Economy: The Leading Indicators Farce

[unlawflcombatnt]

Today's Leading Indicator report, which is considered a broad overview of the direction of our economy, was reported as increasing + 0.2%, slightly below the expected +0.3% predicted. A review of how today's total was calculated, reveals much cause for concern. Many important indexes declined. Many of the positives were only weakly positive. Manufacturers' new orders for non-defense capital goods declined 7% over the last month, for an annualized rate of decline of -84%. Building Permits declined 6.3% over the last month alone, and have and have declined 22% since April. Though Manufacturers' New Orders for Consumer Goods increased slightly (+0.4%), they are still 2% below August levels, and 4% below June's level. Even the big "gainers" are of dubious benefit. One big gainer was Stock Prices, which added +0.13% to the total index. Another gainer was the index of Consumer Expectations, which was +0.19. (Indicating media spin about the economy has been very successful.) The Average Workweek increased from 41.1 hours in August to 41.2 hours in October. This added +0.06 to the total. However, the Average Workweek was less than it was in August, July, and June, and the same as it was in May and April. Another very dubious positive.

The biggest gainer, however, was the increase in M2 money supply of 1.2% over the last month. This added a total of +0.43 points to the total +0.2 number. Had the money supply increase been 0, Leading Indicators would have shown a net change of -0.23%. Had the increase in money supply been the same as the previous month's +0.2%, the total Leading Indicator Index would have been -0.03%. Making the M2 number still more dubious is the fact that it is not an actual "recorded" statistic. It's an "imputed" statistic, meaning it is an estimate (quesstimate?) Meanwhile, the indicator considered most predictive of the health of the economy, the interest rate spread, was -0.52%.

Below is a copy of November 20th's Leading Indicator report from the Conference Board.



The Conference Board's Leading Indicator report can be found at:
http://www.conference-board.org/pdf_free/economics/bci/lei1106.pdf


Though this month's reading is touted as being "positive," a closer review indicates how spurious and artificial this increase is. Many of us cannot understand how an increase in the M2 money supply can be considered a positive. Stripping out the money supply increase alone would make Leading Indicators negative for October. Furthermore, is it really a "positive" for the money supply to increase at a 14.4% annualized rate in one month? Are we now considering inflation a positive indicator?

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

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The economy needs balance between the "means of production" & "means of consumption."

[banana republican]

1. Krugmann Wrote about this 3 or 4 years ago.

* has been cooking the books since he took over. Unemployment rate CPI & PPI are alll questionable at this point.

[no_hypocrisy]

2. We're just one big Enron. n/t

[Greyhound]

8. Exactly the same. Taking bad deals off the books, using leveraged

funds to prop up the numbers so the overall picture look better than it is. This is how business is done in the new amerika.
:kick: & R

[unlawflcombatnt]

13. Asset Inflation through borrowing

Stock Prices and Home Prices are being pushed upward by bidding funded largely by borrowed money. And people borrow still more money off of these very assets that are overvalued from previous borrowing. It's like a wildly metastatic cancer. Which eventually kills its host.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[Greyhound]

16. Tell me about it. Out here they're pushing 40 year, interest only mortgages

so that Geoff and Tiffany will believe they can afford to spent $900,000 on a 3 bdrm cracker box, 30 miles outside the city.

[unlawflcombatnt]

18. Artificial Housing Demand

When borrowing limits are extended, and no down payment is required, it simply puts artificial money in the hands of the buyers, allowing them to pay more for homes, without actually having any more money.

The Federal government has "encouraged" home ownership by allowing borrowers to dig themselves deeper into debt. Meanwhile, the banks "wash their hands" of the deal by selling the mortgages Fannie Mae or Freddie Mac, who's debts are implicitly backed by the Federal government. Then Fannie & Freddie sell this debt to unsuspecting buyers, transferring mortgage default risk to far more people. Thus this mortgage loan frenzy can be extended further, because those loaning the money have basically transferred the risk of default to someone else. And the risk born by Fannie Mae & Freddie Mac is minuscule, because it is assumed the Federal government will bail them out when they screw up.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[unlawflcombatnt]

10. unemployment rate & CPI

You're absolutely right. In general, the unemployment rate has been artificially lowered by simply re-classifying "unemployed" workers as "not-in-labor-force." In the last 5 years, 7.7 million American workers have entered the "not-in-labor-force" category. During Clinton's last 5 years, only 3 million entered the "not-in-labor-force" category. If the 3.7 million misclassified "not-in-labor-force" workers were correctly put on the unemployment list, 10.4 million Americans would be classified as unemployed, making the unemployment rate 6.7%, not 4.4%.

