FLASH UPDATE - August 18, 2009

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

August 18, 2009

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July Housing Starts Showed Ongoing Depression

Volatile PPI Reflected Unusual Seasonal Factors

Journalists Too Overworked to Handle Poverty Report?

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PLEASE NOTE: The next Flash Update is planned for next Thursday (August 27th), following release of the second estimate of second-quarter GDP. Any interim Flash Update or Alert would be published as dictated by economic, market or political developments.

– Best wishes to all, John Williams

No Change in Outlook. This week’s relatively light economic reporting had no meaningful surprises. The PPI was worse than expected, but such was not outside the range of regular volatility for the series. The monthly decline in housing starts was not meaningful, but the continued bottom-bouncing at a plateau of low-level activity was significant. The economy continues in a severe, deepening downturn, with no meaningful signs of a pending upturn.   Based on continued weakness in weekly money supply reporting, the systemic solvency crisis is intensifying and also is far from resolution. More will follow on the systemic crisis in the next update.

Unusual Numbers Pending in the Poverty Survey? The annual poverty report, which includes estimates not only of poverty, but also national income distribution and national health insurance coverage, is based on a survey that is piggy-backed on the March household survey (unemployment, etc.). The report usually is released in mid-August, but the Census Bureau advised on July 31st that, "National income and poverty data from the CPS [household survey] will be released the week of Labor Day [September 10th].  This is in response to feedback that releasing the data in late August was not optimal for data users and journalists reporting on the findings."

I never have known competent data users or journalists to request data later rather than earlier. Given the current healthcare program being pushed by the Administration, one has to wonder if there are any politically uncomfortable results in the pending survey, where a delay could result in the data being excluded from the debate. Another possibility is that the delay would give the Census Bureau time to "get it right," a phrase purportedly used by President Lyndon Johnson when he sent drafts of initial GNP (now GDP) reporting he did not like back to the Commerce Department, for revision.

July Housing Starts Continued Bottom-Bouncing. The Census Bureau reported this morning that seasonally-adjusted July housing starts fell by a statistically insignificant 1.0% (down 0.2% net of revisions) +/- 10.0% (95% confidence interval) month-to-month and fell year-to-year by 37.7% +/- 6.0% (95% confidence interval). Such contrasted with June’s revised monthly decline of 6.5% (previously 3.6%, reflecting a large downward revision to May’s number) and annual contraction of 45.5% (previously 46.0%, but such was closer to a 39.1% decline, adjusting for the inconsistent numbers published in June 2008). The July 45.0% pace of annual contraction on a three-month moving-average basis is down from a revised 47.7% (was 44.8%) in June, and it reflected bottom-bouncing along both a plateau of historically-low growth as well as historically-low count of new starts.

For the month, seasonally-adjusted July building permits fell by a statistically significant 1.8% (down 3.8% net of revisions) +/- 1.6% (95% confidence interval), following June’s revised 10.0% (was 8.7%) gain. Permits fell by 39.4% in July, following a revised year-to-year decline in June of 51.4% (previously down by 52.0%, but it was down roughly 41.8% net of problems with June 2008 reporting).

With ongoing distortions from seasonal factors warped by the depression and by significant levels of home foreclosures, reporting quality (particularly of seasonally-adjusted monthly changes) will continue to be extremely low in upcoming estimates existing and new home sales in July.

Unusual Seasonals Depress PPI Inflation. As reported by the Bureau of Labor Statistics (BLS) this morning (August 18th), the regularly-volatile, seasonally-adjusted producer price index (PPI) fell by 1.8% (down by 0.9% unadjusted), following June’s 1.8% (1.9% unadjusted) monthly increase. Last year, the reported seasonally-adjusted and unadjusted monthly changes (0.6% and 0.7% gains, respectively) showed significantly less seasonal distortion than did today’s reporting.

Year-to-year, the intensification of the annual contraction in PPI inflation resumed, with July prices down by 6.8% from the year before, versus a 4.6% annual contraction in June.

On a monthly basis, seasonally-adjusted July intermediate goods eased by 0.2% (up by 1.9% in June), with crude goods falling by 4.5% (up by 4.6% in June). The decline in year-to-year inflation deepened, with July intermediate goods down by 15.1% (down by 12.5% in June) and July crude goods down by 44.8% (down by 40.0% in June).

Week Ahead. July New Orders for Durable Goods. Due for release on Tuesday, August 25th, this regularly volatile series should show continued bottom bouncing, with annual change at or near a record low. The reported seasonally-adjusted monthly change likely will not be meaningful.

Second Estimate of Second-Quarter GDP. Due for release next Thursday, August 27th, the first revision to second-quarter 2009 GDP should show little change from the initially-estimated annualized quarterly real (inflation-adjusted) contraction of 1.1%. When advance reporting on GDP surprises consensus forecasts in one direction or the other (in this case the surprise was in the direction of a stronger number), however, the direction of that surprise often continues in the second reporting.

Not an issue, yet, although it has become one outside the United States, a reported positive quarter-to-quarter change in real GDP does not mean necessarily that a recession has ended. Most recessions reflect quarterly contractions interspersed by quarters of positive growth. The current U.S. recession is far from over.

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