DAILY UPDATE (March 30th to April 1st – See Special Commentary, Issue No. 1430 for Discussion of Economic Forecasts and Hyperinflation Risks) Next Commentary: April 1st**, Next Data Release April 1st* // HEADLINE PANDEMIC ECONOMIC IMPACT SHOULD BEGIN TO SURFACE APRIL 3RD // Third-Estimate Fourth-Quarter Annualized Real GDP Growth Unrevised at 2.1%, With Initial GDI and GNP at 2.6% and 2.2%, Although Year-to-Year GDI Continued Weaker / CONFIRMING A STILL-DEEPENING, PRE-PANDEMIC RECESSION: In the Last Reporting of Major Pre-Pandemic Monthly Economic Numbers, February 2020 Real New Orders for Durable Goods Gained in Month, but Continued in Annual Collapse / February Cass Freight Index® Continued in Annual Decline for the 15th Straight Month, Down by 7.5% (-7.5%) / February Real Retail Sales Dropped 0.6% (-0.6%) Month-to-Month, With Annual Growth Slowing to 2.0% / 4q2019 “Holiday Season” Real Sales Decline Revised Deeper, Again, to a 0.8% (-0.8%) Quarterly Contraction, with 1q2020 on Track for a Real, Pre-Pandemic 0.1% Gain / Headline February Industrial Production Monthly Gain of 0.55% Was a Monthly Decline of 0.15% (-0.15%), Net of Extreme and Randomly Volatile, Weather-Driven Utility Usage / Pending Economic Impact of Pandemic: Likely the Deepest Headline GDP Drop in Modern History, Post-World War II Reporting / Separately, Beware of a Meaningful, Pre-Pandemic Downside July 2020 GDP Benchmarking! // ON THE PRE-PANDEMIC PLUS-SIDE: Beyond the Perpetual Headline Nonsense Monthly Volatility in Housing Starts, Building Permits and New-Home Sales Reporting, February 2020 Six-Month Smoothed Residential Construction and Sales Series Pushed to New Post-Recession Highs, Although Still Shy of Recovering Pre-Great Recession Peak Activity Respectively by 29%, 32% and 45% // INFLATION: February 2020 PPI Monthly Inflation Plunge of 0.59% (-0.59%) Was Deepest Since January 2015 / February CPI-U Inflation Was Constrained by Lower Gasoline Prices (Pre-Oil Price Collapse)
• L A T E S T .. N U M B E R S .. “Unrevised” Third Estimate of Fourth-Quarter 2019 Gross Domestic Product (GDP) and Initial Fourth-Quarter Estimates of Gross Domestic Income (GDI) and Gross National Product (GNP) Showed Usual Inconsistencies (March 26th, Bureau of Economic Analysis – BEA). Fourth-quarter annualized real GDP growth effectively was unrevised at 2.13% [previously 2.10%], versus 2.10% in 3q2019 with year-to-year change unrevised at 2.33%, versus 2.07% in 3q2019. Initial GDI, the theoretical income-side equivalent of the consumption-side GDP, showed annualized quarterly growth of 2.59%, versus 1.23% in 3q2019 (having suffered an unusually sharp downside revision last month), with year-to-year 4q2019 at 1.98%, versus 1.53% in 3q2019. Initial GNP, which is GDP net of the trade balance in factor income (interest and dividend payments) showed annualized quarterly growth of 2.17%, versus 2.20% in 3q2019, with year-to-year 4q2019 at 2.56%, versus 2.19% in 3q2019.
These numbers all are pre-Pandemic and should see massive, Pandemic-driven quarterly contractions in 1q2020 and likely 2q2020, respectively rivaling the worst drop of the Great Recession, and the worst downturn in modern history (see discussion in Special Commentary, Issue No. 1430). Separately they all are subject to likely net-negative annual benchmarking on July 30th.
(March 20) February 2020 Real New Orders for Durable Goods Gained in the Month, With Continuing Annual Collapse (March 25th, Census Bureau). With total real New Durable Goods Orders continuing in year-to-year collapse on a rolling twelve-month average basis, and on quarterly and monthly bases — both before and after consideration of volatile Commercial Aircraft orders — headline economic circumstances continue to be more consistent with collapsing domestic freight (see the Cass® Freight section), manufacturing and economic activity, than with what had been the FOMC’s purported achievement of “sustainable moderate economic growth.” All the economic measures should begin to see sharp acceleration to the downside with March 2020 activity, reflecting initial Coronavirus Pandemic disruptions (see extended discussion in the March 23rd Special Commentary No. 1430).
(March 16) February 2020 Cass Freight Index® Plunged Year-to-Year by 7.5% (-7.5%), Following a 9.4% (-9.4%) Drop in January, Continuing the Steepest Pattern of Annual Downturns Since the Great Recession Onset (March 16th, cassinfo.com, see the updated reporting at https://www.cassinfo.com/freight-audit-payment/cass-transportation-indexes/february-2020). The deepening annual plunges in Cass Freight Index® activity have been the steepest since the early months of the Great Recession.
Once again, the collapse in activity here remains consistent with an unfolding pre-Pandemic “Recession,” not with the FOMC’s pre-Pandemic proclaimed “Sustainable Moderate Economic Growth.” The activity here, also has been consistent with the recently reported quarterly declines in Fourth-Quarter 2019 Real Retail Sales and Industrial Production. The Index’s consecutive monthly year-to-year declines and monthly declines in the 12-month trailing average held in place for the fifteenth straight month. Those year-to-year and 12-month-moving-average metrics neutralize seasonality in this unadjusted series. ShadowStats regularly follows and analyzes the Cass Index as a highest-quality coincident, leading indicator of underlying economic reality. Relevant to the ShadowStats comments following on Retail Sales and Industrial Production, and not otherwise reflected in Cass’s February reporting, Cass noted that the Port of Los Angeles had just reported February 2020 imports down by 23% (-23%) year-to-year. We thank Cass for their permission to graph and to use their numbers in our Commentaries, see ShadowStats Commentary, Issue No. 1430.
(March 18 to 24) On the Plus-Side, Amidst Consistently Absurd Monthly Volatility and Extreme Revisions, Six-Month Smoothed February 2020 New-Home Sales and New Residential Construction (Housing Starts and Building Permits) Continued to Trend Higher to Post-Recession Highs (Census, HUD). Headline New-Home Sales (March 24th) declined by a statistically worthless 4.4% (-4.4%) in the month, while Building Permits and Housing Starts (March 18th)declined in the month by meaningless, respective drops of 5.5% (-5.5%) and 1.5% (-1.5%). Yet, smoothed over six months, the meaningless monthly details continued to trend higher, hitting a new post-Great Recession highs. That said, the series remained shy respectively by 45% (-45%), 31.5% (-31.5%) and 28.6% (-28.6%) of ever recovering their pre-Great Recession peaks.
The more stable, better-quality National Association of Realtors® (www.nar.realtor) Existing-Home Sales (March 20th) rose by 6.5% in February, Boosted by a Downside Revision to January’s Activity. Six-month smoothed sales are trending higher, but are off their post-Great Recession high, and also still shy of ever recovering pre-Great Recession peak activity.
(March 17) Real February 2020 Retail Sales Dropped 0.6% (-0.6%) Month-to-Month, With Annual Growth Slowing to 2.0%, Against Upwardly Revised January Activity and Downwardly Revised December and 4q2019 Activity (Census). Fourth-Quarter 2019 “Holiday Season” Real Retail Sales revised to a deeper 0.8% (-0.8%) quarterly contraction, with First-Quarter 2020 on very-early track for a pre-pandemic 0.1% gain. This series should face extreme volatility in the next couple of months, reflecting pandemic-frightened consumers hoarding “necessary” and “survival” products, while postponing purchases of a less-urgent nature. The balance in activity of aggregate personal consumption over the next several months and quarters likely will be strongly negative.
(March 17) February 2020 Industrial Production Monthly Gain of 0.55% Was a Monthly Decline of 0.15% (-0.15%), Net of Continuing Extreme and Randomly Volatile, Weather-Driven Utility Usage (Federal Reserve Board). Where recent headline Industrial Production has been seesawed by extraordinary and unseasonable weather extremes impacting utilities, the headline gain of 0.55% in February 2020 Industrial Production, actual was a decline of 0.15% (-0.15%), net of the impact of a 7.12% rebound in weather-driven Utility usage, versus a monthly gain of 0.10% in the dominant Manufacturing sector and a 1.51% (-1.51%) drop in Mining (dominated by price-sensitive Oil and Gas Production and Drilling/Exploration). Those factors, combined with weakness in the Consumer Sector do not bode well for domestic production. On the other hand, pandemic-related loss of key, offshore supplies, could induce some needed return of manufacturing activity to the United States (again, see ShadowStats Flash Commentary, Issue No. 1430).
(March 11) February 2020 Consumer Price Index (CPI-U) Gained 0.09% in the Month, 2.33% Year-to-Year, Off January’s 15-Month Peak of 2.49% (BLS). Headline CPI-U inflation in February continued to be constrained by collapsing oil and gasoline prices, all of which were in advance of the Oil-Price Crash earlier this week, not due to FOMC policies, which likely will continue to shift in the days ahead.
By major category, seasonally adjusted February 2020 Food inflation rose by 0.37% in the month, versus 0.21% in January. February Energy inflation declined by 2.01% (-2.01%) in the month, having declined by 0.71% (-0.71%) in January, with February “Core” inflation up by 0.22%, versus 0.24% in January.
