Disappearing Economic Indicators
First M3, now . . .
Sometimes, when the data is (how shall we say this) less than delightful, politicians pressure bureaucracies to modify their models. This attempt to misrepresent reality goes back at least to JFK, and probably much further. It is not party specific, but is a characteristic of the all too common creature, Politico Disinguousi.
Yesterday, we discussed the unprecedented seasonal changes to CPI (Pre-Revision CPI: 9%) that managed to all but eliminate inflation reporting. And the absurdity that is the birth death adjustment has all but completely bastardized the Non-Farm Payroll (NFP) data series. Of course, the cowardly scam that was the Boskin Commission was the most outrageous change in modeling over recent decades.
More brazen politicos don't even bother gunking up the models -- they simply press to stop reporting the data. The most egregious example of this in the recent past was M3 reporting. We noted as it happened that once the Fed decided to save a few pennies stopping M3 reporting, you knew that M3 was going to skyrocket.
And so it has.
Recently, there was an attempt to close Economicindicators.gov; That was a warning the economy was about to worsen. Thanks to readers and NY Senator Schumer, it was successfully beat back.
The latest such attempt at reducing economic information is brought to our attention by the WSJ's Real Time Economics. They note that:
"A statement from the chair of the NABE’s statistics committee, Haver Analytics President Maurine Haver, asserted that “just when reliable and timely indicators are needed most, resources devoted to their production at our federal statistical agencies have been cut, requiring the termination of data series or a reduction in sample sizes used to produce the data.”
Ms. Haver catalogs the casualties of budgetary tightening, writing that “the Bureau of Labor Statistics (BLS) has been forced to terminate all hours and earnings data reported for local areas as well as payroll employment for 65 small metro areas. The BLS International Price Program has also eliminated a number of series including prices of transportation services such as passenger air fares, air freight, and crude oil tanker freight. The Census Bureau will discontinue its Survey of Alterations and Repairs in May. The Bureau of Economic Analysis will reduce the level of industry detail in its county data and will eliminate the benchmark capital flow tables that provide baseline data on industry-by-industry investment by type of investment. This may only be the beginning.”
Let's draw the appropriate conclusion from this: First M3 reporting stopped, and shortly thereafter, M3 skyrocketed. Next was the attempt to stop aggregating general economic information, and then we learned that GDP fell off the cliff.
Now comes the attempt to reduce the reporting of hours and earnings data. Gee, can you guess what coincidence is about to happen?
Let me end your suspense: Workers Get Fewer Hours, Deepening the Downturn.
"Throughout the country, businesses grappling with declining fortunes are cutting hours for those on their payrolls. Self-employed people are suffering a drop in demand for their services, like music lessons, catering and management consulting. Growing numbers of people are settling for part-time work out of a failure to secure a full-time position.
The gradual erosion of the paycheck has become a stealth force driving the American economic downturn. Most of the attention has focused on the loss of jobs and the risk of layoffs. But the less-noticeable shrinking of hours and pay for millions of workers around the country appears to be a bigger contributor to the decline, which has already spread from housing and finance to other important areas of the economy.
While official unemployment has risen only modestly, to 5.1 percent, the reduction of wages and working hours for those still employed has become a primary cause of distress, pushing many more Americans into a downward spiral, economists say.
Moreover, this slippage is a critical indicator that the nation may well be on the verge of a recession, if not already in one.
Last month, the hours worked by those on American payrolls dropped, compared with six months earlier, according to an index maintained by the Labor Department. The last time the index moved into negative territory was February 2001, when the economy was on the doorstep of recession. A similar slide emerged in August 1990, one month into what proved an even more severe downturn."
Now what were the odds of that ?
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Previously:
Can M3 be Saved?
http://bigpicture.typepad.com/comments/2006/03/can_m3_be_saved.html
WTF? Feds Shutting Down Economic Data Site http://bigpicture.typepad.com/comments/2008/02/wtf-feds-shutti.html
Sources:
A Slump in Economic Indicators
Matt Phillips
April 14, 2008, 12:02 pm
http://tinyurl.com/48urm5
Workers Get Fewer Hours, Deepening the Downturn
PETER S. GOODMAN
NYT, April 18, 2008
http://www.nytimes.com/2008/04/18/business/18hours.html
Some key statistics as prediction aids: M3
NowAndFutures.com, 2008
http://www.nowandfutures.com/key_stats.html
Alternate Data Series
John William's Shadow Stats
http://www.shadowstats.com/alternate_data
Friday, April 18, 2008 | 06:47 AM | Permalink
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Seeing the Shadow stats for inflation, it looks like the true number is where it was before Volcker had the balls to put a stop to it. Now, we have Helicopter Ben in there and Volcker is calling this the "mother of all crises." Yet the stock market trades at 1.4 times sales, where historic bottoms are .8 times...Nasdaq trades at 2 times sales and 34 trailing P/E using peak earning and margins. My conclusion? Market is being manipulated big time and will likely crash within the near future. (Look at Shanghai comp this year...down about 50% from its highs. Isn't global growth responsible for the better than expected earnings we've seen from IBM, Google, Intel, etc?)
