DAILY UPDATE (May 9th to 11th) – Pending Commentaries: Late Today, May 9th – Flash Commentary, Issue No. 1435; May 11th – Special Hyperinflation Commentary, Issue No. 1436 / Pending Data: May 12th – April 2020 Consumer Price Index.
HEADLINES: PANDEMIC-DEEPENED RECESSION HAS HAD ITS EMPLOYMENT COLLAPSE AND INITIAL GDP CONTRACTION – April 2020 U.3 Unemployment Rate Really Was 19.5% per Bureau of Labor Statistics, Where the Reported “Headline” 14.7% U.3. Reflected Survey and Classification Errors That Were Disclosed but Not Corrected, for a Second Month / Headline 14.7% Was the Highest Unemployment Rate in the History of Series (Since 1948) / April 2020 Payroll Employment Plunge of 20.5 (-20.5) Million Was Worst in the History of the Series (Since 1939) / April Money Supply Annual Growth Surged to Record Highs (ALTERNATE DATA TAB), March Trade Deficit Deepened, but First-Quarter Deficit Narrowed Due to Coronavirus in China Reducing February Exports to U.S. / Strong First-Quarter 2020 Real Construction Spending Faces Hit in Second- and Third-Quarter / Extreme, Accommodative FOMC Policies to Continue for the Duration (SYSTEMIC RISK Section) / First-Quarter 2020 GDP Plunged 4.8% (-4.8%), Worst Drop Since Depths of the Great Recession / Yet, First-Quarter Numbers Are Incomplete, Facing Downside Revisions and a Second-Quarter Collapse / Downside Retail Sales Annual Benchmarking Signaled Weaker Historical GDP in Its Pending July 30th Benchmarking / Historic Quarterly Collapses in First-Quarter 2020 Real Retail Sales and Manufacturing Were the Second Consecutive Quarterly Declines for Those Series / With Only One Month or Less of Coronavirus Impact, First-Quarter 2020 Real Retail Sales Annualized 9.8% (-9.8%) Quarterly Drop Was Worst Since Great Recession Depths / March Industrial Production Plunge of 5.40% (-5.40%) Was Worst Since the Shutdown of World War II Production / March Home Sales and Housing Starts Plunged in the Month, with 1q2020 Activity Holding Positive, but with 2q2020 Headed for Sharp Quarterly Contractions / Headline March Inflation Was Hit by Collapsing Oil Prices and Sampling Disruptions
PANDEMIC ECONOMIC AND OIL-PRICE IMPACT: Worst Since Great Recession Depths, Headline First-Quarter GDP Drop Still Faces Downside Revisions / Second-Quarter GDP Faces Deepest Plunge Since the Great Depression, If Not Worse / April Payroll Plunge and Unemployment Rate Surges Were Worst Ever / May Activity Should Deteriorate Further.
• L A T E S T .. N U M B E R S .. April 2020 Headline Payroll Change and Unemployment/ Employment Readings Were the Weakest Ever; Even So, Per the BLS, April U.3 Unemployment Should Have Been 19.5%, Instead of the Headline U.3 of 14.71%, Which Was Depressed by Household Survey Surveying Errors (May 8th, Bureau of Labor Statistics – BLS). All was not as indicated in the headline reporting of the April U.3 Unemployment Rate at 14.71%, up from 4.38% in March. The BLS separately reported that substantive Household Survey employed/ unemployed classification errors continued for a second month. A more proper U.3 accounting, per the BLS, showed April Unemployment of 19.5% (up from 5.3% in March). Since the BLS continues to publish the understated unemployment rates as its headline data, those rates are used for the ShadowStats posting of the data and the graph available now on the ALTERNATE DATA TAB linked at the top of this Home Page.
That graph and data also reflect the uncorrected headline U.6 (broader than U.3) measure at 22.78% in April, surging from 8.72% in March, and the uncorrected ShadowStats Alternate, accounting for BLS-ignored long-term discouraged and displaced workers, jumping to 35.4% in April from 22.9% in March. Where the understated headline U.3 flows through to U.6 and the ShadowStats Alternate Measure, such will be fully detailed and graphed both ways in Flash Commentary, Issue No. 1435.
(May 5) Real March 2020 Trade Deficit Was Little Changed from the “Advance” Estimate Used in the “Advance” First-Quarter GDP (Census Bureau/BEA). With headline March trade detail as basically published for the initial estimate of 1q2020 GDP, no meaningful GDP revision should come from the March trade deficit revision. While the March deficit widened in the month, that was against a sharp narrowing in the February deficit, due then to exports from China being scaled back from Coronavirus impact in China. Accordingly, the real Net-Export Account in 1q2020 U.S. GDP contributed a positive 1.3% annualized growth to the GDP change, which otherwise would have been down by 6.1% (-6.1%) in the quarter, instead of by the headline 4.8% (-4.8%).
