Major Economic Indicators Latest Numbers

In March, 1,337 mass layoff actions affected 127,939 workers

In March, employers took 1,337 mass layoff actions involving 127,939 workers. Mass layoff events decreased by 85 from February, and associated initial claims decreased by 7,529.

HTML | PDF | RSS

Jobless rate down in 26 states, up in 7 in March; payroll jobs down in 26 states, up in 23

In March, 26 states and the District of Columbia had over-the-month unemployment rate decreases, 7 states had increases, and 17 states had no change. Nonfarm payroll employment decreased in 26 states and the district, increased in 23 states, and was unchanged in New Mexico.

HTML | PDF | RSS

Major Economic Indicators Latest Numbers

Major Economic Indicators Latest Numbers

Do You Believe China"s GDP Numbers?

Do you believe growth figures in China? What about the US, Canada, or Germany?

Actually, there is no reason to believe any GDP numbers. A recent email from Michael Pettis at China Financial Markets explains.

From Pettis ….

Last year China’s official growth rate was 7.8%, above the 7.5% target but the lowest number in many years and far lower than the more than 10% growth rates China had generated for the past two decades.

But even with the lower growth numbers throughout the year economists were puzzled by evidence that the economy was in fact growing more slowly than the official numbers suggested. Energy consumption in China, for example, usually grows more quickly than GDP, but surprisingly, in 2012 energy usage grew by only 5.5%, well below the official growth rate of 7.8%. Other indicators also indicated that growth may have been lower than the official numbers suggested.

While some of the sell-side economists still insist that China’s growth remained high and healthy enough, in fact among independent economists who specialize in the Chinese economy, both among Chinese and foreign economists there has been growing skepticism. A consensus is developing that China grew by less that 7.8% in 2012. For example Stephen Green at Standard Chartered, one of my favorites of the sell-side economists, refigured his numbers and guesses that instead of 9.3% for 2011 and 7.8% for 2012 (the official numbers), actual growth might have been 7.2% for 2011 and 5.5% for 2012. Other economists are suggesting even lower numbers, closer to zero.

I don’t have my own estimates because it seems to me that all of these attempts to measure economic growth are actually measuring economic activity, which may itself overstate growth. If you spend $ 100 million each on two separate bridges, one of which is actively used and the other rarely used, the official measures will have them contributing the same amount to GDP, even though the former creates real value and the latter does not. In either case if you then adjust the overall GDP numbers downwards by examining electricity usage, cement consumption, and so on, as the likes of Stephen Green do, you may end up with a more accurate estimate of economic activity, but you still treat the two bridges as contributing the same amount.

It isn’t until you write down the debt associated with the second bridge that you end up with a more meaningful measure of GDP. Of course this makes the whole process very confusing and it is hard to compare different estimates. It isn’t always clear how these estimates are reached, but as far as I can tell nearly all, if not all, of the downward revisions provided by various skeptical economists are still measures of economic activity, and do not include estimates for debt write-down associated with unnecessary investment.

We Know What To Do

There have been so many articles in the Chinese and foreign press about problems in the banking system that I won’t bother going through the topic much more except to note that Beijing cannot tolerate rapid credit growth and it cannot tolerate slow GDP growth. The problem is that it can only choose both or neither. There are no other options.

As credit concerns continue to rise, expect Beijing eventually to bite the bullet and stamp down on debt, in which case expect GDP growth rates to drop much, much more, in fact to well below anything we saw in 2012. The question is not whether this will happen, but when. Once Beijing is confident enough about its grip over vested interests and the consensus has developed within the leadership, growth rates will drop very sharply.

So this is probably why former Premier Wen is warning about the difficulty China faces in reforming the economy – a warning that he and Premier Li have made many times before but never more shrilly.

I have said often enough that we will be able to judge how resolute Beijing is and how capable of overcoming vested interests by how quickly credit growth is constrained and, with it, GPD growth. I expect to see high GDP growth (close to 8%) in the first half of the year but, if Beijing is able to move quickly, I expect growth to slow significantly in the second half.

