Why Nonsensical Spanish Data Is About To Make Even Less Sense
Spanish economic data does not always pass the sniff test. A simple example that JPMorgan's Michael Cembalest explains is that as unemployment rose from 10% to 25% from 2008 to Q2 2012, Spanish banks reported stable non-performing loans of 3%. The latest Mad-riddle, as he calls it, has to do with corporate profits but recent headlines from PM Rajoy, explaining his approach to solving the country's devastating youth unemployment problem just beggars belief. Simply put, as Bloomberg reports, he proposes to create a mechanism to temporarily exclude tax rebates granted to companies for hiring young people from the calculation of the government budget deficit - which, his twisted logic prompts, "would enable immediate action because we’d lower contributions to the Social Security system and this would facilitate and encourage hiring. So in summary, his suggestion to boost youth employment is... to further misreport the deficit and to underfund social security even more. With Spanish data already questionable (as we discuss below), this simply exaggerates an already farcical situation.
Via Michael Cembalest, JPMorgan,
Another Spanish Madriddle: should Spanish GDP data be taken at face value?
Sometimes, Spanish economic data don’t make sense. Example: as unemployment rose from 10% to 25% from 2008 to Q2 2012, Spanish banks reported stable non-performing loans of 3%1. The latest Mad-riddle has to do with corporate profits. Earnings for companies in the MSCI Spain Equity Index boomed during the mid 2000’s, when leverage and consumption in the eriphery were rising. They then fell sharply during the recession. On the other hand, the non-financial gross operating surplus for the Spanish private sector show a consistent rise. It’s not uncommon for non-financial operating surpluses to be less volatile than earnings of public companies, as in the U.S.
But the Spanish pair don’t even rhyme, and raise questions about Spanish data. One could discard this as a statistical aberration, except that gross operating surpluses are generally derived from the same data used to compute GDP. Other than a pick-up in exports, the rest of the picture in Spain still looks very grim: industrial production, real disposable income, domestic demand, imports, long-term unemployment, business loans, bankruptcies, etc. At some point, given the pace of decline in wages and asset prices, Spain should be able to attract foreign capital again. But you have to wonder if Spain can survive the journey.