Economics 26/06/09: US Personal Income

US Personal Income increased $167.1bn, (+1.4%), and disposable personal income (DPI) increased $178.1bn, (+1.6%) in May, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $25.1bn, (+0.3%). In April (revised estimates), personal income increased $78.3bn, or 0.7%, DPI increased $140.0bn, or 1.3%, and PCE increased $1.0bn, or less than 0.1%. But don’t hold your breath for the trumpets of recovery: per BEA “the pattern of changes in personal income and in DPI reflect, in part, the pattern of increased government social benefit payments associated with the American Recovery and Reinvestment Act of 2009”.

How big is this ‘in part’? Provisions of the Act reduced personal current taxes and increased government social benefit payments. The ARRA of 2009 provides for one-time payment of $250 to eligible individuals receiving social security, supplemental security income, veterans benefits, and railroad retirement benefits. These benefits boosted the level of personal current transfer receipts by $157.6bn at an annual rate in May.

Excluding these special factors, which are discussed more fully below, DPI increased $20.6bn, or 0.2%, in May, following an increase of $101.3bn, or 0.9%, in April. So things are getting worse not better. Uncle Sam is doing the job (no hope here for Ireland), but any real (non-fiscal stimulus) growth is still way off.

• Private wage and salary disbursements decreased $12.4bn in May, compared with a decrease of $0.7bn in April = DOWN trend
• Goods-producing industries' payrolls decreased $12.9bn, compared with a decrease of $12.2bn = DOWN trend;
• Services-producing industries' payrolls increased $0.5bn, compared with an increase of $11.5 bn = DOWN trend.
• Government wage and salary disbursements increased $3.9bn, compared with an increase of $5.7bn = DOWN trend.
• Supplements to wages and salaries increased $3.3bn in May, compared with an increase of $3.9bn in April = DOWN trend.
• Proprietors' income increased $0.4bn in May, compared with an increase of $3.1bn in April = DOWN trend.
• Nonfarm proprietors' income decreased $0.2bn, in contrast to an increase of $0.5 bn = DOWN trend.
• Rental income of persons increased $5.2bn in May, compared with an increase of $4.9bn in April = UP trend.
• Personal income receipts on assets (personal interest income plus personal dividend income) increased $2.5bn, compared with an increase of $2.6bn = slight DOWN trend.
  

Good news, Americans are paying less in taxes: Personal current taxes fell $11.1bn in May, compared with a decrease of $61.6bn in April. The Making Work Pay Credit provision of the ARRA of 2009 (allowing a refundable tax credit of up to $400 for working individuals and up to $800 for married taxpayers filing joint returns) reduced personal current taxes by $49.8bn at an annual rate in both May and April, and $11.2bn in March.

Thus, disposable personal income (DPI) -- personal income less personal current taxes -- increased $178.1bn (+1.6%) in May, compared with an increase of $140.0bn (+1.3%) in April. So here we do have a meaningful improvement.

And that was reflected in personal outlays too. Personal outlays increased $17.9bn in May, in contrast to a decrease of $6.3bn in April. PCE increased $25.1bn compared with an increase of $1.0bn.

Personal saving -- DPI less personal outlays -- was $768.8bn in May, compared with $608.5bn in April. Personal saving as a percentage of disposable personal income was 6.9% in May, compared with 5.6% in April. Precautionary savings motive is still working through American balance sheets, but consumption is sloping up and loans repayments are going on still at a healthy rate. America is saving, deleveraging and getting better, although for now primarily thanks to tax-cutting and stimulus spending Federal Government…

Economics 26/06/2009: EU growth, Planning Permissions & QNHS

Eurocoin is out again and it is time to update our forecasts for Euroarea growth. First a note - Eurocoin have revised their past numbers in line with new methodology.
Note that above I use upper range forecast for July Eurocoin of -0.52 and implied GDP growth forecast of -2.1% for Q2 2009. Lower range forecast for the indicator is -0.91 and for GDP growth of -2.5%. Thus, I see an even chance of renewed deterioration in growth conditions in the Euroarea into mid Summer.


