Finagled U.S. Economic Numbers Explained
By Victor
Sperandeo with the Curmudgeon
Introduction:
Have you noticed that recent economic data put out by
U.S. government agencies (e.g., BLS, BEA, etc.) has been very strong,
while private economic data releases have been very weak. For example, the Leading Economic
Indicators (LEI) from the Conference Board have been down for 10
consecutive months, while private company lay-offs have increased sharply
this year.
How does one resolve this discrepancy? That’s the
focus of this week’s column, although there seem to be more questions than
answers!
Discussion:
The one number that is more genuine than others is U.S.
tax revenues. If the U.S. economy is
as strong as reports indicate, tax revenues should be increasing at a healthy
pace. That’s not happening!
According to the U.S. Treasury Dept, the
federal government has collected $1.47 trillion in fiscal year 2023. Compared
to the federal revenue of $1.52 trillion for the same period last year (Oct
2021-Jan 2022) federal revenue has decreased by $44 billion or 3%.
Meanwhile, the Congressional Budget Office (CBO) says it
now expects tax revenues to fall in 2023 by 2% to $4.8 trillion.
Let’s now examine some recent strong economic
data.
1. On February 3rd, the BLS reported an increase of +517,000
jobs added in January 2023 compared with an average monthly gain of 401,000 in
2022. The unemployment rate of 3.4% was
the lowest since 1969 and 800,000 manufacturing jobs were created in the last
two years.
2. Retail
sales in January were reported to have increased +3% (more on this later).
3. U.S. real
GDP has also been on the rise the 3rd and 4th quarters of
2022 after two negative quarters to start the year.
4. The Atlanta
Fed GDP-Now [1.] projects this quarter’s GDP to be +2.5%
(annualized) vs last quarter’s +2.9%.
Note 1. GDPNow is not an official forecast of
the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP
growth based on available economic data for the current measured quarter. There
are no subjective adjustments made to GDPNow—the estimate is based solely on
the mathematical results of the model.
These are very strong economic numbers, so why are tax receipts declining?
Answer: The U.S.
government always tries to make the economic data look good and will fudge any
number to do so. One has to use private sources to
obtain an accurate reading of the U.S. economy, especially considering all the
“seasonal adjustments.”
Let’s dig a bit deeper:
·
We previously noted that the BEA
“adjusted” the base GDP number by making it lower. Thereby, the subsequent GDP numbers are
showing greater growth rate increases.
·
Note that the Blue Chip Economists Consensus for 1st quarter
2023 GDP has now declined to -2%, while the Atlanta Fed GDP Now estimate has
increased to 2.5%.
·
Retail sales were +3.0% last month, but they do not adjust for
inflation. According to David Stockman,
if you adjusted the +3.0% to inflation it would be -1.8%?
·
January’s +517,000 jobs added
was a SEASONALLY ADJUSTED NUMBER. The
non-seasonally adjusted number (actual “counted jobs”) was actually
negative! On an NSA basis, 2.5
million jobs vanished last month. That’s a 3+ million reporting
difference!
·
In its CPI calculation, the
BLS defines the cost of “shelter” as “owners’ equivalent rent.” That’s a make-believe subjective number that
has no meaning in the real world, but it’s 1/3 of the weighting in the CPI! The
BLS with this one meaningless category can make the CPI move anyway it wishes.
·
The debt to Gross GDP ($26.2
trillion) ratio is stated as “debt held by the public” at $24.6 trillion, but
that doesn’t include the Social Security trust fund (“intra-governmental holdings”) which
is $6.8 trillion as of 2/9/23.
·
However, U.S. debt subject to
the “debt limit” does include the Social Security Trust fund. That makes the
debt to GDP ratio > 120%!
--> It goes on and on like this. Not one number
is really truthful!
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CBO Federal Debt Estimates vs Reality?
The CBO estimate for the increase in the federal debt
over the next 10 years goes from the current $31.4 trillion to $46.4 trillion.
