Wednesday, June 01, 2011
Um, It's June
The pain in the manufacturing sector is patently obvious by looking at the dollars beyond terms numbers. In April the subsector index was holding at a respectable 52.2, but in May the crash was precipitous. The manufacturing index fell to 45.8, the lowest in over 18 months. This category is now as bad as it was in the middle of the recession, meaning a great many manufacturers are in a cash flow crisis that could crush them in the near future.There are comments about falling export demand. Those hopefully speculating about QE3 aren't grasping that it is not going to help and instead will pound another couple of nails into the coffin. NACM CMI also predicts that June retail numbers will be poor.
In many cities, Chinese YoY RE price gains have fallen below CPI, which is a sign that the bloom is starting to come off the rose. The power increases for manufacturers this summer in 15 provinces are hardly going to be disinflationary, so.... India is in a bit of a swoon also.
I can see I am going to be putting in some good time on the woodpile today. ADP employment for May (private employment only) came in at 38K compared to April's (slight downward revision) 177K. Goods-producing jobs dropped 10K. This does not bode well for Friday's official employment report for May, because I doubt that governments are doing much hiring. Added, just for laughs:
Employment increased by 38,000 last month, the smallest increase since September, from a revised 177,000 in April, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 175,000 advance for May.It's possible the Fed could still save this (controlled, short contraction) by raising rates and announcing no new QE3, but the Fed is loathe to change policy suddenly, so I do not think it will do it. It looks like we are heading toward a nearly catastrophic crash which comes at a very unfortunate time given the European struggle to deal with the sovereign debt issue and the impact on banks.
There is no possibility of getting out of this without another recession and I am growing terrifically worried over the impact on Europe. For example, NACM's comments about the export markets apply doubly to Germany, and Germany has been carrying hod for the European expansion. But Germany's economy is export-dependent.
It is rare for me to read an economic report and become nauseous, but my stomach flipped over this morning - NACM in combination with Chicago PMI yesterday nearly made me puke.
You can safely ignore the ISM reports at this point. They always seem to sample too far up the executive chain to flag problems quickly.
Well, here's ISM Manufacturing for May. New orders -10.7, order backlog -10.5. However customer inventories and inventories are too low and contracting, which provides some hope that the slide will be somewhat contained in future months. It's not good for Q2 GDP, though.
Globally we are seeing declines for the April/May period.
Hair of the dog
"As pure ethanol consumption has also been found to increase endogenous levels of methanol presumably for this reason, this suggests that if “hair of the dog” works in this way it effects a temporary hiatus rather than a cure."
My business is consistent with the reports. Sales for May were down 28% from last May while Service Sales were flat with last year. People are maintaining what they have but only replacing it if the equipment is in dire condition.
The drop in sales makes it very difficult for some companies to cope with cost increases!
Paul Krugman: Against Learned Helplessness
"We could try to get inflation back up to the 4 percent rate that prevailed during Ronald Reagan’s second term, which would help to reduce the real burden of debt."
Or we might even try getting inflation back to the 4 percent rate it was heading into this last recession. Maybe that might work. I mean really. Who doesn't like $100+ oil?
There's a reason Krugman went into economics instead of math - you never have to prove your work in economics.
My favorite economic journalistic endeavor of the day arose here.
The ADP Employment Services report is the latest in a string of data suggesting economic growth remained sluggish early in the second quarter after hitting a soft patch in the first months of the year.
There is so much spin to enjoy in this sentence! For example, "Remained" implies that this is a continuation of an earlier trend from the first quarter, when of course it is not.
But I think we will award the Palm Leaf Cluster of Distinguished Distortive Journalism to describing May's results as early in the second quarter.
See, in your calendar and in my calendar, the second quarter consists of three months April-May-June, so by now we are two-thirds of the way through the quarter, with rapidly falling indicators. But in journalistic heaven, June is a very long month in which all sorts of ebullient and fantastic economic possibilities exist, so the second quarter is REALLY composed of three equal partitions, of which the first ONE equals the months of April and May, and the last TWO equal the month of June.
It takes a journalism degree....
I'm sorry, but Krugman sounds like someone in Nazi Germany in the 1940's who thought Der Fuhrer was too moderate.
Computer Science technology has rapidly transforming our workplace from the manufacturing floor to the elite labs by replacing labor. Yet little if any discussion within the media hints about this transformation. The popular sitcom shows on TV have various office and management workers at there computers but in a few years there will be few traces of these workers along with Knowledge workers as computer science and the internet continues to transform labor staffing levels.
When workers are viewed as an
expense only, not assets, the gig
June was named after Jupiter's wife Juno. Perhaps they follow the old Gods! They aren't journalists. They are Junoists!
Juno - Queen of the Gods
"Juno was the protector and special counselor of the Roman state."
When workers are viewed as an
expense only, not assets, the gig
Spork, I'm in IT for 25 years and it has been that way even in IT departments since day 1.
What I'm trying to say is that is has been that way for thousands of years. If the gig is up, it was up before North America was discovered by Europeans. The only thing new is one's acknowledgment of the fact.