CSO Planning Permissions data Q1 2009: planning permissions were granted for 14,177 dwelling units, compared with 18,582 units for the same period in 2008, a decrease of 23.7%. Planning Permissions were granted for 10,256 houses in Q1 2009 and 13,301 a year earlier, a decrease of 22.9%. Planning permissions were granted for 3,921 apartment units,
compared with 5,281 units for the same period in 2008, down 25.8%. One-off houses accounted for 19.3% of all new dwelling units granted planning permission in this quarter. The total number of planning permissions granted for all developments was 7,486. This compares with 11,055 in Q1 2008, a decrease of 32.3%. Total floor area planned was 3,419 thousand sq. metres in Q1 2009. Of this, 61.1% was for new dwellings, 25.4% for other new constructions and 13.4% for extensions. The total floor area planned decreased by 24.3% in comparison with the same quarter of 2008.

Illustrated:
Total annual permissions are down, Q1 permissions trending down as well, especially for dwellings.Total floor area down, but by less.
As average floor area per unit is rising along established trends - delivering value for money is tighter markets?The trend for better quality and smaller quantity is evident, which should improve performance for better builders, but pressure the profit margins. One area of concern is that the authorities are not granting higher density permissions, implying that per existent acre of site, cost of building is up, further reducing margins.
Track homes are not exactly popular, while
one-off houses are even less so. That said - square footage is also rising for one-off dwellings as, presumably, rural Ireland decided to spread out in the recession (those CAP payments are still rolling in?).
No such luck for apartments buyers, but they do have some nicer square footage to go by, as sales stagnated and developers need more goodies for money to close on new units. We can expect Ken 'The Merciless' MacDonald to start writing lengthy articles telling us that NOW IS THE TIME TO BUY one of his apartments, as RETURN OF CAPITAL APPRECIATION IS IMMINENT... Beware of the merchant...


Quarterly National Household Survey was out earlier in the week.

In Q1 2009 there were 1,965,600 persons in employment, an annual decrease of 158,500 or 7.5%. This compares with an annual decrease in employment of 3.9% in Q4 2008 and growth of 1.7% in the year to Q1 2008. There was an annual decrease of 122,200 or 10.2% in the number of men in employment, while the number of women in employment decreased by 36,300 or 3.9%.

The overall employment rate among persons aged 15-64 fell to 63.2%, down from 68.4% in Q1 2008. This brings the employment rate back to a level comparable to that recorded in Q1 1999, thus erasing all the demographic and migration benefits accruing to Ireland in the last 10 years.

Full-time employment decreased by 176,200 over the year, part-time employment increased by 17,700, with 14,700 of the increase attributable to males and 2,900 to females. Recalling that even before the current crisis Ireland was creating predominantly part-time jobs, we are now facing seriously adverse quality of employment conditions in the country.

There were 222,800 persons unemployed in Q1 2009, an increase of 113,400 (+103.7%) in the year. Male unemployment increased by 85,300 (+116.7%), with the number of unemployed females increasing by 28,200 (+77.7%). The seasonally adjusted unemployment rate increased from 8.1% to 10.2% over the quarter and from 4.9% over the year - the highest level since 1997. Seasonally adjusted, the male and female unemployment rates stood at 12.5% and 7.0% respectively. The long-term unemployment rate was 2.2% in Q1 2009 compared to a rate of 1.3% in Q1 2008.

Now, some illustrations:
Employment is folding everywhere, except for personal protection services. wait another few months and a new emergency rip-off Budget, and guarding our unpopular Government will be the boom sector...
Average hours worked down, short-term work up, contractors work down. And in more details:
Bad employment up, good employment down. But public sector is not feeling the heat:

Regionally - all the subsidies to waste, the same black spots of unemployment remain:Border, Midlands, Mid-West and South-East are all bad performers in unemployment terms in the boom days of 2007. Ditto today. A new entry - casualty of the downturn - is the West. Doubtless, there will be calls for new tax on Dublin to pay welfare rolls wages out in our Gateways to Excellence Regions... But look at participation rates:
Collapsing across the state. Note Border and Midlands - dramatic fold down in participation rates - driven by, most likely an exodus of younger workers from Dublin and other areas' construction sites... No wonder I heard Midlands referred to as our Little Poland (Lithuania, etc).

And finally - my favourite topic - demographic dividend...
Note that as of Q1 2009, unemployment rate among 15-19 yo males was 33%! We are indeed wasting our young to protect job security of our public sector middle-aged and elderly...

Economics 25/06/2009: Unemployment and IMF

While many of you are wondering where is my comment on last night's IMF report, I must ask you for your infinite patience - it is forthcoming in this week's Sunday Times and I will be posting more on the issue over time.


In the meantime, the US Bureau of Economic Analysis (BEA) reports today that the real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 5.5% in the first quarter of 2009, (that is, from the fourth quarter to the first quarter), according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP decreased 6.3%.

