Mish's Global Economic Trend Analysis

UPS Pilots Seek Strike: Union says Salary of $238,000 Not Enough
Cross-Border Deflation: US Export Prices Collapse Most Since July 2009; How Damaging is Price Deflation?
China PPI Declines 42nd Consecutive Month; Banks Struggle to Contain Devaluation Fallout; More Capital Controls

UPS Pilots Seek Strike: Union says Salary of $238,000 Not Enough

Posted: 10 Sep 2015 04:18 PM PDT

With the holiday shopping season just about upon us, the Independent Pilots Association (IPA), a trade union representing pilots at UPS, said its leadership has called on its 2,528 members to authorize a pilot strike against UPS.

Please consider Further Airline Problems are Brewing at UPS.

The possibility of a major disruption to UPS domestic and international air cargo services has moved closer after the union representing pilots at the parcel giant asked its members to back a strike.

The Teamsters have also ended talks with the airline and called a strike.

The Independent Pilots Association representing all UPS pilots says that negotiations which began four years ago have gone on too long.

UPS said it wants to reach an agreement as soon a possible, but such contracts often take years to agree because of their complexity.

The company has claimed that the threat of a strike is costing it about $5 million a day in business lost to competitors such as the US Postal Service and Federal Express Corp.

IPA Claim

Captain Robert Travis, Independent Pilots Association: "UPS has stalled and delayed, unnecessarily prolonging our negotiations"

UPS Claim

"During the 27-year history of UPS Airlines, we have successfully negotiated four contracts with our pilots, who are the top earners in commercial aviation. We hope to reach a new agreement as quickly as possible. However, airline industry contracts often take multiple years to complete. This is due to the complexity of the pacts and the protections of the Railway Labor Act (RLA) [the U.S. law that governs airline contract talks]. Under the RLA, airline contracts do not expire, they become amendable. Their terms remain in force while the new contract is negotiated. This is true even when the union employs tactics such as a strike authorization vote, a routine show of solidarity in airline negotiations that is legally irrelevant to the actual proceedings."

Pity the Pilots

Captains have a guaranteed salary of $255,128, with a typical captain earning another $35,000.
FedEx captains earn a guaranteed $230,379.
The average pay of all UPS pilots, including captains and first officers, is $238,000, dwarfing the median wage for a U.S. commercial airline pilot at $98,410 based on the Bureau of Labor Statistics data.
UPS crew members enjoy two company-funded retirement plans in addition to a traditional 401(k)
UPS offers comprehensive health insurance with an annual contribution that costs a third less than what a typical U.S. family pays.

Reader Anecdotes

Reader Tim Wallace writes ...

Hello Mish

I flew home recently with a UPS pilot who told me he loves his job. Now I know why. He does the international loop, in which he is away 8 days at a time, then home for 10. Not a bad gig.

Tim

Railway Labor Act

Wikipedia reports the Railway Labor Act is a "United States federal law that governs labor relations in the railroad and airline industries. The Act, passed in 1926 and amended in 1934 and 1936, seeks to substitute bargaining, arbitration and mediation for strikes as a means of resolving labor disputes. Its provisions were originally enforced under the Board of Mediation, but were later enforced under a National Mediation Board."

Strike Threats

These strike threats drag out for years because of mandated negotiations, and specific rules over "major" and "minor" disputes.

Unions can strike over major disputes only after they have exhausted the RLA's "almost interminable" negotiation and mediation procedures. They cannot, on the other hand, strike over minor disputes, either during the arbitration procedures or after an award is issued.

Government Meddling

Once again, note the problems where government meddles. Businesses and private taxpayers alike, all pay higher shipping costs because of nonsensical mandated arbitration, collective bargaining, and forced unionization.

Mike "Mish" Shedlock

Cross-Border Deflation: US Export Prices Collapse Most Since July 2009; How Damaging is Price Deflation?

Posted: 10 Sep 2015 10:33 AM PDT

Export Prices Collapse Most Since July 2009

Today's Import/Export report will have alarm bells ringing in the heads of various Fed members.

Month over month, export prices fell 1.4% with the Bloomberg Consensus opinion at -0.4%. The decline was outside the range of any estimate.

Economists' estimates ranged from -1% to +0.1%.

Significant declines sweep nearly all categories of the import & export price report pointing squarely to a deepening of cross-border deflationary pressures. Import prices fell 1.8 percent in August, slightly more than expected, while export prices fell 1.4 percent which is substantially more than expected. The monthly drops for both are the steepest since the oil-price rout of January.

Petroleum pulled down the import side but even when excluding petroleum, prices fell 0.4 percent. Export prices were hit by lower prices for industrial supplies, foods-feeds-beverages, and also agricultural products. And finished goods, whether on the import or export side, show a run of minus signs for both the monthly readings and the year-on-year readings.

