The REAL Inflation Rate? Alternative Measures Tell Different Story

November 19, 2013

What is the REAL inflation rate? 

Guest post by Dr. Ken Mayland,  ClearView Economics LLC

When we look at things that we actually buy, We get a different look at inflation...

When we look at things that we actually buy, we get a different look at inflation…

Measured inflation (the blue line) is quite low despite rampant money creation.  But is inflation being realistically measured? 

Perhaps the price of a McDonald’s Big Mac (the red line) would be a good price indicator.  A Big Mac incorporates wages, several commodities, rent, utilities, and transportation costs.  It costs have risen much faster than the official inflation rate.

Likewise, the PNC Christmas Price Index, (the green line) which costs out the items in the “12 Days of Christmas,” encompasses several different types of labor and commodity costs.  Again, those costs have increased considerably faster than the CPI (and interestingly, almost in line with the Big Mac Index).

If inflation is under-measured, then the “true” costs of living are being low-balled and our well -being is overstated.

Speaking of Precision:  Which any one on a fixed income can tell you is happening.

This is what we see when we go to purchase an item at the store for the same price, but get  less product.


A Contrarian View of the Today’s Jobs Numbers

May 3, 2013

If the folks on Wall Street are so smart, why are they making happy about today’s jobs report?

As I write this post at 10:50 A.M., the DJIA is up 171 points- attributed to this “great jobs report.”

Here are some facts:

1) Nonfarm payrolls expanded 165,000 for April.

2) Headline Unemployment rate (U3) dropped 0.1 to 7.5%

3) Revisions of prior months’ reports were all positive and totalled ~114,000

On the basis of these facts, the Wall Streeters are “Making Happy.”

It's all good. Not so fast...

Making Happy!

Not so fast, Math Guys.

The average weekly hours in this report contracted from 34.6 hours to 34.4 hours.

No big deal right? A little more part-time employment, eh?

Here’s what Dr. Ken Mayland, blue chip economic forecaster has to say about this:

“The contraction of average weekly hours  from 34.6 hours to 34.4 hours  is almost a stunning reduction in the labor input into the economy. In very rough round numbers, holding workweek hours constant, this would be the equivalent of a 650,000 reduction in payrolls.”

“The labor input into the economy is down to the February level. In spite of a 0.2% pick-up of wages, average weekly earnings are down 0.4% — so the compensation portion of personal income will be weak.”

What the heck are those Wall Streeters thinking?

Despite the “jobs gains and positive revisions,” the real bottom line is that this is a – dare we say it- “dreadful” employment report.

Dreadful jobs report.

Dreadful employment report.

Photo credit A decade in the making
Photocredit Dreadful jobs report


Manufacturing- Best Described as Flat

May 1, 2013

The April ISM Purchasing Managers Index  (PMI) was just released today. Best description is “flat.”

This Nikon optical flat  is pretty flat too...

This Nikon optical flat is pretty flat too…

 “The PMI™ registered 50.7 percent, a decrease of 0.6 percentage point from March’s reading of 51.3 percent, indicating expansion in manufacturing for the fifth consecutive month, but at the lowest rate of the year. The New Orders Index increased in April by 0.9 percentage point to 52.3 percent, and the Production Index increased by 1.3 percentage points to 53.5 percent. The Employment Index registered 50.2 percent, a decrease of 4 percentage points compared to March’s reading of 54.2 percent. The Prices Index registered 50 percent, decreasing 4.5 percentage points from March, indicating that overall raw materials prices remained unchanged from last month. Comments from the panel indicate a range of strong/steady growth, to flat/declining volumes, depending upon the particular industry.”

Flat at best.

Flat at best.

14  manufacturing industries  reported growth in April in the following order: Furniture & Related Products; Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Fabricated Metal Products; Paper Products; Machinery; Nonmetallic Mineral Products; Primary Metals; Miscellaneous Manufacturing; Petroleum & Coal Products; Plastics & Rubber Products; Transportation Equipment; and Computer & Electronic Products.

Precision Machining is a component of Fabricated Metals Industry which was in the middle of the  ISM list of growing industries for April.