If GDP growth does not slow, I will be worried about how long it takes the new leadership to get their arms around the problem that they clearly recognize (although perhaps still underestimate). The signals so far are good. Growth may be slowing even quicker than I had originally anticipated.

Does Cyprus matter?

I can’t really finish this newsletter without noting the astonishing events in Cyprus, especially since everyone in the world has already mentioned them. The concern most commentators have expressed is that by going after depositors the EU may have paved the way for bank runs in the rest of peripheral Europe. Quite a few analysts warned that we will begin to see this happen fairly soon.

I agree, but see it a little differently. The Cyprus proposal will probably have little impact on deposits now, but it will have an impact on memory. Depositors in the peripheral countries will remember what happened in Cyprus and it will affect their future confidence in the credibility of deposit guarantees.

We can imagine the “Cyprus effect” as a point on the credibility curve at which there is a sudden discontinuous or non-linear jump. As a country’s credibility declines, the deterioration in credibility was never likely to be smooth and linear because the process is self-reinforcing, but now we have added a sharp discontinuity. At some point of lower credibility, depositors, remembering Cyprus, will suddenly and sharply speed up their deposit withdrawal. And even if the original Cyprus plan is modified to protect small depositors, it probably won’t matter. The cat has already been let out of the bag.

Instead of embedding countercyclical mechanisms we have just embedded a big, fat, highly pro-cyclical pump into the credibility curve. It won’t matter so much now, but as things deteriorate, it will matter at some point, and of course always at the worst possible time.

Problem In The Definition

I italicized the key point. By definition, government spending contributes to GDP. No products have to be produced. Economic benefits are unnecessary.

Pettis used an example of governments building worthless bridges. Previously I have noted that if the government hired people to spit at the moon it would add to GDP. And that is an inherent problem with the definition.

In France, government spending accounts to 56% of GDP. How much of that spending is wasteful? How much government spending in the US is wasted?

Consider how Davis-Bacon and prevailing wage laws affect the answer. In the case of roads repairs, if the private market could do as good a repair job for 1/3 less, then the answer is 33.3%. But what about projects that should not be done at all?

Spending can even be net-negative as is the case in bombing countries for no reason. What did the US accomplish in Vietnam or Iraq? Even bridges to nowhere have more economic benefit.

While everyone is ready and willing to consider that China overstates its GDP, too few point the same finger at the US for the same reason.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

Do You Believe China"s GDP Numbers?

Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers

Why is the global economy in so much trouble?  How can so many people be so absolutely certain that the world financial system is going to crash?  Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail.  In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts.  So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts.  Overall, there is about 190 trillion dollars of total debt on the planet.  But global GDP is only about 70 trillion dollars.  And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars.  So we have a gigantic problem on our hands.  The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives.  We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing.  And when it falls, it is going to be the largest financial disaster in the history of the planet.

The global financial system is more interconnected today than ever before, and a crisis at one major bank or in one area of the world can spread at lightning speed.  As I wrote about yesterday, the entire European banking system is leveraged 26 to 1 at this point.  A decline in asset values of just 4 percent would totally wipe out the equity of many of those banks, and once a financial panic begins we could potentially see major financial institutions start to go down like dominoes.

We got a small taste of what that is like back in 2008, and it is inevitable that it will happen again.

Anyone that would tell you that the current global financial system is sustainable does not know what they are talking about.  Just look at the numbers that I have posted below.

The following is the global financial pyramid scheme by the numbers…

-$ 9,283,000,000,000 – The total amount of all bank deposits in the United States.  The FDIC has just 25 billion dollars in the deposit insurance fund that is supposed to “guarantee” those deposits.  In other words, the ratio of total bank deposits to insurance fund money is more than 371 to 1.

