Mish's Global Economic Trend Analysis

Facebook Users, I Have a Favor to Ask
Germany Trifecta: Steep Drop in Construction New Business, Services New Business, Manufacturing New Business
Household Survey: Number of Employed Declines by 119,000 as Those Not in Labor Force Rises by Spectacular 581,000; Yes, Virginia, It's a Recession
Baby Boomers and Strategic Defaults - a Demographic Study: Why Did People Walk Away? Did They Struggle With Morality? Would they Recommend Walking Away to Others?

Posted: 07 Sep 2012 01:52 PM PDT

Chase is giving away $5 million to charity.

Anyone with a Facebook account can vote for their favorite charity. This supersedes information I gave earlier regarding a need to have a Chase account to vote.

The charity with the most votes will receive $250,000!
The next 10 charities will receive $100,000 each.
The next 35 charities will receive $50,000 each.
There are 150 additional awards as per contest rules.

Please click on Chase Community Giving to vote for your favorite charity.
The above link points to Facebook and comes preloaded pointing to Les Turner ALS Foundation.

You will need to approve Chase Community Giving on Facebook. One click is all it takes.

Why Les Turner?

In case you missed it my wife of 27 years, Joanne, passed away on May 16, 2012 from ALS, better known as Lou Gehrig's Disease. Here is my story: My Wife Joanne Has Passed Away; Stop and Smell the Lilacs.

In July, I submitted the Les Turner ALS foundation to Chase Community Giving and it was approved.

Mish Request

I kindly ask those with Chase Credit Card or Chase accounts of any kind, to please login to your chase account and vote.

I had an error in my post Attention JP Morgan Chase Customers and Credit Card Holders.

I said you need to have a Chase account to vote. That is incorrect. Those on Facebook can also vote.

Facebook users get two votes. They can vote for anything else they like.

Please do so.
Thanks.

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

Germany Trifecta: Steep Drop in Construction New Business, Services New Business, Manufacturing New Business

Posted: 07 Sep 2012 12:38 PM PDT

Eurozone activity is crumbling at a steep pace. A close look at Germany provides all the information you need to understand that it's not just the club-med states that are in deep trouble.

Steep Drop in Services New Business

The Markit Germany Services PMI® shows Sharpest drop in German services activity since July 2009.

Key points:

Final Germany Services Business Activity Index at 48.3 in August, down from 50.3 in July.

Final Germany Composite Output Index at 47.0 in August, down from 47.5 in July.

Summary:

August data pointed to a renewed contraction in German service sector business activity, following a slight expansion during the previous month. This was highlighted by a fall in the final seasonally adjusted Markit Germany Services Business Activity Index from 50.3 in July to 48.3, its lowest since July 2009.

Service providers widely linked the downturn in business activity to weaker spending by businesses and consumers. This contributed to a drop in new business intakes for the fifth consecutive month during August. Latest data pointed to a steep fall in volumes of new work, and the rate of contraction accelerated to the fastest since June 2009.

Steep Drop in Manufacturing New Business

The Markit/BME Germany Manufacturing PMI® shows new export work falls at fastest pace since April 2009.

Key points:

Manufacturing PMI rises from July's 37-month low

Output, new orders and employment all drop at slower rates...

...but export downturn continues to gather pace

Summary:

The final seasonally adjusted final Markit/BME Germany Purchasing Managers' Index® (PMI®) posted 44.7 in August, up from a 37-month low of 43.0 during July.

August data pointed to a fall in production levels for the fifth month running, and the rate of expansion remained relatively steep in the latest survey period.

Intermediate goods production dropped particularly sharply in August, while only the consumer goods sector recorded an expansion of output.

Steep Drop in Construction New Business

The Markit Germany Construction PMI® shows Construction activity down at slower rate, despite fastest fall in new work since February.

Key points:

Activity falls at weakest rate in four months

Drop in new orders sharpest since February

Staffing numbers reduced as sentiment hits eight-month low

Summary:

The downturn in Germany's construction sector continued in August. Despite an accelerated decrease in incoming new orders, the total level of activity fell at a slower rate. There were also corresponding reductions in employment and purchasing activity as companies adjusted to decreased workloads, while sentiment regarding
future performance deteriorated further. Elsewhere, input cost inflation slowed to a two-and-a-half year low.

Staffing numbers at German constructors decreased for only the second time in the past 20 months during August, having also fallen in February. The rate of net job losses was faster than that recorded six months prevously, though still only modest
overall.

