0 ISM Manufacturing in Contraction; Expect Conditions to Worsen

US Manufacturing as measure by the November 2012 Manufacturing ISM Report On Business® is back in contraction.

The PMI™ registered 49.5 percent, a decrease of 2.2 percentage points from October's reading of 51.7 percent, indicating contraction in manufacturing for the fourth time in the last six months. This month's PMI™ reading reflects the lowest level since July 2009 when the PMI™ registered 49.2 percent. Comments from the panel this month generally indicate that the second half of the year continues to show a slowdown in demand; respondents also express concern over how and when the fiscal cliff issue will be resolved.

ISM at a Glance

Series Data	Nov Index	Oct Index	Percentage Point Change	Direction	Rate of Change	Trend (Months)
PMI™	49.5	51.7	-2.2	Contracting	From Growing	1
New Orders	50.3	54.2	-3.9	Growing	Slower	3
Production	53.7	52.4	1.3	Growing	Faster	2
Employment	48.4	52.1	-3.7	Contracting	From Growing	1
Supplier Deliveries	50.3	49.6	0.7	Slowing	From Faster	1
Inventories	45	50	-5	Contracting	From Unchanged	1
Customers' Inventories	42.5	49	-6.5	Too Low	Faster	12
Prices	52.5	55	-2.5	Increasing	Slower	4
Backlog of Orders	41	41.5	-0.5	Contracting	Faster	8
Exports	47	48	-1	Contracting	Faster	6
Imports	48	47.5	0.5	Contracting	Slower	4

Expect Conditions to Worsen

It's tough to pin this slowdown on hurricane Sandy although I suspect some will try. Others will blame the "fiscal cliff" but that theory does not have much credence either. After all, this is the 4th contraction in six months, long before Hurricane Sandy or fiscal cliff worries.

Instead, I propose global QE in the US, China, and Europe has finally played out for all that it's worth and then some. Note that export orders have contracted every month for six months, and the backlog of orders every month for 8 months.

Eventually, employment had to catch up with those trends and it did. Employment fell 3.7 percentage points to 48.4.

Production is up 1.3 percentage points but with new orders and exports slowing rapidly, don't expect that to last.

Mike "Mish" Shedlock
http://economic-trends.blogspot.com

0 Trends in College Tuition vs. Bachelor’s Degree Wages; Interesting Demographics of Student Loan Debt History

According to the New York Fed, Student loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008. Moreover, student loans balances have eclipsed both auto loans and credit cards, making student loan debt the largest form of consumer debt outside of mortgages.

The Fed has some interesting charts on Student Loan Debt History through first quarter of 2012.

Debt levels are higher now, with student debt at $956 billion through third quarter. What caught my eye however, is skyrocketing debt in the age group 30-39.

First Quarter Overall Debt



Student Debt Under Age 30



Student Debt Age 30-39



Even if it took someone age 18, eight to ten years to finish college, they would still be 28 years old at most when they finished their education.

Yet, student debt in the 30-39 demographic group now exceeds that of the under 30 age group. Moreover, the under age 30 group accounts for less than a third of the overall student debt.

Points to Consider

1. Over-two thirds of student debt is held by those well outside the normal student demographic!
2. This trend is not entirely recession-related given that it has been steady since 2005.
3. Someone exiting military service would be covered for 36 months of in-state education by the GI Bill.
4. Someone working for a major employer for any significant length of time would likely have some or all education expenses paid for by the company. 
5. Those aged 30-39 would be far more likely to have steady income than someone 18-24, thereby avoiding the need to rack up as much debt.

Have a Story to Share?

If you are 30 years or older, sitting on a pile of student debt, and are willing to tell your story how and why that happened, Please Email Mish.

If I get any interesting letters, I may share some of the stories.

Trends in College Tuition vs. Bachelor’s Degree Wages

Meanwhile, as student debt piles up, wage growth for college grads certainly doesn't. Please consider a Shocking Chart on Tuition vs. Earnings for College Grads on The Fiscal Times.

