Mish's Global Economic Trend Analysis

Fitch Downgrades Spain, Italy on "Intensification of Euro Zone Crisis"; Outlook Negative; Greek 1-Year Bond Yield Hits 144%
Brief Note on the Unemployment Rate
Payrolls +103,000 Jobs , 444,000 Part-Time on Household Survey
Spain's Net Foreign Debt Exceeds One Trillion Euros for First Time; How does US, Italy, UK, Australia Compare?

Fitch Downgrades Spain, Italy on "Intensification of Euro Zone Crisis"; Outlook Negative; Greek 1-Year Bond Yield Hits 144%

Posted: 07 Oct 2011 01:28 PM PDT

Bloomberg reports Spain, Italy Credit Ratings Lowered by Fitch as Europe Debt Crisis Worsens

Spain and Italy, the euro region's fourth- and third-largest economies, were downgraded by Fitch Ratings on concern they will struggle to improve their finances as Europe's debt crisis intensifies.

Spain had its foreign and local currency long-term issuer default ratings cut to AA- from AA+, while Italy had the same set of ratings to A+ from AA-, the company said in statements today. The outlook for both countries is negative. Fitch also maintained Portugal's rating at BBB-, saying it would complete a review of that ranking in the fourth quarter.

The downgrades reflect "the intensification of the euro zone crisis," which "constitutes a significant financial and economic shock," Fitch said, citing risks to Spain's "fiscal- consolidation" efforts. "A credible and comprehensive solution to the crisis is politically and technically complex and will take time to put in place and to earn the trust of investors."

Fitch's cut of Italy was its first since October 2006. It follows downgrades of Italy by Moody's Investors Service on Oct. 4 and Standard & Poor's on Sept. 19, which both cited concerns that the country's weak economic growth means it will struggle to reduce Europe's second-largest debt, at about 120 percent of gross domestic product.

Spain's rating, which was AAA until 2010, has now been lowered twice by Fitch as the deepest austerity measures in three decades fail to convince investors the nation can stem the surge in its debt burden. Moody's also warned "all but the strongest euro-area sovereigns" are likely to see further downgrades, when it cut Italy's rating for the first time in almost two decades.

Socialist Government

Spain's Socialist government, which faces a general election on Nov. 20, has said the country may miss its 2011 growth forecast of 1.3 percent as the recovery slows. Unemployment remains above 21 percent and the manufacturing industry contracted the most in more than two years in September. Regional governments, which are responsible for health and education and hire half of Spain's public workers, are behind schedule to meet their deficit targets, preliminary data showed on Sept. 8.

The People's Party, which polls indicate may win an outright majority in the vote, has pledged a stricter budget law, spending limits for the regional governments, and tax breaks to encourage companies to hire workers and become more competitive. PP leader Mariano Rajoy said on Sept. 15 he would send a "strong signal" to markets and wouldn't deviate from the budget-deficit goal of 4.4 percent of gross domestic product in 2012 "under any circumstances."

Nothing has been solved in Spain, Portugal, Italy, Greece or for that matter Europe in general.

The yield on Greek 1-Year Government Bonds ended the day at 144%.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Brief Note on the Unemployment Rate

Posted: 07 Oct 2011 12:36 PM PDT

I had to rush this morning for an appointment and did not get the following point expressed properly.

Addendum to Payrolls +103,000 Jobs , 444,000 Part-Time on Household Survey

In the household survey (data repeated below for convenience) there was a gain of 398,000 employed. However, the labor force rose by 423,000 explaining the flat unemployment rate.

Of the 398,000 increase in employment, 444,000 were part-time jobs. This can be interpreted two ways. The first way is 46,000 full-time jobs were lost. The second way is 398,000 people who did not have a job, now have one.

The correct interpretation depends on the status of those workers over time. My guess now is this is unusual seasonal strength and will not be repeated.

End of Addendum

Here are the charts once again

Household Data

click on chart for sharper image

In the last year, the civilian population rose by 1,749,000. Yet the labor force dropped by 107,000. Those not in the labor force rose by 1,856,000.

Were it not for people dropping out of the labor force, the unemployment rate would be well over 11%.

Table A-8 Part Time Status

click on chart for sharper image

A year ago there were 8.6 million people who wanted a full-time job but could only find part-time work. Now there is 9.27 million.

In the last month, the number of people working part-time for economic reasons jumped by 444,000.

Part-time jobs are volatile but this is a huge jump.

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

Payrolls +103,000 Jobs , 444,000 Part-Time on Household Survey

Posted: 07 Oct 2011 08:25 AM PDT

Jobs Report at a Glance

Here is an overview of September Jobs Report, today's release.

US Payrolls +103,000
45,000 Striking Workers Return
Net effect is +58,000 jobs
US Unemployment Rate Flat at 9.1%
Participation Rate +.2 to 64.2%
Actual number of Employed (by Household Survey) rose by 398,000
Unemployment rose by 25,000
Those not in the labor force dropped by 224,000
Civilian population rose by 200,000,
Civilian Labor Force rose by 423,000
Average Weekly Workweek rose .1 hours to 34.3 hours
Average Private Hourly Earnings rose 3 Cents 10 $19.52
Government employment decreased by 34,000

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.

