Latest from stats, stimulus front, and interventionism all the way


Unemployment was steady in EU and Eurozone, at 10.4 and 11.3, respectively. The actual number of unemployed has gone up by approximately 2.1 million in the last year. Greece saw its unemployment rate edge up to 24.4 per cent approximately matching Spain’s figures, and both countries have their youth unemployment figures way past 50 per cent.

Finland’s latest seasonally adjusted unemployment figure came in at 7.5 per cent, which is actually pretty good and slightly better than what I had expected; unemployment rate was the same 7.5 per cent in December and January and I have been expecting the trend to be rather worsening than improving. Headwinds now persist though with Finland slumping into a recession coupled with our privilege to fund others’ largesse and less than healthy figures for the past half a year from manufacturing (4 months of double digit declines in new orders for example, and goods balance so far 1.2 billion on the deficit) that still constitutes disproportionately large part of Finland’s economy.

Sweden saw quite the uptick in unemployment with the seasonally adjusted headline rate inching up from 7.5 to 7.8 percent in August. On the PMI side of things, data still point downwards, and I would expect that the next GDP prints are going to show weaker than H1 figures.

Largely, I would expect that we have hit the bottom for labor market in Europe, and thankfully even though the situation has worsened there are no signs of social unrest but rather far more positive reports about people seeking better opportunities by emigrating and taking the measures to their hands to create new ways to make do. By all accounts this will be very positive for Europe.

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Latest PMI and employment stats do not look so good


Global PMI figures from ISM and Markit for manufacturing and services are predominately worse than last month, but many still show increases in economic activity. However, of particular note, are the figures from Italy, Spain and Australia; in these countries, both sides of the economic ledger came down with force. Moreover, Europe manufacturing on aggregate dropped to fresh debt crisis lows (34-month lows to be specific). All of this is consistent with Europe being in a recession. However, note that PMIs dropping to 40 or even lower once or twice under no circumstances indicates a collapse in anything else except the index itself, and perhaps green shoots. Furthermore, depressing manufacturing figures do not necessarily mean a deep recession, because services account for a much larger portion of the economy. That said, Europe does not look positive in any way.

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McKinsey report inconsistencies, MIT diplomas losing value and Finland’s unemployment edges back up as expected

McKinsey report on debt and deleveraging

Couple days ago McKinsey came out with this interesting report on debt and deleveraging. I have couple of problems with it. Please consider the executive summary:

The deleveraging process that began in 2008 is proving to be long and painful, just as historical experience suggested it would be. Two years ago, the McKinsey Global Institute published a report that examined the global credit bubble and provided in-depth analysis of the 32 episodes of debt reduction following financial crises since the 1930s.1 The eurozone’s debt crisis is just the latest reminder of how damaging the consequences are when countries have too much debt and too little growth.

That is an interesting statement when you compare it to the year old WEF report also by McKinsey. I mean this one.

New York, USA, 18 January 2011 – Credit levels will need to double over the next 10 years, growing by US$ 103 trillion, to support consensus-projected economic growth. This doubling of credit could be achieved without increasing the risk of major crisis, finds More Credit with Fewer Crises: Responsibly Meeting the World’s Growing Demand for Credit, a report released by the World Economic Forum in collaboration with McKinsey & Company. The study develops a detailed global credit model using historical credit volumes and forecasting potential credit demand to 2020 across 79 countries, representing 99% of world credit volume. The study applies a sustainability methodology to the projected credit demand, using newly developed metrics to answer the following two questions: Will credit growth be sufficient to meet demand? Is there a risk of future credit crises and, if so, where?

Holding both of these positions at the same time must induce some cognitive dissonance. However, I will take this report as an admission from McKinsey that the WEF report was BS just as I have pointed out previously and now I can mostly agree with their view.

MIT Professor Holmström’s economic idiocy

MIT economics professor Bengt Holmström had some disturbing notes in today’s Kauppalehti. He was holding a lecture in Helsinki on financial markets and had the following to say according to Kauppalehti (freely, but honestly translated):

When you are seeking transparency in financial markets, you are doing the exact wrong thing. You cannot add liquidity with information. When we return ignorance to the markets, the liquidity will come back.

