Mish's Global Economic Trend Analysis

Parla, Spain's 54th Largest City, Poised for Bankruptcy
Toyota Sales in China Plunge 40%; Japan Carmakers to Cut China Production by Half
Netherlands House Price Crash Underway; Will France Follow?
About That "Expected" Drop In Participation Rate

Parla, Spain's 54th Largest City, Poised for Bankruptcy

Posted: 08 Oct 2012 05:37 PM PDT

Alarm bells and official denials about the state of affairs of Parla, Spain's 54th largest city, are ringing loud and clear today.

Courtesy of Google Translate from El Economista, please consider Parla, one step from bankruptcy: cannot deal with creditors.

The economic situation of the City of Parla "can not deal with creditors and maintain basic health services to citizens," according to the report of the Audit Chamber of the Community of Madrid, who advised to take measures to continuity of the consistory. However, the City of Parla has denied Monday that is on the verge of bankruptcy.

The report, which has had access, stated that the measures that have been launched this Madrid City Council, which governs the PSOE since the first democratic elections, "not enough" to pay "a debt so high."

In this regard, local authorities summons to articulate "some exceptional plan" to allow continuity of the consistory of the town, which is located at number 54 in population census nationally (130,000 inhabitants) and in ninth place in the Community of Madrid.

From City of Parla, the Councillor of Finance, Fernando Jiménez, has denied "categorically" that the City is "on the verge of bankruptcy" and insists that they have taken steps to improve the economic situation.

He admits that the city is going through "difficult times" as all the authorities of this country, but emphasizes that the management has been done and is done in this Consistory is "effective and flawless" proof of this, he adds, is that this city " goes on. "

This is clearly an open-and-shut case. Parla is bankrupt. Expect to see more of these situations because they are 100% certain to happen.

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

Toyota Sales in China Plunge 40%; Japan Carmakers to Cut China Production by Half

Posted: 08 Oct 2012 01:27 PM PDT

In the wake of rising anti-Japanese sentiment in China fueled by a dispute over islands in the East China Sea, sales of Japanese cars in China have plunged.

In response Japan carmakers to cut China production by half.

Sales have plunged at Japanese car makers since violent protests and calls for boycotts of Japanese products broke out across China in mid-September over the Japanese government's purchase of a group of disputed islands in the East China Sea from their private owner.

Nissan will suspend the night shift at its passenger car factories in China and operate only during the day, the business daily said. Nissan has two passenger car factories in China, in Huadu and Zhengzhou, with two lines each. A Nissan spokesman declined to confirm the report.

Toyota and Honda plan to cut China production to about half normal levels by shortening working hours and slowing down the speed of production lines, the Nikkei said without citing a source.

Toyota's China sales fell about 40 percent in September from a year before to about 50,000 cars, a senior company executive told Reuters last week. The firm is set to officially release its September China sales figures on Tuesday.

Please see Is China Burning? for more details regarding the dispute over islands in the East China Sea. Unfortunately, the bitter feud seems highly unlikely to go away any time soon.

Moreover, that feud is going to impact Japan's current account surplus. Already Japan has gone from trade surplus numbers to deficits. The current account (of which trade is the largest component) will follow.

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

Netherlands House Price Crash Underway; Will France Follow?

Posted: 08 Oct 2012 09:19 AM PDT

The Netherlands has the 5th largest economy in the eurozone. Home prices are in the midst of a huge plunge notes reader Andrea who is from Italy but now lives in France.

Andrea supplied links to articles in the Wall Street Journal and Bloomberg. She writes ...

Hi Mish,

I just found out that Netherlands are currently experiencing a housing bust after a huge bubble: strange how this has got so little media and blog coverage.

Netherlands is the fifth economy in Eurozone. As usual, the bubble was blown by inane fiscal policies along with cheap money.

France could be headed to the same path, even if there are 2 main differences compared to Netherlands, Ireland and Spain : demographics (France has the best demographic trend in Europe) and Paris, which is quite a particular market due to its "status" of very nice and well known city (many buyers in Paris are foreigners, many also from outside EU).

But, generally speaking, many data show that prices in France and especially in Paris are hugely above the normal historical standards and a very strong correction in going to come sooner or later. Latest fiscal policies from the government may accelerate the bust.

Best regards,

Andrea

Dutch Housing Prices Tumble

The Wall Street Journal reports Dutch Housing Prices Tumble

The slump in the Dutch housing market deepened in July as prices posted the steepest drop on record, highlighting the challenges facing the Netherlands ahead of next month's general elections.

