3 May 2008

GDP and Jobs Data Appear Rigged


May 2, 2008


Chances of Economic Rebound Now Are Nil

GDP and Jobs Data Appear Rigged

Other Numbers Confirm Intensifying Inflationary Recession


Please Note: The SGS-Alternate GDP and Unemployment graphs and tables have been updated and posted for the latest reporting. They are available on the Alternate Data tab at www.shadowstats.com. The monthly SGS Financial-Weighted U.S. Dollar will be updated over the weekend.
– Best wishes to all, John Williams

Despite Manipulated Data, the Recession Deepens

Apparently the Administration and the Fed have moved to a rig-the-data mode, in order to avoid appearances of the economy falling into recession. Such games traditionally do not fool Main Street, U.S.A., which has a pretty good sense of what is going on without the help of government statisticians and White House/Fed/Wall Street propagandists. Separately, the reported results literally are meaningless. Based on reporting confidence intervals, both the GDP (0.6% +/- 3.0%) and the payroll results (20,000 +/- 129,000) were statistically indistinguishable from a major contraction or expansion.

GDP. In line with the analysis in the April 29th SGS Newsletter, rather than report a fairly obvious contraction in first-quarter Gross Domestic Product (GDP) growth, the Bureau of Economic Analysis came up with a 0.58% (+/- 3%) annualized real (inflation-adjusted) quarterly growth rate, slightly above consensus forecasts, and identical to the growth rate reported in the fourth quarter. Thank goodness for an inventory build-up, surging defense spending, consumer purchases of services, and an improved trade deficit that ran counter to other official reporting. An artificially low-inflation rate (2.6% in the first quarter versus 2.4% in the fourth quarter) also helped to mask an otherwise significant quarterly economic contraction.

Year-to-year real GDP held at 2.46% in the first quarter, versus the fourth quarter, while the SGS-Alternate GDP annual growth was estimated to have contracted at a 2.7% in the first quarter versus a 2.3% decline in the fourth quarter.

Employment. The reported fourth consecutive decline in monthly payrolls, as of April, was not as weak as consensus forecasts, but it likely was rigged, too. As has become the standard pattern — with fairly predictable gimmicks — the weakness in the jobs report was understated. Without the monthly seasonal-adjustment restatement ploy (see below), for example, the jobs decline would have been about 62,000, fairly close to the consensus outlook. Without the monthly bias factor, the jobs decline would have been about 277,000.

Even so, the data show continued sharp deterioration in annual growth, and continued to give the National Bureau of Economic Research (NBER) — official arbiter of U.S. recessions — a timing mark for calling the current recession.

Payroll Survey. The Bureau of Labor Statistics (BLS) reported a seasonally-adjusted jobs loss of 20,000 (loss of 28,000 net of revisions) +/- 129,000 for April 2008, following a revised 81,000 (previously 80,000) jobs loss in March. Annual growth in total nonfarm payrolls slowed further to a recessionary 0.28% in April from 0.36% in March.

Bias Adjustment. One element continuing to add upside pressure to the numbers was the monthly bias factor (birth-death model), which was a net addition of 257,000 jobs in April, following a net addition of 142,000 jobs in March. The April add- or bias-factor mindlessly inflated construction jobs by 45,000 and financial activities jobs by 8,000, irrespective of ongoing anecdotal evidence of trouble in those areas. While the biases are added into the not-seasonally-adjusted data, the net changes flow through to the adjusted numbers with limited variation.

Seasonal-Factor Gimmicks. Year-to-year growth should be virtually identical in both the seasonally-adjusted and unadjusted series, and applying the unadjusted annual change to the seasonally-adjusted year-ago numbers for March and April suggested that the seasonally-adjusted month-to-month change should have been a contraction of 62,000, instead of 20,000. This reporting gimmick is made possible by the "recalculation" each month of the monthly seasonal factors. If the process were honest, the suggested differences would go in both directions. Instead, the differences almost always show that the seasonal factors are being used to overstate the current month's relative payroll level, as seen last month, and the month before, and for most other months going back in time.

Household Survey. The usually statistically-sounder household survey, which counts the number of people with jobs, as opposed to the payroll survey that counts the number of jobs (including those of multiple job holders), showed household employment rose by 362,000 in April, after a 24,000 decline in March.

The April 2008 seasonally-adjusted U.3 unemployment rate showed a statistically-insignificant decline to 4.95% +/- 0.23% from 5.08% in March. Unadjusted U.3 fell to 4.8% in April versus 5.2% in March. The broader U.6 unemployment rate rose to an adjusted 9.2% (fell to 8.9% unadjusted) in April, versus 9.1% (9.3% unadjusted) in March. Adjusted for the "discouraged workers" defined away during the Clinton Administration, actual unemployment, as estimated by the SGS-Alternate Unemployment measure, rose to 13.1% in April, up from 13.0% in March.

Employment Environment. The milder employment deterioration and unemployment improvement in April ran counter to the trends shown in some of the better-quality employment-environment indicators: March help-wanted advertising hit an historic low, new claims for unemployment insurance continued to surge, and recession-level employment readings were seen again for both March purchasing managers surveys and the April manufacturing survey (non-manufacturing has not been reported yet).

Other Reporting Shows Deepening Downturn. The April 30th benchmark revision to retail sales showed significantly weaker activity than previously reported in late-2006 and early-2007, consistent with the recession staring in late 2006. The March 2008 level was revised lower by 0.6%.

Also confirming an intensifying inflationary recession were two private reports. The Conference Board's April consumer confidence measure dropped 5.5% for the month, following a 13.7% decline in March, and it was down by 41.4% year-to-year, versus a 39.9% annual loss in March. Consumer confidence tends to be a lagging indicator.

The Institute for Supply Management (ISM) April purchasing managers survey (manufacturing) composite index held at 48.6 (a reading below 50.0 on the ISM diffusion indices means contraction) against March. The new orders index for April held at 46.5, while the employment index fell to 45.4 in April from 49.2 in March. On the inflation front, the prices paid component rose to 84.5 in April from 83.5 in March.

Fed Signals Deepening Banking System Solvency Crisis. There was no clear signal in Wednesday's FOMC statement that Fed easing was finished. Keep in mind that the Fed's overriding concern at the moment remains maintaining the viability of the U.S. banking system. Concerns for the economy and inflation (the Pabulum stories fed to investors on FOMC policy) both are secondary issues, at the moment, for the U.S. central banks.

With that in mind, recent press on large U.S. banks raising still further capital, and this morning's Fed announcement of significantly expanded liquidity accommodations, suggest the worst part of the crisis is far from over. The slower pace of annual growth that is shaping up for April M3 (very roughly 16.6% versus a record 17.4% in March) may have a parallel in the systemic-crises effects in slowing M3 growth in December, when the system last moved into meltdown mode.

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