Thursday, March 5, 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis


Will Higher Minimum Wages Create Jobs? Who Benefits From Higher Minimum Wages? Demographic Perspective

Posted: 05 Mar 2015 08:12 PM PST

Of all the ridiculous notion floating around in the liberal media is the notion that higher minimum wages will create jobs.

The theory goes like this: Pay people more, they will have more to spend, and by spending more they will create more jobs. On that basis, proponents argue for a $15 minimum wage at McDonald's. There are several obvious flaws in such arguments.

Obvious Flaws

  1. No one in government has any idea where to set a minimum wage to achieve such miraculous results. Should the wage be $9.78, $12.22, or $14.88?
  2. Logically, wages vary by industry, skills needed, and actual skills of the workers. A government mandated minimum wage says none of those matter. No matter what you do, or how badly you perform that task, you get a guaranteed rate.
  3. Many small business owners, the very kind that the liberal media blames the likes of Walmart and McDonald's for destroying, will not be competitive at forced higher rates.
  4. Businesses will do everything possible to not raise salaries until it affects their bottom line.

Crash Course in Free Market Economics

In regards to point number four, Walmart announced a wage hike because turnover was too excessive. It did so, not because of government mandated minimum wage, but rather because of turnover and the quality of employees it could attract at the wages it was offering.

That's a logical way to set minimum wages. I discussed that theory in Crash Course in Free Market Economics and Income Inequality

If that does not convince you, please consider Union Group Mobilizes "Against" Pay Hike.

Restaurants Mobilize Robots

Also in regards to point number four, and something I have noted before, Restaurant Ordering Robots to Replace Human Jobs.
Panera is ready to launch the restaurants of its future. Using online restaurant ordering, you will either place your own order on your smartphone or on a tablet device at the restaurant. And then the kitchen staff will just show up with your order after you pay on your phone or on the kiosk.

This method frees up labor to work on food prep and serving. It enhances order accuracy and gives you better service. But will you miss the human touch of a waiter or waitress?

Having done this kind of ordering outside the U.S., I can honestly say you won't miss it at all.

There's also another reason why you'll see online restaurant ordering take off in the near future. In areas where they plan to boost the minimum wage, there's a good chance that will equate to labor cutbacks. So the person taking your order will be replaced by a machine!

Chili's goes modern too

Tablets are also coming to the table at your local Chili's to take your order, to offer pay games to entertain your kids...and to upsell you on dessert!

Chili's will install table-top tablets in its more than 1,200 stores by next year, according to The Wall Street Journal. Applebee's has also been testing such tablets, but no word yet on a full rollout from them.

Some restaurant chains will look at this technology and see a way to reduce staff headcount. But the really smart ones will use it as a way to get their servers focused on super-serving you at the table -- since some other parts of the job that used to be done by people are now going to be automated.
Demographic Perspective

The idea that higher minimum wages create jobs is absurd. And let's look at this from one more perspective: demographics.

As boomers head into retirement, forced or not, an increasing number of people are dependent on Social Security. The participation rate shows just that.



Precisely what do you think retirees on fixed income think about 0% interest rates and the price of food, especially at places like McDonald's that are already struggling?

It is ridiculous to think that raising the minimum wage to $15 for uneducated, low-skill workers will be enough to counteract the number of people who decide "I cannot afford to eat out anymore, especially since it's unhealthy garbage anyway."

There will be no increase in jobs as a result of a hike in minimum wages. Any historical attributions otherwise were a result of the increasing participation rate or other economic situations creating an increasing demand for workers in the face of wage hikes.

Who Benefits?

A hike in minimum wages only benefits marginal employees who retain their jobs. Everyone else loses by paying more for goods and services. Businesses will be forced to pass on costs. No one can possibly benefit from such a spiral.

Studies that show jobs rose after hikes in minimum wage, really show jobs rose in spite of minimum wage hikes!

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

Factory Orders Unexpectedly Decline 6th Month; Five Excuses; Orders vs. Shipments

Posted: 05 Mar 2015 12:41 PM PST

Extending the longest streak since the 2008-2009 recession, Factory Orders Unexpectedly Decline 6th Month.
New orders for U.S. factory goods unexpectedly fell in January, posting their sixth straight monthly decline, a sign of weakness in the manufacturing sector.

