Tuesday, 8 May 2007

Consumer Spending Soars

The headline news is Consumers Boost Borrowing at Fastest Pace in 4 Months Despite Energy Prices, Housing Slump.
Consumers boosted their borrowing in March at the fastest pace in four months, showing resilience in the face of rising energy prices and a painful housing slump.

The Federal Reserve's report, released Monday, showed consumer credit increased at a brisk annual rate of 6.7 percent in March. That marked a pickup from February's 2.8 percent growth rate and was the biggest increase since November.

Consumer spending is indispensable to a healthy economy. The economy grew at an anemic 1.3 percent pace in the January-to-March quarter, the weakest in four years, due to fallout from the housing slump and belt tightening by businesses. Consumers, however, managed to continue spending, an important factor in keeping the economy moving.

Use of revolving credit, primarily credit cards, rose at a sizzling pace of 9.2 percent in March. That was up from a 2.9 percent growth rate in February and was the biggest increase since November.

Demand for nonrevolving credit used to finance cars, vacations, education and other things, also picked up. Nonrevolving credit use rose at a 5.2 percent pace in March, compared with a 2.7 percent growth rate in February.

The Fed's measure of consumer borrowing does not include mortgages or other loans secured by real estate. The March increase pushed total consumer debt up by a whopping $13.46 billion to a record $2.43 trillion.

Energy prices, meanwhile, have surged to a record nationwide average of $3.07 per gallon, oil industry analyst Trilby Lundberg said Sunday. The previous record was $3.03 per gallon on Aug. 11, 2006.
Is that headline backwards? Perhaps revolving credit is soaring because of high energy prices. Unable or unwilling to extract mortgage equity, but still needing to meet mortgage obligations, rising food prices, and rising gasoline prices, consumers simply said "Charge-It".

Here is the official Consumer Credit Release. Note that the release was for March which puts this spending in the first quarter. For all that spending, first quarter GDP clocked in at a mere 1.3%.

This huge increase in revolving debt right in the face of a slowing economy smacks of inability to service current debt. And ability to service debt depends on jobs and rising wages. So what are consumers going to do for an encore given the slowdown in jobs and wages as discussed in
Consumers can only postpone the inevitable for so long (and even then only as long as they have a job). The slowdown in MEW (mortgage equity withdrawal) took away one leg of support, and a slowdown in jobs will take away another. Foreclosures and bankruptcies are now both set to soar.

With that backdrop it is probably fitting that superbear Richard Russell throws in the towel.
"We saw something that is extremely rare [on April 20 and April 25], in fact I can't remember ever having seen this before. What I'm referring to is that on those two dates all three Dow Jones Averages -- Industrials, Transports, and Utilities closed at simultaneous historic highs. To me, a fellow steeped in Dow Theory for over half a century, this was like a clap of thunder... My take on the situation is that the stock market (and the Dow Theory) told us that an unprecedented world boom lies ahead."

Russell acknowledges that what he has written will surprise many who are accustomed to his long-standing caution about the stock market. He imagines that we will want to respond by saying "But Russell, you're usually so conservative, so restrained. How can you possibly talk this way? Now you're talking about a worldwide boom. Are you smoking something we don't know about?"

Russell's response:

"I stopped smoking over 40 year ago. No, I'm simply relating to you my interpretation of what the market is saying. I believe the markets talk in their own secret language. And when the market does something that has never been done before, that serves as a 'kick in the pants' for me. It's telling me, 'Russell, wake up. Something very unusual is going on. Get up out of your chair -- and pay attention'."
This post originally appeared on Minyanville. Kevin Depew also talked about consumer spending this morning in "Five Things". Here are a few snips.
You have to give the consumer some credit. No, seriously, you have to because that's apparently how they're paying their bills.

So consumers "showed resilience" by borrowing at the fastest pace in four months... while the economy grew at its slowest pace in four years? Huh? We don't think this is resilience at all. It's desperation.
Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Monday, 7 May 2007

Nonfarm Payrolls Vs. Gov't Payrolls

The growth rate of government payrolls is now poised to exceed the growth rate of private sector nonfarm payrolls. The last six time this happened there was a recession.



Thanks to "BC" for the above idea.

