Recent Economic Data

You've probably noticed this week that there has been some economic data released that appears to be somewhat positive (housing & durable goods) - leading to a rise in many stock markets. On the surface - after reading mainstream articles on this data - it would seem that the bottom to this recession is in sight. The problem is - once again - that if you study the data yourself - you'll see that nothing in this data should make anyone feel we're somehow turning a corner. I have copied two of Chris Martenson's recent articles on this subject. As always - Chris is simply analyzing the data - and then telling the truth. He's not trying to 'spin' the data so it sounds positive.

Also - even though stock markets appear to be rebounding on this data - the bond markets aren't buying it. The following is from a Wall St. Journal article in this morning's paper.

"If there really are signs of financial recovery, nobody told the bond market.

Corporate debt is still priced for disaster. Investment-grade nonfinancial U.S. corporate bonds rallied in January but now have stalled, with spreads about four percentage points over Treasurys, based on Markit iBoxx indexes. More worryingly, even as bank stocks have climbed, with the KBW index gaining 54% from its lows, U.S. senior bank-bond spreads remain at their widest levels since Lehman Brothers collapsed.

But leveraged loans as measured by the LCDX index remain unloved, with the index, at 74% of face value, still close to its all-time lows. Meanwhile, corporate defaults are surging: S&P by March 20 had recorded 47 defaults globally so far on the year, nearly triple the number seen in the same period of 2008.

Bonds are pricing in unheard-of and devastating levels of default. Deutsche Bank recently calculated dollar investment-grade corporate bonds were pricing in a five-year default rate of 40% assuming average recovery rates. Even if one makes the unlikely assumption that bondholders recover nothing after default, prices suggest a 25% default rate over five years. The worst five-year investment-grade default rate since 1970 is just 2.4%. The average is 0.9%.

On that basis corporate debt is almost absurdly cheap -- and so a lot of investors are pumping money into the market. That this has failed to fuel a rally in the credit markets similar to that in equities should ring warning bells for stock-market investors. What is holding back the credit markets is a lack of demand for financial debt -- a sure sign that all still isn't well in the banking system."

jg - March 26, 2009

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More Fuzzy Reporting: New Home Sales Misrepresented

Wednesday, March 25, 2009, 12:47 pm, by cmartenson

If you read my recent blog post on existing home sales, you may experience déjà vu reading this one. My point in exposing the ways in which “news” is spun to the positive, instead of realistically, is to help you see the ways in which we are still being systematically misled. I consider this to be important to reveal because while problems are still being identified, realism is more important than optimism.

Would you tell an overweight man with chest pains that “it’s probably heartburn and that most people are just fine after experiencing chest pains” or would you advise them to obtain a careful examination of their condition?

Here, we are going to give the patient a close examination.

As I am typing this, the stock market is rallying as it basks in some very favorable news on New Home Sales. Here’s the news:

New home sales in surprise rebound

NEW YORK (CNNMoney.com) -- Sales of newly constructed homes unexpectedly rose in February, rebounding nearly 5% after sinking to the lowest level on record in January, according to a government report released Wednesday.

Once again, we’ll examine this “unexpectedly” claim by using another excellent chart from Calculated Risk (I love that site!). This time, again, we will note that New Home sales always, always, rise in February as compared to January.

See those purple lines? Nearly every one of them slopes upwards from left to right. Six out of seven of them. And even the 2006 number might be a bit off because it looks like some of the February activity might have slipped into March. [Edited by CHM at 2:00 3/25/09 to reflect my oversight of the 2006 purple bar]

This means that February quite ordinarily and usually has greater home sales than January. Just like we discussed before.

We might also note that this February is waaaaaaaaayyyyyy below any prior February. Further, from a second chart at Calculated Risk we can observe that this February’s New Home sales is the lowest ever recorded since records started being kept in 1963.

Yet here’s how this information was summarized in the CNN.Money article linked to above:
Wednesday's report was the latest in a series of better-than-expected readings on the housing market.

So is this news really “better than expected” or is it the “worst new home sales data on record”?
Before you answer, I want you to consider the source of the data itself. The Census Bureau collects the new home sales data but they are notorious for two practices. The first is that they DO NOT subtract cancellations from the data series. That is, they count as “sales” any and all contracts signed to buy a new house. Many of those, recently 30% to 50% depending on the builder and region, are canceled prior to completion and are not actually sold.

The second is that their “sampling methodology” is so error prone that they have to put a very wide range on their pronouncement. Where you read in the news “4.7% gain!!!” here’s the reality:

Sales of new one-family houses in February 2009 were at a seasonally adjusted annual rate of 337,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±18.3%)* above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.

The margin of error, meaning that the Census Bureau is only 90% sure that the reported figure lies somewhere within this range, is plus or minus eighteen point three percent.
This means it could have been a minus 13.6% drop or it could have been a 23% gain. With a range this wide, we might wonder how much weight we should individually give to the reported number at all.

Certainly I would personally never report something as 4.7%, implying precision to the first decimal position to the right, when I was only 90% sure that I was accurate two full spots to the left of the decimal point.

Once again, I must regretfully conclude that the same sort of accounting shenanigans that I have been consistently decrying over the past 5 years are alive and well and on full display down there in DC even today.

While I am an optimistic person for a lot of reasons, I do not share an affinity for false optimism based on Fuzzy Numbers that so many in DC and the mainstream press seem to cling to.

I prefer a blend of realism and optimism that come together around a true understanding of the problems as they are actually configured, not as we might wish them to be. If the patient is sick, let's find out why and not delude ourselves.

File these New Home Sales articles as just more Jiminy Cricket reporting.

_____________________________
More Fuzzy Numbers - Durables

Wednesday, March 25, 2009, 3:10 pm, by cmartenson

Okay, this is really just desperate and sad. No I am not referring to my fixation on parsing government numbers, although I suppose I could be, but instead to government statistical wizardry and the press' unquestioning rhetorical support for these tortured numbers.

First up, here’s the verbiage:

Durable goods jump 3.4

WASHINGTON (Reuters) -- New orders for long-lasting manufactured goods unexpectedly rebounded in February, rising for the first time in seven months, according to a government report on Wednesday that could bring some cheer to an economy mired in recession.

Here’s the NY Times’ opening take on the situation:

In a glimmer of surprisingly upbeat economic data, manufacturing orders for goods like metals, machines and military equipment rose last month for the first time after six months of declines, the government reported on Wednesday.

That’s quite amazing. Durables “unexpectedly rebounded” bringing the cheer of “a glimmer of surprisingly upbeat economic data” to an economy mired in recession.

Well, it turns out that there’s another little game that is frequently played with these numbers and it’s called “the downward revision”. The game is played like this. In a prior month, in this case January, a slightly “better than expected number” is posted causing the stock market to react with glee (at least temporarily).

