Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Symptoms Don't Lie, The Economic Patient is Getting Sicker

Economics / Inflation May 10, 2013 - 06:41 PM GMT

By: Peter_Schiff

Economics

A good doctor will not simply make a diagnosis based on measurements. The symptoms and complaints expressed by the patient are at least as important in making a determination as the data provided by diagnostic tools. When the data says one thing and the symptoms continuously say another, it makes sense to question the reliability of the instruments. This would be particularly true if the instruments are furnished by a party with a stake in a favorable diagnosis, say an insurance company on the hook for treatment costs. The same holds true for the U.S. economy. Although our government-supplied data suggests we are experiencing low inflation and modest economic growth, the economy shows symptoms of low growth, rising prices, and diminishing purchasing power.


In my latest commentary I discussed how the Big Mac Index (The Economist Magazine's 30 year data set on Big Mac prices) provided strong anecdotal evidence that inflation in the United States is higher than official figures. More information has come in since then that tells me the same thing: that Americans are downsizing their lives as their incomes fail to keep pace with rising prices. These symptoms are at odds with the widespread belief in an accelerating recovery that has resulted in braggadocio in Washington and euphoria on Wall Street.

Earlier this week Tyson Foods, one of the nation's largest providers of packaged meat products, announced that although their top line sales revenue increased by almost 2% (roughly in line with U.S. GDP growth), operating margins collapsed by almost 50%, leading to a 43% decline in profit. Consumer shifts away from relatively higher priced/higher margin beef and pork products to lower cost/lower margin chicken products were to blame. Tyson also noted that cost conscious consumers shifted away from higher margin packaged chicken products to fresh meat cuts, thereby sacrificing convenience for cost.

According to government statisticians, the Tyson announcement would reveal modest growth and low inflation. After all, revenue at the company grew and spending on their products had increased modestly. But rising prices were obscured by consumers purchasing lower quality products. Not only are consumers avoiding the beef and pork that they otherwise may have preferred, but they are opting out of the convenience of prepared foods. This behavior is symptomatic of diminished consumer purchasing power. This is known as getting poorer.

The trend corresponds with the steady increase in the share of income that Americans devote to food and energy. According to the Bureau of Economic Analysis data, in 2002 Americans spent about 17.8% of income on food and energy. In the first quarter of 2013 the share had risen by a factor of 20% to 21.3% of income. Increased share of spending on necessities like food and energy is consistent with falling living standards. In the poorest countries almost all of income is devoted to such things.

This week we also learned the seemingly positive news that the March trade deficit narrowed to $38.8 billion. But the reduction didn't come from increased exports (which actually declined), but by the sharpest drop in imports since February 2009. Oil imports declined to a seventeen-year low, in part due to rising domestic production, but also due to a record low in 13 years in gasoline consumption. While some may argue that is a function of greater energy efficiency, I believe it's more likely that usage is down because of high prices and high unemployment. Even more significant is that our trade deficit with China in March dropped by a whopping 23.6%, hitting a three-year low. On a year over year basis, the decline in our deficit with China was 90% attributable to the decline in imports.

In contrast to the declining import figures, the government reported that personal spending rose by .2% in March. If we are buying less stuff from abroad, where are Americans spending the extra money? If the prices are stable, and imports are way down, consumer spending should also be down and savings should be up. But the savings rate in March held steady at a meager 2.7%. The sad truth is that Americans are buying fewer Chinese products because they are spending more money on food, rent, utilities, healthcare, insurance, and other necessities that can't be imported. Again, this is consistent with a falling standard of living, as inflation forces consumers to forgo the things they want in order to buy the things that they need.

It was also announced this week that the big three airlines (United, Delta, and American) will be raising their "change fees" for booked tickets by 33%, from $150 to $200. However, it's unlikely that such a hike will make much of an impact on CPI. According to the CPI, airline fares in the United States increased only .3% from 2011 to 2012. This mild increase came at a time when airlines were rolling out more new fees than most air travelers could have possibly imagined.

But even if the government fully factored in the increase in fees, they would likely ignore the change in behavior that the increase would elicit. With the cost of changing a ticket so dramatically higher than it has been in the past, it is likely that far fewer Americans would be willing to change their travel plans once their tickets have been purchased. So even while the spending increase may be relatively small, the lost convenience is not factored into the equation. A ticket with low price (or no price) change option is a much better product than a ticket with high penalties.

CPI reports that from 2007 to 2012 air travel increased on average 4% per year. But that's only half the story. A new study released by MIT reports that during those five years, U.S. airlines cut the number of domestic flights by 14%,with the cuts falling most heavily on mid-sized regional airports. By 2012, the industry also closed more than 20 smaller airports, began using a higher percentage of larger airplanes, and reported record crowding on remaining flights. In other words, air travel not only became more expensive but less convenient and more crowded.

How much loss in value does this inconvenience and lack of flexibility create? It's hard to say, but we all have experienced it with varying degrees of frustration. But what is sure is that the government isn't interested in such trivialities.

The combination of these symptoms suggests that the extent to which people are being impoverished by accelerating inflation is not reflected in official government measurements. This explains why unemployment remains high even as GDP appears to rise. It is my belief that the unprecedented expansion of the money supply under the current Fed leadership is pushing up prices for stocks, bonds, real estate, and consumer goods. Market indices neatly capture the price increases for all of these categories except for the latter, which has been concealed by an overly adjusted CPI.

If consumer inflation data were reported more accurately, it would be revealed that much of the apparent growth is an illusion. The patient is getting sicker, but the doctors are too distracted to notice.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.

Subscribe to Euro Pacific's Weekly Digest: Receive all commentaries by Peter Schiff, John Browne, and other Euro Pacific commentators delivered to your inbox every Monday!

And be sure to order a copy of Peter Schiff's recently released NY Times Best Seller, The Real Crash: America's Coming Bankruptcy - How to Save Yourself and Your Country.

Regards,
Peter Schiff

Euro Pacific Capital
http://www.europac.net/

Peter Schiff Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

6 Critical Money Making Rules