Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18
Big Cap US Stocks Fundamentals - 13th Apr 18
Jaguar Land Rover Cuts 1000 Jobs on Diesel Sales Slump, Long-term Discovery Sport Review - 13th Apr 18
Stock Market SPX May Tangle with the 50-day MA - 13th Apr 18
Longtanding Chinese War: Intrigue & Betrayal - 13th Apr 18
How I Own My Gold - 13th Apr 18
ISupply Energy Consumer Warning - Never Put Your Account Into Credit! - 13th Apr 18
SPX Resistance May Prompt A Massive Short Squeeze - 12th Apr 18
Stock Market High Volatility is Not Consistently Bearish for Stocks - 12th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Manipulated Government GDP Statistics Report is Just Plain Wrong

Stock-Markets / Market Manipulation Aug 01, 2009 - 01:11 AM GMT

By: Dr_Martenson

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleThe GDP report was released Friday (7/31/09) and it was a compendium of incomprehensible and illogical numbers and, worse, it is just plain wrong.

Of course, since so much rides on an accurate assessment of our true economic state of affairs it behooves us to make sense of it as best we can understanding that the GDP report is less than perfect and riddled with difficult-to-rationalize statistical manipulations and quirky additions.



For example, the imputed value of "owner occupied housing" is a non-cash 'addition' to GDP meant to capture the value that people derive from their houses due to the fact that they own them and do not pay rent to themselves in order to live there.  If this does not make sense to you that means you are normal.

So we gamely march off into the most current GDP report which came out this morning (Friday, July 31, 2009) mostly to expose just how wrong it is.

First, I want to reveal how I look at data. It comes in three buckets for me. In my most recent Martenson Report I divided data (or facts) into three buckets: good, murky, and unreliable.

Into the good bucket I put all sources of data fitting the following important criteria: The data itself is not statistically massaged before release, it is not 'sampled' but rather tallied up in its entirety, and it squares up nicely with other good sources of data.

Good Data
  • Sales tax data
  • Income tax data
  • Truck tonnage moved
  • Port shipping container traffic
  • Air transport
  • UPS, FedEx, and other major shippers' volume
  • Corporate Revenues

Into a bucket of lesser importance goes the murky data. This data is based on sampling, usually conducted by self-interested parties (National Association of Realtors data for example), or is seasonally or statistically adjusted, and/or does not square up with other, better data.

Murky Data

  • NAR home sales data
  • Continuing claims
  • Retail sales data
  • Trade deficit reports
  • Corporate Income

Into the final bucket goes the utterly unreliable 'data,' so bad that I need to use quotes around it. This 'data' is modeled or otherwise manufactured out of thin air with no accountability, does not square up (at all) with good sources of data, has massive errors in methodology that have never been explained, consists of survey data for reasons covered in an earlier Martenson Report (Survey Says...), is self-referential (e.g. LEI or 'leading indicator' data), and/or has been proven repeatedly in the past to be consistently biased for political or self-serving gain.

Unreliable Data

  • New home sales data
  • Employment data (due to the Birth-Death model)
  • All survey data
  • Leading indicator data
  • GDP

Because of the hedonics and imputed adjustments I consider the GDP report to be among the most unreliable sources of data.

But I place corporate revenues into the "good" bucket because, unlike corporate earnings (in the murky bucket), there are many fewer games and shenanigans that can be played with revenue.

Apart from sliding revenue forwards and backwards a quarter or two, revenue is relatively pure data.  GAAP accounting assures as much.

Added up across all companies, revenue provides a nice, clean picture of where things are going.  Perhaps the best we have.

Here's the most recent picture of that (found here):



What we see here is that for ALL companies in the S&P 500, a comprehensive enough sample that we can use this as a reliable measure of revenue across the entire corporate landscape, we find that revenues are down more than -15% in Q2 2009 compared to 2Q 2008.

Now, if you think about it, when people buy (or consume) anything, that transaction passes through a company somewhere, somehow. Which means it will show up in some company's revenue.  So we might use this -15% decline in corporate revenue as a pretty good approximation for how much less stuff is being consumed this year compared to last year.

OK - now let's look at the GDP report.

I am going to avoid all of the massive complexity that normally accompanies discussions of the GDP report and go for the simplest possible illustration of just how spectacularly off-base and misleading it is.

On television, and from a raft of well-meaning experts, you will hear explanations for why this GDP report makes sense and they will trot out things like an increase in government expenditures, falling imports, inventory builds and all the rest.  But we can skip all that and simply look at one thing.

