Saturday, July 18, 2009
Economics 18/07/2009: B-day present
My small Birthday Present to the followers of this blog: I have just published a new post on Public Sector Overpay and Knowledge Economy Wages on the Long Run Economics blog.
Friday, July 17, 2009
Economics 17/07/2009: Oh, the horror in our shops
Well, in the week when the infantile reports from the CB and Forfas have delivered no news (just a mash of poorly cooked up secondary factoids) and the press interpreted the ESRI's dithering as a sign of the bottoming out economy... CSO's data for retail sales told a much more honest story.
Yes, pigs do not fly, unless propelled into the skies by someone else's design. And neither do the theories that the Irish consumer has finally decided to become this Government policies cheerleader. Retail sales have no completely collapsed, going for the double dip move. Let's say thanks for the lack of consumer support (even at already abysmally dismal levels) to our Brian+Brian+Mary 'Economics on Drugs' team.
A few charts on the latest data... They are pretty much self explanatory.
Tell me if need reading glasses, but my usual 20:20 vision can't spot any green shoots... At best - a bounce at the bottom, going into another down spiral?
Yeah, about the only positive is that the monthly rate of collapse is slightly lower for value of sales... inflation cometh? Not quite. Not yet. But gas prices are biting... and a host of other state-led charges... and bars - oh yes, warm weather when even C&C should be able to make money (don't bet on it, for their problem is not the weather, but perennial stupor of the management team, or shall we make it 'pear-anneal'?).
Let me play a weather man for a sec...
Again, aside from bars (weather effect combined with desperation and late night Government meetings) and Electrical Goods (either ESB was doing some frequency manipulations to help economy or good weather got few builders out for nixers and small jobs, thus small appliances purchases went up) not much of a Green Valley out there.
And, of course, the same is replayed in rates of growth... 11 categories show things getting worse and worse by the month in value terms, while 2 categories are showing an improvement - Motors and Bars... drinking and driving, anyone? Other 2 categories showing such a small improvement, that you might as well call in the crew that fixed the Hubble for super fine Green Weeds removal. Ditto on the side of volume.
May annual decline was 15.4% in volume terms an improvement in the average decline of 21% in the year to April. But this was driven by the slower rate of decline in motor sales – the sector that has been so thoroughly devastated in the past that continuous decline in it, even at a slower pace, still marks a deepening disaster: -40% down yoy in May. The figures mask a significant, and anticipated by this blog, deterioration in core retail sales (ex motors). In April, core sales rose 0.5% mom for the first time after a four months straight decline. At the time I remarked that this is a technical correction which will be followed by deeper falls. What I couldn’t have known at the time that the preliminary figure will be actually revised significantly down, so now we know that April marked an actual fall of 0.7% in core sales. This has now accelerated to -1.3% in May. Volume is now down 9.2% on annual basis – way down from the already historic 7.4% annual rate of decline clocked in Q1 2009. 3-mo MA also points to further declines ahead: in March, 3-mo MA stood at -7.4%, falling to -7.7% in April and to -8.4% in May.
Food sales – which should have been boosted by good weather, implying higher consumption of meats and other BBQ-items had another disastrous month falling 0.9% in May (mom) to -4.6% yoy. Ditto for clothing and footware – also items that should have been boosted by warmer weather. Instead of that ‘Special-K’ new red bikini, old T-shirts and shorts are out of the donations bins. So the category is down 5.2% in May mom. Pubs sales were up 1%, but this was not due to an improved weather, rather masking a slight statistical bounce on April’s horrific -5.2% fall mom (the category is now 11.4% below May 2008 levels).
This is a disaster unfolding in front of our eyes as the entire establishment – from Taoiseach to ESRI are blabbing about the ‘green shoots’. There is no sign of stabilization in the retail sector.
I like the frankness of the Ulster Bank note: “It is important to point out that we anticipated some weakness in retail sales in May, given that the tax hikes introduced in the April budget began to hit pay packets during this period. However, the May outcome was a bit weaker than we expected with downward revisions to the March and April data adding to the sense of a weak report.” Yes, let’s keep taxing the economy to avoid cutting public sector welfare, as Jack O’Connor suggests – it has been working wonders in improving our consumer confidence.
Yes, pigs do not fly, unless propelled into the skies by someone else's design. And neither do the theories that the Irish consumer has finally decided to become this Government policies cheerleader. Retail sales have no completely collapsed, going for the double dip move. Let's say thanks for the lack of consumer support (even at already abysmally dismal levels) to our Brian+Brian+Mary 'Economics on Drugs' team.
A few charts on the latest data... They are pretty much self explanatory.
Tell me if need reading glasses, but my usual 20:20 vision can't spot any green shoots... At best - a bounce at the bottom, going into another down spiral?
Yeah, about the only positive is that the monthly rate of collapse is slightly lower for value of sales... inflation cometh? Not quite. Not yet. But gas prices are biting... and a host of other state-led charges... and bars - oh yes, warm weather when even C&C should be able to make money (don't bet on it, for their problem is not the weather, but perennial stupor of the management team, or shall we make it 'pear-anneal'?).Let me play a weather man for a sec...
Again, aside from bars (weather effect combined with desperation and late night Government meetings) and Electrical Goods (either ESB was doing some frequency manipulations to help economy or good weather got few builders out for nixers and small jobs, thus small appliances purchases went up) not much of a Green Valley out there.
And, of course, the same is replayed in rates of growth... 11 categories show things getting worse and worse by the month in value terms, while 2 categories are showing an improvement - Motors and Bars... drinking and driving, anyone? Other 2 categories showing such a small improvement, that you might as well call in the crew that fixed the Hubble for super fine Green Weeds removal. Ditto on the side of volume.May annual decline was 15.4% in volume terms an improvement in the average decline of 21% in the year to April. But this was driven by the slower rate of decline in motor sales – the sector that has been so thoroughly devastated in the past that continuous decline in it, even at a slower pace, still marks a deepening disaster: -40% down yoy in May. The figures mask a significant, and anticipated by this blog, deterioration in core retail sales (ex motors). In April, core sales rose 0.5% mom for the first time after a four months straight decline. At the time I remarked that this is a technical correction which will be followed by deeper falls. What I couldn’t have known at the time that the preliminary figure will be actually revised significantly down, so now we know that April marked an actual fall of 0.7% in core sales. This has now accelerated to -1.3% in May. Volume is now down 9.2% on annual basis – way down from the already historic 7.4% annual rate of decline clocked in Q1 2009. 3-mo MA also points to further declines ahead: in March, 3-mo MA stood at -7.4%, falling to -7.7% in April and to -8.4% in May.
Food sales – which should have been boosted by good weather, implying higher consumption of meats and other BBQ-items had another disastrous month falling 0.9% in May (mom) to -4.6% yoy. Ditto for clothing and footware – also items that should have been boosted by warmer weather. Instead of that ‘Special-K’ new red bikini, old T-shirts and shorts are out of the donations bins. So the category is down 5.2% in May mom. Pubs sales were up 1%, but this was not due to an improved weather, rather masking a slight statistical bounce on April’s horrific -5.2% fall mom (the category is now 11.4% below May 2008 levels).
