Thursday, July 18, 2019

As policy failures pile up, WisGOP can only play resentment game

2 items from today to riff on.

The first concerns this, as Legislative WisGOPs desperately try to play the resentment game since they can't win on the issues.



And note Fitz's "source", MacIver News, which is extrapolating from this grant announcement by WisDOT which says that the $75 mil that was added to the budget can go to "transportation projects."

This could include roads and bridges, but could also include rail, harbor projects, bike lanes, and yes, transit. Naturally the righties MacIver that into meaning "money for the Milwaukee streetcar", and feeds it into a human centipede that includes AM 620/1130 and WisGOP legislators.

Pathetic and kinda racist, but that's WisGOP in the 2010s for ya. I also have to laugh, because earlier WisGOPs were whining that Evers reduced this one-time funding by $15 million, which meant less pork for their rural communities. "Fiscal conservatism", ya knooow.

The other story I saw reach the Northwoods today was another Wisconsin jobs report that wasn't too hot. This one says that we lost 2,300 more private sector jobs in June (seasonally adjusted basis), lost another 3,400 people out of the labor force, and 4,800 fewer Wisconsinites were described as employed.

This means that after finishing 39th in the country for job growth in 2018, Wisconsin has now lost 3,100 private sector jobs in the first 6 months of 2019. In addition, our labor force and "employed" totals are also smaller than they were at the end of 2018.

As mentioned before, we are far from the only Midwest state that has stagnated over the last 1 1/2 years, which might help to explain why President Trump was 9-15 points underwater in the Rust Belt/Plains states he has to win in 2020. While Wall Street may be liking the casino economy that's re-emerged in this country, it hasn't done much for the Heartland.

Which explains why Trump/GOP is leaning so heavily on racism these days. They can't win on their Tax Scam, so what else do they got? Have to keep the rubes distracted from their real problems, right?

Now it's time to grab a view before it hits 90 tomorrow.

Wednesday, July 17, 2019

Heading North...

Heading to the 715 to an annual family reunion. Great scenery, but I'm not exactly thrilled at the prospect of spending any money for n area of the state that elects guys like this.





I'll be doing some scanning over the coming days, and likely have some reaction to the state's jobs numbers and other financial reports (recent news - retail sales are still good, but housing fell hard in June).

It'll be warm there, too. But upper 80s vs 95 in Madtown, so I think I'll take it. I'll also take these views, which I value, but for some reason the locals don't (at least based on their votes, they don't).


And if you need good comedy, note this tweet. And the heavy ratio of humorous responses below.


Tuesday, July 16, 2019

Food prices on the rise. But how much will it change things?

I certainly didn’t think I’d spend so much time looking at food prices in 2019. But between the farm crisis, a rain-filled Spring that delayed planting in the Upper Midwest, and the widespread discussion of interest rates (and by proxy, inflation), that’s been the case.

And 3 reports from the last week are telling an interesting tale, as food prices are starting to jump, particularly in sectors that had been beaten down by surpluses and trade disruptions. Which means perhaps inflation isn’t as muted as we think, and that rates won’t be able to be cut as much as Wall Street would like.

To start with, let’s go to last week’s Consumer Price Index report. Prices for commodities went down by 0.3% last month, led by a drop , Overall food prices went down as well, but note what did go up in the second paragraph.
The food index was unchanged in June. The index for food at home declined 0.2 percent after increasing 0.3 percent in May. Four of the six major grocery store food group indexes declined in June. The index for meats, poultry, fish, and eggs, which rose 0.8 percent in May, fell 0.7 percent in June as the index for beef fell 1.3 percent. The indexes for cereals and bakery products and for nonalcoholic beverages both fell 0.6 percent in June after rising in May. The index for fruits and vegetables fell 0.5 percent in June, its third consecutive decline.