Later on, that number is adjusted wildly downward thereby creating a lower benchmark to “beat” next time, hopefully causing the stock market to again react with glee. I’ve been watching this “beat by a penny!” game played for years with both earnings announcements and government releases. The funny part is, it works every time. A friend of mine has dogs that he prefers to lock away in a back room when guests come and he fools them into willingly entering that room with treats. It too works every time. That’s my mental image for this process.

At any rate, here’s the game in more detail. The first thing is to set the “expected number” off of the original reported number. In the example below I have arbitrarily set the baseline durables number to “100” for demonstration purposes.

As you can see below, the reported January number was “95.5” in this example and then economists set their consensus expectation for a final reading of 94.4 which was a minus 1.2 percent decline from 95.5.

Now that the expected reading of 94.4 has been set, the next task is to then lower the bar so that it can be easily beaten. Below we see two rows of example data. The upper row reflects the fact that the January data was revised downward somewhat heavily to minus 7.3 percent. The lower row shows how the February data beat that revised number by 3.4% which led to all the happy articles quoted above.

But with sharp eyes we might note that if economists expected a reading of 94.4 but we got a report of 95.9 that this only represents a difference of 1.6%. This is a LOT lower of a difference than the reported difference between minus 1.2% and plus 3.4% which is a gap of 4.6%.

Further, we might say that since the data is so noisy and since February will almost certainly be subjected to revisions, that we shouldn’t compare “reported” to “revised” at all. Instead we might want to compare “reported” to “reported”. What happens if we do?

Then the surprisingly cheery gain evaporates into statistical insignificance.

Put graphically, the “cheer” reported by the media seems comical and overreaching, and possibly desperate and sad. I’ve taken the liberty of using a red arrow to point out the source of cheer.

Source: Briefing.com

It also bears noting that the durables number is a very noisy data series and any and all monthly “wiggles” are really not worth focusing on. The year over year change, however, can be quite revealing.

On that front, February 2009 orders were down 28.4 percent from the year prior.
One might question how an economy based on exponential expansion will fare with such a wrenching downward adjustment instead of the expected and preferred percentage gains.
Also, one might wonder how Jiminy Cricket has managed to sneak into so many press rooms all at once.

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.

http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers

John – May 2, 2009

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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 (CNNMoney.com) -- 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.

Conclusion

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.

Unemployment Data - April 2009

[This table is taken from Chris Martenson's blog post below. Blogger is giving me a few issues.]

If you are one of many people who believe we are somehow reaching a bottom to this ‘recession’ because of the recent release of April unemployment data – you need to take a closer look. Chris Martenson has – once again – dissected the actual data and it shouldn’t surprise anyone that our government and the media continue to ‘spin’ the data to make it look much more positive.

From the article in Chris’ post below:

“April's loss of 539,000 jobs was the smallest decline since October's 380,000”

539,000 is a very big number – but is it an accurate indication of what is really happening? No. If we remove the ridiculous birth/death adjustment (+226,000 jobs out of thin air) – we see that our economy actually lost 765,000 jobs in April – far worse than reported – and we see that the trend continues to show that our economy is deteriorating. Nothing within the actual economic data I see suggests a ‘turnaround’.

I recommend that you watch Chris’ video below if you want a better understanding of how our government manipulates economic data. Not surprisingly, their recent manipulations tend to lead to more positive results.

http://www.chrismartenson.com/crashcourse/chapter-16-fuzzy-numbers

jg – May 11, 2009

____________________________

From ChrisMartenson.com:

Thank you, Erik (and others!), for the support and the idea to publicize. I think I will send out a short message and link to it by newsletter AND do a blog post.

Meanwhile, I am finding myself quite amused by the payroll numbers released this morning at 8:30:

Payrolls drop by 539,000; jobless rate jumps to 8.9%

By Rex Nutting, MarketWatch

Last update: 8:36 a.m. EDT May 8, 2009

WASHINGTON (MarketWatch) - The U.S. economy continued to shred jobs at a horrendous pace in April, with nonfarm payrolls falling by 539,000 and the unemployment rate jumping to a 26-year high of 8.9%, the Department of Labor reported Friday.

The report was largely as expected, reflecting an easing in the pace of massive job destruction from the previous five months. Since the recession began in December 2007, payrolls have fallen by 5.7 million, or 4.1% of payrolls, the largest percentage decline since the 1958 recession.
April's loss of 539,000 jobs was the smallest decline since October's 380,000. Job losses in February and March were revised higher by 66,000.

The article goes on in great depth to parse out the numbers, but mysteriously makes no mention of the the birth-death model, the most important number of them all.
Here it is:

[see table at top of blog post]

Wow! The government's model managed to crank out 226,000 additional "thin-air" jobs to add back into the mix. For the record, this is 50,000 MORE jobs than were added by the model last April.

What sort of a model do they have that assesses the current hiring conditions to be 30% better than last year? What model could possibly be adding construction and finance jobs at this time? What do they use for inputs? How come these modelers still have jobs?

At any rate, if the B-D model had not added the 226,000 jobs, the report would have come in at -765,000, which is FAR worse than expected.

Really, this is just getting silly at this point. The US government is losing all credibility at a quite rapid pace, and more and more people are catching on. But in all seriousness, I fear the backlash that could result from the populace when the collective weight of all these insults to our intelligence finally boil over into some sort of a response.

Economic Data - Housing Starts

This relates to our discussion regarding how economic data can be manipulated by the media.

From the Wall St. Journal this morning:

Housing Starts Jump in May for Third Month
Single-family housing starts rose in May for the third straight month, fresh evidence the beleaguered housing market is beginning to stabilize. But the glut of homes in parts of the country will continue to drag down prices. Housing starts jumped 17.2% in May from April to a 532,000 annual rate, the Commerce Department said Tuesday, boosted by an increase in multifamily units.

From CNN:

Housing starts ratchet up in May
NEW YORK (CNNMoney.com) -- The nation's builders boosted their production in May, starting new housing units at an annualized rate of 532,000, up 17.2% from the revised estimate of 454,000 in April.

From Fox News:

Housing Starts Rise 17.2%
Housing starts climbed much more in May than the market expected, according to a report by the U.S. Commerce Department issued Tuesday, providing another possible sign that the beleaguered housing market is finding some stability.

Here's the actual trend:

You'll notice that the Wall St. Journal article mentions that 'multifamily' units boosted the May number. If you look at the details behind the numbers - the total was inflated by building permits for apartment buildings - not because single family home building is increasing. Again - to know the truth - you've got to examine the details on your own.

If you read the articles in their entirety - you'll usually see information like this buried within the article:

"Still, home construction was well below year-ago levels, with the pace of starts down 45.2% from May 2008." Headlines never reveal this type of information.