This is a disaster unfolding in front of our eyes as the entire establishment – from Taoiseach to ESRI are blabbing about the ‘green shoots’. There is no sign of stabilization in the retail sector.
I like the frankness of the Ulster Bank note: “It is important to point out that we anticipated some weakness in retail sales in May, given that the tax hikes introduced in the April budget began to hit pay packets during this period. However, the May outcome was a bit weaker than we expected with downward revisions to the March and April data adding to the sense of a weak report.” Yes, let’s keep taxing the economy to avoid cutting public sector welfare, as Jack O’Connor suggests – it has been working wonders in improving our consumer confidence.
Thursday, July 16, 2009
Economics 17/07/2009: Pathologies of the crisis
If Ireland were a patient, its political democracy would be on its death bed. This is the only logical conclusion from today's An Bord Snip Nua report.
This country is facing a more severe crisis than that of fiscal insolvency or economic depression. This Government, and its predecessors have chosen not to do their duty by the country - they chosen not to govern. Now they have also de facto lost their legitimacy.
The outsourcing of policy decisions to an unelected and unrepresentative external bodies - chiefly the Social Partnership - in the past had a logical culmination in the outsourcing of the crisis management policies to An Bord Snip Nua and Taxation Commission. The fact that An Bord Snip did a decent job in identifying expenditure cuts is a moot point.
The state has paid extravagant salaries to FAS, Forfas, NCC, NESC, Department of Finance, Central Bank, and other policy quangoes to conduct
An Bord Snip Nua report says this much, yet still leaves them all in their jobs, until they choose to retire and saddles us, taxpayers with the charge of paying their grotesquely disproportionate (by any measure of their competence and/or international comparisons) wages.
CB and Forfas reports this week on Irish economy are the case in point. People who signed these reports earn more than their US, UK, German - you name the country short of some totalitarian oil-pumping hell-hole - counterparts. These reports have zero value, for they contain not an ounce of new information. Their authors will go on working till retirement in permanent jobs, while their bosses will go one collecting wages that are so sinfully out of proportion to their talents, they make them the lottery winners compared to the senior bankers.
But let us get back to the crisis of our state legitimacy.
This Government took the job voluntarily. Their first act in power was to accept huge pay increases for themselves and their senior cronies in the public sector. They have no capacity or legitimacy to rule. Yet our Taoiseach, and his Ministers, collect more in wages and perks than the vast majority of other leaders in mature democracies. Some of our Ministers are simply completely inadequate in positions they fill. We pay them hundreds of thousands in annual wages and millions in pensions benefits believing that if you pay peanuts for a job you get monkeys. What if you pay millions to the monkeys? Will that make them suitable candidates for the job?
Angry yet?
Our trade unionists and anti-poverty NGOs leaders believe that the Government is measured by how it treats the poor not by how much it overpays itself. Fergus Finlay of Barnardo's believes so. This is the morality of such a depraved estate that feudal lords would have cringed. It makes no difference that Barnardo's is a worthy organization pursuing a worthy cause - failing to understand that this state has more than one constituency to answer to (not just the poor), and that the legitimacy of the state objectives (including that of combating poverty) is based on morality of state actions in their totality, Finlay either betrays an amazingly low level of intellect or an extremely high levels of Machiavelian cynicism. Either way - his failure to accept at a basic, DNA-level the moral premises of liberty, legality and democracy make him an unfit public figure, no matter how well-intentioned his direct objective might be.
Our Liberal Left - where are you, Fintain O'Toole, Ivana Bacik and others, to oppose this - believes it is ok for the Government to raid the lower, middle and upper classes, to squander and corruptly allocate billions in public money... as long as their own constituencies are protected. "Give me my dosh", they say, "and we'll close our eyes on what you will do elsewhere," say the Trade Unionists and Finlay's of this world - those who have signed on the dotted Partnership line dividing the spoils of the boom and now have no guts to point the finger at the lack of our government's moral legitimacy.
Under the Partnership agreements and the corporatist policies they enshrined, the entire public finance system, since the departure of Charlie McCreevy, has been run like a crude, unimaginative pyramid scheme - partially out of sheer incompetence and partially out of sheer venality of its managers. One exception is that a sleek salesman defrauding old grannies was replaced by a brutish taxman with the full apparatus of coercion this state possesses.
Bernie Maddoff was a saint compared to this Government. It took billions in arbitrary taxes and wasted tens of billions in arbitrary payoffs to its own cheerleaders. The chart on the second page of Chapter 2 of the An Bord Snip Nua report shows this explicitly. All of this - in the hope that we will raise more taxes come next year. They paid lavish dividends to their Social Partners cronies, their pub and childhood chums, and a vast army of clientilist NGOs and quangoes all of whom apparently have no problem with the state officials at the senior level earning excessive salaries as long as their own cogs and constituencies were greased.
The country is bankrupt: morally first, financially second, economically third. Full stop! Read An Bord's Report and think of John Hurley's of this country - earning more than the US Federal Reserve Chairman earns and more than his ECB boss is paid. Golden Circle is not the by-now bankrupt Irish bankers or developers. The real Golden Circle is the army of top officials, majority of the Social Partners and politicos all of whom are grossly overpaid and all of whom are callous and venal enough not be embarrassed by this fact.
This country is facing a more severe crisis than that of fiscal insolvency or economic depression. This Government, and its predecessors have chosen not to do their duty by the country - they chosen not to govern. Now they have also de facto lost their legitimacy.
The outsourcing of policy decisions to an unelected and unrepresentative external bodies - chiefly the Social Partnership - in the past had a logical culmination in the outsourcing of the crisis management policies to An Bord Snip Nua and Taxation Commission. The fact that An Bord Snip did a decent job in identifying expenditure cuts is a moot point.
The state has paid extravagant salaries to FAS, Forfas, NCC, NESC, Department of Finance, Central Bank, and other policy quangoes to conduct
- analysis of economic and policy conditions in the country for years - they all missed the crisis that was obviously unfolding in front of their eyes, more than that - they directly contributed to the crisis by creating or intellectually underwriting the policies that led us here;
- preparation of policy responses - they all failed to deliver a single implemented policy document of any real economic worth;
- crisis management - they all chose to abstain from engaging in what they were paid to do.
An Bord Snip Nua report says this much, yet still leaves them all in their jobs, until they choose to retire and saddles us, taxpayers with the charge of paying their grotesquely disproportionate (by any measure of their competence and/or international comparisons) wages.
CB and Forfas reports this week on Irish economy are the case in point. People who signed these reports earn more than their US, UK, German - you name the country short of some totalitarian oil-pumping hell-hole - counterparts. These reports have zero value, for they contain not an ounce of new information. Their authors will go on working till retirement in permanent jobs, while their bosses will go one collecting wages that are so sinfully out of proportion to their talents, they make them the lottery winners compared to the senior bankers.
But let us get back to the crisis of our state legitimacy.
