Flash Update
FLASH UPDATE - Mar. 11, 2007
JOHN WILLIAMS' SHADOW GOVERNMENT STATISTICS
FLASH UPDATE
March 11, 2007
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Likely Reality in Troubled Economic Data: February Payrolls Contracted January Trade Deficit Did Not Shrink
February M3 Annual Growth at 10.9%
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The SGS Alternate Data page for Continuing M3 has been updated for February 2007, based on data for the four weeks ended February 27/28. -- Best wishes to all, John Williams
Data Quality Deterioration Deepens
With financial-market speculation moving back to a "recession or growth" focus, poor-quality reporting of heavily followed economic data does a disservice to the investing public. This is particularly true when Wall Street hypesters weave related stories that have little relationship to reality, but that happen to help sell certain financial products. The government would do well to delay its publication schedule by a full month for key economic data that usually suffer heavy revision. In the trade-off between quality and timeliness of reporting, little would be lost, since first estimates of the payroll and GDP data, for example, usually are worthless.
As to underlying reality, the economy remains in a deepening recession, inflation is not under control, and the potential for a massive dollar sell-off leaves the traditional U.S. financial markets vulnerable to disorderly and negative trading. Key economic releases of the last week have not been inconsistent with this outlook.
Monthly February Payrolls Likely Contracted. Seasonally-adjusted February payroll employment was reported up by 97,000 +/- 129,000, a change that was statistically indistinguishable from a contraction. The February gain followed a revised January gain of 146,000 that initially had been reported at 111,000. Annual growth in February slowed meaningfully to 1.49% from 1.67% in January.
Despite the massive benchmark revisions and corrections to prior data published last month, the Bureau of Labor Statistics continued with major upward revisions to previously published data, with the February jobs gain at 152,000 net of those adjustments. Nonetheless, the monthly February data were weak enough suggest a monthly contraction.
Year-to-year change in the monthly data should be the same on both a seasonally-adjusted and unadjusted basis, but such was not the case in February. Using the unadjusted annual growth rates, the consistent seasonally-adjusted monthly February payroll gain was just 67,000 +/- 129,000.
Considering (1) that the jobs number was boosted by a positive swing of 293,000 jobs in the monthly fudge or bias factor (now called the birth-death adjustment, which overestimates employment growth during recessions); (2) that the household survey showed a monthly employment contraction of 152,000; and (3) that annual change in the 17-week moving average of new jobless claims as of March 3rd was up 5.9% (positive change here is an economic negative) against 3.9% just three weeks before, and the four-week moving average is up 10.8% year-to-year; odds favor the +/- 129,000 margin of error taking February monthly jobs change reality into a contraction.
Also from the household survey, the seasonally-adjusted February U.3 unemployment rate reportedly narrowed to 4.49% +/- 0.23% from 4.59% in January, a change that was statistically indistinguishable from an increase in the unemployment rate. On an unadjusted basis, U.3 narrowed to 4.9% in February from January's 5.0%. The broader U.6 rate on an unadjusted basis fell to 8.7% in February from 9.1% in January, the seasonally-adjusted U.6 rate declined to 8.1% from 8.3%. Net of "discouraged workers" defined away during the Clinton Administration, actual unemployment continues to run about 12%.
Oil Price Reporting Shenanigans Distort Trade Data. The seasonally-adjusted monthly trade deficit for January 2007 was reported at $59.2 billion, down from $61.5 billion in December (previously reported as $61.2 billion). For all of 2006, the annual deficit revised to $765.3 billion, from initial reporting of $763.6 billion, up from $716.6 billion in 2005. The handling of reported oil imports and related pricing, however, has resulted in distortions to reporting of the 2006 trade deficit, the purported January deficit and related GDP measures.
The Bureau of Economic Analysis/Census Bureau release shows seasonally-unadjusted crude oil imports up by 6.3% year-to-year in January, 5.7% attributable to physical oil import volume and 0.6% attributable to higher oil prices. Somehow, that translated to a seasonally-adjusted annual contraction of 1.9% in the aggregate trade statistics for petroleum products, before adjustment for inflation and to a 1.3% gain after inflation adjustment. That could happen only with a 3.2% drop in prices used in the deflation process, not the 0.6% gain shown in the raw data.
The difference is that with the year-to-year oil imports handled on a consistent basis, petroleum imports would have been higher in January by about $2.1 billion, which would have taken the total monthly January deficit to $61.3 billion, virtually unchanged versus $61.5 billion in December.
The oil-pricing distortions are much more severe, however, where the full extent of the increase in oil prices during the last two years never made it into the imported-oil pricing. For example, January 2006 oil averaged $51.93 per barrel in the trade data versus a market average of $65.10. In January 2007, the trade data oil was at $52.23, against a market average of $54.57. This circumstance suggests that the 2006 trade deficit is understated sharply and that the corresponding 2006 GDP is overstated.
Continuing M3 Annual Growth at 10.9% in February. The year-to-year change in the SGS estimation of Continuing M3 backed off slightly to 10.9% in February from 11.0% in January, with M3 up more than $1.1 trillion in the last twelve months. The minor annual slowing in growth was due to a relative surge in the year-ago number, as opposed to any slackening of the month-to-month pace of growth in February. The pace of annual M3 growth is high enough that it normally would be exacerbating financial-market inflations concerns, if the Fed still reported the series.
Further details follow in the next newsletter.
