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As everyone should know by now, my main concern with unions is specifically with public unions. While I do not care for unions at all, and never have, at least with private unions, someone other than corrupt politicians buying votes is bargaining at the other end of the table.
In the case of public unions, if politicians strike a bad deal, taxpayers foot the bill. In the case of private corporations, if management strikes a bad deal, the company goes bankrupt, shareholders take a hit, or the jobs move elsewhere, as soon as the contract is up.
Except in few cases every now and again, private unions just cannot seem to understand this simple economic fact.
Machinists Union Pickets Cessna Aircraft
The Kansas Wichita Eagle highlights the typical union response, public or private, in Cessna’s initial offer to Machinists includes wage cut
Machinist union members at Cessna Aircraft picketed near the company’s plant in southwest Wichita on Thursday to protest jobs being sent outside the city.Members fought strong, gusty afternoon winds and carried signs that read “Keep it Made in Wichita,” “Outsourcing is Treason” and “We built the Air Capital,” as they picketed at K-42 and Hoover roads. Some carried American flags.
Cessna and the Machinists union are in the midst of contract negotiations. The current contract expires Sept. 19. About 2,300 hourly workers at Cessna are covered by the agreement. Hawker Beechcraft also has reopened negotiations with the union as it considers sending work to Louisiana, Mississippi and outside the country.
Cessna’s initial proposal is for a 10-year agreement that cuts wages 4.2 percent, weakens job security, replaces the pension plan with a 401(k) plan and increases the share of the cost of health insurance paid by the workers to 30 percent, said union spokesman Bob Wood.
“There’s no job security in the current proposal,” Wood said.
“Wichita is based on aircraft,” said Cynthia Hise. “If you don’t get a good contract….” Darren Hise finished her sentence. “It’s going to hurt the whole economy in Wichita.”
Reflections on Job Security
Here’s the deal. The Hise’s and the union in general, appears ready willing and able to “hurt the whole Wichita economy” if they do not get what they want.
I have to ask “How stupid is that?”
The answer is “tremendously stupid”.
It is far better to have a good paying job and no job security than no job at all and no prospects of a job. That’s what it boils down to, and like it or not, that is the economic reality.
I do not know what salaries are, but a 10 year contract with only a 4.2% pay cut does not strike me as a bad deal. Those who think otherwise need to compare it to the alternative: seeing all the jobs go to Louisiana, Mississippi, or outside the country.
By the way, wouldn’t residents of Louisiana and Mississippi be very grateful for those job, regardless of what the salary was? I think so. So the bottom line is this mess, is the unions would be to blame and only the unions to blame if Cessna moves elsewhere. The union will also be responsible for wrecking the entire local economy if it happens.
Take the contract and run! It’s for 10 years! Because …. You Don’t Know What You’ve Lost Till Its Gone, Then It’s Too Late. In this case, it will be gone forever.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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One year ago the official unemployment rate was 9.7%. Today it is 9.6%.
One year ago U-6 unemployment was 16.8%. Today U-6 is 16.7%
click on chart for sharper image
For more details on the jobs report, please see Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface
For all the trillions of dollars in stimulus and additional trillions of dollars in bank bailouts and trillions of dollars of expansion of the Fed’s balance sheet, this is all we have to show for it.
Moreover, the economy is clearly slowing already by many economic reports including new home sales, existing home sales, the regional Fed manufacturing surveys, sentiment measures, and consumer spending trends. The only major discrepancy is ISM.
This week, none of that matters. However, I would like to point out that bear market rallies end, not on bad news, but on good news. It will be interesting to see how much more good news there is, and the market’s reaction to it.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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This morning the BLS reported a decrease of 64,000 jobs. However, that reflects a decrease of 114,000 temporary census workers.
Excluding the census effect, government lost 7,000 jobs. Were the trend to continue, this would be a good thing because Firing Public Union Workers Creates Real Jobs.
Unfortunately, politicians and Keynesian clown economists will not see it that way. Indeed there is a $26 billion bill giving money to the states to keep bureaucrats employed. This is unfortunate because we need to shed government jobs.
Birth-Death Model
Hidden beneath the surface the BLS Black Box - Birth Death Model added 115,000 jobs, a number likely to be revised lower in coming years. Please note you cannot directly subtract the number from the total because of the way the BLS computes its overall number.
Participation Rate Effects
The civilian labor force participation rate (64.7 percent) and the employment-population ratio (58.5 percent) were essentially unchanged from last month’s report. However, these measures have declined by 0.5 percentage points and 0.3 points, respectively, since April.
