Mish's Global Economic Trend Analysis

Shared Sacrifice Illinois Style - 40,000 Union Workers Get 14% Pay Raises, Governor Quinn Gives Raises Averaging 11.4% to 35 Staff Members
Market Rallies as Retail Sales 'Purportedly' Rise at Fastest Pace in 4 Years; Signs Suggest this Oversold Rally will Soon be Dead
Economists Surprised Again as German Factory Orders Unexpectedly Fall

Shared Sacrifice Illinois Style - 40,000 Union Workers Get 14% Pay Raises, Governor Quinn Gives Raises Averaging 11.4% to 35 Staff Members

Posted: 07 Jul 2010 07:45 PM PDT

I am in favor of the concept of shared sacrifice. Unfortunately, Illinois stretches the boundary as to the meaning of the term.

For example, please note Illinois Governor Pat Quinn Gave Raises Averaging 11.4% to 35 Staff Members.

Illinois Gov. Pat Quinn has handed out raises -- some of more than 20 percent -- to his staff while proclaiming a message of "shared sacrifice" and planning spending cuts of $1.4 billion because the state is awash in debt.

The Democrat has given 43 salary increases averaging 11.4 percent to 35 staffers in the past 15 months, according to an Associated Press analysis of records obtained under the Freedom of Information Act.

They include a $24,000-a-year bump for the man promoted to shepherd the state through the fiscal storm. Budget Director David Vaught got a 20 percent raise to bring his pay to $144,000 in October when he moved to his new position from Quinn's staff, where he was a senior adviser.

Lawmakers, whom Quinn has asked to raise income taxes and borrow billions to meet its obligations for employee pensions reacted with skepticism and anger.

"It's insulting," said Rep. Jack Franks, a Woodstock Democrat who voted "no" on Quinn's proposal to borrow $3.7 billion for the pension payment that the House OK'd but Senate has not.

"It shows how out of touch he is with the real world, where businesses are freezing salaries and in some cases laying people off," Franks said.

The budget Quinn signed last week for the fiscal year that began July 1 would borrow money and delay bill payments, along with cutting about $1.4 billion in spending. Quinn may have to come up with another $3.7 billion for pensions if legislators continue to deny him permission to borrow the money.

Sen. Michael Noland, an Elgin Democrat who opposes the pension borrowing plan despite heavy lobbying, said there might be circumstances where a raise is warranted for someone taking on significant new duties. But he encouraged the governor to follow his own call for shared sacrifice and "hold the line."

Employees "might be having to accept a little more responsibility, but generally speaking, the state of Illinois is not in a position to be issuing raises at this point," Noland said.

Along with cuts in the governor's office, Jentz said the budget office cut spending by 17 percent last year. Quinn's proposed spending plan had a 10 percent increase in the budget office this year, documents show.

"We have fewer people doing more, and that's what the public wants," Quinn said.

40,000 Illinois State Workers To Get 14% Payraises

While pondering the massive sacrifices taken by Quinn's staff, please consider 40,000 Illinois State Workers To Get 14% Pay Raises

More than 40,000 unionized state workers got a pay raise last Thursday, bringing to 7 percent the amount they're gotten since last year. These same state employees are in line for another 7 percent by next July 1, all at a cost of a half-billion tax dollars a year.

It's more than the virtually bankrupt state can afford, and some Republican lawmakers say the raises need to be rolled back.

"I'm outraged," said State Senate Minority Leader Christine Radogno. "It's very difficult to buy this rhetoric that, 'We need to borrow, we need increased revenue,' when these kind of poor management decisions are going on."

AFSCME said it's outrageous that Republicans like Radogno have "done nothing to help solve the state's financial problems." The union argues that the state needs to raise taxes.

For his part, Governor Quinn said the 14 percent pay raise deal was cut by then-Governor Rod Blagojevich in 2008. Quinn did persuade the AFSCME union last year to postpone 2 percent of the pay raise until 2011, the first time AFSCME had ever consented to even a temporary deferment of a pay raise.

No doubt AFSCME considers deferring 2% of a 14% pay raise is one hell of a sacrifice. I consider it a farce.