This Government took the job voluntarily. Their first act in power was to accept huge pay increases for themselves and their senior cronies in the public sector. They have no capacity or legitimacy to rule. Yet our Taoiseach, and his Ministers, collect more in wages and perks than the vast majority of other leaders in mature democracies. Some of our Ministers are simply completely inadequate in positions they fill. We pay them hundreds of thousands in annual wages and millions in pensions benefits believing that if you pay peanuts for a job you get monkeys. What if you pay millions to the monkeys? Will that make them suitable candidates for the job?
Angry yet?
Our trade unionists and anti-poverty NGOs leaders believe that the Government is measured by how it treats the poor not by how much it overpays itself. Fergus Finlay of Barnardo's believes so. This is the morality of such a depraved estate that feudal lords would have cringed. It makes no difference that Barnardo's is a worthy organization pursuing a worthy cause - failing to understand that this state has more than one constituency to answer to (not just the poor), and that the legitimacy of the state objectives (including that of combating poverty) is based on morality of state actions in their totality, Finlay either betrays an amazingly low level of intellect or an extremely high levels of Machiavelian cynicism. Either way - his failure to accept at a basic, DNA-level the moral premises of liberty, legality and democracy make him an unfit public figure, no matter how well-intentioned his direct objective might be.
Our Liberal Left - where are you, Fintain O'Toole, Ivana Bacik and others, to oppose this - believes it is ok for the Government to raid the lower, middle and upper classes, to squander and corruptly allocate billions in public money... as long as their own constituencies are protected. "Give me my dosh", they say, "and we'll close our eyes on what you will do elsewhere," say the Trade Unionists and Finlay's of this world - those who have signed on the dotted Partnership line dividing the spoils of the boom and now have no guts to point the finger at the lack of our government's moral legitimacy.
Under the Partnership agreements and the corporatist policies they enshrined, the entire public finance system, since the departure of Charlie McCreevy, has been run like a crude, unimaginative pyramid scheme - partially out of sheer incompetence and partially out of sheer venality of its managers. One exception is that a sleek salesman defrauding old grannies was replaced by a brutish taxman with the full apparatus of coercion this state possesses.
Bernie Maddoff was a saint compared to this Government. It took billions in arbitrary taxes and wasted tens of billions in arbitrary payoffs to its own cheerleaders. The chart on the second page of Chapter 2 of the An Bord Snip Nua report shows this explicitly. All of this - in the hope that we will raise more taxes come next year. They paid lavish dividends to their Social Partners cronies, their pub and childhood chums, and a vast army of clientilist NGOs and quangoes all of whom apparently have no problem with the state officials at the senior level earning excessive salaries as long as their own cogs and constituencies were greased.
The country is bankrupt: morally first, financially second, economically third. Full stop! Read An Bord's Report and think of John Hurley's of this country - earning more than the US Federal Reserve Chairman earns and more than his ECB boss is paid. Golden Circle is not the by-now bankrupt Irish bankers or developers. The real Golden Circle is the army of top officials, majority of the Social Partners and politicos all of whom are grossly overpaid and all of whom are callous and venal enough not be embarrassed by this fact.
Wednesday, July 15, 2009
Economics 15/07/2009: Bonds Spreads: ECB Model
As promised earlier (here), I have re-done the ECB model estimated for Belgium, Ireland, Greece, Spain, France, Italy, the Netherlands, Austria, Portugal and Finland for the specific parameterisation for Ireland. Taking the path for our debt, deficit and bond issuances through 2013 under three different assumptions:
Assumption 1: NAMA bonds are off the public balance sheet and have no adverse impact on pricing, plus our liquidity conditions are in line with those of Germany (this corresponds to the dream scenario);
Assumption 2: NAMA bonds are on the public balance sheet, implying some adverse pricing effects, but out liquidity remains in line with German (this corresponds to 'markets are asleep' scenario); and
Assumption 3: NAMA bonds impact our balance sheet and yield shut down of the international borrowing markets for NAMA bonds (this is ECB buys NAMA scenario).
Chart below shows the resulting spreads over German 10y Bund:
One quick explanation is also due: 2009 levels are the fundamentals-implied levels of spreads under the ECB model. This is what the spread should be, were the markets pricing our bonds in line with what ECB says they are doing. ECB Monthly Bulletin does not report residuals, so I can't tell the accuracy of the pricing model.
Nonetheless, three things stand out:
And notice the term structure emerging in the chart below... Someone is not quite ready to buy Brian Lenihan (or for that matter ESRI's) story that we are getting serious about controlling our spending into the medium term future...
Assumption 1: NAMA bonds are off the public balance sheet and have no adverse impact on pricing, plus our liquidity conditions are in line with those of Germany (this corresponds to the dream scenario);
Assumption 2: NAMA bonds are on the public balance sheet, implying some adverse pricing effects, but out liquidity remains in line with German (this corresponds to 'markets are asleep' scenario); and
Assumption 3: NAMA bonds impact our balance sheet and yield shut down of the international borrowing markets for NAMA bonds (this is ECB buys NAMA scenario).
Chart below shows the resulting spreads over German 10y Bund:
One quick explanation is also due: 2009 levels are the fundamentals-implied levels of spreads under the ECB model. This is what the spread should be, were the markets pricing our bonds in line with what ECB says they are doing. ECB Monthly Bulletin does not report residuals, so I can't tell the accuracy of the pricing model.Nonetheless, three things stand out:
- We are facing potential upward pressure on yield in 2009, should we go to the markets instead of the ECB;
- NAMA is posing serious risk of destroying our balance sheet in years to come as the cost of debt financing can soar not only for NAMA-own bonds, but also for all the bonds rolled over by the Government.
- It is relatively clear that any auction since January 2009 below 6.2% yield would have flopped, were it not for the ECB lending window circus.
And notice the term structure emerging in the chart below... Someone is not quite ready to buy Brian Lenihan (or for that matter ESRI's) story that we are getting serious about controlling our spending into the medium term future...
Sunday, July 12, 2009
Economics 12/07/2009: Travel figures
As an added bonus to Irish Times eager attack on my article in Sunday Times couple of weeks ago here is last week's press release from Ryanair:
"Ryanair, the World’s favourite airline, today (10th July 09) called on the Irish Government to stop ripping-off travellers after CSO figures confirmed that all Government controlled/regulated bus (up 11%), rail (up 9%) and taxi fares (up 8%) increased in the past year while unregulated airfares fell (14%) thanks to Ryanair. The Irish Government is now targeting air passengers with a self defeating revenue negative €10 tourist tax. The Irish Government’s €10 tourist tax is an effective 100% price increase on many of Ryanair’s winter fares to/from Dublin, Cork and Shannon. Ryanair called on the Irish Government to stop taxing tourists and follow the example of the Belgian, Dutch, Greek and Spanish governments who have all scrapped tourist taxes and/or reduced airport charges to zero to stimulate tourism. "Traffic at the DAA Monopoly run Dublin Airport fell 14% in June to 1.9 million as the Irish Government rips off passengers with a silly €10 tourist tax."
Disclosure (for Irish Times sake): I do not own any shares in Aer Lingus, Ryanair. I have zero allocation to Irish equities at this time, but I feel honoured to be attacked alongside Michael O'Leary...
