Mish's Global Economic Trend Analysis

Get Me the Hell Out of Here
3rd Quarter GDPNow Estimate a Weak 0.7% Despite Retail Sales Jump
Retail Sales Exceed Expectations, Huge Upward Revisions
What Jobs are Safe? Can Robots Automate Mish?

Posted: 13 Aug 2015 04:58 PM PDT

Manufacturers Vote With Their Feet

Manufacturers in Illinois have had it with tax hikes after tax hikes coupled with the most costly workers' compensation setup in the nation. And businesses are voting with their feet. In July, five firms left Illinois for good.

The Illinois legislature is to blame. Pro-union Democrats have been in control of Illinois for decades. Mike Madigan has been House Speaker every year but two since 1983.

Chicago Magazine labeled Madigan "Velvet Hammer" and the Real Governor of Illinois.

Today, Hoist Lifttruck threw in the towel on Illinois. Interestingly, the company is located right across the street from Madigan's district.

Six Firms Leave Illinois Since Mid-July

The Illinois Policy Institute reports Manufacturer Moves Out of Madigan's Backyard, Cites Unfriendly Business Climate.

Illinois' manufacturing meltdown is showing no signs of stopping.

Hoist Liftruck, a manufacturer of industrial forklifts, has announced plans to move more than 300 manufacturing jobs from Bedford Park, Illinois, to East Chicago, Indiana. The firm plans to add another 200 workers over the next few years. Hoist is the previously unnamed manufacturer that made headlines a month ago when it announced the plan to create 510 jobs paying $55,000 per year in Indiana.

"I love this city," said Marty Flaska, president and CEO of Hoist Liftruck. "But if we can keep an extra $2 million [per year] in our family businesses by moving 15 miles away, why wouldn't we?" The manufacturer is currently located in Bedford Park, on the south side of 65^th Street. House Speaker Mike Madigan's legislative district is just across the street.

"If I didn't have the workers' compensation issue and the [property-tax] issue, I probably never would have even considered moving. Why would I?"
He's speaking of a broken system that has festered in Illinois for decades under Madigan's leadership. A system that has borne rotten fruit in the form of Illinois manufacturers leaving the state in droves, taking middle-class manufacturing jobs with them. Blue-collar families have seen the following in the last 30 days alone:
A July 29 announcement by Mondelez International that it will lay off 600 manufacturing workers from its South Side facilities
A July 24 announcement by Mitsubishi Motors that it will close down production facilities in Normal, Illinois, jeopardizing 918 automotive manufacturing jobs
A July 16 announcement by General Mills that it will shut down its manufacturing plant in West Chicago, Illinois, laying off 500 workers
A July 15 announcement by energy processor Bunge North America that it will shut down its plant in Bradley, Illinois, laying off 210 workers
A July 14 announcement by machine-maker DE-STA-CO that it will move 100 manufacturing jobs from Wheeling, Illinois, to Nashville, Tennessee
Some of these companies, including Hoist Liftruck, have received subsidies or tax credits from other states to lure them away from Illinois, but Flaska says it's not that simple.

"Forget about incentive money, when you look at the pure cost for me to do business in Illinois, the choice is clear."

A look at the difference in insurance premiums for workers' compensation across state lines proves Flaska's point. A company of his size pays millions more each year for insurance than a similar business in Indiana.

In fact, Flaska decided to self-insure after paying millions to settle dubious workers' compensation claims out of court.

"Most attorneys that practice workers' comp law in Cook County know we're going to fight," Flaska said. "But I still spend between $10,000 and $15,000 per case – three cases a month minimum – to fight."

Flaska is not alone.

Mark Selvaggio, president of Springfield's Selvaggio Steel, said his small manufacturing firm would save $60,000 annually on workers' compensation alone if they were located in Indiana. He estimates he could hire six more workers if Illinois' business climate looked like Indiana's.

While the state's costly workers' compensation regulations may seem pro-worker, that's not really the case, said Don Haider, a professor at Northwestern's Kellogg School of Management, especially when manufacturing jobs are drying up as a result.

While the state's costly workers' compensation regulations may seem pro-worker, that's not really the case, said Don Haider, a professor at Northwestern's Kellogg School of Management, especially when manufacturing jobs are drying up as a result.

"Workers' compensation [in Illinois] is one of those things where the benefits flow not just for purposes of industrial safety and protection of the workers," he said.
"It goes to the real beneficiaries, who by and large are the lawyers and the tort industry. They're the beneficiaries of this business irritant."

As major employers leave Illinois to escape a hostile business climate, the state's middle class is crumbling under the weight of rent-seeking political and legal classes. This is seen not only in the workers' compensation climate, but also the property-tax climate, where businesses must pay lofty attorneys fees to stem the tide of rising property valuations.

This is the kind of law in which Madigan's law firm specializes.

Common-sense reforms establishing clear standards within Illinois' workers' compensation system and freezing the nation's second-highest property taxes are on the bargaining table in Springfield. Gov. Bruce Rauner has placed them there for a reason – Illinois must stop its exodus of people and businesses if the state is to forge a stable fiscal future.

But Madigan refuses to budge, even when the effects of inaction are being felt a few miles down the road from his district office.