Year-on-year rates are severe, at minus 11.4 percent for total imports, which is the lowest since September 2009, and minus 7.0 percent for exports which is the lowest since July 2009.

Let's dive into the BLS report on U.S. Import and Export Prices for more details and charts.

Import Prices

click on any chart for sharper image

Export Prices

Year-Over-Year Import and Export Price History Since 1990

Cross-Border Price Deflation

In case you missed it, please see China PPI Declines 42nd Consecutive Month; Banks Struggle to Contain Devaluation Fallout; More Capital Controls.

How Damaging is Price Deflation?

The Fed focus on prices is ridiculous as noted on numerous occasions.

For discussion of the nonsensical perils of CPI deflation, please see Historical Perspective on CPI Deflations: How Damaging are They?

The Fed's very attempt at producing "price stability" does exactly the opposite over the long haul. It is only over the short haul in which Fed policy actually "appears" to work.

Middle-class damaging boom bust cycles of ever-increasing amplitude over time are proof enough.

I would love to debate Bernanke, Yellen, or Krugman on this any time, any place.

Steve Keen on the Exponential Credit Petri Dish

Price stability is defined by the Fed as 2% CPI inflation annualized, perpetually. That's an exponential function.

For further rebuttal and charts of the Fed's nonsensical definition of "stability", please see my posted email from Steve Keen regarding the Exponential Credit Petri Dish.

Mike "Mish" Shedlock

China PPI Declines 42nd Consecutive Month; Banks Struggle to Contain Devaluation Fallout; More Capital Controls

Posted: 09 Sep 2015 11:29 PM PDT

China Deflation Fears Grow

Bad news stories continue in China today with reports of more capital controls, devaluation fallout, and another drop in the Producer Price Index (PPI).

Reuters reports China Deflation Fears Grow as Producer Prices Sink Most in Six Years.

China's manufacturers slashed prices at the fastest rate in six years in August as commodity prices fell and demand cooled, signaling stubborn deflation risks in the economy and adding to expectations for further stimulus measures.

The producer price index (PPI) fell 5.9 percent in August from the same period last year, its 42nd consecutive month of decline and the biggest drop since the depths of the global financial crisis in late 2009, data showed on Thursday.

Official and private factory surveys last week also showed manufacturers laid off workers at a faster rate last month as their order books shrank.

More Capital Controls

The Financial Times reports Beijing Clamps Down on Forex Deals to Stem Capital Flight

China has tightened its capital controls, in a sharp reversal of its market liberalising rhetoric, as it struggles to contain the fallout from last month's devaluation of the renminbi.

The August 11 devaluation unleashed turmoil on global stock markets and policy confusion at home, forcing the central bank to spend up to $200bn to support the currency. The prospect of an interest rate rise in the US has further encouraged capital flight.

The Safe [State Administration of Foreign Exchange] has ordered banks and financial institutions to pay particular attention to the practice of over-invoicing exports, used to disguise large capital outflows. The administration confirmed the existence of the memo, but declined to comment further.

For the first time since it began internationalising its currency a few years ago, the central bank has also been intervening heavily in the offshore renminbi market to narrow the gap between the onshore (CNY) and offshore (CNH) exchange rates.

Analysts and people familiar with the matter say Beijing has spent up to $200bn defending the currency, but the net impact on the reserves is disguised by fluctuating valuations of reserve assets and other inflows into the reserves.

"They have gone from a credible peg that cost them almost nothing to a weak peg that nobody believes and that is costing them more than $10bn a day to defend. They're paying huge sums for something they had for free just a few weeks ago," said one person with close ties to China's central bank.

In another move to lighten its burden of defending the currency, the central bank informed banks last week that it would soon impose a new 20 per cent reserve requirement on all currency forward positions, in a move aimed at reducing heavy speculation on continued renminbi devaluation.

All market participants will be required to deposit the equivalent of 20 per cent of their forwards book with the central bank for one year at zero interest.

This will considerably increase the cost of currency hedging for Chinese companies, which had a total of $1.2tn in outstanding foreign currency debt by the end of March and are widely expecting further devaluation in the renminbi.

Quite the Reversal

It was not that long ago that hedge funds had massive bets the value of the Yaun would rise. China even took steps to stop "hot money" from flowing into the country.

Hot money, and then some is now going the other way.

By the way, please recall all the inflationists telling China to stockpile copper, lead, and other commodities instead of holding US treasuries, frequently labeled "worthless certificates of confiscation".

In retrospect, pro-cyclical stockpiling of commodities now looks foolish to nearly everyone. I took the other side of the argument at the time, as did Michael Pettis.

Mike "Mish" Shedlock

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Thursday, September 10, 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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