Greek economist Costas Lapavitsas says "The Euro has Already Failed" and it's "Situation Impossible" for France.
Via translation from La Vanguardia here is the complete interview ....
LV: When I interviewed you for the first time in late 2011, you said that the ECB was not the magic solution to the eurozone crisis. Then in July 2012 Mario Draghi stated "The ECB is ready to do whatever it takes to preserve the euro and believe me, it will be enough." Do you still believe that the ECB is not the solution?
CL: The ECB is not the solution. What happened in 2011 and 2012 is that the peripheral countries accepted the austerity demanded by Berlin and Brussels. They accepted wage cuts and unemployment. Their economies are headed for a recession. Have stabilized public finances and external deficit has stabilized. The fundamental answer is recession.
LV: Is that what the ECB wanted?
CL: The announcement of Mario Draghi pacified the financial markets but only because recession was accepted by the population in the peripheral countries. The ECB did not solve the crisis in the real economy.
LV: Are we far from a stable eurozone crisis solution?
CL: The ECB stabilized the fiscal deficit and the trade deficit and hence financial markets. But the crisis has become a crisis in the real economy. There is foul growth and impoverishment.
LV: Has the crisis moved from the periphery crisis to other countries?
CL: Yes. The euro crisis has moved to the heart of the eurozone. France and Italy are now facing the same problems as the periphery in 2010 and 2011. The crisis is now in France and Italy.
LV: Is there more inequality now than at the beginning of the crisis?
CL: Of course. Here's how the situation has stabilized: recession, austerity without growth, more impoverishment and huge social problems for most of the working class.
LV: Can we forget the idea introduced a couple of years ago regarding a two-speed euro?
CL: I do not think it's going to be a two-speed euro. I think the policy that comes from Berlin and Brussels is the austerity of all European countries. France is now in a situation impossible. The real problem in the eurozone is now France. It has great competitiveness gap with Germany.
LV: Why?
CL: The competitiveness gap that the periphery had in 2010-11 is now in France. Wages in Germany have gone up a bit or frozen, wages in France have grown in line with inflation. This gap makes it difficult for the French economy to grow significantly. If France is moving towards austerity, as the periphery, Europe faces serious problems. Depression. And France is facing huge social and political problems. The eurozone crisis has moved to the heart of the euro.
LV: How does situation look in five years?
CL: It is difficult to say precisely. The eurozone will continue to be unstable as in recent years. It will be even worse than now because of tension between France and Germany. The currency is not sustainable. If the common currency fails, the EU is facing a huge crisis.
LV: Do you think that the euro will fail?
CL: The euro has already failed. It was a project that was supposed to create convergence, growth and solidarity between the peoples of Europe, it was supposed to create a commonality among Europeans. The euro has created divergences, recession, poverty, it is like a straitjacket for Europe, increases the national and the social tensions in Europe. It succeeds now only because it instills fear. I do not think this is sustainable for long.
LV: How is the situation in Greece?
CL: Greece is a mess. In 2010 Greece should have left the euro and put its economy in another direction. The economic and social catastrophe in Greece is worse than what happened in Argentina in the late 90s and early 2000. This is what happens when you're within this monetary structure that is the euro.
LV: This is your first trip to Barcelona. How do you assess issues such as the independence of Catalunya?
CL: The situation in Barcelona is very interesting. I am very surprised by the strength of the independence movement in Catalonia. I'm amazed by the vitality of social movements. Yet, I think the level of understanding of the economic problems of Spain and Catalunya are not as high as they should be.
LV: Why?
CL: I think there should be more understanding of the implications of would happen if there was eventual independence in the Catalan economy. There is a lot of complexity that is not completely understood. Social movements in Catalonia need to further discuss these issues.
Mish Comments
I have little to add other than I agree with Costas Lapavitsas on major points. The euro has already failed. The question is: when will that be politically recognized?
