Following on the heels of yesterday’s bad economic news from Asia and earlier reports of a crisis in Brazil’s, Latin America’s leading economy, the latest numbers from the U.S. make it clear: The world’s in meltdown mode.
In that light, today’s economic report includes both the latest U.S. and European news [minus Greece except in a larger context], and none of it’s good. European unemployment is on the rise, cash withdrawals from Spain’s banks accelerate, manufacturing falls, Danish banks get downgraded. . .and lots more.
We’ll follow in a bit with a GreeceWatch reporting on the latest economic and political news from that most troubled of eurozone countries.
But first, some election news.
Irish voters endorse EU austerity pact
Despite a well-organized campaign by opponents, Irish voters have approved the rigid deficit controls demand by the Euorpean Union.
Ireland was the only nation to give citizens a direct say in adoption of the austerity mandate.
Amid all the doom and gloom of the escalating euro crisis, there was a rare piece of good news for European leaders on Friday, when Irish voters backed the fiscal pact in a closely watched referendum.
The Irish government declared victory based on early results, which showed the fiscal pact passing by a margin of around 60 percent in favor to 40 percent against. Official results will be announced on Friday evening. Surveys ahead of Thursday’s referendum had predicted a “yes” vote.
The government’s reaction to its victory was restrained. “It’s a sigh of relief from the government rather than a celebration,” Transport Minister Leo Varadkar told reporters.
Declan Ganley, a prominent Irish euroskeptic and leader of the Libertas political party, admitted defeat for the “no” campaign. He said Europe now needed to repay Ireland’s trust. “The majority of the electorate here have expressed trust and faith in our partners in Europe to do the right thing by us,” he told reporters. “This was the only democratic exercise on this particular treaty to be carried out in Europe.”
Irish Left Review has a different take on the vote:
The government and the EU have succeeded in bullying the people of Ireland into voting for a Treaty they do not want. This vote was based upon fear and the Yes majority is a hollow victory. Even amongst supporters of the Treaty there was an admission that the only grounds for supporting it were the threats of exclusion from future bailout funds. This was the only substantive argument presented by the government and the Yes campaign.
And here’s a brief clip from one of the leading opponents of the treaty, Sinn Fein Deputy Leader Mary Lou McDonald:
A dismal jobs report from the U.S.
Before we get to the numbers, here’s the latest chart of real jobless data from John Williams of Shadow Government Statistics, with the upper line including long-term unemployed and others factored out of the official Bureau of Labor Statistics as the result of politically inspired changes implemented designed to make past administrators look better:
Now for the official numbers, from Shaila Dewan of the New York Times:
The United States economy gained a net 69,000 jobs in May, the Labor Department said Friday, a dismal showing that reflected mounting evidence of a global slowdown. The unemployment rate rose to 8.2 percent from 8.1 in April, largely because more people began looking for work.
The payroll growth, which came in at less than half what analysts had expected and was the lowest number of net jobs created in a year, was potentially devastating for President Obama as he faces re-election. It also put increased pressure on the Federal Reserve to expand its stimulus campaign.
As the third disappointing performance by the job market in three months, for many it served as confirmation that the economic recovery has once again lost momentum.
Global financial markets, already weak in early trading on Friday, sank further on the numbers. On Wall Street, the Dow Jones industrial average lost 1.2 percent, or 145 points, in early trading, and the main index of the German stock market fell 3.1 percent.
At the same time, yields on United States and German government bonds also slumped further as traders sought safer investments. The 10-year Treasury yield fell to another record, 1.46 percent, and the German tw0-year bond fell below zero.
Bloomberg’s Peter Coy provides some more details from the latest jobless report:
- The April job growth figure was revised down to 77,000 from an already weak 115,000.
- The unemployment rate for teenagers was 24.6 percent, down from 24.9 percent in April.
- The number of people unemployed 27 weeks or more was 5.4 million, up from 5.1 million in April.
- The civilian labor force participation rate was 63.8 percent, up from 63.6 percent in April.
- Manufacturing employment grew 12,000, vs. a gain of 16,000 in April.
- The average workweek for all employees on private, non-farm payrolls edged down to 34.4 hours, vs. 34.5 hours in April.
- Average hourly earnings for that group were $23.41, vs. $23.38 in April.
More bad news for America’s jobless
The ones longest out of work are about to see their unemployment benefits curtailed.