Student debt levels have reached a new high – rising $42 billion in the last quarter to $956 billion, according to a report this week from the New York Fed. At the same time, tuition rates have seen a staggering 72 percent increase since 2000.

As if those two upward trends weren’t hitting students hard enough – the average earnings for full-time workers ages 25-34 with Bachelor’s degrees has also dropped 14.7 percent since 2000. The chart below from Citi shows the striking contrast:



Howard Dvorkin, author of Credit Hell, told The Fiscal Times last month: “It's hard to predict when the student loan meltdown could occur, but if the bubble explodes, the consequences will be devastating for the economy.”

Mike "Mish" Shedlock
http://economic-trends.blogspot.com

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0 US Fiscal Cliff Blame Game Between Geithner, Boehner; UK Deficit Cut Taking Longer Than Planned

Agreement that something needs to be done with soaring deficits is easy to find, in the US and abroad. Actually doing something reasonable about huge deficits has proven impossible to date.

Fiscal Deficit Blame Game

Bloomberg reports Geithner Joins Boehner in Trading Blame Over Fiscal Cliff Talks.

U.S. Treasury Secretary Timothy F. Geithner and House Speaker John Boehner hardened their positions over the fiscal cliff, each blaming the other for a standoff that could lead to more than $600 billion in tax increases and spending cuts in January.

“There’s not going to be an agreement without rates going up,” Geithner said in a taped interview that aired today on CNN’s “State of the Union.” Republicans will “own the responsibility for the damage” if they “force higher rates on virtually all Americans because they’re unwilling to let tax rates go up on 2 percent of Americans.”

Republican Boehner said the White House is wasting time.

“I would say we’re nowhere, period,” Boehner said on the “Fox News Sunday” program. “We’ve put a serious offer on the table by putting revenues up there to try to get this question resolved. But the White House has responded with virtually nothing.”

There’s “clearly a chance” that there won’t be an agreement in time to avert the fiscal cliff, Boehner said on the Fox program. “Just the threat of the fiscal cliff is already hurting the economy.”

Geithner appeared on five talk shows today. In the interviews, taped Nov. 30, he challenged Republicans to make a counteroffer to the Obama administration’s framework plan.

Republican Ball

Gene Sperling, Obama’s top economic adviser, challenged Republican congressional leaders to put an offer on the table.

“It’s for them now to come forward with their plan, with their details, so that we can start working quickly to getting an agreement,” said Sperling, director of the White House National Economic Council, on “Political Capital with Al Hunt,” airing this weekend.

“The ball really is with them now,” said Geithner, the administration’s lead negotiator on the fiscal cliff, on CNN. “They’re having a tough time trying to figure out what they can do, what they can get support from their members for.”

One good thing is happening in January. Tim Geithner is stepping down as US Treasury Secretary.

UK Deficit Cut Taking Longer Than Planned

The BBC reports Deficit cut is taking longer than planned

Chancellor George Osborne has admitted that curbing the UK's financial deficit is "taking longer" than planned.

But he told the BBC the government was "making progress" and that to "turn back now would be a complete disaster".

Mr Osborne, who delivers his Autumn Statement on Wednesday, said well-off people would "pay their fair share".

"The deficit is down by a quarter. There are a million more jobs in the private sector and to turn back now, to go back to the borrowing and the debt and the spending that Ed Balls represents would be a complete disaster for our country."

He added that some people were calling for more borrowing and others for more spending cuts, but the government had "got the right plan and we should stick to that plan".

As you can see, political bickering over needed budget cuts is rampant on both sides of the Atlantic.

It's important to maintain a global focus instead of looking at US problems in isolation. There is not a good fiat currency anywhere (and there cannot be by definition actually).