"The good news on housing was offset by another grim report on the state of U.S. manufacturing. Industrial production tumbled 1.1% in May from April, the Federal Reserve said. Capacity utilization fell to 68.3%, well below its long-run average, an indication that there is still a great deal of disinflationary slack."

Good news?

John

Unemployment Data - June 2009

The info/analysis at the bottom of this email is from John Williams (Shadowstats.com). He re-creates Government economic data in the same way it was reported in the past – before the Government decided to make significant changes to how economic data is collected and reported.

If you're not familiar with the birth/death model - it's a model that either adds or removes jobs to 'official' Government unemployment stats (it has nothing to do with the birth/death of people). The thinking behind this model is that the Government cannot account for new businesses or businesses that shut down - quickly enough in a given month - so instead of simply reporting the actual data (ADP employment report, etc.) each month - the Government 'estimates' how many new businesses started or businesses that closed in a given month with the corresponding addition or subtraction of jobs associated with those businesses. If you think this sounds like a very inaccurate way to track unemployment - you'd be right. No one really knows how this model works - it's a mystery.

You'll also notice that this model is never mentioned when unemployment data is released each month. Wonder why? The stock market dropped 200 points today because job losses were 'worse than expected' at 467,000 lost jobs in June. Imagine what would happen if the real number of 700,000 was released. Since February 2009 - the birth/death model has added 879,000 jobs to government unemployment data during one of the worst recessions in our history. It appears that someone is trying to make things look much better than reality.

Here’s a summary of June's umeployment report:

1. The Government’s ‘birth/death’ model added 185,000 jobs to the June unemployment report. Note the industries where many of the jobs were added – and ask yourself if this makes any sense.
• 31,000 jobs were added in Construction
• 21,000 jobs were added in Trade/Transportation
• 25,000 jobs were added in Business/Services
• 87,000 jobs were added in Leisure/Hospitality
• 7,000 jobs were added in Manufacturing

2. If we disregard the birth/death model – almost 700,000 jobs were lost in June (consistent with previous months)

3. Annual payroll decline is now the worst since 1958.

4. Actual unemployment rate is 21% (if we consider all of the people who are looking for work – the government selectively removes ‘discouraged’ workers)

jg – July 2, 2009
_____________________________

- June Jobs Loss Was 513,000 Net of Concurrent Seasonal Factor Bias
Likely Topped 700,000 with Birth-Death Machinations

- Payroll Employment Growth Overstatement
Could Top 2.5 Million Per Year with Birth-Death Modeling

- Annual Payroll Decline Deepened to 4.2%
Equal to 1958 Trough and Near 1949 Trough

- SGS-Alternate Unemployment at 20.6%

"June Employment Reporting Showed Ongoing Economic Deterioration. The Bureau of Labor Statistics (BLS) released ongoing indications of deteriorating U.S. employment/unemployment conditions in June, with a worse-than-expected 467,000 drop in June payrolls, but a narrower-than-expected rise in unemployment to 9.5%. Net of the Concurrent Seasonal Factor Bias (discussed below) and net of distortions built into the reporting by the Birth-Death Model (discussed below), the June jobs loss likely exceeded 700,000.

"The severe recession continues to deepen. My broad outlook has not changed; the worst of the financial and economic crises remain ahead of us. Before getting into the detail of the June report, a variety of special considerations are detailed, as directly related to the reporting of employment conditions as well as to broader implications for economic reporting in general."


Best regards,

The ShadowStats Team
(shadowstats.com)

'Really Good News' - New Home Sales - June 2009

There is alot of data analysis going on behind the scenes right now with the recent run-up of the stock market. Will the stock market go higher? Are we at the peak? If we only rely on mainstream media - it would seem that economic 'good news' is everywhere. If we look at the data ourselves - we get a different picture. New home sales/new home construction data was recently released for June - and most media outlets touted the 11% 'spike' in new single family home sales. Chris Martenson briefly analyzed the data (article below) - take a look at his chart and you tell me if this looks like good news.

The other piece of the housing puzzle relates to something that the media seems to ignore. We never seem to get anyone to look at new home sales and new home construction together. Each is usually analyzed separately. It's easy to see why - if we look at the data. If homebuilders started construction on new homes at an annualized rate of 582,000 in June and new homes are being sold at an annualized rate of 384,000 in June - what does this tell you? It tells you that homebuilders are building approximately 50% more homes than they are selling - and this is now happening month after month after month.

This leads to some obvious observations - home inventories/vacancies must be increasing - and this is exactly what we're seeing. I'm also starting to see articles about banks that are now bulldozing new home construction - since they can't sell the properties (http://www.cnbc.com/id/30580830).

As this trend continues, ask yourself what affect this will have on future home prices and sales as supply outstrips demand by huge margins. How long can homebuilders survive in this environment?

As Chris mentions below - because the new home sales number is a 'sampling' - the 11% 'spike' is + or - 13.2%. This means that the number could be -2.2% or +24.2% - or any number in between. Makes you wonder if the data is even worth reporting. Media outlets could care less - and trumpet this 'good news'. The bottom line is that if we compare sales to a year ago - we're looking at a 20%+ decrease.

The media spin machine continues........

jg – July 28, 2009
________________________________________________________________________
In Session - New home sales: 'Really good news'

By: Chris Martenson

New home sales: 'Really good news'

By Les Christie, CNNMoney.com, July 27, 2009

NEW YORK (CNNMoney.com) -- Sales of newly constructed single-family homes spiked 11% in June to an annualized rate of 384,000 homes, according to a report released Monday.

The gain over May was much greater than expected.

A consensus of housing industry analysts had forecast seasonally adjusted sales of 352,000, according to Breifing.com.

However, sales are still 21% below the levels of a year ago, when new homes sold in June at an annualized rate of 488,000, according to the report released by the U.S. Department of Housing and Urban Development. Four years ago, during the height of the housing boom, the sales rate for June was 1,374,000, nearly three-and-a-half times higher than last month.

Comments:

"Spiked" and "much greater than expected" sure make things sound great. While I think it is plausible to begin to look for a bottom somewhere in housing (personally I think it is still a year or more away) I do object to the use of hyperbole to paint an inaccurate picture of the situation.

The data is horribly noisy and, worse, it is sampled data that is seasonally adjusted and has serious methodology issues (e.g. cancelled orders are not removed from the reported figure) making the Census Bureau New Home Sales figure among the least reliable of them all.

At least they have the good graces to tell us as much right on the release itself:

Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent (±13.2%)* above the revised May rate of 346,000, but is 21.3 percent (±11.4%) below the June 2008 estimate of 488,000.

