1/12/2014: Ruble-Oil-Dollar: Riding the Magic Mountains' Rails...

Russian ruble remains in a full tie in with oil prices:

 H/T to @Schuldensuehner

Based on my estimates, given 2015 Budget set at Rub3,500/bbl pricing, USD70/bbl oil price implies a range of Rub/USD pair at 51-52 with probability between 91 and 96 percent depending on the GDP metric one opts for. So on the lower end we can see Rub/USD as far down as 56, assuming no changes in other currencies pairs, but fundamentals-justified pair should be closer to 54-55 at the lower end of Ruble valuations and at around 52-53 for Q1 2015 average. The key to these ranges are EUR/USD and Rub/EUR pairs.

Note 1: I just returned from a rather informative trip to Moscow, so will be updating my outlook for the Russian economy accordingly in days ahead.

Note 2: Few charts explaining oil correlation with Russian GDP and GDP growth

Firstly: real and nominal GDP and nominal GDP per capita all show close links to oil prices at levels basis:

But, relationship is much weaker for changes (e.g. growth rates):

1/12/2014: Russia Manufacturing PMI: November 2014

HSBC and Markit released Russian Manufacturing PMI for November today. The data surprised to the upside, posting PMI at 51.7 - a relatively strong rise on 50.3 in October and the highest index reading since October 2013 (51.8).

3mo MA for the series is at 50.8 against 3mo average through August at 50.4 and 50.2 3mo average for the period through November 2013.

The series have been above 50.0 marker now for 5 consecutive months and current reading is statistically above 50.0.

Full release here: http://www.markiteconomics.com/Survey/PressRelease.mvc/a2c07d1d99984e63bff821447287ae97

Overall, nice surprise to the upside. Confirming the nascent positive trend as shown in chart above. However, to make any strongly positive calls, we need to see:
1) improved performance in the services sector - current a major downward drag on the composite PMI, and
2) continuity in manufacturing series to the upside through December.

1/12/2014: Irish Manufacturing PMI: November 2014

Markit and Investec Manufacturing PMI for Ireland for November came in with some pretty good numbers.

Overall index reading came in at 56.2 a slowdown from 56.6 in October, but ahead of 55.7 in September and the second highest reading in recent years, fourth highest over the last 10 years. Given October performance, some moderation was expected and November reading surprised to the higher side of this.

Current 12mo average is at blistering 55.2 with latest 3mo average at 56.2 slightly ahead of 56.0 for the 3mo average through August 2014.

As chart above shows, series break-away into positive trend that started around Q2 2013 continues, albeit with some flattening in the series from around the end of Q1 2014. All together - good news, albeit with usual caveats on the weak links between final actual economic growth and PMIs in general.

Full release here: http://www.markiteconomics.com/Survey/PressRelease.mvc/b94c35358ea64a0692bbd791519e2cac

29/11/2014: Living in a Ponzi Land of Debt Overhang

An excellent interview with Daniel Stelter on the problem of debt overhang:
http://janelanaweb.com/trends/we-all-are-in-a-ponzi-world-right-now-hoping-to-be-bailed-out-by-the-next-person-interview-with-daniel-stelter/

Worth a read.

One point I disagree with is the idea that debt mutualisation across EU states will solve the problem. It will not: the quantum of debt will not be reduced by mutualisation. We need a QE-like targeted debt deleveraging facilitated by the ECB. Not a 'warehouse for debt' but a debt furnace. 

27/11/2014: QNHS Q3 2014: State Training & Supports vs Jobs Creation

Key summary of the previous posts covering QNHS for Q3 2014 is provided at the bottoms of the post (they are now getting longer than the posts, so I should probably end this analysis).

For the last bit, lets take a look at the unemployed numbers inclusive of the State Training Schemes (JobBridge et al) and State-Supported Employment (Live Register payments).

