Wow! Summing this diary up into one sentence: Apparently, much of what we thought we knew about our economy, statistically speaking, is wrong.

Multiple reports and blog stories, culminating with a piece in Monday's New York Times, have concurrently surfaced over the past 24 (plus or minus) hours and, collectively, they're all confirming something that many of us have been talking, writing and speculating about for quite some time: the government and private sector economic statistics we're hearing and reading in the news--concerning everything from our country's gross domestic product ("GDP"), unemployment rates, worker productivity, wage inequality, consumer credit and even our housing downturn--are overstating the actual strength of our nation's economy.

In many instances, as we're now being informed, even the already-less-than-positive statistics we're currently reading are dramatically slanted towards the positive. In many ways, these new findings may also place the entire concept of a "jobless recovery" in a whole new light.

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Let's look at four examples that are just now (and over the past day, give or take) coming to the fore, starting with this morning's (Monday's) New York Times: "Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor."

Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor
Published Online: November 8, 2009      In Print: November 9, 2009

WASHINGTON -- A widening gap between data and reality is distorting the government's picture of the country's economic health, overstating growth and productivity in ways that could affect the political debate on issues like trade, wages and job creation.

The shortcomings of the data-gathering system came through loud and clear here Friday and Saturday at a first-of-its-kind gathering of economists from academia and government determined to come up with a more accurate statistical picture.

The findings in Uchitelle's story in today's Times were derived from similiar reports and related commentary from 80 "experts" attending a conference in our nation's capital sponsored by the Upjohn Institute and the National Academy of Public Administration. Among the representatives cited in the story as being in agreement that our government's statistics tended to paint too positive of a picture of reality were individuals from the Federal Reserve, the government's Bureau of Labor Statistics ("BLS"), and the Bureau of Economic Analysis ("BEA"), "...all big players in measuring economic performance."

The NY Times story focuses upon the manner by which we currently calculate our gross domestic product, however, the initial conclusions of the group indicate that these new understandings impact a wide cross-section of governmental economic statistics. (While many have been attributing a recently-announced, third-quarter upswing in our nation's gross domestic product of 3.5% solely to the current administration's economic stimulus programs, while also arguing that this event was a non-starter, others have been prematurely--IMHO--making statements tantamount to "mission accomplished," in terms of how our economy's "returning to normal.")

Specifically, as it was noted in the piece...

The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country.

American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises -- in the national statistics.

"We don't have the data collection structure to capture what is happening in a real time way, or what is being traded and how it is affecting workers," said Susan Houseman, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., who has done pioneering research in the field. "We have no idea how to measure the occupations being offshored or what is being inshored."

Obviously, as the article notes, "The statistical distortions can be significant." It may also account--and this is, more than likely, an understatement, IMHO--for a potentially false, overstated reading in many measurements that have been presented to the public relating to wage inequality and the so-called "improved productivity" gap within our labor force, as manufacturing and services output dramatically (and supposedly) "increases" while overall available (jobs) employment declines at a record clip.

"What we are measuring as productivity gains may in fact be changes in trade," said William Alterman, assistant commissioner for international prices at the Bureau of Labor Statistics.

Again, put another way,  it sheds a whole new light upon the entire concept of a jobless recovery.

The article also notes that the representatives of the federal agencies attending the conference--the entities responsible for compiling and managing our nation's current statistical reporting framework--claim that our government simply does not compile/collect the proper data necessary to accurately measure the impact that these imported goods and services may have,  in terms of how they cause our government to arrive at distorted results on a variety of metrics, as well.

Much of the conference was devoted to an analysis of the gap between existing data and reality, and ways to close that gap.

Bold type in blockquotes is diarist's emphasis.


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As if the above story wasn't enough to make you completely writeoff just about every number you'll ever hear from our government from now on--as well as the opinions of those that swear by them as gospel when, in fact, we're now told they're way off base--this story comes along, which tells us that a.) our government continues to deliberately and grossly understate our nation's unemployment numbers; therefore, unemployment's actually, still, much worse than we're being told; and, b.) while we were led to believe this was corrected/adjusted over the past 60 days,  that's simply not the case.