I wrote about the April 2007 job numbers in Birth Death Model Fatally Flawed.
Let's recap.
  • April Nonfarm payrolls were +88,000
  • 25,000 of those 88,000 jobs were government jobs
  • 28,000 goods producing jobs were lost
  • The Birth/Death model added 317,000 jobs
  • Since the beginning of the year, the birth/death model has accounted for a net 388,000 jobs
Nonfarm Post Mortem

David Rosenberg of Merrill Lynch is also commented on the jobs report in Nonfarm post mortem: This glass wasn’t just half empty. Highlights:
The headline came in light at +88,000 – not only below the 100,000 consensus estimate, but the lowest print since November/04 – and there were downward revisions to the prior two months totaling 26,000. We haven't seen downward adjustments to the prior data in nearly a year, and these tends to be a “pro-cyclical” development in the sense that they tend to foreshadow further weakness in payrolls in coming months.

Other leading indicators such as the 0.4% month-over month decline in aggregate hours worked (hours lead bodies) and the 6,000 slippage in temp employment reinforce the view that the April payroll tally was not the last in the line of soft numbers coming down the pike.



The unemployment rate, to be sure, only ticked up from 4.4% to 4.5% and that was fully expected by the consensus. But that up-move was understated because of a huge slide in the labor force – in fact, any time you see a 0.2 percentage point slide in the participation rate, as we did in April (a decline not seen in 27 months), to 66.3% from 66.0% in March, you know that some tectonic shifts are taking place in the labor market. [Mish note: That last sentence is a typo. The line should read to 66.0% from 66.2%. I have a chart below that shows the trend] Not only that, but the key “employment rate” – the employment-to-population ratio – sagged to 63% from 63.3% and this we can assure you is not lost on the central bank.

The last time the employment/population ratio fell this much in one month was back in October 2002 when the Fed was consumed with deflation fear and was on the precipice of cutting the funds rate two more times. Bottom line is that if the labor force had not contracted in April as much as it did (-392,000), employment tally from the Household Survey was so weak (-468,000) that the unemployment rate would have actually risen just a smidgen above 4.7%.

The grim reality for Ma and Pa Kettle is that the combination of the drop in the workweek and the soft wage number left average weekly income down 0.1% on the month; dragging the year-onyear trend down to 3.4% from 4.3% – the weakest pace since December 2005 (and less than 1% growth in “real” terms) when the funds rate was sitting at 4.25% and the 10-year T-note hovering below 4.5%.

As we sifted through the details of the report, it became increasingly difficult to
sugar-coat it. Full-time jobs, the key generator of personal income growth, plunged 687,000 in April which is the largest slide since the economy was knee-deep in recession back in August 2001 and such a decline has only occurred three other times in the history of the Household Survey (back to 1968). Those working part-time “for economic reasons” jumped 2.2% or a 31% annual rate to stand at the highest level since September 2005. Those individuals not counted in the labor force but would like to have a job rose 262,000 or a huge 5.8% last month; and the median duration of unemployment rose to 8.7 months from 8.5 in March and 8.1 in February.
Steady Decline in the Participation Rate

Following is a chart from the BLS showing the dropoff in the participation rate.



Were it not for that decline in participation rate, unemployment would now be at 4.7% (assuming of course one believes the data and the methodology). If we counted unemployment the way they do in Europe it would be closer to 8.2% as shown in Table A12 in the above link.

By the way, none of those figures include real estate agents who are still self employed but have not had a sale for 6 months but they do count every person selling trinkets on Ebay attempting to make a living at it. Some will, but most the vast majority will not.

The weakness in this latest set of job numbers goes far beyond the insanity of the 317,000 birth death adjustment that everyone is talking about. We can now add jobs to the long list of items signaling a recession. For cash strapped and deep in debt consumers this trend could not be happening at a worse time.

This post originally appeared on Minyanville. Readers might also be interested in Sally Limantour's article All Eyes On Gold.
China and India continue to be buyers of the yellow metal and even with tightening measures in China this does not seem to put a damper on demand. Money supplies are surging and while inflation numbers appear under control we cannot ignore the fact that 18 of the top 20 central banks have double-digit increases in their money supplies.

One inhibiting factor to the price of gold has been persistent legacy central bank selling. This has been a consistent theme where the legacy banks agree on an amount to be sold within a given year. As of the end of April 2007 the tonnage remaining of the announced sales will be down to 617.5 tonnes. Julian Philips of the Gold Forecaster writes that this may be ending soon. He emphasizes, “If sales continue at the rate we have seen over the last two months at around an average of 10 tonnes, these sales will last just over a year before they are complete and will terminate."

Finally, the technical picture looks healthy with gold consolidating above $675 and unable to go below $670 during April’s break. As you can see on the chart below the trend remains up and corrections are becoming smaller.
...
Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Saturday, 5 May 2007

Real World vs. Financial World

Still more indicators are highly suggestive of an upcoming recession. I recently talked about capital spending, home sales, GDP, auto sales, and manufacturing in Capital Spending Suggests Hard Landing.