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March's "Shadow Government Statistics" monthly newsletter is targeted for late in the week of March 19th.
FLASH UPDATE
March 11, 2007
__________
Likely Reality in Troubled Economic Data: February Payrolls Contracted January Trade Deficit Did Not Shrink
February M3 Annual Growth at 10.9%
__________
The SGS Alternate Data page for Continuing M3 has been updated for February 2007, based on data for the four weeks ended February 27/28. -- Best wishes to all, John Williams
With financial-market speculation moving back to a "recession or growth" focus, poor-quality reporting of heavily followed economic data does a disservice to the investing public. This is particularly true when Wall Street hypesters weave related stories that have little relationship to reality, but that happen to help sell certain financial products. The government would do well to delay its publication schedule by a full month for key economic data that usually suffer heavy revision. In the trade-off between quality and timeliness of reporting, little would be lost, since first estimates of the payroll and GDP data, for example, usually are worthless.
As to underlying reality, the economy remains in a deepening recession, inflation is not under control, and the potential for a massive dollar sell-off leaves the traditional U.S. financial markets vulnerable to disorderly and negative trading. Key economic releases of the last week have not been inconsistent with this outlook.
Monthly February Payrolls Likely Contracted. Seasonally-adjusted February payroll employment was reported up by 97,000 +/- 129,000, a change that was statistically indistinguishable from a contraction. The February gain followed a revised January gain of 146,000 that initially had been reported at 111,000. Annual growth in February slowed meaningfully to 1.49% from 1.67% in January.
Despite the massive benchmark revisions and corrections to prior data published last month, the Bureau of Labor Statistics continued with major upward revisions to previously published data, with the February jobs gain at 152,000 net of those adjustments. Nonetheless, the monthly February data were weak enough suggest a monthly contraction.
Year-to-year change in the monthly data should be the same on both a seasonally-adjusted and unadjusted basis, but such was not the case in February. Using the unadjusted annual growth rates, the consistent seasonally-adjusted monthly February payroll gain was just 67,000 +/- 129,000.
Considering (1) that the jobs number was boosted by a positive swing of 293,000 jobs in the monthly fudge or bias factor (now called the birth-death adjustment, which overestimates employment growth during recessions); (2) that the household survey showed a monthly employment contraction of 152,000; and (3) that annual change in the 17-week moving average of new jobless claims as of March 3rd was up 5.9% (positive change here is an economic negative) against 3.9% just three weeks before, and the four-week moving average is up 10.8% year-to-year; odds favor the +/- 129,000 margin of error taking February monthly jobs change reality into a contraction.
Also from the household survey, the seasonally-adjusted February U.3 unemployment rate reportedly narrowed to 4.49% +/- 0.23% from 4.59% in January, a change that was statistically indistinguishable from an increase in the unemployment rate. On an unadjusted basis, U.3 narrowed to 4.9% in February from January's 5.0%. The broader U.6 rate on an unadjusted basis fell to 8.7% in February from 9.1% in January, the seasonally-adjusted U.6 rate declined to 8.1% from 8.3%. Net of "discouraged workers" defined away during the Clinton Administration, actual unemployment continues to run about 12%.
Oil Price Reporting Shenanigans Distort Trade Data. The seasonally-adjusted monthly trade deficit for January 2007 was reported at $59.2 billion, down from $61.5 billion in December (previously reported as $61.2 billion). For all of 2006, the annual deficit revised to $765.3 billion, from initial reporting of $763.6 billion, up from $716.6 billion in 2005. The handling of reported oil imports and related pricing, however, has resulted in distortions to reporting of the 2006 trade deficit, the purported January deficit and related GDP measures.
The Bureau of Economic Analysis/Census Bureau release shows seasonally-unadjusted crude oil imports up by 6.3% year-to-year in January, 5.7% attributable to physical oil import volume and 0.6% attributable to higher oil prices. Somehow, that translated to a seasonally-adjusted annual contraction of 1.9% in the aggregate trade statistics for petroleum products, before adjustment for inflation and to a 1.3% gain after inflation adjustment. That could happen only with a 3.2% drop in prices used in the deflation process, not the 0.6% gain shown in the raw data.
The difference is that with the year-to-year oil imports handled on a consistent basis, petroleum imports would have been higher in January by about $2.1 billion, which would have taken the total monthly January deficit to $61.3 billion, virtually unchanged versus $61.5 billion in December.
The oil-pricing distortions are much more severe, however, where the full extent of the increase in oil prices during the last two years never made it into the imported-oil pricing. For example, January 2006 oil averaged $51.93 per barrel in the trade data versus a market average of $65.10. In January 2007, the trade data oil was at $52.23, against a market average of $54.57. This circumstance suggests that the 2006 trade deficit is understated sharply and that the corresponding 2006 GDP is overstated.
Continuing M3 Annual Growth at 10.9% in February. The year-to-year change in the SGS estimation of Continuing M3 backed off slightly to 10.9% in February from 11.0% in January, with M3 up more than $1.1 trillion in the last twelve months. The minor annual slowing in growth was due to a relative surge in the year-ago number, as opposed to any slackening of the month-to-month pace of growth in February. The pace of annual M3 growth is high enough that it normally would be exacerbating financial-market inflations concerns, if the Fed still reported the series.
Further details follow in the next newsletter.
March's "Shadow Government Statistics" monthly newsletter is targeted for late in the week of March 19th.