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Posted by FrediFizzx on August 30, 2008, 2:30 pm
What is the largest purchase someone is liable to make in their
lifetime? Are the prices up or down? They are way down relative to
2006-2007. ;-)
Fred
> http://bigpicture.typepad.com/comments/2008/08/gdp-gross-decep.html
>
> GDP: Lowest Inflation Rate in 5 Years
> Saturday, August 30, 2008 | 08:12 AM
> in Data Analysis | Economy | Inflation
>
> Barron's Alan Abelson takes a look at Thursday's GDP laugher, and
> sees
> the same issues we noted, plus a few more:
>
> "GDP, IN COMMON PARLANCE, stands for gross domestic product, or
> the aggregate value of all the goods and services produced on these
> blessed shores. Or, at least, that's what it used to mean in those
> long-gone days of yore, when life was simpler and government
> statistics credible. These days, alas, those initials more typically
> signify "gross deceptive pap."
>
> The insidious change has not gone unremarked, both in this
> magazine and by more than one skeptical scanner of the turgid flow
> of
> numbers flowing out of Washington. Yet purportedly professional
> seers,
> who draw handsome paychecks for sifting through the unending streams
> of digits and making sense of them for hoi polloi like us,
> deferentially pass along the official numbers unsullied by even a
> modicum of analysis, as if they were holy writ, especially when
> they're upbeat.
>
> A case very much in point was last Thursday's revised report on
> second-quarter GDP, which helped spark a nice, if something less
> than
> enduring, leap forward by the stock market. The initial version
> released in July posited that the venerable economic barometer had
> risen by 1.9% -- up from the first quarter's meager 0.9% gain, but
> obviously no great shakes.
>
> Comes now the so-called preliminary estimate that claims second-
> quarter GDP grew by a much more robust 3.3%. That was hailed by the
> incorrigibly constructive contingent in the Street as evidence of
> the
> resiliency (favorite word) of the economy and prompted the
> thinned-out
> ranks of investors to put their worries and their plans for an
> extra-
> long weekend on hold and pile into stocks. Hooray! Hooray!
>
> But even a cursory look at what they're drooling over reveals
> pretty thin gruel. Nothing, for sure, that would cause any sentient
> being to start humming "Happy Days Are Here Again." For the
> ostensibly
> better GDP showing is a mirage, conjured up by the usual suspects
> out
> of smoke and mirrors.
>
> The key here is the GDP deflator, which purports to adjust GDP
> for
> the impact of inflation; it's a curious calculation in that,
> contrary
> to its moniker, it seems designed to do the exact opposite of
> deflating GDP.
>
> Thus, according to this accommodating measure (accommodating,
> that
> is, if you're determined to put a good face on a dreary report),
> inflation grew at an improbably restrained 1.33% in April-June. And
> maybe it did -- but not in the good old U.S. of A. However,
> obviously
> more important than accuracy to those doing the calculating is this
> simple equation: The lower the deflator, the greater the growth of
> GDP.
>
> John Williams of Shadow Government Statistics, whose incisive
> description of the decades of willful distortion of inflation by
> Washington we cited a few weeks ago, points out that the supposed
> 1.33% increase in the second quarter would represent the lowest
> inflation rate in five years. Must be that plain folks stubbornly
> refuse to recognize the dramatic drop in inflation, because, as Phil
> Gramm said, we're such a bunch of whiners.
>
> Of course, even by the government's not entirely extravagant
> figuring, the consumer-price index was up a hefty 8% in the latest
> quarter. Perhaps the computer that tallies the CPI doesn't talk to
> the
> computer that measures the deflator.
>
> By John's reckoning, "a second-quarter year-to-year contraction
> of
> 2.9% would have been more in line with underlying fundamentals, past
> methodologies and the ongoing recession."
>
> He suggests that a more telling picture of the economy's progress
> or lack of it is the alternative to GDP, known as gross domestic
> income, or GDI. It's a rough equivalent of GDP but measures the
> nation's income instead of production.
>
> According to John, after adjusting for inflation, GDI in the June
> quarter weighed in at an anemic 0.5%, atop negative growth in the
> preceding two quarters -- which, as it happens, meets the popular
> definition of a recession.
>
> Friday's disclosure that personal income in July suffered its
> biggest decline in three years doesn't exactly portend a rebound in
> the third quarter, and certainly didn't come as a big surprise to
> John, who sees the outlook for the economy remaining glum, with no
> early end to the banks' solvency crisis, as he terms it, nor the
> inflationary recession. (Emphasis mine)
>
> Also worth noting: Merrill's David Rosenberg looks at the GDP
> version
> of Banks & Brokers profits:
>
> THE ASTUTE ECONOMY-WATCHER for Merrill Lynch, David Rosenberg,
> also strongly advises digesting the suspect GDP report with a "very
> large grain of salt." Among other things, he casts a skeptical eye
> on
> how the report treats the decline in corporate profits. (We won't
> keep
> you in suspense: The answer is: "gingerly.")
>
> More specifically, he notes, "national-account corporate profits
> declined at a 9.2% rate in the second quarter." For domestic
> industries, he goes on, profits are down 14.4% year over year.
>
> But according to the GDP report, domestic nonfinancial profits
> fell at a much sharper 22% annual rate. The reason the drop in total
> corporate earnings was limited to 9.2% was that, David relates,
> profits in the financial sector, so claims the report, surged -- get
> this -- at a 27% annual rate.
>
> His wonderfully eloquent comment:
>
> "Are you kidding me?"
>
> My original comment stands: If you believed that US economy grew at
> a
> 3.3% annualized in Q2 2008, I have a very reasonably priced bridge
> for
> sale in Brooklyn. Hardly used. Make an offer.
>
> Henceforth, we shall rename the GDP deflator as the GDP Inflator,
> for
> that is what it does.
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