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Tuesday, February 4, 2014
My Valentine Collection
My students at work have already been buzzing about Valentine's Day. All the excitement of slipping Valentines into their little bags this year, inspired me to create these!
I also priced them really reasonably because (quite frankly) I think the ones in the stores are over priced! Valentines customized with names are only $2.20 or you can purchase the non-customized valentine for a $1.20 which is available via instant download.
Once you receive your file, you free to print as many as you wish! Can't beat custom unlimited Valentines for under $3!
You will received a PDF file for ease of printing onto white card stock. The Valentines are formatted 4 to an 8.5" x 11" page.
Are you ready to see the collections?! To purchase, simply click on one of the pictures or the links at the end of each collection.
Thank you for supporting small business and the creative community!
I also priced them really reasonably because (quite frankly) I think the ones in the stores are over priced! Valentines customized with names are only $2.20 or you can purchase the non-customized valentine for a $1.20 which is available via instant download.
Once you receive your file, you free to print as many as you wish! Can't beat custom unlimited Valentines for under $3!
You will received a PDF file for ease of printing onto white card stock. The Valentines are formatted 4 to an 8.5" x 11" page.
Are you ready to see the collections?! To purchase, simply click on one of the pictures or the links at the end of each collection.
Thank you for supporting small business and the creative community!
The Owl Collection
Boys
Girls
The Love Bird Collection
The Robot Collection
Boys
Girls
Obamacare Creates Incentive to Work Less; CBO Estimates Obamacare Will Cost 2 Million Full-Time Equivalent Jobs by 2017
MarketWatch reports Obamacare plans to exceed $1 trillion, create reluctant workers.
Inquiring minds are also in interested in labor force projections. For that let's dive into the massive 182 page PDF CBO Budget and Economic Outlook 2014 to 2024 report.
Incentive to Work Less
On PDF page 44 (Report page 38) a curious footnote reads "By providing subsidies that decline with rising income (and increase with falling income) and by making some people financially better off, the ACA will create an incentive for some people to work less."
A detailed explanation is found in Appendix C on PDF page 123.
Regardless, that cannot possibly happen, can it? Didn't Obama claim ACA would create jobs? Hmm. What else did he promise?
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
The CBO projects that insurance subsidies and related spending will account for increasing chunks of deficit spending, starting at $20 billion this year and steadily increasing to $159 billion in 2024, for a collective cost of just under $1.2 trillion. The cumulative total from the ACA for the next decade could reach $1.35 trillion.Labor Market Effects of the Affordable Care Act
In several charts in its report, the CBO calls these “effects on the cumulative federal deficit.” But in footnotes and other portions of the 175-page report, the CBO points out there are other sources of revenue generated under the ACA that are expected to make it deficit neutral.
Inquiring minds are also in interested in labor force projections. For that let's dive into the massive 182 page PDF CBO Budget and Economic Outlook 2014 to 2024 report.
Incentive to Work Less
On PDF page 44 (Report page 38) a curious footnote reads "By providing subsidies that decline with rising income (and increase with falling income) and by making some people financially better off, the ACA will create an incentive for some people to work less."
A detailed explanation is found in Appendix C on PDF page 123.
How Much Will the ACA Reduce Employment in the Longer Term?Don't worry. This won't cost 2 million jobs, only 2 million equivalent full-time jobs. Perhaps a many as 6 million work fewer hours each week. The CBO did not estimate the breakdown.
The ACA’s largest impact on labor markets will probably occur after 2016, once its major provisions have taken full effect and overall economic output nears its maximum sustainable level. CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor — given the new taxes and other incentives they will face and the financial benefits some will receive. Because the largest declines in labor supply will probably occur among lower-wage workers, the reduction in aggregate compensation (wages, salaries, and fringe benefits) and the impact on the overall economy will be proportionally smaller than the reduction in hours worked. Specifically, CBO estimates that the ACA will cause a reduction of roughly 1 percent in aggregate labor compensation over the 2017–2024 period, compared with what it would have been otherwise. Although such effects are likely to continue after 2024 (the end of the current 10-year budget window), CBO has not estimated their magnitude or duration over a longer period.