Official unemployment figures stood at 294,800 in Q3 2014, down 9.76% y/y (a reduction of 31,900). Official unemployment was down 22.91% on crisis peak levels (-87,600) and it was down 19.39% (-70,900) on Q1 2011 levels.

Factoring in State Training and Supports Schemes Participants, number of unemployed and those reliant on state supports for their employment stood at 381,700 in Q3 2014, down 7.74% y/y (-32,040). Compared to peak levels, this measure was down 18.08% or 84,230 and compared to Q1 2011 it was down 14.67% or 65,640.

Interestingly, there have also been significant changes in terms of self-employed.

Numbers of self-employed with paid employees rose 4.72% y/y in Q3 2014 (+4,000), while their counts were down 3.59% (-3,300) compared to Q1 2011. Numbers of self-employed with no paid employees rose 1.64% y/y (+3,700) and was up 13.15% (+26,600) compared to Q1 2011.

Now, as to the Government's claims of massive jobs creation during the Government tenure, total unemployment (ex state training schemes and programmes) fell 65,640 in Q3 2014 since Q1 2011, but 23,300 of this fall was accounted for by higher numbers in self-employment absent employees. Over 3.5 years, Government stewardship of the economy was, therefore, associated with employment-linked unemployment reduction of roughly 12,100 per annum.

(Do note, that any claim that the Government 'creates' jobs is a bit dodgy, and even more dodgy would be a claim that Government 'creates' self-employment, as the current Government has clearly shown by the record of its own policies, e.g. massive tax hikes and failure to equivalise access to supports, that it has zero interest in supporting self-employed in their business endeavours).



Summary of previous posts:
1) Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older)
2) Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average.
3) Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013.
4) Total population over 15 years of age increased by 0.08% y/y and population at work was up 1.7% y/y (+31,000), marking a slowdown in the rate of growth from 2.17% y/y in Q2 2014 (+39,100). Since Q1 2011 some 58,500 more people are at work, although this reflects seasonal variations. Numbers of those retired from employment rose to 416,700 - up 2.76% (+11,200) y/y and up 68,400 or +19.64% since Q1 2011. Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons and remains higher than historical average.
5) Both full-time employment and total employment accelerated in Q3 2014 compared to Q4 2013-Q1 2014 dynamics, with most of the new jobs creation taking place in the category of full-time employment. This is good news. Numbers of underemployed individuals fell. Which is another good news. However, as the proportion of total employment, full-time employment remains at the low levels. 

27/11/2014: QNHS Q3 2014: Full-, Part-Time and Underemployed

Key summary of the previous posts covering QNHS for Q3 2014 is provided at the bottoms of the post.

In this post, lets take a look at labour force breakdown by employment status.

For all persons aged 15 and older, 1,860,000 were classified as at work in Q3 2014, up 1.7% (+31,000) on Q3 2013 and up 3.25% (+58,500 on Q1 2011).

Of the above, 1,453,000 were in full-time employment, which represents an increase of 2.07% y/y (+26,100) and an increase of 5.2% (+70,000) on Q1 2011.

Part-time employment numbers rose to 387,000 or +0.6% y/y (+2,300) and their numbers were up 1.58% (+6,000) compared to Q1 2011. Of these, numbers of those claiming not to be underemployed rose 6.25% y/y (+16,100) and were up 3.36% (+8,900) on Q1 2011. In employment but underemployed numbers were down significantly in Q3 2014, falling 10.84% y/y (-13,700) and by 2.42% (-2,800) on Q1 2011.

As the result of the above changes, full-time employment as the share of total employment rose to 78.1% in Q3 2014 compared to 77.9% in Q3 2013. This is still well below the historical average of 83%.

Key conclusions: Both full-time employment and total employment accelerated in Q3 2014 compared to Q4 2013-Q1 2014 dynamics, with most of the new jobs creation taking place in the category of full-time employment. Numbers of underemployed individuals fell. Which is very good news. However, as the proportion of total employment, full-time employment remains at the low levels.



