Saturday, September 16, 2006

Fuzzier Than Ever - The Latest GDP Report

No one does a better job of dissecting misleading government economic data than Chris Martenson. In his report below, Chris tells us why we can’t rely on recent government data that suggests we’ve reached the bottom of the current recession. As we’ve seen with many past economic reports – the government is ‘spinning’ data so that it appears positive – when the actual data tells us something else.

It’s very easy to see how people can be deceived into buying into the stock market. If you only rely on our government and mainstream media for economic data and don’t examine the actual data yourself – you’re going to be seriously misled. It is a travesty that our political and financial leaders are doing this to the American people.

My hope is that we all wake-up – and these ‘leaders’ are held accountable for their actions.
If you want to learn more about how our government manipulates economic data – I suggest you watch Chris Martenson’s ‘Crash Course’. Here’s the link to the ‘fuzzy numbers’ video of the Crash Course.

John – May 2, 2009
Fuzzier Than Ever - The Latest GDP Report
Thursday, April 30, 2009, 9:17 am, by cmartenson
Executive Summary

• GDP report for 1Q2009 is a mess of Fuzzy Numbers
• The surprising 2.2% increase in PCE, or Personal Consumption Expenditures, is discussed
• Ostensible signs suggest that the bottom is in, but the numbers do not line up at all with hard, factual data
• Sales tax receipts declined in first quarter
• The GDP report for the first quarter of 2009 is in serious conflict with actual state sales tax data
• Vehicle sales are down nearly twice as much as the 19% claimed by the BEA
• The extent to which investors are fooled by these government reports is the extent to which they risk losing a lot of money in the stock market
• Trust yourself

As attendees of my seminars and regular readers know, I am deeply critical of the cheerleading spin cycle that exists between the government and the media, because it often inappropriately mixes facts, opinions, and beliefs. The aim, it would appear, is to foster optimism or confidence in the average investor.

Of course, as chronicled here many times, Wall Street lives off of the fees and products that it sells to retail investors, while the political machine favors a pacified, if not buoyant, electorate. Both of these aims are served by constantly spinning things to the upside.
While it is possible that "investors" are indeed optimistic, focusing on the "slightly more upbeat" report from the Fed and "signs that consumer spending rebounded," these claims deserve a bit of exploration.

GDP Report for 1Q 2009

This morning (Thursday, April 30), we were treated to this headline and story:

Stocks ready to charge again

LONDON ( -- U.S. stocks were set to charge higher Thursday, as economic optimism overshadowed worries that a Chrysler bankruptcy may be near.

Wall Street advanced Wednesday after the Federal Reserve issued a slightly more upbeat economic outlook. Signs that consumer spending rebounded in the first quarter, even as the economy contracted, also boosted optimism.

The GDP report came out on Wednesday and was much worse than expected, coming in at -6.1% where a -4% to -5% decline was expected. Oddly, the stock market was completely unfazed by this news and strutted off for a nice gain on the day. Or maybe not so odd, when one views the massive stock futures buying that suddenly poured into the market shortly after the release of the report. Somebody was buying in quantity, but I seriously doubt it was individual "investors," due to the size of the operation.

As always, the GDP report was a mess of Fuzzy Numbers, and it's not even worth parsing for meaning. But since the spin machine is now using it as proof that "consumer spending [has] rebounded," I feel obligated to dive in.

The spin cycle ran with a surprising 2.2% increase in PCE, or Personal Consumption Expenditures, the largest measure of consumer spending, which accounts for more than 70% of the economy. A rebound here could be a sign that the bottom is in, and that's how it was used, heavily, by the Wall Street spin-cycle apparatus. This is perfectly exemplified by a recent NY Times article (April 29) that stated (emphasis mine):

The American economy is contracting at its steepest pace in 50 years, the government reported Wednesday, but an unanticipated rise in consumer spending since January suggested to many economists that the worst of the recession might have passed.

Consumer spending stood out as the only significant bright spot in the Commerce Department's otherwise bleak update... Most of the spending was on autos, kitchen appliances, computers and other durable goods.

The problem is that this reported increase in spending, which was "unanticipated" and a "bright spot", does not line up at all with any other hard, factual data that exists.

GDP in conflict with state sales tax data

To begin with, all 50 states reported large (and usually record breaking) declines in sales tax receipts in the first quarter. With the exception of food, which is largely exempted, nearly every other category of PCE spending is subject to state sales tax collection.
Here's a relevant article:

Sales tax receipts make up one of the best indicators of how a consumer-driven economy is faring. We're not faring well. And sales tax receipts are the primary source, outpacing income tax, for the majority of state budgets. Based on the numbers you're about to read, you can easily understand why so many state budgets are all but teetering in the wind.