The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024. Although CBO projects that total employment (and compensation) will increase over the coming decade, that increase will be smaller than it would have been in the absence of the ACA. The decline in full-time-equivalent employment stemming from the ACA will consist of some people not being employed at all and other people working fewer hours.
Why Does CBO Estimate Larger Reductions Than It Did in 2010?
In 2010, CBO estimated that the ACA, on net, would reduce the amount of labor used in the economy by roughly half a percent—primarily by reducing the amount of labor that workers choose to supply. 2 That measure of labor use was calculated in dollar terms, representing the approximate change in aggregate labor compensation that would result. Hence, that estimate can be compared with the roughly 1 percent reduction in aggregate compensation that CBO now estimates to result from the act. There are several reasons for that difference: CBO has now incorporated into its analysis additional channels through which the ACA will affect labor supply, reviewed new research about those effects, and revised upward its estimates of the responsiveness of labor supply to changes in tax rates.
Regardless, that cannot possibly happen, can it? Didn't Obama claim ACA would create jobs? Hmm. What else did he promise?
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Treasury Debate: Gundlach (Bull) vs. Rosenberg (Bear); Price Inflation on Hold; What About Gold?
I happen to like 10-year US treasuries here, and have since rates got near 3%. I believe job growth is way overstated due to double-counting of part-time jobs, the global economy is slowing more than economists expect, and the US economy is slowing more than economists expect.
Betting Against Treasuries a Fool's Game?
Jeffrey Gundlach CEO of DoubleLine Capital goes even further. Gundlatch claims Betting Against Treasuries a Fool's Game.
David Rosenberg thinks the economy is going to accelerate. If the economy does accelerate, the Fed will increase tapering, not reduce it.
Looking for another opinion?
Marc Faber Bullish on Treasuries and Gold
Taken from a Barron's roundtable discussion, ZeroHedge reports Marc Faber Warns "Insiders Are Selling Like Crazy... Short US Stocks, Buy Treasuries Gold".
US treasuries are a curious position for someone frequently in the hyperinflation camp, which brings up this humorous conversation from Barron's.
If the economy implodes (or even modestly declines) US Treasuries will benefit. Even a frequent hyperinflationist and firm disbeliever in paper assets gets it!
Here's my claim: Deflation Will Return: Europe First, Then US
Strong consumer price inflation, is on hold for a long time. US hyperinflation in this environment is next to impossible.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Betting Against Treasuries a Fool's Game?
Jeffrey Gundlach CEO of DoubleLine Capital goes even further. Gundlatch claims Betting Against Treasuries a Fool's Game.
The market was “entering 2014 struck by a greater consensus entering any year that I can remember, that the dollar has to do well, gold is for losers and bond yields will rise,” said Jeffrey Gundlach, chief executive officer of DoubleLine Capital, which manages $49 billion. “Things were so lopsided in terms of that positioning. That was late in that way of thinking.”Gundlach (Bull) vs. Rosenberg (Bear)
The amount of bets against 10-year Treasuries by hedge funds and other large speculators shrunk to as low as 58,000 contracts last month from a 19-month high of about 189,000 in November, data from the Commodities Futures Trading Association show.
Mr. Gundlach predicts yields will fall in 2014, with demand rising from investors such as banks seeking high-quality collateral to meet new regulatory requirements and as a haven for others from political and economic turbulence in nations ranging from Turkey to Argentina.
One long-time bond bull recently turned bearish, and he sees no reason to change course. Yields will reverse and end the year at 3.5% to 3.75% as the economy improves, according to David Rosenberg, the chief economist at Gluskin Sheff & Associates.Will the US Economy Accelerate?