Bayer and his union can go to hell. If you disagree, simply vote Democratic in the upcoming election because the Democrats in general will bow down to the union, raise your taxes, and hand out raises to unions like always. It will not mater one bit that Illinois is broke and taxpayers cannot afford it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Market Rallies as Retail Sales 'Purportedly' Rise at Fastest Pace in 4 Years; Signs Suggest this Oversold Rally will Soon be Dead

Posted: 07 Jul 2010 01:04 PM PDT

Everyone is looking for signs of a continued recovery. Unfortunately there are many misleading signs that trap all but those willing to look beneath the surface to see what is really happening.

For example, please consider the Bloomberg headline U.S. Retailers' Sales Rise at Fastest Pace in 4 Years

U.S. retailers' sales are growing at the fastest pace in four years, a sign consumers may be overcoming concern about unemployment and depressed home values.

Sales probably expanded at an average monthly rate of 4 percent in the first five months of the retail fiscal year that began Jan. 31, the biggest gain since 2006, the International Council of Shopping Centers trade group said in advance of its June report tomorrow. Nordstrom Inc. and Kohl's Corp. are among chains that will report June sales increases at stores open at least a year, according to analysts' estimates.

Retailers may have bucked last month's drop in consumer confidence that threatens to temper the rebound. The year-to- date growth in sales shows that spending, a key driver of the U.S. economy, is faring better than many investors are betting, said Michael Niemira, the New York-based ICSC's chief economist.

"The sales results have been uneven, which makes people worry about the recovery," Niemira said in a telephone interview. "If you look at the underlying growth rate, it suggests a relatively healthy, moderate pace of spending for the remainder of the year."

"Investors seem to have given up on the consumers," Bill Dreher, an analyst with Deutsche Bank AG in New York, said on a July 1 conference call with clients. "Most of our retail operators are very bullish."

June sales reports will meet or beat analysts' estimates, and the positive comparable-sales trend will continue, Dreher predicted. Retailers are well-positioned for profitability, with inventories and operating expenses tightly controlled, he said.

"These growth rates are the best we've seen in several years, after a multiyear slump," Craig Johnson, president of Customer Growth Partners LLC, a consulting firm in New Canaan, Connecticut, said in a July 2 telephone interview. "Some of the analysts get caught up in the month-to-month comparable sales, and they can be misleading."

Sign, Sign, Everywhere a Sign

All of these pundits are barking about same store sales, an extremely misleading sign given retail stores are closing like mad.

Month in and month out we hear the same nonsense about retail sales. I will believe it when I see state sales tax collections support the claims.

Strip Mall Vacancy Hits 10.9 Percent, Approaches 1991 Peak

Amidst all the fanfare of purportedly rising retail sales, those digging a little deeper note US shopping center vacancy rates rose in 2nd quarter.

Retailers shuttered more stores in U.S. shopping centers during the second quarter, further delaying a rebound in the struggling retail real estate market, according to research firm Reis Inc.

Shopping centers and strip malls have been pounded harder than other types of real estate, hurt by weak consumer spending, anemic job growth and an oversupply built to serve new housing that never materialized.

"Until we see stabilization and recovery take root in both consumer spending and business spending and employment, we do not foresee a recovery in the retail sector until late 2012 at the earliest," said Victor Calanog, Reis director of research.

For U.S. strip centers, the vacancy rate in the second quarter rose 0.10 percentage point from the first quarter to 10.9 percent, slightly below the 11 percent in 1991 during the prior real estate bust, according to the Reis quarterly report, released on Wednesday.

Retailers gave up 1.85 million square feet of occupied space in the second quarter at neighborhood shopping centers, while developers opened less than 400,000 square feet of new strip mall space.

That compares with an average of about 7 million to 8 million square feet of shopping centers built each year from about 2001, according to Reis.

Retail Mall Vacancies

Mall vacancies have risen for 11 straight quarters and rents have fallen 7 consecutive quarters! Inflation? Hardly.

Same Store Sales - Misleading Sign

Reis has it correct and so do I. Not only is it easy to beat record low comparisons of a year ago, same store sales are rising in part because stores are closing like mad.

