Flash Update
FLASH UPDATE - May 13, 2009
JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS
FLASH UPDATE
May 13, 2009
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New Accounting Fraud for
Monthly Federal Deficit Reporting
Annual Retail Sales Plunge a Depression-Like 10.1%
Monthly "Core" Retail Sales Down 0.1%
Versus Official 0.4% Decline
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PLEASE NOTE: The next planned Flash Update will follow the release of the April CPI report on Friday, May 15th.
– Best wishes to all, John Williams
Obama Administration Changes Rules in Order to Reduce Reported Deficit Level. Under mounting global criticism for its fiscal excesses, and with Treasury auctions looking like they are going to need heavier Federal Reserve support, the Obama Administration has taken some "corrective" action, by changing the accounting rules for the reporting of federal deficit. The changes only reduce the reported level of the federal deficit; they do not impact the Treasury’s excessive funding needs. The "Highlight" of yesterday’s (May 12th) Monthly Treasury Statement for April 30, 2009 was:
"The administration has reclassified prior month expenditures related to the Emergency Economic Stabilization Act (EESA- also known as TARP). Consistent with statutory requirements of the Federal Credit Reform Act and EESA, TARP purchases are now being accounted for on a net present value basis, taking into account market risk. Accordingly, budget outlays have been reduced and direct loan financing activity correspondingly increased by $175 billion."
While this gimmick already was in play in the Administration’s budget forecasts, going forward (more than halving the projected "outlays" for a likely second TARP package), the funds expended indeed are outlays and impact directly the U.S. Treasury’s borrowings. While such gimmicking would be lucky to skirt along the boundaries of generally accepted accounting principles (GAAP)-based accounting — given the inability of the government to assess "market risk" within the bounds of reality — such has not been the nature of the monthly deficit reporting. On this basis, other questions arise, too, as to the monthly accounting tied to the handling of Fannie Mae and Freddie Mac.
Then, of course, there is the surging net present value of unfunded liabilities for Social Security and Medicare, but the government is not about to alter its supposedly otherwise cash-based accounting in a manner that would show a larger (by more than $4 trillion), rather than a smaller, reported annual federal deficit.
Rolling 12-Month Federal Deficit Hits $1.3 Trillion or $1.1 Trillion (New Accounting); Federal Debt Up by $1.9 Trillion Year-to-Year. Fiscal conditions continued collapsing in April 2009, as the big tax collection month had a sharp enough fall-off in revenues (down 34.1% year-to-year) to generate the first April deficit in a quarter century. The severe, deepening recession and surging government outlays have continued to pummel the government’s finances.
The twelve-month moving deficit through April 2009 rose to $1,278.6 billion from $1098.8 billion in March, based on last month’s accounting rules. Based on Mr. Geithner’s new bookkeeping, the April number was $1,103.6 billion in April, versus $923.4 billion in March. Those numbers contrasted with unrevised twelve-month rolling deficits for April and March 2008, respectively, of $334.2 billion and $217.1 billion.
Viewing the change in the level of gross federal debt bypasses several of the regular reporting manipulations of the government’s financial results and is a better indicator of actual net cash outlays by the federal government than is the official, gimmicked deficit reporting. Gross federal debt stood at $11.239 Trillion as of April 30, 2009, up by $112 billion for the month, and up by $1.861 trillion from April 2008, which in turn was up by $537 billion from April 2007.
Annual Retail Sales Plunged Again. Incorporating annual revisions that knocked a percent or two off reported sales levels of the last two years, the annual 10.1% decline in April 2009 retail sales was the worst seen in post-World II history, other than for a 10.6% decline in December 2008.
As reported by the Census Bureau, seasonally-adjusted April retail sales showed a monthly decline of 0.37% (down 1.95% net of all revisions) +/- 0.6% (95% confidence interval). Such followed a revised 1.31% (previously a 1.14%) monthly decline in March. On a year-to-year basis, April retail sales fell by 10.10% (down 11.32% net of all revisions), versus a revised 9.58% (previously 9.41%) plunge in March. By a wide historical margin, the three-month moving average of the nominal (not-adjusted for inflation) year-to-year contraction continued the worst levels of post-World War II reporting.
Core Retail Sales. Consistent with the Federal Reserve’s predilection for ignoring food and energy prices when "core" inflation is lower than full inflation, "core" retail sales — retail sales net of grocery store and gasoline station revenues — fell by 0.05% (down 1.53% net of revisions) in April, following a revised 1.34% (previously a 1.35%) drop in March. Those numbers contrasted with the official aggregate decreases of 0.37% in April and 1.31% in March. On an annual basis, April core retail sales fell by 7.55% versus a revised 7.46% (was 7.00%) in March.
April’s monthly increase in gasoline prices (gasoline station sales) was reversed partially by seasonal-factor adjustments. Such also should be seen in the pending April CPI-U release.
Real Retail Sales. Inflation- and seasonally-adjusted April retail sales should have declined on both a monthly and annual basis. The details will be published in the Flash Update following Wednesday’s release of the April CPI-U.
March Trade Balance Narrowed Slightly. As reported by Bureau of Economic Analysis/Census Bureau, the seasonally-adjusted March trade deficit widened slightly to $27.6 billion from a revised $26.1 (was $26.0 billion) in February. The reported deterioration was not enough to have significant impact on the pending "preliminary" estimate revision to first-quarter GDP. Reported oil prices turned slightly higher, up to $41.36 per barrel, from $39.22 per barrel in February. As reported oil prices rise in the next month or two, such should lead to greater deficit deterioration in April and May reporting.
Week Ahead. Still pending this week are the reports assessed previously in the May 8th Flash Update:
Industrial Production:Due for release on Friday, May 15th, April industrial production also should continue showing record post-World War II year-to-year contraction. Consensus (per Briefing.com) is for a 0.6% monthly contraction. Reality likely is somewhat worse, despite recent bottom-bouncing in the purchasing managers survey.
PPI: Due for release tomorrow, Thursday, May 14th, the April producer price index should reflect some upside pressure from rising oil prices, although much of that may be tempered by seasonal adjustments. The series is regularly volatile and was underestimated in March, suggesting the potential for some upside catch-up in April.
CPI:Due for release on Friday, May 15th, the April seasonally-adjusted consumer price index (CPI-U) is expected to be unchanged month-to-month, per Briefing.com. The 4.5% monthly average increase in April gasoline prices (per Department of Energy) largely will be muted by seasonal adjustments.
If the monthly CPI-U is unchanged, the pace of annual deflation should deepen a little. Annual inflation would increase or decrease in April 2009 reporting, dependent on the seasonally-adjusted monthly change, versus the 0.15% monthly increase seen in April 2008. The difference in growth would directly add to or subtract from March’s annual inflation rate of negative 0.38%.
Nonetheless, the continued rise in oil prices — in response partially to near-term softness in the U.S. dollar — increasingly should begin to fuel a non-demand-driven increase in the pace of consumer inflation in the months ahead.