(May 1) Real March 2020 Construction Spending Gained in the Month, the Quarter and Year-to-Year, Lagging Pandemic Hits on precursor Building Permits, Housing Starts and Residential Sales (Census). Real Construction Spending showed solid gains in March 2020 and First-Quarter 2020, with quarterly annualized and year-to-year growth rates of 6.7% and 4.7% in dominant Private Residential Construction, lagging Pandemic hits to leading Construction indicators (see the April 23/21/16 section on Residential Real Estate). The circumstance parallels the 1q2020 GDP gain in Residential Construction, and pending 2q2020 decline. See the discussion in Flash Commentary No. 1434
(April 29) Pandemic-Hit “Advance” First-Quarter 2020 Real Gross Domestic Product (GDP) Declined at an Annualized Quarterly Pace of 4.78% (-4.78%), Having Gained 2.13% in 4q2019, With 1q2020 Year-to-Year Growth Slowing to 0.62%, from 2.33% in 4q2019 (Bureau of Economic Analysis – BEA). The BEA acknowledged its headline 1q2020 GDP data were incomplete. Discussed in Flash Commentary No. 1433 the initial 1q2020 contraction estimate should revise to a deeper decline of about 7% (-7%). First-quarter activity reflected only one month of Pandemic disruption, but second-quarter activity faces a full three months, with a likely 2q2020 GDP annualized quarterly plunge of about 38% (-38%). See extended detail and graphs in No. 1434.
(April 27) Downside 2020 Annual Retail Sales Benchmark Revisions Primarily Hit 2018, Reducing Real Average Annual Growth There from 2.34% to 1.94% (Census). The pattern of revisions was consistent with a sharp downside revision to 4q2018 GDP, which ShadowStats contends will come out of July 30th GDP Benchmark Revisions as marking the onset of a currently unrecognized recession. Retail Sales activity levels (not growth) also revised lower in 2019 and 2020, riding on top of the downside adjustments to 2019. Against the regular April 15th headline reporting (see No. 1432), the level of the inflation-adjusted “Advance” March 2020 activity was unrevised. Growth still collapsed, however, by a revised, record 8.0% (-8.0%) [previously 8.3% (-8.3%)] in the month, with 1q2020 activity plunging at an annualized 9.8% (-9.8%), the worst since the Great Recession. See expanded detail in No. 1433.
(April 24) March 2020 New Orders for Durable Goods Plunged 14.4% (-14.4%) in the Month, Hit by Cancelled Commercial Aircraft Orders and the Coronavirus Pandemic (Census). First-Quarter 2020 New Orders for Durable Goods contracted for the second consecutive quarter, both before and after consideration for inflation or Commercial Aircraft orders. Nominal 1q2020 total orders plunged at annualized pace of 12.8% (-12.8%), following a 4q2019 plunge of 7.6% (-7.6%). Second-quarter 2020 activity should see a further Pandemic-exacerbated nominal quarterly plunge. Cancelled Boeing Max orders pushed new Commercial Aircraft orders into a net contraction of $16.3 (-$16.3) billion in March, with nominal total New Orders down by 14.4% (-14.4%) in the month and by 16.0% (-16.0%) year-to-year, down respectively by 4.7% (-4.7%) and 5.0% (-5.0%) ex-Commercial Aircraft.
(April 23/21/16) March 2020 Residential Real Estate: New- and Existing-Home Sales, and Residential Construction Activity Collapsed in the Month, Holding Positive in the First-Quarter 2020, but Facing Second-Quarter Quarterly Plunges. (New Sales/ Construction – Census and HUD / Existing Sales – National Association of Realtors – see Press Release at www.nar.realtor). Reflecting impact from the Coronavirus Pandemic economic shutdown, on top of sharp downside revisions to both February and January activity, March 2020 New-Home Sales (NHS) plunged in the month by 15.4% (-15.4%) [down by 18.0% (-18.0%) net of prior-period revisions]. March 2020 Existing-Home Sales (EHS) plunged by 8.6% (-8.6%) in the month, having gained a revised 6.3% [previously 5.4%] in February. Where both series are likely to show Second-Quarter average monthly activity at or below the March numbers, sales should be in meaningful quarter-to-quarter declines.
Nascent New Residential Construction Boom Was Impaled by Coronavirus Pandemic Hit to March 2020 Numbers The massive headline month-to-month decline of 22.3% (-22.3%) in aggregate March Housing Starts was meaningful at the 90% confidence level, as was the 2.4% monthly gain in aggregate Building Permits. Where these series had been trending in an upside 4q2019 and 1q2020 boom, initial, full aggregate first-quarter quarterly activity ranged from flat to positive, with the trailing six-month moving averages in these series still broadly trending higher off Great Recession troughs. Yet, at March 2020 levels of activity, headline 2q2020 New Residential Construction would see collapsing quarterly activity.