-$ 10,012,800,000,000 – The total amount of mortgage debt in the United States.  As you can see, you could take every penny out of every bank account in America and it still would not cover it.

-$ 10,409,500,000,000 – The M2 money supply in the United States.  This is probably the most commonly used measure of the total amount of money in the U.S. economy.

-$ 15,094,000,000,000 – U.S. GDP.  It is a measure of all economic activity in the United States for a single year.

-$ 16,749,269,587,407.53 – The size of the U.S. national debt.  It has grown by more than 10 trillion dollars over the past ten years.

-$ 32,000,000,000,000 – The total amount of money that the global elite have stashed in offshore banks (that we know about).

-$ 50,230,844,000,000 – The total amount of government debt in the world.

-$ 56,280,790,000,000 – The total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system.

-$ 61,000,000,000,000 – The combined total assets of the 50 largest banks in the world.

-$ 70,000,000,000,000 – The approximate size of total world GDP.

-$ 190,000,000,000,000 – The approximate size of the total amount of debt in the entire world.  It has nearly doubled in size over the past decade.

-$ 212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States.  But those banks only have total assets of about 8.9 trillion dollars combined.  In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.

-$ 600,000,000,000,000 to $ 1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range.  At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.

Are you starting to get the picture?

Every single day, the total amount of debt will continue to grow faster than the total amount of money until the day that this bubble bursts.

What we witnessed back in 2008 was just a little “hiccup” in the system.  It caused the worst economic downturn since the Great Depression, but global financial authorities were able to get things stabilized.

Next time it won’t be so easy.

The next wave of the economic collapse is quickly approaching.  A full-blown economic depression has already started in southern Europe.  Unemployment is at record highs and economic activity is contracting rapidly.

The major offshore banking centers in Cyprus are on the verge of collapsing.  It was just announced that they will now be closed until Tuesday, but nobody really knows for sure when they will be allowed to reopen.  And there is already talk that when they do reopen that there will be strict limits on how much money people can take out.

And now the IMF is warning that the three biggest banks in Slovenia are failing and that a billion euros will be needed to bail them out.

The dominoes are starting to tumble, and the United States won’t be immune.  In fact, the greatest financial problems that the United States has ever seen are on the horizon.

But you can just have faith that Ben Bernanke, Barack Obama and the U.S. Congress know exactly what they are doing and will be able to save us from the coming financial collapse if you want.

The mainstream media will provide you with all of the positive economic news that you could possibly want.  They are giddy about the fact that the Dow keeps hitting all-time highs and they would have us all believe that we are in the midst of a robust economic recovery.  You can listen to them if you want to.

But when you are tempted to believe that everything is going to be “okay” somehow, just go back and look at the numbers there were posted above one more time.

There is no way that the global financial pyramid scheme is going to be able to hold up for too much longer.  At some point it is going to totally collapse.  When that happens, will you be ready?

Be Sociable, Share!

• 

The Economic Collapse

Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers

Cyprus, It"s Not About The Numbers

Authored by Nick Malkoutzis, originally posted at ekathimerini,

The Eurogroup agreed on Monday night to allow Cyprus to change the make up of its controversial deposit tax. Instead of imposing a levy of 6.75 percent on savings under 100,000 and 9.9 percent on those above 100,000 – as agreed in Brussels in the early hours of Saturday – Nicosia can play around with the numbers, just as long as it raises the arranged amount of 5.8 billion euros.

Cyprus’s new but already beleaguered President Nicos Anastasiades is proposing that bank customers with deposits under 20,000 euros should not be taxed at all, while keeping the levy the same for the remaining depositors. Cypriot MPs have already shown a reluctance to approve the tax, mindful of the impact on depositors but also the long-term damage it could do to the island’s banking system and economy.

However, what’s happened over the past few days and what’s likely to happen in the days and weeks to come has little to do with numbers. It is much more about perceptions. Even if a financial meltdown is averted in Cyprus this week, the decision to tax depositors there in order to reduce the eurozone and International Monetary Fund contribution to the island’s bailout has sown the seeds for a future eruption.

