Economics 16/10/2009: FAS - rotten outcomes on top of rotten culture?

Here is an interesting illustration of how ineffective was (and is) FAS is addressing the issue of long-term unemployment.
Of course, the tricky thing is: if FAS premise to up-skill and up-tool workers to match the future needs of our labour force holds any water, then we should expect FAS to be able to have a positive effect on reducing long-term unemployment. Of course, as the graph above shows, they never managed to do this, with long-term unemployment remaining at persistently high levels relative to overall unemployment through 2007. Only an onset of rapidly rising new unemployment since the inception of labour market crisis in Q1 2008 has changed long-term unemployment share in total joblessness. As newly unemployed multiplied in numbers, the overall weight of long-term unemployment in total unemployment temporarily has fallen.

So there you go - reforming FAS must take radical forms!

Oh, and on personal note of response to Denis O'Brien's comment today about 99% of economists who did not predict this crisis and 1% who predicted it long before it happened:

Per Irish Economy blog: "RTE reports the following comments from billionaire businessman Denis O’Brien while speaking at a Dublin Chamber of Commerce: Mr O’Brien also said the country’s third level sector supported 250 academic economists whom he accused of ‘writing blogs, twittering and taking out ads to stop NAMA’. He said they generally made a nuisance of themselves - which would be fine if 99% of them had not failed to predict the economic meltdown facing the country. He said the other 1% predicted doom all the time. ‘I have a sense that all these economists need to come and work for real businesses to really understand how the economy works and see the actual stress and strain of running a business… only then will they have something to contribute,’ he said.

Point 1 for Mr O'Brien: I work for real businesses - both in this country and abroad. In fact, I also run my own business.

Point 2 for Mr O'Brien: last week I lectured Mon-Friday each day for 6 hours in TCD, Wed-Fri for additional 2 hours in UCD, and on Saturday - for 3 hours at TCD again. In between, apart from Twittering and blogging, I also wrote several press articles, worked on two research papers and had a number of business meetings. I also worked on a long-term private sector research project and advised my clients in the US.

Point 3 for Mr O'Brien: in 2004-2007 I warned repeatedly that Ireland is facing a crisis in public spending, housing markets and private sectors debt. I did so from various platforms, including his own Newstalk106 and TodayFM. In 2008 I was at the fore front of private sector economists who were pointing at the depth of developing crisis. I also made a point of always offering a potential solution to every problem I was able to identify. Not that I called everything right in my life, but Mr O'Brien's statement is a bit rich.

Point 4 for Mr O'Brien: it is precisely

• because we are seeing real businesses being squeezed by the banks in anticipation of Nama,
  
• because we are seeing people sliding into perpetual dependency on the dole,
  
• because we are seeing the depth of the crisis,
• because we are seeing the taxpayers of this country being destroyed by wrong policies,
• because we are seeing people losing their entire retirement savings to the same ideas and policies that now back Nama,

that we are warning about the risks that Nama and other Government policies have.

Mr O'Brien might not see it this way - and it is his right to disagree - but throwing about silly statements in an attempt to ingratiate oneself with those in power is a strange position for a successful entrepreneur and businessman like Mr O'Brien.

Economics 30/09/2009: Unemployment crisis continues

Per CSO release today: “The seasonally adjusted Live Register total increased from 428,800 in August to 429,400 in September, an increase of 600. In the year to September 2009, there was an unadjusted increase of 183,422 (+76.4%). This compares with an unadjusted increase of 192,672 (+77.9%) in the year to August 2009.”

Are things improving? Declines in LR appear to point to two major factors at play here:

• Main sources of layoffs are flattening out, including construction and retail services. This is a sign of stabilization, but it is not a sign of impending improvement, as likelihood of these sectors aggressively rehiring staff is slim in the foreseeable future;
• Large movements from the LR are also a function of more people dropping out of the labour force and signing up for welfare benefits, while ceasing job searches.
  

“The average net weekly increase in the seasonally adjusted series in September was 150, which compares with a figure of 1,350 in the previous month. The standardised unemployment rate in September was 12.6%” - flat on August.

“In the month, the estimated number of casual and part-time workers on the LR was 38,268 males and 32,590 females.” In August, the same figures were 37,749 males and 32,354 females. And so on: table illustrates
How do you explain this? A friend of mine used to be a broker, now drives a taxi. Per official stats, he is doing fine. Per his own state of mind, he is doing the necessary thing to survive. This is the difference between voluntary under-employment and self-employment and its forced version. CSO’s latest figures show the latter.

So per some commentators out there, “the unemployment rate, which didn’t rise this month – the first time that has happened since December ‘07” and this is an improvement. For me, this is like telling someone who’s house just burnt down that all’s fine – there won’t be another fire for a while.

I am still sticking with 14-15% forecast for 2009 peak unemployment, though it might be looking like a bit downside from 14% is possible. Who know – Christmas season (aka desperation levels in retail sector) will tell.

Now, to that other pesky issue – labour force participation. One issue of growing importance is youth unemployment. This is contracting per LR figures. But this contraction is likely masking two factors at play:

1. there is significant seasonality - much of youth employment is part time and linked to higher activities in summer months (hotels, recreational etc sectors), plus
2. there is a number of those who are simply dropping out of the labour force (either those who would have joined, but are not joining now that the jobs evaporated, or those who have been out of work for over a year and stopped searching, or those who have gone back to school or who continued in school transitioning to a new programme).
   

