More 'Good' Pre-Election Economic News

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


Consumer income had a nice rise in August thanks to extended unemployment benefits (not regular unemployment benefits). The final budget deficit figures for fiscal year 2010 have been leaked and the U.S. is supposedly only in the hole for a massive $1.3 trillion. The ISM manufacturing index came in at 54.4 and the the mainstream press is citing a strong manufacturing sector as the reason the U.S. stock market had its best September since 1939. Altogether, this news could be summed up as 'stupidity you can believe in'.

By almost every measure except the headline number, the ISM report was a disaster. The highest number inside the report was prices paid, an inflation measure, which came in over 70. Prices apparently went up a lot in August. This component had the biggest increase by far, which wasn't difficult because only one other component went up - inventories. Inventories usually pile up because sales are slowing down. The negative big gains were more than matched with negative big losses in the report. Order backlogs, supplier deliveries, employment, and the production components all had big drops. Well, that certainly should have led to a big stock market rally all right.

As for the supposed improved budget deficit figures, as of this August, $1.377 trillion dollars had already been borrowed to fund the federal government in fiscal year 2010. This number would have been $115 billion larger (for a total of $1.492 trillion) if there hadn't been 'financing by other means'. Financing by other means had a big increase in August and is projected to have another big increase in September. There are also substantial 'off budget outlays'. See http://www.fms.treas.gov/mts/mts0810.pdf for the August Treasury report on 2010 fiscal year spending. Makes you wonder if the U.S. government is using the Enron Accounting Manual to do its books.

Finally, some people might argue that an economy that is dependent on extended unemployment benefits for increased consumer spending could just perhaps be somewhat troubled. Few if any of these people write for the mainstream press of course, which generally treated the news of an increase in consumer income and a rise in the savings rate to 5.8% as just more rosy news. If this is such good news, obviously the U.S. should institute ultra super extended unemployment benefits. After all, look at what these policies have done for Europe – riots in the streets and turmoil in the bond markets. The euro has been rising though and obviously this must be due to improved manufacturing in the U.S., if you follow the logic of the mainstream press. If not, you might just conclude that there is a whole bunch of government manipulation of the markets going on.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

August Retail Sales: Debunking Mainstream Media Coverage

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


The August retail sales numbers were out this morning and media reports stated they were up 0.4%. Stock futures immediately rose because this was ahead of a 0.3% expected gain - or was it?  Buried in the middle of the government's press release was this statement, "The Census Bureau [the issuer of the report] does not have sufficient statistical evidence to conclude that the actual change is different than zero."

September 14th is primary election day in a number of U.S. states. It is amazing that political polls are reported more accurately by the press than government economic numbers. Like all political polls, most of the economic numbers are derived from surveys. All surveys have sampling bias, as well as other biases, that introduce errors. It is standard procedure for the U.S. media to report the sampling bias (such as plus or minus 3.4%) when reporting on any political poll. The mainstream media almost never does this with government economic reports even though their sampling error rates can be far more significant. While the mainstream media will report a political race as too close to call because of the margin of error in the polls, it will almost never say that that the numbers from a government report are meaningless gibberish because of statistical error.

The more accurate reporting of August 2010 retail sales is +0.4% (plus or minus 0.5%), so the number could actually have been minus 0.1% and the headline could have stated, 'No Conclusive Evidence Retail Sales Grew in August'. This is just the error from statistical sampling however. Unlike political polls, government economic reports have other serious problems. Incomplete data is one of them. As I mentioned in a previous article, the weekly unemployment claims for the first week of September was missing data from 9 out of 50 states, so the numbers for those 9 states were simply made up (and when the government makes up numbers for some reason it seems to err on the side that makes things look better).  Is there any missing data in today's August retail sales report?  The following items were not available:

Appl., TV and cameras
Computer and software stores
Building mat. and supply dealers
Beer, wine and liquor stores
Pharmacies and drug stores
Men's clothing stores
Women's clothing stores
Shoe stores
Department stores (incl. L.D.)
Other general merchandise stores
Warehouse clubs and supercenters
Electronic shopping and mail order houses
GAFO (firms that specialize in department store type merchandise)