This month's free issue of Contrary Investor, called Deficit Attention Syndrome contains some interesting charts and commentary on still more indicators that are signaling recession. Let's take a look at a few of the charts.
Nominal Retail Sales




US Imports Annual Rate of Change



Trade Deficit Spread



Trade Deficit 12 Month Moving Average



The trade numbers, auto sales, retail trends, housing conditions, slowing in corporate capital spending all point directly toward a recession as a very strong possibility based on historical precedent. But this real world of the US economy is colliding with really the global financial markets of the moment. Financial markets that are clearly being supported and elevated by acceleration in monetary accommodation as of late. Across the globe, the year over year rate of change in monetary aggregates in the major economies is running double digit.

Here in the US, we know that M3 was bound, tied and thrown off the side of the ship into the deep blue abyss a year ago. But as a quasi substitute, MZM (money of zero maturity) is relatively broad in and of itself as a measure of monetary levels and acceleration. As an example of what’s really happening in the land of money/credit creation stateside, the following table lists the annualized growth rates of MZM over the last one, two, three six and twelve months. Get the picture?



M3 Reconstructed

There is no need for a quasi-M3 substitute. Bart at NowAndFutures has reconstructed M3. The only component that is not available is Eurodollars and Bart estimates that based on historical correlations. Still, Eurodollars are only about 3% of M3 so unless Eurodollars have skyrocketed unbeknown to anyone, whatever he is off on Eurodollar estimates is not likely to be statistically significant. Bart calls his reconstructed numbers M3b. Here is the weekly chart as of April 28th.

M3b



Is this a start of a pullback in M3? It will be interesting to watch going forward. A couple weeks do not a trend make but the Fed is having a difficult time defending a 5.25% target (on the high side). There have been several reverse repos recently so we need to watch and see if this pattern continues.

Excluding Everything Things are Fine

Caroline Baum is writing Housing? What Housing? I Don't See Any Housing
Excluding housing, the U.S. economy is doing just fine.

That's the latest rationalization of a select group of operators who think that the Bush administration's 4.6 percentage point cut in the top marginal tax rate and 5-point reduction in the top capital gains rate can protect the economy from any and all ills.

To say that ex-housing the economy is doing just fine is tantamount to claiming that, ex-Iraq, Bush's Middle-East policy is a rousing success.

How valid is the claim that outside of housing everything is hunky dory? Let's go to the videotape to see how housing- centric the U.S. economy's weakness really is.

The Commerce Department reported Friday that real gross domestic product rose 1.3 percent in the first quarter, the slowest pace in four years. The year-over-year growth rate slipped to 2.1 percent, also a four-year low.

The first quarter's sluggish growth wasn't confined to housing, however. Exports declined, inventories were a small drag, and capital spending (investment in equipment and software) rebounded 1.9 percent -- better than expected based on monthly data on shipments but nothing to write home about after declines in the second and fourth quarters of last year.

"The initial weakness was in housing, but the weakness in capital spending is not a cross-infection from housing," says Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Housing Plus

One year ago, capital spending was growing at a 9 percent year-over-year rate, he points out. Now it's zero.
"A year ago, people said capital spending was going to rescue us as housing slowed," he says. "Capital spending is down to zero (year-on-year). There's been an unambiguous slowdown."

Companies that haul the stuff consumers buy -- United Parcel Service, for example -- are reporting weakness in their domestic operations. UPS, the world's largest package-delivery company, said U.S. volume showed no change in the first quarter from a year ago.

"I don't think much of UPS's business is housing related," Kasriel says. "They don't ship lumber, wallboard and toilets."

Excluding Everything

Another quarter of growth with a 1 percent handle is apt to make Fed officials nervous for the simple reason that there is no mandate for a recession with inflation running at 2-something percent. When growth is that slow, all it takes is a big quarterly inventory decline to thrust a negative sign in front of GDP, which in turn leads to a diminution in confidence.

While Fed Chairman Ben Bernanke's reaction function is different than Alan Greenspan's -- he's not a politician, looks uncomfortable at hearings, and keeps his answers short and to the point -- he isn't immune to what's going on around him.

Imagine how it would look if Congress were to ask him to explain why the Fed let the economy slip into recession with inflation so low. Would Bernanke be able to keep a straight face when he told them that GDP ex-housing was solid?

Heck, GDP excluding consumer spending, business investment, housing and exports was robust in the Great Depression, too.
Things aren't fine when you have to exclude everything to prove it. Then again, that's the difference between the real world and a financial world gone crazy with leveraged buyouts, derivatives, and carry trades.