German constructors remained pessimistic about the 12-month outlook for activity levels in August. Moreover, the overall mood was the most downbeat since last December. A number of factors were noted by respondents as having the potential to weigh on output in the year ahead, particularly low public sector spending.

Germany Trifecta

This trifecta of news from Germany, particularly new orders which are a leading indicator for GDP, suggests economically speaking the eurozone recession is poised to strengthen in a very major way.

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

Household Survey: Number of Employed Declines by 119,000 as Those Not in Labor Force Rises by Spectacular 581,000; Yes, Virginia, It's a Recession

Posted: 07 Sep 2012 08:42 AM PDT

Recession Numbers Second Consecutive Month

Yesterday I was asked if the services ISM changed my view about the US being in recession. I responded that I wanted to see today's job report first.

Well I have seen it and the report is nothing short of a certified disaster.

Yes, Virginia, based on the household survey, and manufacturing reports, the regional Fed surveys the US is in recession.

The one survey that is different is the ISM services report. The question is why? This is speculation, but I believe ISM has too few companies in the survey, and perhaps large companies are still growing while medium and small-sized firms are not. The other possibility is the ISM report is an outlier for another reason.

Regardless, last month the the household survey had a decline of 195,000 jobs and this month the decline is 119,000. Thus, in the last two months, there are 314,000 fewer employed.

At turns, the household survey leads. I strongly suggest the economy has turned.

Jobs Report at a Glance

Here is an overview of today's release.

US Payrolls +96,000 - Establishment Survey
June revised lower from +64,000 to +45,000.
July revised lower from +163,000 to +145,000.
Three-month average is a weak +95,000 - Establishment Survey
US Employment -119,000 - Household Survey
US Unemployment Rate -.02 at 8.1% - Household Survey
The Civilian Labor Force fell by 368,000. Otherwise the unemployment rate would have risen.
Average workweek for all employees on private nonfarm payrolls steady at 34.4 hours
The average workweek for production and nonsupervisory employees on private nonfarm payrolls steady at 33.7 hours.
Average hourly earnings for all employees in the private nonfarm workers sector fell by 1 cent.

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

US Unemployment Rate -.2 to 8.1%
This month the number of people employed fell by 119,000.
In the last two months, the number of people employed fell by 314,000!
In the last year, the civilian population rose by 3,695,000. Yet the labor force only rose by 971,000.
This month the Civilian Labor Force fell by 368,000.
Last month, those "not" in the labor force increased by 348,000 to 88,340,000, another record high.
This month we set another record high with a whopping 581,000 dropping out of the labor force. If you are not in the labor force, you are not counted as unemployed.
In the last year, those "not" in the labor force rose by 2,723,000
Over the course of the last year, the number of people employed rose by 2,347,000.
Participation Rate fell .02 to 63.5%;
There are 8,031,000 workers who are working part-time but want full-time work, a decrease of 215,00. This one the only bright spot in the report.
Long-Term unemployment (27 weeks and over) was 5.033 million a decline of 152,000 (likely an artifact of the decline in the labor force).
Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Over the past several years people have dropped out of the labor force at an astounding, almost unbelievable rate, holding the unemployment rate artificially low. Some of this was due to major revisions last month on account of the 2010 census finally factored in. However, most of it is simply economic weakness.

August 2012 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) August 2012 Employment Report.

Total nonfarm payroll employment rose by 96,000 in August, and the unemployment rate edged down to 8.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in food services and drinking places, in professional and technical services, and in health care.

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

Unemployment Rate - Seasonally Adjusted

Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted

Employment is above the total just prior to the 2001 recession, and about where it was in 2005.

Nonfarm Employment - Payroll Survey January 2008 through July 2012 - Seasonally Adjusted

click on any chart for sharper image

Between January 2008 and February 2010, the U.S. economy lost 8.8 million jobs.

Since the employment low in February 2010, nonfarm payrolls have expanded by about 4.4 million jobs. Of the 8.8 million jobs lost between January 2008 and February 2010, approximately 50% percent have been recovered (not accounting for normal demographics growth)

Statistically, 125,000+- jobs a month is enough to keep the unemployment rate flat. For a discussion, please see Question on Jobs: How Many Does It Take to Keep Up With Demographics?

Since the beginning of the year, job growth has averaged 139,000 per month, compared with an average monthly gain of 153,000 in 2011.

