Flash Update
FLASH UPDATE
December 15, 2007
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Annual CPI Inflation at 4.3% (SGS-Alternate CPI 11.7%), PPI at 7.2%
Industrial Production Suggests Fourth-Quarter Contraction
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PLEASE NOTE: The November SGS-Alternate CPI and the November SGS-Ongoing M3 (based on full-month reporting) have been posted on the Alternate Data Series tab at www.shadowstats.com. An Alert should follow on Monday, December 17th, or on the 18th, depending on timing of the data release for the U.S. government's 2007 GAAP-based financial statements, and the vagaries of a major winter storm complicating travel plans. The target for the December newsletter has been moved to late in the Christmas week to allow for the unexpected in the next several days. -- Best wishes to all, John Williams
One way, perhaps, to quell rampant speculation of pending Fed easings is to report rising inflation. A problem for the Fed -- and for a Wall Street entrenched in a simplistic view that the Fed keeps the system in balance only by raising rates to fight inflation, or by lowering rates to stimulate the economy -- is that both inflation and recession reared their ugly heads in last week's economic reporting. Contrary to market hype, the Fed's primary concern has to be and remains the maintenance of dollar stability. Fed Chairman Bernanke already has fingers on both hands plugging leaks in the dike. Although he is trying to prevent a flood of dollar dumping that would drain the U.S. markets of liquidity, tanking stocks and boosting interest rates, the dike is springing more leaks than Mr. Bernanke has fingers. At the same time, the global bank solvency crisis appears to be deepening and spreading. My general outlook is not changed and will be updated in the December SGS.
Perversely, and probably with a little covert help from central banks, gold slid some on last week's economic news, while the dollar rallied. Higher inflation and a weaker economy usually mean a weaker dollar and stronger gold. Maybe the dollar rallied on the perception that the Fed now is less likely to ease, but such makes little sense in terms of why the Fed purportedly is less likely to ease: surging inflation. The fundamentals remain in play for a much weaker U.S. dollar against the major Western currencies, and for much higher gold prices.
Some highlights of last week's inflation/business activity reporting:
CPI-U Inflation at 4.3%. The Bureau of Labor Statistics (BLS) reported the seasonally-adjusted November CPI-U up by 0.80% (0.59% unadjusted) +/- 0.12% for the month, following October's 0.29% (0.21% unadjusted) increase. November's annual CPI inflation exploded to 4.31%, up from 3.54% in October, 2.76% in September and 1.97% in August. The reported surge in annual inflation followed by a day the reporting of annual PPI inflation in November of 7.2% (see Flash Update of December 13th).
The increase in annual inflation will continue in December 2007, if the seasonally-adjusted monthly gain exceeds 0.45%, the amount of increase seen in December 2006. The difference between December 2007 monthly reporting and the 0.45% will directly add to, or subtract from, November's annual inflation rate of 4.31%.
Annualized year-to-date inflation through the first 11 months of the year was 4.2% adjusted, 4.5% unadjusted. In theory, the adjusted and unadjusted numbers should be the same for the full year. Despite minimal catch-up in accounting for both CPI-U and PPI energy and food inflation, and minor increases in reporting of so-called "core" inflation, core inflation continued to appear to be closely managed, staying conveniently "contained" for the needs of the Federal Reserve.
Annual inflation for the Chain Weighted CPI-U (C-CPI-U) -- the substitution-based series that increasingly gets touted by the manipulators and inflation apologists as the replacement for the CPI-U -- was 3.57% in November, up from 2.99% in October, and up from 2.31% in September.
Adjusted to pre-Clinton (1990) methodology, annual CPI growth was about 7.6% in November, up from 6.9% in October and 6.1% in September, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, was roughly 11.7% in November, up from 11.1% in October and 10.4% in September.
Annual M3 Growth at 15.7%. The SGS-Ongoing M3 estimate of annual growth for November rose to 15.7% from 15.3% in October. The November growth rate was the highest since 16.1% in July 1971; the all-time high annual growth rate for the reported series was 16.4% in June 1971. The seasonally-adjusted monthly average level for November was estimated at $12.856 trillion, up from $12.686 trillion in October. The current pace of broad-money growth continues to have disturbing implications for inflation.
The better part of the monthly increase in Novembers M3 continued to come from the Feds reported series on M2, large time deposits and institutional money funds. The pace of annual growth in November also reflected an ongoing deceleration in the pace of increase.
Industrial Production Suggests Contraction. Industrial production is suggestive of a recession, despite the reported seasonally-adjusted monthly gain of 0.3% in November. Such followed a revised contraction of 0.7% (previously 0.5%) in October. Annual growth in November jumped to 2.15% from October's 1.43% (previously 1.80%). The game here is in the revisions. The November index still is below July's. Based on two out of three months in place for the fourth quarter, the current quarter appears headed for an annualized quarter-to-quarter contraction of roughly 1.6%, an unusual change outside of recession. Further abnormalities will be examined in the December SGS.
Trade Data Still Miss Worst of Oil Pricing. The trade numbers continue to be targeted for manipulation, with reported minimal deterioration being used as an inexpensive tool to impact the currency markets in favor of the U.S. dollar. As reported, the seasonally-adjusted monthly trade deficit for October widened to $57.8 billion from September's $57.1 billion (previously $56.5 billion). The accompanying revisions were based on a minimal correction to the regular overstatement of the guesstimated surplus in services trade. While these new numbers indicate the GDP has been weaker than previously reported, related GDP revisions are not likely until next July's annual revision. Separately, the importation of oil still appears to be seriously understated in terms of both pricing and physical volume, although minor catch-up was shown in October.
Further details follow in the December SGS newsletter.
The target date for the posting of the December SGS is for late in the Christmas week. An e-mail advice will be made of its and intervening Flash Update/Alert postings.