GDP & BLS Job Numbers Are Worthless Garbage!

Nov
14


 

By Charles Biderman

The Bureau of Labor Statistics reported 204,000 new November jobs and everybody said wow, the US economy must be doing better then we thought. Similarly, the Bureau of Economic Analysis reported that the US Gross Domestic Product grew by 2.8 percent in the September quarter. If you only used government data, the impression is that maybe the economy is indeed getting better and we can grow our way out of the current no growth swamp.

 

What nonsense. No one, at least no one I have noticed or than me, has said that maybe the numbers suck. Look, what’s really going on is that the US economy is barely growing and what growth there is at a slower pace than last year. Rather than improving, flat lining is the best description of the US economy.

 

How do I know this? What I track is daily withhold income and employment taxes reported by the US Treasury and then adjust it for changes in tax rates, salary levels and tax bracket creep. Unfortunately for you guys, no one else I know tracks this and since TrimTabs sells this data as part of our research products, we cannot give it away. But I can tell you that 2012’s modest 3 to 4 percent nominal growth in wages and salaries before inflation has dropped to an average of 2 to 3 percent this year. Why the decline? Simple; higher employment and income taxes have reduced the deficit a bit and also income growth.

 

Ok, why the initial job and GDP reports suck is that they both ignore all the real time data available and instead are based upon surveys adjusted by historic data; a methodology first developed in the 1960’s. So, let me be clear, about two years after the initial GDP and jobs reports the final numbers will be accurate. But that will only happen after all income tax returns and actual sales numbers are collected. What is most important is that historically the final numbers almost always have no relationship with the initial reports.

 

Now I know many of your eyes glaze over when you see another video on boring GDP and jobs numbers. But the truth is one of the major problems facing the US today is bad data. Anyone relying on initial government reports literally has no idea what’s is really happening.

 

And here’s why. The two most important numbers on the US economy are Gross Domestic Product, put out quarterly by the Bureau of Economic Analysis, and the monthly jobs and employment report from the Bureau of Labor Statistics.

 

I will try to keep this simple. Some of you know that about 70 percent of GDP comes from determining what the BEA calls Personal Consumption Expenditures. PCE is most everything other than capital goods that we spend money on during each quarter. But what almost none of you know is that the BEA gets its spending data from the Census Bureau’s monthly survey of all of 12,000 retailers out of more than three million retailers. That is about 1/3 of one percent of all retailers.

 

I actually emailed the BEA and asked instead of surveying 12,000 retailers why not use Master Card, Visa, AMEX and the like which has over 95% of actually monthly retail sales? What’s more Master Card and Visa actually sell aggregate sales data.

 

I was surprised to get an email answer, full of bureaucratic reasons why change is difficult, from the Associate Director for National Economic Accounts at the BEA. The eamil ended by assuring me that discussion about whether real time data vs surveys has been and is going on. Yes, I will bet those discussions will continue for years; or until someone tells them to just use real time data and stop the survey nonsense.

 

Similarly, the BLS monthly employment report is meaningless, full of sound and fury, signifying nothing. The unemployment percentage is derived from the Census Bureau which surveys a mere 60,000 households each month to determine the number of people working, in the workforce, etc. Sixty thousand households are surveyed. That is it.

 

Oh, yes. The BLS also surveys about 140,000 business and government entities every month and gets about 100,000 responses the first month to guess at how many new jobs are created. And to give the BLS some credit, in the footnotes to the monthly report, the BLS does admit that the there is a 90 percent chance that the actual jobs number was within 100,000 of the reported number.

 

That 90 percent chance of being accurate within 100,000 jobs is not very accurate at all. And yet the media and Wall Street treats the BLS number as if it means something.

 

There’s a much better way of doing this. Remember, every pay period all employers send in to the US treasury withheld income and employment taxes. If all employers included with the tax payment the number of people working and how much they made, we would have wage and salary and jobs data in real time. We would not need surveys, nor government economists more concerned with their jobs and the status quo.

 

All real progress starts with accurately representing what is going on now. Without really knowing what is so, all we have is the confusion, uncertainty and the mess existing today.

