JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

 FLASH UPDATE

April 15, 2009

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March Annual CPI-U Declined by 0.38% (SGS Gained 7.3%)

First Official Deflation in 54 Years
(But They Don’t Calculate CPI Like They Did in 1955)

Annual Industrial Production Collapse Worst
Since Shutdown Following WWII

First Quarter Industrial Production Plunged an Annualized 20%

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PLEASE NOTE: The full newsletter is about to enter the production process and should be posted in the next couple of days. It will be up-to-date in terms of today’s (April 15th) economic releases.

– Best wishes to all, John Williams

 

Annual CPI-U Inflation Turns Negative.  As oil prices rebounded from recent lows, "declining" monthly energy prices pushed the March CPI-U into its first formal deflation (year-to-year decline) since August 1955. As measured by the monthly average spot price of West Texas Intermediate, crude oil prices rose by 22.5% in the month of March 2009, a pace faster than the 10.7% monthly gain see in March 2008. Energy prices in the March CPI-U, however, reportedly dropped on a monthly basis by a seasonally-adjusted 3.0% (down 0.7% unadjusted). Part of the inflation hit was due to seasonal adjustments that largely are ignored by inflation purists (the Bureau of Labor Statistics itself reports the CPI-U, upfront, on a not-seasonally-adjusted basis, both in terms of monthly and annual inflation).

Barring a new, extreme collapse in oil prices, the current consumer price deflation — like the sporadic annual deflation seen in the late 1940s and 1950s — should be brief and shallow, unlike the catastrophically long and deep deflation of the Great Depression. As a significant aside, if inflation today were calculated the way it was back in 1955, the March 2009, CPI-U annual inflation rate likely would have topped 7% (see the Alternative Consumer Inflation Measures section below). As is discussed in the pending newsletter, the Federal Reserve’s efforts at debasing the U.S. dollar are likely to succeed, damaging the greenback’s value against other currencies, spiking oil prices and boosting domestic consumer price inflation.

CPI-U.  The BLS reported this morning (April 15th) that the seasonally-adjusted March CPI-U declined by 0.14% (up by 0.24% unadjusted) +/- 0.12% (95% confidence interval not seasonally adjusted) for the month, versus a 0.39% (0.50% unadjusted) gain in February.  Year-to-year inflation (unadjusted) in March turned negative, down by 0.38% +/- 0.20% (95% confidence interval), versus a 0.24% gain in February.  For those interested in exploring the various facets of official CPI-U reporting, I continue to refer you to CPIwatch.com, a site prepared by one of my SGS colleagues.

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%. With upside pressure on oil prices, annual CPI-U should be near its trough for the current cycle, although another month or two of minor official deflation now appears likely.

Real Retail Sales.  Updating the April 14th Flash Update, inflation- and seasonally-adjusted March retail sales fell by 1.01% (down 1.14% before inflation adjustment), versus a February decline of 0.09% (a 0.30% gain before inflation adjustment). Year-to-year, March real retail sales fell by 9.01% (9.41% before inflation adjustment) versus a 7.95% (7.89% before inflation adjustment) decline in February. The annual real change here continued to be skewed by unusual patterns in the seasonally-adjusted CPI-U used for deflation of the series. 

The pace of annualized decline in the inflation-adjusted retail series narrowed sharply in first-quarter 2009 to 2.5%, from 18.78% in the fourth quarter. The series is subject to a benchmark revision at the end of April, which should result in downside revisions to prior reporting. 

On a three-month moving-average basis, the March and February annual real declines were 8.58% and 9.07%, respectively. Along with annual declines of the last several months, the March annual decline in the moving-average remains is at the low for the two historical retail series of the post-World War II era.

CPI-W.  The BLS reported that the narrower, seasonally-adjusted March CPI-W (CPI for Urban Wage Earners and Clerical Workers) declined by 0.14% (gained 0.25% unadjusted), following a 0.44% (0.49% unadjusted) gain in February.  Year-to-year inflation declined by 0.92% in March, following a 0.26% decline in February.

C-CPI-U.  Year-to-year or annual inflation for the Chain Weighted CPI-U — the fully substitution-based series that increasingly gets touted by CPI opponents and inflation apologists as the replacement for the CPI-U — fell by 0.81% in March, versus a decline of 0.26% in February. 

Alternate Consumer Inflation Measures. Adjusted to pre-Clinton (1990) methodology, annual CPI growth eased to roughly 2.9%, versus 3.6% in February, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, rose to roughly 7.3% (7.25% for those using the extra digit), versus 7.7% in February, and has been updated on the Alternate Data tab at www.shadowstats.com.  The alternate numbers are not adjusted for any near-term manipulations of the data.

The SGS-Alternate Consumer Inflation Measure adjusts on an additive basis for the cumulative impact on the annual inflation rate of various methodological changes made the BLS. Over the decades, the BLS has altered the meaning of the CPI from being a measure of the cost of living needed to maintain a constant standard of living, to something that no longer reflects the constant-standard-of-living concept. Roughly five percentage points of the additive SGS adjustment reflect the BLS’s formal estimate of the impact of methodological changes; roughly two percentage points reflect changes by the BLS, where impact has not been formally published by the BLS.

Industrial Production Plunged. Incorporating an annual benchmark revision, which showed weaker historical production growth than previously reported, the Federal Reserve reported that seasonally-adjusted March industrial production fell by 1.5% (down 2.3% net of revisions [pre-benchmark]) for the month, after a revised 1.5% (previously [pre-benchmark] 1.4%) decline in February. The year-to-year decline in March deepened to a contraction of 12.8%, the weakest showing since war-time production was shut down after World War II. Such followed February’s 11.8% (previously [pre-benchmark] 11.2%) drop. 

Consistent with the still-deepening recession/depression, first-quarter 2009 production showed an annualized quarterly contraction of 20.0%, following and 12.7% contraction in the fourth quarter. A depression is defined (SGS) as a recession where the peak-to-trough economic contraction exceeds 10%, a level exceeded not only by current year-to-year contraction, but also in annualized terms by both fourth-quarter 2008 and first-quarter 2009 industrial production.

 

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