Flash Update
FLASH UPDATE - Oct. 31, 2007
JOHN WILLIAMS' SHADOW GOVERNMENT STATISTICS
FLASH UPDATE
October 31, 2007
__________
Fed Action Likely Foreshadows Jobs Report
GDP Report Fundamentally Was Nonsense
__________
PLEASE NOTE: The SGS-Alternate GDP has been updated on the Alternate Data tab at www.shadowstats.com. Also, the PDF of the monthly newsletter has been posted to the Web site. Going forward, both the html and PDF versions will be posted at the same time. -- Best wishes to all, John Williams
Formally and legally, neither the White House nor the Federal Reserve Chairman is supposed to receive the employment data until after 4:30 p.m. ET of the day before the public release of the information. Such, however, did not prevent Alan Greenspan from getting an early heads-up, and Federal Reserve Chairman Ben Bernanke likely is no different. Fed chairmen do not like to be embarrassed or open to unnecessary criticism, as might be the case with an easing today and a strong October jobs report on Friday, or no easing today and miserable jobs outlook.
Today, the Federal Open Market Committee (FOMC) lowered the targeted federal funds rate by 25 basis points (0.25%) to 4.50%, in line with market expectations and suggestive of a soft upcoming jobs report. Wording of the FOMC statement, however, was such as to dampen expectations of further easing. That could indicate that the jobs report will not be shockingly bad, as underlying reality might otherwise suggest.
Thank Goodness for Lower Inflation! Today's "advance" estimate of annualized quarterly real (inflation-adjusted) growth in the third-quarter GDP was 3.90%, up from 3.82% in the second quarter, per the Bureau of Economic Analysis. From the standpoint of year-to-year growth, real GDP grew by 2.59% in the third quarter, up from 1.89% in the second quarter. As suggested by the SGS-Alternate GDP, an annual third-quarter contraction of roughly 2.3%, the same as in the second quarter, is more in line with underlying fundamentals.
Historically, the official results would be considered strong growth, but the numbers are utter nonsense, in terms of underlying economic fundamentals. Keep in mind that at least 90% of the GDP in the advance estimate is guesstimated. From a political standpoint for the Fed and the Administration, of course, the numbers make good sense, sending the message that times are good and further Fed easing is not necessary.
The nominal (not adjusted for inflation) numbers tell a different story. There, annualized third-quarter growth slowed to 4.67% from 6.56% in the third quarter. The reason that "real" growth increased is that annualized inflation, as reflected by the GDP deflator, sank to 0.77% in the third quarter from 2.64% in the second quarter. The message simply is, "So Mr. Businessman, you may think your sales are slowing, but that is only because your rate of inflation is falling so rapidly." Try convincing Main Street U.S.A. of that!
Further detail will follow in a likely Flash Update over the coming weekend and in the November SGS newsletter.
___________________________________________
The current target date for the posting of the November SGS is for late in the week of November 12th. An e-mail advice will be made of its and all intervening Flash Update/Alert postings.
FLASH UPDATE
October 31, 2007
__________
Fed Action Likely Foreshadows Jobs Report
GDP Report Fundamentally Was Nonsense
__________
PLEASE NOTE: The SGS-Alternate GDP has been updated on the Alternate Data tab at www.shadowstats.com. Also, the PDF of the monthly newsletter has been posted to the Web site. Going forward, both the html and PDF versions will be posted at the same time. -- Best wishes to all, John Williams
Formally and legally, neither the White House nor the Federal Reserve Chairman is supposed to receive the employment data until after 4:30 p.m. ET of the day before the public release of the information. Such, however, did not prevent Alan Greenspan from getting an early heads-up, and Federal Reserve Chairman Ben Bernanke likely is no different. Fed chairmen do not like to be embarrassed or open to unnecessary criticism, as might be the case with an easing today and a strong October jobs report on Friday, or no easing today and miserable jobs outlook.
Today, the Federal Open Market Committee (FOMC) lowered the targeted federal funds rate by 25 basis points (0.25%) to 4.50%, in line with market expectations and suggestive of a soft upcoming jobs report. Wording of the FOMC statement, however, was such as to dampen expectations of further easing. That could indicate that the jobs report will not be shockingly bad, as underlying reality might otherwise suggest.
Thank Goodness for Lower Inflation! Today's "advance" estimate of annualized quarterly real (inflation-adjusted) growth in the third-quarter GDP was 3.90%, up from 3.82% in the second quarter, per the Bureau of Economic Analysis. From the standpoint of year-to-year growth, real GDP grew by 2.59% in the third quarter, up from 1.89% in the second quarter. As suggested by the SGS-Alternate GDP, an annual third-quarter contraction of roughly 2.3%, the same as in the second quarter, is more in line with underlying fundamentals.
Historically, the official results would be considered strong growth, but the numbers are utter nonsense, in terms of underlying economic fundamentals. Keep in mind that at least 90% of the GDP in the advance estimate is guesstimated. From a political standpoint for the Fed and the Administration, of course, the numbers make good sense, sending the message that times are good and further Fed easing is not necessary.
The nominal (not adjusted for inflation) numbers tell a different story. There, annualized third-quarter growth slowed to 4.67% from 6.56% in the third quarter. The reason that "real" growth increased is that annualized inflation, as reflected by the GDP deflator, sank to 0.77% in the third quarter from 2.64% in the second quarter. The message simply is, "So Mr. Businessman, you may think your sales are slowing, but that is only because your rate of inflation is falling so rapidly." Try convincing Main Street U.S.A. of that!
Further detail will follow in a likely Flash Update over the coming weekend and in the November SGS newsletter.
The current target date for the posting of the November SGS is for late in the week of November 12th. An e-mail advice will be made of its and all intervening Flash Update/Alert postings.