“The economy is on a moderate accelerating trend,” Mr. Rosenberg said. “We're coming out of a flight to quality on emerging markets. This is a blip rather than a long-term trend. The yield decline is temporary.”
David Rosenberg thinks the economy is going to accelerate. If the economy does accelerate, the Fed will increase tapering, not reduce it.
Looking for another opinion?
Marc Faber Bullish on Treasuries and Gold
Taken from a Barron's roundtable discussion, ZeroHedge reports Marc Faber Warns "Insiders Are Selling Like Crazy... Short US Stocks, Buy Treasuries Gold".
Faber: What I recommend to clients and what I do with my own portfolio aren't always the same. That said, my first recommendation is to short the Russell 2000. You can use the iShares Russell 2000 exchange-traded fund [IWM]. Small stocks have outperformed large stocks significantly in the past few years.Curious Position
Next, I would buy 10-year Treasury notes, because I don't believe in this magnificent U.S. economic recovery. The U.S. is going to turn down, and bond yields are going to fall. Abby just gave me a good idea. She is long the iShares MSCI Mexico Capped ETF, so I will go short.
Q: What are you doing with your own money?
Faber: I have a lot of cash, and I bought Treasury bonds. ... I have no faith in paper money, period. Insider buying is also high in gold shares. Gold has massively underperformed relative to the S&P 500 and the Russell 2000. Maybe the price will go down some from here, but individual investors and my fellow panelists and Barron's editors ought to own some gold. About 20% of my net worth is in gold. I don't even value it in my portfolio. What goes down, I don't value.
US treasuries are a curious position for someone frequently in the hyperinflation camp, which brings up this humorous conversation from Barron's.
Faber: I recommend the Market Vectors Junior Gold Miners ETF [GDXJ], although I don't own it. I own physical gold because the old system will implode. Those who own paper assets are doomed.Price Inflation on Hold
Zulauf: Can you put the time frame on the implosion? Faber: Let's enjoy dinner tonight. Maybe it will happen tomorrow.
If the economy implodes (or even modestly declines) US Treasuries will benefit. Even a frequent hyperinflationist and firm disbeliever in paper assets gets it!
Here's my claim: Deflation Will Return: Europe First, Then US
Strong consumer price inflation, is on hold for a long time. US hyperinflation in this environment is next to impossible.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Controversy in Detroit: What's a Fair Settlement of Bondholder and Pension Obligation Claims?
A huge battle between pensioners and bondholders is on. Last week, a Bond rating agency blasted Governor Rick Snyder’s $350-million Detroit pension rescue plan as being too favorable to creditors at the expense of bondholders.
Today, the New York Times reports Detroit Turns Bankruptcy Into Challenge of Banks.
Last summer, Gov. Rick Snyder of Michigan said the intent was to “determine the best path forward that respects, and is fair to, pensioners and all parties.”
In bankruptcy, the court has an obligation of fairness. However, it's not unprecedented for judges to take one side or another. Until now, the article claims "municipal bondholders have not had losses of principal forced on them by a court."
Here is a key point: Both the pension obligations and bondholder debt are unsecured debt.
Why not treat both pensioners and bondholders equally? The proposal currently on the table is for pensions to get 50 cents on the dollar (a 50% haircut) and bondholders 20 cents on the dollar (an 80% haircut).
I have a simple proposal. Give everyone 35 cents on the dollar (a 65% haircut). Neither side would be happy, but the ruling would be fair.
I also recommend the court trash the city's defined benefit plan entirely, or Detroit will be back in bankruptcy in a number of years.
Finally, if bondholders do not think they got a fair shake, they will demand higher interest rates going forward. Regardless of what the judge decides, the Detroit bankruptcy settlement will affect municipal bond interest rates going forward, not just in Michigan, but nationally.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Today, the New York Times reports Detroit Turns Bankruptcy Into Challenge of Banks.