In contrast to these declines, the index for other food at home rose 0.7 percent in June after being unchanged in May. The index for dairy and related products rose 0.3 percent in June, its fifth consecutive monthly increase. The index for food away from home rose 0.3 percent in June after a 0.2- percent increase in May. The index for full service meals rose 0.6 percent in June while the index for limited service meals was unchanged.
After bottoming out at the start of this year, dairy prices have been making a steady climb, and are finally above where they were 12 months ago (albeit by only 0.6%). Too late for all the dairy farms that have already closed, but let’s see if that slows the pace down from the 3 closings-a-day level that we reached earlier this year.

I was also interested in what corn was doing after numerous reports last month about many farmers being forced to delay planting due to a late Winter and rainy Spring, or not planting at all. It looks like corn is still behind schedule, but if weather stays warm and dry in the key growing areas this month, it might not be so bad.

Oddly, the CPI report does not list corn on its own, but I did see, “rice, pasta and cornmeal” up 1.3% last month. Conversely, the Producer Price Index does list corn, and that report shows the same dichotomy that we see in consumer prices - most US goods had lower prices, but food is now rising after being beaten down for much of 2018 and 2019.
Final demand goods: Prices for final demand goods moved down 0.4 percent in June, the largest decrease since falling 0.6 percent in January. The June decline is attributable to a 3.1-percent drop in the index for final demand energy. Conversely, prices for final demand foods climbed 0.6 percent. The index for final demand goods less foods and energy was unchanged.

Product detail: Nearly 60 percent of the June decrease in the index for final demand goods can be traced to a 5.0-percent decline in prices for gasoline. The indexes for diesel fuel, meats, liquefied petroleum gas, iron and steel scrap, and residual fuels also moved lower. In contrast, corn prices rose 19.9 percent. The indexes for ethanol and residential electric power also increased.
And in looking at the CME futures prices, it seems like the rebound in soybeans and dairy prices will continue over the next few months.




The trend of rising food prices has even started to show in export prices. While most export prices of US products dropped in June, leading to an overall decline of 0.7%, that wasn’t the case for crops and other farm products.
Agricultural Exports: Prices for agricultural exports increased 2.7 percent in June following a 1.1-percent decline the previous month. The advance was the largest monthly rise since the index increased 3.8 percent in December 2018. In June, the advance was led by a 13.5-percent rise in corn prices and a 5.0-percent increase in soybean prices; higher fruit, wheat, and nut prices also contributed to the overall rise in agricultural prices. Despite the June advance, agricultural export prices fell 1.9 percent from June 2018 to June 2019. The drop over the past year was led by a 14.4-percent decrease in soybean prices.
If I wrote this a couple of days ago, I would have been even more concerned about a sizable jump in inflation for the coming months. Not just because of the higher food prices, but also because oil futures had risen by 17% between early June and early July. But oil has now dropped by $2 a barrel this week, so that could keep prices from galloping away (well, by 21st century standards, anyway).

Regardless, let’s see if there is any reference to these emerging prices over the next 2 weeks, which culminates in a Federal Reserve meeting which is expected to deliver the first interest rate cut since the 2008 financial crisis. Wall Streeters bid up the stock market last month in anticipation of there being more cuts to keep the cocaine party going, but rising food prices on the farm and on Main Street could put a stop to that thought sooner than expected.

Monday, July 15, 2019

Evers says what Foxconn won't - it'll be a lot smaller, if it opens at all

Here is the full CNBC report on the Foxconn development, which aired a couple of weeks ago. It mentions the difficulty Foxconn has had in the last year as Apple's iPhones sales have struggled, and Trump tariffs being slapped on their imports. It's also funny to see soon-to-be-leaving WEDC CEO Mark Hogan already ratchet down the expected amount of jobs in an interview, and claim "it's a marathon, not a sprint."



The report also catches an admission from the project's executive director (Peter Buck) that the facility will be a smaller "Gen 6" facility instead of the Gen 10.5 facility that Walker, Trump, Ryan and Foxconn were selling this time last year. Which leads to the report replaying April's statement of new Governor Tony Evers where Evers said the promises of the Foxconn project "was no longer in play", and that the contract needed to be renegotiated.

Then last week, we got a follow-up interview of Evers by UW graduate and CNBC reporter Scott Cohn. You can see the full interview at this link, but what Evers told Cohn is that he had met with Foxconn officials and gone to the site in the last month.