I could not disagree with him more. This is precisely the kind of utter stupidity that got us into this mess. Consider the example of rating agencies and sub-prime mortgages. Who the hell benefited from the market being completely ignorant of their true value? I think it would be probably time for the science and engineering schools of MIT to kick the economics department away as it is destroying the value of MIT diploma. Interestingly the WEF report I mentioned above also had this to say:

The report concludes with eight recommendations that financial institutions, regulators and policy-makers can follow today to ensure sustainable credit levels for the future:

1. Integrate the concepts of sustainable credit into the regulatory agenda
2. Create standardized government accounting practices to increase transparency and accurately assess sovereign finances
3. Encourage responsible borrowing through financial education
4. Encourage financing of local “coldspots” through targeted mechanisms
5. Task a single agency with monitoring global credit levels and system-wide credit sustainability
6. Align banks’ risk appetite with sustainable credit criteria
7. Drive innovation by financial institutions, developing new mechanisms that can safely meet future global credit needs
8. Establish goals for efficient and deep capital markets by 2020 in developing economies

What has happened over the last 5 years could absolutely positively have been avoided. Unfortunately, though, people like professor Holmström keep pounding that we must do everything that was done wrong and we must do it again and again. No. This is even more obvious than the fact that we need deleveraging not massively more debt. The only purpose of hiding information is to deliberately defraud others. That is the precise opposite of what we should do.

I know that there is a theory behind Holmström’s statement and it has its logic, but it is precisely this kind of dogmatic belief in concepts that are nowhere near as robust as the preachers claim they are that cause financial crises and we will not be able to understand their dynamics if the world keeps idolizing this type of economic thinking.

Addendum: This sort of explains why Ivy League students are arranging walk-outs from economics classes (in this case Mankiw’s).

Finland’s unemployment edges back up as expected

Statistics Finland today reported the latest unemployment figures and they edged up quite a bit, 1.2 percentage points in real terms and 0.2 percentage points in seasonally adjusted terms, much like I expected to happen when the previous report came out. The unemployment rate (seasonally adjusted) now stands at 7.5 per cent while the employment rate is at 68.9. In the last year unemployment has dropped by 12,000, employment has increased by 14,000 and people on payroll have increased only by 1,000. Not a particularly great track record and I don’t see anything that would make this situation materially better while PIIGS undergo a depression, EU is in a recession, US muddling through, same with Japan and China is clearly slowing down as evidenced by the collapsing Baltic Dry Index (at least that is my interpretation). Latest unemployment and employment rates below:

In the next chart,  have highlighted the differences between the official unemployed count and the actual number of unemployed job seekers as per the Ministry of Employment and the Economy. The difference should converge over the next few months.

US December employment report positive overall, I don’t think it gets much better than this over the short term

The year of employment statistics from US looks to have ended with actually positive report. Non-farm payrolls grew by 200k and U3 rate edged down to 8.5 per cent. The U3 rate is based on the household data rather than payroll figures. From said data we can observe that employment increased by 186k and unemployment was down by 226k. These are the seasonally adjusted figures and in December the factors can be pretty significant. Not in labor force is up by another 194k after being up by 290k last month and 146k in October. This fully explains the drop in unemployment rate so if you see the U3 rate drop over last few months being trumpeted, it is false. With any reasonable participation rate, the unemployment rate would be in excess of 10 per cent.

That said the December report appears to be overall positive. The US economy needs somewhere around 150k new jobs every single month not to get any worse and there were few of those last year, the average being 137k jobs a month. Moreover, manufacturing jobs increased, albeit at a slow pace, and the government shed a lot of jobs, another positive factor. The strength in the service sector is slightly questionable given that NMI employment index has been negative for 3 of the last 4 months Furthermore, both it and the manufacturing employment index were in a negative trend most of the year. If the European situation does not get materially worse (which does not seem likely), I would expect the US employment market this year to be quite similar to 2011. If the BLS were to start actually counting those not in labor force as unemployed, the official U3 rate does not have much downside.

Finnish employment picture improves in November, a word of caution about the details

Statistics Finland today released the latest employment statistics for the month of November and they are showing a clear improvement.

Unemployment rate came in at 6.2 per cent while the seasonally adjusted rate stands at 7.3 per cent, down from 7.7 per cent. The number of employed was up by 70k y/y and 42k m/m and the number of unemployed was down by 20k compared to last month and the same month last year. Employment rates also edged up nicely.

So far so good, but this is where it gets little questionable. The above figures are the official statistics based on a survey. However, there is also another batch of employment figures collected by the Ministry of Employment and Economy and they are showing a different direction.

The number of unemployed is down only 13k from a much higher figure of 243k and the change from last month is actually up 4k. Moreover, the number of people employed in various government employment measures also rose by 2k. This makes the headline figure a little less exiting. To illustrate this, here is a chart from November to November showing the unadjusted number of unemployed and actual job seekers and their difference, which is up quite a bit in the last 6 months.


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