Mish's Global Economic Trend Analysis

Obama's "Model for US" Plant Moves to Canada; Mish's Model vs. Obama's Model
CPI and HICP Deflation in Spain Accelerates
What if a Tumor Stole Your Memories? Then Years Later, Surgery Restored Those Memories?
Chicago PMI Unexpectedly Dives to Negative Territory; Production at Lowest Since July 2009; Emanuel's Tax Hikes Will Make Matters Worse

Obama's "Model for US" Plant Moves to Canada; Mish's Model vs. Obama's Model

Posted: 30 Sep 2015 09:09 PM PDT

Last year, president Obama visited GE's 106-year-old Waukesha, Wisconsin plant.

At the plant, GE builds large piston engines for power and oilfield use that run on natural gas or methane from landfills.

President Obama called the plant "a model for the country."

This week, GE announced that it will move production to Canada. The move will cost the US 350 manufacturing jobs.

Is Obama's "model" the correct one for the US?

Placing the Blame
Some place the blame for the Manufacturing Move on export financing.

In its latest salvo aimed at persuading Congress to renew the U.S. Export-Import Bank's charter which expired in June, GE will invest $265 million in a new state-of-the-art manufacturing plant at a Canadian location yet to be determined.

In exchange for moving the production from Waukesha, Wisconsin, Export Development Canada will provide financing support for a range of future products, including some still made in the United States.

The announcement stands in sharp contrast to a 2014 visit to the site by President Barack Obama, in which he touted its worker training program as "a model for the country."

"I'd say the workers at Waukesha are the real world casualties in the right-wing fight to close the EXIM Bank," said Frank Larkin, a spokesman for the International Association of Machinists, which represents plant workers.

In recent weeks, GE has announced several deals to locate thousands of new jobs out of the United States following EXIM's closure and to access government export credit from the United Kingdom, France, Hungary and China.

GE Vice Chairman John Rice told Reuters that foreign export credit agencies are "rolling out the red carpet" for the industrial conglomerate, more than tripling the export financing capacity it received under EXIM.

GE Debunks EXIM Theory

GE says those engines are not typically sold with EXIM financing, so let's look elsewhere for the reason. What about the dollar?

Canadian Dollar 2003-2015 Round Trip

The Canadian dollar, frequently referred to as the "Loonie" because of a loon image on a coin, recently had as much as a 10% premium to the dollar. Now the Loonie rests with a 25% discount to the dollar.

Corporate Income Tax to Blame?

Republican Representative James Sensenbrenner, who represents Waukesha and opposes EXIM "in its current form," said in a statement that the manufacturing move was a "sober reminder of the urgent need to stay competitive in the global marketplace" and called for lower corporate tax rates.

GE Pays No Corporate Income Tax

Amusingly, 15 Fortune 500 companies paid no federal income tax on $23 billion in profits in 2014, and they paid almost no federal income tax on $107 billion in profits during the past five years.

Yep, GE was one of those companies.

CBS, General Electric, Interpublic Group, JetBlue Airways, Mattel, Owens Corning, PG&E, Pepco Holdings, Priceline.com, Prudential Financial, Qualcomm, Ryder System, Time Warner, Weyerhaeuser and Xerox all paid no corporate income tax because they move operations and manufacturing to places where foreign income tax collection is low and export tax credits high.

Can corporate income tax be a problem when GE paid none?

Actually, yes.

Right now, the US practically begs corporations to move overseas via high tax rates coupled with numerous foreign loopholes including deferred taxes on investments and profits overseas. Every few years, Congress floats a "repatriation" tax holiday in which businesses bring the cash back to the US tax free.

Mish's Model vs. Obama's Model

Rather than close loopholes like president Obama proposes, I have a better idea: Set the corporate income tax to a flat 0% in the US and something above 0% on US corporate production and profits outside the US.

Watch the jobs come back home in a jiffy.

On a smaller scale, Illinois needs to learn the same lesson. For discussion of the sorry state of Illinois, please see ...

Mike "Mish" Shedlock

CPI and HICP Deflation in Spain Accelerates

Posted: 30 Sep 2015 03:54 PM PDT

After a brief 0.1% rise in inflation in June and July, Spain's National Statistics Institute (INE) estimates the CPI stands at ‒0.9% in September, five tenths lower than that registered in August.

The above is a "flash" reading.

The INE reports Spain's HICP (Harmonised Index of Consumer Prices) a measure that normalizes Spain with the rest of Europe "stands at ‒1.2% [year-over-year]. If confirmed, the annual change of the HICP would have decreased seven tenths as compared to the previous month.".

Spain is Europe's fastest growing economy, but ECB president Mario Draghi is hell-bent on putting an end to deflation.

Of course, we are talking about price deflation, not monetary deflation, not asset bubble deflation, not credit deflation. Central banks and economists alike would be best off not caring one bit about routine price deflation.

Mike "Mish" Shedlock

What if a Tumor Stole Your Memories? Then Years Later, Surgery Restored Those Memories?

Posted: 30 Sep 2015 12:03 PM PDT

I just received a fascinating email today from Demetri Kofinas, Executive Producer of Offline Productions.

Because of a brain tumor, Kofinas went years not knowing what he was saying, where he had been, or what he was doing. For example, he might have said Barack Obama in a sentence when he really meant American actor and filmmaker Denzel Washington.