The Commerce Department said on Thursday new orders for manufactured goods slipped 0.2 percent after a revised 3.5 percent decline in December.

Economists polled by Reuters had expected factory orders to gain 0.2 percent in January after a previously reported 3.4 percent tumble in December.
Bloomberg Consensus Estimate

The Bloomberg Consensus Estimate was also +0.2%, but the forecast range was a very wide -2.5% to 3.0%.

New Orders vs. Shipments



Chart from Bloomberg

To help explain the chart, Bloomberg notes that "Aircraft orders have a long lead to shipment."

Census Report

Diving into the Census Report, for January vs. December (seasonally adjusted) we find new orders look like this:

  • All Manufacturing: -0.2%
  • Excluding Transportation: -1.8%
  • Excluding Defense: -0.2%

Durable goods rose 2.8% due to jump in commercial aircraft orders. It was not enough to offset everything else.

Blame Game

In the reports from Reuters and Bloomberg, some blame the rising dollar, some blame weakness in foreign demand, some blame the port strike, and some blame lower oil prices, and some blame cutbacks in the energy sector.

No one cited the "slowing global economy".

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

ECB Ups ELA to Greece; Draghi Announces "End to Eurozone Crisis"; Euro Sinks to Eleven-Year Low

Posted: 05 Mar 2015 11:20 AM PST

Today the euro sunk to a low last seen in August of 2003. One euro is now worth $1.10.



click on chart for sharper image

Apparently this is a "success" even though the ECB was hell bent on "saving the euro" in 2012 when one euro was worth $1.20 or so.

"End to Eurozone Crisis"

Now, With Perfect Timing, ECB's Draghi Calls End to Eurozone Crisis.
Mario Draghi's timing looks impeccable. Only six weeks after pushing through quantitative easing in the face of fierce resistance from Germany, the European Central Bank president has now called time on the region's crisis.

Mr Draghi's message on Thursday was clear: the eurozone's economy had, with the help of QE, turned a corner and was on the path to a meaningful recovery.

The central bank on Thursday signed off on growth projections of 1.5 per cent for this year, 1.9 per cent in 2016 and 2.1 per cent in 2017. That was much better than it had expected three months ago.

"Borrowing conditions for firms and households have improved considerably," Mr Draghi said at a press conference in Nicosia, the Cypriot capital, where the meeting of the governing council was held.

"This was Mr Draghi at his chest-thumping best," said Marc Ostwald, of ADM Investor Services International. "He boasted of the ECB's success in bringing down long-term interest rates and corporate lending rates even before the actual QE programme has started."

Not everyone at the press conference agreed with the ECB's rosy assessment of the economic outlook, however. Mr Draghi faced several angry remarks from Greek journalists, who said the ECB was not doing enough to help their country, which despite the better outlook in the region as a whole is likely to have fallen back into recession in the first quarter of 2015.

Mr Draghi challenged their claims, saying the ECB was doing plenty to help the member state most ravaged by the region's crisis, and took the rare step of publicly revealing that the governing council had extended the amount of emergency liquidity assistance provided to Greece's banks by €500bn. The details of extended loan agreements are shrouded in secrecy, with the central bank rarely revealing the terms of the emergency loans.
How Much ELA?

A half-trillion euros of emergency liquidity assistance to Greek banks? I believe the Financial times means €500 million.

Yep. That 500 billion number was so preposterous I had to look it up. Doing so turned up ECB Raises Greek ELA Funding Ceiling by 500 Million Euros.
Greek banks can now access €68.8 billion to cover their liquidity shortages.

Albeit marginal, this increase indicates the continued dependence of the Greek banks on the ELA mechanism for liquidity, which is more expensive than the ECB.

The ECB will reconsider the request of the Greek banks to redefine the ELA funding ceiling in 15 days, although the possibility of an intervention next week cannot be ruled out, as a critical Eurogroup meeting is scheduled for Monday, March 9.
Even €68.8 billion is enough to worry about don't you think? What about €240 billion in bailout funds? And what about €7 billion in paybacks to the ECB and IMF due between now and August?

Not to worry, the Eurozone crisis is over. How do we know? The answer Draghi says so. It's "impeccable timing".

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

No comments:

Post a Comment