Weekly US Economic Calendar

The Fed has a two day meeting and will report their decision and outlook on Wednesday.

The US will report the Advanced GDP number for Q1 on Friday.

John Williams: US Unemployment Hits 22.5% in Alternate Estimate

Perhaps this chart will help explain the divergence that Charles Biderman of Trimtabs sees between the official unemployment numbers and the income tax data he has been tracking.

The difference amongst the three measures revolves around the treatment of workers who desire a real full time job, but have to either settle for a part time position and other forms of under-employment that may technically qualify as a 'job' but not as a 'living,' or who have simply been removed from the government's official attention span.

"The seasonally-adjusted SGS Alternate Unemployment Rate reflects current unemployment reporting methodology adjusted for SGS-estimated long-term discouraged workers, who were defined out of official existence in 1994. That estimate is added to the BLS estimate of U-6 unemployment, which includes short-term discouraged workers.

The U-3 unemployment rate is the monthly headline number. The U-6 unemployment rate is the Bureau of Labor Statistics’ (BLS) broadest unemployment measure, including short-term discouraged and other marginally-attached workers as well as those forced to work part-time because they cannot find full-time employment."

Read the rest of John Williams' Shadowstats here.

My own estimation is that the recovery is flat-lining here and is vulnerable to a double dip which, if it does occur, will be blamed on some exterior factor such as slack European demand, problems in the emerging markets, or China. But it is still too soon to tell from the numbers.

In terms of historical perspective, the great reformer Obama is much more like Herbert Hoover or Nelson Rockefeller than a Franklin Roosevelt. He resembles a moderate Republican despite all the hysterical rhetoric from the far right.

The economy has not been reformed, and most of the problems that caused the collapse in the first place are still operating. As the corporate lobbyists were able to weaken financial reform in Dodd-Frank, so they continue to monopolize the conversation and policy discussions with their money.

I do not see genuine change happening until and unless the human misery increases enough to trigger a reaction, mass protests, or some other serious challenge to the status quo and the apathy of the fortunate. And I have quite a bit of confidence that the one percent will continue to obsessively power forward as the economy dries up until they achieve a pyrrhic victory. Winning.

This applies not only to the US but several other western countries, particularly the UK. It is also true for China which despite the gloss of their miracle economy in the western corporate media remains largely a narrow oligarchy sitting on top of a virtual slave labor camp, with a few showcase exceptions. And the western oligarchs love it. As Bill Gates said, 'This is my kind of capitalism.'

The Non-Farm Payrolls Report: Air Brushing History - Nominal Work Force for Nominal GDP

Back in Stalinist Russia, they had whole departments of people that were responsible for rewriting history and documents in order to support the latest Party lines.

When a particular person fell out of favor, for example, they not only altered the documents, but even went so far as to air brush them out of important historical photographs.

Today the US reported a remarkably high Non-Farm Payrolls number, well in excess of even the most optimistic estimates. 243,000 jobs added, and unemployment has dropped to only 8.3 percent. Isn't that good news indeed.

If one tracks the data closely, and keeps their own copies of the records, what we see instead are revisions, sometimes going back as far as ten years, that most greatly affect the 'seasonally adjusted' numbers, but also affect the raw numbers as well.

The Obama Administration, as well as the previous Administration, have been going back and tinkering with history, rewriting the numbers here and there, in most cases 'rolling jobs forward' to the current months to make the current headlines look better.

The BLS keeps the digital copies of this and they are duly adjusted of course. But what was surprising in this latest round is that for the first time in my memory they went back and adjusted the Birth-Deal Model, which are imaginary jobs in the first place! And on the web site that I usually check they have stopped providing all the historical data, limiting it to what looks like a year or two of data.

What can one do when the statistics are questionable like this? One common touchstone for those who rely on data is to compare one set of numbers with another, or even with 'real things.' If the sales numbers look great, but unsold inventory is piling up, chances are pretty good that somewhere those sales reports might be disconnected from reality.

One real check I prefer is the Labor Participation Rate. The Census is pretty good about counting the number of people and estimating their growth within some reasonable statistical error. And people do not tend to disappear in large numbers, at least not yet.

Labor Participation is simply the number of people who are working or are unemployed as a percentage of the civilian non-institutionalized population over the age of 16, or simply number of people of working age who are not in prison, etc.

So if the number of people working is increasing and the number of unemployed are decreasing the participation rate *should be increasing* one would think, given the relatively stable growth of the population.

But we instead see that the Labor Participation Rate continues to decline. I am sure the spokesmodels will find some way to try to gloss over this.

Note: The spokemodels and the uninformed parrots quite predictably are tut-tutting this using misdirection by saying that the most recent drop for January alone is attributable to a revision in the Labor Force, the denominator in this case, by the Census Bureau. And I accept that. No problem. But my point again is not to look at a single month, but at the trend, even for this. And from a technical standpoint, the trend here undeniably 'blows.'

If the Fed can target a Nominal GDP, that is, economic growth targets that do not care how much is real and how much is paper manipulation, then I am sure it is only fair for the government to target a Nominal Work Force.

As you know, I do not like to look at these monthly numbers in the first, place, but they are integral to the Wall Street shell game, and the politicians love to play it for the headlines as well.

A more rational approach is to watch the trending average over some reasonable period of time, and to look at multiple sources of data, given the propensity for politicians to stick their fingers in the process.

The problem I have with painting the tape, accounting fraud, and the statistical manipulation of the numbers is that these numbers are the foundation for serious policy decisions. Making January 'look good' is going to make it all the more difficult to take the appropriate political steps to reform the economy and get it working again.

But the Yanks are notoriously short term oriented in their thinking. And this is an election year, and emotions are running high.

I cannot help but think that if the government is finally able to fully digitize money and other assets, all this airbrushing can become so much more simple. Just ask the customers of MF Global. One day you own Treasuries, and even solid bars of gold and silver in your own name, and the next day, poof, they're vaporized. Sorry don't know where they went. Go stand over there in line by the Lost and Found and see what happens.

And so I think we are not in Kansas anymore, Toto. It is looking more like Moscow on the Potomac every day.

Here is a comparison of the Seasonally Adjusted Jobs Numbers before and after the Revisions. Keep in mind that each square represents 100,000 jobs, so even slight changes make a big difference in the headline number which just shows the month over month change.

Again, the point is not that there is some conspiracy, which is how many easily dismiss this, especially the uninformed who want to appear to be 'sophisticates.' Rather it is mean to show that one months data is relatively useless and often misleading, and subject to significant revisions sometimes much later. It is the TREND that matters.

The Disappointing Non Farm Payrolls Number: An Early Christmas 'Goose' Stuffed with Baloney

The Birth-Death Model was out of normal to the high side enough to raise a comment. This is shown in the first slide. Lately the BLS statisticians had not resorted to this and had actually been running at estimates a little more to what one might expect in a business slump.