Evers says he thinks there will be something at Foxconn, but it won’t be nearly as big as the thousands of jobs that Foxconn and GOP officials are still claiming will come to Racine County.
He noted that the company is building a much smaller display panel plant than it originally said it would — a fact that has been extensively reported over the last year — and said he visited the construction site in mid-June.

“The good news is we have clarity, we actually understand what’s going to be built and kind of when it’s going to be finished, the first phase,” Evers said.

He said he believed the factory would employ about 1,500, a figure other officials have advanced but which Foxconn itself has not cited.
That jobs number “certainly is less than the original thought,” Evers said, “although I believe that Foxconn is of the opinion that at some point in time they will have larger numbers of employees there.

“But for Wisconsin, 1,500 employees is important, and so we’re looking forward to working with them and make sure that we understand what they’re doing.”
Tony may feel he has to put up a brave face for the time being, but I’ll believe that number when it actually happens. I’m setting the over-under in Racine County at 500.

Evers’ statement also corresponds well with a report in Wispolitics that says Evers sent a letter to the WEDC Board asking it to be open to changing the contract with Foxconn.
In the letter, Evers wrote his administration is “committed to supporting Foxconn’s success in Wisconsin to bring manufacturing jobs to an area of the state that has struggled for many years.” He also again said the company approached the state earlier this year about revisiting the agreement.

A Foxconn spokesman said the company was aware of the letter but didn’t have an immediate comment.

“Because the project has evolved substantially from what was originally proposed, evaluated, and contracted for, it is necessary to review the revised aspects of the project and evaluate how changes can most fairly benefit both the company and our state,” Evers wrote. “Proposed modifications to the Foxconn agreement or terms for a new agreement should be thoroughly and thoughtfully reviewed and assessed by the WEDC and my Administration.”…

WEDC spokesman David Callender said the agency forwarded Evers’ letter to the full board. He said WEDC, the guv’s office and DOA have “routine discussions” with Foxconn. He also noted it is not uncommon for WEDC to amend contracts with companies during the lifetime of the deal. But he said the agency otherwise doesn’t comment on talks with a company before something would be presented to the board.

Evers offered no specifics in his letter on possible changes but noted the company’s plans “reflect a substantially smaller footprint, less capital investment, and fewer manufacturing workers than its original plans.” Foxconn originally proposed what’s known as a Generation 10.5 facility capable of manufacturing screens the size of a garage door. It now plans a Generation 6 facility, which products LCD screens for TVs, cell phones and other devices.
To me, the bigger number you need to keep in mind with the number of jobs at Foxconn is not 1,500, but 520. That’s how many people need to be working in the state for them to collect 15% of the expenses that go into the facility, and 17% of the salaries of those 520 employees. That could net them a few hundred million dollars without much in terms of job growth.

As bad as typical WEDC deals are, at least they only shell out a smaller percentage of the salaries and/or investments. Given that many companies are adding more jobs and investing more than Foxconn, why are they still allowed to get higher incentives, environmental exemptions, and other special treatment? At the very least the contract should be changed to that.

Granted, the other option is to say that the confirmation of the lesser project shows that Foxconn has broken their end of the deal, and that would be the basis of filing suit and hardballing the company. I think that’s still the better option, because Foxconn isn’t to be trusted anything, and even cutting them a check for $50 million to go away would be better than blowing hundreds of thousands per job for a project that might not last long after the contract runs out in 13 years.

One other interesting sidelight with Foxconn is this event from last night.



So does that mean Gou goes back to Foxconn, or is he permanently done with the company and new leadership officially will take over and have different ideas about what (if anything) they do in SE Wisconsin? And will a Foxconn company that's already going through difficulties dump these acres of land after they get a few bucks from Racine County and the State of Wisconsin?

The last 2 years have taught us not to take the words of Foxconn or the GOP. We need to stay on them as the reality of the Fox-con is nothing more than another large warehouse project, and make them pay if they can't even come through with that.