"Ryanair, the World’s favourite airline, today (10th July 09) called on the Irish Government to stop ripping-off travellers after CSO figures confirmed that all Government controlled/regulated bus (up 11%), rail (up 9%) and taxi fares (up 8%) increased in the past year while unregulated airfares fell (14%) thanks to Ryanair. The Irish Government is now targeting air passengers with a self defeating revenue negative €10 tourist tax. The Irish Government’s €10 tourist tax is an effective 100% price increase on many of Ryanair’s winter fares to/from Dublin, Cork and Shannon. Ryanair called on the Irish Government to stop taxing tourists and follow the example of the Belgian, Dutch, Greek and Spanish governments who have all scrapped tourist taxes and/or reduced airport charges to zero to stimulate tourism. "Traffic at the DAA Monopoly run Dublin Airport fell 14% in June to 1.9 million as the Irish Government rips off passengers with a silly €10 tourist tax."
Disclosure (for Irish Times sake): I do not own any shares in Aer Lingus, Ryanair. I have zero allocation to Irish equities at this time, but I feel honoured to be attacked alongside Michael O'Leary...
Saturday, July 11, 2009
Economics 11/07/2009: Public Servants earn more than their employers
Time to get outraged, folks. Per latest CSO annual National Employment Survey, public sector pay is completely beyond any reasonable comparatives with the private sector. Here is a table (courtesy of Davy - yes, credit is due to Davy for an excellent note on this):
"Median earnings were 52% higher in the public jobs", said Davy. "or the equivalent occupation, education level or experience, the smallest gap is 25% and the largest is 76%. The gap between public and private pay cannot be justified by saying that public sector employees are more
experienced, better educated or do different jobs. For example, how can we explain the fact that security personnel in the public sector get paid 46% more than their private sector peers?"
The Unions love babbling about the bulls***t poor low-paid entry jobs in the public sector. Table above shows that younger age cohorts and lower experience cohorts are earning vastly greater wages in the public sector than in the private sector.
Workers with 20-29 years of experience achieve a wage that is 36% higher in the public service
than in the private service. What does this mean? It means that the actual gap for those with greater tenure is even wider than that because workers in the private sector in this category of experience have to save 25-30% of their disposable income in pensions, while their counterparts in the public sector are enjoying lavish retirement plans benefits.
Davy note: "In February, the first attempt was made to rectify the imbalance. But the public pension levy only matched the wage cuts in the private sector, so the gap has probably
not closed. The public pay bill of €20bn in 2009 amounts to more than one-third of voted public expenditure. Further pay cuts of at least 10% are justified by these data." Oh, dear - can't we actually have some ambition? These figures show that public pay bill should be cut by ca40-45% through an equal measure of reduced wages (-25-30%) and reduced numbers employed (-20%). This will still produce a public sector employment premium, but it will at the very least force them to work more productively.
Davy concluded the note with the following statement: "Hourly earnings are 48% on average higher in the public sector. But average annual earnings are 32% higher because public employees work fewer hours. But it is not the case that bonuses are much higher in the private sector. In 2002, bonuses (and benefit-in-kind) in the private sector amounted to €1565 (or 5% of average annual earnings) versus only €149 in the public service. Five years on in 2007, bonuses in the public service had almost caught up at €1,807 versus €2,211."
Another interesting fact is the distribution of various grades in private and public sector. Notice the relative proportions of managerial and admin staff vs professional staff. This is not a sign of the public sector depth of expertise (high ratio of professionals), but of inflation in terminology. When an elementary school teacher or a basic nurse are considered professional grade employees, academics should be called demi-gods...
What all of us are forgetting is that as taxpayers - we employ them, not the other way around. It is time to start issuing pink slips. And by the way - if you hear once again anyone talking about 'not creating a conflict between the two sectors' - guess what: by granting themselves these gratuitous increases in wages, they - the public sector - have taken hard earned money from all of us, rich and poor. It was an involuntary transaction that enriched them alone. The state has presided over this system of wealth transfer under the guise of Social Partnership. We have every right to demand our money back. It is conflict time!
"Median earnings were 52% higher in the public jobs", said Davy. "or the equivalent occupation, education level or experience, the smallest gap is 25% and the largest is 76%. The gap between public and private pay cannot be justified by saying that public sector employees are moreexperienced, better educated or do different jobs. For example, how can we explain the fact that security personnel in the public sector get paid 46% more than their private sector peers?"
The Unions love babbling about the bulls***t poor low-paid entry jobs in the public sector. Table above shows that younger age cohorts and lower experience cohorts are earning vastly greater wages in the public sector than in the private sector.
Workers with 20-29 years of experience achieve a wage that is 36% higher in the public service
than in the private service. What does this mean? It means that the actual gap for those with greater tenure is even wider than that because workers in the private sector in this category of experience have to save 25-30% of their disposable income in pensions, while their counterparts in the public sector are enjoying lavish retirement plans benefits.
Davy note: "In February, the first attempt was made to rectify the imbalance. But the public pension levy only matched the wage cuts in the private sector, so the gap has probably
not closed. The public pay bill of €20bn in 2009 amounts to more than one-third of voted public expenditure. Further pay cuts of at least 10% are justified by these data." Oh, dear - can't we actually have some ambition? These figures show that public pay bill should be cut by ca40-45% through an equal measure of reduced wages (-25-30%) and reduced numbers employed (-20%). This will still produce a public sector employment premium, but it will at the very least force them to work more productively.
Davy concluded the note with the following statement: "Hourly earnings are 48% on average higher in the public sector. But average annual earnings are 32% higher because public employees work fewer hours. But it is not the case that bonuses are much higher in the private sector. In 2002, bonuses (and benefit-in-kind) in the private sector amounted to €1565 (or 5% of average annual earnings) versus only €149 in the public service. Five years on in 2007, bonuses in the public service had almost caught up at €1,807 versus €2,211."
Another interesting fact is the distribution of various grades in private and public sector. Notice the relative proportions of managerial and admin staff vs professional staff. This is not a sign of the public sector depth of expertise (high ratio of professionals), but of inflation in terminology. When an elementary school teacher or a basic nurse are considered professional grade employees, academics should be called demi-gods...
What all of us are forgetting is that as taxpayers - we employ them, not the other way around. It is time to start issuing pink slips. And by the way - if you hear once again anyone talking about 'not creating a conflict between the two sectors' - guess what: by granting themselves these gratuitous increases in wages, they - the public sector - have taken hard earned money from all of us, rich and poor. It was an involuntary transaction that enriched them alone. The state has presided over this system of wealth transfer under the guise of Social Partnership. We have every right to demand our money back. It is conflict time!
Friday, July 10, 2009
Friday Evening Economics
Oh no, I am not kidding - this one is for real. They've found a way to beat the property market blues down in Laois (hat tip to JH):
Imagine having HIM as a neighbor!
Happy Friday all!
Imagine having HIM as a neighbor!Happy Friday all!
Economics 10/07/2009: Don't panic, ECB is... errr... backing down
On a light-hearted side of the blog:
As they say in one famous commercial: for serious press, there's Mastercard, for BJs, there's Mayo Advertiser. (Hat tip: JH)
As the Bank of New York Mellon, one of the world’s largest and, in my view lowest counterparty risk custodian banks says the markets are now seriously disenchanted with European financials.