But it's as hard to automate an assembly job at a flexible-cell quick-turn manufacturing center as it is to replace SuperDoc. If you try, you just end up replacing the assembly jobs one-for-one with robotics programmers at a lower throughput.
Sadly, our education system discourages real critical thinking, does not teach the principles of efficient self-directed work, and is designed to train cookie-cutter line workers.
I do think there is one small problem with their historical reprise - they are trying to cut the food stamps. It's BREAD and circuses. The political circus they have delivered - how priceless an event is the gray boxer? but without the BREAD, the population does not get into the circuses.
It is not a good time in history to be a low-IQ or permanently stoned worker.
"Mark - yes, and since the House Chaplain slaughtered the goat and discovered all sorts of bountiful economic promises in its entrails, THERE IS NOTHING TO WORRY ABOUT."
That's a relief. I was really concerned today when I discovered that our entire country was built on ancient burial grounds (from The Onion).
and judgement were valued by your employer. Loyalty
did run both ways and productivity gains were shared
from top to bottom. To say labor has always, only been
Viewed as an expense is not quite true. It has become
More evident as wage disparity shows.
"I suppose we are all surplus now.
When workers are viewed as an
expense only, not assets, the gig
Spork, I'm in IT for 25 years and it has been that way even in IT departments since day 1."
I'm probably a bit older than you. My first job out of college was with a major oil company (Now known as BP). The chief geologist told me on my first day that I should forget everything I learned in school. He said they would train me because they wanted me to stick around for 30 years. It was going to be a mutually profitable relationship. That was 1954. There was a shortage of workers in those days. I had three job offers coming out of school and had only applied to two companies. Much different than today. It wasn't until the 70s that companies began to see that there was a surplus of workers. By that time I had done two years in the oil industry and thirteen years in the Navy. There had been huge growth in the airline business from 1965 to 1972. I jumped out of the Navy into an airline job in 1968 - just the wrong time. The airline industry and many other industries stagnated all through the 70s. Much of the problem was the same as we are seeing right now. Anti business attitudes by government and there were too many people looking for too few jobs.
B-schools began teaching in the
70s that people were much like parts - they could be bought and sold as needed. Quite a change from the attitudes that existed from 1946 till the 70s. Of course the baby boomers were what created that large increase in bodies and automation, plus anti business policies by government created a slow down in job opportunities. I recognized when they landed the module on the moon by autopilot alone that the days of three man crews were numbered. Two man crews may well be gone in a few years. Or they will have a relief pilot on board who works in the passenger area like a flight attendant unless needed in the cockpit. Think about that.
I see the way out of our troubles much as it was during the 80s. Pro business policies, reducing regulations, encouraging small business people. Just the opposite of what is being done right now. There is going to be some pain (okay, a lot of pain), but we have smart, hard working people who, if given the incentives, will take on the risks and get things rolling again. At least that's my take.
Maybe it's time to breakup Agribusiness and put people back to work on the farm. There are folks out there now trying to find custom farming niches, using leased land along the lines of Joel Salatin's books. Farming is the only business with the potential to employ a lot of bodies.
It's a good thing I'm in the computer industry so my job will still exist after those others are all gone. Now I better get back to work on my current project. (It's pretty cool actually. It's a computer program that will be able to autonomously create all the new computer programs we'll ever need. Oh, crap!)
"Anti business attitudes by government and there were too many people looking for too few jobs."
Yes, the key to keeping lots of jobs available is to let lets of industries (including new ones) thrive, and provide an environment that reduces the barrier-to-entry for would-be entrepreneurs as low as possible (while preserving/restoring things like strong property rights and rule of law)...
...or they could just keep harassing kids trying run a lemonade stand: http://www.oregonlive.com/portland/index.ssf/2010/08/portland_lemonade_stand_runs_i.html
Either way. Put enough of those job-stealing kids out of business and then all the adults will surely have good paying jobs.
Salatin's crap is a recipe for starvation and food poisoning if you try to scale it up to more than a boutique business. There's a reason that food produced that way is expensive. I'll keep an open mind--maybe he has the beginnings of an idea--but his current methods simply will never achieve the kinds of yields required to feed our population from the available land.
You're older than me but younger than my dad.
My dad started working for Illinois Central RR in '49 or '50. After 6 months his boss took him aside and told him "You're far too smart for this job. Find something better to do before the company chews you up and spits you out." (It was just advice, he wasn't being fired.) So he joined the Air Force for one term and then took a civilian job doing nuclear research. Loved it until the 70's when the DoE chewed him up and spat him out.
If you're in the top 10% of skilled workers in your profession, you'll have a job as long as the outfit makes money. If you're in the bottom 50%, you're a replaceable part or expense they want to get rid of at their earliest opportunity (but at least its evident on a daily basis). It's the workers in the 11-50 percentile that have the toughest shocks - they're valuable assets for years and then suddenly things change and they turn from assets into expenses.
Wish I had something helpful to say about IT. My experience is that most companies refuse to train anyone and prefer to get in bidding wars for the few folks that have managed to get trained. Customers love having good quality tech support, but don't have the knowledge on how to find companies that will provide that.
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