For a change, the labor force actually rose today. This is a welcome sign. However, were it not for people dropping out of the labor force for the past two years, the unemployment rate would be well over 11%.

September 2011 Jobs Report

Please consider the Bureau of Labor Statistics (BLS) September 2011 Employment Report.

Nonfarm payroll employment edged up by 103,000 in September, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today. The increase in employment partially reflected the return to payrolls of about 45,000 telecommunications workers who had been on strike in August. In September, job gains occurred in professional and business services, health care, and construction. Government employment continued to trend down.

Unemployment Rate - Seasonally Adjusted

Nonfarm Employment - Payroll Survey - Annual Look - Seasonally Adjusted

Notice that employment is lower than it was 10 years ago.

Nonfarm Employment - Payroll Survey - Monthly Look - Seasonally Adjusted

click on chart for sharper image

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

In the last year of the weakest recovery on record, 2+ years old, the economy averaged about 116,000 jobs a month.

Since April, the economy has averaged 72,000 jobs a month, a downright pathetic number.

Statistically, 127,000 jobs a month is enough to keep the unemployment rate flat.

Nonfarm Employment - Payroll Survey Details - Seasonally Adjusted

Average Weekly Hours

Index of Aggregate Weekly Hours

Average Hourly Earnings vs. CPI

"Success" of QE2

Over the past 12 months, average hourly earnings have increased by 1.9 percent. The consumer price index for all urban consumers (CPI-U) was up 3.8 percent over the year ending in August.

Not only are wages rising slower than the CPI, there is also a concern as to how those wage gains are distributed.

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 BLS has moved to quarterly rather than annual adjustments to smooth out the numbers.

For more details please see Introduction of Quarterly Birth/Death Model Updates in the Establishment Survey

In recent years Birth/Death methodology has been so screwed up and there have been so many revisions that it has been painful to watch.

The Birth-Death numbers are not seasonally adjusted while the reported headline number is. In the black box the BLS combines the two coming out 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

BLS Back in Outer-Space

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

I am nearly in shock over the negative BLS adjustment this month. The two revision months historically have been January and July. We have not see a negative number other than January or July for as long as I can remember.

Household Data

click on chart for sharper image

A year ago there were 8.6 million people who wanted a full-time job but could only find part-time work. In the last month, the number of people working part-time for economic reasons jumped by 444,000.

Part-time jobs are volatile but this is a huge jump.

Table A-15

Table A-15 is where one can find a better approximation of what the unemployment rate really is.

click on chart for sharper image

Distorted Statistics

Given the total distortions of reality with respect to not counting people who allegedly dropped out of the work force, it is hard to discuss the numbers.

The official unemployment rate is 9.1%. 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.

While the "official" unemployment rate is an unacceptable 9.1%, U-6 is much higher at 16.5%. The jump in U-6 this month is from part-time workers.

Things are much worse than the reported numbers would have you believe. Moreover, the unemployment rate is barely better than it was a year ago. It would actually be worse than a year ago were it not for people dropping out of the labor force.

Addendum:

In the household survey there was a gain of 398,000 employed. However, the labor force rose by 423,000 explaining the flat unemployment rate. Of the 398,000 increase in employment, 444,000 were part-time jobs. This can be interpreted two ways. The first way is 46,000 full-time jobs were lost. The second way is 398,000 people who did not have a job, now have one. The correct interpretation depends on the status of those workers over time. My guess now is this is unusual seasonal strength and will not be repeated.

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

Spain's Net Foreign Debt Exceeds One Trillion Euros for First Time; How does US, Italy, UK, Australia Compare?

Posted: 07 Oct 2011 06:58 AM PDT

Courtesy of Google translate and my friend Bran who sends links nearly every day from Spain, please consider Spain's net foreign debt for the first time exceeded one trillion euros

Note: The Google translation says billion. The correct translation is trillion, and I modified the references below.

The latest figures from the Bank of Spain show that the net debt-the difference between what foreigners due to Spain and which in turn owes Spain abroad, not only not reduced but increased. In fact, at the end of the second quarter of 2011 for the first time broke the trillion euro barrier. In relative terms, this means a foreign debt equivalent to 93.7% of GDP, six points more than in 2010.

International Investment Position of Spain was, in particular, at 1.02 trillion euros, the highest ever level. In gross terms, external debt also has picked up , to 1.77 trillion euros, the second worst record in the series, surpassed only very slightly, and by data from the first quarter of 2010. The cause? The increased borrowing by the public and the financial system.

As a result of these developments, Spain's foreign debt now accounts for 163% of GDP. Spain, thus, has become the second country in most major foreign debt of the world, behind only the U.S., as recently published McKinsey . Below are Australia, Brazil and Italy. The ranking of Mckinsey, in any case, does not include Portugal, which, according to data from the central bank, would be over Spain, although its weight in the global economy is much smaller.

Net External Debt Position

Take a good look at that chart.

Spain has 41% of the external debt of the US on an economy about 9% as big. Does anyone think that will be paid back? When?

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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