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Saturday, April 18, 2015 1:36 PM


Productivity, Robots, China, Growth


Congratulations. You are more productive than ever. Just don't expect to be paid more for it. In reality, some machine is doing all that for you.



Japan Times reports Robots Leave Behind Chinese Factory Workers

According to the International Federation of Robotics, an association of academic and business robotics organizations, China bought approximately 56,000 of the 227,000 industrial robots purchased worldwide in 2014 — a 54 percent increase on 2013. And in all likelihood, China is just getting started. Late last month, the government of Guangdong Province, the heart of China’s manufacturing behemoth, announced a three-year program to subsidize the purchase of robots at nearly 2,000 of the province’s — and thus, the world’s — largest manufacturers. Guangzhou, the provincial capital, aims to have 80 percent of its factories automated by 2020.

The government’s involvement in this process shouldn’t come as a surprise. The Chinese government (nationally, and in Guangdong) has long wanted to shift the country’s manufacturing away from low-quality products that are manually assembled and toward higher-value ones — like automobiles, household appliances and higher-end consumer electronics — that require the precision of automation.

And it’s no secret that demographics aren’t on the side of China’s traditional, labor-driven factories. Urbanization, population control policies, and cultural shifts have pushed China’s average birth rate below those in more developed countries like the United States. Meanwhile, as a result of growing urban affluence, workforce participation rates are in decline, especially among women. Together, these factors are pushing wages upward, with an average annual increase of 12 percent since 2001. That trend offers plenty of incentive to factory owners and government officials to pursue automation.

Of course, what looks sensible from the perspective of the economic planner’s office is more distressing from the factory floor. In March, Caixin, a Chinese business magazine, reported that Midea, a major Chinese manufacturer of air-conditioners and other appliances, plans to cut 6,000 of its 30,000 workers in 2015 to make way for automation. By 2018, it will cut another 4,000. What will happen to those and the millions of other low skill workers who will be displaced by the shift?

When Foxconn, the contract manufacturer for many Apple products, announced in 2011 that it was beginning a three-year program to replace some of its workers with as many as 1 million robots, the company said it was doing so out of a “desire to move workers from more routine tasks to more value-added positions in manufacturing such as R&D.” But even if those intentions were sincere, Foxconn never gave any indication that it would have enough higher-skilled positions to employ every displaced iPhone assembler.

Still, it’s easy to see how China’s millions of low-skill workers might still be left with an uncomfortable sense of impending obsolescence — a sense not unknown to their working class counterparts in more developed economies.

Their best hope is the simple fact that China’s economy continues to grow. True, at a projected 7 percent for 2015, the country is not growing as fast as a decade ago. But that should be plenty fast enough for China’s shrinking labor force to find other opportunities, and avoid competing — for now — with China’s inevitable robot workforce.
Growth Hope Not the Answer

If China's best hope is growth, then China has little hope.

Two to three percent growth is the best China can hope for, on average, over the next decade or so. Growth in robots though, is here to stay.

Chinese growth (global growth too) is headed one way, lower, and at a faster pace than most think. The key problems are debt, demographics, and asset bubbles.

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

Friday, April 17, 2015 9:36 PM


Denials Mount as Greece Robs Peter to Pay Paul; Shell Games and Check Kiting


Denials in Greece about its sorry state of affairs are now so ridiculous that even some ardent Greek supporters are likely laughing out loud (off the record of course).

Please consider Greece Scrapes Bottom of Barrel in Hunt for Cash to Stay Afloat.

Greece will need to tap all the remaining cash reserves across its public sector -- a total of 2 billion euros ($2.16 billion) -- to pay civil service wages and pensions at the end of the month, according to finance ministry officials.

Greece's finance ministry denied that it would need to tap remaining cash reserves to meet salary payments, without providing any figures.

"News agencies' reports that refer to the state's cash reserves are groundless, we categorically deny them," the ministry said in a short statement on Friday.

"This is the last bit of cash that the Greek state has," a senior finance ministry official, who requested anonymity, told Reuters.

For months, the government has been borrowing from different parts of the state administration, including the Athens subway system, to pay the wages and pensions of public sector workers. Now, however, it is reaching the end of the line.

Finance ministry officials say the state's cash balance will be negative from April 20 if the government does not extract the 2 billion euros in cash deposits remaining in various public bodies, including a handful of pension funds and regional administrations.

Without that money, the state would be 1.6 billion euros short of what it needs to pay month-end salaries and wages.

Regular tax revenues, which start flowing in early in the month, should help the state's financial position of course. Tax revenues had begun to slip early in the year, when Tsipras' government was elected, but have stabilized since to around 4 billion euros a month.