From the New York Times’ Shaila Dewan:
Hundreds of thousands of out-of-work Americans are receiving their final unemployment checks sooner than they expected, even though Congress renewed extended benefits until the end of the year.
The checks are stopping for the people who have the most difficulty finding work: the long-term unemployed. More than five million people have been out of work for longer than half a year. Federal benefit extensions, which supplemented state funds for payments up to 99 weeks, were intended to tide over the unemployed until the job market improved.
In February, when the program was set to expire, Congress renewed it, but also phased in a reduction of the number of weeks of extended aid and effectively made it more difficult for states to qualify for the maximum aid. Since then, the jobless in 23 states have lost up to five months’ worth of benefits.
Separate from the Congressional action, some states are making it harder to qualify for the first few months of benefits, which are covered by taxes on employers.
Stagnant wages, declining savings
Just when the storm clouds have gathered for the proverbial rainy day, American wages are stagnant, leaving households with less ability to save.
Given that long-term unemployment benefits have been slashed, this bodes ill for America’s workers as the crisis intensifies.
From Jeffrey Sparshott of the Christian Science Monitor:
The government made a sharp downward revision to fourth-quarter income figures Thursday, a sign of stagnant wages and a potential hurdle for consumer spending.
The figures, tucked in to the latest GDP report, show real disposable personal income–income minus taxes, adjusted for inflation–rose only 0.2% in the fourth quarter, compared with an earlier estimate of 1.7%. The change is largely due to lower-than-expected paychecks. Real first-quarter income was unrevised at a 0.4% gain.
The upshot: consumers are saving less in order to spend more. Consumer outlays rose a solid 2.1% in the fourth quarter and 2.7% in the first three months of this year.
But the personal savings rate for the first quarter dropped its lowest level since the start of the recession. Americans stashed away 3.6% of personal income in the first quarter, down from 4.2% in the fourth quarter and a near-term peak of 6.2% in the second quarter of 2009.
Stock losses at worst level in two years
The plunging stock market has another ominous angle: Most of America’s pension are invested on Wall Street.
U.S. stocks ended a dreadful month on down note on Thursday, with major indexes suffering worst loss in about two years, amid gloomy U.S. economic data and endless European debt woes.
As of Thursday’s close, the Dow Jones industrial average lost 26.41 points, or 0.21 percent, to 12,393.45. The blue-chip index suffered its first monthly losses since October, tumbling 6.2 percent in May, with only five gains in 22 trading sessions and not a single two-day winning streak.
The Standard & Poor’s 500 dropped 2.99 points, or 0.23 percent, to 1,310.33, down 6.3 percent for the month.
The Nasdaq Composite Index retreated 10.02 points, or 0.35 percent, to 2,827.34, down more than 7 percent for the month, its biggest monthly drop in two years.
Concerns over European debt crisis have been the biggest drag for the market in the past month. Worsening economic and political situations in Greece, Spain and the euro zone put squeeze on the Wall Street, driving investors out of equities to safe-haven assets such as the U.S. bonds.
Yields of the U.S. benchmark 10-year note dropped to a record low at the end of the month, highlighting the fears among investors.
In her account of the market fall, Christine Hauser of the New York Times includes this telling anecdote:
“Uh oh — reintroducing recession call?” said the headline of an economic commentary by Dan Greenhaus, the chief global strategist for BTIG, a financial services firm. “Today’s employment report, in the context of every other development, certainly reintroduces that possibility.”
Possibility? Dude, it’s already here.
And with that, on to Europe.
Eurobanker demands more power to Brussels
The one constant theme coming out of Brussels and the finance ministries of Northern Europe is the demand for eurzone member states to surrender more of their sovereignty to avoid the Great Collapse.
The latest call comes from Europe’s central bankster.
From Howard Schneider of the Washington Post:
European Central Bank President Mario Draghi warned in Brussels on Thursday that he considered the euro zone’s current structure “unsustainable,” and said the region’s governments must surrender far more budget and regulatory power to a central authority if the currency union is to be saved.
His comments — and an intense week of high-level lobbying by U.S. officials — come amid a worldwide swoon on stock markets, a flight by investors to the safe haven of U.S. and German bonds, and a growing concern that problems in Spain’s banking sector may force the euro zone’s fourth-largest economy to seek a costly bailout. Major U.S. stock market indexes were down 6 percent in May and the euro is trading near a two-year low against the dollar.
