Mish's Global Economic Trend Analysis

GDP Miss Far Bigger Than Announced; Real GDP is 0% Using More Reasonable Deflator
Depression in Spain: Unemployment Rate Up .5 Percentage Points to 23.6%; Expect Much Higher Rates Later This Year; When is the Breaking Point?
Eurozone Retail Sales Plunge at Strongest Pace Since Late-2008; German Retail Sales Plunge Into Contraction; French Retail Sales Plunge at Record Pace; Record Job Losses, Record Retail Plunge in Italy
Greece to Seize Money From Suspected Tax Evaders' Accounts, with Charges and Trials Later; More Capital Flight Coming Up

GDP Miss Far Bigger Than Announced; Real GDP is 0% Using More Reasonable Deflator

Posted: 27 Apr 2012 12:44 PM PDT

The Advance Estimate for Q1 GDP came in at 2.2%, down from 3.0% in the previous quarter, and below most mainstream media estimates of 2.5%.

However, my friend BC notes ....

The GDP deflator is reported to have averaged 1.2% annualized in the past 2 qtrs. Had the trend rate from '11 persisted, the deflator would have subtracted 2.6% annualized from real GDP, resulting in a 2-qtr. growth of real GDP of 0%.

ECRI's Achuthan would appear correct that a recession were imminent instead of looking like a dummy.

Rick Davis at the Consumer Metric Institutes makes a similar calculation.

In their "advanced" estimate of the first quarter 2012 GDP, the Bureau of Economic Analysis (BEA) found that the annualized rate of U.S. domestic economic growth was 2.20%, down more than three-quarters of a percent from the fourth quarter of 2011. The vast bulk of the downturn was in commercial activities, with both fixed investments and inventories lowering the headline number substantially. Consumer spending on both goods and services improved slightly, and the ongoing contraction in governmental spending moderated somewhat. The BEA's bottom-line "real final sales" improved about a half-percent to an annualized growth rate of 1.61% -- hardly robust and certainly not the kind of numbers we would expect to see nearly three years into a recovery.

Once again the BEA has used "deflaters" that will strain the credibility of the public, especially if they buy gasoline. To correct the "nominal" data into "real" numbers the BEA assumed that the annualized inflation rate during 1Q-2012 was 1.54%. As a reminder, lower "deflaters" cause the reported "real" growth rates to increase -- and once again very low seasonally adjusted BEA inflation "deflaters" have been the headline number's best friend. If the raw "nominal" numbers were instead "deflated" by using the seasonally corrected CPI-U calculated by the Bureau of Labor Statistics (BLS) for the same time period, nearly the entire headline growth rate vanishes -- and the resulting growth rate would have been a minuscule 0.08% with "real final sales" contracting.

And real per capita disposable income actually shrank during the quarter shrank at an annualized -0.27% rate (from $32,699 per capita to $32,677 per capita) -- and it remains lower than it was 5 quarters ago. -- even using the BEA's optimistic "deflaters." Real-world households likely felt the pinch even more.

Doug Short at Advisor Perspectives has some interesting charts is his post GDP Q1 Advance Estimate Disappoints at 2.2%.

This chart shows the disturbing trends.

click on chart for sharper image

GDP Trends

Average growth since 1945 is 3.3%
Linear regression says growth is trending lower at 2.1%
Over the last 10 years, growth averages a mere 1.7%

Take a good look at the last decade. The US only managed 1.7% growth in the biggest housing boom in history followed by the biggest multi-trillion dollar global stimulus effort in world history.

Three years into a recovery, growth (if you believe preposterous deflators) is a mere 2.2% but only 0% if you don't. Moreover, with parts of Europe in an outright depression, with even Germany and the UK in recession, and with China slowing significantly, the odds the US economy decouples for too much longer is now approaching zero.

I think the ECRI has its recession forecast reasonably correct. However, it may take a well-deserved GDP revision (likely after the next election) to prove it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Depression in Spain: Unemployment Rate Up .5 Percentage Points to 23.6%; Expect Much Higher Rates Later This Year; When is the Breaking Point?

Posted: 27 Apr 2012 09:55 AM PDT

Via email from Barclays Capital, Spain: Q1 unemployment rate rises; trend likely to continue into H1 2013.

This morning Spain released labour market statistics for Q1. Seasonally adjusted, the unemployment rate rose to 23.6% from 23.1% in Q4 last year (Figure 1). We think that the labour market's deterioration is likely to continue over the next 3-4 quarters. We look for unemployment to peak at nearly 26% in H1 2013, before slowly starting to decline.

