“Quack Doctors in the House” by Jim Willie discusses some of the statistical tricks being used to paint a rosy picture of the US economy. In addition to manipulation of the Consumer Price Index, which I’ve previously mentioned, he also discusses similar treatments of the GDP and jobs growth. Now there have been hundreds of reports in the mainstream media about job growth stats. Did you notice any of these articles pointing out that much of the “growth” comes from assumed but undocumented “growth” via a “Birth-Death model“? In this model, the government assumes that jobs coming in and out of existence from newborn and newly dead businesses aren’t documented and thus must be added (via guesswork). Jim Willie makes this point:
JOBS GROWTH: The jobs picture is ripe with distortion. The April, May, and June job growth reports incorporated Birth-Death model lifts greater than the total number. June gains of 121k jobs included 175k mythical B-D jobs. May gains of 75k jobs included 211k imaginary B-D jobs. April gains of 138k jobs included 271k fictitious B-D jobs. Of course, the press and media failed to notice this point of embarrassment. Without these convenient B-D modeled new jobs, all three months would have registered a DECLINE in job growth, a point not even mentioned by the sleepy press & media. Moreover, newly created jobs continue to come far under the population growth requirement of 150k jobs monthly. The Birth-Death model remains a principal job producer, without any basis in reality, certainly no scrutiny.
Mike Shedlock also offers some insight into the questionable Birth-Death adjustments on job growth.
So why do I mention this here? Understanding the declining jobs market as well as the realities of inflation and a weakening economy are important to the concept of provident living and the temporal welfare of our own families as well as those around us. The Lord’s counsel becomes more relevant all the time: stay out of debt, save and prepare for rough times in the future, have a food storage program, and get all the education you can.
And let me thrown in my own two cents: make sure your investments include at least a little of something that won’t evaporate in an economic slow down or in a time of massive inflation. The scriptures warn us not to put our trust in gold and silver – please don’t – but they are far more likely to preserve their value over time (or greatly increase) than the US dollar. (And now, with exchange traded funds like SLV and GLD, it’s usually possible to include these in your 401k – but that’s another story.)
And here’s an interesting observation on the GDP in another article from Jim Willie:
The US GDP (economic growth) is exaggerated by 4% to 5% easily and most assuredly. Designed to remove price inflation from economic activity, the GDP Deflator is even lower than the goofy CPI. As higher costs filter through the economy, too little price inflation is removed. The result is that we label “inflation” as “growth” and claim strength, which is pure horse manure abuse of statistics, my chosen field. My favorite quote from all last year in [my] public scribbles is the following:
Any lack of proper adjustment in nominal GDP is falsely labeled as real economic growth. In my view, most of it comes from inadequate adjustment of higher energy and material costs, even food costs. Ironically, we boast that the economy is strong enough to handle higher energy costs, but evidence of that strength to handle more burden is distorted growth from wrongful (favorable) adjustment of those same energy costs! Most economic growth comes from hedonics to information technology and improper removal of general cost increases. The most glaring obvious higher cost born by the public and business world is for energy costs… Our GDP growth is mostly exaggerated technology spending and price inflation!
Look, I know some economists can produce seemingly great reasons for why the current Deflator and CPI are used and why they differ, but it’s hard to believe that there is not serious temptation to select criteria that tend to make things look a little better.
Interestingly, the surprisingly low but still positive GDP stats reported yesterday were taken as good news by Wall Street. Since the economy is showing less growth than expected (it might be negative growth if better stats were used), maybe the Fed won’t think we are growing too rapidly and maybe they won’t inflict painfully higher interest rates on us, thus causing the economy to really tank, and since they might quit inflicting so much pain, maybe there is a chance for real growth – and so stocks shot up on the bad economic news.
This has become a recent trend in the market: bad economic news creates an aura of hope that the Fed (the unaudited, secretive masters of the economy – anyone troubled by that and by all the power concentrated in the hands of a few unelected officials??) might gives us a break, resulting in hope that drives stock prices up (after the terrible beating they’ve had when Bernanke growled a time or two). When the market depends on hope fueled by bad economic news, something is seriously wrong.