I can see our strategy to wait for Americans to turn around working... thanks to the Irish Government tough choices on policy side, US GDP contractions are flattening out. Happy times are just around the corner.

Of course, one cannot suggest that the Irish Government is not doing more than just help the Americans in their troubles. Indeed, hat tip to BL, Politics.ie have the following itinerary for our Dear Leader of Offaly, Knight of the Bogs and Lord of the Bord Na Mona Mansions:
23.06.09:

• Brian Cowen attends the official re-opening of Shinrone National School, Birr, Co. Offaly
• Brian Cowen raises the First Green Flag at Coolderry Central School, Birr, Co. Offaly; and
• Brian Cowen attends the Official Opening of Isotron Ireland’s new Electron Beam Sterilisation Facility, at Tullamore, Co. Offaly

Of course, Mary Coughlan, the Grand Dame of Diplomatic Etiquette and the Lady of Jobs Announcements Junkets was equally busy jet-setting across the nation to announce jobs:

• 45 at Boston Scientific plant in Galway (after cutting 240 jobs in Galway last August and as another motor trade company sheds 70 jobs in Galway the same day as Mrs Coughlan arrived there);
• alongside Gaeltacht Minister Eamon "Gimme More Subsidies" O'Cuiv visiting west Donegal today to assess the damage caused by flash floods (I didn't know the DETE is also responsible for emergency services in this country); but
• Flooding aside, she did have a chance to pull an unveiling string at the launch in Finnabair Business Park in Dundalk...
  

All in the day's work for Tanaiste, directly responsible for dealing with our soaring unemployment rate (on the exact day when CSO unveiled the latest unemployment data from QNHS).
Of course, neither Biffalo-Gruffalo, nor Scary-Mary are much of the IMF/Economic Policy men (women), so why not let poor rookie, Brian Lenihan deal with the opposition fire on the issue of yesterday's damming report? Afterall, as the US data shows, things are already getting better (by getting worse at a slightly slower pace than before)... "The heart attack patient has no pulse, Doctor," shouts the nurse. "Excellent, things have bottomed out then," retorts Dr Biffalo, "Pints!"

Economics: 24/06/2009: OECD Unemployment stats

OECD's latest unemployment forecast is out for the Euroarea. Two things worth noting:

First, the OECD has gotten Irish unemployment spectacularly wrong (they used QNHS official data that is lagging). Correcting for this, chart below shows the discrepancy delivering up to date numbers. Scary.
Second, even the original chart numbers show Ireland as having the most extreme rise in the Euro area in unemployment. In sheer numbers, Australia, Denmark, Germany, Italy and Sweden all had smaller increases in unemployment than Ireland. Taking into account Live Reg latest numbers, Ireland's 230,000 newly-added unemployed (since December 2007) mean that our unemployment increase was greater than that for Australia and Denmark combined, or Denmark and Italy combined, or Denmark and Sweden combined...

Globally: unemployment in OECD countries is now expected to continue to rise well into 2010, per yesterday’s data from the OECD. The average unemployment rate will be approaching 10%, up from 7.8% in April, according to new projections.

“More than 57 million people will be unemployed in OECD countries by the end of 2010, according to OECD estimates, up from 37.2 million at the end of 2008, when the average unemployment rate was 6.8%. The expected increase will bring OECD-wide unemployment to 9.9% at the end of 2010, its highest level since the 1970s, with an average for the year of 9.8%. Unemployment touched a recent low point of 5.5% in the last quarter of 2007, standing at 31.6 million at the end of that year,” says OECD.

Previous downturns show that the jobs recovery will lag a long way behind the pickup in economic growth.

Economics 24/06/2009: Agriculture's Value in Economy

Let the number speak for themselves. Per CSO data release yesterday:
Subsidies as a share of total value of production are creeping up, accounting in 2008 for 31.6% of the entire sector output. Intermediate consumption is also up, made up of various inputs. Net value added is down - the contribution of the sector to this economy through activities actually attributable to production: from 32.3% in 2004 to 13.7% in 2008. Why are we still having a Department of Agriculture in this country if the net and gross value added by this sector is smaller than the net subsidies the sector receives, i.e the sector produces less real value than it takes out of the EU in handouts...

Economics 24/06/2009: SMEs feeling the heat

Yesterday's business conditions survey from ISME paints a picture of dire operating conditions for Irish SMEs.