(April 15) March 2020 Industrial Production Capacity Utilization Plunged to a 10-Year Low, With Production and Its Dominant Manufacturing Sector Both Showing Their Largest Monthly Percent Declines Since the Post-World II Production Shutdown (Federal Reserve Board – FRB). Capacity Utilization commonly used to time formal economic recessions, just took a record plunge, consistent with the unfolding Pandemic Recession. March 2020 Industrial Production declined by 5.40% (-5.40%) in the month, with Manufacturing down by 6.25% (-6.25%) [respectively having gained 0.46%, and dropping 0.06% (-0.06%) in February]. Neither the monthly decline of 1.92% (-1.92%) in Mining [some oil price impact] nor the 3.92% gain in the randomly volatile Utilities was unusual.
The Pandemic hit to Production and Manufacturing was late in the month of March, so where full First-Quarter (January, February and March) Production and Manufacturing plunged at respective, annualized rates of 7.53% (-7.53%) and 7.13% (-7.13%) [the second consecutive quarterly decline for Manufacturing], such otherwise would have rivaled Great Depression performance, had there been full quarterly impact (a Second-Quarter 2020 possibility). The monthly drop in Manufacturing pulled headline Production back below its Pre-Great-Recession High for the second time since its “Recovery” (breaking above its pre-recession peak in 2014, going into the 2014-2016 Mini-Recession). The hit to Manufacturing dropped it to a level 10.67% (-10.67%) shy from ever having recovered its pre-Great Recession December 2007 high. Such represents a 101-year record, 148-straight months of non-economic recovery in the Manufacturing Sector. See No. 1432.
• S Y S T E M I C .. R I S K – UPDATED (April 29th) Economic and Systemic Crashes Should Intensify, Moving Towards a Hyperinflationary Great Depression – FOMC’s Expansive, Accommodative Money Policies and the Targeted 0.00% to 0.25% Fed Funds Rate Will Continue for the Duration. Economic, FOMC, financial-market, political and social circumstances continue to evolve, but the broad outlook has not changed. Systemic turmoil is just beginning as the Fed and U.S. Government drive uncontrolled U.S. dollar creation. The FOMC and Fed Chairman Powell confirmed April 29th that current polices will continue, “… until we’re confident the economy is solidly on the road to recovery.” Such is in context of current annual growth in the Money Supply soaring to record highs (see the ALTERNATE DATA TAB and discussions in Special Commentary, Issue No. 1430, Issues No. 1433 to 1435 and pending in Special Commentary Issue No. 1436).
SHADOWSTATS ALERT: In context of the evolving Coronavirus Pandemic and related crises, near-term financial-market risks from negative economic, liquidity and political issues, are exacerbated by potential Hyperinflation, long viewed by ShadowStats as the ultimate fate of the U.S. Dollar. That said, the ShadowStats broad outlook in the weeks and months ahead continues for: (1) An unfolding and rapidly deepening (potentially hyperinflationary) U.S. economic great depression, reflected in (2) Continued flight to safety in precious metals, with accelerating upside pressures on gold and silver prices, (3) Mounting selling pressure on the U.S. dollar, against the Swiss Franc, and (4) Despite recent extreme Stock Market volatility, continuing high risk of major instabilities and heavy selling, complicated by ongoing direct, supportive market interventions arranged by the U.S. Treasury Secretary, as head of the President’s Working Group on Financial Markets (a.k.a. the “Plunge Protection Team”).
• P O S T I N G .. S C H E D U L E S .. SHADOWSTATS CONCURRENT ANALYSES OF NEW DATA: The April 2020 Consumer Price Index (Bureau of Labor Statistics) will be published Tuesday, May 12th at 8:30 a.m. ET. ShadowStats analysis should post by 11:30 a.m. ET.
SHADOWSTATS COMMENTARIES – UPDATED (Subject to Change): ShadowStats Flash Commentary, Issue No. 1435 will post by late today May 9th, covering the April Payrolls and Unemployment/ Employment data (Headline and BLS-ShadowStats Corrected), with Special Hyperinflation Commentary, Issue No. 1436 [renumbered from No. 1435] posting May 11th, covering Hyperinflation risks and latest economic outlook.
• ARCHIVES – VIEWING EARLIER COMMENTARIES. ShadowStats postings of February 2020 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 data, exclusive ShadowStats Alternate Estimates and related Graphs of Inflation, GDP, Unemployment, Money Supply (Initial full estimate for April M1, M2 and the 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