Summary of previous posts:

1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), 
2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 
3. Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013. 
4. Total population over 15 years of age increased by 0.08% y/y and population at work was up 1.7% y/y (+31,000), marking a slowdown in the rate of growth from 2.17% y/y in Q2 2014 (+39,100). Numbers of those retired from employment rose to 416,700 - up 2.76% (+11,200) y/y and up 68,400 or +19.64% since Q1 2011. Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons and remains higher than historical average. 

27/11/2014: QNHS Q3 2014: Employed, Unemployed & Retired

Key summary of the previous posts is:

1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), and
2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 
3. Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013. 

In this post, lets take a look at the QNHS breakdown by principal status.

Total population over 15 years of age stood at 3,595,600 in Q3 2014, which marks an increase of 0.08% y/y - a significant drop from 0.21% rise in Q2 2014. Compared to Q1 2014, total population over 15 years of age is down 0.1% (-3,500). In level terms, total population of age over 15 has increased 2,800 in Q3 2014 compared to Q3 2013 while in Q2 2014 y/y increase was 7,600.

Population at work stood at 1,859,500, close to Q4 2009 levels of 1,859,200 and up 1.7% y/y (+31,000). However, this marks a slowdown in the rate of growth in numbers at work from 2.17% y/y growth in Q2 2014 (+39,100). Since Q1 2011 some 58,500 more people are at work, although this reflects seasonal variations.

Unemployed numbers fell to 294,800 in Q3 2014, down 9.76% y/y which is a faster rate of decline than in Q2 2014 when numbers unemployed declined 9.67%. In level terms, the rate of decline y/y in Q2 and Q3 2014 remained identical at 31,900.

Student numbers rose 0.5% to 401,000 in Q3 2014 compared to the same period of 2013. This compares to a 0.89% decline y/y in Q2 2014. Currently, number of students is running at 0.5% below Q1 2011 levels.

Numbers engaged on home duties dropped to 470,300 - a decline of 1.63% y/y in Q3 2014, having previously dropped 1.77% in Q2 2014. Overall, there has been a dramatic drop in numbers of those engaged on home duties compared to Q1 2011 - down 11.3% or 59,900.

Numbers of those retired from employment rose once again to 416,700 in Q3 2014 - a rate of y/y increase of 2.76% (+11,200) y/y. This marks acceleration in the y/y increases compared to Q2 2014 when numbers retired grew at an annual rate of 1.61%. Since Q1 2011, numbers retired are up dramatically - rising by 68,400 or +19.64%.

Overall, numbers of unemployed, retired and other (including in state training programmes) stood at 864,800 in Q3 2014 - a decline of 2.58% y/y, but down only 100 (-0.01%) on Q1 2011.


As the result of the above changes, Ireland's dependency ratio improved slightly in Q3 2014, as shown in the chart below:

Overall, Q3 2014 dependency ratio was 40.34 individuals at work to 59.66 individuals not working for various reasons. This represents a slight improvement on H1 2014 ratio of 39.97 : 60.03. Nonetheless, dependency ratio remains higher than historical average of 42.58:57.42.

26/11/2014: QNHS Q3 2014: Participation and Unemployment Rates

Key summary of the two previous posts is:

1. Unemployment is falling across all durations and all demographic (age-defined) cohorts, but the pressure of long-term unemployment is rising in the cohort of older workers (40 years of age and older), and
2. Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs. On longer-term trend: Non-agricultural Private Sector employment in Q3 2014 was 13.83 lower than 2008 average and Agricultural employment was 4.9% lower. In contrast, Public and State-controlled Sectors employment in Q3 2014 was 3.56% higher than 2008 average. 

Now, lets take a look at the Labour Force Participation Rate. CSO defines this as "The labour force participation rate is computed as an expression of the number of persons in the labour force as a percentage of the working age population. The labour force is the sum of the number of persons employed and of persons unemployed."