Amy Laskey,a managing director at Fitch Ratings, said in a recent report that she sensed an “us versus them” orientation toward debt repayment. And in the view of bondholders, bond insurers and other financial institutions, it only grew worse last week after the city circulated its plan to emerge from bankruptcy and filed a lawsuit on Friday.What's a Fair Settlement?
The suit, brought by the city’s emergency manager, Kevyn D. Orr, seeks to invalidate complex transactions that helped finance Detroit’s pension system in 2005. In a not-so-veiled criticism, the city said the deal was done “at the prompting of investment banks that would profit handsomely from the transaction.”
Of even greater concern to creditors is the city’s 99-page “plan of adjustment,” the all-important document that details how Detroit proposes to resolve its bankruptcy and finance its operations in the future. Banks, bond insurers and other corporate creditors think they are being asked to share a disproportionate amount of pain under the plan, still in draft form and not yet filed with the bankruptcy court.
“The essential issue is the near-total wipeout of the bondholders,” said Matt Fabian, a managing director of Municipal Market Advisors. He said Detroit’s case appeared to be heading toward a “cramdown,” or court-ordered infliction of losses on unwilling creditors.
The plan calls for the city to give pensioners up to 50 cents on the dollar for their claims, while other unsecured creditors, like those that bought Detroit’s general-obligation bonds, would end up with about 20 cents on the dollar. The pensioners’ claims would be paid with cash, while general-obligation bondholders would receive notes that Detroit proposes to issue.
The debt that raised $1.4 billion for the city pension system in 2005 would suffer bigger losses still. The plan of adjustment does not accept the entire $1.4 billion as a valid claim, only about half of it. So the investors who bought that debt, called “certificates of participation,” often called COPs, would end up with about 10 cents on the dollar. It would come in the form of a different series of notes, which has lags built into the payment schedules.
Last summer, Gov. Rick Snyder of Michigan said the intent was to “determine the best path forward that respects, and is fair to, pensioners and all parties.”
In bankruptcy, the court has an obligation of fairness. However, it's not unprecedented for judges to take one side or another. Until now, the article claims "municipal bondholders have not had losses of principal forced on them by a court."
Here is a key point: Both the pension obligations and bondholder debt are unsecured debt.
Why not treat both pensioners and bondholders equally? The proposal currently on the table is for pensions to get 50 cents on the dollar (a 50% haircut) and bondholders 20 cents on the dollar (an 80% haircut).
I have a simple proposal. Give everyone 35 cents on the dollar (a 65% haircut). Neither side would be happy, but the ruling would be fair.
I also recommend the court trash the city's defined benefit plan entirely, or Detroit will be back in bankruptcy in a number of years.
Finally, if bondholders do not think they got a fair shake, they will demand higher interest rates going forward. Regardless of what the judge decides, the Detroit bankruptcy settlement will affect municipal bond interest rates going forward, not just in Michigan, but nationally.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Monday, February 3, 2014
Portuguese Debt About to Implode? What About Spain?
Is Portugal about ready to implode?
That's what one hedge fund manager believes. For now, interest rate action suggests otherwise.
We will explore the case for implosion but first consider this chart of 10-year sovereign bonds.
Portugal 10-Year Sovereign Debt Yield
One certainly could have made a fortune plowing into 10-year Portuguese bonds. Does that mean Portugal is out of the woods?
I don't think so, and neither does Tortus Capital hedge fund manager David Salanic.
The New York times describes the setup in A Lonely Bet Against Portugal’s Debt, but I am more interested in Tortus Capital's thesis.
Salanic maintains the status quo is not sustainable. Here is his overall thesis.
Portugal Debt Implosion Thesis
Salanic does a fantastic job presenting his case in a 62 page document, Rehabilitating Portugal.