Q2 2009 survey results "confirm that smaller companies are still in the throes of economic despair with employment levels, investment and sales remaining extremely negative. Despite this harsh environment business optimism has improved for the second quarter running, albeit from historically low levels." The survey was based on 600 companies responses shows both that there is no 'green shoots' improvement and that expectations for 12 months ahead are not offering much hope of an upturn "with companies further readjusting downwards their employment and investment levels."

Business confidence "has improved since the previous quarter with a net 56% of companies less optimistic in comparison to a net 71% in the previous quarter. The most negative sector is Construction with a net 73% less optimistic, followed by Retail at 71%, Distribution (70%), Manufacturing (51%) and Services at 48%." In contrast, "74% of companies, up from 69% in the previous quarter, viewed the current business environment as being either ‘poor’ or ‘very poor’." Only 23% expect business conditions to improve over the next 12 months, up from 16% in Q1 2009. 66% of companies said viability of their businesses was under threat over the next 12 months, if present conditions remain.

Employment conditions continue to deteriorate dramatically:
"Nearly two thirds (62%), (56% in the previous quarter), of companies employing less than this time last year and only 6% employing more. These figures are the worst ever recorded and confirm that there has been no slowing down in job losses in the sector, with evidence suggesting that this trend is to continue over the next number of months. The Construction sector was worst affected with 83% of companies letting people go in comparison to 72% of Distributors, 61% of Retailers and Manufacturers, and 43% of Service firms."

Furthermore, "employment prospects remain bleak with 43% of companies anticipating letting people go over the next 12 months, with only 7% planning to increase employment numbers. Distribution companies are the most pessimistic with a net 52% expecting to let people go, in comparison to 40% in the Construction sector, 35% Retailers, 32% Manufacturers and 28% of service businesses."

Clearly distribution services are feeling the squeeze of higher excise duties, VAT and other consumption damaging taxes and retail sector collapse. Construction sector, despite having bled jobs at the fastest rate of all segments of Irish economy in the past still remains one of the focal points of jobs destruction. Ditto retailers. The spread between these sectors and services is narrow enough signifying that we are indeed heading for the second wave of layoffs in the higher wage sectors.

"Sales continue to fall off a cliff with a net 77% of companies reporting lower sales in comparison to a net 72% in the previous survey. To put this in context there has been an eight fold increase in the number of companies reporting reduced sales in comparison to the same period last year. Only 23% of companies expect to increase sales over the next 12 months. Not surprisingly profit levels are badly affected with a massive 73% of companies anticipating a reduction in net profits, while 61% expect revenues to decline over the next 12 months, down from 69% in the previous quarter."

A massive 81% of companies said their sales/order books are down in comparison to last year. But only 33% of companies reported that their stock levels are down for the year, in comparison to 24% in the previous quarter, suggesting that overcapacity is still plaguing this economy and putting more pressure ahead on employment levels.

Credit crunch is also getting worse: "26% of companies have orders, production capacity and markets unserviced for want of working capital."

And new orders are being pressured by existent orders cancellations (implying even more pressure on employment in the short term) as "54% of companies have encountered cancellation of orders in the last quarter." Interestingly (the level of detail supplied in the survey is remarkable), cancellations were from,

• Locally Based Multinationals 16%.
• Export Destinations 7%
• Local Indigenous Firms 77%
  

This means only one thing - domestic economy is still in a free fall and exporters are the last line of defense we have left. It is Stalingrad time for Brians & Mary and they are still in denial that the winter has arrived.

SMEs continue to reduce "investment in their businesses with 32% having done so in comparison to 30% in the previous quarter. 19% indicated they increased investment, down from 25% in the previous 3 months. Only 16% of companies anticipate an increase in investment over the next 12 months."

This puts to an end any arguments the Government might have had about aiding the investment cycle through 'knowledge' economy programmes and tax changes they 'introduced' in December 2008. It ain't working, folks.

Although our Government economists are keen on talking about deflation, "firms continue to experience inflationary pressures, with increases of 5% plus being reported for transport, energy, raw materials, Insurance and waste. However, there is evidence of reductions in wage costs and rents." So in the nutshell - the Government and its cronies in the unionised, state-controlled and priced sectors are still ripping-off consumers and producers, while ordinary workers are taking a pay hit.

Finally, "47% of companies apportion blame to the Government for the current economic crisis, with a significant number of SMEs concerned at the lack of direction being provided."

I don't have much to add to this one.