The headline number without the Birth Death model, deseasonalized, showed negative growth.

So the truth is probably that jobs growth was flat to negative. But even that nugget of truth is liable to be lost in future revisions. I wonder if the desire to show growth will skew the statistics even further as we go forward.

Typical games are to play with the chain deflator in GDP to make it look better, and to play with seasonality, birth-death model, and rolling revisions in the payrolls numbers. And of course the tinkering with CPI is apparent to anyone not carrying an agenda who has looked into the mechanics of the changes in the past ten years.

But I suppose since Obama is speaking this morning at the G20, and telling Europe how to solve its banking and debt problems as the US has done, a passable grade on jobs growth was de rigueur pour le charlatan.

Next up, blame the slump on Europe after allowing your hedge funds, banks, and talking heads of the financial demimonde to drag them down, and then implement QE3 as a rescue plan.  Anything, rather than admit to the corruption in the system and then have to engage in meaningful reform. 

This is the nature of a credibility trap in the aftermath of the deep capture of politicians and their apparatus by the monied interests in a crony kleptocracy, teetering on the edge of general discovery.

If Obama is Hoover, which may be a somewhat flattering comparison to both,  then where on the political horizon is Roosevelt?  So far all that is offered to the voters is a choice amongst a freak show of corporate goons, imperious ideologues, and mini-Mussoliniani.

The US GDP Report

One picture is worth a thousand words...

Buffaloed Tim and Howdy Bernanke

About the Non-Farm Payrolls and the Birth-Death Model - Credibility Trap

There were some 'screaming headines' at some blogs this morning about the BLS Birth Death Model, aka the 'imaginary jobs report, reaching some new heights, or lows if you will, of perfidy in misstating jobs growth with a reading of 206,000 imaginary jobs added.

In fact the number was in line if not historically a bit low for a May adjustment. It showed the type of seasonal hiring one might expect for the beginning of summer.

The seasonality factor was also very much in line.

I give the government very little credit on its statistical reporting, and have been a strong critic for many years, and take a back seat on debunking Washingon to no one. But there was nothing particularly unusual in this month's report from a statistical reporting standpoint.

It was bad enough on its own. The recovery has never really gained any organic traction and for reasons that I have cited repeatedly.

I have deseasonalized and backed out the imaginary jobs for each month, and posted what the monthly jobs number would look like without them as shown below. It's a choppy picture even with the seasonality factor to provide some smoothing.

This is why it is advisable to watch a moving nine month average. And I also greatly prefer to watch the changes in median wage, which is probably as much or more important than the actual jobs added. The recovery will not become organic and sustainable until people receive a living wage, able to buy a lifestyle consistent with a democratic republic based on their labor without onerous rents from debt.

This is not economic theory; this is simple common sense. If you want to have a consumer based economy, you cannot debilitate the consumers until they become serfs, because they one has obtained a different form of governance. Unless of course one can persuade the many to love their servitude and think hell a heaven.

The public policy argument revolves around the relationship between the distribution of power, and therefore the accumulation of economic power, as it always does throughout history. That is another matter. I am treating the economic argument and prognosis.

As for employment growth, the longer term 'trend' has not yet turned lower, and seems consistent with a stagflationary outlook. It is obviously in danger of rolling over, but it has not done so just yet.

America had been adding jobs for over twenty years with stagnant wage growth. And this was a result of the partnership between corporate America and the wealthy few with the government policy makers, especially including the Greenspan Federal Reserve. Warren Buffett called it a class war and there is no need to guess which class controls the discussion through the concentration of ownership in the mainstream media. The public cannot even mount a serious reform effort without it being quickly co-opted and used against their interests by a well-heeled propaganda machine.

As Simon Johnson famously observed, there was an economic coup d'etat in the States and it is still having its way with the public and much of the world at large. The financiers have breached the walls, and are sacking and looting the city. Neo-liberalism is little more than a resurgence of the corporatism of the earlier twentieth century, with the jackboots more selectively deployed overseas, at least for now.

And the global reaction against the Anglo-American banking cartel, and their infamous economic hitmen, is the substance of the ongoing currency war, the long standing struggle against colonialism. It is remarkable how with all the change, nothing of substance really changes, at least in regards to human behaviour.

A structural reform of the system is what is required, not short term stimulus or austerity at least for now. And in particular not austerity or more tax cuts for the wealthy which is the hallmark of an intellectually bankrupt theory.

The US economy is severely distorted after years of managerial abuse with an outsized financial sector and a bias towards domestic jobs destruction through an abandonment of long term public policy decisions and investments in favor of short term corporate profits and the public be damned.

And there is no reform because the political administration of the system and those who observe and report on it has been generally captured and corrupted, and is stuck in a credibility trap.

Gold Daily and Silver Weekly Charts - Something Wicked This Way Comes

Today was a very early April options expiration for US equities, and we saw quite a few antics in the stocks. Of special interest to many were the games being played with the mining stocks.

There is intraday commentary on gold and silver and the closing of the retail gold window at the Belarus central bank here.

April is supposed to be one of the better months for stocks, but so far it has been correcting fairly steadily from the early April highs.

Gold and silver are starting to get a second wind in this breakout, and the increasing inflationary environment in the global fiat currencies, particularly the dollar, are driving them higher.

This is the latest on US inflation from John Williams at Shadowstats. John tracks the underlying inflationary trends better than anyone else that I know.

"The pace of consumer inflation is accelerating rapidly, with annual CPI-U at 2.7% and CPI-W at 3.0%, while the annualized quarterly, seasonally-adjusted inflation rates have hit 5.2% for the CPI-U and 6.0% for the CPI-W.

These higher inflation numbers are tied directly to the Federal Reserve's successful and ongoing efforts to debase the U.S. dollar, which in turn have boosted dollar-denominated commodity prices such as oil. The inflation pace here normally would be of concern to the Fed, except the U.S. central bank officially ignores inflation tied to food and energy prices, even though, again, those debilitating price increases for consumers are a direct result of Fed policy.

Of particular discomfort to consumers, this inflation has not resulted from booming economic activity and wages, but rather from Fed monetary policy in the context of stagnant/declining broad economic activity.

Inflation has gained the upper hand in retail sales, with sales gains now more than accounted for by rising prices. A pending benchmark revision (April 29th) should show a much weaker recent history for retail sales activity, as the just-published benchmark revision to industrial production did for that series...

Inflation Above 3% Tends to Rattle Consumers. Where consumers look at inflation in terms of out-of-pocket expenses, the threshold of pain has been crossed, with popularly used consumer price indices at or within one month of topping 3% annual inflation. Further, for those who do not get paid in seasonally-adjusted dollars, the 0.5% adjusted CPI-U monthly gain felt more like the 1.0% unadjusted gain."