Per FT report today, concerns about the European banking sector are at their highest level since March. Euro might be sliding.
BoNYM said its data showed net outflows from German bunds for the first time since mid-March. This is at the time when our own clowns are claiming that there is now a clarity in the borrowing markets for Irish debt. Hmmm... Clarity about what? An impeding disaster that is named NAMA?
BoNY Mellon also tracks outflows from Italian, Spanish, Portuguese, Belgian and Greek bonds. Emerging European markets lead, with APIIGS, plus France, Belgium, Germany and Sweden are at the forefront of the new pressure. By the end of this round - the acronym of 'troubled' or 'exposed' states will have 27 letters in it. Per FT report, Austria, Italy, France, Belgium, Germany and Sweden, which together accounted for 84% of the exposure to Eastern Europe. FT quotes BoNYM head of currency research saying that the euro area has lost its safe haven status, and is increasingly seen as a high-risk region among international investors. Thank god someone is being realistic...
But not in the marbled halls of the ECB. Those guys are simply out to lunch. Per their latest assessment (here): "Despite the financial turmoil, the global landscape of international currencies and - within that - the share of the euro remained steady. Specifically, between end-2007 and end-2008, the share of euro-denominated instruments increased by around 1 percentage point for outstanding debt securities, around 2 percentage points for outstanding cross-border loans and deposits, and around 1 percentage point for global foreign exchange reserve holdings... The review also shows that the international role of the euro maintains a strong regional pattern. Its international use continues to be most pronounced in countries with close geographical and institutional links with the euro area."
But the ECB's rosy take on the Euro is only half a problem. ECB's Monthly Bulletin (see here: scroll to 09/07/2009) is already on the path of plotting 'exit strategies' from the current active support policies - despite giving a rather gloomy outlook for the Euro zone for 2009-2010... Go figure. A companion paper to the bulletin has another re-print of the already trite table that was first floated by the OECD back in January 2009 and then slightly updated by the Article IV paper by the IMF last month. This is:
Enjoy - our Government's contingent liabilities relating to the banking crisis are ten times greater than those of the second most-screwed up banking sector in the euro area - Belgium. Oh, we are having some fun...
But not enough, I hear you say? Here is another good one from the ECB:
Now, California is considered to be bunkrupt, given its state deficit is only $24bn through next 12-18 months (depending on the budgetary framework taken), relative to a GDP of $1.8trillion a year - less than 0.008-0.013% of GDP. Ireland? Well - depends on whether you count NAMA or not, we are pushing for some 12-30% of GDP... Spot the difference? Ok, another chart then:
We are facing worse deficit than Greece, but our spreads are lower... What gives? The market is not pricing in NAMA as a state liability. Not yet.
Here is what ECB used to assess the bond spreads:
"The following empirical model is used to explain the ten-year government bond yield spreads of
ten euro area countries (inc Ireland) over Germany (spread):
spreadit=α+ρ spreadit-1+β1 ANNit+β2FISCit+β3IntlRiskt+β4LIQit+εit
In this model, ANN denotes the announcements of bank rescue packages made by individual euro area governments (this variable takes the value 1 after the date of the announcement and the value 0 before); FISC denotes the expected general government budget balance and/or gross debt as a share of GDP, relative to Germany, over the next two years, as released biannually by the European Commission; IntlRisk is a proxy for international investor risk aversion, as measured by the difference between the ten-year AAA-rated corporate bond yield in the United States and the US ten-year Treasury bond yield; LIQ is a proxy for the degree of liquidity of euro area government bond markets, measured by the size of a government’s gross debt issuance relative to Germany; εit is the unexplained residual."
For the lack of time right now, I can't re-parameterize the model to derive the values of the fundamentals-justified spread for Ireland. I shall do this over the weekend, but here are the main results for the group of 10 countries:
Good luck.
As they say in one famous commercial: for serious press, there's Mastercard, for BJs, there's Mayo Advertiser. (Hat tip: JH)As the Bank of New York Mellon, one of the world’s largest and, in my view lowest counterparty risk custodian banks says the markets are now seriously disenchanted with European financials.
Per FT report today, concerns about the European banking sector are at their highest level since March. Euro might be sliding.
BoNYM said its data showed net outflows from German bunds for the first time since mid-March. This is at the time when our own clowns are claiming that there is now a clarity in the borrowing markets for Irish debt. Hmmm... Clarity about what? An impeding disaster that is named NAMA?BoNY Mellon also tracks outflows from Italian, Spanish, Portuguese, Belgian and Greek bonds. Emerging European markets lead, with APIIGS, plus France, Belgium, Germany and Sweden are at the forefront of the new pressure. By the end of this round - the acronym of 'troubled' or 'exposed' states will have 27 letters in it. Per FT report, Austria, Italy, France, Belgium, Germany and Sweden, which together accounted for 84% of the exposure to Eastern Europe. FT quotes BoNYM head of currency research saying that the euro area has lost its safe haven status, and is increasingly seen as a high-risk region among international investors. Thank god someone is being realistic...
But not in the marbled halls of the ECB. Those guys are simply out to lunch. Per their latest assessment (here): "Despite the financial turmoil, the global landscape of international currencies and - within that - the share of the euro remained steady. Specifically, between end-2007 and end-2008, the share of euro-denominated instruments increased by around 1 percentage point for outstanding debt securities, around 2 percentage points for outstanding cross-border loans and deposits, and around 1 percentage point for global foreign exchange reserve holdings... The review also shows that the international role of the euro maintains a strong regional pattern. Its international use continues to be most pronounced in countries with close geographical and institutional links with the euro area."
But the ECB's rosy take on the Euro is only half a problem. ECB's Monthly Bulletin (see here: scroll to 09/07/2009) is already on the path of plotting 'exit strategies' from the current active support policies - despite giving a rather gloomy outlook for the Euro zone for 2009-2010... Go figure. A companion paper to the bulletin has another re-print of the already trite table that was first floated by the OECD back in January 2009 and then slightly updated by the Article IV paper by the IMF last month. This is:
Enjoy - our Government's contingent liabilities relating to the banking crisis are ten times greater than those of the second most-screwed up banking sector in the euro area - Belgium. Oh, we are having some fun...But not enough, I hear you say? Here is another good one from the ECB:
Now, California is considered to be bunkrupt, given its state deficit is only $24bn through next 12-18 months (depending on the budgetary framework taken), relative to a GDP of $1.8trillion a year - less than 0.008-0.013% of GDP. Ireland? Well - depends on whether you count NAMA or not, we are pushing for some 12-30% of GDP... Spot the difference? Ok, another chart then:
We are facing worse deficit than Greece, but our spreads are lower... What gives? The market is not pricing in NAMA as a state liability. Not yet.Here is what ECB used to assess the bond spreads:
"The following empirical model is used to explain the ten-year government bond yield spreads of
ten euro area countries (inc Ireland) over Germany (spread):
spreadit=α+ρ spreadit-1+β1 ANNit+β2FISCit+β3IntlRiskt+β4LIQit+εit
In this model, ANN denotes the announcements of bank rescue packages made by individual euro area governments (this variable takes the value 1 after the date of the announcement and the value 0 before); FISC denotes the expected general government budget balance and/or gross debt as a share of GDP, relative to Germany, over the next two years, as released biannually by the European Commission; IntlRisk is a proxy for international investor risk aversion, as measured by the difference between the ten-year AAA-rated corporate bond yield in the United States and the US ten-year Treasury bond yield; LIQ is a proxy for the degree of liquidity of euro area government bond markets, measured by the size of a government’s gross debt issuance relative to Germany; εit is the unexplained residual."