As an FYI, while certain other bloggers attempt to discount related commentary (to the, story below) by John Williams, over at Shadow Stats, who's been talking about these deliberately misconstrued birth/death numbers for years, the reality is the government has outright told us those birth/death numbers are completely wrong this year, as well! So, what does our government do after providing us with their "adjusted" unemployment numbers, which added roughly 900,000 more souls to our nation's unemployment tally through the first quarter of 2009? Well, of course, they continue to provide us with the same, ongoing (and knowingly incorrect), falsely optimistic numbers for the balance of 2009, too!  (Which, I'm assuming, they'll adjust in the Fall of 2010, instead of providing us with the accurate, and much higher, counts now, instead.) See below...

From Naked Capitalism on Sunday: "Frank Veneroso: Employment Losses Probably Continue at a 300,000 a Month Rate."

Venoroso's "Executive Summary" pretty much tells us the whole story, in eight data points (actually, it's really only six items). I would strongly recommend reading the entire piece, since the details clearly demonstrate that this is a much more accurate analysis of what's happening with our nation's employment situation than the so-called "facts" we've been hearing from our government of late. Yes, you should add (at least) roughly 75,000 unemployed folks per month to whatever numbers you're hearing from our government these days, and from this point forward, until further notice...

Frank Veneroso: Employment Losses Probably Continue at a 300,000 a Month Rate
Naked Capitalism
Sunday, November 8, 2009

From Veneroso Associates' US Economy October Employment Report, " Huge Discrepancy Between the Payroll and Household Surveys."

Executive Summary

1. According to BLS, payrolls fell at a 188,000 a month rate over the last three months. But their own household survey says employment fell at a 589,000 a month rate.

2. Why the discrepancy?

3. Chris Manning of the BLS told us last month that payrolls were overestimated in the twelve months ending March by 824,000. The source of this error was the birth/death model. BLS used "plug" numbers for the number of births and deaths. These "plug" numbers were wrong. They led to estimated positive contributions to employment that were too high. Most of the error (675,000 out of a total 824,000 jobs) occurred in the first quarter of this year. The birth/death model was adding significantly to payrolls when all other payrolls were falling. In reality the contribution from net births and deaths was in fact negative.

4. Manning told us that the faulty birth/death model was still being used for the months after March of this year. The implication was that the faulty birth/death model would continue to overstate payrolls and understate the payroll job losses in the months since March.

5. And, in fact, the BLS is doing just that. For the last three months they are assuming net birth/deaths have added 18,000 jobs a week. Last year over the same period they assumed it added 17,000 a week, the year before 18,000 a week, and the year before smack in the middle of the economic boom 18,000 a week.

6. It is obvious what BLS is doing. They are simply plugging in an extrapolated figure with zero adjustment for the most severe labor market contraction in three generations. And, worse yet, they know the birth/death number they are using is pure baloney.

7. NUTS!

8. Therefore, reality probably lies somewhere between the payroll survey monthly rate of job loss of 188,000 and the noisy household survey rate of job loss of almost 589,000. A best guess would be that jobs continue to be lost at a rate of 300,000 a month or more...

The full post gives you much more background and supporting detail. Again, I strongly suggest checking it out. See link, above.

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While mortgage meltdown reports over the past few months from multiple sources have indicated that there may be as many as 7,000,000 homes that remain in a shadow inventory, yet to be brought onto this country's banks' foreclosure lists, others are touting the totally false meme that housing inventories are being dramatically reduced. So, while the seven million number may be high, since many of these shadow inventory homes are in various stages of mortgage modification negotiations and related workouts, the latter statements are, simply, untrue.

The bottom line is that the residential mortgage mess, along with the impact that it is having upon the devaluation of our nation's residential real estate stock (as well as the adverse impact it is also having on banks' balance sheets), is much farther away from being rectified than many would have us believe.  

Yesterday, Calculated Risk brought this all home (pun intended) by outright stating the entire charade is little more than a "mirage." (Yes, that's their word for it.) Read all about it, right here: "First American CoreLogic Economist: Decline in Distressed Inventory a 'Mirage.'"