About the Markets and That Orwellian Non Farm Payrolls Report...

The weather ate the recovery.

Now we know why the Wall Street demimonde had been pimping the unemployment number as 'the key number to watch' as compared to actual jobs added earlier this week.  Although at the time they never really said why.

The weather was too bad for people to go to work, but it didn't matter when it came to registering for unemployment benefits. And over 500,000 unemployed people apparently disappeared in snow drifts, and are no longer counted in the labor force, thereby improving the percentage of remaining people who do not have jobs.   It's a shrinking denominator thing.

So, there are plenty of new jobs out there. The people just could not get to them because of the snow.

Even J. Bradford DeLong,  stalwart Democonomist from Berkley, was a little put out by this report.

"I want a trained professional to analyze this. It is not unusual for the series to do something odd around Christmastide. It is not unusual for the series to diverge. Not this much."

And Brad is not the overly fussy sort, because a few years ago he said that Alan Greenspan had never made a policy decision with which he disagreed.

The trained professionals trotted out on financial television say that this means that the recovery is here. Wait until you see next month's numbers. Yada-yada. And it is time to buy stocks.

Here is my own trained professional opinion of how to analyze this report, and Obama's economic policies in general.   We can't stop here. This is bat country!

O tempora. O mores. O Bernanke. O Bama.

From the Cafe commentary on 2 Feb:

"Now it is fairly well known that the unemployment rate is a less important metric, since people stop being counted as unemployed when no longer receiving unemployment benefits, or when they take a menial low paying job. And in a prolonged downturn you can therefore have improvements in the unemployment rate without any real improvement in overall unemployment like the labor participation rate and the median wage, which are the key indicators of a sustainable recovery.

So it makes me wonder what antics the government and the pigmen might have up their sleeve to rattle the swill bucket for mom and pop to get back into stocks, and most likely once again at a top."

Here is another trained professional opinion from another era:

"...there must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and selfish wrongdoing. Small wonder that confidence languishes, for it thrives only on honesty, on honor, on the sacredness of obligations, on faithful protection, and on unselfish performance; without them it cannot live. Restoration calls, however, not for changes in ethics alone. This nation is asking for action, and action now."

Franklin Delano Roosevelt, First Inaugural Address, 1933

Gold Daily Silver Weekly Charts - Panic Hits the Money Printers As Benny Signals QE -> infinitum

It will be interesting to see how the Non Farm Payrolls report comes out tomorrow.

I am starting to feel a little more comfortable with this chart formation, but follow through is confirmation. 1375 is a key overhead resistance. Don't expect Benny and the Banks to roll over too easily.

One of the Federales put out a Buiter-like commentary Is Gold Money?. No, it is not legal tender these days, but it is an almost universally recognized store of value now as it has been for about the last 6,000 years. Sometimes enlightened, well-disciplined regimes have sanctioned it as official 'money.' But certainly not those inward looking bureacracies who could not find with both hands the bubble(s) they have recklessly created out of you know where.

This sort of rhetoric is sometimes an indicator that the Fed is getting nervous because the Asian and Latin American puppies are not eating their latest brand of ersatz puppy chow, preferring red meat to waste paper. 

I do not support the gold standard for the US because the system is too weak and corrupt to bear it at this time.  As long as gold and silver trade freely those who have a mind to it can use it to protect themselves against devaluation if they wish.

But if one is on some standard, it forces you to be more transparent and overtly devalue your currency, should you wish to do things like bail out your friends on Wall Street.   Electronic digits on the other hand are much more amenable to a bureaucracy which prefers to conduct its business using opaque financial transactions in a self-serving manner,  lacking in sufficient independent oversight.

Oh I see where Benny came out today and signalled QE to the limit, and gold and silver spiked higher.  Now it all seems more clear to me.

A nice fade.  Thanks.  And let's hope Ron Paul gets that audit soon.

As Matt Damon said in one of the best poker movies, Rounders:

Mike McDermott to Teddy KGB: "Well you feelin' satisfied now Teddy? Because I can go on bustin' you up all night."

Caution: language

Oh by the way, JPM Hid Doubts On Madoff Fraud - NYT

And there will be more.

Let Gold and Silver Rally, Jamie - Leave Blythe Alone!

Despite the Miss on Expectations Today's US 4Q GDP Number Was Still a Puffball

I just did not have the time or energy to do the work analyzing today's US GDP estimate for the 4Q10.  The drop in stocks and spike higher in metals had me squaring off accounts between the usual non-financial chores. 

For me the 'tell' that something was dodgy was the unusualy lower chain deflator which is used to calculate the 'real' GDP by removing the inflationary effect. .3% versus 1.5% expected and 2.1% prior. For every tick lower on the deflator the headline GDP growth number rises.

John Williams of ShadowStats did his usual excellent job of dissecting the corpus of the BEA's work and I am grateful for this excerpt. His site is a must read.

You may wish to take the time to read some of the free reports, on how the US government numbers are 'adjusted' over time, and his hyperinflation report which is quite interesting. I still do not agree, preferring to stay with my stagflation forecast which has long been my expected outcome. But I am keeping an open mind to both the deflationary and hyperinflationary outcomes.

Bear in mind that the UK had showed a contraction for the same period, a much more credible representation of the numbers. And so the talking heads would say that the UK suffered from the weather, and was mired in snow. Yes, and the US economy is mired in self-serving scoundrels and craven nincompoops.

GDP Estimate Was of Unusually Poor Quality.

This morning’s "advance" estimate of annualized 3.17% real (inflation-adjusted) GDP growth was nonsensical, even though it was somewhat shy of consensus. Most of the reporting was based on guesses; hard data simply are not available this early. Consider that more than the total reported fourth-quarter growth was accounted for by a narrowing of the trade deficit. The Bureau of Economic Analysis (BEA) indicated that 3.44 percentage points of growth was generated by an improved net export account. That estimate, however, was based on just the two months of available data (October and November) for the quarter. December’s data will not be available until February.

As noted in Commentary No. 345, the relative improvement suggested in the trade deficit for the fourth-quarter (based on the October and November reporting) could have added 1.3 annualized (0.3 quarterly) percentage points to fourth-quarter real GDP growth, but not 3.44 percentage points. That differential required extremely optimistic assumptions on the part of the BEA as to the December trade results. Accordingly, the upcoming trade release will be particularly interesting in terms of its implications for GDP revisions.

Separately, after quarters of a significant inventory build-up, a reduced pace of relative inventory increase reduced the reported real fourth-quarter GDP growth rate by 3.70 percentage points. Inventories at this point in time are even less reliable than the trade data. Nonetheless, inventory build-up still accounted for half the annual average GDP growth in 2010.

Also, despite the 30% annualized (8% quarterly) quarter-to-quarter contraction in housing starts, residential investment rose at a 3.4% annualized pace.

