Pretend you’re running a corrupt government and something big and scary
happens in another part of the world. Brexit, for instance. You’re quite
naturally worried about the impact on your local economy and political
system. What do you do?
Well, one obvious thing would be to call the statisticians who compile
your economic reports and tell them to fudge the next batch of numbers. Since
you already do this prior to most major elections, they’re neither surprised
by the request nor concerned with how to comply. They simply go into the
black boxes that control seasonal adjustments or fabricate things like
“hedonic quality” or “imputed rent,” and bump up the near-term levels. Later
revisions will lower them to their true range but by that time, hopefully,
the danger will have passed and no one will be paying attention.
So…Brexit spooks the global markets and — surprise — some big economies
report excellent numbers. Among them:
China’s GDP growth comes in at 6.7%, slightly better than
expected
US retail sales pop by 0.6%, versus expectations of just 0.1%
US industrial output surges in June, led by autos
These are indeed really good numbers, and anyone looking solely at the
headlines would have to conclude that the things the major governments have
done lately are working. Nothing to see here folks, everything is fine. The
experts have it covered.
But a clearer, far less rosy picture emerges when you look at the numbers
below the headlines, which are either harder to fudge because they’re
calculated by private sector entities or are too obscure to be worth fudging.
Business inventories, for instance, are a pretty good indicator of future
activity, with high inventories implying slow growth (because factories have
already produced plenty of stuff for the months ahead) and low inventories
meaning the opposite (because factories will have to resupply their customers
shortly). Here’s a chart from Zero Hedge showing “Business Inventories At Highest Level To Sales Since The
Crisis”:
Autos especially (which you’ll recall led the jump in retail sales) are
piling up on lots around the country, implying that auto plants will be
running somewhat less than flat-out during the balance of the year.
Meanwhile, The Amount Of Stuff Being Bought, Sold And Shipped Around
The U.S. Hits The Lowest Level In 6 Years:
(Most Important News) – When less stuff is being bought, sold
and shipped around the country with each passing month, how in the world can
the U.S. economy be in “good shape”? Unlike official government statistics
which are often based largely on projections, assumptions and numbers
seemingly made up out of thin air, the Cass Freight index is based on real
transactions conducted by real shipping companies.
And what the Cass Freight Index is telling us about the state of the U.S.
economy in 2016 lines up perfectly with all of the other statistics that are
clearly indicating that we have now shifted into recession mode.
Data within the Index includes all domestic freight modes and is derived from
$25 billion in freight transactions processed by Cass annually on behalf of
its client base of hundreds of large shippers. When they say “all domestic
freight modes”, that includes air, rail, truck, etc. As you are about to see,
the total amount of stuff that is being bought, sold and shipped around the
country by all these various methods has now been declining for 15 months in
a row.
If it was just one or two months you could say that it was just an anomaly,
but how in the world can anyone explain away 15 consecutive months?
Not only that, but the brand new number that just came out for May 2016 is
the lowest number that we have seen for the month of May in 6 years.
Of course the number for April was the lowest number that we have seen for
that month in 6 years too, and the number for March was also the lowest
number that we have seen for that month in 6 years.
Are you starting to get the picture?
And last but not least, Empire State index softens in July:
(MarketWatch) — A reading of New York-area manufacturing
conditions retreated in July, in what could be a sign of the impact of
Britain’s vote to leave the European Union on the U.S. economy.
The Empire State general business conditions index slipped to 0.6 in July
from 6.0 in June, the New York Fed said Friday.
Over the past two years, manufacturing has been held down by the strong
dollar. The dollar is up almost 20% on a broad trade-weighted basis since
2014 and is now just below its most recent peak in January. After the June 23
Brexit referendum, the dollar jumped against the British pound and the euro.
In addition, economists said the vote might weigh on manufacturing sentiment
and increase uncertainty among businesses in general.
A new survey found that rich Americans say they were rattled by Brexit.
In July, the new-orders component sank to negative 1.8 from positive 10.9,
and the shipments index sank to 0.7 from 9.3.
The index for future business activity fell 5.6 points to 29.2 in July.
To sum up, growth is great but…business inventories are spiking, freight
shipments are at six-year lows and the most recent regional manufacturing
report is as close to no-growth as is possible without actually not growing.
Which set of figures should we trust? Time will tell, but human nature being
what it is, our money is on the bad ones.
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John Rubino runs the popular financial website DollarCollapse.com.
He is co-author, with GoldMoney’s James Turk, of The Money Bubble
(DollarCollapse Press, 2014) and The Collapse of the Dollar and How to
Profit From It (Doubleday, 2007), and author of Clean Money: Picking
Winners in the Green-Tech Boom (Wiley, 2008), How to Profit from the Coming
Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street(Morrow,
1998). After earning a Finance MBA from New York University, he spent the
1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond
analyst. During the 1990s he was a featured columnist with TheStreet.com
and a frequent contributor to Individual Investor, Online Investor, and
Consumers Digest, among many other publications. He currently writes for
CFA Magazine.
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