The Eurogroup’s decision on Monday was a clear attempt to correct a mistake, while steadfastly refusing to admit one had been made. There are different interpretations about what happened in Brussels late Friday and early Saturday but ultimately they matter little compared to the end result, which was that Anastasiades flew home to implement the first depositor haircut in the euro’s history with the blessing of fellow eurozone finance ministers and the IMF’s Christine Lagarde.

There is nothing the Eurogroup had to say to the Cypriot government on Monday night that it could not have said in Brussels a few days earlier. The only difference was that by Monday the reaction in Cyprus and other parts of the eurozone to the idea of a deposit tax, including on guaranteed savings, had underlined what a perilous idea it was to start off with. From Sunday, eurozone governments and finance ministers who had been at the Eurogroup meeting, started to distance themselves from the idea of taxing small-time depositors with such frequency that it seemed hardly any of them participated in the Brussels talks and the few that did were strong-armed by Anastasiades into accepting a tax for deposits under 100,000 euros.

The back-pedalling and hand-wringing has been an embarrassing spectacle but it has also laid bare the unedifying eurozone decision-making process and the lack of stature amongst its decision makers. The only two plausible interpretations for the Eurogroup approving such a self-destructive decision as taxing all bank deposits is a complete disregard for the consequences (doubtful) or an utter underestimation for the effect it would have (more plausible).

The latter suggests that one part of the eurozone is now completely out of step with the other, unable to understand its challenges, its concerns and, ultimately, its reality. Only a core group of decision makers with no sense of the fragile state of societies in the periphery, which have been battered by deepening economic crisis and uncertainty for months on end, would favour a policy that creates a precedent for governments to grab people’s savings without second thought.

Even if capital flight from Cyprus as a result of this decision is less severe than many fear, even if Cypriot banks survive this real stress test, even if the island’s economy is not set back many years, even if savers in Greece, Spain, Portugal and Italy don’t panic, the idea of a deposit tax and the way it was adopted has released something poisonous in the air. It is difficult to see how these citizens will be able to trust the system – be it their governments, banks or eurozone partners – in the weeks to come. Belief in countries where the economy is contracting and unemployment growing is already vitreous and planting fears about a possible deposits grab in the future could shatter it completely.

Some will argue that the numbers involved in Cyprus are not that big, that small depositors will not lose a lot. This misses the point. Again, it’s not about the numbers, it’s about perceptions. Cypriot savers will not be so concerned about losing a few hundred euros here or there. After all, they know what’s going on in Greece and are aware that if they don’t pay a deposit levy, they’ll pay through higher taxes, lower wages and reduced spending. No, their worry will be about what’s going to come next. They have witnessed supposed partners back their country and its new president into a corner with almost underworld-style ruthlessness. The European Central Bank, essentially their central bank, threatened to cut off funding to Cypriot lenders, to cause their collapse, which would bring economic disaster. In these unprecedented circumstances, what basis is there for a relationship of trust between Cypriots and the eurozone? What’s to prevent them thinking that if they’ve been squeezed over this, they won’t be cornered over the island’s natural gas reserves or the terms for reunification with the Turkish-occupied north?

Others will argue that it is unfair to expect Germany or other eurozone taxpayers to keep footing the bill for bailing out member states. This also speaks of different perceptions of reality in the euro area. It ignores the fact that taxpayers in countries that have been bailed out are also paying a price. In fact, if one looks at the eurozone today and chooses any of its main economic indictors, it is abundantly clear who is footing the much higher cost for these rescue packages.

This emergence of parallel lives is the illness spreading to the heart of the single currency. How can the eurozone’s two parts understand each other when their realities are growing further apart? How can one side decide for the other when it’s not experiencing the depression, polarization and incertitude of its counterpart? In this two-tier construct, how can those on the upper deck assimilate the warnings from those below that the vessel is sinking, when their feet aren’t even wet?