Nationally, sales tax receipts were at their lowest in 50 years, down a whopping 6.1% in Q4 2008 compared to the same quarter in 2007, according to the Nelson A. Rockefeller Institute of Government, with 41 states sustaining lower receipts in this same quarter.

And the early numbers on Q1 2009 look even worse.

This raises a troubling question: How did the federal government record a tidy 2.2% INCREASE in consumer spending, while states experienced record-breaking drops in sales tax receipts?

The chart below (see State Sales Tax chart at begining of post) was generated by a firm that specializes in tracking and projecting state sales taxes. The projection for Q1, which had January data fully in place, was for a 12% decline in state sales tax revenue. Unless this firm made the biggest goof ever, or there was a fantastic rebound in purchasing in February and March, a gigantic gap exists between the federal government's 2.2% increase in PCE and this sales tax data.

Looking at the raw data for California, which represents more than one-eighth of the entire US economy, we see that their first quarter results matched the estimate in the chart above by logging a 10.8% decline during the first quarter of 2009.

[First quarter 2009] collections for the three major taxes were down $6.1 billion (-10.2%) from last year at this time. Retail sales [taxes] were down $2.1 billion (-10.8%), personal income taxes fell by $3.5 billion (10.5%), and corporate taxes were $472 million lower (-7.3%) than last year's total at the end of March.

So here's a serious question: How is it possible for states to record a more than 10% decline in sales tax collection, while the federal government reports a 2.2% gain in personal consumption expenditures? This is no small matter – this is the largest such gap that I can find in the records.
At times like this, I would strongly caution you to remember that state sales taxes are simply collected and added up, while the GDP report is subject to all manner of politically-motivated adjustments and manipulations.

Bottom line: The GDP report for the first quarter of 2009, showing an increase in PCE of 2.2%, is in serious conflict with actual state sales tax data.

GDP in conflict with auto sales data

Once we dig into the miraculous 2.2% PCE gain, we find that it consists of a $43.7 billion gain over the prior quarter and that more than half of that gain was due to an increase in durables good purchases by consumers. Wait, what?

Durables can be categorized into two big buckets, cars and household furnishings. Both recorded gains. Wait, what? How can that be? Have we not been inundated with the most stunning declines in auto sales in history?

Let's peer in a little deeper.

Sure enough, the Bureau of Economic Analysis GDP report shows that autos were sold at an annualized rate of $350.6 billion in 1Q09 which was a nice $16 billion gain over the prior quarter. Further the BEA reported that auto sales were down some 19% from the same quarter a year prior (see Chris' table at the beginning of this post: GDP-Durable Goods).

However, this information, too, is in dire conflict with hard, verifiable, real world facts. In reality, vehicle sales are down nearly TWICE as much as the 19% claimed by the BEA, at least if one counts vehicles that were, you know, actually sold (table at beginning of post).

Vehicle sales are off more than 38%. But that's not all. Given the levels of discounting involved this year compared to last, the dollar value of these sales should have been off more than 38%. Instead, the BEA has reported that motor vehicles and parts are only down 19% yr/yr.

If we assume that the reported auto sales numbers represent reality, we can estimate that, instead of motor vehicle sales adding $16 billion to PCE, they subtracted something on the order of $50 billion to $80 billion. Where a 2.2% gain in PCE was reported, based on vehicle sales alone we might estimate that a 2-4% decline occurred.

Bottom line: The GDP report tells a tale of advancing auto sales that is in dire conflict with real-world data.


Real-world data, consisting of simple collections and summations of taxes collected and vehicles sold, tells a starkly different tale from the sampled, adjusted, and otherwise manipulated data being reported by the federal government. The degree of separation between real-world data and reported numbers is the largest I've ever observed, leading to the conclusion that the use of Fuzzy Numbers is now worse than ever.

The extent to which investors are fooled by these government reports is the extent to which they risk losing a lot of money in the stock market.

While I understand the political desire to create a sense of optimism, the practice of fibbing to ourselves by our official numbers is abhorrent and is simply a continuation of the failed practices that led us into this crisis in the first place. We are doing ourselves no favors by continuing the practice of manufacturing fraudulent and misleading data simply for the purpose of attempting to make things appear better than they really are.

We overspent as a nation, and now it is time to live within our means. Do not be fooled by these so-called "glimmers of hope" – they are false.

Stay the course, and trust yourself to know what's right.

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