The reported figure of 11% above last month is, uh, plus or minus 13.2%. In other words the release tells us flat out that their methodology is inaccurate enough that the correct answer could just as easily be +24.2% as is could be -2.2%. Or maybe it's +11%. Hard to say for sure. All we know is that each of those figures is equally likely under the loose methodology employed by the Census Department.

At any rate, below is the chart that, for some reason, never accompanies a mainstream news financial article but which the Wall Street pros get to check out before they make their decisions. I personally do not (yet) see anything here to suggest a bottom or turnaround.




Does that look like a "spike" to you? How would you characterize that wiggle at the end there? Is it any more dramatic than any other wiggle on the chart?

Anyone care to go long a double fistful of homebuilder stocks based on what you see here?

Federal Tax Revenues Crashing

I would love to find some good data/news somewhere that actually made sense – but there simply isn’t any. Most recent mainstream media articles touting economic ‘good news’ are either using flawed assumptions, bad/manipulated data or completely disregard data that would contradict their positive spin.

I wrote a couple of months ago that we were in a relatively calm period before things really started to head south. I think we’re nearing the end of anything resembling calm.

Declining Federal tax revenues will translate into bigger deficits – which will require additional Treasury debt – which will flood the debt market with even more Treasury bills/notes. At some point, the world will say ‘enough’ – and all sorts of unpleasant things will start happening.

John - August 4, 2009
____________________________
Nathan's Economic Edge
http://economicedge.blogspot.com/

TUESDAY, AUGUST 4, 2009

Federal Tax Revenues – Cliff Diving and Data Hiding…

Remember what Chris Martensen called good economic data? You know, data that “is not statistically massaged before release, it is not 'sampled' but rather tallied up in its entirety, and it squares up nicely with other good sources of data.”

Good Data
• Sales tax data
• Income tax data
• Truck tonnage moved
• Port shipping container traffic
• Air transport
• UPS, FedEx, and other major shippers' volume
• Corporate Revenues (just added to list)

Well, here’s the data from the top of the list, the only data the government releases that meets Chris’s “good” criteria.

And how’s it looking? Is it down the .7 or even 5% that comes out of the massaged and adjusted data? NO! It’s down, wait for it, 22% year over year for Federal individual tax receipts and it’s down a horrific 57% for Corporate Income Taxes!

Now that’s a crash of revenue, just when our government is RAMPING spending all while simultaneously spending trillions of your dollars to bail out the central banks and pay bonuses on Wall Street!

What will that mean for our deficits? GAME OVER! The math is simply so far from working that there is NO WAY to keep the game going very much longer. You can ignore it, call it looney Tunes, whatever, the math simply tells the truth and cannot lie.
Federal tax revenues plummeting

AP ENTERPRISE: Plummeting tax revenues starve government just as Obama embarks on big plans

By Stephen Ohlemacher, Associated Press Writer
On Monday August 3, 2009, 8:51 pm EDT

WASHINGTON (AP) -- The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation's plate and struggling to find money to pay the tab.

The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.

"Our tax system is already inadequate to support the promises our government has made," said Eugene Steuerle, a former Treasury Department official in the Reagan administration who is now vice president of the Peter G. Peterson Foundation.

"This just adds to the problem."

While much of Washington is focused on how to pay for new programs such as overhauling health care -- at a cost of $1 trillion over the next decade -- existing programs are feeling the pinch, too.

Social Security is in danger of running out of money earlier than the government projected just a few month ago. Highway, mass transit and airport projects are at risk because fuel and industry taxes are declining.

The national debt already exceeds $11 trillion. And bills just completed by the House would boost domestic agencies' spending by 11 percent in 2010 and military spending by 4 percent.

For this report, the AP analyzed annual tax receipts dating back to the inception of the federal income tax in 1913. Tax receipts for the 2009 budget year were available through June. They were compared to the same period last year. The budget year runs from October to September, meaning there will be three more months of receipts this year.
Is there a way out of the financial mess?

A key factor is the economy's health. The future of current programs -- not to mention the new ones Obama is proposing -- will depend largely on how fast the economy recovers from the recession, said William Gale, co-director of the Tax Policy Center.

"The numbers for 2009 are striking, head-snapping. But what really matters is what happens next," said Gale, who previously taught economics at UCLA and was an adviser to President George H. W. Bush's Council of Economic Advisers.

"If it's just one year, then it's a remarkable thing, but it's totally manageable. If the economy doesn't recover soon, it doesn't matter what your social, economic and political agenda is. There's not going to be any revenue to pay for it."

A small part of the drop in tax receipts can be attributed to new tax credits for individuals and corporations enacted in February as part of the $787 billion economic stimulus package. The sheer magnitude of the tax decline, however, points to the deep recession that is reducing incomes, wiping out corporate profits and straining government programs.

Social Security tax receipts are down less than a percentage point from last year, but in May the government had been projecting a slight increase. At the time, the government's best estimate was that Social Security would start to pay out more money than it receives in taxes in 2016, and that the fund would be depleted in 2037 unless changes are enacted.
Some experts think the sour economy has made those numbers outdated.

"You could easily move that number up three or four years, then you're talking about 2013, and that's not very far off," said Kent Smetters, associate professor of insurance and risk management at the University of Pennsylvania.

The government's projections included best- and worst-case scenarios. Under the worst, Social Security would start to pay out more money than it received in taxes in 2013, and the fund would be depleted in 2029.

The fund's trustees are still confident the solvency dates are within the range of the worst-case scenario, said Jason Fichtner, the Social Security Administration's acting deputy commissioner.

"We're not outside our boundaries yet," Fichtner said. "As the recovery comes, we'll see how that plays out."

The recession's toll on Social Security makes it even more urgent for Congress to address the fund's long-term solvency, said Sen. Herb Kohl, D-Wis., chairman of the Senate Aging Committee.

"Over the past year, millions of older Americans have watched their retirement savings crumble, making the guaranteed income of Social Security more important than ever," Kohl said.
President Barack Obama has said he wants to tackle Social Security next year, after he clears an already crowded agenda that includes overhauling health care, addressing climate change and imposing new regulations on financial companies.

Medicare tax receipts are also down less than a percentage point for the year, pretty close to government projections. Medicare started paying out more money than it received last year.

Meanwhile, the recession is taking a toll on fuel and industry excise taxes that pay for highway, mass transit and airport projects. Fuel taxes that support road construction and mass transit projects are on pace to fall for the second straight year. Receipts from taxes on jet fuel and airline tickets are also dropping, meaning Congress will have to borrow more money to fund airport projects and the Federal Aviation Administration.

Last week, Congress voted to spend $7 billion to replenish the highway fund, which would otherwise run out of money in August. Congress spent $8 billion to replenish the fund last year.

Rep. Richard Neal, D-Mass., chairman of the House subcommittee that oversees fuel taxes, is working on a package to make the fund more self-sufficient. The U.S. Chamber of Commerce, which doesn't back many tax increases, supports increasing the federal gasoline tax, currently 18.4 cents per gallon.

Neal said he hasn't endorsed a specific plan. But, he added, "You can't keep going back to the general fund."

BUT WAIT! That’s actually an improvement in Corporate tax receipts… then a funny thing happened on the way to look at the St. Louis Fed’s charts. It seems that this chart series, (FCTAX), the only one that presents federal tax data on the Fed’s site, has stopped reporting data! Below is the same series chart that I posted on April 10th of this year:

That’s right, you can see that corporate tax receipts were down well over 70% at that time!

Now, when that same data series is pulled up, you will find that the data begins in 1996 and ENDS in 2008!


In fact, do a search at the Fed’s site and you will find that all aggregate tax receipt information is suddenly only reported to the beginning of 2008!

Fred Search, Gov't Receipts, Expenditures & Investment

Why would they do that? Oh, go ahead and ask. I can already guess their response… “That data is no longer relevant.” Or, “It was an error and will be corrected [when the recession is over].” LOL, seriously, when they were playing games with the “excess reserves” charts, they came up with all types of excuses and now it’s impossible to know exactly how it’s calculated.

One more time:

The BEA, the BLS, in fact ALL government reports are suspect. All reporting of government statistics should be scrapped. The Fed should be abolished, The central banks and bankers should be removed – as in gone, a new money system should be put in place, there should be a Constitutional Amendment dictating the SEPARATION OF CORPORATIONS AND THEIR MONEY FROM STATE, and finally, there should be a new government agency responsible for collecting and reporting economic statistics and that agency should have a mandate to develop data collection methods that cannot be changed over time and there should also be a mandate to release RAW DATA with every report, there should be absolute transparency in that all the calculations and all collection methods should be easily viewable by anyone. Oh, and NO ONE, not even the President should have access to the information before the public!

POSTED BY NATHAN A. MARTIN AT9:29 AM

August 2009 Unemployment Report

Investors have been anxiously awaiting the August unemployment report from the Bureau of Labor Statistics due this morning.

Here’s an excerpt from this morning’s Wall St. Journal:
____________________________________________________

SEPTEMBER 4, 2009, 8:46 A.M. ET

Job Losses Moderate, but Unemployment Rate Hits 9.7%

WASHINGTON -- U.S. job losses softened last month but the unemployment rate soared to its highest level since June 1983, proving that it will take some time for the ailing labor market to recover from the worst financial crisis in decades. Nonfarm payrolls declined 216,000 last month compared to a revised 276,000 drop in July, the Labor Department said Friday. The August drop is smaller than the 233,000 decline economists in a Dow Jones Newswires survey had expected.
____________________________________________________

So – the bottom line is that a 233,000 decline was ‘expected’ and job losses just beat this estimate – once again.

As always – we need to take a closer look at how this number was calculated and see if it makes sense.

From the U.S. Dept of Labor CES (Current Employment Statistics) birth/death model:

So – once again – we see that this ‘model’ added a significant number of jobs back into the total. What were total job losses without this model? Approximately 334,000 [I realize that the government's reported number is 'seasonally adjusted' - so we can't simply add these jobs back into the total - but the message here is that the reported number is being manipulated higher - without reason]. What do you think would happen to the markets if we reported a much worse than ‘expected’ job loss total (334K) coupled with an unemployment rate of 9.7%? I think it’s safe to say that stock markets will respond much more favorably to a total of 216.

If you’re not familiar with this model – it doesn’t measure the birth/death of people – it is supposed to account for the birth/death of businesses. Instead of using a quantitative number that can be verified – like payroll tax information (which is declining by significant amounts) – or ADP payroll gains/losses + actual government job gains/losses – our government uses a very confusing method for ‘calculating’ monthly job gains/losses. They use this model to guess how many businesses started and/or failed in a given month. How they do this – no one really knows. This is why many people are now noticing how ridiculous this model actually is – it has added a total of 1,029,000 jobs to the ‘official’ job reports since February. – during one of the worst recessions in decades. People expected the model to subtract jobs for August – based on all of the jobs added to the model since Feb – but no – it just keeps on adding jobs – which makes absolutely no sense in this current economic environment. The model added jobs to every sector in August – construction, manufacturing, mining, finance, services, hospitality, etc. Of course, very few people take the time to explore how the government reports unemployment numbers – so very few people know that this type of smoke and mirrors is going on. At some point, they won’t be able to disguise what’s happening – and you can guess what will happen once the truth gets out.

You might ask yourself – with all of the recent negative media articles related to all of these sectors – how could the government add jobs to each of them? Very good question. It would seem that the BLS modelers are not concerned with reality. It seems that they don’t even agree with other government agencies. Here’s a few I’ve seen over the past few days:

“The U.S. service sector contracted in August for the 11th straight month” (Service Sector) WSJ


“States shut down to save Cash” (including furloughs & lay-offs) WSJ


“Retailers reported that August sales declined 2.9%” (Service Sector) WSJ


“American Airlines lays off 1,200 flight attendants” AJC


“Shipping rates are sinking” (Baltic Dry Index declines 44% over the past 3 months) WSJ


“The [U.S.] service sector is crucial for the job market, accounting for nearly 86% of all nonfarm jobs in the U.S. – and it is still contracting, the ISM reported on Thursday” WSJ


“American Apparel will lay off more than a quarter of its factory workforce in Los Angeles……” WSJ


“Quiksilver profit drops 53% in tough retail environment” WSJ


“Boeing Co. said its commercial jet deliveries fell 22% in August from a year earlier and orders were down 11.5%.....” WSJ


“The long recession and rising joblessness are taking an increasing toll on the nation’s most credit-worthy borrowers, who are now falling behind on their mortgage and credit-card payments at a faster pace than people with poor financial histories.” WSJ


“Unemployment rates in 372 U.S. metropolitan areas continued their upward climb in July, Labor Department figures released Tuesday show. Some 19 metros now have unemployment rates above 15%...” WSJ


“Service-sector employment declined by 146,000 in August, while goods-producing jobs including construction and manufacturing fell by 152,000, according to Automatic Data Processing Inc., a payroll firm.” WSJ

Take note of this excerpt from an article in Thursday’s WSJ:

“The ADP report suggested "some downside risk" to the government's official August employment report, due Friday, but the ADP figure has been worse than the government's figure in six of the past eight months, according to economists at Goldman Sachs Group Inc. That is in part because ADP only tallies private-sector jobs. Government hiring has added about 2,000 jobs per month over the past year.” AJC

I would say that the ADP numbers are worse than the government’s unemployment numbers because the ADP numbers are based on reality.

