Category: statistics

Deceitful GDP statistics

The US Federal Government’s Bureau of Economic Analysis released its 4th quarter 2009 GDP statistics today. The news– 5.7% annualized GDP growth, led primarily by a large jump in inventories. Economist David Rosenberg made the following observations:

First, the report was dominated by a huge inventory adjustment — not the onset of a new inventory cycle, but a transitory realignment of stocks to sales. Excluding the inventory contribution, GDP would have advanced at a much more tepid 2.2% QoQ annual rate, not really that much better than the soft 1.5% reading in the third quarter.

Second, it was a tad strange to have had inventories contribute half to the GDP tally, and at the same time see import growth cut in half last quarter.

Third, if you believe the GDP data — remember, there are more revisions to come — then you de facto must be of the view that productivity growth is soaring at over a 6% annual rate. No doubt productivity is rising — just look at the never-ending slate of layoff announcements. But we came off a cycle with no technological advance and no capital deepening, so it is hard to believe that productivity at this time is growing at a pace that is four times the historical norm. Sorry, but we’re not buyers of that view.

In the fourth quarter, aggregate private hours worked contracted at a 0.5% annual rate and what we can tell you is that such a decline in labour input has never before, scanning over 50 years of data, coincided with a GDP headline this good. Normally, GDP growth is 1.7% when hours worked is this weak, and that is exactly the trend that was depicted this week in the release of the Chicago Fed’s National Activity Index, which was widely ignored. On the flip side, when we have in the past seen GDP growth come in at or near a 5.7% annual rate, what is typical is that hours worked grows at a 3.7% rate.

No matter how you slice it, the GDP number today represented not just a rare but an unprecedented event, and as such, we are willing to treat the report with an entire saltshaker — a few grains won’t do.

Government spending, at all levels, is a depredation on the private productive economy– the government produces nothing and can spend only what it taxes, borrows or inflates out of the rest of the economy. Technically speaking, government spending should be dragged out of GDP stats as well, not just this quarter but all quarters.

Meanwhile, yesterday Helicopter Ben was reconfirmed by a 70-30 vote of the Senate, ensuring the financial community that another tidal wave of cash is just over the horizon should it be necessary.

With a sworn inflationist back in the saddle (okay, he never left) and GDP surging at an annualized rate of 5.7% as if massive government intervention were a sound foundation for economic recovery, this market should be heading for new highs, right? Wrong. The markets swooned, continuing their miserable march downward, as they have all week, with the Dow closing Friday -53, NASDAQ -31 , and the S&P 500 down 10 with an ominous, last-minute, high-volume selloff as if to seal the deal.

Superstitious soothsayers at CNBC insist that a negative January close means “bad luck” for the markets all year long. One thing seems increasingly certain at this point… this “recovery” is taking its last gasps of noxious air and the broad market has already kicked the bucket.

Investment newsletter Darwinism

Just how rough has 2008 been for investors? Writes Peter Brimelow on MarketWatch today:

The year has been a grim grind, for investors and for investment letters alike.

As of the end of August, just 19 letters of some 180 followed by the Hulbert Financial Digest had made money in 2008.

Even the ultraconservative Growth Stock Outlook, which has finished in the black every year for more than two decades, is slightly (0.8%) under water (but don’t count it out).

Recall, in June of 2007 the top performing newsletters were bullish according to Mark Hulbert:

There are no guarantees. But to bet on a new bear market right now, you have to bet against the timers with the best long-term records and with those whose records have been awful.

At the time we reached the opposite conclusion (I personally exchanged e-mails with Mark Hulbert and blogged about it here.):

We’ll go with the so-called “dumb money” as the valuation, economic and sentiment stars or extremely well aligned for a killer bear market.

The newsletter community, by its nature, tends to be non-conformist, bearish, and uses technical analysis to time markets. The current environment should suit their style over that of traditional money mangement, which has morphed into “buy the dip,” “buy-and-hold,” and “don’t fight the Fed.” Clearly, a weeding out process took place during the 25-year credit expansion and financial asset inflation of 1982-2007, even among the market’s skeptics who are now unprepared for the Great Unwind. Call it “survival of the unfittest,” as Nassim Taleb writes in Fooled By Randomness.

Nassim Taleb and Charles Mackay on the boom and bust cycle

Learning from history does not come naturally for us humans, a fact that is so visible in the endless repititions of identically configured booms and busts in modern markets.

~ Nassim Taleb, Fooled By Randomness, 2nd Edition (2002)

Taleb’s quip brings to mind this classic…

Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.

~ Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (1852)

My comment: We are still largely in the delusional phase of the current bust.

Estimates overstate job growth

Seems like the American economy did not produce the number of jobs originally reported this past Spring.

The new report concluded that personal income from wages and salaries grew at an annual rate of 1.6 percent in the second quarter, far below the 4.5 percent that had previously been estimated.

The government did not explain why the revision was made, and it is possible that some of it came from reducing estimates of wages or of the profits that employees received from exercising stock options. But it was most likely, said Robert J. Barbera, the chief economist of ITG, that the largest part of the revision came from a change in employment estimates.

If so, he said, he expected the government would revise its estimate of the number of jobs created in the quarter, to as little as 50,000 a month from 126,000 a month. That would indicate that the economy was much weaker than had been thought.

My comments: Of course this is one of the main ingredients in the Ben Bernanke monetary policy recipe book. Houston, we have a problem.

Core inflation: the emporer’s new clothes

  • From 1958-1999 headline inflation exceeded core inflation 38% of the time.
  • Since 1999 headline beat core 76% of the time.

There are lies, damn lies, and government-doctored statistics.

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