The point here is that reported 3.17% annualized growth, with the regular +/- 3.0% 95% confidence interval, along with such unusually large swings in unreliable components, should not be taken as a serious or meaningful measure of quarterly economic growth. I believe that realistic growth would have been flat-to-minus and eventually that should prove out in long-range revisions.

Where early GDP reporting generally is of extremely poor quality, some catch-up should be seen in the annual benchmark revisions due for release on July 29th. At that time — as will be seen with the payroll employment reporting due for revision a week from now — the revisions to prior economic growth generally will be to the downside, showing a more-protracted and deeper economic contraction in place than officially is recognized at present.

With quarterly weakness in the housing starts and in new orders for durable goods, the indications remain in place for a re-intensifying economic downturn, as discussed inSpecial Commentary No. 342.

"Advance" Guesstimate on Fourth-Quarter 2010 GDP Was Unusually Flimsy.

The opening comments covered several unusual issues with the current GDP report. A more traditional problem lies in how inflation was handled. On a one-to-one basis, the lower the inflation rate used to deflate the GDP, the higher will be the real or inflation-adjusted GDP growth rate. Annualized GDP inflation — the GDP Implicit Price Deflator — was reported showing annualized inflation of 0.3% in the fourth-quarter, down from 2.0% in the third, while annualized CPI inflation rose to 2.6% in the fourth-quarter, up from 1.5% in the third.

And some practitioner of economic auterism will snarkily say, "But har har and tut tut. You obviously do not understand that the deflator has nothing to do with inflation, although it purports to perform the function of taking out the inflationary effect. The deflator is merely what we say it is."

And to that I say, yes, and it also has nothing to do with reality, but rather the desire to make black appear white, and hell seem a heaven.

The US Economic Recovery In One Picture

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

Non Farm Payrolls: The Devil Is In the Adjustments

When the US government announced a 'better than expected' headline growth number in its non farm payrolls report for August, a loss of 'only' 54,000 jobs versus a forecasted loss of 120,000 jobs, people had to wonder, 'How do they do it? We do not see any of this growth and recovery in our day to day activity.'

Here's one way that those reporting the numbers can 'tinker' with them to produce the desired results.

As you may recall, there is often a very large difference between the raw, unadjusted payroll number and the adjusted number. Seasonality plays the largest role, although there can occasionally be special circumstances. Since this is designed to be a simple example I am going to lump all the various adjustments that could be and call them the 'seasonality factor' since it is most usual and signficant.

Here is a chart showing the unadjusted and the adjusted numbers. As you can see, a seasonal adjustment can legitimately normalize the numbers for the use of planners and forecasters. This is a common function in businesses affected by seasonal changes. Year over year growth rates, rather than linear, comparisons, can also serve a similar function.



Quite a variance in numbers that are very large.

Since it probably is in the back of your mind, let's address the infamous "Birth Deal Model" now, which I have advised may not be such a significant factor as you might imagine. This is an 'estimate' of new jobs created by small businesses. A comparison of the last few years demonstrates rather easily that this number is what is called 'a plug.'

How can the growth of jobs from small business not been significantly impacted by one of the greatest financial collapses in modern economic history?



Certainly the Birth Death model offers room for statistical mischief. It is important to remember that it is added to the RAW number before seasonal adjustment, and that number has huge variances. So the effect of Birth Death is mitigated by the adjustment for seasonality. If it were added to the Seasonal number from which 'headline growth' is derived it would be a huge factor. But it is not the case, although the timing of the significant annual adjustments and additions is highly cynical, and supportive of number inflation. Perhaps calling it a 'plug' is too kind, and 'fudge factor' would be more accurate.

From my own analysis of each month's data, and especially looking at the changes made to the numbers over time, the two biggest factors are the restatements of prior months, and sometimes years, and the monthly changes in seasonality factor.

Let's take a closer look at the seasonality adjustment.

The raw unadjusted number for US non-farm payrolls is very large, on the order of 130+ million in the most recent month.

The 'headline growth number' these days is generally around a hundred thousand jobs or so, which is several orders of magnitude difference smaller than the unadjusted number from which it starts to be derived. Even the month over month fluctuations in the unadjusted number are quite large, and added to that are the Birth Death adjustments, which are often as large or larger than the 'headline number.'

Do you think the Government uses the same seasonality adjustment factor profile each year? Let's take a look at just the month of June, and how the adjustments were made since 2003. It is important to point at here that the seasonality factor is subject to backward revisions. What is used in the current month can and often does change substantially as it becomes 'history' and is no longer in the public eye.

As it turns out the seasonality factor varies over time, as determined by year over year. Here is a chart that shows the adjustment factor by year. It does not seem that great does it, but the variance is there.



How significant are these variances? Let's take a look at a specific example.

Here is the use of seasonal adjustment in June of 2010, compared to June of 2009. The takeaway from this chart is that even a slight change in seasonal adjustment can result in a large impact to the 'headline number' that Wall Street and the political commentators watch and expound upon.



Quite a difference isn't it? Plus 43,000 jobs can be a big difference from no growth, especially if a flat growth was forecast by the economists.

Let's take a look further into the past to see how much variability there can be in adjustments for the SAME month over time.



What is important is not the result for a specific year per se, but the huge variance in results for the same month each year with little or no justification. Further, these results can be restated, and significantly, going forward in benchmark revisions. Whether they are 'correct' or not is not the point. The point is that this variability renders the current headline number as data highly suspect, vulnerable to manipulation by special interests and short term agendas.

Given the degrees of freedom in setting the seasonality, and adjusting prior months to add and subtract jobs once they have served their purpose in supporting the headlines, I think it is safe to say that if you give me a spreadsheet of jobs data, and you are my politically appointed supervisor, I can make the numbers come out pretty close to whatever you want within reason to support whatever messaging you may wish to put forward. As the errors start to add up over time, I can 'restate' the past numbers in a wholesale change to bring them into line with reality.

So what is the point of this discussion. First, and foremost, judging the health of the economy over a monthly headline number like this is more artifice than substance. At worst it is leaked to Wall Street cronies to help them skin the public from their money, and provide a few sound bytes to support whatever political message the government wishes to promote that month to 'restore confidence.'

At best and most properly it can be included in a series of numbers, a moving average preferably that shows the trend in employment, which along with other factors can help economists determine the actual growth and health of the economy.



The government was able to turn around a tremendous loss of jobs, which is good news. The bad news is that they accomplished this by essentially throwing trillions of dollars at the problem, and in particular a corrupt and oversized financialization industry, in order to bring the trend back to zero. Without a change one cannot return to a bubble economy and hope it to be sustainable without a growing asset bubble. This implies organic growth and a return to a growth in the median wage which has been declining or stagnant in a long term structural trend. Has anything been done to promote this? No. And in this sense of over cautious lack of reform Obama is more a Hoover than a Roosevelt.

But this cult of 'headline numbers' as used by the mainstream media, the government, and Wall Street is a sad commentary on the frivolous nature of US leadership. This childishness should not be surprising given that they think they can hide their monetary inflation by leasing gold into the bullion markets and buying Treasuries to hold down the long term rates while a private banking cartel prints money and provides it to their friends. And the primary capital allocation mechanism of the nation is riddled with false trades, naked short positions, and accounting fraud, schemes and subterfuges, that go largely unaddressed by the financial authority charged with enforcement of the integrity of the system even when they become so blatant as to cause a flash crash collapse of the system.

The only thing that is surprising about Wall Street and the US financial frauds is, as Eliot Spitzer famously observed, their scams and schemes are so simple and so obvious when one can pry back the veil of secrecy and see what is actually being done.

Sadly it will likely continue because 'it works' for the short term, and the US is preoccupied with the short term, instant analysis and results over substance and solid progress built on strong foundations, every time.

John Williams on the Revised GDP Number

John Williams' comments on the GDP number were short and to the point. I am still not on board with his hyperinflation forecast preferring to stick with a pernicious stagflation, although what he sees is certainly possible, as is a Japan style deflation. That is what 'fiat' is all about.

The correlation in stocks across the various indices today is remarkably uniform. Do you need to buy a vowel?

John Williams of ShadowStats

Economic Data Will Get Much Worse.

The kindest thing I can say about a stock market that rallies on the "stronger than expected" news that annualized growth in second-quarter GDP was revised from 2.4% to just 1.6%, instead of to the expected 1.4% (keep in mind those numbers are quarterly growth rates raised to the fourth power), or that gyrates over meaningless swings in seasonally-distorted weekly new unemployment claims, is that it is irrational, unstable and terribly dangerous.

As the renewed tumbling in the U.S. economy throws off statistics suggestive of a continuing collapse in business activity, as a looming contraction in third-quarter GDP becomes increasingly evident to all except Wall Street and Administration hypesters, who professionally never admit to such news, it would be quite surprising if the financial markets did not react violently, with a massive sell-off in the U.S. dollar contributing to and coincident with massive sell-declines in both the U.S. equity and credit markets.

Recognition is growing rapidly of the re-intensifying economic downturn. Yet, little analysis so far has been put forth to public as to some of the unfortunate systemic implications of this circumstance. The problems range from extreme growth in the federal government's operating deficit, tied to reduced tax revenues and to bailout expenditures for the unemployed, bankrupt states and continuing banking industry solvency issues, to U.S. Treasury funding needs to pay for same. The latter issue promises eventual heavy Federal Reserve monetization of Treasury debt, with resulting inflation problems and eventual hyperinflation (see the Hyperinflation Special Report).

US Ceding Parts of Arizona to Criminal Activity, As It Has Been Doing in the Financial Markets

This situation is an analogue to the US economy, where increasingly larger portions of the financial markets in the US are being ceded to white collar fraud and manipulation by the gangs of New York. The problem is not with law enforcement per se, but that the basic functions of government are being overwhelmed by inept and corrupt lawmakers and regulators, the powerful rule of special interests, and a general lack of concern and disdain for the needs of the ordinary citizens. These are the root cause of the failures of government in the US.

This is not a problem of Republicans versus the Democrats. It is the age old problem of the avarice of an oligarchy of the self-proclaimed elites against the rights of the private individual, and the common people.

"From whence shall we expect the approach of danger? Shall some trans-Atlantic military giant step the earth and crush us at a blow? Never. All the armies of Europe and Asia...could not by force take a drink from the Ohio River or make a track on the Blue Ridge in the trial of a thousand years. No, if destruction be our lot we must ourselves be its author and finisher. As a nation of free men we will live forever or die by suicide."

Abraham Lincoln

"In a press conference ignored by the American national media, the sheriff described how his deputies were outmanned and outgunned by the cartel smugglers who increasingly operate using military tactics and weapons. The result, said Sheriff Babeu, was that a wide corridor of Arizona from the border North to the outskirts of Phoenix is effectively controlled by the cartels. "We do not have control of this area," the sheriff said.

At the same time as the sheriff's ignored press conference, the national media did cover assurances from the Obama Administration that crime was down at the border; that the border had never been safer. This ludicrous propaganda was based on selected crime stats from San Diego, Phoenix, Austin and San Antonio. The new reign of terror on the border in Arizona was airbrushed out of the picture.

Here's the real picture Obama does not want you to see. Warning signs were posted this past month by the federal government 80 miles North of the border on the South side of I-8 between Casa Grande and Gila Bend urging U.S. citizens not to camp or hike in the "Active Drug and Human Smuggling Area" because "Visitors May Encounter Armed Criminals."

Read the rest of the story at Crossing a Dangerous Threshold by Michael Panzner.

It is not a question of financial stimulus or fiscal austerity, which are a meaningless debate intended to distract attention from the much more serious problem. The fundamental issue is the enforcement of the laws, the administration of justice, the upholding of the Constitution and the Bill of Rights, and the reform of the financial markets and the economy. All things, all policies, are turned to foul ends while the system is driven by a fundamental corruption.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

US Total Government Debt Reaches 130% of GDP

Here's a postcard from off-balance-sheet country.

This includes only current debt and not future unfunded obligations.

I like to call this US debt chart "The Last Bubble," but it could equally apply to a chart showing the representation of this debt - the US bonds, notes, bills and of course dollars, which are really nothing more than Federal Reserve Notes of zero duration in the modern fiatopia.

It all adds up, eventually, and must be reconciled. It is easier to print money and accumulate debt when you own the world's reserve currency. For a while the dollar might even flourish, despite the printing, as the international savers flee ahead of the economic hitmen, from country to country, and crisis to crisis.



Chart compliments of the Contrary Investor.

Guest Post: Slouching Toward Despotism

Posted by Keith Hazelton, Anecdotal Economics

Benjamin Franklin, when asked at the conclusion of the Constitutional Convention in 1787 what that assembly had created, purportedly responded, “A republic, if you can keep it,” which seems likely given his remarks to Convention members on that September day immediately prior to their vote on the proposed Constitution in its original form.

Often, but on far more occasions in the last three years, we are reminded of a portion of those remarks. Dr. Franklin, given his age (81) and health, asked to have his commentary read to delegates preceding what he hoped would be a unanimous vote in favor of a nonetheless flawed agreement.

“In these sentiments, Sir, I agree to this Constitution with all its faults, if they are such; because I think a general Government necessary for us, and there is no form of Government but what may be a blessing to the people if well administered, and believe farther that this is likely to be well administered for a course of years, (but) can only end in Despotism, as other forms have done before it, when the people shall become so corrupted as to need despotic Government, being incapable of any other.” (Emphasis mine.)