For the lack of time right now, I can't re-parameterize the model to derive the values of the fundamentals-justified spread for Ireland. I shall do this over the weekend, but here are the main results for the group of 10 countries:
Good luck.
Thursday, July 9, 2009
Economics 09/07/2009: Green Shoots to Brown Manure
Inflation figures are out - more significant deflation in works than was anticipated by the analysts (-0.3% in June relative to May, with annual rate off -5.4% in June against 4.7% in May). We are also diverging from the Eurozone, though no one should really care about that. Mortgage costs reductions (down 5.7% on average in June relative to May) were the largest factor. Public sectors and state-controlled prices are still in inflationary territory, so no surprise here either. My prediction for the annual inflation rate to hit -5.8-6% in Q4 2009 and reach -4.1-4.3% in a year as a whole. Public sector v private sector price differentials should widen by ca 5.5-6%, so the rip-off that is our State controlled economy will continue into 2010.
A decent note on inflation was from the Davy's this time around (sadly, my usual favorite Ulster Bank note was a bit less advanced than customary). Davy: "The good news is that Ireland has closed the gap further with the euro area price level. HICP in the euro area was up 0.2% mom, according to the “flash estimate”, versus no change (+0.0%) here in June. Ireland's price level is slowly but surely re-adjusting towards the euro area-16 level. Note that the gap was a massive 22% in 2008 on average according to Eurostat. It has closed by more than two percentage points since the peak last year and will be below 20% on average at end-2009. We do not think the price levels should necessarily converge (productivity and, hence, income disparities justify a premium), but Ireland's exporting sector – particularly the indigenous part – needs the gap to tighten significantly yet."
Now, not to overplay these trends, one has to be aware of the fact that this is exactly what we are missing in terms of devaluation. Competitiveness, normally restored via dropping one's currency value, would imply the value of the Irish Euro traveling south of the current 20% price gap with the EU and would require a devaluation to the tune of 30%. Why? I don't frankly believe in our superior productivity, so any income differential between Ireland, and say, Germany, should be nominal. We can't do that currency adjustment. Which means that with price deflation taking, say, 6-10% of the Eurozone-Ireland gap away, this leaves a 20-24% decline in wages to take up the slack. Awesome price to pay for the Euro membership.
Production in manufacturing figures for May 2009 are out as well:
Turnover index is down on renewed pressure - sales are stalling again, but production index is up, so is overcapacity looming again?
The two series crossed over in May, so expect production to turn down in summer months and turnover index to stagnate, setting stage for new layoffs should things fail to improve in September. Margins tighten, so workers must be next.
As manufacturing records -1.3% fall in January-May 2009 in annual terms, the rate of decline has indeed slowed, but this can easily be a technical correction before a renewed pressure down. Of course, 18.7% increase in pharma output obscured the reality somewhat. Significantly, other modern sectors posted a 22% drop in output, while domestic sectors recorded 13.8% contraction in 2009 to June 1. Now, recall that Davy eagles have spotted the end of economy-wide recession by pointing to agriculture turn-around. Inclusive of massive subsidies boost to pork producers, food sector output was down 0.4% in the first five months of 2009.
In seasonally adjusted index terms, manufacturing industries now stand at 97.6 - a reading that is bang-on in line with December 2008 (97.4) and February (97.5), marking the third lowest point for the sector since 2005. Turnover indices have hit new spells of deterioration in Manufacturing, Chemicals and Chemical Products, Basic Pharma Products & Preparations, Computer, electronic & Optical Products and Other Manufacturing - in other all sectors but Food Products. Capital goods production index is at the second lowest point since January 2008, Intermediate Goods index is no turning negative again.
In case you need an illustrative proof:
Slightly more interesting day for the US economy.
First, a great salvo from Warren Buffett, who said that as unemployment can hit 11%, the US economy might need a second round of stimulus. To those still looking for those 'green shoots', Buffett's analysis is clear: "We're not in a freefall, but we're not in a recovery either," he told ABC's "Good Morning America. We were in a freefall really in the last quarter of last year, starting in the financial markets and spreading to the economy, and we had this huge change in behaviour." Buffett compared the 2009 $787 billion stimulus passed by Congress to "half a tablet of Viagra and then having also a bunch of candy mixed in --- it doesn't have really quite the wallop."
Second, US first-time claims for state unemployment benefits fell 52,000 to 565,000 in the latest weekly data, after seasonal adjustment, while continuing claims hit a record high, as the Labor Department reported. The four-week average of initial claims was down 10,000 to 606,000. The monthly moving average of continuing claims rose 12,000 to a record 6.77mln.
Nouriel Roubini has a superb article in Forbes (here): "The June employment report suggests that the alleged green shoots are mostly yellow weeds that may eventually turn into brown manure." A priceless openning salvo. As Brian Cowen is waiting for the US to pull us out of the depression.
A decent note on inflation was from the Davy's this time around (sadly, my usual favorite Ulster Bank note was a bit less advanced than customary). Davy: "The good news is that Ireland has closed the gap further with the euro area price level. HICP in the euro area was up 0.2% mom, according to the “flash estimate”, versus no change (+0.0%) here in June. Ireland's price level is slowly but surely re-adjusting towards the euro area-16 level. Note that the gap was a massive 22% in 2008 on average according to Eurostat. It has closed by more than two percentage points since the peak last year and will be below 20% on average at end-2009. We do not think the price levels should necessarily converge (productivity and, hence, income disparities justify a premium), but Ireland's exporting sector – particularly the indigenous part – needs the gap to tighten significantly yet."
Now, not to overplay these trends, one has to be aware of the fact that this is exactly what we are missing in terms of devaluation. Competitiveness, normally restored via dropping one's currency value, would imply the value of the Irish Euro traveling south of the current 20% price gap with the EU and would require a devaluation to the tune of 30%. Why? I don't frankly believe in our superior productivity, so any income differential between Ireland, and say, Germany, should be nominal. We can't do that currency adjustment. Which means that with price deflation taking, say, 6-10% of the Eurozone-Ireland gap away, this leaves a 20-24% decline in wages to take up the slack. Awesome price to pay for the Euro membership.
Production in manufacturing figures for May 2009 are out as well:
Turnover index is down on renewed pressure - sales are stalling again, but production index is up, so is overcapacity looming again?