All I want to focus on is just one component, circled in green above, consumer spending which represents over 70% of the economy.  Given this prominence, and taking our argument that there must be some proportional relationship between consumer spending and corporate revenues, we need look no further than this one simple measure to determine that something is seriously out of whack in the GDP report.

From today's GDP release, we get these numbers for the total GDP and something called "PCE" which stands for Personal Consumption Expenditures (i.e. "Consumer Spending" in the formula above):



Going from the very peak of the economy in QIII of 08, we can see that the BEA reports that GDP and PCE have only dropped by 2.7% and 2.3%, respectively.

Really?

PCE is only down -2.3% from peak? With corporate revenues in total down more than 15%? How does that work?

Is there some way to explain how people are consuming away but doing so without spending money on products and services offered by companies? How do we explain a 15% drop in the solid, reliable corporate revenue numbers but a 2.3% drop in Personal Consumption Expenditures?

I really can't think of any possible explanation that makes sense and so I have to defer to the more reliable and trustworthy of the two numbers; corporate revenues.

Of course, comparing from the peak to current is not exactly what we should be doing because that is comparing a QIII to QII drop in PCE to a QII to QII drop in corporate revenues.

When we ask the question, "How much have GDP and PCE dropped between QII 08 and QII 09?" we get these results:

Well, there, that certainly makes me feel better!

Just kidding.

This means we are being asked by the Bureau of Economic Analysis (BEA) to accept a reported -2% drop in PCE and a decline in corporate revenue of -15% , a figure more than seven times larger.

Of course, the discrepancy between the two cannot be reconciled. It is impossible. One must accept one or the other. 

I will point out that a -15% decline in corporate revenues is also in alignment with sales tax data from the states (down some 10% yr/yr), unemployment (9.5% and climbing) and many other economic measures.  I will recall here that good data is that which aligns with other data.

How is such a misleading GDP report created? (hint: think sausages)

The answer lies in a disturbing mixture of seasonal and hedonic adjustments, imputations and other statistical wizardry not subject to review or insight. We are asked to simply accept the results without question.  Disturbingly,  the Wall Street/MSM (Main Stream Media) spin-machine runs off with the GDP report as though it were the sacred truth itself as we can see in this series of headlines I captured off of Google shortly after the release.



The triple combination of stocks up(!), bonds up(!) and gold down(!) constitutes a "win-win-win" for government statisticians/politicians and the Federal Reserve because such a result means that their efforts are being taken "the right way" by the markets.

Such a trifecta constitutes a vote of confidence in their suite of actions generally and in paper wealth specifically.

Of course, curious minds might be interested to learn how such articles manage to come out within mere minutes of the GDP release, almost as if they were pre-written.

If they are (as many suspect), then this implies that the "market responses" as well were already known in advance implying that they are as fake as the report itself.

In the scheme of things, one might question whether a country that routinely lies to itself, and then accepts those lies, then reprints those lies, and ignores the obvious discrepancies is really on a sustainable path to recovery, complete with green shoots, or whether it is merely leading itself astray.

But if one is like me, then no wondering is involved.  Such self-deception is viewed as a prescription for failure.

By Dr. Chris Martenson
http://chrismartenson.com/

Copyright © 2009 Dr Chris Martenson
Dr Martenson is the creator of The End of Money economic seminar series, has extensive experience analyzing and communicating financial information.  Dr. Martenson combines a scientist's attention to fact and analysis (PhD, Duke University, Pathology and Toxicology) with a solid understanding of finance and economics (MBA, Cornell, Finance) with strategic thinking (4 years as a management consultant) to produce an insightful and powerful lecture. He is currently devoted to researching, writing and presenting economic and financial analyses delivering his message via his website, lecture series and is currently working on a related book & movie.

Dr. Chris Martenson Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

rwe2late
01 Aug 09, 15:54
GDP Manipulation

The primary manipulation of the GDP statistic comes from manipulation of the INFLATION statistic.

According to http://www.shadowstats.com/ the actual inflation rate is closer to 3% instead of the 'officially' reported -1%.

Using the 3% inflation rate would result in a GDP calculation for the recent quarter of MINUS 5% !


Bert
02 Aug 09, 01:27
The end is nigh

we're all going to starve and die...the international banking wars will put paid to the economy, and the Great Famine of 2010 will take care of the unemployment problem...


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules