Flash Update
FLASH UPDATE - Sep. 2, 2007
JOHN WILLIAMS' SHADOW GOVERNMENT STATISTICS
FLASH UPDATE
September 2, 2007
__________
Systemic Liquefaction Boosts M3 Growth to 34-Year High
Ongoing Extreme Income Variance Reported for 2006
Financial System Remains Highly Unstable
Phony GDP Satisfied Fed and Administration Needs
__________
PLEASE NOTE: The SGS-Alternate GDP and August monthly average SGS-Alternate U.S. Dollar Series have been updated and posted to the Alternate Data Series tab at www.shadowstats.com. The SGS-Ongoing M3 data will be posted next weekend, when 27 of 31 days of data will be available. -- Best wishes to all, John Williams
Chairman Bernanke Keeps Tap Dancing on That (Dollar)
Landmine
The liquidity crisis continues, and the financial system is groaning under the strain. In the weeks ended August 15th, 22nd and 29th, respectively, seasonally-adjusted (unadjusted is little different) commercial paper outstanding plunged by $91 billion, $90 billion and $63 billion. As other Federal Reserve reporting starts covering the crisis period, key data are showing some impact of Fed actions. For example, seasonally-unadjusted discount window borrowings by banks, following the Fed's heavily touted discount window actions, jumped from a daily average of $6 million in the two weeks ended August 15th, to $1.301 billion in the two weeks ended August 29th. M2 jumped a seasonally-adjusted $43.6 billion in first reporting of the week ended August 20th, up at an annualized growth rate of 36.4%. That, combined with sharp increases in non-M2 components of M3, indicates a spike in annual growth for the SGS-Ongoing M3 August measure, discussed below. Also, the Fed still seems to be enforcing an informal 25-basis-point cut in the fed funds rate, per the accompanying graph. On the recession front, the phony 4.0% GDP growth was reported as expected. At the same time, help-wanted advertising -- a much more reliable economic indicator -- plunged to a 49-year low. Through all this, the U.S. dollar remained relatively stable last week. Such tranquility should prove short-lived.
As shown above, the Fed has hit its announced 5.25% federal funds rate target only twice (Monday and Tuesday last week) since cutting the discount rate three weeks ago. Able to attain an effective fed funds rate of only 5.00% in the last three business days, it still appears as though the U.S. central has eased 25 basis points in all but formal declaration of same.
The inflationary recession is ongoing. On the inflation front, pricing pressures are being felt from surging money supply growth, a weakening U.S. dollar and commodity price problems ranging from food to energy, all areas that are happily and formally ignored or obfuscated by the Fed.
M3 Growth at 34-Year High. Based on reporting for 20 of 31 days for August, and assuming reported component levels for the week-ended August 20th do not change meaningfully in the balance of August reporting, the SGS-Ongoing M3 measure will show annual growth for the month of roughly 13.6%, up from 13.0% in July 2007, and at its highest level since July 1973. In addition to the surge in reported seasonally-adjusted M2 in the latest week, non-M2 components of M3 spiked sharply, coincident with the Fed's liquefaction of the system in crisis. For example, in the week ended August 20th, institutional money funds soared at an annualized rate of 174.5%, while a broad measure of large time deposits (week-ended August 22nd) jumped at an annualized rate of 24.6%.
U.S. Dollar Little Changed in August. Both the Shadow Government Statistics Financial-Weighted Dollar (FWD) and the Federal Reserve's Major Currency Trade-Weighted Dollar (TWD) remained near or at historic lows, on average, in August. Based on January 1985 = 100, the FWD inched higher to 49.40 in August, up by 0.29% from July, but it was down 4.71% year-to-year. The TWD was unchanged at 55.78 for the month of August, down by 4.51% year-to-year.
GDP "Booms." On the economic front, the "No need for a Fed Funds cut here" upward revision in the "preliminary" estimate of annualized real (inflation-adjusted) second-quarter GDP growth to 4.0% (3.95%) +/- 3% from the "advance" estimate of 3.4% (3.38%) was just what the doctor (Bernanke) ordered. As discussed in the August newsletter, the GDP number primarily has become political propaganda. The revised second-quarter number still is down at an annualized pace of 0.3% from the first quarter's "final" estimate, before last month's benchmark revisions.
