GDP Release Signals Further Decline into Banana Republic Status
What is remarkable is that today's 2Q GDP revision. from a 1.9% that most observers regard as likely to be revised downward (and initial releases are often revised by significant increments), has now been revised to a simply not credible 3.3%. We'll discuss in a bit how this artwork was achieved.
Yet what is more remarkable is that a quick read of the MSM (Bloomberg, Financial Times, the Wall Street Journal, and the New York Times) reveals that no source seems willing to challenge this practice and call it for what it is, manipulation for political purposes. Some economists quoted by the MSM instead politely chose to ignore the dead body in the room and argue, essentially, that this supposed data point was irrelevant as far as the outlook was concerned. Here we see some tiptoeing around the tulips quotes:
Bloomberg: ``Outside of trade, the economy is considerably weaker,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``When you look at the spending, it looks terrible for the second half of the year.''
Reuters: "This number seems to overstate the underlying strength even though exports are obviously strong," said James O'Sullivan, an economist at UBS Securities in Stamford, Connecticut.
Barry in a later post, with the help of a chart provided by Michael Panzner, found the real smoking gun: a laughable assumption for inflation. The lower the inflation assumption, the higher the GDP figure. Not only was the 1.2% chosen lower than CPI, which has been adjusted over time to underreport inflation so to reduce payouts on CPI-indexed programs, most notably Social Security, but as a commentor on Econompics noted, constituted the biggest gap between the GDP deflator and CPI since 1980 (squinting at the chart, that seems to be accurate):
http://bigpicture.typepad.com/comments/files/gdppr...
Mind you, this massaging is taking place on top of long-running adjustments that make both GDP and inflation stats questionable. Is it time to revive the 1960s expression "credibility gap"?
From Bloomberg:
The meager gains in earnings over the last year signal the
U.S. economy is in much deeper trouble than the growth estimates indicate, economists said.
Gross domestic income, or the money earned by the people, businesses and government agencies whose purchases go into calculating gross domestic product,
rose 0.3 percent in the 12 months ended in June after adjusting for inflation, according to Bloomberg calculations based on today's Commerce Department growth report. GDP expanded 2.2 percent.
``The income side of the economy, with profits down for four straight quarters and employment falling, looks like a recession,'' said John Ryding, chief economist at RDQ Economics in New York.
Incomes last quarter grew 1.9 percent at an annual rate after adjusting for inflation, a little more than half the 3.3 percent gain posted by GDP, according to Bloomberg calculations. The figures showed incomes dropped in each of the prior two quarters.
``What you are seeing is more legitimate economic weakness in the income numbers,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. ``The GDI numbers raise the potential that GDP is overstating growth.''
The 1.9 percentage-point difference between the GDI and GDP over the last 12 months is the biggest in the post World War II era.....
The income numbers are more in line with other figures that indicate the economy struggled from April through June. The jobless rate was 5.5 percent in June, up from 5.1 percent at the end of the first quarter, and employers cut 165,000 workers from payrolls, according to the Labor Department.
``I'm looking at the labor market, and the GDP income numbers make more sense,'' said Ryding. ``It certainly did not feel like 3.3 percent growth.''
The earnings data may more accurately predict the start of economic contractions, according to researchers at the Federal Reserve.
Income adjusted for inflation ``has done a better job recognizing the start of recessions than has the growth rate of real GDP,'' Jeremy J. Nalewaik, a Fed economist wrote in a December 2006 report. ``Placing an increased focus on GDI may be useful in assessing the current state of the economy.''
While the income and growth figures should theoretically match, the different methods used in calculating the numbers prevent them from converging fully.
http://www.nakedcapitalism.com/2008/08/gdp-release...
http://www.bloomberg.com/apps/news?pid=20601068&si...