 

 

14 Responses to GDP & BLS Job Numbers Are Worthless Garbage!

  1. Dave in Alberta, Canada. on November 15, 2013 at 3:33 am

    Charles, I always love your videos. It’s nice to find a truthful blogger who isn’t afraid to speak it like it is. Keep up the great work, lots of people appreciate it.

  2. Chris on November 15, 2013 at 5:15 pm

    John Williams recently paid a visit to Portland and had some real gems for us…Mr. Williams stated that “over the past year, home prices are up over 10%” but went on shortly thereafter to state that inflation was woefully inadequate @ 1.4%.

    Funny, given that housing is 1/3rd of the CPI that w/ housing up 10% yoy, inflation could be 1.4%??? This would seem to indicate that the rest of the CPI components would need to be severely negative??? Even given the CPI’s calculation utilizing “owners equivalent rent” @ 24% of annual budgets, this doesn’t square w/ rents now being @ record highs…something is very wrong with the calculations of “inflation”. Of course you know all about substitutions, quality improvements, and hedonic adjustments, all of which rationalize away price increases as somehow non-inflationary.

    As you note, the government data from BLS, BEA, etc. is highly distorted and twisted…perhaps one could say this is intentional and necessary if one intends to run an effective “propaganda campaign”???

    • Ed_B on November 23, 2013 at 10:14 pm

      “Mr. Williams stated that “over the past year, home prices are up over 10%” but went on shortly thereafter to state that inflation was woefully inadequate @ 1.4%.”

      I have been a fan of John Williams and his web site at http://www.shadowstats.com for a few years now. I am hoping that what he said was not that inflation was woefully inadequate but that the Fed’s calculation of it was woefully inadequate; as in divorced from reality.

      Mr. Williams himself has been calculating inflation in the same way as the US Gov did prior to about 1990, which included food and fuel and without all the slight-of-hand moves that the current Fed and Gov seem to like so much. Well, they should like them as they show that their failed policies have worked when experience shows us all that they have not. I will go with what my experience shows me every time and not with what the self-serving hacks in the Fed say to make themselves and their policies look better than they really are.

      Inflation is one of those slippery words that slippery groups and individuals use when they want to disguise what something really means. Inflation is merely the annual rate at which the buying power of the US dollar is destroyed. If “economists” would put it in those terms, MANY more people would grasp what the term “inflation” really means to them personally. It means that their money can’t buy as much this year as it did last year… and the Fed policy wonks want this to happen even faster than it already is??? For what conceivable reason would this be a good thing?

  3. Chris on November 15, 2013 at 5:30 pm

    Mr. Biderman,

    I pulled a little data from ’00, ’08, and ’13 trying to understand the rapid growth in public debt and the slow down of non-marketable debt. Interestingly, alongside the Fed and it’s huge increases in QE have been foreigners buying ever greater amounts of US T debt at ever lower yields. Wonder if you have any visibility or insight as to who these foreigners are (CB’s?, foreign PD’s?, etc.)? What I really want to know is that if the Fed intends upon tapering it would seem that the only party left to buy these T’s would be these same foreigners, at ever greater % of outstanding US T debt. Does this seem rational?

    ’00
    •GDP $9.5 T
    •Marketable debt = $3.3 T (blended interest rate of 6.4%)
    •Non-marketable debt = $2.3 T
    ◦Fed 2% of Notes/Bonds/TIPS ($50 B)
    ◦Foreigner 30% of Notes/Bonds/TIPS (890 B)

    ’08
    •GDP $13.7 T
    •Marketable debt = $5.1 T (blended interest rate of 5%)
    •Non-marketable debt $4.1 T
    ◦Fed 4% of Notes/Bonds/TIPS ($200 B)
    ◦Foreigner 42% of Notes/Bonds/TIPS ($2.2 T)

    ’13
    •GDP $16 T
    •Marketable debt = $12.2 T (blended interest rate of 2.3%)
    •Non-marketable debt = $4.9 T
    ◦Fed 22% of Notes/Bonds/TIPS ($2.2 T)
    ◦Foreigner 50% of Notes/Bonds/TIPS ($5 T)

    • Chris on November 15, 2013 at 6:59 pm

      If not foreigners, who domestically (ex-Fed) would be the step-in buyer?