Still, the financial pressure will not subside because Athens faces a new round of payments to the IMF next month. It needs to give the IMF 950 million euros by May 12 -- then domestic commitments kick in once again.
Shell Games and Check Kiting 

One can only keep these rob Peter to Pay Paul shell games going so long.  Eventually they always blow up. Of course, if Greece convinces creditors to lend it more money, or if the Troika decides to unleash more funds, perhaps Greece can make it until June.

None of those seem likely to say the least. And even if Greece pulls off one more shell game miracle, this will all blow up in June anyway unless tax revenue soars between now and then.

The game in play at the moment is for the Greek government to lay the blame for Grexit on the Troika. That is still possible if the ECB cuts off funding or imposes capital controls.

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

3:01 PM


Déjà Vu Weather? No, It's a Recession!


New Seasonal Pattern?

Yesterday Fed Governor Stanley Fischer proclaimed U.S. Economy Should Rebound After ‘Poor’ First Quarter.

“There’s definitely a rebound on the way already, and we’ll see at what speed it proceeds,” Mr. Fischer said during an interview on CNBC. “The first quarter was poor. That seems to be a new seasonal pattern. It’s been that way for about four of the last five years.

Richmond Fed President Jeffrey Lacker said Wednesday that he thinks a “strong case” can be made to raise rates at the Fed’s June policy meeting, and suggested the economy’s recent performance may have been weighed down by temporary factors.

U.S. wage growth has been stagnant for years, but many economists expect pay raises will accelerate as the labor market continues to tighten. “There are more signs every day, and lots of papers come through my computer explaining that this is the turning point, right now,” Mr. Fischer said. “But they’ve been coming for a while.”
Déjà Vu All Over Again

The Atlanta Fed Macro Blog investigates Fisher's claim in Déjà Vu All Over Again.
Output in the first quarter has grown at a paltry 0.6 percent during the past five years, compared to a 2.9 percent average during the remaining three quarters of the year.



What's causing this pattern? Well, it could be we just get really unlucky at the same time every year. Or, it could be a more technical problem with seasonal adjustment after the Great Recession (this paper by Jonathan Wright covers the topic using payroll data). It also seems likely that we can just blame the weather (see this Wall Street Journal blog post).

Whatever the reason for the first-quarter weakness, it appears to be happening again. Our current quarterly tracking estimate—GDPNow—has first-quarter growth hovering just above zero. As for the rest of the year, we'll have to wait and see. We of course hope it follows the postrecession pattern.
Pattern Real or Imaginary?

Is there really a pattern?

I see two weak Q1s, one weak Q3, and one weak Q4.

If you call anything under 2% annualized growth weak, then Q2 had two weak quarters as well. Is this a pattern or a random fluctuation?

Regardless, Fisher's claim that a poor Q1 "seems to be a new seasonal pattern. It’s been that way for about four of the last five years" is false. What really happened was two "bad" as opposed to "weak" Q1 quarters in five years, and that brought down the Q1 average.

Even if that constitutes a pattern, it's as likely to be random or meaningless than "new seasonality".

Questioning Fisher's Optimism

If this winter took a couple ticks off GDP, and even if there is a "pattern", does that warrant Fisher's Optimism?

No it doesn't. Fisher's optimism is only reasonable if the weakness was entirely weather related and the underlying fundamentals are the same.

Neither is true. In fact, I think a recession has started.

It's a Recession

  • The US dollar is up 22% since the beginning of the year. That is sure to hurt exports.
  • The US economy lost over 100,000 high-paying oil related jobs. See the WSJ report Oil Layoffs Hit 100,000 and Counting
  • Hikes in minimum wage by Walmart, McDonalds, etc. will not only hurt corporate profits, but they will slow expansion plans. Would you want to buy a McDonald's franchise with all this pressure for $15 wages?
  • Credit conditions are recessionary, and you cannot blame this on the weather. See my report Credit Crunch Underway: Can Recession Be Far Behind?
  • Equities and junk bonds are in a clear blowoff bubble. A huge correction is long overdue. Indeed, it would take a 33% haircut just to get equities back to reasonable valuations.


Finally, this is the start of the 7th year of an expansion. The San Francisco Fed notes "NBER records show that, over the period from the mid-1940s until 2007, the average recession lasted 10 months, while the average expansion lasted 57 months, giving us an average business cycle of 67 months or about 5 years and seven months."

I am increasingly confident in my recession call. In fact, unless data immediately rebounds and holds over the next two months, a recession has likely started.

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

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