And the question we keep pondering is, “Are we there yet?” Are we merely slouching toward despotism, or have we arrived? Are we already so corrupt so as to need despotic government, what with Vampire Squids and corporate/union-bought elections and Congressional bystanders and regulatory capture and Systemically Important Too Big To Fail and Gulf of Mexico oil well disasters?

(Despotism, by the way, describes a form of government by which a single entity rules with absolute and unlimited power, and may be expressed by an individual as an autocracy or through a group as an oligarchy according to Wikipedia, the world's leading source of made-up information, which is good enough for us.)

In previous posts we have observed the growing and discernible disconnect between several types of government-reported economic data such as Retail Sales and actual state sales tax collections, and the Employment Situation and withholding tax collections. Others also have made solid cases for these disconnects between statistical theory and economic reality and it occurs to me that, far from being isolated or random events, they are evidence of much more disconcerting forces at work.

Fudging on unemployment numbers or "rounding up" retail sales reports may seem like minor infractions, and many of these government data reports have been manipulated for years, maybe half a century, but they represent a pattern of conscious, calculated design of "don't worry, be happy, the government's in charge, nothing to see here, so move along."

The Bureau of Labor Statistics (BLS), for example, estimates who is working and who is not, but conveniently excludes millions of people from its composition of the unemployment rate who are not working but neither deeming them “unemployed” because they are “marginally attached” to the workforce or are “discouraged” by a lack of job prospects and no longer are looking for employment (2.3 million as of March 2010 plus another 3.4 million “persons who currently want a job,” who also aren’t counted as unemployed).

Side note: You are well aware, of course, the Social Security Administration probably could tell us monthly almost exactly how many people really are working, not working, working part time, self-employed, and so on based on its receipts of tax withholdings from employers. It is beyond the pale to imagine SSA could not furnish a version of the monthly Employment Situation that would be far more reliable by orders of magnitude than the guesses of the BLS.

As to why government statistical agencies may be reporting "happy" numbers, well, you know the answer to that...government statistics are lying's fifth circle of hell, just a shade better than Campaign Promises.

How about the major changes to the Producer Price Index and the Consumer Price Index which were made in the 1980s and 1990s to greatly reduce reported inflation numbers as a means of containing the cost of living adjustments (COLAs) for Social Security recipients, as John Williams at ShadowStats extensively has reported for years?

Or the March 2010 Monthly Treasury Statement, which understated the true government deficit last month by including a $117 billion collection described as “proprietary receipts from the public” by the Treasury, likely TARP repayments but not defined as such. Or the December 2009 Monthly Treasury Statement in which $45 billion extracted from the nation’s banks as a 13-quarter advance FDIC premium also was shown as a “negative outlay” which creates a significant understatement of the true FY2010 deficit picture (so far, $162 billion this fiscal year, which will understate our true deficit by about 10 percent).

Or the “New” General Motors wasting millions of (tax) dollars for print and television ads to promote a fictitious narrative that it has “repaid” government loans of $8.1 billion (to the U.S and Canada) “plus interest” five years early when in fact SIGTARP, the Special Inspector General of the Troubled Asset Relief Plan Neil Barofsky, told Congress and Fox News that GM did no such thing, that the loan “repayment” did not come the old fashioned way from sales and earnings but from a "cash advance" on another TARP facility which both governments will count as additions to their already significant equity positions. Nothing in those ads mentions the many tens of billions of taxpayer dollars borrowed from China which flowed into General Motors and Chrysler pre-bankruptcy which never will be repaid.

And now the New GM wants to create another automobile financing company, or buy back its former GMAC/Ally unit which itself has received nearly $20 billion of government Too Big To Fail largesse, so it may become even more profitable by returning to sub-prime auto and everything-else lending and have a happy IPO later this year, because as everyone knows, including the New GM's management, there's precious little profit in building cars no one wants and few can afford. "As a dog returns to its vomit, so a fool repeats his folly," (Proverbs 26:11) as Jesse's Cafe Americain recently observed.

How about the seeming inability to legislate any significant financial reform in the wake of the worst economic crisis in 80 years, a crisis which, mind you, needed fewer than eight years to erupt once the last shred of restraint – Glass-Steagall – was forcibly removed at the end of 1999 by those who, coincidentally (paging Messrs. Rubin and Summers), have profited so handsomely from its demise.

The Banking Act of 1933 – Glass-Steagall – was a wonder of simplicity in a simpler era. It set forth in a mere 37 pages of text the safeguards necessary to separate commercial banking from everything else and to ably prevent for 66 years – two full generations – any meaningful implosion of the nation’s financial system. Any search for cause and effect of The Great Recession must begin here. The useless financial reform act – the Dodd act – weighs in at a lobbyist-induced 1,500+ pages, and will do nothing to prevent another financial crisis, nothing to dismantle Too Big Too Fail, nothing to contain derivatives, nothing to audit the Federal Reserve and nothing to curtail abuses in consumer financial practices.

Yet where are the criminal investigations? Where is the FBI? Where are the Congressional inquiries and panels and special prosecutors? Where are the indictments? Where are the perp walks and the jail sentences? Where is the justice, Mr. Holder and your 50 friends among the states? Aside from two former Bears Stearns hedge fund managers in 2007, and a pretend hedge fund manager - Mr. Madoff - in 2009, a weak SEC civil show-case against Goldman Sachs in 2010 and the mostly voluntary, golden-parachute-enabled "retirements" of a handful of TBTF C-level executives, a number of which, John-Thain-like, merely have revolved around the door a couple of times and landed at another lucrative looting opportunity, nothing has happened. Nothing, nada, zero, zip, dick. Nothing. It's breathtaking in its design and execution.

We now are reliably told the TARP program will cost less than $100 billion when all is said and done. Huh? What about the $2 trillion-plus of added government debt which itself adds tens of billions to the annual interest servicing burden, or the $1.5 trillion-plus willed into existence by the Federal Reserve? Who are they kidding?

Or a Health Care Act which, in 2,500 pages manages to spend about another trillion dollars or so and leaves no health insurance company behind, effectively criminalizing, albeit with monetary penalties far less than the cost of individually paid health insurance plans, anyone not otherwise exempted who fails to purchase health care coverage.

It seems to us, after thinking about this topic for some time now, that we have arrived. We have arrived at that point in our civilization in which our government deems it acceptable to obfuscate about things both small and large on the basis that, Jack-Nicholson/Colonel-Jessup-like, we (the rest of us who aren’t lodged in the political/oligarchical castes) “can’t handle the truth.”