The lack of data should be a reason to lack confidence in the final number in this report. Lack of consistency with other reported data is an even bigger concern. According to today's retail sales release, auto sales and parts were only 1.5% lower in August 2010 than they were in August 2009. Industry source Autodata found that the drop in auto sales between these dates was 21%. This problem could be reconciled if the government reported the change in auto sales as -1.5% (plus or minus 100%). It would also be a good idea if the government used the plus or minus 100% for all of its numbers. That would give the public a clear indication of how accurate they are, although it is highly unlikely the mainstream media would report it.
The government's press release on August retail sales can be found at: http://www.census.gov/retail/marts/www/marts_current.html

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

August Beige Book Admits Economy Heading Down

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


The Fed just released its Beige Book summarizing U.S. economic conditions up to the end of August and the takeaway was "widespread signs of a deceleration compared with preceding periods". In general though the report was a mastery of double-speak and attempted obfuscation.

The Beige Book is a compilation of anecdotal reports on various sectors of the economy from the Fed's twelve regional districts (Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco). The Fed uses it as an additional source of information when determining economic policy. If they trust the numbers produced by the U.S. government statistical agencies, it's not clear however why it's necessary to produce this monthly study.

The Beige Book for August seemed particularly strained in its attempt to put some rosy spin on its findings. This was most evident in the section on Consumer Spending and Tourism. The opening sentence was positive and gave the picture of a slow growth economy (the story the Fed is trying to sell to the voting public):

"Reports on consumer spending were mixed but suggested a slight increase on balance. Most Districts reported that non-automotive retail sales rose compared with the previous reporting period or were above their levels from 12 months earlier."

The details that followed however indicated that consumers throughout the country were acting as they do during a recession:

"Atlanta reported a decline in the level of sales, and Richmond noted that sales "sputtered" in August, while New York and Dallas reported that growth in retail sales slowed. Several Districts noted an emphasis on necessities and lower-priced goods. Boston reported that back-to-school purchases were focused on immediate needs; in Cleveland, consumers focused on "value-priced seasonal items;" and in St. Louis, Kansas City, and San Francisco, sales were relatively stronger for lower-priced items."

Interestingly, the report goes on with a positive view of auto sales, even though they fell by 21% year over year in August and 5% on a monthly basis according to industry source Autodata:

"Most Districts also reported that sales of new automobiles and light trucks were largely stable or up slightly during the reporting period."

The Beige Book's authors would have provided a more accurate description of the state of the U.S. economy in August 2010 if they simply stated the following:

"Consumer spending was reported to be slow in most Districts, with purchasing concentrated on necessary items and retrenchment in discretionary spending. Districts reporting on auto sales described them as falling or steady at low levels."

This would have made their work much easier as well, since this is a statement from the Beige Book for August 2008.  That report was issued just before the U.S. economy fell off a cliff.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

Stock Rally in Beginning of Month Ignored Economic Reality

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


U.S. stocks had an impressive rally the first four days of the month and this is generally a bullish indicator.  The rally took place with a backdrop of really ugly economic news however and that is not bullish. Weakness has a way of coming back to haunt the market as European bank news is demonstrating today.

U.S. economic reports for the last few months have been generally bad to awful. Nothing changed last week. While the ISM manufacturing index went up, this supposedly occurred because of a big increase in manufacturing jobs (the inflation component of the report was the actually the biggest gain, but the mainstream media somehow didn't report this negative news). This gain was not corroborated by the government's August employment report, which showed a drop in manufacturing jobs, nor by anecdotal evidence or anything else taking place on the planet earth. The stock market of course rallied strongly on the news.

The ISM non-manufacturing index, which measures the almost four times bigger service sector, didn't get nearly as much media coverage. It barely remained in positive territory. The inflation component, also the highest number in this report, was chiefly responsible for the number not going negative and indicating contraction.  Two components of the report were clearly in contraction however - exports and employment. The service sector losing jobs is a big negative for the overall U.S. economy.