Circuit City closed its entire chain in bankruptcy, thus some of those sales went to Best Buy, some other places, and some sales simply vanished.

More importantly, states have been reporting declining sales tax collections for the entire year.

Admittedly state tax collection numbers are frequently delayed by a couple months, but that still does not jibe with overly bullish comments about sales over the first five months of the year from the International Council of Shopping Centers.

Assuming you believe the fantasy sales reports, a more important question is "where to next?"

Where Next Signpost

Home tax credits are dead along with housing starts.
New home sales cratered a record 33% in May, to a record low annual rate of 300,000 units. See Inane Thoughts of the Day: CNNMoney Article says "Housing Shortage is Coming" for thoughts and details
Massive numbers of state layoffs are coming even if Congress throws the states a small bone
Global growth is slowing led by Europe and Asia (that will affect hiring plans)
Anemic consumer sentiment numbers took a turn for the worse
The ECRI's Leading Economic Indicator has fallen like a rock. See ECRI Weekly Leading Indicators at Negative 6.9; How Likely is a Double Dip?

By the way, the WLI is now at -7.7 falling again last week.

Yet, amazingly nearly everyone thinks some sort of sustainable recovery is underway. However, the treasury market begs to differ, so do the vast majority of economic signs, and so do I.

2-Year treasuries are close to record lows at .62%, 5-Year treasuries are at 1.78% and 10-Year treasuries are at 2.98% and except for today, falling like a rock. Treasury yields are arguably the most valuable sign.

Nonetheless, the stock market is throwing a party over retail sales that cannot be sustained even if by some sense of the imagination those sales are happening.

Signs suggests this is an "oversold" bounce that will die just as the rest of the bounces this year have died.

A tip of the hat to the Five Man Electrical Band for "Signs"

Signs

Sign Sign everywhere a sign
Blocking out the scenery breaking my mind
Do this, don't do that, can't you read the sign?

Can you read the signs? Most can't.

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

Economists Surprised Again as German Factory Orders Unexpectedly Fall

Posted: 07 Jul 2010 08:43 AM PDT

Economists are surprised by the strangest things.

The UK has announced austerity measures, Greece, Spain, Portugal (3 little PIIGS) are in forced austerity programs, and Germany is paying more attention to deficit reduction than growth (rightfully so), yet somehow economists expect factory orders in Germany to keep improving.

Please consider the Bloomberg report German Factory Orders Unexpectedly Fell in May

German factory orders unexpectedly fell for the first time in five months in May as demand for goods made in Europe's largest economy waned across the 16- nation euro region.

Orders, adjusted for seasonal swings and inflation, declined 0.5 percent from April, when they rose a revised 3.2 percent, the Economy Ministry in Berlin said today. Economists had forecast a 0.3 percent gain for May, according to the median of 30 estimates in a Bloomberg News survey. From a year earlier, orders increased 24.8 percent.

Europe's sovereign debt crisis has pushed the euro down 17 percent against the dollar since late November, making exports to countries outside the currency bloc more competitive just as the global recovery gathered pace. With governments cutting spending to convince investors that budget deficits are under control, growth in the euro area, Germany's biggest export market, may slow.

"You have to see today's decline in orders in the context of strong increases in the previous months," said Klaus Schruefer, an economist at SEB Bank AG in Frankfurt. "It doesn't throw the German economy off its recovery track."

Recovery Off The Rails

While it is true that any month can be an outlier, the European macro picture is anemic in light of austerity programs virtually everywhere you look.

Moreover, the Asia picture is anemic, the US macro picture is anemic, and indeed the entire global macro picture is anemic. Yet economists, an ever optimistic lot, still have faith in a recovery 100% based on unsustainable government spending even though governments in general are cutting government spending in an attempt to reduce budget deficits.

For now, the US is an exception to global budget tightening. However, it should be perfectly clear that Congress is taking a harder stance towards more stimulus efforts as a measure to extend unemployment benefits has died in the US senate.

Talk of continued recovery is nonsense. The best anyone can possibly hope for is an economic flatline and that will not create any jobs.

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

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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