Posted: 03 May 2013 02:04 PM PDT

Obamacare and Part-Time Jobs Yet Again

At a business level, the penalty for not offering a qualified healthcare plan is $2,000 per person, for companies that have more than 30 full-time employees.

As I have discussed before, Obamacare is behind the surge in part-time employment as corporations have been cutting hours worked and hiring more part-time workers to make up the difference.

Part-time employment rose this month by a whopping 441,000 as private average weekly hours fell 0.2 to 34.4 hours and average weekly earnings fell from $824.52 to $821.13 due to fewer hours worked.

For details see Jobs +165,000, Part-Time Employment +441,000; Unemployment Rate 7.5%; Dow Tops 15,000

Nullification Bill Passes South Carolina House

A constitutional showdown may be coming up as South Carolina House passes bill making 'Obamacare' implementation a crime.

The South Carolina state House passed a bill Wednesday that declares President Obama's Patient Protection and Affordable Care Act to be "null and void," and criminalizes its implementation.

The state's Freedom of Health Care Protection Act intends to "prohibit certain individuals from enforcing or attempting to enforce such unconstitutional laws; and to establish criminal penalties and civil liability for violating this article."

The measure permits the state Attorney General, with reasonable cause, "to restrain by temporary restraining order, temporary injunction, or permanent injunction" any person who is believed to be causing harm to any person or business with the implementation of Obamacare.

Earlier this year in her state of the state address, Gov. Nikki Haley said that South Carolina does not want and cannot afford the president's plan, "not now, not ever."

"To that end, we will not pursue the type of government-run health exchanges being forced on us by Washington," she said. "Despite the rose-colored rhetoric coming out of D.C., these exchanges are nothing more than a way to make the state do the federal government's bidding in spending massive amounts of taxpayer dollars on insurance subsidies that we can't afford."

IRS the Enforcer

The court ruled Obamacare a tax because the IRS collects the penalty if people opt out of the system. The penalty will come on Federal income tax returns. Still, it will be curious to see precisely how this would be handled.

Analysis of Penalty Rates

Aside from South Carolina, who will opt out of the system, and what happens then? The answer involves a comparison of various penalty rates.

At an individual level, Fact Check notes the minimum penalty for not having insurance in 2014 is a mere $95. Government will probably waste far more than that attempting to figure out who has insurance and who doesn't.

For 2014 anyway, regardless of what South Carolina does or does not do, low income people will likely opt out across the board if their employer does not provide insurance.

The minimum penalty for 2015 will be $325 and for 2016 and beyond, $695 indexed per inflation.

Fact Check notes the tax is higher for higher incomes "But the penalty can never exceed the cost of the national average premiums for the lowest-cost bronze plans being offered through the new insurance exchanges called for under the law."

For a couple making $100,000, income thresholds might mean a combined penalty of about $2,000 compared to insurance costs of roughly $10,000 for family coverage based on models for state exchanges.

At upper income levels, healthy people may compare the cost of insurance with higher penalties and make the decision to opt out.

Here is an interesting point: "The law prohibits the IRS from seeking to put anybody in jail or seizing their property for simple refusal to pay the tax. The law says specifically that taxpayers "shall not be subject to any criminal prosecution or penalty" for failure to pay, and also that the IRS cannot file a tax lien (a legal claim against such things as homes, cars, wages and bank accounts) or a "levy" (seizure of property or bank accounts)."

In addition to encouraging more part-time work, the law as written is begging for noncompliance regardless of what states like South Carolina do.

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

Jobs +165,000, Part-Time Employment +441,000; Unemployment Rate 7.5%; Dow Tops 15,000

Posted: 03 May 2013 09:14 AM PDT

Initial Reaction

The establishment survey showed a gain of 165,000 a reasonably good but not spectacular print. In contrast, the household survey showed a huge gain of 293,000 jobs.

Once again we see a huge surge in involuntary part-time employment of 278,000. Voluntary part-time employment rose by another 163,000.

Voluntary plus involuntary part-time employment rose by a whopping 441,000 jobs. Take away part-time jobs and there is not all that much to brag about. Indeed, full-time employment fell once again, this month by 148,000.

The civilian labor force rose by 210,000 for a change, thus the actual number of unemployed only fell by 83,000 (293,000 - 210,000), enough to lower the unemployment rate 0.1 percentage points to 7.5%.

The Participation Rate was flat at 63.3%, a low dating back to 1979.

Duration of unemployment numbers showed a statistical anomaly this month. Unemployment in the 27 weeks or over category reportedly fell by 258,000 while unemployment for 15-26 weeks rose by 230,000. Color me very skeptical of these numbers.

The stock market was giddy over jobs, with the Dow topping 15,000 for the first time. Then again the stock market has generally been giddy over any news, good bad or indifferent.

April BLS Jobs Report at a Glance

Payrolls +165,000 - Establishment Survey
US Employment +293,000 - Household Survey
US Unemployment -83,000 - Household Survey
Involuntary Part-Time Work +278,000 - Household Survey;
Voluntary Part-Time Work +163,000 - Household Survey
Baseline Unemployment Rate -0.1 - Household Survey
U-6 unemployment +0.1 to 13.9% - Household Survey
The Civilian Labor Force +210,000 - Household Survey
Not in Labor Force -31,000 - Household Survey
Participation Rate +0.0 at 63.3 - Household Survey

Recall that 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.