In other words, any serious improvement in employment conditions should have one of the two effects:
1) Unemployed moving into employment have zero effect on participation; and
2) New jobs added for new workers (including those previously in unemployment who have left labour force or have moved into training and are now gaining jobs or re-entering workforce) should increase participation.

What do we have in Q3 2014? Judging by the above stats on total employment and unemployment numbers, we should see an improvement in participation rates.

Based on CSO data, Q3 2014 participation rate stood at 60.4, down 0.3 points on Q3 2013. This marks an improvement on 0.5 points drop recorded in Q2 2013. Meanwhile, Unemployment rate dropped to 11.3% in Q3 2014 - a decline of 1.7 points on Q3 2013. The rate of unemployment decline slowed down in Q3 2014 compared to Q2 2014 when the rate dropped 2.1 points.

The above suggests that a significant share of the changes in unemployment is not related to jobs creation (something I will cover in a separate post).

For quarterly changes, consider seasonally-adjusted data. Seasonally-adjusted participation rate stood at 60.0 in Q3 2014, up marginally from 59.9 in Q2 2014 and marginally below 60.1 in Q1 2014. The historical average for the series is 60.7, which means we are still well below the average participation rate. Seasonally-adjusted unemployment rate posted 0.4 points drop to 11.1% in Q3 2014 compared to Q2 2014. Q2 2014 quarterly decline was 0.5 points, which suggests a slowdown in the rate of unemployment improvements in Q3 2014.

Rate of changes unemployment are shown in the chart below.

The key conclusion from the above data is that Ireland's participation rate remains below historical average and despite a slight improvement in Q3 2014 compared to Q2 2014, labour force participation rate remains lower than for the same period in 2013.

26/11/2014: QNHS Q3 2014: Employment by Broader Sectors

In the previous post I covered the issue of unemployment duration and distribution of long-term unemployment by age cohorts (see http://trueeconomics.blogspot.ru/2014/11/26112014-qnhs-q3-2014-long-term.html).


So now, lets take a look at the sectoral distribution of jobs in the economy.

Across all economic sectors, employment numbers rose in Q3 2014 to 1,926,900 - a rise of 1.45% y/y (+27,600) which represents a slowdown in the rate of growth compared to Q2 2014 when employment expanded by 1.7%.

On a 4 quarters average, current employment levels are at 1,906,630 and this is 2.18% ahead of the 4 quarters average for the period through Q3 2013.

All good. Catch is: we are still only at slightly above Q4 2009 levels in terms of overall employment and are down 3.48% on the highest level recorded during the current crisis period. Overall levels of employment are still 9.47% below the 2008 average levels.

As I noted in previous post, there are good reasons to look at the non-agricultural private sector employment as core indicator for economic activity. Here, Q3 2014 level of employment is at 1,325,500 which is 1.32% (or 17,300) ahead of Q3 2013. The rate of employment growth in Q3 was also slower than in Q2 (1.68% y/y). Q4 2013-Q3 2014 average is at 1,302,900 which is 1.87% ahead of Q4 2012-Q3 2013 average.

Our jobs markets performance was fairly positive compared to 2010-present average as shown in the chart below, but much of this positive performance disappears once we take out public sector and agricultural jobs from the equation.

So in the nutshell, Irish economy added 27,600 jobs in a year though Q3 2014 compared to Q3 2013. but only 17,300 of these jobs were private sector non-agricultural jobs.

Agricultural employment grew by 6.19% y/y in Q2 2014 and it shrunk by 0.81% (-900) in Q3 2014. Nonetheless, 4 quarters average currently stands at 111,700 which well ahead of the 4 quarters average through Q3 2013 which stood at 100,050.