The drop in participation rate this year is the only reason the unemployment rate is not over 10%. The drop in participation rates is not that surprising because some of the long-term unemployed stopped looking jobs, or opted for retirement.
Nonetheless, I still do not think the top in the unemployment rate is in and expect it may rise substantially later this year as the recovery heads into a coma and states are forced to cut back workers unless Congress does substantially more to support states.
Employment and Recessions
Calculated Risk has a great chart showing the effects of census hiring as well as the extremely weak hiring in this recovery.
click on chart for sharper image
The dotted lines tell the real story about how pathetic a jobs recovery this has been. Bear in mind it has taken $trillions in stimulus to produce this.
June, July Revisions
The change in total nonfarm payroll employment for June was revised from -221,000 to -175,000, and the change for July was revised from -131,000 to -54,000.
Those revisions look good but it is important to note where the revisions comes from. The loss of government jobs in June was revised from -252,000 to -236,000 and July from -202 to -161,000.
Major Discrepancies
The BLS jobs report for August does not match ADP payroll estimates. Moreover, neither the BLS jobs report nor the ADP jobs report is consistent with the hot ISM number reported Wednesday. Both the BLS (details below) and ADP have a decline in manufacturing employment while ISM had a rise.
Please see Rosenberg says “ISM Flunks Sniff Test “; Cashin calls ISM “an Outlier”; ADP, Other Data Does Not Confirm for more details that suggest the ISM number is nonsense.
Part-Time Employment
The number of involuntary part-time workers increased by 331,000 over the month to 8.9 million. In January, the number of employees working “part-time for economic reasons” was 8.6 million.
Now for this month’s report ….
July 2010 Report
Please consider the Bureau of Labor Statistics (BLS) July 2010 Employment Report.
Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000).
Unemployment Rate - Seasonally Adjusted
Nonfarm Payroll Employment - Seasonally Adjusted 
Since September 2009, temporary help services employment has risen by 362,000.
Establishment Data
click on chart for sharper image
Highlights
- 54,000 jobs were lost
- 19,000 construction jobs were added
- 27,000 manufacturing jobs were lost
- 38,000 service providing jobs were added
- 67,00 retail trade jobs were added
- 20,000 professional and business services jobs were added
- 45,000 education and health services jobs were added
- 13,000 leisure and hospitality jobs were added
- 121,000 government jobs were lost. Of them, 143,000 were temporary census workers
Note: some of the above categories overlap as shown in the preceding chart, so do not attempt to total them up.
Index of Aggregate Weekly Hours
Production and non-supervisory work hours rose .1 to 33.5 hours (from a revised lower hours total of 33.4 hours). Average hourly earnings rose $.03 at $19.08.
Birth Death Model Revisions 2009
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Birth Death Model Revisions 2010
click on chart for sharper image
Birth/Death Model Revisions
The BLS Birth/Death Model methodology is so screwed up and there have been so many revisions and up it is pointless to further comment other than to repeat a few general statements.
Please note that one cannot subtract or add birth death revisions to the reported totals and get a meaningful answer. One set of numbers is seasonally adjusted the other is not. In the black box the BLS combines the two coming out with a total. The Birth Death numbers influence the overall totals but the math is not as simple as it appears and the effect is nowhere near as big as it might logically appear at first glance.
BLS Black Box
For those unfamiliar with the birth/death model, monthly jobs adjustments are made by the BLS based on economic assumptions about the birth and death of businesses (not individuals).
Birth/Death assumptions are supposedly made according to estimates of where the BLS thinks we are in the economic cycle. Theory is one thing. Practice is clearly another.
Household Data
The number of unemployed persons (14.9 million) and the unemployment rate (9.6 percent) were little changed in August. From May through August, the jobless rate remained in the range of 9.5 to 9.7 percent.The number of long-term unemployed (those jobless for 27 weeks and over) declined by 323,000 over the month to 6.2 million. In August, 42.0 percent of unemployed persons had been jobless for 27 weeks or more.
In August, the civilian labor force participation rate (64.7 percent) and the employment-population ratio (58.5 percent) were essentially unchanged.
The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by 331,000 over the month to 8.9 million. These individuals were working part time because their hours had been cut back or because they were unable to find a fulltime job.
[Mish Note: In January the number was 8.3 million]
Persons Not in the Labor Force
About 2.4 million persons were marginally attached to the labor force in August, little changed from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the
survey.
Table A-8 Part Time Status
click on chart for sharper image
The key take-away is there are 8,860,00 workers whose hours may rise before those companies start hiring more workers.
