Bad Data Hurting U.S. Economy

Sep
26

By Charles Biderman

The secret of my success, in my opinion, has been my ability to accurately describe parts of the market and economy exactly the way they are and exactly the way they are not. I say power to make change starts with being grounded in what is actually happening right now. Not knowing what is really so and just guessing will make any existing problem much worse. If certainty creates power, uncertainty destroys power.

 

That leads directly to the two major problems with US government data. First and most important is that the both the monthly Employment and Gross Domestic Product initial releases are based primarily upon surveys not reality. That’s right surveys. In today’s real time world, the US government depends upon sample surveys subject to massive revisions when the actual data arrives months and years later. In other words, both initial jobs and GDP are nothing more than wild ass guesses!

 

The second problem is that all government data is sequential. Not year over year, but month over month. All public companies report year over year and not month over month. Only the government uses month over month comparisons. To do month over month, massive seasonal adjustments are required. And in today’s volatile financial world there is no way seasonal adjustments can be accurate since they are based upon the past and today is different than last year. What’s more to come up with those seasonal adjustments, at least hundreds if not thousands of government economists are required. So if we were to scrap month over month seasonal adjustments those economists would be totally unnecessary.

 

Back to the problem with government guessing as to what is happening right now in the US economy. Chairman Bernanke is on the record saying that unemployment dropping below 7% will be the key to tapering. However, there is a major problem with the unemployment rate. The Bureau of Labor Statistics bases the unemployment rate upon a US Census Bureau conducted survey monthly of 60,000 households to determine how many of the 155 million Americans or so of working age are employed. And who knows how many of the 60,000 they actually reach each month.

 

What’s more the Census Bureau also surveys 145,000 employers monthly. That’s right. Of the millions of employers all of 145,000 are surveyed monthly and then the BLS guesses as to how many are actually working.

 

All that is insane. On Thursday, September 26 the BLS will revise all the past year’s jobs data based upon first quarter of 2013 quarterly unemployment data from the states that is six to nine month old! This annual revision is always massive. So if these revisions are massive, that means the initial releases are basically worthless.

 

And what makes the initial employment numbers an even bigger joke is that there is real time income and employment data available, but totally ignored by the US government. Every time you or I get paid, the amount of withheld income and employment taxes gets sent to the US Treasury and reported the next day online in the Daily Treasury Statement. We at TrimTabs have been tracking this data for about 15 years and keep wondering why no one else seems to.

 

For what it’s worth, we adjust the daily withholding data for changes in tax rates, earnings and inflation. The bottom line is that wages and salaries currently are growing by less about 1.7% year over year after inflation. Growth topped out around 2+% this spring and dropped to 1% in August. For a bigger picture, this year’s wages and salaries are growing about 1% less than last year. Why 1% less? Simple, higher taxes this year.

 

The worst number of all is Gross Domestic Product put out by the Bureau of Economic Analysis with spending data based on a Census Bureau survey. I will bet that almost all of you viewers do not know that the initial GDP numbers are based on, and I quote, sample surveys. The Census Bureau says the estimates of consumer expenditures are based on a subsample of approximately 5,000 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms.

 

This is a huge joke that unfortunately is not funny. Do you realize that all the nonsense spouted by Wall Street about the US economy and GDP is based on a survey of 5,000 retailers? Did the Census Bureau ever hear of Visa, Mastercard, American Express? Do you know that all the credit card companies sell their aggregate data? But does the Government use it? No. Why not? The only answer I can come up is that all the Census, BEA and BLS economists would be out of a job!

 

So if whether or not to taper is based upon US economic data, no wonder the markets are confused. Ignorance of what is really is so the first step on the road to economic calamity.

 

 

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9 Responses to Bad Data Hurting U.S. Economy

  1. Pam on September 26, 2013 at 10:30 pm

    Couldn’t agree more, we seem stuck in a slow motion deterioration in so many ways, and those in power appear blind, deaf, dumb and totally distracted, unable to do anything to change course or improve things in any way. Thanks for the commentary. It’s always enlightening and much appreciated.

  2. Dave in Alberta, Canada. on September 26, 2013 at 11:14 pm

    Always enjoyable to hear your views Mr. Biderman, and I couldn’t agree more with what you have said. Things are slowing falling apart in the financial world. Keep up the great videos.

  3. v on September 27, 2013 at 5:22 am

    To put the unemployment data into context imagine basing your trading strategy on 1.5 hours of data and claiming the return to be an expected average for one year.