The two series crossed over in May, so expect production to turn down in summer months and turnover index to stagnate, setting stage for new layoffs should things fail to improve in September. Margins tighten, so workers must be next.As manufacturing records -1.3% fall in January-May 2009 in annual terms, the rate of decline has indeed slowed, but this can easily be a technical correction before a renewed pressure down. Of course, 18.7% increase in pharma output obscured the reality somewhat. Significantly, other modern sectors posted a 22% drop in output, while domestic sectors recorded 13.8% contraction in 2009 to June 1. Now, recall that Davy eagles have spotted the end of economy-wide recession by pointing to agriculture turn-around. Inclusive of massive subsidies boost to pork producers, food sector output was down 0.4% in the first five months of 2009.
In seasonally adjusted index terms, manufacturing industries now stand at 97.6 - a reading that is bang-on in line with December 2008 (97.4) and February (97.5), marking the third lowest point for the sector since 2005. Turnover indices have hit new spells of deterioration in Manufacturing, Chemicals and Chemical Products, Basic Pharma Products & Preparations, Computer, electronic & Optical Products and Other Manufacturing - in other all sectors but Food Products. Capital goods production index is at the second lowest point since January 2008, Intermediate Goods index is no turning negative again.
In case you need an illustrative proof:
Slightly more interesting day for the US economy.
First, a great salvo from Warren Buffett, who said that as unemployment can hit 11%, the US economy might need a second round of stimulus. To those still looking for those 'green shoots', Buffett's analysis is clear: "We're not in a freefall, but we're not in a recovery either," he told ABC's "Good Morning America. We were in a freefall really in the last quarter of last year, starting in the financial markets and spreading to the economy, and we had this huge change in behaviour." Buffett compared the 2009 $787 billion stimulus passed by Congress to "half a tablet of Viagra and then having also a bunch of candy mixed in --- it doesn't have really quite the wallop."
Second, US first-time claims for state unemployment benefits fell 52,000 to 565,000 in the latest weekly data, after seasonal adjustment, while continuing claims hit a record high, as the Labor Department reported. The four-week average of initial claims was down 10,000 to 606,000. The monthly moving average of continuing claims rose 12,000 to a record 6.77mln.
Nouriel Roubini has a superb article in Forbes (here): "The June employment report suggests that the alleged green shoots are mostly yellow weeds that may eventually turn into brown manure." A priceless openning salvo. As Brian Cowen is waiting for the US to pull us out of the depression.
Tuesday, July 7, 2009
Economics 08/07/2009: We are not in a recession! Davy
Per Davy morning note last: "Whole economy no longer in recession, but employment-intensive sectors shrinking: Last week's national accounts figures for Ireland made a lot of intuitive sense. The output side of the accounts gets little attention but perhaps provided the best snapshot of what was going on in the economy. Construction (for a seventh quarter out of eight) and services declined (sixth out of seven) in size, but (multinational) industry and agriculture actually emerged from recession and grew quarter-on-quarter. Extrapolating ahead to the second quarter, those trends continued, except that construction and services contracted at a slower pace."
All is great, then, folks. No need to panic.
Forgive me for not repeating the trifle-stuff about unemployment rising, personal disposable incomes shrinking (unless you are a truffle-stuffed senior public sector manager), consumers staying off the high street and more businesses going into liquidation. But what on earth are they eating there in their offices on Dawson Street?
To be fair to Davy, the note does say that: "The problem is that the two parts of the economy that have improved account for less than one-third of output and a much smaller share again of employment. Multinational industry grew again thanks in part to its defensive nature: it is dominated by pharma and software (which has held up). But the rest of it also got a lift from cyclical improvement abroad. Agriculture returned to growth due to the lift in commodity prices from growth in the global economy in Q2."
But what does this mean? Gibberish, my friends.
Kick out to touch the 'return of' agriculture bollocks - how can anyone measure real output in a sector so vastly dependent on public transfers defies my understanding of economics.
Now, Pharma is not a pro-cyclical sector because recession or not, people need drugs and drugs purchasing is governed heavily by very long-term and sticky price agreements.
And when it comes to software - this is a sector also relatively better off in a recession: if demand for new hardware collapses, businesses and consumers are more likely to upgrade software then invest in new machines.
But at any rate, how important are these sectors to what matters most - our disposable incomes? Not hellishly important - total MNCs count for less than 12% of the national disposable income, when you consider their average earnings and share of employment.
Now, I am not saying these sectors can be forgotten. I am simply stating the bleating obvious. Recession is not a concept of the external economy. It is a concept of the domestic one. In other words, does any care about net exports if these are not leaving much of an impact in your and my pockets?
Take a closer look at the real data that Davy didn't bother to show in their note. Here is what CSO had to say:
To start with - seasonally adjusted, constant prices expenditure on GNP - the stuff we are made off sans transfer pricing. The main chart shows Q1 2003-Q1 2009 quarterly data and the insert blows up the current recession period. Not a single variable, save for Gov Expenditure, shows the end of this recession (not one variable is above the zero line for even the last quarter, let alone for two consecutive quarters - a standard timeline for calling recessions).
Couple more charts:
This takes a knife to the Davy-babble about our trade sector doing so spectacularly well...
I agree with Davy's note that Pfizer, Dell, Intel, and the rest of our illustrious MNCs pack are probably close to coming out of the recession. Hell, they might have never slid into one for all I know. But this is about as comforting to us all as a discovery of another mega crater on the Moon's dark side - we can't see it, we can't feel it, and worse of all - we don't really give a damn. Brian Cowen's hand in our pocket comes the tax day will be far more important.
But then again, Davy wouldn't have anything to say about that, would they?
PS: Oh, the would... Here is a comment on Irish tax policy given in 2008: "I would be surprised if Lenihan increased taxes," said White, economist with Davy. "Income tax, corporation tax and capital gains tax are unlikely to change. It would go against Fianna Fail's economic thinking. Given that business conditions are more difficult, I don't think Lenihan will go the stealth tax route." White said the Government was more likely to cut back on public spending than to cut taxes. "The first thing Lenihan will make sure to do is to limit future liabilities in current spending by keeping pay deals pretty tight. The Government will have to look at wages in the public sector." That was June 8 last year...
All is great, then, folks. No need to panic.
Forgive me for not repeating the trifle-stuff about unemployment rising, personal disposable incomes shrinking (unless you are a truffle-stuffed senior public sector manager), consumers staying off the high street and more businesses going into liquidation. But what on earth are they eating there in their offices on Dawson Street?
To be fair to Davy, the note does say that: "The problem is that the two parts of the economy that have improved account for less than one-third of output and a much smaller share again of employment. Multinational industry grew again thanks in part to its defensive nature: it is dominated by pharma and software (which has held up). But the rest of it also got a lift from cyclical improvement abroad. Agriculture returned to growth due to the lift in commodity prices from growth in the global economy in Q2."
But what does this mean? Gibberish, my friends.
Kick out to touch the 'return of' agriculture bollocks - how can anyone measure real output in a sector so vastly dependent on public transfers defies my understanding of economics.
Now, Pharma is not a pro-cyclical sector because recession or not, people need drugs and drugs purchasing is governed heavily by very long-term and sticky price agreements.
