JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

Annual August CPI-U at 5.4% (13.2% SGS)

Industrial Production Tumbles Like We’re in a Recession

CPI Locks in August and Annual Real Retail Sales Contractions

Again, ongoing economic data show an intensifying inflationary recession. While the housing and systemic solvency crises are exacerbating the current economic downturn, it is important to remember that current recession was in play well before the headline crises hit. As to today’s FOMC meeting, anything is possible. The system and the markets continue to be unstable, and the Fed’s primary mission remains preventing a systemic collapse. All other factors, specifically inflation and economic activity, remain secondary considerations for the U.S. central bank, at the moment.

CPI Absorbs the Oil Selling Shock. Reported consumer inflation eased back on both a monthly and annual basis, as the CPI absorbed the impact of a sharp decline in oil prices. The 0.1% seasonally adjusted monthly decline in August CPI-U reflected a 7.4% unadjusted decline in gasoline prices. Such compared with a monthly 5.9% decline estimated from Department of Energy data. The difference would have resulted in an unchanged CPI.

Outside of the 5.6% annual CPI-U inflation reported for July, the 5.4% annual inflation for August still was at a 17-year high. Annual inflation for the narrower CPI-W — targeted at the wage-earners category where gasoline takes a bigger proportionate bite out of spending — eased to 5.9% in August, from 6.2% in July. The CPI-W is used for making the annual cost of living adjustments to Social Security payments. The 2009 adjustment — based on the July to September 2008 period — remains a good bet to top 5%, more than double last year’s 2.3% adjustment for 2008. Such is not good news for federal budget deficit projections.

CPI-U. The Bureau of Labor Statistics (BLS) reported that the seasonally-adjusted August CPI-U declined by 0.14% (0.40% unadjusted) +/- 0.12% for the month, versus a 0.82% (0.53% unadjusted) gain in July.  Year-to-year or annual inflation in August eased to 5.37%, from 5.60% in July.  Annual inflation would increase in September 2008 reporting, dependent on the seasonally-adjusted monthly gain exceeding the 0.37% monthly increase seen in September 2007.  The difference in growth would directly add to or subtract from August’s annual inflation rate of 5.37%.

C-CPI-U. 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 — eased to 4.70% in August from 4.76% in July.

Alternate Consumer Inflation Measures. Adjusted to pre-Clinton (1990) methodology, annual CPI growth declined to roughly 8.7% in August from 8.9% in July, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, eased back to roughly 13.2% in August from 13.4% in July.  The alternate numbers are not adjusted for any near-term manipulations of the data. The SGS-alternate data tab will be updated later today a www.shadowstats.com.

Real Retail Sales. Deflated by the August CPI-U, seasonally-adjusted real (inflation-adjusted) retail sales contracted by 0.13% for the month of August (down 0.27% before inflation adjustment), following a 1.30% decline in the month of July (down 0.49% before inflation adjustment). On a year-to-year basis, August retail sales fell by 3.60% (up 1.56% before inflation adjustment), versus a 3.23% decline in July (up by 2.62% before inflation adjustment).

Industrial Production Showed Ongoing and Deepening Recession. The Federal Reserve reported a 1.1% (1.3% net of revisions) monthly contraction in August industrial production, following a revised 0.1% (previously 0.2%) gain in July. Weakness was attributed to the auto sector, with a 0.1 percentage point of decline estimated due to oil production shutdown due to Hurricane Gustav. August year-to-year change plunged by 1.5%, after a 0.4% annual contraction in July.

Following a 3.1% annualized quarter-to-quarter contraction in the second quarter, industrial production is set for a likely second consecutive quarterly downturn in the third quarter. In conjunction with likely contracting annual growth for the third quarter, the series is showing growth patterns not seen outside of recessions.

The next full SGS Newsletter will follow in the next several days, likely over the coming weekend.