Posted on 11/01/2007 7:01:20 PM PDT by Travis McGee
Yesterday, as the dollar fell to new record lows and oil and gold prices surged to new highs, Wall Street remained fixated on wholly meaningless government data that managed to report the lowest inflation in the last half century. These bizarre numbers were integral in allowing the Commerce Department to report 3.9% annualized GDP growth in the third quarter, which was heralded by the bulls as evidence that a resilient U.S. economy had shrugged off the problems in the housing and mortgage markets. However, the government’s ability to make “economic growth” magically appear is based purely on statistical finesse.
To arrive at this rate, the government had to assume that inflation during the quarter ran at an annualized rate of .8% (that’s less than 1%). That is the lowest rate of inflation used to calculate U.S. GDP since the Eisenhower administration. With oil priced at almost $100 per barrel, gold futures trading over $800 per ounce, the dollar hitting record lows, and the Fed printing money like it is going out of style, the government has the nerve to claim that current inflation is the lowest it has been in half a century. Unbelievable!
Just in case there is some confusion, the government adjusts nominal GDP gains using the GDP deflator, which represents the inflation rate during the time period being measured. This is done to strip inflation out of the GDP calculation so that only real growth gets counted: not nominal gains that result purely from inflation.
The consensus estimate for 3rd quarter GDP growth was 3.4%. The reason we beat that number was that the government adjusted the nominal 4.7% gain by a mere .8%. Had the government assumed a higher rate of inflation, say 2.6% (identical to the rate used to deflate second quarter GDP,) the 3rd quarter gain would have been only 2.1%, well shy of the consensus forecast. My guess is that inflation is actually running at an annualized rate closer to 10%. Therefore using a more honest deflator, the U.S. economy is actually contracting, which would explain the recent anecdotal evidence provided by various economic polls, voter dissatisfaction and consumer sentiment numbers. In fact, if one simply measures U.S. GDP using gold or any other currency, it is clear that we are already in a recession.
Similar illusions are created in other numbers, such as retail sales, corporate earnings, and stock prices, which are all rising merely as a result of actual inflation being higher than the official reports. For example, higher retail sales reflect consumers paying higher prices for the products that they buy. They may in fact be buying less stuff, but are paying more for it. Further, part of the gains result from tourists using their appreciated foreign currencies to buy products cheaper here than they can in the own countries. I have heard about Canadians checking into U.S. hotels with empty suitcases, crossing the border to indulge in weekend shopping sprees.
Corporate earnings, particularly those of multi-nationals, are padded as their foreign currency denominated earnings translate into more dollars when those earnings are repatriated. However, such gains are illusions, as companies merely earn more dollars of diminished value for the goods they sell. The actual volume of exports does not necessarily improve much, as evidenced by weak industrial production and manufacturing employment. When those additional debased dollars are paid out as dividends, they confer no real increase in global purchasing power to shareholders.
Similarly, just as inflation causes prices to rise for goods and services it causes stock prices to rise as well. Though such gains may be less than the actual increase in the cost of living, as long as the government gets away with using bogus CPI numbers which fail to fully reflect inflation, Wall Street takes credit for nominal gains as if they were real.
However, as ridiculous as the phony GDP number was, yesterday’s biggest joke was a report on global competitiveness put out by the World Economic Forum in Davos, Switzerland, which ranked the U.S. economy as the world’s most competitive. To arrive at this conclusion, the forum has obliterated the obvious under a mountain of theory. In determining country rankings, the WEF weighed strengths in their "12 Pillars of Competitiveness", including: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication and innovation. Completely ignored however are the measurable results of competitiveness, notably a trade surplus and a strong currency.
It is as if the WEF decided to judge a weight loss contest without using a scale, by instead focusing only on mental attitude, dedication, perseverance, and nutritional education! As a result the prize is awarded to the fattest contestant. Based on the empirical evidence of a gargantuan trade deficit, staggering global indebtedness, and a declining currency, the United States is clearly not the most competitive economy in the world.
$20-$25 of the $96 barrel oil price is hedging, specualation and manipulation. Another significant portion if dollar devaluation. Another component is shortages due to poor management of oilfields in Venezuela (recently privatized and now devoid of foreign expertise) and in Kenya. OPEC is not meeting its cap production quotas due to mismanagement, much less exceeding them through traditional backdoor deals by member states.
The pricing we’re seeing now is not sustainable and is in many ways symptomatic of something other than sheer force of demand.
China’s economy is going inflationary due to energy prices and being pegged to the dollar and the US, when you subtract the effects of military and home equity spending, is going very recessionary. The true effect of the housing collapse is the pinch on equity credit lines, which have fueled most GDP growth over the past few years. Add in increased fuel costs, and commodities that have shown exponential growth and you have the makings of a perfect storm. Anecdotal evidence aside, this economy is scary from my perspective - as a marketer of discretionary/leisure/entertainment goods.
That would take me a month of Sunday's to figure out. Lemme see: The average big rig, once going down the road, gets between 5.5 to 6.5 miles per gallon. That load can be up to 80,000 pounds, 48,000 lbs being the payload.
We have right smart folks here who could could break that down to reflect costs with a two cent a gallon increase.
I ain't one of them ;^)
I thought maybe there was a source somewhere compiled by squinty little guys with pocket protectors.
25% from when to when?
For which goods?