Nikon Optical Flat

Graph courtesy Calculated Risk Blog

http://www.ism.ws/ismreport/mfgrob.cfm


Jobless Manufacturing Renaissance

April 22, 2013

Steve Goldstein at WSJ  Marketwatch has been skeptical of the so called manufacturing renaissance for some time.

In March 2013 manufacturing lost 3000 jobs.

While the media runs with “the sun will come out tomorrow” story on the return of manufacturing from offshore, actual data indicates a loss of jobs in March 2013 and a growth rate for employment of ~0.6% year over year.

Here’s the graph.

Does this look like recovery to you?

Does this look like recovery to you?

As shop owners, we have open positions for people with skills- but sadly few qualified applicants.

Here is what The Economist has to say about the U.S. Job Problem:

“Americans working to produce traded goods and services earn, roughly, according to their productivity. If low-skill workers in America aren’t much more productive in manufacture of traded goods and services than low-skill workers in China, then they can’t earn much more than workers in China while being employed in manufacture of traded goods and services. They can earn a rich-world wage in production of non-traded goods and services, like sandwiches and haircuts, so long as there is sufficient local demand.

“In other words, the only way to get less-skilled Americans a good wage in a manufacturing industry is to significantly raise their skill and productivity level. If that can’t be accomplished, they can only hope to find good wages in non-traded industries. At least, that is, until wages of less-skilled workers across the developing world come much closer to converging with those in America.”- The Economist

PMPA members are doing all they can to encourage people to gain a skill so that they can claim one of the estimated 600,000 open jobs in advanced manufacturing.

We’ve even created a career database to help people find the training in their area.

We have posted a number of career insights regarding precision machining on our website.

If you would like to claim a rewarding, high satisfaction job in advanced manufacturing, take a look at our material.

P.S. Our goods are “traded goods,” in the parlance of The Economist-  and rank highly world wide. I know PMPA member shops that export to Customers around the world including China, (so much for low cost!) Germany, and Switzerland.

Fact sheet.


PMPA Business Trends For March Deja Vu All Over Again

April 19, 2013

The PMPA Business Trends Report for March 2013 looks quite similar to that of March 2012.

Q1 2013 virtually the same as Q1 March 2012

Q1 2013 virtually the same as Q1 March 2012

While our shipments in March 2013 weren’t quite as high as those in March 2012, for the quarter they are virtually identical at 123.33 for Q1 2013 vs. 124 for Q1 2012.

The 3 month moving average is once again above the 12 month moving average. ISM reported growth in PMI in March for manufacturing, New Orders and Production indexes. Fourteen of eighteen manufacturing industries, were reported up in March, though the Machinery market which we serve was down. Housing starts jumped 7% in March from February, to a SAAR of 1.036 million, this is up 47% over March 2012.

New construction dollars coming into the economy provide some market diversification for our shops as those new homes will need plumbing, electrical, HVAC, appliances, and the tradesmen building them will need new trucks and tools.

Macroeconomic indicators appear to be a mixed bag- as I write this Reuters is reporting slowing factory activity and increasing unemployment- but the increase in housing starts adds yet another market of demand for precision machined components.

Our industry data is telling me that this year is on a very similar track as it was last year.

What are you seeing in your numbers compared to last year?


Why Job Growth Tanked In March

April 9, 2013

Guest post by Peter Morici.

Jobs Growth Tanks in March

Peter Morici

Twitter @pmorici1

The Labor Department announced the economy only created 88,000 jobs in March as many more adults quit looking for work than found jobs-for many Americans, good job remain tough to find.

EmployPopMar2013

The headline unemployment rate is 7.6 percent, but adding in adults who are discouraged and quit looking for work and part-timers, preferring full-time positions, the jobless rate becomes 13.8 percent. And, for many years, inflation-adjusted wages have been falling and income inequality rising.

Sluggish growth is one culprit-the Bush expansion delivered only 2.1 percent annual GDP growth-that’s about the same as the Obama recovery after 42 months. However, globalization and technological progress have wrought fundamental changes that rapid growth alone can’t fix.

Cheaper natural gas and rising wages in China make the United States more attractive for manufacturing. However, new factories require very few workers-engineers have applied the wizardry of handheld devices to factory automation with amazing results.

