Venezuela to Nationalize All Food Distribution, Increase Public Wages 30%

To combat food shortages caused by socialist policies including nationalization of half the nation's food supply, Venezuela to Nationalize All Food Distribution.

Venezuelan President Nicolas Maduro has promised to nationalise food distribution in the South American nation beset with record shortages of basic goods, runaway inflation and an escalating economic crisis.

During a rally on Friday, on International Workers' Day, the socialist leader allowed a union activist to ask for the nationalisation of food and essential-item distribution.

Various estimates suggest the government already controls about half of the country's food distribution, but that hasn't stopped record shortages in shops and markets.

Venezuela is struggling with a recession, 68.5% annual inflation and severe shortages of the basic goods that it relies on oil money to import.

On any given day, people in Venezuela can wait hours to get some subsidised milk, cooking oil, milk or flour, if they can be found at all.

Maduro's government is strapped for cash in the face of a global supply glut that caused oil prices to collapse by more than 50 percent between June and January.

Nonetheless, Maduro also announced a 30% increase in public wages on Friday.

Way to a New Venezuela Home

In other news, Woman Who Threw mango at Maduro Rewarded With New Home.

A woman who bashed President Nicolas Maduro on the head with a mango has been promised a new house for her troubles in a surreal tropical tale that has gone viral in Venezuela.

The 52-year-old president was driving a bus through a crowd last weekend in the central state of Aragua when someone in the crowd tossed the fruit at him.

"It says: 'If you can, call me'," the former bus driver said later during the week, as he displayed the fruit with a name and phone number scrawled on it on television.

"Marleny Olivo had a problem with her house. [Officials] called her. She was scared. She couldn't believe it was true. ... I've approved an apartment for you, Marleny, as part of the 'Grand Venezuelan Housing Mission'," he added, vowing to eat the mango.

"If for for a mango they give you apartments, then you know what to do: throw him a pineapple!" quipped Dolar Today, a website that quotes the black market for dollars and is hated by Maduro.

Apparently the way to combat inflation is to grant a 30% increase in wages. The way to a new house is to throw fruit with your name on it at the president.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

French Unemployment At New Record Highs: Whom Do They Blame?

While ECB president Mario Draghi brags his economic policy of negative interest rates is working, I ask for whom?

On April 23, 2015 I noted Spain's Unemployment Rate Increases to 23.7%; 114,300 Jobs Vanish in First Quarter, Public Sector Jobs Rise.

Let's now turn our attention to France.

• December 24, 2014 BBC: French jobless total at new record high
• January 28, 2015 France24: French unemployment hits new record high in December
• March 6, 2014 UPI: Unemployment in France hits 16-year-high; still rising

France Unemployment Rate



Flashback January 27, 2014 Mish: France Unemployment Hits New Record High; Hollande's November Pledge Reviewed

In November, French president Francois Hollande announced he had met his electoral pledge to halt the rise in joblessness by the end of 2013.

No one with any economic sense believed it.

Today in the face of a new record high unemployment rate, Hollande says unemployment has "stabilised".

Whom Do The French Blame?

Via translation from Les Echos, May 2, 2015: Poll shows 75% of French Do Not Expect Improvement in Unemployment until 2017.

Recent unemployment figures reached a new record in March with 3.51 million of job seekers in mainland France without activity. Three quarters of respondents think that unemployment will not decrease by the end of the five year term of Francois Hollande, according to a poll for Odoxa iTELE and Le Parisien published on Friday.

As for the main cause of unemployment, 34% of the French blame "companies that prefer to increase their profits rather than hiring" while 31% blame "government inefficiency". 21% blame "blockages in French society" and 14% "unfavorable economic conditions".

Question for Draghi

I have a question for Mario Draghi: Is this what it means to have your negative interest rate policies "work"?

One cannot blame the ECB for French nonsense. Yet, one can blame the ECB for stupidity in attempting to solve via monetary policy, something that cannot possibly be solved that way.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Miracle Twinkies Comeback

I have written about Twinkies three times before.

