Wednesday, April 23, 2008

Barry Ritholtz on Disappearing Economic Indicators

Barry, over at The Big Picture, has one of my favorite blogs because it's an interesting mix of economic and market commentary instead of one or the other like most blogs. Since my cloning techniques are failing and I am still stuck with just one of me (and I fired the hamsters after that Manpower situation), I am unable to keep up with all my favorite reading spots, so I just found this today. It truly is appalling and shows sometimes facts are worse than fiction; with all the wasted fat and pork barrel projects they somehow now "cannot find the money" to continue to fund these economic reports that move trillions of dollars in stock markets? Cmon now, this was the same excuse they used for dropping the M3 (money supply) [Sep 19: What is M3 and Why Do you Care?] before it exploded higher in the past few years, and especially this quarter. [Apr 4: To the Newbie Economists Out There - A Horde of Helicopters has Moved In] Again, I rarely talk about these reports other than to mention the herd's reaction to their inaccurate data... every report is now so corrupted it has become useless.

Read on but truly that this type of stuff goes on, should really be broadcast loudly to the American people... who are still living in a 5.1% unemployment, 2.4% inflation world... according to government statistics.
  • Sometimes, when the data is (how shall we say this) less than delightful, politicians pressure bureaucracies to modify their models.
  • 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; That was a warning the economy was about to worsen. Thanks to readers and NY Senator Schumer, it was successfully beat back. (imagine that, closing down an entire website full of information - budget shortfall I am sure)
  • 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.

Hmm, what a convenient time to eliminate the prices of TRANSPORTATION services with crude in the $110s+. And with the elimination of 65 smaller metro areas we can rely more and more on the birth/death model [Jan 27: Monthly Jobs Report and Birth/Death Model] which LAST month the government found a way for their "guesswork" to show GAINS in financial and construction jobs. Of course that is in the Twilight Zone.

So as Barry writes in conclusion "Now comes the attempt to reduce the reporting of hours and earnings data. Gee, can you guess what coincidence is about to happen?" And he references this story which is a lot like my "The Underemployment Rate is Rising".

Again, as I wrote back in August - this is the negative multiplier effect of a SERVICE economy; as each 10 people loses his/her job one less nail technician, dog groomer, accountant, car wash guy, lawn service guy is needed. Again, I urge people new to the blog to follow all the links and read what is really going on behind the scenes - I was not a conspiracy theory type of guy until I began this blog, but the more you read - the more you see a lot of very shady things behind the surface. Anyhow, let's check back with Main Street and his/her 5.1% unemployment rate; and as one reads this continue to think the effect on profit margins as INPUT costs rise (through inflation) and demand drops off rapidly from a rapidly emancipated US consumer.
  • “We don’t just hop in the car and go shopping or get something to eat,” said Kim Baker, whose take-home pay at the plant has recently dropped to $450 a week, from more than $600. “You’ve got to watch everything. If we go to town now, it’s for a reason.”
  • 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.
  • 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.
  • And on Wednesday, the government reported that average earnings slipped in March after accounting for the rising costs of food and fuel — the sixth consecutive month that pay failed to keep pace with inflation. (I mentioned this in the blog, people were too busy to notice while pushing the stock market up)
  • As people bring home paychecks that do not go as far, they are forced to economize, eliminating demand for goods and services that once captured their dollars, spreading pain to providers like auto dealers and lawn care providers. They, too, must trim their outlays on pay, shrinking working hours more and furthering the slowdown
  • “Everybody’s getting tighter,” he said — himself included. With his income cut in half, Mr. Garcia, a single father, no longer takes his two young daughters out for fast food, he said. For clothing, he now goes to secondhand stores instead of the mall. For amusement, he visits the park instead of the museum.
  • In Los Angeles, William Righi, a musician, bemoans the sudden difficulty of getting jazz and blues gigs at restaurants and parties. He gives fewer private singing lessons to high school students. “Their parents don’t want to pay,” Mr. Righi sighed. “They don’t have the money to burn. In the last month, it’s really dropped off.”
This is your "service economy" where we don't produce much outside of a few sectors (15% of GDP) that the rest of the world wants... and when it shrinks the multiplier effect is / will be ugly. And where the government, citing that its too expensive, is trying to hide the numbers from you - while spending like a drunken sailor in just about every other part of society.

My own piece on this subject, as always, I was early before anyone was talking about the "truth" - now, like the food crisis. it's hitting the mainstream [Do the Bottom 80% of Americans Stand a Chance?] And we're just starting, not "exiting" or at the "trough" as the pundits tell you. The same pundits mind you, who denied recession was even a remote possibility until it was upon us in Dec 2007, and who assured us that home prices would never fall on a nationwide basis.


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