February 2020 ShadowStats Alternate CPI (1980 Base) Eased Minimally to 10.1% year-to-year, versus 10.3% in January, 10.0% in December, 9.8% in November and 9.5% in October. Graphs of that detail are found on the Alternate Data tab (also accessible by clicking on the mini-graph below), with the latest numbers and an inflation calculator also available there to subscribers.
• S Y S T E M I C .. R I S K – (Updated March 26th) Economic and Systemic Crashes Should Intensify. Economic, FOMC and Market circumstances continue to evolve, but the broad outlook has not changed; market, economic, social and political turmoil are just beginning. The Coronavirus Pandemic containment efforts continue (1) to drive a near-term economic collapse, which should begin to surface with the headline March 2020 Payroll and Employment/ Unemployment reporting on April 3rd (see discussion in Special Commentary, Issue No. 1430), and (2) to drive unfettered U.S. dollar creation, with the Federal Funds Rate now targeted at 0.0%, the FOMC effectively re-opening unrestricted Quantitative Easing, and the Federal Government putting forth a $6 trillion support package in an environment where the Federal Deficit already is out control. The broad systemic risk unfolding here is for a Hyperinflationary Great Depression, to be discussed in pending ShadowStats Special Hyperinflation Commentary, Issue No. 1431.
The Federal Reserve’s Loss of Systemic Control Was Brought to a Head by the Coronavirus Crisis. Fed functionality was impaired severely, when systemic control was lost in the 2007/2008 bailout of the failed Banking System. The current, Pre-Pandemic Recession began with overly aggressive FOMC tightening in 2018, and lack of adequate, subsequent easing. That downturn now has been overtaken and is being overwritten on the downside by the Pandemic Crisis. Underlying issues with Federal Government and FOMC mishandled crises can be reviewed in earlier: http://www.shadowstats.com/article/c983b and http://www.shadowstats.com/article/c985s.pdf.
The ShadowStats broad, general outlook remains in place for: (1) A rapidly intensifying U.S. economic downturn/ recession, reflected in (2) Mounting selling pressure on the U.S. Dollar, against currencies such as the Swiss Franc, (3) Continued flight to safety in precious metals, with upside pressures on gold and silver prices, and (4) Despite recent heavy selling, interventions and extreme volatility in the U.S. stock markets, high risk of continuing and intensifying major negative trends in the markets.
• P O S T I N G .. S C H E D U L E S .. *SHADOWSTATS CONCURRENT ANALYSES OF NEW DATA: February 2020 Construction Spending will be published Wednesday, April 1st at 10:00 a.m. ET. ShadowStats analysis should post by 1:00 p.m. ET.
**SHADOWSTATS COMMENTARIES: ShadowStats Special Hyperinflation Commentary, Issue No. 1431, will publish as dictated by still-evolving, highly unusual systemic and economic circumstances, most likely by April 1st.
• ARCHIVES – VIEWING EARLIER COMMENTARIES. ShadowStats postings of November 2019 and before – back to 2004 – are open to all, accessible by clicking on “Archives,” at the bottom of the left-hand column of this ShadowStats homepage.
• ALTERNATE DATA TAB provides the latest headline and exclusive ShadowStats Alternate Estimates of Inflation, GDP, Unemployment, Money Supply (Including the Updated ShadowStats Ongoing M3), and the ShadowStats Financial-Weighted U.S. Dollar.
Best Wishes — John Williams
Walter J. “John” Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth’s Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies.
One of my early clients was a large manufacturer of commercial airplanes, who had developed an econometric model for predicting revenue passenger miles. The level of revenue passenger miles was their primary sales forecasting tool, and the model was heavily dependent on the GNP (now GDP) as reported by the Department of Commerce. Suddenly, their model stopped working, and they asked me if I could fix it. I realized the GNP numbers were faulty, corrected them for my client (official reporting was similarly revised a couple of years later) and the model worked again, at least for a while, until GNP methodological changes eventually made the underlying data worthless.
That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad), and my results led to front page stories in 1989 in the New York Times and Investors Daily (now Investors Business Daily), considerable coverage in the broadcast media and a joint meeting with representatives of all the government’s statistical agencies.
Nonetheless, the quality of government reporting has deteriorated sharply in the last couple of decades. Reporting problems have included methodological changes to economic reporting that have pushed headline economic and inflation results out of the realm of real-world or common experience.
Over the decades, well in excess of 1,000 presentations have been given on the economic outlook, or on approaches to analyzing economic data, to clients—large and small—including talks with members of the business, banking, government, press, academic, brokerage and investment communities. I also have provided testimony before Congress (details here).
An old friend—the late-Doug Gillespie—asked me some years back to write a series of articles on the quality of government statistics. The response to those writings (the Primer Series available at the top-center of this page) was so strong that we started ShadowStats.com (Shadow Government Statistics) in 2004. The newsletter is published as part of my economic consulting services. — John Williams