JOHN WILLIAMS' SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

April 3, 2007

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Inflationary Recession Continues to Deepen

Retail Sales Running About 0.8% Lower in Revision

Negligible "Final" GDP Revision Indicates Pending Major Downside Annual Revision

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NOTE ON UPDATED NEWSLETTER TIMING: The March Shadow Government Statistics Newsletter will be published in the week ahead, along with the third installment on hyperinflation. Today's quick update is intended to reconfirm the general outlook and to touch upon the GDP and retail sales revisions of last week. I apologize for the unexpected delay in the monthly missive. The April newsletter is targeted for month end. -- Best wishes to all, John Williams

March Jobs Data Should be Soft


The inflationary recession continues to deepen, with economic reporting generally surprising markets on the downside of expectations and inflation surprising markets on the upside. Last week, Fed Chairman Bernanke felt it necessary to clarify that the Fed still has a problem with inflation, despite slowing business activity. Inflation concerns have not been helped by mounting tensions in the Middle East or by rising oil and gasoline prices.

In combination, the contraction in manufacturing jobs shown in the March purchasing managers survey, plus increasing jobless claims, are consistent with a weaker-than-expected employment report for March, due for release on Friday.

Last week's Flash Update predicted a downward revision to GDP growth in the "final" fourth-quarter estimate, based on recent major downward revisions to industrial production and new home sales in the quarter, as well as a likely downward revision to retail sales in the pending benchmark revision. Instead, the GDP revision was little more than the statistical noise normally seen in the third estimate of a quarter's growth, with "preliminary" annualized quarterly real (inflation-adjusted) GDP growth revising from 2.22% to 2.45%. The straight upward revision of 0.06% -- before the magic of annualization -- was small enough to leave the year-to-year growth rate unrevised at 3.1%.

Even so, last week's annual benchmark revision to retail sales did show lower historical growth than previously published. For 2006, for example, the level of sales was reduced by 0.8% from prior reporting, the equivalent of roughly 0.3% in annual GDP growth.

The impact of related series revisions to GDP now has been relegated to the regular mid-year annual GDP benchmark revision. The potential for meaningful downside revisions to recently reported GDP growth is in place

Further details will follow in the newsletter.

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March's "Shadow Government Statistics" should be posted within a week.