Table A-15
Table A-15 is where one can find a better approximation of what the unemployment rate really is.
click on chart for sharper image
Grim Statistics
The official unemployment rate is 9.6%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.
It reflects how unemployment feels to the average Joe on the street. U-6 is 16.7%, up .2 from last month.
Looking ahead, there is no driver for jobs. Moreover, states are in forced cutback mode on account of shrinking revenues and unfunded pension obligations. Shrinking government jobs and benefits at the state and local level is a much needed adjustment. Those cutbacks will weigh on employment and consumer spending for quite some time.
Expect to see structurally high unemployment for years to come.
Keep in mind that huge cuts in public sector jobs and benefits at the city, county, and state level are on the way. These are badly needed adjustments. However, economists will not see it that way, nor will the politicians.
Recap
The private sector hiring increase of 67,000 is very weak for a recovery. That number is not enough to keep the unemployment rate steady. However, the unemployment rate comes from the Household Survey (a phone survey), not from actual payroll data.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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One might think that a salary of $111,000 negotiating contracts for teachers was more than ample pay, especially when teachers themselves have been forced to make contract concessions. Yet, One would be wrong. Greedy negotiators walked off the job even though 80% of the workers make over $111,000 a year.
The Columbus Dispatch reports Teachers union has labor trouble of its own
Ohio’s largest teachers union is having labor problems of its own.Labor-relations consultants, who help local teachers unions negotiate contracts with school districts, and other employees of the Ohio Education Association walked off the job this morning.
Most of the 110 striking workers - all members of the OEA’s Professional Staff Union - earn more than $100,000 a year, according to reports filed with the U.S. Department of Labor. For instance, labor-relations consultants - who make up about 80 percent of the striking workers - were paid an average salary of $111,350 in 2009.
That is about $10,000 more than the average Ohio school-district superintendent made last school year, and more than double what the average teacher made, according to the state statistics.
The appropriate response from the Teacher’s unions would be to fire the negotiators, thereby saving $12 million dollars a year.
Anyone making over $100,000 and goes on strike in this environment deserves to lose their job, their home, and their lifestyle.
Salem Oregon At Double-Dip Risk
Please consider Analysts: Salem at risk for double-dip recession
According to the economists, Salem is one of 22 U.S. cities at risk for a double-dip recession. There are 76,000 state employees in Oregon and 21,500 of them work in Salem. That’s almost a third of the entire state government workforce in the capital city.At Saigon Restaurant, which caters to state employees, business started getting bad about a year ago. The owners say business has dropped off by 70 percent. In fact, they say they are no longer able to pay their bills.
“Very, very worried right now,” said owner Hien Tran.
There were few patrons at the restaurant during the noon lunch hour Tuesday. Things are so bad for the owners of Saigon they have lost their home and have been forced to live with their son.
They don’t have to go far to realize they are not alone. The Quiznos next door shut down six months ago.
Nickeled to Death by Bus Union
Oregon Live reports Trimet and taxpayers: Bus riders’ dismay grows one nickel at a time
It’s only a nickel. The latest fare increase from TriMet won’t bankrupt anyone, not even the job seekers, college students and low-wage workers who make up a big portion of the Portland metro transit agency’s ridership.But frustration grows a nickel at a time. One more fare increase, another canceled bus route, a longer wait at the stop between buses — it all adds up. The disquiet builds until, seemingly without warning, a nickel becomes a last straw.
TriMet is at that point now, as it raises fares and angles for more tax money before getting its labor costs under control. The transit agency shouldn’t be surprised by Wednesday’s rally against the new fare hikes and service cuts — and it certainly shouldn’t be shocked if voters reject the transit agency’s bond measure this fall.
TriMet wants voters to approve a $125 million bond measure in November to replace old buses and improve bus stops.
TriMet’s health care costs for transit operators continue to spiral unchecked. Out of 171 transit agencies surveyed last year, TriMet boasted the fourth highest insurance premiums in the country. Transit operators pay none of their $2,200 monthly premium, no deductible and token copays. Benefits for dependents and former workers are plush and far beyond the norm, even for public employees.
Abolish Tri-Met
It is time to send Tri-Met packing.
The correct response is to put the bus contract out to bid and take the lowest offer. It is absurd for bus drivers to have $2,200 per month health care costs at public expense. Bear in mind that pension costs are on top of that.
It’s no wonder Oregon is falling apart.