Public and State-controlled sectors employment (basically state services, health and education) stood at 491,700 in Q3 2014, representing a rise of 2.33% y/y. In Q2 2014 sector employment rose 0.8% y/y. This is one of the few sectors (and the only one of the key three super-sectors identified here) that posted accelerated growth in employment in Q3 compared to Q2. Average for the four quarters through Q3 2014 stands at 492,030 which is 1.05% higher than the average for the four quarters through Q3 2013.

Let's take a different look at the numbers. Non-agricultural private sector employment in Q3 2014 was 13.83 lower than 2008 average. All employment was 9.47% lower and Agricultural employment was 4.9% lower. In contrast, public and state-controlled sectors employment in Q3 2014 was 3.56% higher than 2008 average.

Table below summarises changes for broader set of sectors.

26/11/2014: QNHS Q3 2014: Long-Term Unemployment

As usual with QNHS release, I will be covering a number of various angles relating to the latest unemployment data in a number of posts.

Let's start with duration of unemployment.

Overall, some good news. Official unemployment numbers fell 13.2% y/y in Q3 2014 (a decline of 37,400) for all duration categories. However, the rate of decline has moderated in Q3 compared to Q2. In Q2 2014 y/y drop in unemployment was 15.4% (down 46,200), which means that Q3 unemployment decline was 19% lower than the same y/y decline in Q2.

Across all demographic groups, unemployment with duration of less than 1 year dropped 9.9% y/y in Q3 2014 (a decline of 11,300). Again, this is good news. And again the good news are slightly moderated by the fact that the rate of decline has slowed down in Q3 compared to Q2 when unemployment of duration less than 1 year declined by 14.9% (down 18,200).

Long-term unemployment (1 year and longer) across all demographic groups was down 15.7% in Q3 2014 (down 25,900). This is excellent news in general as long-term unemployment is the hardest to shift. However, the rate of decline in long-term unemployment was also slower in Q3 2014 than in Q2 2014. Another good news is that the decline in long term unemployment was concentrated in the middle-age cohorts of 25-44 year olds where long term unemployment dropped by 17.7% y/y in Q3 2014 (down 15,800).

Key relative stat here is the relative share of long-term unemployed in total pool of the unemployed. This is illustrated in the chart below:

The chart shows several interesting trends:

• Overall share of long term unemployed amongst all unemployed has been trending down since the crisis period peak reached in Q1 2012 (63.5%) and currently it stands at 58.0%. The trend, however, is rather shallow;
• The shallow nature of the trend in long term unemployment as a share of total unemployment is driven by one group: those aged 25-44.
• Contrasting this, there has been a roughly volatile and sharply declining trend in long-term unemployed share of total unemployment for those aged 15-24 years of age. Much of this decline is, however, driven by the changing nature of our unemployment benefits system, emigration and state training programmes, rather than jobs creation.
• A worrying trend is for the demographic of 45 years of age and older. Here, there is an effectively flat trend in the share of long-term unemployed relative to total number of unemployed. Q3 2014 is showing a decline in this share to 69.1%, but that is bang on comparable to Q1 2014 share and is almost identical to 69.3 share in Q3 2013.

The last bit is worth highlighting a little more. As chart below shows, we are still on a rising trend in terms of the 45 year olds and older cohorts as proportion of all unemployed by duration:

In other words, we are facing a big problem in dealing with older unemployed and especially with older long-term unemployed.

Two tables below summarise the main results for changes in y/y terms and compared to Q1 2011.

26/11/2014: Juncker Start: Making Sure No Lessons of the Crisis Have Been Learned

More debt, more guarantees, more bureaucrats-administered 'help for the real economy' - it's business as usual in Brussels with the new Commission's plans for a 'EUR300bn investment fund'.

Some details here: http://euobserver.com/economic/126661.