Recall that in November of 2012, Hostess, the owner of Twinkies, Ding Dongs, Ho-Ho's and other sweet treats gave an ultimatum to 15,000 union workers to accept pay cuts or get fired and lose their pensions as well.

Flashback November 15, 2012: Hostess to Liquidate if Bakers' Strike Continues Through Thursday; End of Twinkies Hours Away?

It's do or die for 18,000 Hostess workers including 5,000 in the bakers' union.

Only fools would voluntarily vote for liquidation, but with the clock ticking down to mere hours to come to agreement, it appears the fools will win the day.

The bakers' union would rather have no job than reduced wages. Lovely. Good luck finding another job in this environment.

I have little sympathy for those who voluntarily walk away from their jobs in these trying times.

However, this is probably not the end of Twinkies, Ding-Dongs, or Ho-Ho's.

Not that anyone needs to be eating such non-nutritional junk food, but those names and recipes will likely be sold and produced elsewhere, probably at a lower cost to consumers, especially if the buyer does not have to deal with the bakers' union.

Flashback November 18, 2012: Chris Christie Provides Perfect Setup for Saturday Night Live

At a recent news conference, Christie was asked a question about Twinkies. He responded ...

"Really, seriously, you're not asking me about Hostess Twinkies are ya? What's the next question? I'm on Saturday Night Live enough. You think you're getting me behind this microphone having me talk about Twinkies? This is a setup man, I know it."

The bottom line is the union would not give into demands and  the company filed a motion last Friday to liquidate. Shutting down the company will mean the loss of 18,500 jobs (less any jobs picked up by buyers of brands Twinkies, Ding-Dongs, Wonder Bread, Ho-Ho's etc.)

There is plenty of blame to go around, including untenable wages and benefits, leveraged debt, untenable management salaries etc.

Flashback November 22, 2012: Hostess Fires 15,000 Workers in Liquidation; Twinkies Silliness From Readers

The first step in liquidation will be the firing of 15,000 workers including the closure of 33 bakeries, 565 distribution centers, approximately 5,500 delivery routes and 570 bakery outlet stores.

At least a dozen readers sent emails in response to my previous two posts on Twinkies.

One misguided soul from the Netherlands wrote "Your article on the bankruptcy of Hostess is so extremely biased. I am NOT surprised because you're ALWAYS bashing the unions."

Miracle Comeback

Now that we have the backdrop out of the way, please consider Twinkie's Miracle Comeback: The Untold, Inside Story of a $2 Billion Feast

Walk in the door of Hostess Brands’ flagship bakery in Emporia, Kansas and your first thought is: What a dump. The former front office for the bakery that pumps out classic American treats like golden Twinkies and swirl-topped Cup Cakes is a series of dank, near-empty rooms with scuffed, oatmeal-color linoleum floors, water-stained ceiling panels and a jumble of mismatched office furniture that looks like it was picked up off the curb.

This grim wing of the Hostess plant is a leftover from the old Hostess–the one that debt, pension costs and mismanagement shuttered in 2012. But throw on a hairnet and pass on to the newly rehabilitated factory floor, and it makes sense why billionaire C. Dean Metropoulos, Apollo Global senior partner Andy Jhawar and Kansas Governor Sam Brownback are standing here, breathing in the sticky sweet air on a foggy April morning.

The new factory is bright and clean. Tight rows of Twinkies m arch along the $20 million Auto Bake system with the precision of Soviet soldiers in a May Day parade. Yellow robotic arms, which look like they should be welding Teslas rather than boxing Twinkies, stack snacks with hypnotic rhythm. This 500-person plant produces more than 1 million Twinkies a day, 400 million a year. That’s 80% of Hostess’ total  output–output that under the old regime required 14 plants and 9,000 employees. And it’s about to get more efficient: Metropoulos and Jhawar just installed a second Auto–Bake system, this one for Cup Cakes, and the governor is here to cut the ribbon.

