Can You Trust US Economic Data? Eight “Out Of The Box” Investment Insights – Peter Diekmeyer
This morning, Canada released GDP data which showed the economy shrank by 1.6% on an annualized quarter-over-quarter basis during Q2. While economists forecast a 1.5% drop, those “projections” were made after the quarter was already over. Six months before it started, almost everyone was saying that things were going to be fine.
Canada isn’t alone. As our old friend Larry Summers has pointed out , “not a single post war recession was predicted a year in advance by the Fed, the Federal government, the IMF or a consensus of forecasters.”
In short, while astute investors need to take into account the official line, they also need to go “outside the box.” Following are eight creative insights from economic and investment thinkers, almost all of whom operate outside consensus silos.
A 23% unemployment rate? John Williams of Shadow Statistics believes that US government has long been presenting misleading economic data. Much of this originated in statistical agencies rejigging calculation methodologies which started in a big way in 1994 during the Clinton Administration. The upshot, says Williams, a gold fan, is massive hidden inflationary pressures.
Headline inflation, for example, which is currently running in the 1% range y/y, would be between 3.5 and 7 percentage points higher using previous methodologies, he notes. Worse, lower official inflation numbers reduce the COLA increases that governments pay pensioners, which in turn amounts to de facto defaulting. Apartment building owners in rent control districts where increases are tied to headline inflation results are also hard-hit because they aren’t allowed raise their prices to match rising costs.
Understating inflation also enables the US government to overstate real GDP, which is calculated by subtracting the inflation rate from nominal GDP. As for headline unemployment, which is currently under 5%, Williams estimates that it could be as high as 23%, if calculated using previous methodologies or by polling ordinary people on how they regard their existing status.
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