I recommend reading the presentation in entirety, but here are a few charts.
click on any chart for a sharper image
Solidarity
Missed Deficit Targets
Missed GDP Targets
Wishful Thinking
Subordination
Debt Financing
Credit Ratings
Inability to Outgrow or Devalue Debt
Corporate Debt Levels
Debt to GDP
Debt to Revenue
Interest Expense vs. Revenue
Target 2 Liabilities
ECB Liabilities
Mish Comments
That was a lot of charts, but there are another 40 or more in the article. I didn't count.
Other than target 2 imbalances (debt owed to other countries), Spain appeared at least as bad in most of the comparison charts.
Portugal alone is enough to sink the Eurozone given ECB leverage.
I have said repeatedly there is absolutely no way the Eurozone can stay intact and the above analysis strongly supports my claim.
That bond yields are so low in spite of the fundamentals is not an indication things are getting better. Rather, it is a strong sign of a bubble-supportive speculative mentality that central banks have fostered.
I do not know what the catalyst for a breakup will be, or when it happens, but Portugal is clearly back on my radar of things to watch.
Sincere thanks to Tortus Capital fund manager David Salanic for an outstanding report.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
That's what one hedge fund manager believes. For now, interest rate action suggests otherwise.
We will explore the case for implosion but first consider this chart of 10-year sovereign bonds.
Portugal 10-Year Sovereign Debt Yield
One certainly could have made a fortune plowing into 10-year Portuguese bonds. Does that mean Portugal is out of the woods?
I don't think so, and neither does Tortus Capital hedge fund manager David Salanic.
The New York times describes the setup in A Lonely Bet Against Portugal’s Debt, but I am more interested in Tortus Capital's thesis.
Salanic maintains the status quo is not sustainable. Here is his overall thesis.
Portugal Debt Implosion Thesis
- The Troika Program is off track. Portuguese bondholders are at the mercy of that market.
- Portugal has excessive public and private debt financed from abroad. Portugal can neither grow nor devalue that debt.
- Austerity fatigue has set in as the people carry the full burden of the adjustment.
- Corporates are defaulting en masse and cannot sustain their debt burdens, leading to a vicious cycle of deleveraging.
- The long-term outlook is bleak.
- Debt-to-GDP is very high and growing one percent per month. Portugal is the third most leveraged country in the Eurozone.
- Accounting for growth and interest expense, Portugal's debt is the highest in the Eurozone and is not sustainable.
- Portugal can neither raise taxes nor cut expenditures, leaving little room to improve debt-servicing capacity.
- 40 consecutive years of deficit and 18 years without a primary surplus confirm that Portugal cannot sustain so much debt.
- In the most optimistic case, the Portuguese sovereign has at least 30% too much debt.
Salanic does a fantastic job presenting his case in a 62 page document, Rehabilitating Portugal.
I recommend reading the presentation in entirety, but here are a few charts.
click on any chart for a sharper image
Solidarity
Missed Deficit Targets
Missed GDP Targets
Wishful Thinking
Subordination
Debt Financing
Credit Ratings
Inability to Outgrow or Devalue Debt
Corporate Debt Levels
Debt to GDP
Debt to Revenue
Interest Expense vs. Revenue
Target 2 Liabilities
ECB Liabilities
Mish Comments
That was a lot of charts, but there are another 40 or more in the article. I didn't count.
Other than target 2 imbalances (debt owed to other countries), Spain appeared at least as bad in most of the comparison charts.
Portugal alone is enough to sink the Eurozone given ECB leverage.
I have said repeatedly there is absolutely no way the Eurozone can stay intact and the above analysis strongly supports my claim.
That bond yields are so low in spite of the fundamentals is not an indication things are getting better. Rather, it is a strong sign of a bubble-supportive speculative mentality that central banks have fostered.
I do not know what the catalyst for a breakup will be, or when it happens, but Portugal is clearly back on my radar of things to watch.
Sincere thanks to Tortus Capital fund manager David Salanic for an outstanding report.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Huge Miss in ISM; Largest Decline in New Orders in 4 Years; Weather to Blame?