Similar progress has reduced many business support positions ranging from secretaries to travel agents. All, slicing demand for workers with a general high-school education.

Over the last decade, the same thing has happened to college graduates occupying middle management and similar professional positions. Consequently, college graduates have been taking jobs once predominantly filled by high school graduates-insurance agents and adjusters, retail managers, to name a few-and the earnings advantage of college graduates over less educated workers has narrowed.

Well paying jobs abound for college graduates in technical areas-accounting, engineering, nursing and the like-but not for those with degrees in liberal arts and general business. Similarly, high school graduates with some additional training, often through a community college, can find good jobs, for example, in the energy, medical, and hospitality sectors.

All this gives rise to widening income inequality between those who have specialized skills and those who don’t, and it imposes particular burdens on the two bookends of the labor force-recent grads and workers above 50.

Recent liberal arts graduates face particular difficulty getting that first decent job-such as in finance or the media-where employer training and entry-level experience combine to impart job-specific skills that permit them to climb the ladder.

Displaced older workers face much longer periods of unemployment, and many never secure positions that pay as well as the jobs lost.  Many are digging into retirement savings well before they are 65, creating an army of near-indigent elderly a decade or two from now.

To combat unemployment, the Federal Reserve has kept mortgage interest rates low, but this penalizes the elderly who rely on CDs and fixed-income investments. They are returning to work, often taking jobs and displacing younger workers.

Stronger growth would help and is possible. Forty-two months into the Reagan recovery, GDP was advancing at a 5.2 percent annual pace-that would bring unemployment down to five percent pretty quickly.

More rapid growth requires importing less and exporting more-dealing with the $500 billion trade deficit on oil, by drilling more offshore and in Alaska, and with China, by addressing its undervalued currency and protectionism.

Faster growth also requires right sizing business regulations to make investing in new jobs less expensive and time consuming. Regulatory enforcement is needed to protect the environment, consumers and financial stability but must be delivered cost effectively and quickly to add genuine value.

However, unless America wants to sell what it makes cheaply, like so many Asian economies, it must have a smarter, savvier, and better trained workforce.

Parents don’t want their offspring on the vocational track. Hence, high schools have become, overwhelmingly, college preparatory institutions, when it is possible to prepare many graduates to directly enter the labor force in technical areas.

College students don’t want the hard slog through nursing or engineering. Art history and economics are easier and less intruding on the social aspect of college. And universities are too much run by professors who prefer to contemplate the shortcomings of their civilization than train young people to build it.

In a nutshell, more and better jobs require pro-growth trade, energy and regulatory policies, and more realistic expectations among parents, students and the high schools and universities that train workers.

Peter Morici is an economist and professor at the Smith School of Business,, University of Maryland, and widely published columnist.

 


Labor Participation Rate- Even HUFFPOST Figures It Out!

April 5, 2013

The labor participation rate fell to 66.3 percent it’s lowest level in 34 years in March. What recovery?

Recovery? HA!

Recovery? HA!

Even the Huffington Post has figured out that we have a structural unemployment problem:

With more than 3 million open and available jobs on the career website CareerBliss.com alone, why do we keep seeing the labor participation rate dropping?

The answer is that employers can’t find the right workers. Too many unemployed American workers lack the relevant skills needed to fill the millions of jobs available.” -Heidi Golledge

That sure doesn’t sound like ‘cyclical unemployment’ to me.

Here’s more from HuffPost: “If you look at the current employment numbers there is a quality job out there for just about every graduate — if only they would have been guided toward courses of study that would give them the skills most in demand. We can start to bridge the skills gap now by guiding future workers toward growing and emerging industries.”

Sounds like the definition of structural unemployment to me: Structural unemployment is a form of unemployment which occurs when the number of vacancies is equal to, or greater than, the number of the unemployed. The unemployed workers may lack the skills needed for the jobs, or they may not live in the part of the country or world where the jobs are available.

We have been talking about this issue for some time- here, here, here, here are some of our most recent ones.

For a great (but ominous) discussion of just how bad this is, read The Market Ticker’s post: “The Chart That Will Crash The Market.

It is about this Labor Participation Rate chart posted above.