And most of the time it would appear they are right, that we – the rest of us – can’t be bothered with such discrepancies and inconsistencies, falsehoods and half-truths. We're too busy trying to keep the house, make the mortgage and auto loan and credit card and student loan payments. We're too focused on our own financial survival to be concerned with what goes on at a national leadership and direction level. And doesn't it just seem a little too convenient for those who wish to plunder the wealth of the nation to keep the other 90 percent of us so strapped with indebtedness and an outdated personal moral conviction that debts should be repaid regardless of their potential to physically and mentally harm one's well being or, heaven forbid, harm one's all-important credit score, when walking away from debt has been an accepted business practice for centuries?

It only seems to matter on those rare occasions when things blow up, and the average, non-voting, non-taxpaying citizen awakens from his or her media-induced stupor to ponder that when the curtain is drawn away, it reveals only humans and not wizards, or that the outgoing tide reveals who has been swimming naked or when the emperor is shown to be undressed. But interest in such matters wanes quickly, and the thirst for change recedes silently into renewed acceptance of the status quo, as we now discover.

Soon, no doubt, when markets resume their upward trajectory and the Dow returns to and surpasses 14,250 (probably by this summer) and oh-don't-worry-about-those-6.5-million-log-term-unemployed-because-they're-just-lazy, much of this unpleasantness of the last three years will be forgotten by those more interested in only good news and Dancing With the Stars and American Idol, and the continued warnings of the Cassandras will be deemed evidence that these are, once again, merely the musings of disaffected social misfits or bad-news-opportunists who deep down must hate America (right up until the point at which the next crisis erupts, and erupt it will).

In fact, our short attention spans are relied upon by the political class of both parties and by the oligarchical class which controls it, as magnificent wealth transfer schemes blossom anew (talk about green shoots...) and the all-so-brief period which has elapsed between the “days away from financial Armageddon” of September 2008 and the "all clear, business as usual" of May 2010 insures, like the watered-down, useless "financial reform" legislation written by financial industry lobbyists which certainly will pass soon, that the laudable goal of making safe our financial system and returning it to the status of handmaiden to legitimate capital-producing and jobs-creating enterprise, will be discarded in exchange for the pretense of life as we knew it, circa 2006.

Only this time, effectively having destroyed the middle class of Boomers, Gen X-ers, Gen Y-ers, Millennials and Echo Boomers, and having bought the complicit silence of the of a near-majority (47% of Americans paid no income tax whatsoever in 2008) in exchange for bread and circuses, and having largely destroyed the previous primary mechanism by which wealth has been stolen and transferred (credit creation and personal indebtedness), the masters of the universe will have to find a new scam, which, at this writing, appears to be sovereign government debt, currencies and commodities, because turning back the calendar to 2006 alone will never recreate the consumer spending/debt orgy of 1982-2006.

In fact we think the oligarchs realize this, and they are redoubling their efforts to pillage as much as possible before the real collapse occurs, even as its seeds already have been sown in this crisis which now appears, by design and deception, to be ending. That collapse draws nigh, and Roubini and Taleb and Ritholtz and Panzer and Jesse and Tyler and Mish and Yves and Charles Hugh Smith and Joe Bageant and many, many others already see it, yet all are being dismissed - again - as those nattering nabobs of negativism who, broken-clock-being-right-twice-a-day-like, were merely “lucky” in guessing about the immediate past crisis as former Fed Chairman Alan Greenspan suggested in a recent television interview.

Tell us Greece is not the "sub-prime" of early 2007; that the US$150 billion "cure" to be soon applied by the EU and IMF is only can-kicking but will allow one and all to congratulate themselves on "containing" an isolated problem and to quickly return to the never-ending cocktail party, that is until the next Greece Fire which spreads to one after another country, including, ultimately, the possibility of the conflagration reaching bond markets in the U.S.

Or that a mere US$1 trillion of bailout/rescue/currency support recently proposed by the Eurozone and the IMF to "shock and awe" financial markets dominated by the recently rescued TBTFs who busily apace bet against the very governments which saved them (except now in Germany), is not merely another stealth rescue of these giant financial institutions which, having been caught with a bit too much Club Med sovereign debt on their books while their own prop traders work hard to destroy its value, now cry out - again - that the risk of their insolvency - again - threatens the global financial and economic systems.

Or that the battling machines of high-frequency trading, which briefly wiped out and then restored a trillion dollars worth of fictitious (paper) wealth in fewer than 15 minutes mid-afternoon May 6th in a dry-run rehearsal of things to come, won't now become even more emboldened and empowered to manipulate financial markets in any manner necessary to insure continued quarters of perfectly profitable trading days.

(May 6th should have been a non-event. We were expressly warned by the Manhattan Assistant US Attorney in a July 2009 court filing, in which it was alleged that a former Goldman Sachs quant trading programmer stole Goldman's "secret proprietary trading code," that "there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways." Well, duh. Doesn't it just seem like someone took this code, or a similar one, out for a test drive earlier this month?)

Soon, perhaps if not already, the wealth transfer will be complete, and a newly impoverished, former middle class will wake up from their recliners to find not only is Dancing With the Stars over, but also is their former debt-fueled way of life as the economy staggers, unemployment escalates, more good jobs are exported and living standards rapidly erode. (Irony alert: Their former U.S. employers, who effectively have downsized and off-shored their way to record profits, will find they have destroyed their own customer base - the former middle class - who no longer can afford their products.)

When 40 million people are receiving food stamps at one end of the economic spectrum (and probably another 20 million eligible according to the Department of Agriculture), and the bulk of financial and real assets have been concentrated into the top 10 percent of the other end of the economic spectrum, nothing good can come of it. So the well-off cohort will remain well-off and will conspire to direct through their agents in government only enough resources to buy the complicity and silence of the bottom 40 percent, like tax breaks, food stamps, health care subsidies and so on, and the soon-to-be-former middle class will be ground into yet lower levels of the economic ladder, such, that when the looting has concluded, we will see a top 10 percent and a bottom 90 percent, much as feudalistic Europe in the centuries of the Dark Ages.

(We strongly recommend two books on the subject, both of which in far more detail and eloquence lay out the symptoms, causes and effects of our slouch toward despotism: Survival +, by Charles Hugh Smith at Of Two Minds, and Deer Hunting With Jesus: Dispatches From America's Class War, by Joe Bageant at Joe Bageant (and whose recent post about the American Hologram Lost on the Fearless Plain also is required reading).

“All lies and jest… Still a man hears what he wants to hear and disregards the rest,” so said Paul Simon, which rings so true more than four decades later. We hear what we want to hear, and, apparently, what we want to hear is that all is back to normal, that all is good, that the wizards have everything under control, and that nothing bad can ever happen again.

So, are we there yet? Have we not already abdicated our responsibilities as citizens and tacitly embraced the despotism of which Franklin predicted 222 years ago, having become so corrupted (contaminated) as to require the despotic government of an oligarchy dedicated to insuring the truth never gets in the way of a good narrative, an enormous disparate accumulation of wealth and a firm grip on the levers of power to ensure the preservation of that wealth?