Motorolla Kills 500 Chicago Jobs

In addition to six manufacturers totally leaving the state, Motorola Mobility to cut 500 jobs in Chicago.

Kraft Kills 700 Illinois Jobs

And just yesterday, Kraft Heinz Announced 700 Job Cuts at Their Illinois Headquarters.

With a hat tip to one of the best shows in history, I present this tribute:

Link if video does not play: Get Me The Hell Out of Here.

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

3rd Quarter GDPNow Estimate a Weak 0.7% Despite Retail Sales Jump

Posted: 13 Aug 2015 10:12 AM PDT

The Retail Sales Upward Revisions will likely add a couple ticks to second quarter GDP, but overall growth still remains very weak.

GDP as Reported

1st Quarter: +0.6%
2nd Quarter: +2.3%

The retail sales revisions may add another 0.2% or so to second quarter, assuming there are no other changes. That's a huge assumption given the history of revisions in nearly every economic number.

Third Quarter GDPNow Estimate

Those hoping retail sales will give a huge boost third quarter GDP are likely mistaken.

The Atlanta Fed GDPNow Forecast for this quarter stands at an anemic 0.7%, down from the initial reading of 1.0% made on August 6.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 was 0.7 percent on August 13, down from 0.9 percent on August 6. The previously reported nowcast of 1.0 percent for August 6 was revised down due to a minor adjustment in the method for nowcasting investment in computers and peripherals. Since a week ago, the nowcast for the contribution of inventory investment to third-quarter real GDP growth has declined from -1.8 percentage points to -2.2 percentage points. This decline more than offset an increase in the nowcast of the third-quarter growth rate in real consumer spending from 2.9 percent to 3.1 percent after the release of this morning's retail sales report from the U.S. Census Bureau.

NowCast History

Revisions in Latest GDP Report

First quarter 2015 revised up from -0.2% to +0.6%
2013 GDP revised lower from 2.2% to 1.5%
2012 GDP revised lower from 2.3% to 2.2%

Evolution of First Quarter 2015 GDP

+0.2% Initial
-0.7% Revised
-0.2% Revised
+0.6% Revised

GDP is the most lagging of all indicators. By the time all the revisions are in (years later), no one even cares.

Growth Estimate Through Three Quarters

Let's mentally bump up second quarter to 2.5% leaving everything else as reported or estimated.

The average growth through three quarters would roughly be a very weak 1.27%.

And the Fed is going to hike interest rates smack into that weakness.

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

Retail Sales Exceed Expectations, Huge Upward Revisions

Posted: 13 Aug 2015 09:10 AM PDT

Retail sales, led once again by autos, beat the Bloomberg Economic Consensus. In addition, prior revisions were all higher.

Big upward revisions underscore a very solid and very important retail sales report. Retail sales rose 0.6 percent in July with June revised to unchanged from an initial reading of minus 0.3 percent and with May revised to a jump of 1.2 percent from 1.0 percent. The revisions to June and May point to an upward revision for second-quarter GDP.

Vehicle sales, as expected, were the standout in July, jumping 1.4 percent to nearly reverse June's 1.5 percent slide and nearly matching May's historic 1.9 percent surge. But even outside vehicles, retail sales were strong with the ex-auto reading rising a solid 0.4 percent. Restaurants, in another strong signal of consumer strength, rose an outsized 0.7 percent following June's 0.5 percent gain. These are very strong gains for this component. Excluding both vehicles and gasoline, retail sales rose 0.4 percent, again another solid reading.

Revision History

This likely seals the deal on a September rate hike.

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

What Jobs are Safe? Can Robots Automate Mish?

Posted: 13 Aug 2015 01:53 AM PDT

Reader Richard just pinged me with this comment "Hope those robots don't take your job!".

That's actually an interesting thought.

I replied ...

"The key to a safe job is to have no idea what you will do or say on a day to day basis. My job is safe. I have no idea what I am going to write about every day."

Computers can and will automate unknowns like sporting event outcomes. In fact, it's already happening.

But everyone's thought process is unique. I read dozens or even hundreds of articles a day before I make a selection on which to write about.

Today, I am at a bridge tournament and at 3:40AM I am more tired than usual. I was going to hit the sack, but decided to read one more email.

This post is the result.

Robots don't decide to read "one more email". A robot will read all of them. And the robot will know everything that's happening globally far before I do.

But robots cannot be me (or anyone else). Everyone is unique. Humans have randomness and spontaneous thought processes that robots cannot duplicate.

Computers don't have emotions, random thought processes, or the brain of any individual. Computers cannot know how I (or anyone else) will respond to events when I do not know myself (and nor does anyone else).

The more repetitive the task, the less randomness in that task, the less subjective the task, and the less emotion involved, the more likely a job can be automated.

I comment on the news. That part is repetitive. But it's very subjective.

And news is random. I never know what I will be writing about, and this post is certainly proof enough.

Most importantly, my emotions comes hugely in to play with every sentence I write.

Simply put, robots will need to be human before they can take some jobs. And that is impossible by definition.

Find a niche the right area, and your job is safe.

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

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Thursday, August 13, 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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