If we calculate the unemployment rate the way it was calculated (total number of unemployed people who would work full time if they could find a job/total working age population) before all of this ‘modeling’ and ‘polling’ used to calculate current unemployment stats – what do we see?

We see a true unemployment rate of over 20%. I wonder what would happen if this was ever reported?

My guess is that if you are in a business that has direct contact with consumers – you are seeing (or are beginning to see) significant sales declines as unemployment continues to deteriorate.

You get the picture. This is just one more way the American people are being misled.

jg

Economic Recovery or Continued Decline?

We continue to see many positive economic articles by mainstream media outlets. It seems that many of the pundits on CNBC, CNN, Fox News, etc. – see our economy on the road to recovery and continue to talk about economic ‘green shoots’. I have listed below some headlines from recent mainstream media articles.

When things really begin to collapse – remember all of these positive articles and all of the positive comments by our political and financial leaders and ask yourself – were they really this blind or was there another agenda at work?

I have added a blog post by Jeff Nielson at the end of this post. Jeff tells us the true state of our economy and where we’re heading.

jg – October 22, 2009
__________________________________________

Transport Stocks Blaze Recovery Path
WSJ - October 22, 2009

China Gains Confidence in Recovery
WSJ - October 22, 2009

[Federal Reserve] Beige Book Sees Stabilization Signals
WSJ - October 22, 2009

Business Spending Looks Up
WSJ - October 21, 2009

Commercial Market Gains Footing
WSJ - October 21, 2009

Construction Industry Forecast to Rebound in 2010
WSJ - October 16, 2009

Dow at 10000 as Crisis Ebbs
WSJ - October 15, 2009

Wall Street On Track To Award Record Pay
WSJ - October 14, 2009

Trade Upturn Hints at a Recovery
WSJ - October 12, 2009

Recovery Hopes Stir Markets
WSJ - October 7, 2009

BHP points to signs of broad global recovery
CNN – October 21, 2009

Google: Worst is behind us
CNN – October 21, 2009
________________________________________
Greater Depression for U.S. Rebuts 'Recovery' Talk

By Jeff Nielson

http://seekingalpha.com/article/167538-greater-depression-for-u-s-rebuts-recovery-talk?source=feed

It has gone from irritating to nauseating listening to media market-pumpers talking about an “U.S. economic recovery” which has supposedly already begun. Indeed, the hype has gone from a debate about whether the “recession” is over, to an inane debate about whether the U.S. is experiencing a “V-shaped recovery” or may suffer a “double-dip recession” or W-shaped “recovery”.

In the real world, however, all that has occurred is that an U.S. economic collapse, which was in a near-vertical drop, has eased to a more moderate rate of decline. The “double-dip” talked about by some semi-realistic analysts is in fact nothing more than the ongoing collapse regaining downward momentum. There is no “debate” here. It is a matter of simple arithmetic that the U.S. economy cannot recover.

First of all, in the “big picture”, the U.S.'s $11-trillion economy (all that remains once statistical “padding” is removed) is much too small to service the more than $57 trillion in existing public and private debt. Even if we pretend the U.S. still has a $14 trillion economy (despite the government's own numbers that this economy has shrunk by more than 10%), it is still much too small to service its debts. Meanwhile, lurking in the near future are roughly $70 trillion in additional “unfunded liabilities”.

As I have pointed out on a number of occasions, the U.S. can never afford to raise interest rates again (at least not until after the inevitable national default on its massive debts). Every 1% rise in U.S. interest rates drains over $500 billion per year from the U.S. economy, equivalent to roughly a 5% drop in GDP for every 1% rise in interest rates. It is also inevitable that the bond market will impose much higher interest rates on the U.S. economy – as deficits get more out-of-control (and myopic U.S. creditors finally see the total insolvency of the U.S. economy). Thus, the U.S. is guaranteed to go bankrupt – the only issue is when.

The Obama stimulus package is far too small to stop the current collapse in the U.S. economy. Keep in mind that the same propagandists who claim that Obama's stimulus package would “save” the U.S. economy were saying the same things about the much smaller Bush “stimulus package” - little more than a year ago.

The fact is that the U.S. consumer economy has lost somewhere in the neighborhood of $2 trillion per year in spending power. At the peak of the U.S. housing bubble, home-equity financings injected $840 billion into the economy in one year. Not only has such cash-flow into the U.S. economy completely evaporated, but now the debtors have to pay back the trillions in debt which they squandered.

Contrary to the absurd jobs propaganda, the U.S. economy has already lost somewhere in excess of 15 million jobs already – subtracting at least $1 trillion per year in spending from the economy once the “multiplier effect” is factored in. This disconnect from the real world reached its peak this summer, symbolized by a Reuters article that actually stated that while U.S. unemployment was “improving at the national level” it was getting worse on a state-by-state basis (see “BLS jobs numbers contradict BLS jobs numbers”).

Obviously the U.S. economy is represented by the collective economic performance of its 50 states. Yet in the fantasy-world of U.S. economic propaganda, we are supposed to believe that nationally the U.S. economy can be improving, while state-by-state the economy continues plummeting downward. The only difference between the U.S.'s “national economy” and the “state-by-state economy” is that the federal government has incorporated far more statistical contrivances to distort the numbers.

If the real condition of the U.S. economy is not already evident to people from the information above, certainly the following graphs and data on state tax revenues make things crystal-clear. The Rockefeller Institute (.pdf) recently went back as far as data was available (nearly 50 years) and discovered that the current collapse in state revenues is unprecedented – evidenced by the sickening plunge in these charts.

Again, it is a matter of elementary arithmetic that with U.S. states suffering the worst collapse in revenues on record (and with most states already maximizing their annual borrowing) that only two things can happen. Either U.S. states will have to engage in the most-punishing combination of tax-increases and spending cuts (i.e. lay-offs) on record or the Obama regime will have to dramatically increase federal hand-outs to the individual states.

Currently, in the most-recent fiscal year (ending in June of this year), declines in U.S. state revenues were more than double the amount of “stimulus” they received from the Obama regime. What makes this situation worse, most of this so-called “stimulus” involved either increasing the duration of unemployment insurance in the most-devastated regions and/or providing funds to states whose unemployment benefits were completely spent. There was virtually no money spent on creating jobs (contrary to the promises and claims of the Obama regime).

Given that shortfalls in unemployment insurance funding will be much worse in the current fiscal year, the Obama regime could double “stimulus” hand-outs to the states and still create zero jobs – doing nothing but keeping unemployment insurance payments flowing to the jobless.

This still leaves U.S. states with somewhere around $100 billion in increased deficits which will need to be covered in the current fiscal year (above and beyond their pre-existing structural deficits). Keep in mind that the entire amount of “stimulus” reaching the economy from the Obama “stimulus package” was only about $250 billion this year (using the government's own numbers). Overall, this replaces little more than 10% of the lost spending power from this economy.