Mike "Mish" Shedlock
http://economic-trends.blogspot.com 

0 Italy Retail Sales Sharpest Drop in 17 Months; Germany Retail Sales Stagnate as Margins Squeezed; Eurozone Retail Sales Drop Sharply

Dismal economic conditions in the eurozone accelerate to the downside as evidenced by falling retail sales. Let's take a look at the Eurozone in aggregate, as well as the three largest countries.

Eurozone Retail Sales Drop Sharply

The Markit Eurozone Retail PMI® shows Eurozone retail sales continue to fall sharply towards end of 2012.

Key points

• Sales fall for thirteenth month running in November
• German sales remain flat while Italy records another severe fall
• Rate of decline in France slows to weakest in five months

Summary of November findings

The Eurozone retail sector remained stuck in a sharp downturn during the penultimate month of 2012, according to Markit’s PMI® data. Sales fell for the thirteenth consecutive month, and remained well below the level seen one year earlier.

The PMI rose slightly in November to 45.8, from October’s 45.3. The latest figure signalled a sharp fall in retail sales compared with one month previously, and the
average for the fourth quarter so far (45.5) is the second-lowest since Q1 2009. Moreover, the trend for 2012 so far (45.6) is the lowest annual average of any year since the survey started in 2004. The previous record low was in 2008 (46.1).

Retail sales across the single currency area fell on an annual basis for the eighteenth month running in November. The rate of decline was sharp, and
stronger than the average over this sequence. Year-on-year sales rose in Germany, but fell at a near-record pace in Italy. The annual rate of decline in France slowed since October, but remained sharp overall.

Comments

Commenting on the retail PMI data, Trevor Balchin, senior economist at Markit and author of the Eurozone Retail PMI, said:

“November’s set of numbers portrayed the weak position the Eurozone’s retailers find themselves in going into the crucial festive season. Actual month-on-month sales continued to fall sharply, resulting in another marked drop compared with one year previously. The data are consistent with consumer spending having declined for five straight quarters come the end of the year.

Italy Retail Sales Sharpest Drop in 17 Months

The Markit Italy Retail PMI® shows sharpest drop in retail sales for seven months.

Key points

• PMI falls to lowest since April
• High street employment falls at solid rate
• Sharper decrease in stock levels

Summary

Italian high street businesses recorded a further sharp decrease in sales in November, leading to more job losses in the sector. There was also a steep drop in purchasing activity as firms made efforts to reduce inventory levels. Meanwhile,
average prices paid for goods for resale rose at a modest rate largely on the back of higher oil-related prices.

The seasonally adjusted Italian Retail Purchasing Managers’ Index® (PMI®) fell to a seven-month low of 35.5 in November, from October’s reading of 37.3, signalling a further sharp month-on-month decrease in total high street spending. The headline
index has posted below the neutral mark of 50.0 continuously since March 2011, and remains below its average over that period.

In line with the sustained downturn in sales, November data showed that high street spending was down sharply compared with the situation one year previously. Furthermore, the annual rate of contraction was the steepest since May’s survey
record. November saw actual sales again fall well short of planned levels, with the overall degree of underachievement the most pronounced for five months.

November data pointed to a further sharp decrease in retailers’ gross margins, which anecdotal evidence suggested was the result of discounted selling prices as well as a fall in sales. The rate of decline was little-changed since the previous
survey period and faster than the historical trend. Also dampening profitability over the month was a rise in average purchase prices. Firms commonly linked the increase in their cost burdens to higher oil-related prices.

Germany Retail Sales Stagnate as Margins Squeezed

The Markit Germany Retail PMI® shows German retail sales continue to stagnate in November.

Key points

• Month-on-month sales remain broadly unchanged
• Margins squeezed amid sharp rise in wholesale prices
• Actual sales underperformed initial targets in November

Summary

At 50.2 in November, the seasonally adjusted Germany Retail PMI was little-changed from 50.3 during October and, by remaining close to the 50.0 no-change value, signalled broadly stagnant month-on-month retail sales in Germany. This has been
the general trend throughout the second half of 2012 to date. Anecdotal evidence from survey respondents largely suggested that subdued consumer confidence was the main factor weighing on retail sales during November.