Also lost in the stock buying frenzy was August car sales. They were down 21% year over year. This followed the 27% monthly drop in existing home sales in July and the 33% drop in new home sales in May. Last August was the peak of the Cash for Clunkers program. The numbers for car sales and home sales both demonstrate what happens when government incentives are no longer available in a market. While new homes sales fell to the lowest level ever recorded, August car sales were only at a 28-year low. For those who don't recall, 1982 was when the previous double-dip recession took place.

Government stimulus programs didn't fix the housing and car markets, but merely made them look better. This works for a while, but reality eventually rears its ugly head. A report from Europe today said that "the continent's major banks have more potentially risky government debt on their books than was disclosed during stress tests earlier this year." This wasn't exactly a piece of information that required the skills of Sherlock Holmes to uncover. At the time of their release, the stress tests were roundly criticized as being a phony PR gambit that set the bar so low that any bank not declaring insolvency in the next week would pass. Stocks of course went up on the news back then and today they are going back down.

Economic reality will eventually be reflected in the stock market. As I have said many times however, it's not the economy that drives the stock market in the short term, but liquidity. The Fed obviously kept pushing the 'flood the financial system with liquidity' button in early September. What happens when they stop doing this? See the homes sales and car sales numbers for a hint of how stimulus withdrawal impacts a market.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

BLS Press Release MisReports August Jobs Data

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.


According to the August jobs report, the U.S. lost another 54,000 jobs last month and the unemployment rate rose to 9.6%. The government claimed that the private sector added 67,000 jobs, although most of these jobs came from the Health Care and Social Assistance category and from Education, both of which are filled with jobs supported by the government. The numbers in the BLS (Bureau of Labor Statistics) press release did not agree with the Data Tables and of course made things look better than they actually were.
      
The data in the non-farm payrolls report indicated that there were 40,200 jobs created in the Health Care and Social Assistance category (the mainstream media almost always leaves off the Social Assistance part, perhaps because these are so obviously government and not private sector jobs). Interestingly the BLS (Bureau of Labor Statistics) press release only admitted to 28,000 jobs and this incorrect number was picked up in every mainstream media article. The BLS press release, which can be found at: http://www.bls.gov/news.release/pdf/empsit.pdf, stated "Employment in health care increased by 28,000 in August, with the largest gains occurring in ambulatory health care services (+17,000) and hospitals (+9,000)".  The Establishment Data Seasonally Adjusted (Table B in the report), which can be found at: http://www.bls.gov/news.release/empsit.b.htm, stated that the number of jobs in Health Care and Social Assistance increased by 40,200.

The Goods Producing Sector, which actually does include mostly private sector jobs (nationalized companies like General Motors being the exception), was dead in the water in August. The total number of jobs added was ZERO. Goods producing industries include Manufacturing, Mining and Logging, and Construction. Manufacturing lost 27,000 jobs and this contradicts the rosy picture painted by the ISM manufacturing report from two days ago that indicated U.S. manufacturing employment was skyrocketing. Construction kept the Goods Producing Sector from being negative by adding 19,000 jobs. This occurred even though new home sales recently fell to the lowest number ever recorded. Perhaps these workers are busy building castles (or more appropriately, McMansions) in the sky, so of course their work isn't immediately visible to ordinary mortals such as ourselves.

There is no evidence in the August payroll numbers of any significant non-government related hiring taking place. The first job loss number was reported three years ago in August 2007 and after over $3 trillion in deficit spending since then, the U.S. employment situation has managed to only reach a state of controlled bleeding. There were an estimated 6.6 million students graduating from school this year and eventually most of them will need a job. That implies the U.S. needs 550,000 new jobs a month to absorb former students into the labor force. People are of course always leaving the labor force as well because of retirement and for other reasons such as giving up looking for a job because none are available. It has been generally accepted for a long time that the U.S. must add at least 200,000 jobs a month to just accommodate new people looking for work.  Even after getting to that level, and we are still losing jobs not gaining them, there is then an additional 8 million jobs that have to be created to replace those lost during the Credit Crisis. So far, it's just not happening.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.