We need to give people skills so that they can be hired. Our industry is hiring. Info about skills  and careers can be found here. Need training? Check out PMPA’s Comprehensive Training Database.


Unemployment Rate Real Story- People Stopped Looking for Work

March 8, 2013

The reporter on NPR breathlessly gushed  about how the unemployment rate fell to 7.7 percent.

What a great story!

They then cut to someone who attibuted the fall in the unemployment rate to ‘jobs picking up in construction.’

(Around 48,000 according to BLS)

Don’t get me wrong, I agree that a gain of 236,000 jobs in February is a significant improvement over the paltry 119,000 reported in January.

But it is nowhere  near the 363,000 needed each month to bring our official unemployment rate back down into the neighborhood of 6 percent.

What the reporters are not explaining to you is that in February,  the adult population grew buy 165,000, yet the labor force actually decreased 130,0000 as 295,000 additional adults chose not to look for work.

Over a  hundred thousand more adults fell out of the labor force in February than found jobs!

LABOR FORCE PARTICIPATION RATE FEB 2013

Jobs haven't even begun to recover. This is the real unemployment story.

Jobs haven’t even begun to recover. This is the real unemployment story.

What does this mean?

It means that the real unemployment rate U-6 is 14.3 %

14.3 percent is the real number for total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. Source- Bureau of Labor Statistics.

So that 7.7 % figure the breathless news reporters are giving you is wrong.

The reporters are understating by about 50% the actual unemployment rate.

7.7 percent is 54 percent of 14.2 percent.

46% is a fairly large margin of error or “understatement.”

There is hope.

There are jobs for people with skills in advanced manufacturing.

Here is a link to a quick video where I show a list of job openings posted at Cuyahoga Community College Advanced Workforce Center.

If you can take two semesters of skills training at a local community college, you could find yourself working in advanced manufacturing by the second semester.

Labor Participation Rate Graph

Professor Peter Morici of University of Maryland contributed some sensemaking to this post.


February 2013 ISM PMI Increases to 54.2

March 1, 2013

In the words of PMPA’s economics advisor, Dr. Ken Mayland, “The factory sector wants to grow.  Orders were better (57.8, up 4.5 points), production was better (57.6, up 4.0 points), and the order backlog was better (55.5, up 7.5 points).  The U.S. economy may be the best performing of the major economies of the world.”

Graph via calculated risk blog

Graph via calculated risk blog

The Institute for Supply Management (ISM) reported that its summary Purchasing Managers’ Index (PMI) increased 1.1 points, for a February reading of 54.2.  According to the ISM, a reading above 50 would typically be associated with an expansion of the manufacturing sector. Furthermore, based on the ISM’s estimates, if the current reading of 54.2 were sustained, it would tend to be consistent with 3.7% real GDP growth (annualized).

Our inferences:

  • Manufacturing remains a growing sector of the U.S. and world economies
  • The ISM employment index was weakest of any of the ISM indicators tracked,  at 52.6%, down 1.4% from 54.0%.
  • With Affordable Health Care Act clearly on the minds of employers, adding employees has to be the least preferred outcome until we can see costs more clearly.
  • The Prices sub-index rose 5 points to 61.5. Can price increases and inflation be all that far away?

One respondent in the Miscellaneous Manufacturing sector is quoted by ISM, “Starting to pick up after a slower than normal year-end.”

That is certainly in agreement with PMPA’s Business Trends Report for January 2013 which showed a record rise of 41% over December 2012 sales levels, which were quite low.

ISM February 2013

Calculated Risk Blog


PMPA Business Trends 2012 Review and Summary

January 23, 2013

The PMPA Business Trends Report 2012 Year End Review and Summary is completed and posted on our website here

Despite a great start for sales in the industry at the beginning of the year, the special causes of the uncertainty leading up to the election and the ‘Fiscal Cliff’ took the wind out of our sails sales, resulting in 2012 sales index barely equalling that of 2011.

Bummer dude. Too bad about that election and fiscal cliff stuff...

Bummer dude. Too bad about that election and fiscal cliff stuff…

For a host of specifics, and our outlook for important precision machining markets in 2013, please see our report.