Schwarzenegger Targets Pensions
The Sacramento Bee reports Schwarzenegger targets pensions in budget press conference
Gov. Arnold Schwarzenegger left little doubt today that cutting state employee pensions remains one of his top priorities in budget negotiations. He is demanding that lawmakers roll back pension guarantees for future state hires as a condition to signing the budget.“The question we have to ask ourselves is, is it pensions or is it parks?” he said today in a budget press conference. “Is it pensions or higher education? Is it pensions or child care? And the list goes on and on, because that’s where the money comes from. Those are the areas where we are taking this money because of the pensions.”
“They are giving it to pensions, to the public employee unions,” he said, apparently referring to Democrats. “They are taking the money away from those poor people. They are taking away the money from higher education. They are taking away the money from parks, from all of those things, so we have to make those cuts.”
While I welcome this stance from Schwarzenegger, it is a stance 3 years late in coming.
California Budget Impasse in Third Month
Bloomberg reports California Republicans Block Budget Plan Proposed by Democrats
Republicans in the California Legislature blocked passage of a budget sought by Democrats who want to close a $19.1 billion deficit with higher taxes and less spending cuts than preferred by Governor Arnold Schwarzenegger.The budget bill failed on a 50-25 Assembly vote today. It needed a two-thirds majority to pass. The Democrats’ centerpiece proposals are higher income taxes, a lower sales tax, a new levy on oil production, an increase in vehicle-registration fees and a suspension of corporate tax breaks. Those changes all require separate bills that weren’t voted on today.
Controller John Chiang, a Democrat, has said he may need to issue IOUs to pay bills for the second straight year if the impasse goes deep into September.
Assembly Democrats earlier rejected a competing budget plan proposed by Schwarzenegger and Republicans that sought to eliminate the state’s main welfare program for families.
Budget passage by legislative supermajority votes is written into the state constitution. While Democrats have majorities in both chambers, they are short of the two-thirds level by two votes in the Senate and five in the Assembly.
Republicans should hold out, forever if necessary.
Whitman Leads Brown in California Governor Race
Bloomberg reports Union-Led Group Halts Ads Attacking Whitman in California Race
A union-funded group that spent almost $9 million on negative advertising targeting Meg Whitman, the Republican running for governor in California, has suspended its campaign, designed to help Democrat Jerry Brown.The ads were halted because Brown, the state attorney general, has kept competitive with Whitman, a billionaire who has dug into her personal fortune to finance her campaign, according to members of the group.
One ad accused Whitman of raising fees and creating “huge losses from failed mergers” while chief executive officer of EBay Inc.
“It’s rock-solid proof that there is seamless coordination between what is essentially the same political organization: Jerry Brown and the government unions that control him,” Andrea Rivera, a Whitman campaign spokeswoman, said by e-mail.
Whitman is supported by 48 percent of likely voters in the November election, an 8 percentage-point lead over Brown, according to a survey by Rasmussen Reports released on Aug. 26. A poll released July 7 by Field Research Corp. showed the two candidates in a “virtual tie.”
“On a return-on-investment basis, she hasn’t done well,” said Lou Paulson, president of the California Professional Firefighters and one of the leaders of the Working Families group.
Indications
The dropped union funded ads are indicative of one or more things.
- The union group is out of money
- The ads are backfiring
- Both of the above
All You Need To Know
The way to access how to vote in any election is to look at the candidate endorsed by labor and vote the other way.
No matter how much one likes or dislikes Meg Whitman, she is going to do a far better job than socialist Jerry Brown whose primary interests are to pander to public unions and raise your taxes.
Mush for Brains
If you intend to vote for Brown, you or your family are members of a public union, you are on welfare, you work for the state, or you have mush for brains.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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When futures ramped into the close on Tuesday, with heavier volume, I had an inkling the ISM number would be hot Wednesday morning. Indeed, that was the case.
However, a hot manufacturing ISM makes little sense (not that any economic numbers have to make sense except perhaps in the long haul).
One thing that struck me right off the bat was how the monthly ADP jobs report does not confirm the ISM number. Nor do the regional Fed reports that I have been following, especially the Philly Fed report as noted in 58 out of 58 Economists Overoptimistic on Philly Fed Manufacturing Estimate; Median Forecast +7 Actual Result -7.7, a “Veritable Disaster”.
August ADP Employment Reports Shows Contraction in Manufacturing Jobs
Inquiring minds are reading the ADP August 2010 National Employment Report for clues on strength of hiring trends.
Private-sector employment decreased by 10,000 from July to August on a seasonally adjusted basis, according to the latest ADP National Employment Report® released today. The estimated change of employment from June to July was revised down slightly, from the previously reported increase of 42,000 to an increase of 37,000.The decline in private employment in August confirms a pause in the recovery, already evident in other economic data. The deceleration in employment was evident in the major sectors and by size of business. This month’s decline in employment followed six monthly increases from February through July. Over those six months, the average monthly gain in employment was 37,000 with no evidence of acceleration.