While Wis budget has help for many, it'll likely be tougher in 2 years

Let’s look at what the LFB says the structural numbers are set as for this budget, and then the next 2 years.


You can see where the problems could happen for the next budget, because of that $679 million deficit in the last year, as that becomes the base amount that the 2021-23 budget starts from.

The LFB says there are a few adjustments to that $679 million deficit that are “baked in”, generally debt-related and expenses and revenues that are different due to tax changes and entitlement spending.

“Baked in” changes, 2021-23 budget
Revenues
Added state taxes due to GOP Tax Scam changes +$40 million
Expanded use of Low-Income Housing Credit -$21 million
Other -$2 million
TOTAL $+17 MILLION

Expenses
Debt payments on outstanding bonds +$30 million
Debt payments due to Evers prepayment in 2019 -$29 million
Wage increases for state employees +$46 million
End of one-time Hospital Payments -$60 million
Milwaukee voucher schools +$24 million
Shell game to pay off Forestry Property Tax +$12 million
State aid to replace Federal TANF block grant +$28 million
Others +$0 (net)
TOTAL +$51 MILLION

There is also one major item LFB includes that I disagree on, and that deals with assumptions about the Foxconn project. The LFB is sticking with its original projections that Foxconn will add $107 million in state tax revenue, and cost $94 million in tax credits for the 2021-23 biennium. I don’t see either of those items happening, given the recent indications that the Foxconn development will have at best 1,500 jobs (and likely a lot less…if any at all).

I also would argue that due to Wisconsin’s low population/labor force growth and resultingly low unemployment rate, Foxconn really isn’t adding anything that otherwise wouldn’t happen. But some expenses might still go out the door, making it a net loser, instead of a $13 million “gain” that LFB is counting on.

But I’ll leave that out for now, and put the LFB’s numbers together, and here’s what you have.


CUMULATIVE 2021-23 STRUCTURAL DEFICIT -$1,351 MILLION

You can see where rejecting Medicaid expansion and throwing an extra $531 million in state dollars into Medicaid services for 2019-21 has a notable effect for now, and for the next budget if it continues. You can also see where adding spending while cutting income taxes used up the surplus we had for this budget on a one-time basis, while not raising taxes and/or ending other Walker-era tax cuts (like what Evers wanted to do with the giveaway to manufacturers) that would have made up the difference.

Not good, and would likely be worse if we get hit with a recession over the next 4 years (as is extremely likely). So now, barring some kind of fiscal help from DC (HAH!) or booming revenues that come on top of an economy that is currently at full employment (HAH!), there is a situation where more budget adjustments are going to be needed for 2021-23.

Maybe at that time, we can have a better Legislature that understands that taking Medicaid expansion and curtailing giveaways to the rich and corporate are the best ways to both balance the budget, and for Wisconsin to do better than 39th in the US for job growth. This is why I see the current budget not as an end, but merely the beginning of a multi-year effort that is needed to restore Wisconsin into being a fiscally responsible, decent, and economically competitive state.

Saturday, July 13, 2019

US might hit the debt ceiling? Sounds like it's time for House Dems to play hardball

This throws an interesting monkey wrench into events in DC over the next couple of weeks, on top of all of the other craziness in that place.
Treasury Secretary Steven Mnuchin warned House Speaker Nancy Pelosi that the government may run out of cash in early September if Congress doesn’t raise U.S. borrowing authority.

“Based on updated projections, there is a scenario in which we run out of cash in early September, before Congress reconvenes,” Mnuchin said in a letter to Pelosi on Friday. “As such, I request that Congress increase the debt ceiling before Congress leaves for summer recess.”

Pelosi said Thursday that Congress should act this month to raise the debt ceiling, which was the first time she offered a definitive timeline. It’s not clear that lawmakers and the White House will strike a deal before the House is set to leave town on July 26 for a six-week recess....

The Treasury has been using accounting measures to avoid missing payments since the borrowing limit snapped back into place on March 2. The department’s room to maneuver depends on tax revenue, and the Bipartisan Policy Center, an independent think tank, this week adjusted its estimate to say there is a “significant risk” of defaulting on a key payment in early September.