A few Tea Party primary victories and incumbent "mandatory retirements" aside, nothing will change in Washington as long as the strings of campaign cash and lobbyist perks are being pulled elsewhere. The "outs" who soon will replace some of the "ins" promptly will forget about their mandates from the voters the day they move into their new D.C. offices and townhomes and realize from moment one their only responsibility is to their own rational self-interest of being re-elected in 2012 and 2014 and 2016. Et tu, Barack?

And if Benjamin Franklin is not prescient enough for you, how about the Teacher, in Ecclesiastes, Chapter 1, v.13-18, from about 2,300 years ago:

What a heavy burden God has laid on men! I have seen all the things that are done under the sun; all of them are meaningless, a chasing after the wind. What is twisted cannot be straightened; what is lacking cannot be counted. I thought to myself, "Look, I have grown and increased in wisdom more than anyone who has ruled over Jerusalem before me; I have experienced much of wisdom and knowledge." Then I applied myself to the understanding of wisdom, and also of madness and folly, but I learned that this, too, is a chasing after the wind. For with much wisdom comes much sorrow; the more knowledge, the more grief. (Emphasis added.)

Indeed, with wisdom comes sorrow, and from more knowledge, more grief. Would, sometimes, that we could empty so much of it from the mush of our remaining gray matter and then we wouldn't have to pretend it's all good, when, in fact, it’s anything but good, as soon, perhaps in a matter of a few short years, we shall see.

We first wrote the following paragraphs in June 2006, long before sub-prime lending, a bursted housing bubble, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, CitiGroup, Bank of America, JPMorgan Chase, Goldman Sachs, GM, Chrysler, the Federal Reserve, the Treasury Department and The Great Recession began to dominate our lives, when Franklin’s predictions and our inexorable slouch toward despotism first appeared on our radar screen:

The transition from unitary executive to dictator – conservative, benevolent or otherwise – will not happen in the waning months of the current administration, so uniquely manifested by America's First Triumvirate of George Bush, Dick Cheney and, until recently, Karl Rove, but succeeding chief executives may choose overtly to expand further the envelope-pushing and Constitution-trampling of the 43rd President and his neo-conservative command-and-control cabal as the American oligarchy, and the nation, slouches slowly toward despotism.

As such, we will one day awake from our debt-financed, pleasure-induced stupors to find one person or group firmly in charge, answering to no one, especially not Congress, and in complete grasp of the military, the intelligence agencies, the treasury, the Federal Reserve and the financial and judicial systems. It will happen – it is happening – an inch at a time, until the day comes when not only will we, the fun-loving, celebrity-worshipping, civic-duty-abhoring citizens of America, so embrace the notion of despotism, we will think it entirely our own idea.

Are we there yet?

Keith Hazelton is an Adjunct Professor of Finance at Oklahoma City University's Meinders School of Business and an Economic Adviser to the Oklahoma Bankers Association. His opinions are his own.

Guest Post: A Double Dip Recession? A View from the Consumer Metrics Institute

I have been looking for a commentary to share with you all regarding the most recent US GDP report. I wanted something that went beyond the obvious inventory buildup that boosted the number by almost double, and the shockingly low deflator that was used.

Here is a commentary that seems to capture the big picture of where the US economy stands today, and is able to express it simply and clearly.

Richard Davis of the Consumer Metrics Institute does excellent work, and is available for interviews.

Enjoy.

"The April 30th GDP report issued by the Bureau of Economic Analysis ("BEA") of the U. S. Department of Commerce was a freeze-frame quarterly snapshot of a highly dynamic economy -- an economy that another source indicates was in significant transition while the snapshot was being taken.

Compared to the 4th quarter of 2009, the annualized growth rate of the GDP had dropped by 43%. Depending on your point of view this could be interpreted either as a glass that is "half-full" or a glass that is "half-empty":

1) The "half-full" reading would mean that the GDP numbers confirm that the recovery had at least moderated to a historically normal growth rate. In this scenario the good news would have been that "the economy is still growing," albeit at a historically normal rate. The bad news would have been that a normal growth rate would only warrant normal P/E ratios in the equity markets.

2) The "half-empty" reading would have meant that the near halving of the GDP's growth rate confirmed that (at the factory level) the economy had finally begun to "roll over". If so, the BEA's announcement portends even lower readings in the quarters to follow.

What was clearly missing in the "half-full/half-empty" debate was a feel for whether the level seen in the snapshot's glass was stable or still dropping. At the Consumer Metrics Institute our measurements of the web-based consumer "demand" side economy support the "half-empty" reading of the new GDP data. The new GDP numbers (which are subject to at least two revisions) agree with where our "Daily Growth Index" was on November 24th, 2009, 18 weeks prior to the end of 2010's first calendar quarter -- and when that index was in precipitous decline.

A look at our "Daily Growth Index" also shows that towards the end of November 2009 the "demand" side economic activity was dropping so quickly that a two week change in the sampling period would make a huge difference in the numbers being reported. If the sampling period had shifted to two weeks earlier, the reported GDP number would have been 4.4%, substantially higher. However, if the sampling period had shifted to two weeks later, the GDP growth rate would have been only 2.0%, less than half the reading from only 4 weeks earlier. This is the sign of an economy in rapid transition.

The methodologies used by the BEA when measuring factory production are ill suited to capturing an economy in such rapid transition. In the 4th quarter of 2009 the production side of the economy was topping (reflecting the topping of our measurements on the demand side in August 2009). The first quarter's production environment was at a much more dynamic spot in this particular economic cycle, and the subsequent monthly revisions by the BEA may be significant.

From our perspective the GDP is only confirming where our numbers were in November -- which is, relatively speaking, ancient history. Since then we have seen our "demand" side numbers slip into contraction (on January 15th), and they have recently lingered in the -1.5% "growth" range (see charts below). We have long since recorded the "demand" side activity that has been flowing downstream to the factories during the second quarter of 2010. If the GDP lags our "Daily Growth Index" by 18 weeks again we should see the consumer portion of the 2nd quarter 2010 GDP contracting at a 1.5% clip, less inventory adjustments."

"As you can see from the above chart the current consumer "demand" contraction event is unique: if there is a "second dip" it may very well be unlike anything we have seen recently. Instead of a "call-911" type of event in 2008 or the "hiccup" witnessed in 2006, we may be seeing a "walking pneumonia" type of contraction that has legs.

Our data is significantly upstream economically from the factories and the products measured by the GDP, putting us far ahead of the traditional economic reports. Perhaps our data is too timely; we are so far ahead of conventional economic measures that our story generally differs (either positively or negatively) from the stories being simultaneously reported by more traditional sources."

Charts and commentary courtesy of Richard Davis at the Consumer Metrics Institute.