      And of the interest to be paid on this debt, given 50% of Notes/Bonds are foreign held, majority of this interest will exit the US economy not creating velocity or money multipliers…and assuming foreigners are the primary buyer for future T debt @ higher rates, this interest paid will become a greater and greater sucking sound on the economy???

      Likewise, with the deceleration of the SS “surplus”, the growth of non-marketable debt will likely cease and potentially begin declining neccessitating even more Public T issuance to pay for this…putting even greater pressure on someone (foreign someones?) to soak up this issuance? And ever less remitance from the Fed and intra-gov debt returning to the Treasury???

      Seems a few of these questions of Ben or Janet would have been in order???

  4. BC on November 15, 2013 at 7:36 pm

    https://app.box.com/s/mtstr48n9q4qobidc1ha

    https://app.box.com/s/acjof0mfytg9vy3aqiuf

    https://app.box.com/s/63apk9x7g83ls01m2kb9

    https://app.box.com/s/m98htpmebgfwadb30s6y

    https://app.box.com/s/tgflwndqp3v6kzgrm24s

    https://app.box.com/s/v1rkhgj76aasawcsk9xd

    https://app.box.com/s/kaajuqk090dqqdc2if3v

    The US economy is at no faster than stall speed, and most likely at the tipping point of a negative quarterly annualized and yoy real final sales per capita figure.

    The economy does not grow when the labor force and the number of peak demographic age 25-54 cohort are contracting yoy.

    Real GDP per capita has not grown since ’07-’08, and the trend rate has fallen to below below 1% from the average 2% since ’00.

    Given that the quarterly annualized trend rate of real GDP per capita is so slow and well within the margin of error of the estimates for the GDP deflator, inventories, and import prices, the BEA might not ever report a quarterly annualized contraction in real GDP or real GDP per capita. That is, they can “manage” away a recession.

    Moreover, note that the U rate has fallen commensurately with the decline in labor force participation by an equivalent of ~6 million Americans. Had the labor force participation rate maintained from ’07, all else equal, the U rate would be 10-11% and the U-6 rate at 17-18%. Yet, Bernanke and Yellen claim that QEternity is the principal cause of the reduction in the U rate from 10% to 7%.

    So, the Fed could continue printing $1 trillion a year indefinitely with another 5-6 million Americans leaving the labor force for various reasons, even with no growth in the labor force or civilian employment, yet the U rate would decline from 7% to as low as 4%, and the Fedsters would claim, SUCCESS!!! FULL EMPLOYMENT!!! QEternity and $7 trillion in bank reserves (100% of current bank loans for a 100% reserve ratio to loans) and the Fed balance sheet WORKED!!!

    https://app.box.com/s/b7atr90b08xulflw7yhw

    http://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-becoming-japan-inflation-us-eurozone-japan

    Japan’s participation rate is 58% compared to 62% in the US. Guess where we’re heading as we continue to “turn Japanese”?

  5. buck novak on November 16, 2013 at 9:27 pm

    It is really quite simple why government functions as it does. When I was in the U.S. Army many years ago, a sergeant or officer would ask me all the time what my function was. I would reply MY ONLY FUNCTION IS TO MALFUNCTION. This would draw hysterical laughter from my mates but would infuriate my superiors. My superiors would tell me I HAD A BAD ATTITUDE. Today I tell people the government’s only function is to malfunction because that way they alway claim they need MOAR MONEY, YOUR MONEY. I think moar people are beginning to have bad attitudes about government.