Help-Wanted Advertising (HWA) and Consumer Confidence Falter. Tumbling downhill since a near-term peak in December 2006, seasonally-adjusted July help-wanted advertising dropped to 25, down from 26 in June, and at the lowest level since before Ike (president Eisenhower) was halfway through his second term. While the advent of the Internet has weakened this series in recent years, the current downturn in HWA has been severe enough to signal a deepening recession and a meaningful fall-off in current employment activity.
August consumer confidence (Conference Board) and sentiment (University of Michigan) measures tumbled by 6.2% and 7.7%, respectively, from July even though both surveys did not reflect much of the impact from the public breaking of the liquidity crisis.
Income Variance Continues Signaling Systemic Collapse. One of the few good quality leading indicators, with multi-year lead times, is income variance. As will be detailed in the September newsletter's "Reporting/Market Focus," the various 2006 measures published last week, in the 2006 Poverty Report, hit or stayed near record readings, levels that far exceed the income variance seen before the Great Depression and the 1987 financial panic. This was despite some official monkeying with underlying income numbers. For example, the report showed that inflation-adjusted median income in 2006 declined for both the average working man and woman, for the third year, but it rose for the average household for the second year. Thank goodness for games that can be played with population statistics!
Week Ahead: The August jobs report is due for release on Friday (September 7th). Underlying indicators, such as July's help-wanted advertising and purchasing managers surveys -- both of which tend to lead the jobs report -- suggest a weaker-than-consensus payroll number and a continued upturn in the unemployment rate. Given the Fed's apparent reluctance to cut the fed funds rate, formally, the U.S. central bank likely favors a stronger report, one that would remove pressure to ease, at the same time helping to support the dollar. Given the severity of the current crisis, I would bet on pressures from the Fed generating happier-than-expected numbers.
Additional detail will follow in the September SGS newsletter.
___________________________________________
With relocation to the San Francisco Bay Area pending in the weeks ahead, the September SGS -- currently targeted for the September 10th week -- could slip a week to include the release of August CPI. Any such shift would be advised in an Alert/Flash Update next weekend, along with the updated August M3 estimate. An e-mail advice will be made of all postings, including any intervening Flash Updates/Alerts.
FLASH UPDATE
September 2, 2007
__________
Systemic Liquefaction Boosts M3 Growth to 34-Year High
Ongoing Extreme Income Variance Reported for 2006
Financial System Remains Highly Unstable
Phony GDP Satisfied Fed and Administration Needs
__________
PLEASE NOTE: The SGS-Alternate GDP and August monthly average SGS-Alternate U.S. Dollar Series have been updated and posted to the Alternate Data Series tab at www.shadowstats.com. The SGS-Ongoing M3 data will be posted next weekend, when 27 of 31 days of data will be available. -- Best wishes to all, John Williams
The liquidity crisis continues, and the financial system is groaning under the strain. In the weeks ended August 15th, 22nd and 29th, respectively, seasonally-adjusted (unadjusted is little different) commercial paper outstanding plunged by $91 billion, $90 billion and $63 billion. As other Federal Reserve reporting starts covering the crisis period, key data are showing some impact of Fed actions. For example, seasonally-unadjusted discount window borrowings by banks, following the Fed's heavily touted discount window actions, jumped from a daily average of $6 million in the two weeks ended August 15th, to $1.301 billion in the two weeks ended August 29th. M2 jumped a seasonally-adjusted $43.6 billion in first reporting of the week ended August 20th, up at an annualized growth rate of 36.4%. That, combined with sharp increases in non-M2 components of M3, indicates a spike in annual growth for the SGS-Ongoing M3 August measure, discussed below. Also, the Fed still seems to be enforcing an informal 25-basis-point cut in the fed funds rate, per the accompanying graph. On the recession front, the phony 4.0% GDP growth was reported as expected. At the same time, help-wanted advertising -- a much more reliable economic indicator -- plunged to a 49-year low. Through all this, the U.S. dollar remained relatively stable last week. Such tranquility should prove short-lived.
As shown above, the Fed has hit its announced 5.25% federal funds rate target only twice (Monday and Tuesday last week) since cutting the discount rate three weeks ago. Able to attain an effective fed funds rate of only 5.00% in the last three business days, it still appears as though the U.S. central has eased 25 basis points in all but formal declaration of same.