A top U.S. Treasury official traveled to Europe this week to press leaders for faster action. And President Obama conferred with European leaders by phone this week about how to contain a two-year-old crisis that may be reaching a dangerous denouement.
A developing recession in Europe is part of the reason for the renewed sense of tension. The economies of major nations including Italy and Spain are shrinking, while France’s has stagnated.
The wider global economy could be losing steam as well. With economic activity in China slowing, authorities there have recently tried to give it a boost by increasing government spending. As the global recovery stalls, crude oil prices have fallen 20 percent in the past two months.
Another Grexit contagion warning
This time from one of France’s leading banks.
A Greek exit from the euro risks sparking uncontrollable contagion that may exhaust official funding sources, according to Societe Generale SA analysts.
Greece leaving the euro may lead markets to question the future of the currency shared by 17 nations, the bank said in a report today. Direct costs may reach 360 billion euros ($444 billion) or 3.8 percent of euro-area gross domestic product, the report showed, according to Bloomberg.
“Although the direct costs of a Greek exit may be manageable, the reality is that such an event would demonstrate to financial markets that the single currency was not ’irrevocable,’” the report said. “The contagion from a Greek exit may therefore prove difficult to contain in an environment where both banks and sovereigns are already facing significant funding difficulties.”
“It is not hard to envisage a situation where the available official sources of funding are quickly exhausted,” according to the report, whose contributors include London-based economists James Nixon and Michala Marcussen and more than a dozen strategists.
And yet another one
This time from the World Bank.
European leaders must be ready to recapitalize banks in the event of a Greek exit from the euro zone currency bloc and assure funding for Spain to prevent an economic collapse, World Bank President Robert Zoellick said on Friday.
Greek elections scheduled for this month could hasten the country?s departure from the euro zone, should parties that wish to scrap the country?s bailout program prevail.
If Greece withdraws from the euro and European leaders do not act decisively to prop up banks, Zoellick wrote in a column in the Financial Times, the resulting crisis could push the continent into a “danger zone”, Reuters reported.
“Eurozone leaders need to be prepared – psychologically and through the European Stability Mechanism (ESM) – to recapitalize banks,” Zoellick wrote. “In the eurozone, the guarantees of some national sovereigns are unlikely to be sufficient and only that of the ?euro-sovereign? will suffice.”
Zoellick, whose five-year term at the head of the World Bank ends on June 30, added: “It is far from clear that eurozone leaders have steeled themselves for this step.”
For another take, see this from China, which quotes a leading official classifying a Grexit as unlikely, and in any case manageable for the Asian economic giant.
Moody’s downgrades Danish banks
For rapacious looters like Goldman Sachs, eager to feed off the rotting carcases of Europe’s financial institutions, rating agencies are the pilot fish leading them to their prey.
And now the focus is shifting north.
From Julian Isherwood, in Politiken.DK:
The credit rating agency Moody’s has downgraded Danske Bank, Sydbank and Jyske Bank to its Baa1 level.
“Moody’s Investors Service has today downgraded the ratings for nine Danish financial institutions and for one foreign subsidiary of a Danish group by one to three notches,” Moody’s says.
Of the banks; Danske Bank’s creditline assessment was downgraded by two notches, as were Sydbank and Jyske Bank. Spar Nord Bank and Ringkjøbing Landbobank were both downgraded by a single notch as was Danske Banks Finnish subsidiary Sampo Bank.
Of the specialised credit institutions; Nykredit Realkredit and Nykredit Bank dropped three notches as did DLR Kredit and Danmarks Skibskredit.
In its rationale, Moody’s says that Denmark has weak economic growth, weakening real estate prices and higher levels of unemployment. It adds that the International Monetary Fund (IMF) projects Denmark’s gross domestic product (GDP) growth for 2012 at a low 0.5%.
Politiken also reports that the latest Danish poll shows that were an election held today, the center/left government of Social Democratic Prime Minister Helle Thorning-Schmidt would fall, to be replaced by a conservative-dominated parliament.
More bad news for the Brits
While the U.K. has resisted the euro, it can’t resist the crisis brought on by the threatened collapse of the European currency.
The latest numbers tell the tale.
Phillip Inman of The Guardian:
The UK’s manufacturing output slumped in May, heightening fears that the UK’s six-month-old recession will extend into the summer.
New orders fell at their fastest level since 2009 as output dived and manufacturers scrambled to complete existing orders to keep their factories busy and delay laying off workers.