French retailers report slower fall in sales during November

The Markit France Retail PMI® shows French retailers report slower fall in sales during November.

Key points

• Decline in sales eases to weakest in five months
• Gross margins fall at slower, albeit still marked, rate
• Further reductions in purchasing and stocks

Summary

The contraction in French retail sales continued in November, but at a weaker rate. Both the monthly and annual measures showed less marked declines. Sales once again disappointed relative to previously set plans. Gross margins continued to be squeezed, although the rate of decline moderated.

The headline Retail PMI® posted 48.8 in November, up from 46.0 in October. The latest reading was indicative of a moderate pace of decline that was the weakest since June. Where a decline in sales was recorded, this was generally attributed by panellists to a difficult economic climate, reduced levels of customer footfall and strong competition.

European House of Cards

This entire European house of cards comes crashing down the moment either Germany or France takes a sharp turn to the downside.

I believe both are a given.

As noted on November 29, French Unemployment Highest in 14 Years (And It's Going to Get Much Worse).

Germany will follow (in a major way) the rest of Europe soon enough. It is simply impossible for the German export machine to keep humming with a massive slowdown in Asia, and an outright disaster happening in Greece, Italy, Portugal, and Spain.

Warning bells are flashing loudly, but few hear the call.

Mike "Mish" Shedlock
http://economic-trends.blogspot.com

0 Stalemate: Obama Warns of Prolonged Talks as Republicans Rebuff Plan

The word of the day is "stalemate".

Last year the Republicans had a chance to accept spending cuts to tax hikes at a 10-1 ratio. They declined. Now president Obama does not want to bargain. Who can blame Obama (except Republicans)? We may disagree, but that is part of the platform that got him elected.

The Republicans do not want to bargain either. And who can blame them (except Democrats)?

Regardless, Republicans blew a golden opportunity last year and that chance is gone. Obama has the upper hand now, and nothing will change that setup.

I certainly am opposed to tax hikes without something substantial in return.

Yet, if Obama holds his ground, the only way to have some cuts across the board right now is for the fiscal cliff to happen.

Could it be that the best political outcome may actually be the dreaded "fiscal cliff"? The fiscal cliff will hit military spending but why shouldn't it? The US could easily defend itself on half its current budget actually.

While pondering those questions and thoughts, please consider Obama Warns of Prolonged Talks as Republicans Rebuff Plan.

President Barack Obama and House Speaker John Boehner stood their ground with opposing plans to avert the fiscal cliff and warned there was no quick path to a solution.

Obama has proposed a framework that would raise taxes immediately on top earners and set an Aug. 1 deadline for rewriting the tax code and deciding on spending cuts, according to administration officials.

It calls for $1.6 trillion in tax increases, $350 billion in cuts in health programs, $250 billion in cuts in other programs and $800 billion in assumed savings from the wind-down of the wars in Iraq and Afghanistan, according to the officials, who asked for anonymity.

Boehner said less than 30 minutes later during a news conference at the Capitol in Washington, that the proposal, presented to congressional leaders by Treasury Secretary Timothy F. Geithner, did nothing to move talks along.

“There’s a stalemate, let’s not kid ourselves,” he said.

Stalemate Solution

The stalemate "solution" comes with its own set of problems.

Contrary to popular belief, the risk is not that too much is done, but rather that both sides unwind nearly the entire "fiscal cliff", achieving no budget reductions at all.

Speaking of which, it's high time we "stop kidding ourselves" about what is happening. There are no budget cutbacks at all under discussion. Rather the discussion centers around reductions in assumed increases, and politicians are having a tough time even with that.

Mike "Mish" Shedlock
http://economic-trends.blogspot.com