With prices now plumbing levels last seen in 2004, the downturn is weighing heavily on household consumption and has raised concern about the country's huge mortgage debt pile, among the largest in Europe

House prices fell 8% from a year earlier, statistics bureau CBS said Tuesday, the largest decline in the 17-year history of the agency's house-price index. Prices fell 4.4% in June and 5.5% in May.

Record Price Drop

Similarly, Bloomberg reports Netherlands House Prices Dropped the Most on Record Last Month

House prices in the Netherlands, the fifth-biggest economy in the euro area, dropped in July by the most since the index started in 1995.

Prices declined 8 percent from the same month a year earlier, after falling 4.4 percent in June, national statistics agency CBS in The Hague said on its website today. Values have fallen 15 percent from a peak in 2008 and are back to about the same level as eight years ago, CBS said. Prices had already dropped 5.5 percent in May from a year earlier.

The Dutch Central Bank forecast in March that house prices will continue to drop through 2014 because of stricter mortgage lending rules and a reduction of a homeowner tax break that spurred the lending boom. Values may fall another 5 percent next year, ING Groep NV economists said in a note Aug. 9.

What About France?

France is the eurozone's second largest country, following Germany.

Note that French unemployment topped 3 million in August for the first time since 1999. France is now in a 16-month employment slide.

Government forecast for France is GDP +1.2%. I already believe that estimate to be way over-optimistic. Should a major housing bust pick up steam, a decline of 1.2% will start to look rosy.

Given president Francois Hollande's seriously misguided tax policies coupled with inane business work rule proposals, there is every reason to expect a major French housing bust accompanied by sharp downward revisions in GDP estimates.

For more on France, please see ...

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

About That "Expected" Drop In Participation Rate

Posted: 08 Oct 2012 12:30 AM PDT

Calculated Risk had an interesting but misleading post A decline in the participation rate was expected due to the aging population.

This decline in the participation rate has been expected for years. Here are three projections (two from before the recession started). The key to these projections is that the decline in the participation rates was expected:

1) From BLS economist Mitra Toossi in November 2006: A new look at long-term labor force projections to 2050
2) From Austin State University Professor Robert Szafran in September 2002: Age-adjusted labor force participation rates, 1960–2045
3) BLS economist Mitra Toossi released some new projections for the participation rate as of January 2012: Labor force projections to 2020: a more slowly growing workforce.

Misleading Chart

Yes, a decline in the participation rate was expected. My problem with his analysis regards the miss-portrayal of the rate at which the participation rate was scheduled to happen.

Calculated Risk posted this chart.

The above chart was created in 2012 and does not remotely match demographic projections made earlier.

For example, Robert Szafran estimated in September of 2002 the participation rate pattern would look like this.

Year	Participation Rate
2005	66.8
2010	65.9
2015	64.6
2020	63.0

In September 2005 the participation rate was 66.1. In September of 2010, the participation rate was 64.6 which Szafran did not expect until 2015. The current participation rate is 63.6, a number Szafran expected in 2019 perhaps.

BLS analysis was much worse even though the BLS had more years of data to consider.

BLS Analysis

Let's take a look at BLS projections made in 2006.

Year	Participation Rate
2010	65.9
2020	64.5
2030	61.7

Let's look at BLS labor force projections, also from 2006. Numbers in thousands.

Year	Labor Force	Projected Increase
2005	149,320
2010	156,511	7,191
2020	166,355	9,844
2030	172,910	6,555

Taking demographics into consideration, the BLS projected the labor force to grow by 7.19 million to 156.51 million in 2010. The actual labor force in September of 2010 was 153.92 million, a nice fat miss of 2.59 million.

Indeed, two years later, the labor force is still only 155.06 million.

So, the decline in participation rate was certainly not expected as Calculated Rick states in bold. It only appears that way, based on after-the-fact BLS analysis starting with chart that shows new baseline projections made in January of 2012.

By the way, if the current participation rate was 64.6 (the number Szafran expected in 2015, and essentially the the number the BLS originally estimated for 2020), the labor force would be roughly 157.44 million, not 155.06 million. The unemployment rate would be 9.2%.

In January 2008 the participation rate was 66.2. It is now 63.6 (a number way lower than Szafran expected for 2015).

Conclusion: While the Participation Rate trend is certainly down, and down was expected, most of the decline in participation rate since the start of the recession is due to economic weakness, not demographics.

For further discussion please see ...