JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

August 27, 2009

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Gross Domestic Income Down 2.1% in 2nd Quarter
With Record 4.6% Annual Decline

Housing and Durable Goods Not Signaling Recovery

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PLEASE NOTE: The next scheduled Flash Update is for next Friday (September 4th), following release of the August employment and unemployment data. There also will be an interim communication updating the money supply situation, the systemic solvency crisis and the outlook for the employment report.

– Best wishes to all, John Williams

 

Economy Remains in Deepening Downturn. Aside from a one-time upside blip from the Cash-for Clunkers Program, which has still to surface meaningfully in series such as retail sales and durable goods orders, there is little on the horizon promising improved economic data. Highly touted monthly gains seen in new and existing home sales and in new orders for durable goods either were statistically meaningless (the Census Bureau release on the 9.6% monthly July gain in new home sales again included the caution that "The Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different from zero.") Further, distortions from the extreme nature of the current downturn have made meaningful interpretation of data from series such as home sales extremely difficult. The National Association of Realtors, for example touted a strong monthly gain in July existing home sales, but stopped reporting its estimate of sales generated by foreclosures, which purportedly accounted for nearly a third of the activity in June. The durable goods numbers are covered below. The nature of the ongoing downturn and still-deepening systemic solvency crisis will be reviewed in the next update.     

Definitions. For purposes of clarity and the use of simplified language, here are definitions of key terms used related to GDP reporting:
- "Gross Domestic Product (GDP)" is the headline number and the most widely followed broad measure of U.S. economic activity. It is published quarterly by the Bureau of Economic Analysis (BEA), with two successive monthly revisions and with an annual revision the following July.
- "Gross Domestic Income (GDI)" is the theoretical equivalent to the GDP, but it is not followed by the popular press. Where GDP reflects the consumption side of the economy and GDI reflects the offsetting income side. When the series estimates do not equal each other, which almost always is the case, the difference is added to or subtracted from the GDI as a "statistical discrepancy." Although the BEA touts the GDP as the more accurate measure, the GDI is relatively free of the monthly political targeting the GDP goes through.
- "Gross National Product (GNP)" is the broadest measure of the U.S. economy published by the BEA. Once the headline number, now it is rarely followed by the popular media. GDP is the GNP net of trade in factor income (interest and dividend payments). GNP growth usually is weaker than GDP growth for net-debtor nations. Games played with money flows between the United States and the rest of the world have tended to mute that impact on the reporting of U.S. GDP growth.
- "Real" means growth has been adjusted for inflation.
- "Nominal" means growth or level has not been adjusted for inflation. This is the way a business normally records revenues or an individual views day-to-day income and expenses.
- "Quarterly growth," unless otherwise stated, is in terms of seasonally-adjusted, annualized quarter-to-quarter growth, i.e., the growth rate of one quarter over the prior quarter, raised to the fourth power.
- "Annual growth"
refers to the year-to-year change of the referenced period versus the same period the year before.  

GDI and GNP Reporting Show Deeper Annual Contractions.  The BEA reported this morning (August 27th) unrevised real growth in its second estimate of second-quarter 2009 GDP. The annualized quarterly contraction held at 1.01% (previously 1.02%) +/- 3% (95% confidence interval). Such followed respective real contractions of 6.43% and 5.37% in first-quarter 2009 and fourth-quarter 2008. The year-to-year contraction held at 3.90% in the second-quarter, versus respective annual contractions of 3.30% and 1.86% in the first and fourth quarters.   

The annual contraction remains the worst since the quarterly GDP series has been published (1947), with the current recession now the longest and deepest since the first-dip (early 1930s) of the Great Depression. That circumstance is discussed in greater detail in the Depression Special Report of August 1st (available in the right-hand column of the SGS home page: www.shadowstats.com). Even deeper annual contraction, however, is suggested for the second-quarter in the first estimates of GNP and GDI reporting for the quarter.

The SGS Alternate-GDP estimate remains at an annual contraction of 5.9% versus the 3.9% official estimate.

GDI showed a 2.1% quarterly contraction (GDP was 1.0% contraction) in the second quarter, down from 7.7% and 7.3% respectively in the first and fourth quarters. The more significant annual change was a 4.6% contraction (GDP was 3.9% contraction) in the second quarter, versus 4.1% and 2.1% respectively in the first and fourth quarters.       

GNP showed a 0.8% quarterly contraction (GDP was 1.0% contraction) in the second quarter, down from 6.6% and 6.7% respectively in the first and fourth quarters. The more significant annual change was a 4.0% contraction (GDP was 3.9% contraction) in the second quarter, versus 3.8% and 2.4% respectively in the first and fourth quarters.

July New Orders for Durable Goods Remain in Severe Annual Contraction. The Census Bureau reported yesterday (August 26th) that the regularly-volatile new orders for durable goods rose by 4.9% (6.2% net of revisions) month-to-month, versus a revised 1.3% (was 2.5%) decline in June. In terms of year-to-year change, before any accounting for inflation, July’s new orders were down by 20.4%, following June’s revised annual decline of 24.5% (previously 25.0%). Adjusted for inflation the series would have shown even sharper contractions. Nominal year-to-year change in the series has been holding at a 25% decline, plus or minus a percent or two, since February, having pushed into great depression territory, per SGS definition of a greater than 25% peak-to-trough decline in economic activity. The slight narrowing in July annual decline is within the bounds of the randomly volatile monthly variations. 

The widely followed new orders for nondefense capital goods also rose in July, up by 8.6% (12.1% net of revisions) on a month-to-month basis, following June’s revised 0.4% (previously 3.4%) monthly decline. Year-to-year, July orders were down by 21.2%, versus a revised June annual decline of 25.1% (previously down by 26.7%). These series are leading indicators to economic activity and are not signaling a pending economic rebound.

Week Ahead. August Employment/Unemployment. Due for release on Friday, September 4th, both a decline in payroll employment and an increase in unemployment rate should be worse than consensus expectations. Bad quality seasonal factors that generated better-than-expected numbers last month should reverse. Late detail here, with updated data from supporting series will be discussed along with the money supply circumstance in a separate Flash Update by next Wednesday.

 

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