This post originally appeared in Whiskey & Gunpowder.

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

Friday, 4 May 2007

Birth Death Model Fatally Flawed

Nonfarm payroll employment edged up +88,000 in April, and the unemployment rate was essentially unchanged at 4.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Job gains continued in several service-providing industries, including health care and food services, while employment declined in retail trade and manufacturing.

This was lower than the expected 100,000 and far weaker than it even looks. 25,000 of those 88,000 jobs were government jobs. In addition 28,000 goods producing jobs were lost.

Economic Recap

How anyone could have expected good job growth in the face of those statistics is unexplainable. But more amazing yet are the Birth/Death job assumptions this month.



In the face of all that slowdown, somehow the BLS model added 317,000 jobs for the month.

Kevin Depew on Minyanville wrote about this today in on Minyanville wrote about this today in Five Things You Need To Know. Here are the first two.
Economic Deceleration Contained to Overall Economy

U.S. job growth in April slowed to 88,000, less than the 100,000 economists expected. And that's actually the good news.

* The bad news is related to the comical shenanigans of the the Birth/Death Model.
* The Birth/Death model contributed 317,000 adds.
* That's not a typo. That's 317 thousand adds.
* According to Minyanville Professor Scott Reamer, since 1999 there has been only one other month in which the add was bigger, January 2004.
* For some perspective, in the 36 month period ending March 2002 - 36 months - the total adds from the birth/death model were 353,000. Over 36 months.
* Since the beginning of the year, the birth/death model has accounted for a net 388,000 jobs.
* Last year it added 964,000 jobs.
* The kicker is that the Bureau of Labor Statistics refuses to allow academics and commercial economists access to the models they use for the birth/death additions.

2. GM Losses Contained to Auto Sales and Subprime Lending

General Motors' (GM) first-quarter earnings fell nearly 90% due to heavy losses related to subprime lending at GMAC, the carmaker's financial services arm.

* Here's what passes for "good news" over at GM:
The net loss from GM’s core North American automotive operations was "only" $42 million.
* Woo hoo!
* GMAC reported a first-quarter loss of $305 million earlier this week, compared with earnings of $495 million a year earlier.
* ResCap, the company's home-lending unit, lost almost a billion dollars.
* As if that's not sad enough, do you have any idea what the company's best markets are?
* Emerging markets. The Asia-Pacific region, Latin America, Africa and Middle East divisions accounted for nearly one-third of the GM's vehicle output.
* Latin America, Africa and Middle East were by far the largest contributors to GM’s earnings, reporting a record first-quarter profit of $201 million, according to the Financial Times.
* So, think about this for a moment:
America's largest car maker, number five in the Fortune Global 500, employing 335,000 people, is now almost entirely dependent on emerging markets just to remain operational.
* Oh, one last thing before we forget. Where exactly do all those consumers in emerging markets get their money?
* Pick up a random object on your desk and look where it was made.
* That's right. They get it by exporting things to U.S. consumers and getting dollars in return.
If there was ever any doubt about how flawed that birth/death model is, there certainly should be none now.

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

Thursday, 3 May 2007

Car Sales & Locusts of Liquidity

Mlive is reporting GM, Ford, Toyota, Honda report sales declines, Chrysler rises.
April was such a lousy auto sales month that every major manufacturer but Chrysler reported a decrease from the same month last year.

General Motors Corp., Ford Motor Co., Honda Motor Co. and Nissan Motor Corp. all showed declines as automakers released their monthly U.S. sales numbers on Tuesday, but the drop for Toyota Motor Corp. countered a nearly two-year trend of rising sales, sometimes in double digits.

Toyota sales, which include the Toyota, Lexus and Scion brands, dropped 4.3 percent to 210,457 last month from 219,965 in April 2006, the company said Tuesday. It was the first year-over-year monthly decline for Toyota since May of 2005.

"This certainly is uncharacteristic of Toyota," said Joe Barker, senior manager of global sales analysis for CSM Worldwide, an automotive forecasting firm in Northville. "I would expect them to rebound strongly next month."

U.S. light vehicle sales for all automakers declined 7.6 percent last month to 1.34 million from roughly 1.45 million a year ago, according to Autodata Corp.

Industry analysts say the bad month is a harbinger of things to come for the whole industry in the second half of the year with economic uncertainty, high consumer debt, the housing slowdown and rising gasoline prices contributing to a softer automotive market.

Consumers also are waiting for incentives to rise as many manufacturers try to reduce them, said Jesse Toprak, senior analyst for the Edmunds.com auto Web site.

