolls +74,000 vs. 205,000 Expected; Unemployment Rate 6.7% as Labor Force Shrinks by 347,000

Posted: 10 Jan 2014 08:38 AM PST

Initial Reaction

Once again, the stats reveal much weakness.

  • Big Miss: Nonfarm Payrolls rose by 74,000. The median forecast of 37 economists was 205,000 jobs according to USA Today.
  • The civilian institutional population rose by 178,000 but the labor force declined by 347,000.
  • Nonfarm payroll growth is the smallest number since January 2011.


Clearly, this is yet another bad report, with people dropping out of the labor force like mad.

Blaming the Weather

Amusingly, USA Today reports that "Paul Ashworth of Capital Economics says severe winter was the main culprit behind the disappointing job gains."

Did economists not know it was cold outside when they gave USA today their estimates? I guess not.


December BLS Jobs Statistics at a Glance

  • Nonfarm Payroll: +74,000 - Establishment Survey
  • Employment: +143,000 - Household Survey
  • Unemployment: -490,000 - Household Survey
  • Involuntary Part-Time Work: +48,000 - Household Survey
  • Voluntary Part-Time Work: -127,000 - Household Survey
  • Baseline Unemployment Rate: -0.3 to 6.7% - Household Survey
  • U-6 unemployment: +0.0 to 13.1% - Household Survey
  • Civilian Non-institutional  Population: +178,000
  • Civilian Labor Force: -347,000 - Household Survey
  • Not in Labor Force: +525,000 - Household Survey
  • Participation Rate: -0.2 at 62.8 - Household Survey

Additional 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 past year the population rose by  2,395,000.
  • In the last year the labor force fell by 547,000.
  • In the last year, those "not" in the labor force rose by 2,943,000
  • Over the course of the last year, the number of people employed rose by a mere 1,374,000 (an average of 114,500 a month)

The population rose by over 2 million, but the labor force fell by over a half-million. That's your declining unemployment rate in a nutshell.
 
Note last bullet point above.

The household survey shows a gain of employment averaging a mere 114,500 a month. Meanwhile, the payroll survey shows a rise of 182,000 jobs a month.

The rational explanation is a massive growth in part-time jobs.

I asked the BLS to investigate this but they do not have the data. ADP has the data but denied the request citing privacy issues.

There are no privacy issues - All ADP need do is take counts of people working more than one job and compare to historical trends.

December 2013 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) December 2013 Employment Report.

The unemployment rate declined from 7.0 percent to 6.7 percent in December, while total nonfarm payroll employment edged up (+74,000), the U.S. Bureau of Labor Statistics reported today. Employment rose in retail trade and wholesale trade but was down in information.

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 fell 0.1 to 34.4 hours. Average weekly hours of all private service-providing employees rose 0.1 to 33.2 hours.

Average hourly earnings of production and non-supervisory private workers rose $0.05 to $20.32. Average hourly earnings of private service-providing employees rose $0.03 to $20.12.

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 6.7%. 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 13.1%. 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

  1. Discouraged workers stop looking for jobs
  2. People retire because they cannot find jobs
  3. People go back to school hoping it will improve their chances of getting a job
  4. People stay in school longer because they cannot find a job
  5. Disability and disability fraud

Were it not for people dropping out of the labor force, the unemployment rate would be well over 9%.

And the discrepancy between the Household Survey and the Establishment survey sticks out like a sore thumb.

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

Investors Most Bullish in Nearly 27 Years

Posted: 10 Jan 2014 07:41 AM PST

Sentiment is not a timing indicator, but it is an indicator of problems. And bullish sentiment is greater today than at any time in the past 27 years according to Asbury Research.

Please consider When Being Bullish Can Become Problematic.
Investor sentiment is an important component of financial market analysis because it tells us what investors are collectively thinking.  More specifically, when a certain type of investor gets either too bullish or too bearish on an asset, it usually means something important — that investors have become "off-sides" — and typically precedes a  important trend reversal in the price of that asset.

One of the dozen or so data series that we track, the Investors Intelligence data, was particularly interesting this past week because the Bulls minus Bears subset of this series (blue line, lower panel of chart below) rose to an historic most bullish extreme that hasn't been seen since February 1987.

More simply stated, the stock market newsletter writers that have comprised this series since 1963 have not been this bullish in almost 27 years.



The red highlights on the show that, at 46, this series as at an historic high extreme, and that similar or lesser extremes have coincided with or led some of the most important peaks in the S&P 500 (black bars, upper panel) in recent history including October 2007, April 2010, and 2011.
Sentiment can always get more extreme, and indeed that is how it reached higher levels than the stock market peaks in 2000 and 2007. Thus my caution "sentiment is not a timing indicator."

Nonetheless, history suggests those plowing into the market today are going to regret it.

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

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