The numbers are unequivocal. There is no “economic recovery” taking place in the U.S. This year is much worse than last year – and 2010 will be much worse still. The only thing currently preventing the debt-implosion of the U.S. economy is the Bernanke printing press, and continued, excessive “monetization” of debt is a guarantee of hyperinflation. All claims to the contrary represent wishful thinking or deliberate deceit.

Is the Recession Really Over? More GDP Games........

U.S. 3rd Quarter GDP data was released today.

Here’s the headline and an excerpt from the Wall Street Journal:

‘GDP Data Suggest Recession is Over’

The economy expanded in the third quarter after shrinking for four consecutive quarters, likely marking an end to the worst recession since World War II. But the recovery is expected to be slow, as the economy continues to fight rising unemployment and a persistent credit crunch.


Gross domestic product rose by a higher-than-expected seasonally adjusted 3.5% annual rate July through September, the Commerce Department said Thursday in its first estimate of third-quarter GDP. Economists surveyed by Dow Jones Newswires had forecast 3.2% GDP growth during the summer. GDP is the broad measure of economic activity in the U.S.


President Barack Obama said new data showing that the U.S. economy grew in the third quarter is "an affirmation that this recession is abating and the steps we've taken have made a difference."


"This is obviously welcome news," Mr. Obama said in remarks prepared for delivery at the White House. "But I also know that we have a long way to go to fully restore our economy, and recover from what has been the longest and deepest downturn since The Great Depression."

So – we see President Obama and others (including Timothy Geithner) saying that the recession is slowing considerably – maybe even ending.

Is this true?

No.

Let’s let Karl Denninger explain the truth behind the GDP number.

jg – October 29, 2009
____________________________________

GDP is ……Better Than Expected?

The Market Ticker

(http://market-ticker.denninger.net/archives/1550-GDP-Is.....-Better-Than-Expected.html)

Thursday, October 29. 2009

Posted by Karl Denninger in Macro Economics at 08:59

Oh what a tangled web we weave....

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.5 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.

Looks good, right?

Hmmmm.... or is it?

Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change.

Real federal government consumption expenditures and gross investment increased 7.9 percent in the third quarter, compared with an increase of 11.4 percent in the second.

Ok, from this we can compute a few things.

3.5 - 1.66 - (7.9 * 30%) = -0.53%

Now let's adjust for inventories:

The change in real private inventories added 0.94 percentage point to the third-quarter change in real GDP after subtracting 1.42 percentage points from the second-quarter change.

-0.53% - 0.94% = -1.47%.

Ok, that's bad but not catastrophic and is an actual improvement compared to the second quarter. But....

Current-dollar personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second.

Personal current taxes increased $4.8 billion in the third quarter, in contrast to a decrease of $119.1 billion in the second.

Eeeeehhh... those are both going the wrong way. Taxes up, income down. And...

Disposable personal income decreased $20.4 billion (0.7 percent) in the third quarter, in contrast to an increase of $138.2 billion (5.2 percent) in the second. Real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent.

That's worse. A lot worse. Disposable personal income decreased in nominal terms q/o/q by 5.9% while in real terms (inflation adjusted) it decreased q/o/q by 7.4%! That is an enormous swing in purchasing power and not in the right direction!

Personal outlays increased $148.2 billion (5.8 percent) in the third quarter, compared with an increase of $8.2 billion (0.3 percent) in the second. Personal saving -- disposable personal income less personal outlays -- was $364.6 billion in the third quarter, compared with $533.1 billion in the second.

The personal saving rate -- saving as a percentage of disposable personal income -- was 3.3 percent in the third quarter, compared with 4.9 percent in the second.

So into decreasing personal income and disposable personal income people tried to spend anyway. Best guess: most of this was "cash for clunkers", which is the worst sort of "spending" - it is the taking on of more debt by replacing a paid-off car with one that now comes with a shiny (and nasty) payment book. The Trade: Go long auto repo outfits (aside: as far as I know there are no publicly-traded repo companies.)

Nothing in here I like; to the contrary, this report sucks and on a drill-down appears to be full of outright lies.

Looking inside the data, the "big change" in private domestic investment is all residential fixed - up 23.4%. I don't believe it. I've been scouring the homebuilder earnings releases and data, and I don't see the numbers that support this. An improvement over the ditch-diving of the last many quarters, yes - but a 23.4% increase, a swing of fifty percent from Q2-Q3? Oh hell no. Where is it? It's not in Home Depot's or Lowe's quarterly results, it's not in the homebuilders, and I can't find it in the suppliers (lumber companies, etc) either. This sort of move would result in monstrous top-line revenue increases reported by firms in this sector and that simply has not happened.

Nor do the export and import numbers look right. Port of Long Beach and LA anyone? Those numbers also don't add up - swings of 20-25% in one quarter? Not reflected in container volumes and freight loadings. Yet it has to be - how do you get something in or out of here without it going through a port?

Government looks right, both federal and state/local. The "Obama will cut defense and war spending" folks have to be bashing themselves with a hammer - there's no evidence for that in the data, now three quarters into his administration. If you're anti-war and "bring the troops home", you may want to re-think whether voting for Barry was a wise decision - he sure as hell hasn't kept that promise. (Note that I didn't think he would either but that lie sure played well in San Francisco, didn't it?)

Forward the big problem is the deterioration in personal income. You can't spend what you don't have without credit creation, and that's fallen off a cliff. The Fed's credit reports continue to come in with huge contractions - this should not surprise, as demanding that banks lend to people who are seeing their income shrink is into the realm of pure idiocy.

The market likes the numbers although a lot of the move - perhaps all of it - is Bucky getting thrown under the bus once again.

You can't expect the cheerleaders on CNBC to read beyond the headline numbers, and they (once again) did not disappoint in this regard. The first 20 minutes of "analysis" brought not one mention of the decease in personal income or disposable personal income, yet on a forward basis this is in fact the most important piece of information in the report.

You cannot have an economic recovery when on a q/o/q basis real disposable income is contracting at a 7.4% annual rate and worse, the spread between nominal and real income is widening, indicating that mandatory purchases such a food, energy and health care - are increasing.

Consumer Spending Tumbles

We’re hearing a lot of people today tell us that the ‘great recession’ is either over – or will be ending soon. We’re hearing this from political leaders, financial leaders and economists. Many of these people are now pointing to the 3rd quarter increase in GDP (3.5%) released yesterday. As we discussed in yesterday’s post – no one should be celebrating this gain in GDP.

The problem – as we’ve seen time and again – is that very few people are analyzing the details behind the 3.5% gain - and are therefore blindly following the blind.

