Flash Update
FLASH UPDATE
April 22, 2007
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Annual Inflation Soars as Economic Indicators Continue to Tank
With Deepening Inflationary Recession, Weakening Dollar and Strengthening Gold, Equities Boom?
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Updated estimates of March SGS Ongoing M3 and the SGS Alternate Consumer Inflation Measure have been posted on the Alternate Data Pages -- Best wishes to all, John Williams
Leave it to Wall Street's perverted spinmeistering to hype a 0.4% surge in annual CPI inflation as good news. The hype, of course, surrounded a reported 0.2% decline in so-called "core" inflation, which is relevant only to those poor souls living in the gray twilight of existence, where they consume neither food nor energy. Nonetheless, combined with ongoing weak economic data, general selling pressure against the U.S. dollar and upside movement in the price of gold, the happy inflation hype has been enough to push the Dow Jones Industrial Average to new highs. While the trends in weakening data and U.S. dollar and strengthening gold will tend to intensify, mounting irrationality in equities trading has set up those markets to be turned on their heads.
This Flash Update provides a brief summary of key, recent economic reporting, prior to a more complete accounting in the forthcoming monthly newsletter:
March M3 Growth at 11.6%. Annual growth in M3 (SGS Ongoing Measure as detailed on the Alternate Data Page) rose to 11.6%, up from 10.9% in February. Much of the increased growth mirrored a parallel rise in official M2 reporting, where March annual growth rose to 6.1% from 5.6% in February.
Alternate Annual CPI Inflation at 10.2%. The BLS reported seasonally-adjusted March CPI-U with a monthly gain of 0.61% (0.91% unadjusted) +/- 0.12% (95% confidence interval), up from February's 0.37% (0.53% unadjusted) gain. Annual inflation was reported at 2.78% for March, up from 2.42% in February.
Adjusted to Pre-Clinton Era methodologies, annual inflation was about 6.2%, up from 5.7% in February. Reset to the methodologies of 1980, the SGS Alternate Consumer Inflation Measure rose to 10.2% in March, up from 10.0% in February.
Seasonally-adjusted March PPI rose 1.0% (1.4% unadjusted) for the month, following a 1.3% increase in February. Annual PPI inflation jumped to 3.2% in March from 2.5% in February.
Real Retail Sales Flat. Seasonally-adjusted retail sales rose by 0.68% +/- 0.9% (95% confidence interval) for the month, from a revised 0.50% (previously 0.1%) gain in February. With monthly March CPI up by 0.61%, real (inflation-adjusted) retail sales growth was minimal for the month.
Historically, annual real growth in retail sales (using official CPI-U for deflation) of 1.8% or less has signaled looming recession. Although the recession signal was given about a year ago, current reporting remains consistent with a contracting GDP. Annual real growth was 0.98% in March, following 1.10% in February and 0.13% in January.
Housing Starts Approach Trough of 1990/1991 Recession. Seasonally-adjusted housing starts rose by 0.8% (down by 0.5% net of revisions) +/- 1.3% (95% confidence interval), after a 7.6% gain (previously 9.0%) in February. On an annual basis, housing starts fell by 25.9%.
For this volatile monthly series, annual change is best viewed on a three-month moving-average basis. So viewed, March annual change was down 30.6%, versus a 29.1% contraction in February. The March reading was the weakest seen since the trough of the housing series in the 1990/1991 recession.
Industrial Production Contracts. Seasonally-adjusted industrial production fell by 0.2% in March after a revised 0.8% increase in February (previously a 1.0% gain) and a 0.4% contraction (previously a 0.3% drop) in January. With continued gyrations in unseasonable weather throwing off seasonal adjustments, March utility usage fell by 7.0% after gaining 7.6% in February. Annual industrial production growth slowed to 2.3% in March, from 3.0% in February.
For the quarter-ended March, however, the seasonally-adjusted series almost recouped its quarterly contraction seen in fourth-quarter 2006.
Oil Reporting Continues Disrupting Trade Data. The seasonally-adjusted trade deficit as of February reportedly shrank to $58.4 billion from $58.9 billion (previously $59.1 billion) in January. The "improvement" was more than accounted for by the reported 2.9% decline in oil prices and a 12.5% drop in daily physical volume of oil imports. In recent months (particularly when oil prices declined), trade reporting had shifted to showing immediate impact of oil prices in the imported data, but not so in February, where market prices were up about 8.6%.
Employment Indicator Weakens. An increase in new claims for unemployment insurance is a negative economic indicator and usually a precursor to deteriorating employment/unemployment reporting by the BLS. Year-to-year change in the 17-week (four-month) moving average of the series had risen to 7.1% as of the April 14th week, up from 5.5% as of the March 31st week.
Upcoming GDP. Markets are expecting this Friday's (April 27) reporting of the "advance" estimate of real, first-quarter 2007 annualized GDP growth to show a reduced pace of growth at somewhere around 2%, down from the fourth quarter's reported 2.5%. Where the expectations of slowing growth are reasonable, reported growth should be even weaker than expected and would reflect a contraction, if it were to be close to reality. Unfortunately, this series remains little more than political propaganda.
Further details on the above will follow in the newsletter.
My apologies to Teddy Roosevelt for paraphrasing some of his classic language in the opening paragraph. April's "Shadow Government Statistics" monthly newsletter currently is targeted for the week of April 30th.