Posted by: Steve Barry | Apr 18, 2008 7:31:47 AM
Considering the huge amount of money that's being spent by the Feds (Iraq War in particular) one can only conclude that the reason these stats aren't being collected/reported is not due to "budgetary tightening" but simply to hide the facts.
Posted by: Quiddity | Apr 18, 2008 7:57:37 AM
"Will they actually leave next January ?"
I dying laughing, because this is the same thing my right-wingnut brother said about Clinton in 2000.
Posted by: Steve Barry | Apr 18, 2008 8:05:02 AM
I never thought I would see some of the things that are happening in Washington. I was never of the belief that government was great, it is lack of government that is great, but all of this reeks of the same problem. And, it is the same problem that exists on Wall Street. That is of an elitist culture that believes the minions are to be 'managed'. That someone else knows best. And, that mindset involves deceit and attempted manipulation. Now, I don't know how much of the changes in data has to do with that fact, but it doesn't lessen the reality.
That's okay though. Because what those elitists don't yet realize is that we are going to see a revolution. It may only be a revolution of ideas, but the scam is over.
Posted by: Thomas Paine | Apr 18, 2008 8:23:00 AM
They are showing the Pope speeding in his motorcade to the airport...reminds me of a famous joke...the Pope is in a limo driving to the airport...he says to the driver "I have never driven a car...please let me try it." The driver gets in the back and the Pope drives. He drives too fast and is pulled over by a cop. The cop sees the Pope and walks away and calls his chief..."chief, I pulled someone over that's very important...I'm scared to give him a ticket"...chief says "who is it?" Cop says "I don't know, but whoever he is, he has the Pope driving him."
Posted by: Steve Barry | Apr 18, 2008 8:29:12 AM
Couldn't we just do it privately? That way we can get real numbers and the person in charge of them won't manipulate them for political reasons.
All these things Barry that you're talking about, the reason they're there is to let people know what is going on at the macro level, and they can give a kick in the hindside to the people tasked with keeping the economy running smoothly (the Fed). With them gone, it just means things at this point and in the future will get worse, and no one will know about, which ultimately will lead to an even worse event I believe, cause no one was prepared.
Posted by: rj | Apr 18, 2008 8:31:42 AM
I think their approach is to do such a sorry job on collecting, analyzing and reporting the data, that people won't oppose discontinuing it because of its uselessness. Then as reported above, the Government can basically do whatever they want to; which is basically what they do anyway.
Steve Barry wrote:
"Market is being manipulated big time and will likely crash within the near future."
Steve, I agree with the former comment but disagree with the latter. I am amazed how well the market has held up. If I went away for some time and came back with the financial cannons going off on a daily basis like they are now, I would expect to see the Dow well below the $10K mark. For me, that removes any doubt that there is a serious concerted effort to prop the markets up no matter what.
I mean the Banks have written off Billions of dollars this week of which has made a new all-time low against the Euro almost everyday this week! We have no friends left in the Middle East and they are the people who now have all the money. They have already exploited us over the need for oil. They will next exploit us over the need for money. We are in a world of do-do.
The financial system in the US is in the most convoluted shape it has ever been in. There are numerous BIG problems looming that will continue to play out over the next 25 years, most in a negative way. Most will end badly because the outcome has already been baked in the cake and it's too late to have much of a meaningful solution without some group (or groups) getting hurt.
Up until now, we have been the hunter; however, now we are the hunted.
In my opinion, there will be no crash unless there is some exogeneous event that we don't even want to think about which totally overwhelms the PPT. So far, they have done one hell of a job.
So....with all things said, it's no wonder the Government wants to hide as much of the damage as they possibly can.
Posted by: BG | Apr 18, 2008 8:33:16 AM
BG,
My gut tells me that manipulated markets must crash in the end.
Posted by: Steve Barry | Apr 18, 2008 8:48:39 AM
The market is going up because investors are being scared out of fixed income and they've been brainwashed into thinking that equities are the best place to protect themselves against inflation.
The market is going to hold up until it is clearly visible that the credit crisis is hitting more sectors than the financials and that inflation expectations have not been priced into future earnings.
Posted by: D. | Apr 18, 2008 8:50:58 AM
Next Bubble is Finance Text books, because they all have to be re-written. Now they have to explain that $12 billion write down and -1.02 Q1 loss, is BULLISH.
Posted by: pikertrader | Apr 18, 2008 8:55:38 AM
Oh! And I forgot to mention how the mindset is stuck on buying the dips.