The condition grew worse over time. New York state and Boston the city could easily be the same, or even reversed on a map. He lost most of his friends as it appeared to them he was on some wildly powerful drugs.

He could not remember anything he was doing or even why he was there. The memories were stored somewhere in his brain, but he could not process information correctly at the moment, nor retrieve those memories later.

Following brain surgery, he was immediately coherent. Over the next few weeks and months all his lost memories came back.

For the whole story, please see Demetri Kofinas' article A tumor stole every memory I had. This is what happened when it all came back.

Those living in New York, may wish to see Twelfth Night, Offline Productions' rendition of a Shakespearean classic.

Mike "Mish" Shedlock

Chicago PMI Unexpectedly Dives to Negative Territory; Production at Lowest Since July 2009; Emanuel's Tax Hikes Will Make Matters Worse

Posted: 30 Sep 2015 10:42 AM PDT

The Chicago PMI is in negative territory, plunging to 48.7 from a prior reading of 54.4 and a Bloomberg Consensus Estimate of 53.6.

Giant swings are common enough for the Chicago PMI which collapsed nearly 6 points in September to a sub-50 reading of 48.7. This indicates slight monthly contraction in the Chicago region's composite activity.

New orders are below 50 as are backlog orders, the latter for an 8th straight month. Chicago-area businesses can't rely on backlogs as much to keep up production which is also under 50 and at a 6-year low. Contraction in prices is deepening.

Recent History Of This Indicator

The Chicago PMI is expected to slow to 53.6 in September from 54.4 in August when delays in shipments gave the index a lift.

Production Plummets to Lowest Since July 2009

Digging into to the Chicago PMI report we note Production Plummets to Lowest Since July 2009.

The Chicago Business Barometer declined 5.7 points to 48.7 in September as Production growth collapsed and New Orders fell sharply. The drop in the Barometer to below 50 was its fifth time in contraction this year and comes amid downgrades to global economic growth and intense volatility in financial markets which have slowed activity in some industries. The latest decline followed two months of moderate expansion, and while growth in Q3 accelerated a little from Q2, the speed of the September descent is a source of concern.

Three of the five components of the Barometer were in contraction in September with only Employment and Supplier Deliveries above the 50 neutral level. Production led the decline with a sharp double-digit drop that placed it at the lowest since July 2009. New Orders also fell significantly and both key activity measures are running well below their historical averages.

Economist's Comment

Chief Economist of MNI Indicators Philip Uglow said, "While activity between Q2 and Q3 actually picked up, the scale of the downturn in September following the recent global financial fallout is concerning. Disinflationary pressures intensified and output was down very sharply. We await the October data to better judge whether this was a knee jerk reaction and there is a bounceback, or whether it represents a more fundamental slowdown."

Get Me the Hell Out of Here

There is no need to wait to October to understand the trend. A fundamental slowdown is pretty obvious. Illinois and Chicago in particular have huge issues.

Illinois manufacturers are voting with their feet. As noted on August 13, in Get Me the Hell Out of Here ...

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. A sixth, Hoist Liftruck, a manufacturer of industrial forklifts, announced plans in August to move more than 300 manufacturing jobs from Bedford Park, Illinois, to East Chicago, Indiana.

I wonder how the economists all missed the slowdown. What the heck are they watching? Or are they still listening to Janet Yellen who insists this is all "transitory"?

Tax Hikes Not The Answer

Tax hikes in the midst of a slump are precisely the wrong thing to do.

Yet, a week ago, Chicago Mayor Rahm Emanuel announced the largest tax hike in history. For details, please see Chicago Tax Collector Hath Arrived With Massive Tax Hike: Emanuel Says "No Stone Unturned ... Not Done Yet".

It will not be just businesses fleeing Illinois, mobile taxpayers will leave as well. And in fact they already have.

As noted by Michael Lucci, Vice President at the Illinois Policy Institute, Food Stamp Growth Outpaces Illinois Job Creation 5-4 During Recovery.

Illinois Food Stamp Usage vs. Jobs

During the recovery from the Great Recession, the Land of Lincoln, alone in the Midwest, had more people enter the food-stamps program than start jobs. Food-stamps growth in Illinois has outpaced jobs creation by a 5-4 margin.

During the recovery, Illinois put more people on food stamps than every other Midwestern state combined.

And After losing 117,000 manufacturing jobs during the recession, Illinois has only regained 17,400 of those factory jobs since January 2010.

Meanwhile, the other Great Lakes states have pulled far ahead of Illinois during the recovery. Michigan has added 135,600 manufacturing jobs, Indiana has added 80,400, Ohio has added 74,500 and Wisconsin has added 48,700.

Illinois Plans to Make Matters Worse

Illinois sheds manufacturing jobs and gains food stamp recipients. High taxes, a very poor business climate, especially Worker's Compensation procedures, are precisely to blame. So is inadequate pension funding and untenable pension promises.

Illinois needs reform, especially on pensions and a slew of business climate changes. Yet Emanuel and the "progressives" think higher taxes and higher food stamp benefits are the solution.

Rather than fix fundamental problems in the public union sector, Emanuel plans to leave no stone unturned when looking for additional revenue. What more do businesses in the Chicago area need to hear to decide to leave?

Six corporations left in July and August, yet economists are surprised by the plunge in activity.

Millennials will bear the brunt of these poor decisions. So I ask, Question to Millennials: Why Are You Not Mad as Hell Yet?

Mike "Mish" Shedlock

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Wednesday, September 30, 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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