Rates on bills maturing in mid-to-late September rose Friday, while those in early to mid-October have declined. Before the BPC estimate this week, early to mid-October maturities were the securities that had been under pressure as being most under risk of non-payment if the debt ceiling wasn’t increased in time.

Well, this is one way to deal with the debt ceiling.

A large reason the debt ceiling is coming up faster than expected is shown in the updated US deficit figures that came out this week.
The numbers: The federal government’s June budget deficit narrowed to $8 billion, the Treasury Department reported Thursday, down nearly 90% from the same month a year ago.

The much-lower monthly figure was affected by shifts in the timing of certain federal payments, as well as receipts. Without those shifts the deficit would have been $55 billion, wider than June 2018’s $30 billion shortfall…

The big picture: The budget deficit for the fiscal year to date is widening compared to the first nine months of fiscal 2018, as spending has climbed 7% and receipts have grown by just 3%. Through June, the budget gap totaled $747 billion. Both receipts and outlays are at records for the year to date, a senior Treasury official said. The government’s budget year runs from October through September.
There will still be some distorted comparisons, since July 1 fell on a weekend in both years. But even if you count on the deficit matching what happened from July-September 2018, then we’re looking at a deficit that will be around $900 billion for 2019, or an increase of more than 15%.

The Treasury Statement also hints at why there has been a bit more growth in the Trump Administration so far – higher government spending.

Government spending through June FY 2018 vs FY 2019
FY 2018 $3.148 trillion
FY 2019 $3.356 trillion (+6.6%)

That 6.6% increase is well above the 2019 increase in revenues of 2.7%, which adds to the deficit (also, some of that additional “spending” is in the form of $10 billion in additional money paid to people who got a refund from the Child Tax Credit beyond the taxes they owed).

The flip side is that this extra spending also adds to GDP. And sure enough, if you check the Atlanta Fed’s projections for Q2 2019, it shows that over ¼ of the US’s economic growth for the quarter would come from higher government spending at all levels. As usual, Republicans don’t seem to mind this extra spending and higher deficits if it helps their economy when they’re in office.

But the GOP's deficit-adding policies now add a possibility for Dems in the House, if they choose to take it. If there is a need for a new budget for Fiscal Year 2020 in the next 2 weeks to keep the debt ceiling from blowing up and crashing this Bubbly stock market, then I think it's time for Dems to tell Trump and the rest of the GOP it's time to stop obstructing justice on a lot of other items, stop defying subpoenas, and show up at hearings.

We also can start reducing the deficit by not overcrowding detention facilities, paying $775 an immigrant to private prison companies, and throwing an increasing amount of money at military and border control while our infrastructure continues to fall behind.

And if the Trump/GOPs don't want to budge on that, then we'll hit the debt ceiling and have a shutdown. Sure, that's not "governance", but the GOP gave up on that a long time ago, and it's not the Dems' jobs to keep bailing them out. Once these Bubbles start to burst on Wall Street and on other inflated markets, you can bet GOP leaders will be getting a lot of angry phone calls from people they actually care about and listen to.

It's time for the public to stop being insulated from the consequences of the reckless, lawless behavior of Donald Trump, Mitch McConnell, and the rest of the rotten lot. And yes, that may mean some pain, which you normally wouldn't try to impose on anyone. But these are not normal times, and "business as usual" isn't an adequate answer for our declining situation.

Farmers and consumers keep racking up debt. When does it hit the wall?

There was an alarming story that Reuters had this week, which included reports from Wisconsin and mentioned that Wall Street banks have stopped loaning to farmers as the ag crisis continues.
Chapter 12 federal court filings, a type of bankruptcy protection largely for small farmers, increased from 361 filings in 2014 to 498 in 2018, according to federal court records.

“My phone is ringing constantly. It’s all farmers,” said Minneapolis-St. Paul area bankruptcy attorney Barbara May. “Their banks are calling in the loans and cutting them off.”…

Gordon Giese, a 66-year-old dairy and corn farmer in Mayville, Wisconsin, last year was forced to sell most of his cows, his farmhouse and about one-third of his land to clear his farm’s debt. Now, his wife works 16-hour shifts at a local nursing home to help pay bills.
Giese and two of his sons tried and failed to get a line of credit for the farm.