The inflationary recession is ongoing. On the inflation front, pricing pressures are being felt from surging money supply growth, a weakening U.S. dollar and commodity price problems ranging from food to energy, all areas that are happily and formally ignored or obfuscated by the Fed.
M3 Growth at 34-Year High. Based on reporting for 20 of 31 days for August, and assuming reported component levels for the week-ended August 20th do not change meaningfully in the balance of August reporting, the SGS-Ongoing M3 measure will show annual growth for the month of roughly 13.6%, up from 13.0% in July 2007, and at its highest level since July 1973. In addition to the surge in reported seasonally-adjusted M2 in the latest week, non-M2 components of M3 spiked sharply, coincident with the Fed's liquefaction of the system in crisis. For example, in the week ended August 20th, institutional money funds soared at an annualized rate of 174.5%, while a broad measure of large time deposits (week-ended August 22nd) jumped at an annualized rate of 24.6%.
U.S. Dollar Little Changed in August. Both the Shadow Government Statistics Financial-Weighted Dollar (FWD) and the Federal Reserve's Major Currency Trade-Weighted Dollar (TWD) remained near or at historic lows, on average, in August. Based on January 1985 = 100, the FWD inched higher to 49.40 in August, up by 0.29% from July, but it was down 4.71% year-to-year. The TWD was unchanged at 55.78 for the month of August, down by 4.51% year-to-year.
GDP "Booms." On the economic front, the "No need for a Fed Funds cut here" upward revision in the "preliminary" estimate of annualized real (inflation-adjusted) second-quarter GDP growth to 4.0% (3.95%) +/- 3% from the "advance" estimate of 3.4% (3.38%) was just what the doctor (Bernanke) ordered. As discussed in the August newsletter, the GDP number primarily has become political propaganda. The revised second-quarter number still is down at an annualized pace of 0.3% from the first quarter's "final" estimate, before last month's benchmark revisions.
Help-Wanted Advertising (HWA) and Consumer Confidence Falter. Tumbling downhill since a near-term peak in December 2006, seasonally-adjusted July help-wanted advertising dropped to 25, down from 26 in June, and at the lowest level since before Ike (president Eisenhower) was halfway through his second term. While the advent of the Internet has weakened this series in recent years, the current downturn in HWA has been severe enough to signal a deepening recession and a meaningful fall-off in current employment activity.
August consumer confidence (Conference Board) and sentiment (University of Michigan) measures tumbled by 6.2% and 7.7%, respectively, from July even though both surveys did not reflect much of the impact from the public breaking of the liquidity crisis.
Income Variance Continues Signaling Systemic Collapse. One of the few good quality leading indicators, with multi-year lead times, is income variance. As will be detailed in the September newsletter's "Reporting/Market Focus," the various 2006 measures published last week, in the 2006 Poverty Report, hit or stayed near record readings, levels that far exceed the income variance seen before the Great Depression and the 1987 financial panic. This was despite some official monkeying with underlying income numbers. For example, the report showed that inflation-adjusted median income in 2006 declined for both the average working man and woman, for the third year, but it rose for the average household for the second year. Thank goodness for games that can be played with population statistics!
Week Ahead: The August jobs report is due for release on Friday (September 7th). Underlying indicators, such as July's help-wanted advertising and purchasing managers surveys -- both of which tend to lead the jobs report -- suggest a weaker-than-consensus payroll number and a continued upturn in the unemployment rate. Given the Fed's apparent reluctance to cut the fed funds rate, formally, the U.S. central bank likely favors a stronger report, one that would remove pressure to ease, at the same time helping to support the dollar. Given the severity of the current crisis, I would bet on pressures from the Fed generating happier-than-expected numbers.
Additional detail will follow in the September SGS newsletter.
With relocation to the San Francisco Bay Area pending in the weeks ahead, the September SGS -- currently targeted for the September 10th week -- could slip a week to include the release of August CPI. Any such shift would be advised in an Alert/Flash Update next weekend, along with the updated August M3 estimate. An e-mail advice will be made of all postings, including any intervening Flash Updates/Alerts.