unlawflcombatnt

Economic Populist Forum

[unlawflcombatnt]

15. CPI/Inflation Distortion

Last Thursday's Consumer Price Index report is yet another example of the government's own WMDs (Weapons of Mass Deception). Though the overall 1-month reading was posted as -0.5% for October, the negative was due exclusively to reduced fuel prices and transportation prices (which was largely due to automobiles.) Stripping out the fuel and transportation prices, the monthly increase would have been +0.215, and the annualized rate would have been +2.58 %. However, the distortion does not stop there.

The actual 1-month increase in apparel prices was +1.3% (or an annualized increase of +15.6%). However, the "seasonally-adjusted" number was magically reduced to a -0.7% (or an annualized rate of -8.4%). If apparel prices are excluded from the CPI, along with fuel & transportation prices, the 1-month increase in the CPI is +2.66 (or an annualized rate of +3.2%). The actual numbers can be seen at http://stats.bls.gov/news.release/cpi.t01.htm">BLS-CPI-U

Once again, the government worked overtime to massage the CPI numbers down to a lower the reading. The price of food, shelter, and non-durable goods is still rising. However, by downwardly manipulating CPI and inflation numbers, the government can deceive the public about how well the economy is performing. Downward revision of inflation also helps overstate real GDP growth.

~~~~~~~~~~~~~~~

On a separate note, the downward revision of September's Retail Sales numbers on Tuesday by $2.2 billion reduced 3rd quarter GDP growth directly by $2.2 billion. The direct subtraction of that $2.2 billion reduces the previously stated 3rd quarter GDP growth from 1.6% down to 1.5%. Expect it to be downwardly revised even further, once the artifactual increase in auto sales is corrected.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[On the Road]

3. The Tepid Increase in M2 --

Would that be related to fewer new mortages and/or business loans?

[unlawflcombatnt]

4. Tepid?

I don't think I'd consider the increase in M2 money supply "tepid." If you're referring to the months prior to August, I'd say that probably is the case. A decline in mortgages and business loans would reduce the amount of new loan money put into bank accounts. It would reduce checkable deposits.

Again, however, this month's increase appears huge. Furthermore, it is an "imputed" number, not an actually recorded number. And it certainly is convenient that it has been "imputed" to be so large, large enough to make an otherwise negative Leading Indicator reading a positive.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[PsycheCC]

5. K&R. More interesting economic info. from Unlawful.

Interesting to note that this surge in M2 appears to be a very recent development according to your chart. So this surge in M2 propping up the leading indicators so much isn't just "business as usual." Good point about how odd it is to consider a huge, inflationary increase in the money supply a good thing. Thanks for doing the hard work Unlawful. I really appreciate your posts.

[unlawflcombatnt]

14. M2

Yes, it is interesting to note how little apparent M2 growth there was in the months prior to September. Then growth just exploded. A good case could be made that the money supply is being pumped up to fight the economic slowdown that's currently taking place. With a 3rd quarter GDP growth of 1.5%, it doesn't look like it's working.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[fuzzyball]

6. K & R for an excellent post. I do have a question for you....

Why you don't think money supply as positive for the economy?
It surely acts as a stimulant. But it is like staying awake on
caffiene. You perk up for a short time but then you crash even
harder. The FED has no choice except to prop up the dollar to
prevent a run on it by foreign holders. So they will pump money
into the system come hail or highwater.

What it boils down to IMHO is that economy will be OK for the
short term, but long term (1 year+) it could be very sick.

[133724]

7. That is why they suspended reporting on M1...

that measured to amount of money in circulation and was tied to the pumping of money into the economy inorder to stabilize it for the short term.

[unlawflcombatnt]

9. Great Question

Why you don't think money supply as positive for the economy?


That's great question. And it's the same question I have. I don't know how it can be considered a positive to increase the M2 money supply. I suppose it indicates more loans are being made, and somehow that's considered "good." But it's still a mystery to me why even that would be considered a positive. It sounds like simply a "positive" indicator of inflation, and a decrease in buying power of the dollar.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[kineneb]

11. the presses, they are a' hummin'

have not seen posts by you for a while, UC, glad to see you back.