"They're waiting for the next big sale and perhaps postponing their purchases because of this combination of factors," Toprak said. "They don't have a lot of confidence in the housing market, gas prices are higher."
I am more inclined to believe this is more of a harbinger of things to come as opposed to expecting a strong rebound. There is no fundamental reason to expect car sales to do anything more than put in a "dead cat bounce".

Sales Figures
  • Nissan -18.0%
  • Ford -12.9% overall
  • Ford Autos -23.6%
  • Ford Trucks -5.7%
  • Ford F Series Trucks -12.4%
  • GM -9.5% overall
  • GM Autos -10%
  • GM Trucks -9%
  • Honda -9.1% overall
  • Honda Autos -13.7%
  • Honda Trucks -2.6%
  • Mercedes -1.8%
  • Chrysler +1.6%
Only Chrysler sales were up but Chrysler led all manufacturers with $4,000 per vehicle incentives.

Perhaps massively declining car sales are the most bullish thing for automotive companies and tire manufacturers. GM, Ford, Goodyear, and Cooper Tires were all up today. Check out the reaction in Cooper Tires.




Apparently there are some rumors that Cooper Tire is a leverage buyout candidate. Is there any company that is not an LBO candidate?

Cablevision Accepts Dolan Buyout

The WSJ is reporting Cablevision Accepts Dolan Buyout
Cablevision Systems Corp. agreed to be taken private by the founding Dolan family for about $10.6 billion, suggesting the Dolans like the cable industry's chances against increasing competition.

The $36.26-a-share offer for Cablevision, which owns Madison Square Garden, Radio City Music Hall, and the New York Knicks and Rangers, is an 11% premium to the Tuesday closing price of $32.67 a share, and a 52% premium to Cablevision's closing price of $23.93 on Oct. 8, the day before the Dolans' first bid.
Locusts of Liquidity

Jeffrey Cooper on Minyanville is writing about The Locusts of Liquidity
On the heels of the burst of the technology bubble, 9/11, and corporate scandals, interest rates were not so much cut as they were chopped to historic low levels. Then, on the heels of the real estate bubble imploding and the sub-prime mortgage issue, money supply has exploded in recent months. This money creation, this Bernanke Bid, synchronous with the Yen Carry Trade is the wind beneath the wings of the locusts of liquidity. These locusts are feeding on a field of equity dreams where the only P/E that matters is Private Equity.

Socrates said that when the Muses first brought song to the world, the beauty so captivated some that they forgot to eat and drink until they died. The Muses turned these souls into locusts.

From my ledge it looks and sounds like once again the music of momentum for momentum’s sake is being chanted from the caverns of Wall Street by capitalist Hare Krishnas swarming before the sun like locusts of liquidity. Same asylum, different inmates.
The reaction to the auto data and the Cablevision buyout more or less says it all. The LBO locusts continue to swarm even as the real economy sinks. I will have more on the real economy on Friday.

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

Wednesday, 2 May 2007

Layoff Plans Soar

According to Challenger Layoff plans jump 44% to 70,672.
Job reduction announcements by major U.S. corporations soared by 44% to 70,672 in April after falling to an eight-month low in March, according to a monthly report released Wednesday by outplacement firm Challenger Gray & Christmas.
Layoff plans were up 18% compared with April 2006. It's the first time since September that layoffs rose on a year-over-year comparison.

The job cuts in April were led by Citigroup which announced plans to eliminate 17,000 positions. With 33,789 reductions in April, the financial sector has now announced plans to cut 50,221 jobs so far this year, overtaking the auto industry as the top job reducer.

In April, the top industries for job reductions were financial with 33,789, government with 5,643, autos with 4,089, industrial goods with 3,968 and consumer products with 3,391.

In a separate report, a survey of worker confidence showed employees growing slightly more uncomfortable about their personal finances. The Hudson employment index, based on interviews with 9,000 workers, fell to 107.5 in April from 109 in March. Workers were also more dissatisfied with their jobs.
ADP estimates 64,000 private sector jobs for April

The official numbers are out on Friday but ADP is reporting now U.S. job growth weakest in nearly four years.
U.S. private-sector jobs increased by 64,000 in April, the weakest job growth in nearly four years, according to the monthly ADP employment report released Wednesday.

"This is a sluggish type of number," said Joel Prakken, chairman of Macroeconomics Advisers LLC, which produces the report for Automatic Data Processing Inc. After adding in some 24,000 government jobs created in a typical month, the ADP report suggests nonfarm payrolls grew by about 90,000 in April, a bit lower than the 100,000 estimated by economists surveyed by MarketWatch.