Now, just two years after buying the shuttered company, they sit atop what will likely be a $2 billion win. “They’ve worked magic with their business concept and have made Hostess one of the most efficient and effective companies in the entire food industry,” says Joseph Gatto, a partner at Perella Weinberg, who brokered the sale to Metropoulos and Apollo.

“People walk up and thank me for bringing back Twinkies,” says Metropoulos, who has previously rebuilt brands like Bumble Bee Tuna, Chef Boyardee and Pabst Blue Ribbon. “No one ever thanked me for saving Vlasic pickles.”

The problem should now be pretty clear to everyone: mismanagement coupled with inane union work rules and benefits. I thought the problem was clear in November 2012.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Weekend Diversion - Golf Trick Shots

It is amazing how good people can get at things. I would be hard pressed to even think about setting up some of these shots.

Even if you are not a golfer you may appreciate this video.



Link if video does not play: Bryan Brothers Golf Trick Shots.

I like to golf. Breaking 90 is an excellent game for me.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

ISM Disappoints, Led by Decline in Employment

In addition to construction estimates missing by a mile today, ISM also disappointed, albeit not by much.

The Bloomberg Consensus estimate for ISM was 52.0 but the report was a slightly weaker 51.5. It's the details that are interesting.

There's a new unwanted wrinkle in the ISM report and that's weakness in employment, holding down the headline index to 51.5 in April, unchanged from March. Employment has been holding strong in other reports -- but not in the ISM report where the index is down nearly 2 points to a sub-50 level of 48.3 to indicate month-to-month contraction. This is the first time this reading is in contraction since May 2013 and it's the lowest reading since all the way back in September 2009.

Other indications, however, are positive. New orders actually rose in the month, up 1.7 points to 53.5, and export orders are above 50 for the first time this year, at 51.5 for a 4.0 point gain. Production, at 56.0, is especially strong as are import orders at 54.0 for a 1.5 point gain. Prices, as in other reports, remain in contraction, little changed at 40.5.

And there's solid breadth in the report with 15 of 18 industries showing composite growth in the month with strength in the auto industry specifically cited. This report is mixed though the decline in employment won't be raising expectations for next week's employment report for April.

Note on Diffusion Indices

I commented on employment in Richmond Fed Manufacturing Index Negative Second Month.

It's important to note that a single firm hiring one person will counterbalance another firm firing 50. It's entirely possible employment is not as strong as it looks (not that 7 is a particularly strong number in the first place). 

Some of these subcomponents are mostly noise. The overall trend of all the reports in general is not noise. The baseline for zero growth in the ISM is 50, for the regional Fed reports it is 0. 

ISM Details

Let's investigate all the details of today's report straight from the Institute for Supply Management Manufacturing ISM® Report On Business® released this morning.

Index	Apr	Mar	PP Change	Direction	Rate of Change	Trend in Months
PMI®	51.5	5.1.5	0	Growing	Same	28
New Orders	53.5	51.8	1.7	Growing	Faster	29
Production	56.0	53.8	2.2	Growing	Faster	32
Employment	48.3	50	-1.7	Contracting	From Unchanged	19
Supplier Deliveries	50.1	50.5	-0.4	Slowing	Slower	23
Inventories	49.5	51.5	-2.0	Contracting	From Growing	1
Customers' Inventories	44.0	45.5	-1.5	Too Low	Faster	5
Prices	40.5	39.0	1.5	Decreasing	Slower	6
Backlog of Orders	49.5	49.5	0	Contracting	Same	2
Exports	51.5	47.5	4.0	Growing	From Contracting	1
Imports	54.0	52.6	1.5	Growing	Faster	27

All in all the report was about as expected. The details conflict with Richmond Fed and Dallas Fed. The former above. For the latter see 6th Straight Negative New Orders Reading for Dallas Fed Manufacturing Survey.

As with the Richmond Fed, the Dallas Fed reported a slight increase in employment. Many of the individual numbers are likely noise.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Construction Spending "Once Again Defies Expectations" Much Weaker Than Expected; Four Reasons Economists Perplexed

Economists have been overly optimistic on the majority of economic reports for going on six months.