Or a growth rate of 3.98% per year. However, the 52 year
trend (since Nixon took the U.S. off the International Gold Standard in August
1971) of US federal debt is 8.75% per year!
The main reason for this huge discrepancy is that the
CBO never estimates increases in debt from recessions. Astonishingly, the
CBO believes the business cycle has been repealed and there won’t be any
recessions in the future.
It should be kept in mind that Medicare is supposed
to go broke in 2027 and Social Security in 2033. Does anyone believe those
programs will not be funded by borrowing printed currency?
Using the 52 year trend rate the U.S. “Stated Debt”
- not including “off budget” items and unfunded liabilities – U.S. federal debt will be $72.65 trillion!
Do you think that’s toxic?
CPI, Inflation and the Fed:
The BLS revised the seasonal adjustment to the
consumer price index (CPI) data for 2022 and the weights for the basket of
goods in the index for 2023. The revisions boosted inflation measures in late
2022 and suppressed the rise in measured inflation in January 2023. The CPI
rose 0.5% in January, five times the upwardly revised pace of December 2022.
The net effect was hotter, more persistent inflation than previously reported. That will likely keep the Fed’s rate rises
going for the next two or three FOMC meetings.
The CPI 52 year trend shows
a reported official increase of 3.95% annually (it is actually much
higher). That means your paycheck has to double every 18.2 years just to keep even with
inflation (and that does not adjust for tax increases due to the U.S.
progressive tax system). It means if you start work after college (age 22) it
will double 2.4 times before age 65. This implies your children and
grandchildren will most likely be poor. Oh, but the Fed claims its goal is 2%
annual inflation. How’s that working
out?
To reiterate what we’ve stated in dozens of
Sperandeo/ Curmudgeon posts, inflation is not the CPI! It is the increase in the quantity of money (e.g.,
money supply).
The Fed totally controls the cost of credit/money and
the U.S. money supply. They are solely responsible for this “inflation tax” we
are all paying now. Supply chain
disruptions? War in Ukraine? They are only temporary, and prices should
decrease after the effects have diminished.
But that’s not happening. We haven’t really seen any big declines in
general prices? Instead, we have lower rates of price increases.
Curmudgeon’s Conundrum:
As most of you know, I’m a professional researcher
and a stickler for accuracy. Having done
an extensive online and print search in the library, I conclude that no one is
actively challenging the U.S. government economic numbers other than
Victor. How is that possible?
Has the mainstream media become lemmings which follow
what the governments says without further examination?
For example, I could find only one economist who
didn’t believe the strong BLS January 2023 jobs report.
Mark
Zandi, chief economist at Moody’s Analytics, warned that the BLS report might be
too good to be true. “Whoa! The BLS jobs report for January was VERY strong. So
strong, I don’t believe it. The BLS is likely having measurement issues. Most
likely, difficulty seasonally adjusting the data, which is especially important
in January.”
Zandi
advises not to take the BLS data at face value.
He expects future revisions based on complete employment counts from
unemployment insurance records to show that the economy actually
created fewer jobs in the past year.
However, Zandi’s skepticism was totally drowned out
by the lavish praise and loud clapping from the Wall Street Journal, NY Times
and other mainstream publications that did not even mention seasonal
adjustments as an issue for the strong January jobs report.
Please email the Curmudgeon (ajwdct@gmail.com)
if you have an explanation for the lack of questioning and investigation of
U.S. government reported economic numbers.
Closing Quotes:
When this system was created by the Rothschild’s they
understood the psychology of how it would survive. Here are two relevant quotes:
“The few who understand the system, will either be so interested from its
profits or so dependent on its favors, that there will be no opposition from
that class.”
— Mayer Amschel Rothschild
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Be well, stay healthy, warm, and dry. Till next
time…...
The Curmudgeon
ajwdct@gmail.com
Follow the Curmudgeon on Twitter @ajwdct247
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.
Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.
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