Service-sector firms added about 106,000 jobs, while the goods-producing industries cut 42,000, including 20,000 in manufacturing. Goods-producing industries include manufacturing, mining and construction.

The 22,000 jobs lost in goods-producing industries excluding manufacturing (mostly construction) are the largest since November 2001.

The ADP report shows a decline of 45,000 construction jobs in the past three months, in contrast to the Labor Department's figures showing a gain of 29,000. Prakken said he wouldn't be surprised if the government numbers are revised lower to match his.

In April, small businesses created 45,000 jobs, medium-sized firms created 29,000 and large businesses shed 10,000 jobs, according to ADP. Large companies haven't added to their payrolls since November.

The ADP report is designed to mirror the monthly nonfarm payrolls report released by the Labor Department on Friday. One difference: the Labor Department statistics include government jobs, but ADP doesn't.

The April release marks the one-year anniversary of the ADP's public rollout. After a few big misses compared with the Labor Department figures in its first few months, the methodology for the ADP report has been tweaked and the sample size increased.
ADP's numbers at least make sense. Perhaps those methodology revisions helped. With housing as poor as it has been and capital spending declining, it is far more likely that we lost 45,000 construction jobs in the past three months as ADP estimates than added 29,000 construction jobs as the Labor Department's figures show.

IBM Announces Job Cuts

IBM hopped on the bandwagon announcing a cut of 1,315 US jobs.
The world's largest technology services company, is cutting 1,315 services-related jobs in the United States, a union trying to organize IBM workers said on Tuesday.

"We're putting in place a series of actions to address our U.S. cost base, including a basic focus on resource and cost management disciplines and rebalancing of resources as we execute our global resource strategy," Chief Financial Officer Mark Loughridge said on a conference call with analysts on April 17, according to a transcript of the call.

Loughridge said in April that IBM's first quarter was "noticeably weaker" in the United States, especially in the industrial, financial services and communications industries.

The job cuts follow an IBM announcement on Monday that it planned to hire 500 people at a new customer call center in Daleville, Indiana, through 2010.
Gap Considers Sizable Layoffs

Reuters is reporting Gap is considering layoffs to cut costs
Clothing retailer Gap Inc. is considering sizable layoffs over the next few weeks to cut costs, the New York Post reported on Wednesday, citing three people familiar with the situation.

The job cuts would occur at all levels of the company, which employs 150,000 people, as its seeks to eliminate a stifling bureaucracy, the paper said.
Intel Announces Mass Layoffs

The WSJ is reporting Intel To Cut More Than 1,000 Jobs At New Mexico Plant

Intel Corp. (INTC) said Tuesday that it expects to cut more than 1,000 jobs at its Rio Rancho plant as the company ends production of an older silicon wafer technology.

Intel will stop making the 200-millimeter wafers at the plant by the end of August, and affected employees will be offered severance packages ...
Pending Home Sales at 3 Year Low

U.S. pending home sales fell 4.9% in March and the Realtors' market-activity index hit a three-year low.
The group's pending-home-sales index declined 10.5% from March 2006 and sits at its lowest level since March 2003.

David Lereah, the NAR's chief economist, predicted that home sales will be "relatively sluggish" in the second quarter but that a "modest uptrend" is on the horizon for the second half of 2007.

"Although the weather improved in March, we're starting to see the effects of a decline in subprime lending and tighter lending standards," Lereah said in a news release.

Ian Shepherdson of High Frequency Economics said the drop was a big surprise.
"This is much worse than we expected," Shepherdson said in an e-mail. "The warm March weather ought to have persuaded more people to go house-hunting, and that in turn ought to have increased the number of contract signings, which is what the pending-sales index measures."

A home sale is listed as pending when the contract has been signed but the transaction has not closed. Such a sale is usually finalized within one or two months of signing.
Are corporations are finally getting the message that housing is not going to recover? It seems like it. Capital spending has been falling like a rock and now we are seeing year over year increases in mass layoff plans.

Weak jobs beget weak consumer spending and a weakening GDP. Weak spending begets weak hiring. The cycle down is just starting and the falloff in capital spending in the face of a continued decline in housing seals the fate. Once again Lereah is on the wrong side of the fence predicting a "modest uptrend" in housing for the second half of 2007. With the debt side of the balance sheet sitting where it is, it is likely that consumers have never been less prepared for the recession that is about ready to hit them smack in the face.

This post originally appeared in Minyanville. Also on Minyanville today, Kevin Depew talked about yacht sales and the Baltic Dry Index in "5 Things You Need To Know". Yacht sales are way up and car sales are way down. If that is not a sign of our dual economy what is? I will have more on car sales tomorrow.