Today the Bloomberg Consensus estimate for construction spending was for a 0.4% gain. The actual result was a decline of 0.6%.

Construction spending once again defied expectations. March construction spending dropped 0.6 percent against expectations of an increase of 0.4 percent. On the year, construction spending was up 2.0 percent, down from February's annual increase of 2.7 percent. Both residential and public building declined. While weather can still be blamed for some of the decline, a basic weakness in the building sector was apparent.

Private residential spending dropped 1.6 percent on the month with both single family and multi-family homes declined. In addition, residential construction excluding new homes, which captures home remodeling, also declined after gains in the previous two months. Nonresidential private construction provided a ray of sunshine -- it advanced 1.0 percent on gains in the office, manufacturing, and health care sectors.

Public construction was down for a third straight month to its lowest level since February 2014. State and local government spending, the much larger portion of public construction, dropped in both February and March while Federal Government construction retreated after an 8.6 percent surge in the previous month.

Construction Spending



Construction Spending Percent Change From Year Ago



Four Key Reasons Economists are Perplexed

1. Weakness is "transitory" as the Fed explained on Wednesday. For discussion, please see Fed Cites Weather, "Transitory" Factors in FOMC Statement; No Hat Tricks; What About Consumer Sentiment?
 
2. Clearly the economy could use more Walmarts and McDonald's as there is not yet one on every corner. Forget about the fact that wages are going up and that will damper earnings and reduce the desire to open marginal stores. See Employment Compensation Costs (Wages and Benefits) Jump in First Quarter.
 
3. Millennials working multiple part-time jobs will soon buy a new home thanks to rise in hourly wage to $12.
 
4. We certainly need to build more public schools as retiring boomers will be going back to 8th grade en masse.

Those key points undoubtedly explain why economists are so perplexed with all this weakness.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Investigating the GDP Deflator: Wildly Differing Results Depending on Your Choice

As noted in Real Q1 GDP 0.2% vs. Consensus 1.0%; Disaster in the Details I got the first quarter GDP forecast details correct.

However, a bit of self-assessment with differing GDP deflators shows my prediction of close to zero growth could easily have looked rather silly.

I asked Doug Short at Advisor Perspectives what the GDP would have looked like using various deflators:

1. GDP (Implicit GDP Deflator)
2. PCE (Personal Consumption Expenditures)
3. CPI (Consumer Price Index)
4. Shadowstats (Williams' Alternate CPI)

Charts are shown below.

Both Doug and I consider Shadowstats absurd, but we include it because many follow the number. For a recent critique of the measure please see Deconstructing and Debunking Shadowstats.

clock on any chart for sharper image

GDP Implicit Deflator (Official GDP)



GDP with PCE as Deflator



GDP with CPI as Deflator



GDP with Shadowstats CPI as Deflator



Results

1. GDP (Implicit GDP Deflator): 0.2% 
2. PCE (Personal Consumption Expenditures): 2.2%
3. CPI (Consumer Price Index): 3.3%
4. Shadostats (Williams' Alternate CPI): -1.2%

Defending on your price deflator, GDP was between -1.2% and +3.3%. If you toss out Shadowstats, then the range is 0.2% to 3.3%.

That's still a damn wide range. People accuse the BEA all the time of manipulating the deflator to make things look good, but if they easily could have done that this month for far better results.

Over time, GDP is highest with the PCE and GDP implicit deflators. At least the BEA is consistent.

Mean GDP

1. GDP (Implicit GDP Deflator): 3.26%
2. PCE (Personal Consumption Expenditures): 3.32%
3. CPI (Consumer Price Index): 2.93%
4. Shadostats (Williams' Alternate CPI): 0.79%

Next quarter, because of rising energy prices, deflating GDP by the CPI will likely yield worse results than the GDP deflator. Some people will criticize the BEA because of it, while remaining silent about this quarter.

As it stands, rising energy prices and the strong dollar will place downward pressure on second quarter GDP no matter which deflator one uses.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com