Beyond cyclical lags, the Spanish labour market trend, to a large extent, is a reflection of the hangover from a boom-bust in the construction sector, which for many years has been an important source of employment growth (Figure 2). It seems that the adjustment in the construction sector's employment is close to an end: it now contributes c.10% to total employment, in line with the long-term average pre the housing sector boom.

However, we think that the unemployment rate is likely to stay elevated for a while and that it will decline only slowly as the economy likely starts to grow in H2 2013. There are at least two reasons for our view: 1) fiscal consolidation will negatively affect consumers' spending, economic activity and consequently employment; 2) As we pointed out in Spain: Assessing the fiscal and labour market reforms, we think that Spain needs better "active labour market policies" that can address long-term unemployment (Figure 3) and the retraining of young (in some cases) low-skilled unemployed workers (Figure 4).

click on chart for sharper image

Depression in Spain

It is difficult to know precisely when Spanish unemployment stops going up. I see no reason it cannot hit 28% or even 30%.

Spanish politicians (for now) remain insanely committed to the Euro. How long the citizens remain committed to the Eurozone is another matter.

When is the Breaking Point?

Will the general population of Spain put up with an unemployment rate of 28%? 30%? I think not, but I do not know the precise breaking point. Whatever it is, Spain has little chance for growth prospects for a decade as long as it remains in the eurozone.

Eventually will come a time when a politician will hold up a copy of the EMU treaty, declare it null and void, and the debt null and void right along with it. That politician will be elected.

Spain will be better off as soon as that happens.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Eurozone Retail Sales Plunge at Strongest Pace Since Late-2008; German Retail Sales Plunge Into Contraction; French Retail Sales Plunge at Record Pace; Record Job Losses, Record Retail Plunge in Italy

Posted: 27 Apr 2012 02:30 AM PDT

The word of the day is plunge. Retail sales fell like a rock in Germany and fell at a record pace in France. Jobs and retail sales plunged at a record pace in Italy, and in general, did a nose-dive across the entire Eurozone

German Retail Sales Plunge Into Contraction

Please Consider the Markit Germany Retail PMI® Report.

Fastest drop in retail sales since April 2010 as year-and-a-half run of growth comes to an end.

Key points:

Retail PMI falls sharply in April

Steepest decline in margins for two years...

...despite wholesale price inflation hitting 15-month low

Sharp squeeze on operating margins

Lower sales and strong market competition resulted in a sharp and accelerated decline in margins across the German retail sector. The latest fall in margins was seventeenth in consecutive month and also the steepest for two years.

French Retail Sales Plunge at Record Pace

Please Consider the Markit France Retail PMI® Report.

French retail sales fall at survey-record rate in April

Key points:

Sales hit by weak economy and presidential elections

Targets missed to greatest degree in 18 months

Margin squeeze continues amid widespread discounting

French retailers reported a sharp reduction in sales during April. The month-on-month fall was the most marked recorded by the survey since data collection started in January 2004. Sales were also down considerably on a year-on-year basis, while previously set plans were again missed. The weak sales performance occurred despite evidence of substantial discounting and promotions among retailers, which resulted in a further steep drop in gross margins.

The headline Retail PMI® plunged to a series-record low of 41.4 in the latest month, from 50.2 in March. The latest reading was below the neutral 50.0 mark for the first time since January and indicative of a steep month-on-month decline.

The extent of the latest failure to meet targets was the greatest for one-and-a-half years. Panelists are nevertheless optimistic that sales will exceed previously set plans in May.

Factors expected by retailers to boost sales over the coming three months include the end of the presidential election, summer weather, promotions and new products.

Note the absurd level of optimism by French retailers.

Eurozone Retail Sales Plunge at Strongest Pace Since Late-2008

Please Consider the Markit Eurozone Retail PMI® Report.

Key points:

Retail PMI plunges to 41.3, lowest since November 2008

All three countries surveyed post lower sales, with record decline in France

Cost pressures for retailers at 16-month low

Plunging to its second-lowest level on record in April, the PMI hit 41.3, down from 49.1 in March. The latest figure signaled the largest monthly fall in retail sales across the single currency area since the depths of the global financial crisis in November 2008 (40.6).