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

Tuesday, 1 May 2007

Economic Ramifications of Iraq

Like it or not, it is pretty hard to find much of anything good to say about Bush's war program. That is a simple statement of fact and not even a political one at this point.

When you have an active-duty officer criticizing handling of Iraq war something serious is up.
An active-duty U.S. Army officer has taken the unusual step of openly criticizing the way generals have handled the Iraq war, accusing them of failing to prepare their forces for an insurgency and misleading Congress about the situation here.

"For reasons that are not yet clear, America's general officer corps underestimated the strength of the enemy, overestimated the capabilities of Iraq's government and security forces and failed to provide Congress with an accurate assessment of security conditions in Iraq," Lt. Col. Paul Yingling wrote in an article published Friday in the Armed Forces Journal.

"In 2007, Iraq's grave and deteriorating condition offers diminishing hope for an American victory and portends risk of an even wider and more destructive regional war," he said.

Several retired U.S. generals have delivered similar criticism, questioning planning for the Iraq conflict as well as the management competence of former Defense Secretary Donald Rumsfeld.

But public criticism from an active-duty officer is rare and may be a sign of growing discontent among military leaders at a key time in the troubled U.S. military mission in Iraq.

"The intellectual and moral failures common to America's general officer corps in Vietnam and Iraq constitute a crisis in American generalship," said Yingling, who has served two tours in Iraq as well as in Bosnia and the 1991 Persian Gulf war.

"Given the lack of troop strength, not even the most brilliant general could have devised the ways necessary to stabilize post-Saddam Iraq," he wrote.

Yingling said he believes that no single civilian or military leader has caused what he regards as the current failure in Iraq. Instead, he argued that Congress must reform and better monitor the system for selecting and promoting generals.
It is interesting that Yingling is questioning both intellectual and moral implications of how we fought this war. His solution is of course half-baked given that this administration has proven time and time again that it is not interested in dissenting opinions. But the key point is that he is willing to say what he did in the first place. It was not without risk, and it is likely that any chance of his military advancement just went out the window.

Projects Crumbling in Iraq

The New York Times is writing Inspectors Find Rebuilt Projects Crumbling in Iraq.
In a troubling sign for the American-financed rebuilding program in Iraq, inspectors for a federal oversight agency have found that in a sampling of eight projects that the United States had declared successes, seven were no longer operating as designed because of plumbing and electrical failures, lack of proper maintenance, apparent looting and expensive equipment that lay idle.

The United States has previously admitted, sometimes under pressure from federal inspectors, that some of its reconstruction projects have been abandoned, delayed or poorly constructed. But this is the first time inspectors have found that projects officially declared a success — in some cases, as little as six months before the latest inspections — were no longer working properly.

At the airport, crucially important for the functioning of the country, inspectors found that while $11.8 million had been spent on new electrical generators, $8.6 million worth were no longer functioning.

At the maternity hospital, a rehabilitation project in the northern city of Erbil, an expensive incinerator for medical waste was padlocked — Iraqis at the hospital could not find the key when inspectors asked to see the equipment — and partly as a result, medical waste including syringes, used bandages and empty drug vials were clogging the sewage system and probably contaminating the water system.

The newly built water purification system was not functioning either.

Curiously, most of the problems seemed unrelated to sabotage stemming from Iraq’s parlous security situation, but instead were the product of poor initial construction, petty looting, a lack of any maintenance and simple neglect.

A case in point was the $5.2 million project undertaken by the United States Army Corps of Engineers to build the special forces barracks in Baghdad. The project was completed in September 2005, but by the time inspectors visited last month, there were numerous problems caused by faulty plumbing throughout the buildings, and four large electrical generators, each costing $50,000, were no longer operating.
No one should be shocked by any of this. The incompetence of this administration and its war effort simply has no boundaries. Once again this is a not a political statement per se, merely a statement of fact that any thinking person of either party should be willing to accept. It is failure to accept the obvious that is politics, as opposed to the statements as presented here.

The Ron Paul Solution

On March 20th Ron Paul wrote about Iraq War Funding.
If one is unhappy with our progress in Iraq after four years of war, voting to de-fund the war makes sense. If one is unhappy with the manner in which we went to war, without a constitutional declaration, voting no makes equally good sense.

Congress failed to meet its responsibilities four years ago, unconstitutionally transferring its explicit war power to the executive branch. Even though the administration started the subsequent pre-emptive war in Iraq, Congress bears the greatest responsibility for its lack of courage in fulfilling its duties. Since then Congress has obediently provided the funds and troops required to pursue this illegitimate war.