Expectations for continued growth in the US remain overoptimistic.
For example Bloomberg reports the median forecast of 85 economists surveyed by Bloomberg called for a decrease in ISM to 56 from a December reading of 56.5.
Instead, the index plunged to 51.3, a number marginally above the expansion-contraction reading of 50.
Here are the numbers from the January 2014 Manufacturing ISM Report On Business®
ISM at a Glance
ISM Report Snips
The median forecast was for an index reading 56. It came in at 51.3, an enormous miss.
A number of ISM respondents and economists blamed the weather. Cold weather certainly did not help auto sales any, but didn't the economists know the weather was cold when they made their forecasts?
I think the economy is slowing more than economists realize, even if weather is partially responsible for this.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
For example Bloomberg reports the median forecast of 85 economists surveyed by Bloomberg called for a decrease in ISM to 56 from a December reading of 56.5.
Instead, the index plunged to 51.3, a number marginally above the expansion-contraction reading of 50.
Here are the numbers from the January 2014 Manufacturing ISM Report On Business®
ISM at a Glance
| Series Data | Jan Index | Dec Index | Percentage Point Change | Direction | Rate of Change | Trend (Months) |
|---|---|---|---|---|---|---|
| PMI™ | 51.3 | 56.5 | -5.2 | Growing | Slower | 8 |
| New Orders | 51.2 | 64.4 | -13.2 | Growing | Slower | 8 |
| Production | 54.8 | 61.7 | -6.9 | Growing | Slower | 17 |
| Employment | 52.3 | 55.8 | -3.5 | Growing | Slower | 7 |
| Supplier Deliveries | 54.3 | 53.7 | +0.6 | Slowing | Faster | 8 |
| Inventories | 44.0 | 47.0 | -3.0 | Contracting | Faster | 2 |
| Customers' Inventories | 44.0 | 47.5 | -3.5 | Too Low | Faster | 26 |
| Prices | 60.5 | 53.5 | +7.0 | Increasing | Faster | 6 |
| Backlog of Orders | 48.0 | 51.5 | -3.5 | Contracting | From Growing | 1 |
| Exports | 54.5 | 55.0 | -0.5 | Growing | Slower | 14 |
| Imports | 53.5 | 55.0 | -1.5 | Growing | Slower | 12 |
ISM Report Snips
PMIWeather to Blame?
Manufacturing expanded in January as the PMI® registered 51.3 percent, a decrease of 5.2 percentage points when compared to December's seasonally adjusted reading of 56.5 percent. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
New Orders
ISM's New Orders Index registered 51.2 percent in January, a significant decrease of 13.2 percentage points when compared to the December seasonally adjusted reading of 64.4 percent. This represents growth in new orders for the eighth consecutive month, but is also the largest decline in new orders in the last four years. A New Orders Index above 52.1 percent, over time, is generally consistent with an increase in the Census Bureau's series on manufacturing orders (in constant 2000 dollars).
Production
ISM's Production Index registered 54.8 percent in January, which is a decrease of 6.9 percentage points when compared to the seasonally adjusted 61.7 percent reported in December. This month's reading indicates growth in production for the 17th consecutive month, but at a significantly slower rate than in December. An index above 51.1 percent, over time, is generally consistent with an increase in the Federal Reserve Board's Industrial Production figures.
Employment
ISM's Employment Index registered 52.3 percent in January, which is 3.5 percentage points lower than the seasonally adjusted 55.8 percent reported in December, and represents the seventh consecutive month of growth in employment, but at a slower rate than in December. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.
The median forecast was for an index reading 56. It came in at 51.3, an enormous miss.
A number of ISM respondents and economists blamed the weather. Cold weather certainly did not help auto sales any, but didn't the economists know the weather was cold when they made their forecasts?
I think the economy is slowing more than economists realize, even if weather is partially responsible for this.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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