And my comment here:

The problems, as I outlined in the comments on twitter and to EUObserver above, are multiple:

1. The new fund is debt-financed with EU guarantees - and we already have plenty of these schemes which de facto reallocate more and more indirect fiscal power to the Commission extra the normal budgetary procedures;
2. The new fund is going to be extremely leveraged - with a tangible capital base of EIB's EUR5 billion against EUR300-315 billion in disbursable funds (note: the EUR16 billion guarantee is hardly a form of capital). That's leverage levels in excess of Monte dei Paschi di Siena (currently at x54.31) - hardly an image of financial rude health and prudence;
3. The new fund will have to be 'leveraged' against sovereign balancesheets at the time when these are already carrying massive debts. Of course, the EU will concoct an accounting trick to make sure the new debt is not counted as official Government debt, but we all know it will be;
4. The new fund will be run by EBI - which is a de facto bunch of supra-national bureaucrats dressed up as bankers. How real is their concept of 'real economy' is - no one quite knows, but apparently EBI has been around during the crisis and made zero real impact so far. Shoving more money into it is like stuffing an old mare with oats and expecting it to run a race.
5. The new fund priorities for lending will be driven by a combination of the EU Commission dreams of white elephants and national governments grey rhinos. Expect a usual policy prioritisation zoo with buzz words of 'knowledge', 'sustainable', 'green', 'smart', 'R&D intensive' etc flying around.

Signs of the above miracle are already in place. Take the 'investment committee' of the fund. Allegedly it will be composed of 'experts' from the member states appointed by the Commission. That is a double risk - politically appointed domestic experts counter-selected by the politically motivated EU officials. It is a prescription for double vacuum of independence. 

The experts will base their project assessments on the basis of commercial and societal perspectives. Have you ever heard of such criteria for investment in a 'real economy'? No, me neither.

Next, we have the targets. The fund is to focus its efforts on co-funding 'high risk' PPP ventures where private capital has no interest to invest in due to very low risk-adjusted returns.  How on earth can anyone call high risk PPPs a part of the real economy is a philosophical question for the good times. In the middle of a growth crisis, when resources are even more scarce, it is a question of who gets returns and who carries risks. Under  the 'pioneering' idea of Mr. Juncker, the public (EU and sovereigns) will carry risks, private investors will get returns (or higher risk-adjusted returns). It is about as pioneering as suggesting that the banks should be made whole on their losses using public insurance: the entire history of the current crisis is one Junckerian Investment Fund.

26/11/2014: A Chart to Illustrate the Danger of Long-Term Unemployment

Quite a powerful reminder to us all as to the extent of the damage done by longer term unemployment. Here is the US data for the probability of regaining the job based on duration in unemployment:

Source: http://oregoneconomicanalysis.com/2014/11/10/graph-of-the-week-transition-probabilities/

Ignore the numbers on the right (for now):

• Probability of regaining a job for those with less than 5 weeks duration of unemployment is ca 35-36% currently in the US.
• Probability of regaining a job for those with unemployment duration of 15-26 weeks (under 6 months) is roughly 18%. That's half the rate of those at the shortest end of unemployment duration.
• Probability of regaining a job for those in unemployment longer than 53 weeks (roughly year +) is just a notch above 10%.

Another set of regularities worth noting is:

• For all durations, probability of regaining a job after an unemployment spell is showing a downward trend since the late 1990s.
• The steepest decline in probability of regaining the job (trend) is evident for mid-range duration.

This is scary. In effect this suggests that unemployment in the US is becoming more structural over time, despite the claims of the rising economic systems resilience and flexibility. 

Now, onto numbers on the right: these reflect how much of the gap in probability of regaining a job between the pre-crisis high and the crisis period low has been closed to-date.  Now, the author of the post is celebrating that the gap is closing. Fine by me. except do remember - the peaks referenced in the chart go back to mid-2007. Which means we are now 7 years and a quarter, or so, that the crisis has been raging and the best the US has to show is 71% gap closure for short term unemployed. This is what we today call 'the best recovery' amongst the advanced economies. Imagine how horrific it is in the 'less impressive recoveries' of other advanced economies.