That’s why Cyprus is about so much more than just numbers.

Zero Hedge

Cyprus, It"s Not About The Numbers

China Overheating? Biggest Weekly Cash Drain in History; Questions Surface Over Chinese Growth Numbers

In December I suggested the modest bounce in China PMI would not last. It didn’t. The allegedly sustainable recovery in China is already in question.

The HSBC Flash China Manufacturing PMI™ shows manufacturing conditions barely above contraction.

Key points

• Flash China Manufacturing PMI™ at 50.4 (52.3 in January). 4-month low.
• Flash China Manufacturing Output Index at 50.9 (53.1 in January). 4-month low

Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said: “The Chinese economy is still on track for a gradual recovery. Despite the moderation of February’s flash PMI, the index recorded the fourth consecutive reading above the 50 critical line. The underlying strength of Chinese growth recovery remains intact, as indicated by the still expanding employment and the recent pick-up of credit growth.“

Questions Surface Over Chinese Growth Numbers

Those expecting China to be in some sort of sustainable recovery with Europe in a major recession and the US in a big slowdown if not outright recession are a bit delusional.

Please consider China’s Premature Overheating.

China began this year with an off-the-charts explosion in credit issuance. Last week, it broke records again, this time for the amount of cash drained from its banking system. The record credit issuance of 2.5 trillion yuan ($ 400 billion) in January — comprising both bank lending and non-bank financial institutions’ credit — always looked as if it was verging on the reckless.

The surprise perhaps is that this reversal came so early. The central bank withdrew 910 billion yuan from the economy via open-market operations last week, its biggest weekly cash drain ever.

This action coincided with warnings from Beijing for local governments to keep a tight reign on property-market speculation, amid fears of bubbles reappearing. On Friday, the government further extended its existing battery of property taxes to try to take the heat out of the market. The new measures target non-residential property and buyers of second homes.

In recent weeks, the Chinese capital has literally ground to a halt due to smog worsened by traffic and factories. Nomura says in a new report that pollution has got so bad, it may force policy change on the government, which will inevitably reduce growth in the short term. An unusual appendix in the report was a nationwide map of Particulate Matter (PM) readings.

 It has always been hard to square away China’s position as a low-cost manufacturing hub, while at the same time having some of the highest-priced real estate in the world. Some economists have an explanation: The numbers are plain wrong.

Standard Chartered Bank’s Stephen Green questions if China’s growth in 2012 might have only been 5.5%, even as the official figure was 7.8%.

And if China’s inflation has been running at a higher pace than we thought, reining it in could prove more difficult. How soon before investors need to worry again about what landing lies ahead for China’s overheating economy?

No one really knows the true state of China’s GDP, but many of us do realize it’s overstated, perhaps by a large amount. GDP is not a good measure of the true state of the economy anyway, with fiscal stimulus everywhere you look.

Realistic Outlook

• July 18, 2012: “China Rebalancing Has Begun”; What are the Global Implications? Michael Pettis on China Rebalancing, Chinese Price Deflation, and Spain Exit from Euro; Target 2 Revisited

 

• August 16, 2012: Pettis on Debt, Currency Wars, Commodity Prices and Capital Flight; China FDI Contracts 8.7% YoY, 8th Drop in 9 Months

 

• December 27, 2012: Michael Pettis on China Reforms, Ponzi Schemes in Wealth Management Programs, Rebalancing Implications

GDP aside, global rebalancing has just begun, and it may take a decade to finish. Expectations that the worst is behind us in China and in Europe is about to be shattered on the hard rocks of reality.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

“Wine Country” Economic Conference Hosted By Mish
Click on Image to Learn More

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Mish’s Global Economic Trend Analysis

China Overheating? Biggest Weekly Cash Drain in History; Questions Surface Over Chinese Growth Numbers