The average employment gain over the last 30 is barely enough (statistically speaking) to make a dent in the unemployment rate.

Yet, the civilian unemployment rate has fallen from 9.8% to 8.1%.

Current Report Jobs

Average Weekly Hours

Index of Aggregate Weekly Hours

Average Hourly Earnings vs. CPI

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 2011

Birth Death Model Adjustments For 2012

Birth-Death Note

Once again: Do NOT subtract the Birth-Death number from the reported headline number. That approach is statistically invalid.

Household Survey Data

click on chart for sharper image

In the last year, the civilian population rose by 3,695,000. Yet the labor force only rose by 971,000. Those not in the labor force rose by 2,723,000 to yet another record high 88,921,000.

That is an amazing "achievement" to say the least, and as noted above most of this is due to economic weakness not census changes.

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 11%.

Part Time Status

click on chart for sharper image

There are 8,031,000 workers who are working part-time but want full-time work. The decline from last month is the one bright spot in the report, but the data series is very volatile. Unless this becomes a trend, the number is essentially meaningless.

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 8.1%. 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.

U-6 is much higher at 14.7%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years.

Duration of Unemployment

Long-term unemployment remains in a disaster zone with 40% of the unemployed in the 27 weeks or longer category.

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, the drop in the unemployment rate over the past two years is nothing but a statistical mirage. Things are much worse than the reported numbers indicate.

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

Baby Boomers and Strategic Defaults - a Demographic Study: Why Did People Walk Away? Did They Struggle With Morality? Would they Recommend Walking Away to Others?

Posted: 06 Sep 2012 11:52 PM PDT

Jon Maddux, CEO of You Walk Away, sent me a slide show of their recent Baby Boomer Strategic Default Survey.

I asked Jon to post it online so others could see the graphs. Here is an excerpt of the study.

Survey study of YouWalkAway Clients in Relation to Retirement & Foreclosure

Baby boomers, generally considered those born between 1946 and 1964, face a myriad of issues as the larger-than-average generation ages. The cohort that demanded an increase in the production of consumer goods – homes included – is now hitting retirement age. This means fixed incomes and reduction in living space requirements. While this is to be expected for anyone hitting the retirement milestone, this has been an especially difficult transition for the boomers due to the reduction in value of dream homes purchased at the peak of the market to house their entire families. Facing high mortgage payments, increased maintenance, and a reduction in income, many of the boomers are choosing to walk away. Many others claim to have no choice.

Compared with their younger counterparts, baby boomers are generally more likely to have depleted their savings, retirement and other accounts prior to making a decision to strategically default, leaving them with little to no safety net keeping them above the poverty line during what should be their golden years. Many of the clients that You Walk Away works with on a daily basis are in their late 50s or 60s and during a time when they should be planning for a retirement of leisure and relaxation, they are instead consumed with debt, continued unemployment, and a looming fixed income.

You Walk Away Demographics

Key Findings

48% depleted a good portion or all of their savings prior to making a decision to walk away.
68% cited property values as the key reason for walking away. Only 5% cited health issues and fewer still (4%) cited loss of income.
53% said they would have walked away if they were 20 years younger while 23% said they would not have. The remaining 24% said the question was not applicable (they were not old enough to have a house).
30% said retirement was a factor in their decision.
22% made the mistake of tapping retirement accounts before walking away and another 16% considered doing so but decided against it. 63% never considered it.
88% readily admitted they were "strategic defaulters". 12% said they were not. This result is consistent with the 9% citing health or loss of income as reasons for walking away.
75% struggled with the morality of walking away. 25% did not.
97% said they would recommend walking away to family members if they were in the same situation.

That last bullet point is an indication that having walked away, the struggle over morality quickly ended, most likely in relief.

Note the whopping 88% who admit they were "strategic defaulters". Banks never expected that.

I believe bank CEOs knew full well home prices would sink (not necessarily crash as I expected) but the lenders did not care because of their originate to securitize model. Of the loans that banks kept, the bankers probably hoped to make debt slaves for life.

Regardless of what the banks thought, the results were not pretty, either for the banks or those trapped. Moreover, a massive debt overhang still remains and the pending foreclosure pool is mammoth.

In case you missed it, please consider Foreclosure Stats From You Walk Away.

Housing will be impaired for the rest of the decade even if the bottom in price is close at hand.

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

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Friday, September 7, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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