  6. RJ on November 17, 2013 at 3:25 pm

    Charles,
    I have watched your videos since you began offering your insights to the public. I understand that you can not give away your research information. But do you have a slimmed down core information subscription service for us retail investors? Most of us can not afford the fees paid by institutions and fund managers.
    RJ

  7. Ed_B on November 23, 2013 at 10:35 pm

    Charles…

    As a scientist, I am perfectly well aware of the value of solid data supporting any project. In the case of the US economy, however, that seems not to be what the Fed and the Gov desire. Instead, they need cover for their incompetent actions and their inaction of the past couple of decades. They seem to believe that to look good is just as good as being good. They do not live in the real world, so think themselves beyond the fair criticism that those of us who do live in the real world sometimes get. To ensure that they are not criticized, they make things up that make them look better. These things include numbers, such as GDP (higher is better), inflation via their heavily massaged CPI calculations (lower is better), and unemployment (lower also being better). You have rightly criticized their failing to use the readily available real-time US Treasury data instead of their out-dated surveys, which are very slow to produce results and are terribly inaccurate as well. I concur with you on that but submit that accuracy is not their goal. Political CYA IS their goal and they are achieving that quite handily. They should, of course, as they HAVE had a lot of practice at it!

    Unfortunately for them, reality has a way of intruding upon even the nicest fairy tales, including their concocted employment, inflation, and GDP numbers. As they continue to disseminate their dysfunctional numbers, their vanishing credibility seems to shrink at an increasing rate. All of which reminds me of the Ayn Rand quote about, “We can ignore reality but we cannot ignore the consequences of ignoring reality”. Sooner or later, this WILL catch up with these guys and when it does… WHAM! Sadly, this affects many more people than just them.

    • Dan on November 27, 2013 at 10:13 pm

      When I was in college, I questioned my professor regarding US debt rollover in 1988. He was so smug he laughed at my question in front of the class saying the US will always be able to roll over its debt. End Game near?

      • John A on December 3, 2013 at 8:52 pm

        The fact that you asked this question 25 years ago, and the US has been continually able to roll over its debt in the meantime, would seem to indicate that your professor was right.

      • Ed_B on December 26, 2013 at 7:07 pm

        Smugness like that is often the refuge of those who have ceased to question and therefore to think. Instead, he could very well have brought that very question up to the entire class as a debate point, dividing the class into those who are for or against your premise, and mediated the arguments pro and con. Of course, doing that would cause his students to think and actually learn some things that might not have been part of the canned program… a risk that all good teachers are willing to accept.

        What the professor missed, of course, was that at that time the growth in the US economy was strong and easily capable of papering over some very bad management. Your question cut to the heart of the matter with, “OK for now, but what happens when it is not?”. That was a serious question and it should have been taken seriously, IMO.

        We can look at today and ask another relevant question: “What happens when interest rates rise significantly, approaching their historical average of about 5.5%?”. The answer to that being that the US Gov will have a VERY difficult time operating when so much of the national budget is dedicated to paying the interest on money already borrowed and spent, not to mention actually paying off any of this debt instead of just continually rolling it over. Merely rolling debt over and over as it collects system-killing interest is akin to an individual paying off one credit card with another. While that may work in the very short term, its inevitable outcome is financial disaster.

        In economics, size matters only insofar as the time frame involved. Organizations that are very large are still subject to the same economic rules as everyone else but they have much larger momentum. This means that doing the things that would cause an individual to go broke in months can require years and even decades for larger entities. Note that their merely surviving longer does not mean that their same policies are economically viable. They too are going broke. The USSR makes a prime example of this. Its economy was badly mismanaged and finally collapsed because of it. But it did take almost 70 years for the collapse to occur. This does not mean that their policies worked for nearly 69 of those years, only that this was how long it took for them to reach their maximum effect, finally getting them to the time and place where and when they could no longer function at all.

        In spite of this sterling example of what not to do, the USA seems dedicated to following along this same path. Oddly enough to some, it WILL eventually reach the very same result. Funny how that works.

  8. Conscience of a Conservative on November 28, 2013 at 1:40 am

    I was called by the census bureau and asked on a number of occasions about purchases I had made. After several rounds of questions, I have even less faith in the data and can’t honestly believe it offers any insight or has any validity. The proposal to switch to real time data and not rely on surveys can only make the numbers better. I suspect the BLS is slow to change because they don’t like being dictated to by the outside and because there are bureaucrats who earn their living keeping the current system going.

  9. Swelling Waterstops on January 9, 2014 at 5:07 am

    Thank you for sharing.

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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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