Let me get this straight- Fed prints more money, so value of individual dollar goes down. Right? (Hey, I'm a musician, not an economics whiz.) I just soooo love the cooking of the numbers. Like everything else the NeoCons do, it "works" for a short time, but we gotta' watch out for the blowback in the long run. Aaaargh.

The next cold war will be with a economic conglomerate of the East. Parts 1&2 at Asia Times are worth reading:
http://www.atimes.com/atimes/Front_Page/HK14Aa01.html
http://www.atimes.com/atimes/Front_Page/HK15Aa01.html

The economy is being artificially propped up, and is waiting for an implosion:
http://www.informationclearinghouse.info/article15545.htm

Meanwhile, back on the ranch, real estate is sliding slowly into the sunset:
http://www.informationclearinghouse.info/article15689.htm

All in all, sounds like we are in for a bumpy ride. Please fasten you seatbelts. Or maybe not.

Lake Co.(CA) real estate report: plenty of for-sale signs, not much moving. The bubble is quickly leaking air.

[unlawflcombatnt]

12. Great Articles

Kineneb,

Thanks for the links to the articles. The 1st one from information clearing house was an excellent big picture assessment. It was also the 1st article I've seen addressing the massive recent increase in U.K. holdings of American debt. (I had been wondering if I was the only one who noticed that.)

You're right about real estate. It not only hasn't "bottomed out" yet, but it's decline is accelerating.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[unlawflcombatnt]

17. White House "Lowers" Economic Projections

Despite being hammered in the November elections, the Bush spin machine continues unabated. They've now "lowered" their 2006 GDP projections to a growth of 3.1%. This comes from a November 21st AP article by Jeannine Aversa.

http://dfw.com/mid/dfw/business/16067733.htm

The article is incredibly over-optimistic about the well-being of the economy. Also completely unbelievable.

Though the initially stated 3rd quarter GDP growth was 1.6%, it has already been calculated lower. The latest revision of September's Retail Sales was reduced by $2.2 billion. This directly subtracts $2.2 billion from 3rd quarter GDP grow ht. This reduces 3rd quarter GDP to 1.5%.

Many economists also believe the originally stated 1.6% should have been only +0.9%, had it not been for the artifactual (and unbelievable 26% increase in auto sales. In addition to that, the GDP deflator came in at only 1.8% (or 0.018), as compared to the 2nd quarter's 3.3% (or 0.033), and the previous several quarters' deflators of over 3 (over 0.03). Since the Nominal GDP growth is divided by {1 + the "deflator}," it means nominal GDP growth was divided by 1.018 to give the real GDP growth, while the previous quarter's Nominal GDP growth was divided by 1.033 {1 + .033} to give the real GDP The result is that the nominal GDP growth in the 3rd quarter was gave a higher real GDP than it would have otherwise.

In order for annual GDP growth to come out anywhere near 3.1%, 4th quarter GDP growth would have to be at least 3.2%, and there would have to be no further downward reductions of 3rd quarter GDP. Neither is likely. And 3rd quarter GDP growth will be downwardly revised. 4th quarter GDP growth will be much lower. In fact, some economists, such as Nouriel Roubini, are calling for 4th quarter GDP growth of 0.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[unlawflcombatnt]

19. Realistic Assessment from Economist Nouriel Roubini

Anyone interested in an honest and comprehensive assessment of the economy should read the blog of economist http://www.rgemonitor.com/blog/roubini">Nouriel Roubini.

His previous predictions of GDP growth have been right on the money. He predicted a 3rd quarter GDP growth of approximately 1.5%, and he's predicting a 4th quarter GDP growth of approximately 0. And he's predicting a Recession by the 1st quarter of 2007.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."

[unlawflcombatnt]

20. Wage Update: 11-22-06

The media continues to overstate wage increases, taking advantage of comparisons with the lowest-wage months of the previous year.

According to the U.S. Dept. of Labor, Bureau of Labor Statistics, real hourly wages have increased 1.4% since December of 2005, and only 1.1% since January 2005. Worse still, real wages are at the same level they were in November of 2003. Thus, the current "increase" in real wages has taken us back to the level we were at 3 years ago. To put it differently, there has been 0 average wage growth over the last 3 years. (Meanwhile, Corporate profits have gone through the ceiling.) Furthermore, the wage recovery since November 2003 has been exclusively due to wage increases of the highest earners. Wages continue to decline for the lower 90% of earners. Below is a copy of the latest average real hourly wages.



We can thank CEO salary increases for the keeping "average" wages from falling further.

unlawflcombatnt

Economic Populist Forum

EconomicPopulistCommentary

___________
The economy needs balance between the "means of production" & "means of consumption."