Posted by: D. | Apr 18, 2008 8:56:38 AM
Amazing,
the bad news is pouring every day - high inflation, unemployment, job losses, poor earnings, writedowns - but the market reacts to semi-positive news like JPM's earnings dropping "only" 50% "as expected" and Intel beating earnings that were lowered briefly before that.
Makes me sick. Is this Fed reflation finally kicking in? (Which is the same as manipulation). Now onder that commodities are rising then. USD should drop to €50c.
Anything I am missing?
Posted by: Ivo | Apr 18, 2008 9:00:21 AM
When asked, each and every researcher will answer that observation and original data can not be replaced. At all.
Open access to economic data provides a unique opportunity for everybody to apply own knowledge and experience and bring some value added - positive or negative.
Even more important to get accurate data during periods of high changes because of higher dynamic range for studied variables and, thus, higher resolution.
The Great Moderation has brought some deceleration in empirical economics partily due to the fact that small changes, charaterized by low Signal-to-Noise ratio, are harder to describe.
Posted by: kio | Apr 18, 2008 9:04:05 AM
Yet another example...
Quote:"Citi stumbles, but stock spikes higher.
Financial services giant records wider-than-expected loss and more than $13 billion in writedowns. But revenue surprise pushes shares up in pre-market."
I mean I see there is all technical reason for a bounce, but this...?
Stock buyers = masochists?
Posted by: Ivo | Apr 18, 2008 9:06:39 AM
Steve:
In the end, we're all dead any way.
You know (in my opinion), one of the biggest unspoken truths is the fact that a young person could put away a fairly small sum of money in a CD and retire a millionaire and escape all of this angst.
It's amazing that you never EVER hear anyone make such a statement. The simple reason is that the powers-to-be want that money invested in the stock market to feed that industry. They could not care less whether you ever get any of it back.
I mean....that is the truth! For a person 25 years old, it doesn't take that much money. Time truly is own their side. (This one goes in the deception file cabinet.)
Posted by: BG | Apr 18, 2008 9:08:02 AM
I propose two new ratios for financial textbooks:
1.)Sentiment:change in book value--i.e. company writesdown $XX Bil and share price increases/decreases
2.)Sentiment:fully diluted shares--i.e., company sells boatload of convertible preferred diluting existing common and share price increases/decreases
Dilution and writedowns can't be good things for the financials in the long term because I just don't see the earnings power.
Posted by: bonghiteric | Apr 18, 2008 9:18:53 AM
BG,
Who are the "powers-to-be"?
Posted by: Matt M. | Apr 18, 2008 9:19:19 AM
A range bound market is to be expected post Naz/residential re crash. Buy when your stomach is churning and sell when you think your sh**t doesn't stink. The government is NOT your friend. The party in power will not alter that simple fact.
Posted by: Tom C | Apr 18, 2008 9:20:37 AM
Government, Investment Banks and Wall Street
It is no accident, that all the tax laws are written to steer you in that direction.
Posted by: BG | Apr 18, 2008 9:23:32 AM
BG:
Agreed.
But that means driving a Matrix and not a BMW... what are the Joneses going to think?
On top of that GS will never want to hire me because they'll see me as a no ambition pessimist...or with not enough skin in the game.
Posted by: D. | Apr 18, 2008 9:25:44 AM
A democracy rest in good part on a well-informed citizenry.
Keeping that in mind, these moves, as well as past 8 years history, should make the agenda of the politico-financial class painfully clear, shouldn't it?
The fix is in!
I never thought i would write this but I must yield to the evidence.
Posted by: Francois | Apr 18, 2008 9:27:03 AM
You know I have noticed in a couple of cases where the best entry point is when you start hearing the phrase "falling knife".
Buying within a few days of hearing this phrase in many cases is near the bottom at least temporarily. This is consistent with what Tom C. mentioned above.
Posted by: BG | Apr 18, 2008 9:29:02 AM
Fitch, Moodys and S&P all out negative on Citi...I say fade the futures...market closes lower on Friday with futures up so big.
Posted by: Steve Barry | Apr 18, 2008 9:30:23 AM
"You know (in my opinion), one of the biggest unspoken truths is the fact that a young person could put away a fairly small sum of money in a CD and retire a millionaire and escape all of this angst."
I put $5000 in a CD at Wachovia last fall, it'll mature in June, and I stand to make $250 profit (5%). So 9 months to make 5%. And people acted like I got an awesome rate. Which we now all realize to mean that Wachovia wanted to tie up cash. I don't mind, I'm making money off it, but it's what they're doing. If everyone though put their money in CDs, the interest rates would decline heavily, and it wouldn't be worth it.
Posted by: rj | Apr 18, 2008 9:30:44 AM
What's next?
The published IRS tax rates morph into:
"just send us everything, and we'll send you back your share"?
Posted by: Tinfoil Hat | Apr 18, 2008 9:33:43 AM
