PLEASE NOTE: The fourth-quarter GDP and January payroll report and benchmark revisions will be more fully covered in the January SGS newsletter, which is targeted for Monday, February 4th. Updated SGS-Alternate Data for the GDP, Financial-Weighted Dollar and a preliminary estimate of SGS-Ongoing M3 for January will be posted over the weekend to the Alternate Data Series tab at www.shadowstats.com.
– Best wishes to all, John Williams

A quick look at the "advance" estimate of fourth-quarter GDP growth and January payroll data and revisions indicates a rapid surfacing of the inflationary recession that recently has been gaining recognition among Wall Street analysts and consensus economists. With the Fed capitulating to stock-market demands for easing, deterioration in the U.S. dollar should accelerate sharply. The general outlook for the months ahead, however, remains the same, with a deepening inflationary recession, a major bear stock market, heavy selling of the U.S. dollar, heavy buying of gold, and an eventual flight to safety away from the greenback that will spike long-term interest rates (currently negative net of inflation).

GDP Should Have Contracted. The Bureau of Economic Analysis (BEA) reported annualized real (inflation-adjusted) growth in fourth-quarter 2007 GDP at 0.64% +/- 3%, which was statistically indistinguishable from a meaningful contraction. The reported growth was down from nonsensical growth of 4.91% for the third quarter. The BEA tries to target consensus forecasts (which were 1.2%) for the advance estimate, since they have to guesstimate more than 90% of the underlying data. The reported result suggests the first-cut estimate actually was a contraction. Any number of bad assumptions currently in place, if altered slightly, would have given that result. Annual growth reportedly slowed from 2.8% to 2.5%. This series is so heavily politicized that it is little more than political propaganda. Underlying reality suggests both the quarterly and annual rates of change should have been negative, as will be discussed in the upcoming newsletter.

With Consistent Seasonal Adjustments, Payrolls Fell by 100,000. The Bureau of Labor Statistics (BLS) reported a seasonally-adjusted jobs loss of 17,000 (a loss of 393,000 net of revisions and benchmark revisions) +/- 129,000 for January, following a revised 82,000 (previously 18,000) jobs gain in December. Given the BLS’s ability to have brought the reported monthly change in at any desired level, the reporting of a small contraction has to be viewed as a deliberate political move. Perhaps Treasury Secretary Paulson wanted to keep up the pressure on the FOMC, which seems to have had advance knowledge of the result. Whether the reported contraction survives next month’s revisions is an open question.

One factor that may have affected the result was a revamping of the bias factor (birth-death model), which was a net subtraction of 175,000 jobs in January 2007. At that time, the decline had been offset adequately by a change seasonal adjustments. For January 2008, the bias factor was revised to subtraction of 378,000.

The annual benchmark and other revisions knocked 376,000 jobs off the previously-reported seasonally-adjusted December 2007 payroll level. Overall annual growth in total nonfarm payrolls slowed to a recessionary 0.72% in January from a revised 0.89% (previously 0.92%) in December.

Year-to-year growth should be virtually identical in both the seasonally-adjusted and unadjusted series, and applying the unadjusted annual change to the seasonally-adjusted year-ago numbers generates an adjusted January 2008 payroll level of 138.101 million versus the reported 138.102 million. That does not hold, however, with December, which should have been 138.201 million, instead of the reported 138.119 million. The difference is that seasonally-adjusted January payrolls, using consistent seasonals, would have shown a 100,000 jobs loss for January.

As often is the case, the news on the household front went in the opposite direction, with a statistically insignificant decline in the reported seasonally-adjusted January U.3 unemployment rate to 4.93% +/- 0.23% from 4.97% in December. The series was revised for lowered population estimates. In an unusual divergence, the broader U.6 unemployment rose to an adjusted 9.0% in January, up from 8.8% in December. Adjusted for the "discouraged workers" defined away during the Clinton Administration, actual unemployment still is running about 12.5%.

 M3 Growth Is Notching Higher Again. On the inflation front, the preliminary estimate for annual growth in the SGS-Ongoing M3 series for January appears set to notch minimally higher from the 15.0% growth rate in December (see the January 19th Flash Update as to Federal Reserve benchmark revisions).

 Further details will follow in the January SGS newsletter.