“If you have any signs of trouble, the banks don’t want to work with you,” said Giese, whose experience echoes dozens of other farmers interviewed by Reuters. “I don’t want to get out of farming, but we might be forced to.”
And the most recent information from the Federal Reserve on debt and other economic money flows backs this up. I used the Fed data to make this chart involving agriculture production loans, where farmers borrow money from banks to pay for their operations


See that leap in ”nonaccrual status” that started in 2016 and has kept on going up? Here’s what that means.
A nonaccrual loan happens after 90 days of nonpayment, and interest stops accumulating. The bank classifies the loan as substandard and reports the change to the credit reporting agencies, which lowers the borrower's credit score. The lender changes its allowance for the potential loan loss, sets aside a reserve to protect the bank's financial interests, and may take legal action against the borrower. The loan is put on a cash basis, meaning that interest is only recorded as earned when payment is collected, not as an assumed payment. Ordinarily, interest income is accrued on loans, since regular payment of both principal and interest is assumed.

According to the Federal Deposit Insurance Corp. (FDIC), an asset is to be reported as being in nonaccrual status if one of three criteria are met:

1. It is maintained on a cash basis because of deterioration in the financial condition of the borrower;
2. Payment in full of principal or interest is not expected, or;
3. Principal or interest has been in default for a period of 90 days or more unless the asset is both well secured and in the process of collection.
In addition, an increasing amount of home loans are being backed by farmland, increasing by 50% over the last 7 years.


Individual consumers are also racking up debt, as noted in this column by Brett Arends in CBS Marketwatch which warns of a “Debt Zombie Apocalypse.”
CreditCards.com just released a timely survey about the debt zombies. They’re carrying a balance on their credit cards from month to month, paying interest rates that average around 18%. Yet they carry on spending. They actually spend more on luxuries, on average, than people who can pay off their cards at the end of the month.

And many of them claimed they couldn’t possibly cut back sharply, according to the survey. Households in credit-card debt are spending an average of $1,600 a year on their cellphones, but only one in four said they’d be willing to cut that in half. They’re spending $1,900 a year on clothes, but only a third said they could cut that in half. The average household in debt is still spending more than $5,000 a year on their car.
This is not the first survey that shows how many people struggle to handle their finances, and it won’t be the last
.
And while it’s bad for them, it’s great for the economy. Everyone’s spending is someone else’s revenue. What would happen to the cellphone manufacturers and the network providers if everyone tried to live within their means?...

Meanwhile, the amount of credit-card debt that’s more than 30 days past due has jumped 9% in the past year. It’s up by a half since 2015. Good times.

You can argue that debt is a kind of soft socialism. The private-sector boom of the past 10 years has, infamously, favored the well-off and (especially) the very rich. But they can’t make their billions unless their companies can sell to everybody else.

If this is what balance sheets look like when the economy is doing well, imagine what they’ll look like when the next downturn hits. Oh, never mind. The Fed can keep cutting rates, and Uncle Sam can just print up a trillion more dollars.
As you can see, both uncollectable writeoffs and past due credit card accounts keeps on rising in recent years.


One of the few things keeping the economy afloat right now is decent consumer and government spending, as shown by the Atlanta Fed’s GDP Now estimate.

Estimated contributions to GDP Q2 2019, Atlanta Fed
Consumer spending +2.53%
Gov’t Spending +0.38%
Everything Else -1.50%

You can see where one bad run of unemployment, and/or one bite of austerity from the government side, and a lot of dominoes could fall fast. No wonder why the Fed thinks it has to keep pumping out money despite the allegedly strong topline numbers.

The comparisons to 2007 are building, and we had record highs in large-cap stocks back then, too. None of this feels real these days, and the sooner we get an adjustment to the fundamentals, the better. As the longer it takes for this Bubble to burst, the worse the damage will be.