August’s ADP Report estimates nonfarm private employment in the service-providing sector rose by 30,000, the seventh consecutive monthly gain. This increase was not enough to offset an employment decline in the goods-producing sector of 40,000. Employment in the manufacturing sector decreased 6,000, the second consecutive monthly decline.
Large businesses, defined as those with 500 or more workers, saw employment remain essentially flat while employment among medium-size businesses, defined as those with between 50 and 499 workers, decreased by 5,000. Employment among small-size businesses, defined as those with fewer than 50 workers, decreased by 6,000. In August, construction employment dropped 33,000. Construction employment has declined for over three years and the total decline in construction jobs since the peak in January 2007 is 2,275,000. Employment in the financial services sector dropped 5,000. Financial Services employment has declined for over 3 years.
ISM Smell Test
Rosenberg blasted the ISM report in Breakfast with Dave.
STRANGE ISM NUMBER … DOESN’T PASS “SNIFF TEST”Here’s why:
1.Most of the regional reports were very poor in August. Either they are collectively all wrong or the ISM is.
2. The share of respondents saying they experienced “growth” was 61%, the exact same as a year ago when ISM was sitting at 52.8.
3. The ISM gain was led by employment (58.6 to 60.4 — best since December 1983) in the same month that ADP manufacturing fell 6,000 (second decline in a row — it was -11k in July when ISM employment was 58.6, so clearly the latter is proving to be, at least for now, an unreliable labour market barometer). Production also ticked up to 59.9 from 57.0 and inventories rose to 51.4 from 50.2. These are all coincident indicators, as an aside (but an important aside).
Strange ISM number, it doesn’t pass the sniff test and here is one reason: most of the regional reports were very poor in August… either they’re wrong or the ISM is4. According to the ISM, 76% of the manufacturers surveyed said that in August, their customer inventory levels were either “too high” or “about right”. At the turn of the year, just ahead of the big inventory swing that bolstered the GDP data, this metric was sitting at 60%. As a result, it would be folly to assume that the inventory and production categories will contribute to further ISM increases in the near- and intermediate-term. Norbert Ore, who presides over the ISM survey, had this to say about inventories: “If the inventory build isn’t voluntary then we have a huge issue on our hands.”
5. Meanwhile, the more forward-looking components dropped, though were hardly a disaster. But orders slipped for the third month in a row, to 53.1 from 53.5 in July, 58.5 in June and 65.7 in both April and May. That is still a sharp squeeze in the growth rate of capital goods-related order books. At 53.1, ISM orders index is down to levels last seen in June 2009 (but when they were rising in “green shooty” fashion).
6. Backlogs were down as well, to 51.5 from 54.5 in July, 57.0 in June and 59.5 in May (and peaked in February at 61.0). At 51.5, order backlogs stand at their low-water mark of the year.
7. Supplier deliveries (measure of production bottlenecks) eased for the fifth month in a row — to 56.6 from 58.3 in July and well off the March peak of 64.9.
8. Looking at five decades worth of data, the share of the time in which we see orders, backlogs and vendor deliveries all decline in tandem, and the headline ISM index rise, is the grand total of 1%. No wonder equities rallies so much — we just witnessed a 1-in-100 event! Bring your camera.
9. Export orders dipped to 55.5 from 56.5 — the lowest they have been since last December. If the overseas economy is rocking and rolling, then why on earth would this component be declining? Not only that, but it looks as though, yet again, a good part of the inventory boost we still seem to be getting is being filled by imports — that sub-index jumped four points in August and does not bode well for the trade deficit, which subtracted 3.4 percentage points from headline GDP growth in Q2.
MORE ON THE DATA
It would be something if the ISM was being fuelled by broad based increases and occurring alongside a decent path in domestic spending. But the ISM gains were narrowly based and the inventories are continuing to be built up even as domestic demand is slowing down. And it is spending that drives production, not the other way around. The fact that fewer respondents are saying inventories are at low or desirable levels is going to set us up for some pretty hefty production and ISM reversals through the fall.
Art Cashin says “ISM is an Outlier”
For more from Art Cashin, please see 26 of Last 88 Trading Days have been 90% Days (Either Up or Down); 7 More Lean Years in Stock Market?
Let’s assume for a moment the ISM number is correct. If so, manufacturers are ramping up production just as the economy is dramatically slowing by nearly every other measure.
I smell huge inventory problems coming up in the 4th quarter. In the meantime, let’s party over a ramp in production with no buyers.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