We won’t solve the problems in Iraq until we confront our failed policy of foreign interventionism. This latest appropriation does nothing to solve our dilemma. Micromanaging the war while continuing to fund it won’t help our troops.

Here’s a new approach: Congress should admit its mistake and repeal the authority wrongfully given to the executive branch in 2002. Repeal the congressional sanction and disavow presidential discretion in starting wars. Then start bringing our troops home.

If anyone charges that this approach does not support the troops, take a poll. Find out how reservists, guardsmen, and their families--many on their second or third tour in Iraq--feel about it.

The constant refrain that bringing our troops home would demonstrate a lack of support for them must be one of the most amazing distortions ever foisted on the American public. We’re so concerned about saving face, but whose face are we saving? A sensible policy would save American lives and follow the rules laid out for Congress in the Constitution—and avoid wars that have no purpose.

The claim that it’s unpatriotic to oppose spending more money in Iraq must be laid to rest as fraudulent.

We should pass a resolution that expresses congressional opposition to any more undeclared, unconstitutional, unnecessary, pre-emptive wars. We should be building a consensus for the future that makes it easier to end our current troubles in Iraq.

It’s amazing to me that this Congress is more intimidated by political propagandists and special interests than the American electorate, who sent a loud, clear message about the war in November. The large majority of Americans now want us out of Iraq.

Our leaders cannot grasp the tragic consequence of our policies toward Iraq for the past 25 years. It’s time we woke them up.

Since we stubbornly refuse to understand the nature of our foes, we are literally defeating ourselves.

In 2004, bin Laden stated that Al Qaeda’s goal was to bankrupt the United States. His second in command, Zawahari, is quoted as saying that the 9/11 attack would cause Americans to, “come and fight the war personally on our sand where they are within rifle range.”

Sadly, we are playing into their hands. This $124 billion appropriation is only part of the nearly $1 trillion in military spending for this year’s budget alone. We should be concerned about the coming bankruptcy and the crisis facing the U.S. dollar.

We have totally failed to adapt to modern warfare. We’re dealing with a small, nearly invisible enemy--an enemy without a country, a government, an army, a navy, an air force, or missiles. Yet our enemy is armed with suicidal determination, and motivated by our meddling in their regional affairs, to destroy us.

And as we bleed financially, our men and women in Iraq die needlessly while the injured swell Walter Reed hospital. Our government systematically undermines the Constitution and the liberties it’s supposed to protect-- for which it is claimed our soldiers are dying in faraway places.

Only with the complicity of Congress have we become a nation of pre-emptive war, secret military tribunals, torture, rejection of habeas corpus, warrantless searches, undue government secrecy, extraordinary renditions, and uncontrollable spying on the American people. The greatest danger we face is ourselves: what we are doing in the name of providing security for a people made fearful by distortions of facts. Fighting over there has nothing to do with preserving freedoms here at home. More likely the opposite is true.

Surely we can do better than this supplemental authorization. I plan to vote no.
Fiscal Insanity

That vote is of course history and one can debate endlessly about whether or not a political pragmatic solution or an idealistic solution like Ron Paul's is the correct approach. But I do not want to go there. Nor do I want to go on debating about war mongers like Hillary Clinton or worse yet John McCain.

Instead let's focus on where we are. From every aspect this war has been a disaster. It is fiscal insanity to waste a trillion dollars fighting an enemy that we do not know and cannot see, especially when a civil war is raging. It is reasonable to assume recent weakness in the dollar may be related to Bush's decision to send more troops and waste more money in that sinkhole.

Every great nation throughout history has met its demise my military over expansion. The methods today might be different, but the theory is the same. We cannot afford to be the world's policemen. Once again, this is not a political statement, it is a simple economic fact.

If we start pulling troops out of Iraq right now and cut back on insane levels of war funding, look for the US dollar to rally, and probably substantially. In addition, we would likely see a decline in gold and US equities. However, it is unlikely that this Congress has the political nerve to do what is right (something along the lines of what Ron Paul suggests), but one can always hope.

Of course, if the US or Israel is dumb enough to attack Iran, oil could head north of $100, perhaps substantially so. On the other hand if Iran is defused, oil prices could drop along with a weakening US economy.

Looking ahead to 2008, if Hillary or McCain is elected, figure on military status quo and kiss the US dollar goodbye (it it is not already burnt toast). The mother of all economic disasters occurs if we continue wasting money in Iraq (and other places) especially if coupled with protectionist legislation against China and Japan. In light of the above, it may be more important than ever to keep one eye on on the political front.

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