Are these goods representative of the overall goods basket that the typical American might purchase (not just food)?
Is your region typical or atypical?
You have not provided counterevidence to a claim of 0.8% inflation here.
You still haven't given a source for this tuna-can thing.
Even if/when you do, what it will prove about the economy at large is beyond me.
Yes, there is fraud, and stuff that falls short of fraud but is an attempt to cut corners, etc. But when has that not been true? I'm not aware of evidence that it's somehow on the increase in any significant way to the point where we need to adjust inflation statistics as a result.
And you haven't given any such evidence.
Government measurement techniques have been criticized since the 1960's with their use of non typical "typical" grocery baskets of items people use occasionally or limited to certain populations.
I am aware of that. Indeed, I have my doubts as to whether the government "basket" represents anything meaningful. Nevertheless, to dispute this figure of 0.8% would require actual arguments and data, facts and figures. Not hunches and opinions.
A price rise of 100% is noticeable. But I did not observe a price rise of 100% in goods overall. Or anything approaching that. Please understand that this doesn't necessarily mean that the price of everything has stayed the same. Just that, on average, I haven't noticed a price increase. (And certainly not in 3 months!)
I have a tenant with “special needs” who lives on Shreddies and peanut butter. I used to pay $3.47/box for Shreddies up until about 4 months ago. Last week, the best price I could find for that same size Shreddies container was $8.79.
I haven't the faintest idea what "Shreddies" are. Suffice it to say that if our economy were entirely based on "Shreddies", you might have a point. Since it's not.... *shrug*
It's possible, even likely, that this price rise you've observed in "Shreddies" (whatever they are) stems from something specific to the company that makes "Shreddies".
And by the way, this price rise you've observed (in one single, obscure product), by your own account, occurred over the course of four months. Not all of this price rise would show up in a quarterly inflation calculation, then. So even if our economy were entirely Shreddies-based, and it did indeed rise by 100% over 4 months, that still wouldn't mean that the inflation over three months couldn't be 0.8%. It very well could.
Either you are FAR more disconnected from the rest of the real world than you realize, or you are being disingenous.
Or just, I don't buy Shreddies.
If I did, and their price doubled, you know what I think I'd do? Buy something else that's equivalent but cheaper. It's called replacement, and it's just another of the myriad reasons why a 100% increase in the price of Shreddies doesn't necessarily mean that inflation was 100%.
Which grocery stores? "the"? all of them?
Even if this were true, it wouldn't disprove 0.8% inflation. There are other things that people buy besides food.
You can believe your .8% figure until the day you die, but the FACT is the price of everything is related to the price of fuel and oil is almost $100 a barrel
For the zillionth time, I don't "believe" it, I simply await an actual counterargument to it!
but the FACT is the price of everything is related to the price of fuel and oil is almost $100 a barrel
Okay, that's a FACT. Nevertheless, the government statisticians have calculated a thing called "inflation", they say that it was 0.8% in 2007Q3, and you think they are wrong, but you have no argument or facts whatsoever to array against them. That is where we remain after over 100 posts of people telling fascinating anecdotes about how their beloved Shreddies are now $8.
All I can tell you is that in real terms my dollar is not worth as much as it was in 2006. Not by a long shot
>> Nevertheless, the government statisticians have calculated a thing called “inflation”, they say that it was 0.8% in 2007Q3, and you think they are wrong, but you have no argument or facts whatsoever to array against them. <<
I’m curious. What would you consider facts against government statistics on inflation? If many people complain how food, housing, and energy prices all have gone up, and it is taken out of government statistics because those are “volatile” and no one else takes the effort to do a massive comparative consumer price survey, then do you just trust the government because they supposedly have the best data?
Exactly.
You can not have it both ways.
You can not discount anecdotal examples no matter how numerous in favor of official government data no matter how flawed and say the government approach is somehow rational, scientific and correct.
Inflation is built into the very structure of the non market based economy erected by that Supreme Bolshevik, FDR.
We the People, have been conditioned to accept the terms of debate given to us by They, the Bureaucrats, from on high and now we,the people, are further conditioned to accept outright lies given us by they, the bureaucrats.
It may not be possible to find the statistics and fact based arguments you seek in what is fundamentally an irrational intellectual construct (the modern economy).
Even the mighty Alan Greenspan himself recently seemed to suggest (it is hard to tell beneath the mumbo jumbo) that the invisible hand of the Federal Reserve is no better and possibly even worse than the invisible hand of a hard currency economy.
Make of that what you will.
Best regards,
You can add SW VA to that list.
What exactly does the term "same store sales" mean? I've always read that term being used for retail sales, but it isn't clear to me what it means.
So yes, people are still driving around in three-ton SUV's they haven't paid for and putting $3.50/gallon gas on their credit cards and living in houses with negative amortization loans. Like sprinters leaning way forward to try to break the tape - one slight stumble and they lose.
Something which nobody - not I, and not the government statisticians - is disputing.
It means stores open at least 1 year (and sometimes some change like a month). The company I work for same store sales are up 6.1% Year over Year, while total overall sales are up 24% from new store openings. It’s generally a solid indication of how your established stores are doing.
What's your point? They are just two players among hundreds in the grocery market. Neither are very big anyore nor at the top of their area. Both have lost sales to other players including Harris Teeter, Publix, Walmart, Costco, Whole Foods, among many, many others.
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