Per QNHS released earlier this month: "Almost all of the decline in the size of the labour market is attributable to a decline in participation of almost 36,000.” Now, remember, that was for Q2 2009 – pre summer months. “This is shown by a fall in the participation rate from 63.7% in Q2 2008 to 62.5% in Q2 2009.” To me, this indirectly confirms that drop-outs from the labour force are most likely to be our younger workers. In QNHS see Table 9: labour force participation rates have fallen by age group as follows for April-June 2007 to April-June 2009:

• 15-19 age group from 29.1% to 22.1% (7 percentage points down)
• 20-24 age group from 77.0% to 73.6% (3.4 percentage points down – less than half of decline in younger category)
• 25-34 age group from 85.5% to 84.7% (0.8 percentage points down)
• Economy-wide from 64.0 to 62.5% (1.5% percentage down)
  

So youths are dropping out of labour force at a rate nearly 5 times those of the average decline.

Hmm… things are improving, rapidly. Dom Perignon 1988 uncorking time, yet?

Economics 07/08/2009: Live Register - unemployment's deeper roots

Before we begin on Live Register - I would recommend an excellent post by Myles on Irish automotive sales - read it here.

So Live Register is in, prompting some cheerful commentary as per slowdown in the rate of increases in unemployment. Ahem... not that I noticed.

To be honest - there are some signs of a slowdown in the rate things deteriorate, true, but these are:

1. Hardly well-underpinned and can be easily reversed (see Female trends below); and
2. Are pure mathematical (non-fundamentals-driven) in nature, as things must be asymptotically converging to some longer-term equilibrium at some point in time.

So here are the details:

First CSO statement: "The seasonally adjusted Live Register total increased from 412,900 in June to 423,400 in July, an increase of 10,500. In the year to July 2009, there was an unadjusted increase of 197,495 (+82.9%). This compares with an unadjusted increase of 197,781 (+89.6%) in the year to June 2009. [So so far we are still in worse dynamics than in 2008 - pretty bad, wouldn't you agree?]

• The monthly increase in the seasonally adjusted series consisted of an increase of 5,100 males and an increase of 5,500 females. [Females now outnumber males - a sign that more dual unemployed families are being hatched under the nurturing light of our Government policies, and that better quality jobs are now being destroyed at a faster rate];
• The average net weekly increase in the seasonally adjusted series in July was 2,100, which compares with a figure of 3,000 in the previous month. [Sounds better, until you recognise that last months basis was 4 week, this month's basis is 5 weeks];
• The standardised unemployment rate in July was 12.2%. This compares with 10.2% in the first quarter of 2009, the latest seasonally adjusted unemployment rate from the Quarterly National Household Survey. [But it also shows that the rate of increase - by 0.3 percentage points per month - has been steady since May];
• In the month, the estimated number of casual and part-time workers on the Live Register was 37,415 males and 32,138 females [Which means nothing - nada - because many, if not a majority, of these workers are now facing hidden forms of unemployment, aka working, but not being paid on time!]
  

Now, few charts:
Note slight acceleration in females (more on this in a sec) and basically imperceptible changes in the slopes? So much for the 'green shoots'.The real disgrace is in the unemployment rate - back to April 1995 now. Less than 14 months of economic destruction and 12 years of new jobs creation erased. Surely, Bertie would say that the doomers-and-gloomers should now hang themselves.Weekly changes in the LR plotted above. Again, one note of caution - the averaging was done on 4 weeks basis in June and 5 weeks basis in July. If it was done on 4-weeks basis, the weekly average in July would be 4,286, still below 5,530 in June. Then again, July is a much slower month in general for any sort of business strategy change, let alone for mass layoffs. Let's wait till October/November... Again, note females - the average weekly change also declined, but at a much shallower rate, pointing to the pressures on female employment rising relative to males.Now, to monthly rate of growth (chart above). The rate at which females are signing is up in monthly terms. This is the evidence of really bad news to come. Recall that layoffs happen sectorally and sequentially (meaning last in = first out). Females' job tenure is shorter than males' over economy, so if new sectors come on-line for mass layoffs, and these sectors are not dominated by males (like construction in the past), we should see an uptick in female unemployment rising faster first, followed by males in the same sectors. While there is no certainty as to whether this is what's happening, that blue line trending up in the chart above is a reason for concern and suspicion that a new wave of unemployment increases might be gaining mass.
Last chart is showing monthly figures deviations from the 3-mo Moving Average in total LR. This was converging toward the long run trend between January 2009 and May 2009 (the blue graph heading toward zero), but it now diverged again in June and July. Last time we crossed the long run trend line was in September 2008, which marked a smaller peaking cycle of April-August 2008. Duration of the last cycle was just 4 months. The current cycle is into 10th month and now apparently diverging further once again.

Other cycles were equally short-lived (2 months in 2007, 4 months in early 2008).

All of this makes me very conservative to call and 'improvement' - the series, in my view, are suggesting:

• At least 60% chance of serious deterioration in September-November 2009; and
• A very significant sign of long-term unemployment rising through the roof.