And when it comes to software - this is a sector also relatively better off in a recession: if demand for new hardware collapses, businesses and consumers are more likely to upgrade software then invest in new machines.
But at any rate, how important are these sectors to what matters most - our disposable incomes? Not hellishly important - total MNCs count for less than 12% of the national disposable income, when you consider their average earnings and share of employment.
Now, I am not saying these sectors can be forgotten. I am simply stating the bleating obvious. Recession is not a concept of the external economy. It is a concept of the domestic one. In other words, does any care about net exports if these are not leaving much of an impact in your and my pockets?
Take a closer look at the real data that Davy didn't bother to show in their note. Here is what CSO had to say:
- "Consumer spending (personal consumption of goods and services) in volume terms was 9.1 per cent lower in Q1 2009 compared with the same period of the previous year." Yeah, recession is not over for consumers (some 3/4 of this economy);
- "Capital investment, in constant prices, declined by 34.1 per cent in Q1 2009 compared with Q1 2008." Oh, it ain't over for investment either.
- "Net Exports (exports minus imports) in constant prices were €2,814 million higher in Q1 2009 compared with Q1 2008." But, hold on, they also improved in Q4 2008 - by €1,768 million. Was it the end of the recession then? Well, actually, errrr... this is not really true once you adjust for changes in the exchange rates, changes in prices and, crucially, seasonality. See charts below for the real picture.
- "The volume of output of Industry (incl. Construction) decreased by 10.5 per cent in Q1 2009 compared with Q1 2008. Within this the output of the Construction sector fell by 31.4 per cent over the same period. Output of Distribution, Transport and Communications was down 10.9 per cent while Output of Other Services was 3.5 per cent lower in the first quarter of 2009 compared with the same period of last year." So no end of a recession in sight in these sectors...
To start with - seasonally adjusted, constant prices expenditure on GNP - the stuff we are made off sans transfer pricing. The main chart shows Q1 2003-Q1 2009 quarterly data and the insert blows up the current recession period. Not a single variable, save for Gov Expenditure, shows the end of this recession (not one variable is above the zero line for even the last quarter, let alone for two consecutive quarters - a standard timeline for calling recessions).Couple more charts:
This takes a knife to the Davy-babble about our trade sector doing so spectacularly well...I agree with Davy's note that Pfizer, Dell, Intel, and the rest of our illustrious MNCs pack are probably close to coming out of the recession. Hell, they might have never slid into one for all I know. But this is about as comforting to us all as a discovery of another mega crater on the Moon's dark side - we can't see it, we can't feel it, and worse of all - we don't really give a damn. Brian Cowen's hand in our pocket comes the tax day will be far more important.
But then again, Davy wouldn't have anything to say about that, would they?
PS: Oh, the would... Here is a comment on Irish tax policy given in 2008: "I would be surprised if Lenihan increased taxes," said White, economist with Davy. "Income tax, corporation tax and capital gains tax are unlikely to change. It would go against Fianna Fail's economic thinking. Given that business conditions are more difficult, I don't think Lenihan will go the stealth tax route." White said the Government was more likely to cut back on public spending than to cut taxes. "The first thing Lenihan will make sure to do is to limit future liabilities in current spending by keeping pay deals pretty tight. The Government will have to look at wages in the public sector." That was June 8 last year...
Monday, July 6, 2009
Economics 07/07/2009: Daft.ie data - s***t is still hitting the fan in housing markets
Latest daft.ie data is out today (hat tip to RL). And I am bringing you these ahead of the media pack... (Gotta get myself a pat on the back, since no one else will)
Things are not looking good, folks. Here are charts - you know I love charts, and I blame Britten's Simple Symphony for that withdrawal from words - that explain the trends:
Note the black arrow behind the red one on the right? Well, that shows how much faster rents are falling now relative to asking prices... Now, do the thinking here - if rents are falling faster than prices, what will happen to yields on rental property? Aha, collapse is the word you've been searching. And this has two interesting implications:
The stuff I said about rates of decline are evident above and below:
So here are my forecasts for both markets
A Frolicsome Finale, indeed, is not in sight, unlike in Britten...
Things are not looking good, folks. Here are charts - you know I love charts, and I blame Britten's Simple Symphony for that withdrawal from words - that explain the trends:
Note the black arrow behind the red one on the right? Well, that shows how much faster rents are falling now relative to asking prices... Now, do the thinking here - if rents are falling faster than prices, what will happen to yields on rental property? Aha, collapse is the word you've been searching. And this has two interesting implications:- There will be renewed pressure on asking prices; and
- The only reason rents are falling is (given that first time buyers are now opting almost exclusively to rent) because the foreigners are leaving the country... in droves... and that means that the oversupply of rental properties is not going to fall - it is only going to rise over the next few months (especially if the rest of the world starts picking up, while Cowen/Lenihan/Coughlan continue to tax this economy deeper and deeper into a recession).
The stuff I said about rates of decline are evident above and below:
So here are my forecasts for both markets
A Frolicsome Finale, indeed, is not in sight, unlike in Britten...
Economics 06/07/2009: Irish Economy Exclusive
I've crunched through some Eurostat data on GDP/GNP and here are some interesting illustrations of where we are at and where we are heading next.
First off, chart above shows where we are at in terms of GDP and GNP per capita, prices-adjusted, relative to the Euroarea and EU27 averages. The GNP line clearly breaches EU15 and Euro area average line in 2009, so by 2010 we will be income-poor of the bunch. A bit more countries to compare against below:
Again, the number of our advanced peers that will surpass our income per capita in GNP terms is frightening. The same holds for major OECD economies - puts that international crisis into perspective...
And the US dynamic is worth a story here as well - all the EU convergence myth is clearly visible. But remember the hype that the Irish Times loves selling us: "Ireland as the wealthiest economy..." stuff that is designed to make us feel somehow better when parting with our taxes...
To me the above chart is really telling. This is the gap between what we are made believe and where we really are.
Two more charts. First, GDP and GNP forward using Eurostat projections:
And now the GAP:
Anyone needs a better illustration of the 19th century domestic economy pitted against a 21st century MNCs-led economy? They don't tell you this in investor presentations, do they?
And here is a good post from a student of economics on the topic...
First off, chart above shows where we are at in terms of GDP and GNP per capita, prices-adjusted, relative to the Euroarea and EU27 averages. The GNP line clearly breaches EU15 and Euro area average line in 2009, so by 2010 we will be income-poor of the bunch. A bit more countries to compare against below:
Again, the number of our advanced peers that will surpass our income per capita in GNP terms is frightening. The same holds for major OECD economies - puts that international crisis into perspective...
And the US dynamic is worth a story here as well - all the EU convergence myth is clearly visible. But remember the hype that the Irish Times loves selling us: "Ireland as the wealthiest economy..." stuff that is designed to make us feel somehow better when parting with our taxes...
To me the above chart is really telling. This is the gap between what we are made believe and where we really are.Two more charts. First, GDP and GNP forward using Eurostat projections:
And now the GAP:
Anyone needs a better illustration of the 19th century domestic economy pitted against a 21st century MNCs-led economy? They don't tell you this in investor presentations, do they?And here is a good post from a student of economics on the topic...
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