Analysts blamed the weakness of the UK market along with the deteriorating crisis in the eurozone for the fall in sales and new orders. They said the Bank of England could restart its programme of printing electronic money as early as this month in response to the UK government’s decision to stick with its deficit-cutting agenda.
Oil prices dipped and stock markets were down as investors digested the news and prepared for the crisis to deepen. Without a clear plan from Brussels, Paris and Berlin over how to exit the crisis, manufacturers are expected to continue cutting orders and jobs over the coming months.
The survey of UK manufacturers, which also showed firms laying off staff for the first time in six months, and a marked slowdown in firms’ raw materials costs and factory gate prices, could help to tip the balance in favour of more quantitative easing (QE).
European manufacturing falls again
Britain’s not alone in watching its manufacturing stumble. Their numbers are broadly echoed across the continent.
Eurozone manufacturing activity sank deeper in May, hitting its lowest level in three years as employers shed jobs and crisis-struck Spain hit bottom, a key survey showed on Friday.
The sector suffered “steep drops” in output and new orders last month, causing the Purchasing Managers Index reading by Markit research firm to fall to 45.1 points in May from 45.9 points in April.
A score below 50 points indicates contraction.
The PMI, a survey of 3,000 manufacturing firms, has now signalled contraction in each of the past 10 months. The May reading was the lowest since mid-2009.
The survey brought more gloomy news to Spain as the country, already battling to avoid the need for a bailout, replaced eurozone weakling Greece at the bottom of the list with a reading of 42 points.
The weakness in southern Europe continued to spread to wealthier nations as the PMI for eurozone top economy Germany and second-ranked France fell to their lowest levels in three years.
European jobless numbers hold at record high
One qualification: Numbers were stable for the common currency zone, but rose for the 27-state European Union, which includes states like Britain not in the currency zone.
From the BBC:
Unemployment in the eurozone was 11% in April, unchanged from March, but still the highest since records began in 1995.
Spain had the highest rate in the eurozone at 24.3%, while Austria had the lowest at 3.9%, according to the official figures from Eurostat.
A seasonally adjusted total of 17.4 million people were unemployed in the eurozone, up from 17.3 million.
In the 27-nation European Union, the jobless rate was 10.3%, up from 10.2%.
“Today’s grim unemployment figures provide a sober reminder that the eurozone economy is in desperate need of a more expansionary policy stance,” said Martin van Vliet, an economist at ING.
“The labour market recession in the eurozone continues to spread and deepen.”
The rate of unemployment in both France and Italy rose to 10.2%, from 10.1% in March.
But Germany bucked the trend, with the rate of unemployment dropping to 5.4% from 5.5% the previous month.
And now for the Italian numbers
They’re up 2.3 percent from a year ago.
The rate of unemployment in Italy soared to 10.9% in the first quarter of 2012, a 2.3% yearly increase, according to raw figures from Italy’s statistics institute (ISTAT). It is the highest level since the first quarter of 1999.
The rate of unemployment in April was 10.2%, a 0.1% increase on March and a 2.2% rise on last year’s corresponding month. The figure is the highest since January 2004, when monthly statistics began. ISTAT says that there were 2,615,000 people unemployed in April. The increase on March was 1.5% (38,000 people).On an annual basis, the increase was of 31.1% (621,000 people).
Germany, the exception — for now
The one major European country that’s still going strong reported an actual decline in unemployment. The big question, of course, is how long they can buck the trend.
And even German officials are convinced that unemployment numbers are certain to grow.
From Deutsche Welle:
Unemployment in Germany decreased by 0.3 percent in May, the Nuremberg-based Federal Employment Agency (BA) reported on Thursday.
It said 108,000 more people found work across the country month-on-month, that’s 105,000 more than in May of last year. The jobless rate now stands at 6.7 percent, with 2.86 million people still officially registered as unemployed.
“By and large, the domestic job market has continued to develop favorably,” BA chief Frank-Jürgen Weise said in a statement on Thursday. “But the positive trend that we’ve seen for months is losing momentum.”
Weise noted the April-to-May employment increases in previous years were higher than in 2012, and economic pundits agreed that the boom period for the German labor market may soon grind to a halt.
“Recent developments tell us that while the job market is still intact, things have begun to move forward very slowly,” Commerzbank economist Eckart Tuchtfeld said. “I wouldn’t rule out a setback in the months to come.”