What is the real economy? Does the GDP number really give us a good indication of what is going on? I believe the answer is no. The real economy to ordinary people (that’s you and me) is employment, consumer & business spending, wages/income & our purchasing power (U.S. Dollar). I don’t know about you – but if I’m out of a job – I could care less what the government says about GDP (whether the actual number is accurate or not). If I don’t have a job – I’m not spending – I’m just trying to survive.

This is what 26 million of us are now doing – just trying to survive.

Because real unemployment is somewhere between 16-22% (depending on how you measure) – it should not surprise anyone that consumer spending is declining.

From the Wall St. Journal:

Spending Tumbles

Spending by Americans took a big tumble in September, as they lost a popular government subsidy and were left with a lousy job market and a credit crunch.

The 0.5% drop in spending was the largest since December 2008, when the recession was at its worst. Most of the drop was in durable goods, which include autos. Outlays on nondurable goods and services posted a gain from last month.

We’ve seen massive amounts of ‘stimulus’ money flowing into our financial system – but little of this is making its way to ordinary Americans. Since our monetary system is based on debt – let’s look at what banks are doing with their reserves.

Are they lending? No. Why? As I’ve said before – banks do not want to lend in this economic environment and as our economy continues to lose jobs – there will be fewer and fewer people and businesses who can qualify for loans.

Since we now know that bank loans directly contribute to our money supply – we would expect our money supply growth to slow considerably based on the charts above – and that’s exactly what we’re seeing.

Personal income is also flat or down.

With nearly 10% of the U.S. labor force out of work, incomes aren't going up much. September's flat reading followed a 0.1% August gain, revised from an originally reported 0.2% increase.

So – in the real economy where you and I get the money we need to survive – life is not good and the trends are not good. All of the people out there saying that the recession is ending are living in a fantasy land of government statistics and wishful ‘outlooks’.

For you and me – economic conditions continue to decline. As you’ve seen me say before – we’re rapidly approaching a cliff – and we’re going to be pushed off at some point.

Get ready for significant stock market declines in the near future. Economic fundamentals do not support current stock prices. When everyone wakes up to this economic reality – life in the stock market is going to be chaotic.

I have posted another good blog post by Karl Denninger below relating to the consumer spending report – followed by the Wall St. Journal article mentioned above.

jg – October 30, 2009
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Friday, October 30. 2009

Posted by Karl Denninger in Macro Economics at 09:05

Another Bad Economic Report (PCI/Spend)

http://market-ticker.denninger.net/archives/1557-Another-Bad-Economic-Report-PCISpend.html

How do you get "economic recovery" out of these numbers?

Personal income decreased $0.1 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $0.2 billion, or less than 0.1 percent, in September, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $47.2 billion, or 0.5 percent.

That looks like flat income and down spending to me.

Oh wait - we have to read past the first two sentences, right?

Let's do that.

Private wage and salary disbursements decreased $11.2 billion in September, in contrast to an increase of $10.1 billion in August. Goods-producing industries' payrolls decreased $7.8 billion, compared with a decrease of $6.3 billion; manufacturing payrolls decreased $1.5 billion, compared with a decrease of $4.1 billion. Services-producing industries' payrolls decreased $3.4 billion, in contrast to an increase of $16.4 billion.

Wait a minute. I thought that income was flat? We have a decrease, a decrease, a decrease and a decrease. How do we get to flat with those?

Supplements to wages and salaries increased $0.1 billion in September, compared with an increase of $2.0 billion in August.


Proprietors' income increased $0.7 billion in September, compared with an increase of $3.4 billion in August. Farm proprietors' income decreased $1.6 billion, compared with a decrease of $1.2 billion. Nonfarm proprietors' income increased $2.3 billion, compared with an increase of $4.6 billion.


Rental income of persons increased $5.4 billion in September, compared with an increase of $5.2 billion in August. Personal income receipts on assets (personal interest income plus personal dividend income) decreased $13.8 billion, the same decrease as in August. Personal current transfer receipts increased $17.3 billion in September, compared with an increase of $9.6 billion in August.

Ah.

Small business income was down compared to August, rental incomes were basically flat (compared to prior month), but income receipts on assets (dividends + interest on assets) decreased. Those are bad comps too.

The big Kahuna was government handouts, which was up big m/o/m. There's the entry that kept PCI and DPI from collapsing.

Real PCE -- PCE adjusted to remove price changes -- decreased 0.6 percent in September, in contrast to an increase of 1.0 percent in August.

Consumers are not spending.

All in all, another bad report. Not a disaster, but certainly not the stuff of which "economic recovery" is made.

The evidence continues to pile up......

_____________________________________
OCTOBER 30, 2009, 8:58 A.M. ET

Consumer Spending Tumbles

Wall St. Journal

by JEFF BATER

Spending by Americans took a big tumble in September, as they lost a popular government subsidy and were left with a lousy job market and a credit crunch.

The 0.5% drop in spending was the largest since December 2008, when the recession was at its worst. Most of the drop was in durable goods, which include autos. Outlays on nondurable goods and services posted a gain from last month. Spending rose 1.4% in August, revised up from a previously estimated 1.3% increase. That gain was driven by "cash for clunkers," which let motorists swap gas guzzlers for newer models. The car-rebate program started in July and ended in late August.

The subsidy helped push the economy to what the government reported this week was a 3.5% increase during the third quarter, seen as an end to the recession. But the recovery is expected to be slow, and questions abound to its sustainability once government stimuli fade. Another popular incentive, the first-time homebuyer tax credit, lapses in November, although the housing industry is trying to push an extension through Congress.

Commerce Department data Friday showed personal income flat compared to August while spending last month decreased by 0.5%. A key gauge of prices reiterated inflation wasn't an immediate threat, as the economy fights to recover.

Economists surveyed by Dow Jones Newswires had forecast income held steady during September and spending fell 0.5%.

With nearly 10% of the U.S. labor force out of work, incomes aren't going up much. September's flat reading followed a 0.1% August gain, revised from an originally reported 0.2% increase.

Personal saving as a percentage of disposable personal income was 3.3%, compared to 2.8% in August.

As for price gauges in Friday's report, the price index for personal consumption expenditures excluding food and energy, year over year, rose 1.3%. The year-over-year gain in August was also 1.3%. The Federal Reserve watches this core PCE index closely for signs of inflation pressures. Fed officials define their statutory goal of price stability as inflation of 1.5% to 2%.

On a monthly basis, the core PCE increased 0.1% in September compared to August. It has climbed at that rate five months in a row.

The PCE price index rose 0.1% in September compared to August. It rose 0.3% in August. Year over year, the PCE price index was down 0.5% in September. It fell at the same rate in August.

Write to Jeff Bater at jeff.bater@dowjones.com