Eurozone retail PMI figures are based on responses from the three largest euro area economies. For the first time since September 2010, retail sales fell across Germany, France and Italy. The rate of contraction in Germany was the fastest since April 2010, while French retailers posted a survey-record drop as they reported disruption due to the presidential elections. Italy continued to see the steepest overall rate of decline, however, as the pace of contraction reaccelerated to approach the record level posted in January.

The annual rate of decline in Eurozone retail sales was also one of the strongest since the survey started in January 2004. Sales have fallen on an annual basis each month since last June.

Record Job Losses, Record Retail Plunge in Italy

Please Consider the Markit Italy Retail PMI® Report.

Sharp decrease in retail sales leads to survey-record job losses

Key points:

Sales fall at second-sharpest annual rate in series history

Confidence sinks to four-month low

Cost inflation slowest since December 2010

The seasonally adjusted Italian Retail PMI® – an indicator of month-on-month changes in total retail sales – fell to the greatest extent in survey history in April, dropping from 42.4 in March to 32.8. This sharp and accelerated decrease in high street spending was the second-fastest since December 2008, and extended the current sequence of contraction in the sector to 14 months.

Retailers in Italy sped up their rate of job shedding in April, with staffing levels falling at the fastest
pace since data were first compiled in January 2004. This latest reduction in employment was
primarily attributed by survey respondents to lower sales and rising input costs.

Vindication

For months I have been reading the apologists at Markit (and elsewhere) predict a short, shallow Eurozone recession.

Check this snip from my April 4, 2012 post: Eurozone Composite PMI® Signals Recession Says Markit; France in Renewed Decline, German Growth Weakens, Italy and Spain Contract Further:

Chris Williamson, Chief Economist at Markit said:

"A slight easing in the rate of decline of the Eurozone service sector was insufficient to offset the first decline in manufacturing output for three months, causing the overall economy to contract again in March.

"With the exception of a marginal expansion seen in January, the economy has been in continual decline since last September. Although the average rate of decline seen over the first quarter eased compared with the final three months of last year, the survey data nevertheless indicate that the region has slipped back into a technical recession.

"The downturn is currently only very mild, however, with gross domestic product probably falling by just 0.2% in the first quarter. Furthermore, with business confidence in the service sector running at a far higher level than late last year, the recession may also be brief."

I have been critical of Market analysis for months and this is the worst yet.

First they said Germany would prevent a recession, then Germany would decouple, now they suggest this is only a "technical" recession and the "the recession may be mild and brief".

The European recession will be neither mild nor brief. Spain, Portugal, and Greece are in economic depressions with no end in sight. Spain and Italy (the 3rd and 4th largest eurozone markets) are poised for steeper slides. Germany will not be immune to this as I have stated for months on end.

German manufacturing contracted in March and services sector will soon follow. For some reason, Markit economists cannot figure this out.

This was extremely easy to predict, yet most blew it.

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

Greece to Seize Money From Suspected Tax Evaders' Accounts, with Charges and Trials Later; More Capital Flight Coming Up

Posted: 26 Apr 2012 11:52 PM PDT

There can be little doubt of fraudulent tax avoidance in Greece. However, the Greek solution (seize money first, then place charges and hold trials later) leaves a lot to be desired.

Please consider Greece to seize money from suspected tax evaders' accounts

The Greek government is to begin seizing money from the bank accounts of suspected tax evaders, Finance Minister Filippos Sachinidis told Skai TV on Thursday.

Sachinidis said that the relevant authorities have been instructed to seize the amount that account holders are suspected of owing to the state. The minister said that this would happen before suspected tax evaders go on trial.

Banks, insurance companies and the stock market will have to submit the full details of transactions by taxpayers so that the ministry can draft a property profile for each person and compare it with the tax statement submitted.

Public and private hospitals to send information about the doctors they employ and their activity.

Private insurance companies as well as social security funds must supply in electronic form all the statements they issue to their clients or beneficiaries for tax purposes, showing the taxpayers' payments and contributions, while utilities, including cell phone networks, must supply account data such as total annual bills.

Credit card companies will also have to submit data on transactions in Greece for cards issued not just in this country but also abroad.

More Capital Flight Coming Up

Anyone with any common sense has already pulled all of their money out of Greek banks. However, the unthinking masses probably have not. This move will without a doubt cause more than a few to worry about accusations, true or false, and in the case of the latter, the illegal confiscation of money.

Expect to see a further plunge in money kept at Greek banks. Also expect capital flight of another kind: human capital. With this kind of crackdown, anyone capable of leaving would be wise to leave Greece immediately.

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

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Friday, April 27, 2012

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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