First American CoreLogic Economist:  Decline in Distressed Inventory a "Mirage"
by CalculatedRisk on 11/08/2009 09:16:00 AM

...The reason REOs (bank-owned real estate) have declined is that flow of distressed properties into REO has been artificially restricted due to local, state and GSE foreclosure moratoria, loan modifications and servicer backlogs. This has led to a drop in the supply of REO properties, while at the same time sales (including REO sales) increased due to the artificially low rates and first-time homebuyer tax credits, which further depleted the supply of REOs. This dynamic has led to the rapid improvement in home prices over the last six to eight months.

However, the mortgage distress is high and rising as is evident by the 90+ day category, which means the pending supply is building up due to high levels of negative equity and rising unemployment. So we have a situation where at the back end (ie REOs) it appears as if it's getting better, but it's really a mirage as we know that the pending supply pipeline default (ie 90+ day DQs) is looming larger.

We have to be careful with the 90+ day delinquency data because that includes loans in the trial modification process. If many of these trial modifications are successful - and become permanent - the delinquency rate could drop sharply without a large increase in foreclosures. We should know much more in Q1 when many of the trial modifications end.

Like I said, we're by no means close to knowing that the residential mortgage crisis is over.

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Like virtually every other topic I discuss in this diary, I've spent a great deal of time covering the evisceration of consumer credit by Wall Street over the past couple of years.  Here's my most recent diary on this topic: "More Gov't, Wall St. And MSM Lies: Consumer Credit, Savings."

The MSM meme on all of this is that consumers don't want credit. The reality, as I noted in a diary a few weeks ago (see link above, in previous paragraph), is exactly the opposite of this. (And, I own a very small software company that processes consumer credit applications for retailers at point-of-sale; so I'm on the front lines of this story, seven days a week.) But, over the weekend, Edward Harrison, publisher of the Credit Writedowns blog, has brought us what I think is, by far and away, the most clearcut evidence yet that Main Street would use available credit if it was extended to them. The problem is, the banks have gone from one extreme to the other as far as this matter is concerned. As a byproduct of this particular disregard for the credit needs of the general population, Wall Street has done more to undermine Main Street--and our economy in general--by ignoring consumer credit demand over the past two years, too.

Again, like everything else I've discussed in this diary, it's only over the past day or two that anything's appeared in print that clearly demonstrates that this is, indeed, what's happened. From Edward Harrison, over at Credit Writedowns, on Saturday night: "Consumer credit down, but does it show deleveraging?"

Consumer credit down, but does it show deleveraging?
Credit Writedowns
Posted by Edward Harrison on 7 November 2009 at 9:47 pm  

I have just taken a look at the consumer credit figures for September, released just yesterday by the Federal Reserve. The data do show some modest deleveraging, especially when looking at the recent increase in nominal GDP. However, it is still not clear to me that the scale of deleveraging is great enough to induce a recessionary relapse.


Credit from commercial banks and savings institutions have dropped off a cliff.  When you hear people saying that banks aren't lending, this is what they are talking about. In Q3, banks are lending again (think cash for clunkers) because nonrevolving debt is up.  That's also why GDP is up. But, revolving credit lines (credit card lines) are being cut...

Yes, most consumers--save for the very wealthy ones--really aren't deleveraging to the extent portrayed by the MSM, of late. Given the means and the opportunity, responsible consumers would buy goods if the banks merely extended credit to those that were worthy. (And, frankly, that's not necessarily a decision the banks are handling with any degree of social responsibility right now, either. At the end of the day,  especially these days, Wall Street really doesn't give a rat's ass about the consumer, despite any lip service from them to the contrary. The banks have bigger fish to fry at the moment (governmental demands to reserve more capital for potential loan losses, governmental incentives that actually enable Wall Street to engage in more risky behaviors, etc., etc.).

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So, there you have it.  Economics--despite the comments of many economists and wannabee bloggers to the contrary--really is as much of an art as it is a science.

Almost everything you thought you knew--for that matter, everything  most economists and our government thought it knew, too--about our GDP, the economics of global trade, unemployment/employment, worker productivity and wage inequality, mortgages, and consumer savings/credit is, very simply, wrong.


Originally posted to http://www.dailykos.com/user/bobswern on Mon Nov 09, 2009 at 03:00 AM PST.

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