German bureaucrat sticks foot in mouth
And considering that he embraced a noxious stereotype — that of the lazy, imprudent Southerner, reaction was quick to follow.
Valentina Pop of EUobserver:
A German finance ministry official caused a stir at a Brussels conference by urging deficit countries to “become ants” rather than profligate “grasshoppers,” in response to criticism by Italy’s Prime Minister Mario Monti that Berlin is too slow in helping troubled euro-countries.
“More money is not the solution. We need to repair the lack of competitiveness in the eurozone, which is only feasible through reforms, investments in innovation and building up a stable legal framework,” Thomas Steffen, a director general in the German ministry of finance said on Thursday (31 May) during the Brussels Economic Forum, a conference organised by the European Commission.
In reply to Monti, who spoke during the same event via videolink, Steffen suggested that Italy and other southern countries are just like East Germany during the re-unification process: “What we did was we spent a lot of money, investments, built a legal framework only to learn a very simple thing: there is no button to push to create growth.”
Monti during his speech acknowledged that his country has accumulated a high level of debt, which he labelled as “sins of the past”, but insisted that Germany’s reluctance to stop contagion from other troubled countries to Italy is driving up borrowing costs in an unfair manner.
You’ll notice the Geman bureaucrat didn’t mention all those hefty bribes paid by Siemens and other German corporateers than help bring down Greece.
The grim youth jobless report
More than half of the under-25 labor force in Greece and Spain is jobless, ominous numbers for the establishment, given their potential for organization and action.
With such numbers politically unsustainable in the long term, folks in Brussels should be sweating.
In February 2012 Greeks under age 25 who are unemployed reached 52.7%, surpassing even the most recent figure available for Spain (April, 51.5%). Madrid continues to have the highest overall unemployment rate in the EU (24.3%). These figures were provided by Eurostat, which said that in April there were 5.462 million unemployed young people in the EU-27, including 3.358 million only in the Eurozone. The gap has therefore widened with EU countries in which the rate of the unemployed among those under age 25 is lower, such as Germany (7.9%).
In the Mediterranean area, in addition to Greece and Spain, there was also an increase in the figure between March and April 2012 in Portugal (36.6%, compared with 35.9%) and France (22% compared with 21.75), while there was a slight decline in Italy (from 35.9% to 35.2%). Compared with April 2011, the unemployment rate among those under age 25 rose by 268,000 people in the Eu-27 and by 214,000 in the eurozone.
Spanish cash hemorrhage accelerates
It’s not hit record levels and shows no signs of slowing down.
Given the already disastrous state of Spain’s bank, the massive cash outflow of capital reserves brings systemic failure closer by the day.
From Deutsche Welle:
Spain hemorrhaged capital at the highest rate on record last April, according to figures released by the country’s central bank on Thursday, amid fears that the banking sector in the eurozone’s fourth largest economy was teetering on the brink of collapse.
Spaniards transferred some 66.2 billion euros ($81.2 billion) abroad in April, compared to 5.4 billion euros during the same period one year ago. According to the Bank of Spain that’s the largest capital flight from the country since records began in 1990. The Spanish are largely depositing their money in stronger northern European economies.
European Central Bank (ECB) chief Mario Draghi, meanwhile, told the European parliament in Brussels on Thursday that his institution had largely exhausted its tools to combat the euro crisis. Draghi reminded parliament that the ECB had already reduced interest rates and given 1.2 trillion euros in loans to banks.
Another plea from the Spanish government
This time the cri de jour comes from the finance minister — and Brussels has turned a deaf ear, at least for now.
From the Christian Science Monitor’s Andrés Cala:
“The battle for the euro is being waged now in very important countries like Italy and Spain,” Spanish Economy Minister Luis de Guindos said yesterday.
Spain faces a raft of economic problems, but the government insists that if the European Central Bank provides the lifeline that Spain’s reeling banks need, the other issues will resolve themselves because structural reforms to the economy are already in place. All it needs, other than affordable credit, is time, the government says.
But the fiscal conservatives, led by Germany, are not flinching.
Spain, Europe’s fourth biggest economy and home to some of world’s biggest banks, is neck-deep in a crisis that has bled into just about every aspect of daily life. There is little cash, the economy is shrinking, there’s no credit, and pessimism abounds. People are wondering what currency to convert their savings to and how to open bank accounts in Switzerland, an unthinkable scenario just a year ago.