  4. black dog on September 27, 2013 at 3:03 pm

    Eligibility
    You must meet the State requirements for wages earned or time worked during an established period of time referred to as a “base period”. (In most States, this is usually the first four out of the last five completed calendar quarters prior to the time that your claim is filed.)

    http://workforcesecurity.doleta.gov/unemploy/uifactsheet.asp

    a key reason why i think initial claims no longer valid as an accurate indicator. 2013 is the FOURTH year in a row “experts” have forecasted a H2 surge in the economy. How many companies hired … and then let go … workers well before “the first four out of the last five completed calendar quarters prior to the time that your claim is filed.” in order to be ELIGIBLE to file?

    In this economy, imo companies are quick to let go workers if demand fails to show (especially with ACA burden looming).

  5. Dan on September 29, 2013 at 5:15 pm

    Mr. Biderman

    What’s your take on John William’s http://www.shadowstats.com

    are his published numbers accurate ?

    Any other source(s) for “real” info ?

    thankyou

    • Ed_B on October 7, 2013 at 11:09 pm

      Hello, Dan… I’m not Charles but let me take a stab at this one anyway. I’m a BIG fan of John Williams. Unlike most economists who work for universities and other arms of the government or the big banks, Williams is a consulting economist by trade. His one and only purpose is to determine the true state of the US economy and to report that to his clients. They can then use this information to make informed business decisions that can optimize the performance of their companies. Williams has no political ax to grind. Because of this, I have a great deal of faith in his work… unlike that of most economists who tend to favor whatever the status quo happens to be at the moment.

      I especially like the fact that Williams uses the exact same methods for calculating unemployment and inflation as did the US Gov and Fed prior to about 1994. Excluding food and fuel data from the CPI leads to the erroneous conclusion that US inflation is under 2%. Anyone who shops for food or fuel knows that this is patently absurd. Williams calculates inflation at higher than 9% these days and my buying experiences agree with that finding.

      The unemployment numbers published by the US Gov are highly suspect as well. When people exhaust themselves, looking for jobs that are no longer there, they quit looking for work. When that happens, the US Gov stops counting them as unemployed. When people exhaust their unemployment benefits, they are again not counted as unemployed. It is assumed that they are not receiving benefits because they are employed. Once again, this leads to an erroneous conclusion. In both cases, lower numbers are reported by the US Gov than is known to be the case when the old methods of calculating them are used and not the corrected method used since about 1995. While this may make the policies of the politicians and the Fed chairman look better, it is not descriptive of US economic reality.

      These differences are substantial and cause for significant concern. While the BLS shows unemployment to be 7.3%, counting those who have given up looking for work but who would take a job if one were offered to them will nearly triple the unemployment number to 23%. This level of unemployment is similar to the 25% that we had during The Great Depression of the 1930s. This is not symptomatic of a recovering economy, IMO.

      Similarly, the new corrected method used by the Fed shows that inflation is currently around 1.4%. Bernanke has stated that inflation is too low and that the Fed should take steps to increase it. Like gold, inflation is where you find it and it cannot be found unless someone is actually looking for it. I suggest that there is significant inflation these days, as food, fuel, and stock prices show, and that Williams’s uncorrected number of 9.6% is accurate and description of what is actually happening in the US economy today. Further, I believe that the true numbers for inflation and unemployment have been purposely reduced by both the BLS and the Fed to something that is more politically palatable. Williams, however, is not playing this political game and is calling it like he sees it and knows it to be. His clients expect no less.

      • Dan on October 9, 2013 at 3:42 pm

        Ed

        Thankyou for your reply. Most appreciated !

  6. edo on October 1, 2013 at 9:52 am

    what is your forecast for september nfp?thank you.

  7. Is Government Economic Data Useless? on October 19, 2013 at 2:46 pm

    [...] Well, if you are looking for accurate numbers to base long(er) term investment decisions on, then yes they are. If you are just trading for the day then it really doesn’t matter. The markets react to these economic data sets as if they were real, so in the short(er) term they matter. But, all of Wall Street knows these numbers are inaccurate at best and more than likely, completely useless. But in a typical the-emperor-has-no-clothes scenario they all feel that they must pretend the data is (somewhat) helpful simply because everyone else does. Now, this is no secret to many PrimeRates readers, but for many people these reported numbers are, for the most part, considered the U.S. Government’s unvarnished best estimates. And they sorta, kinda are, but the way they go about gathering the data is not exactly cutting edge: [...]

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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Mr. Charles Biderman is an associated person of Trim Tabs Asset Management, LLC, an SEC-registered investment adviser. All opinions expressed by Mr. Biderman on this website are solely those of Mr. Biderman and do not reflect the opinions of Trim Tabs Asset Management, LLC, Trim Tabs Investment Research, Inc., their affiliates (collectively, “Trim Tabs”), or any other associated persons of Trim Tabs. No part of Mr. Biderman’s compensation from Trim Tabs is related to opinions which he expresses on this website, elsewhere on the internet, or in any other medium.

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