Flash Update
Flash Update
September 5, 2006
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Recession Surfaces Despite Manipulation of GDP Data
Help-Wanted Advertising and Consumer Confidence Plunge Anew
Poverty Survey Suggests the 2001 Recession Never Ended
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IMPORTANT NOTICE: Regular scheduling of the monthly "Shadow Government Statistics" has been shifted for a final time to the Wednesday following the week of the monthly CPI release. Such will assure that the monthly data, charts and assessments are based on the latest published inflation information. Accordingly, September's regular issue now will be published on Wednesday, September 20th. At least one Flash Update will be interspersed between the monthly missives. -- John Williams
While Wall Street tries to spin a soft-landing tale for the economy -- thanking Mr. Bernanke's genius -- a number of reports already are showing scattered wreckage from the crash landing.
GDP. That does not mean the spin-doctors at the Administration's statistical bureaus have not been trying to hide reality. The only positive news recently has been that the "preliminary" revision to the second-quarter GDP showed annualized quarterly real (inflation-adjusted) growth of 2.90%, up from initial reporting of 2.46%.
Despite negative revisions and reporting in related retail sales and trade deficit numbers, the related GDP components improved in revision. Gross National Product (GNP), which is broader than the GDP measure that lacks the trade flows in interest and dividend payments, rose 2.58% in initial reporting. The difference in GNP and GDP reporting is damage done by the net debtor status of the United States versus the rest of the world.
Employment/Unemployment. On the downside, August payroll jobs growth remained marginal for the fifth straight month, up just 128,000 (146,000 net of revisions), after July's 121,000 gain (previously 113,000). Annual payroll growth has slowed from 1.71% in August 2005 to 1.26% in August 2006.
In the household survey, employment contracted for the second month, down by 86,000 in August on top of a July drop of 34,000. Seasonally-adjusted unemployment U-3 eased insignificantly from 4.75% +/-0.20% to 4.69%. Unadjusted U-3 dropped from 5.0% to 4.6%, while the broader adjusted U-6 moved from 8.5% to 8.4%, and the unadjusted U-6 eased from 8.8% to 8.3%.
It was difficult for members of the financial press to give this report a positive spin, but generally they did.
Other Numbers. July help-wanted advertising dropped to 32, a new 45-year low and down 17.9% from July 2005. Both the Conference Board and University of Michigan confidence/sentiment numbers plunged in August (down 5.6% and 8.0% respectively), with both series down year-to-year and signaling that the recession has been deepening. The purchasing managers August manufacturing survey softened slightly.
Poverty Report. The big surprise came in the 2005 Poverty Report. While the poverty number does not come close to measuring poverty, the Census Bureau's estimates of annual median (middle) and mean (average) household income numbers, and income dispersion usually are of interest.
Income dispersion hit a new high in 2005 (higher than pre-Great Depression). The greater income dispersion is, the weaker will be the economy over the next several years (see the September 2005 SGS).
Further, after revisions, inflation-adjusted median household income declined for five years, before turning up in 2005, while mean household income had declined for four years before the reported 2005 upturn. The economy is not expanding if household income is contracting. These numbers now show that the U.S. economy was in recession from 1999 until at least 2004, and the 2005 data are highly suspect.
Although the 2001 recession has been revised away in GDP reporting, the National Bureau of Economic Research (NBER), official arbiter of recessions, still classifies the contraction as a recession contained within the 2001 calendar year. Nevertheless, rumblings at the NBER of a possible new recession are beginning to be heard.
Further details on all of the preceding will follow in the regular September SGS.
September's "Shadow Government Statistics" is scheduled for release on Wednesday, September 20, 2006. The posting of the next SGS, as well as any Interim Updates or Alerts, will be advised immediately by e-mail.