Quick Notes About the Unemployment Rate

In the last year, those "not" in the labor force rose by 1,604,000
Over the course of the last year, the number of people employed rose by 1,645,000
In the last year the number of unemployed fell from 12,686,000 to 11,742,000 (a drop of 859,000)
Long-Term unemployment (27 weeks and over) was 4,353,000 - a decline of 687,000 from a year ago
Percentage of long-term unemployment is 37.4%. Once someone loses a job it is still very difficult to find another.
7,916,000 workers who are working part-time but want full-time work. A year ago there were 7,694,000. There has been no improvement in a year. This is a volatile series.

April 2013 Jobs Report

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

Total nonfarm payroll employment rose by 165,000 in April, and the unemployment rate was little changed at 7.5 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, food services and drinking places, retail trade, and health care.

Click on Any Chart in this Report to See a Sharper Image

Unemployment Rate - Seasonally Adjusted

Month to Month Changes

click on chart for sharper image

Hours and Wages

Private average weekly hours fell 0.2 to 34.4 hours. Average hourly earnings rose $0.04 to $23.87. Average weekly earnings fell from $824.52 to $821.13 due to fewer hours worked.

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.

Household Survey Data

Decline in 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

Were it not for people dropping out of the labor force, the unemployment rate would be well over 10%. In addition, there are 7,916,000 workers who are working part-time but want full-time work. A year ago there were 7,694,000. There has been no improvement in a year. This is a volatile series.

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 7.5%. 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 13.9%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Grossly Distorted Statistics

Given the complete distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is easy to misrepresent the headline numbers.

Digging under the surface, much of the drop in the unemployment rate over the past two years is nothing but a statistical mirage. Things are improving, yet remain much worse than the reported numbers indicate.

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

Year of the Yuan?

Posted: 03 May 2013 02:33 AM PDT

Last month I received a lot of emails from readers regarding articles on a new currency relationship between Australia and China allowing direct convertibility of Australian dollars into Yuan.

In what may mark the beginning of a historic shift, Australia appears ready to bypass the U.S. dollar as the world's reserve currency and allow for the direct convertibility of the Australian dollar into the Chinese yuan.

"Reserve currency" is the term used to describe a currency that many governments hold significant amounts of in foreign exchange reserves.

By directly converting its currency into Chinese currency, Australia's businesses will be able to cut costs and the inconvenience of changing foreign-currency earnings into dollars, thereby encouraging and accelerating even more business with China.

Year of the Yuan?

Two days ago RT had a similar story Year of the yuan: China's explosive currency goes global.

The Reserve Bank of Australia announced in April it will transfer 5 percent of its foreign currency reserves ($2.1 billion) into Chinese bonds, deepening ties with its Pacific neighbor and biggest trade partner, and reflecting a global shift to the yuan.

The move is an "important milestone in deepening our financial and economic linkages with China," Australia's Treasurer Wayne Swan said in an emailed statement to Bloomberg.

China and Australia are major trading partners, so an investment in Chinese currency reserves will benefit transactions between the two countries. Now, they can conduct business transactions directly from yuan to Australian dollar, cutting out the middle man, the US dollar or euro.

Significant Move?

Is this a significant announcement? No, not really. For starters, China's forex currency reserves are worth about $3.4 trillion. Are we are supposed to believe another $1-2 billion is significant?

End of US "Free Lunch"?

Is this the end of the US reserve currency free lunch? No, not really. People do not understand the reserve currency is more of a curse than a blessing. The US would love nothing more than China and Japan to stop buying treasuries. If they did, the Yuan and Yen would rise, and that is precisely what the Fed and Congress wants.

Function of Math

Third, and as I have explained on numerous occasions, currency reserves and trade patterns are a function of math.

For example, the US runs a trade deficit and Japan and China accumulate US dollar assets (typically US treasuries) as a result.

Australia Balance of Trade

Consider this balance of trade chart for Australia.

Australia Balance on Merchandise Trade with the United States Chart

Australia Balance on Merchandise Trade with the United States data by YCharts

In spite of a commodities slowdown (see Australia Manufacturing Collapses as Commodity Supercycle Stalls), Australia has an increasing trade surplus with China.

It is only logical for Australia to want to conduct business in Yuan and hold extra reserves in Yuan.

Australia is dumping US dollars. And everyone one else will too. So the story goes.

Really? No not really. These stories are hype from hyperinflationists and US dollar bears who do not understand simple trade math. Yet they get repeated over, and over, and over, and every time I receive a number of emails on it.

Will more trade be conducted in additional currencies? Yes, that is happening. Is this the beginning of end of the US dollar as world's reserve currency? Not a chance.

The Yuan is not convertible, China does not have huge highly liquid bond markets, the US has the largest economy on the planet, and no other country wants the curse that comes with having the world's reserve currency.

For further discussion, please see ...

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

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3.5.13

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