DAILY UPDATE (March 23rd to 24th – Special Commentary, Issue No. 1430 Has Been Posted) Next Commentary: March 29th**, Next Data Release March 24th* // CONFIRMING A DEEPENING, PRE-PANDEMIC RECESSION: In the Last Set of Major Pre-Pandemic Economic Numbers, the February 2020 Cass Freight Index® Continued in Annual Decline for the 15th Straight Month, Down by 7.5% (-7.5%) / February Real Retail Sales Dropped 0.6% (-0.6%) Month-to-Month, With Annual Growth Slowing to 2.0% / 4q2019 “Holiday Season” Real Sales Decline Revised Deeper, Again, to a 0.8% (-0.8%) Quarterly Contraction, with 1q2020 on Track for a Real, Pre-Pandemic 0.1% Gain / Headline February Industrial Production Monthly Gain of 0.55% Was a Monthly Decline of 0.15% (-0.15%), Net of Extreme and Randomly Volatile, Weather-Driven Utility Usage / Pending Economic Impact of Pandemic: Likely the Deepest Headline GDP Drop in Modern History, Post-World War II Reporting / Separately, Beware of a Meaningful, Pre-Pandemic Downside July 2020 GDP Benchmarking! // ON THE PRE-PANDEMIC PLUS-SIDE: Despite Continuing, Absurd Monthly Volatility in Housing Starts and Building Permits, Six-Month Smoothed New-Residential Construction Pushed to New Post-Recession Highs in February 2020, Although Still Shy of Recovering Pre-Great Recession Peak Activity by 29% to 32% // INFLATION: February 2020 PPI Monthly Inflation Plunge of 0.59% (-0.59%) Was Deepest Since 0.63% (-0.63%) in January 2015 / All Major Categories Were in Monthly Decline Except for Construction / February CPI-U Inflation Was Constrained by Pre-March-Oil-Price-Collapse Lower Gasoline Prices / March Inflation Should Take a Big Hit from Oil-Price War // FOMC ACTIVITY-SYSTEMIC STABILITY: Targeted Fed Funds Rate Was Cut to 0.00%, With Renewed Quantitative Easing / Market, Economic, Social and Political Turmoil Are Just Beginning / Federal Reserve’s Loss of Systemic Control Was Brought to a Head by the Coronavirus Crisis, Exacerbated by Collapsing Oil Prices / Fed Functionality Was Impaired Severely, When Systemic Control Was Lost in the 2007/2008 Bailout of the Failed Banking System / The Current Recession Began With Overly Aggressive FOMC Tightening in 2018, and Lack of Adequate, Subsequent Easing / The Deepening Pre-Pandemic Recession Has Been Overtaken and Is Being Overwritten on the Downside by Pandemic Intensification and the Oil Price Collapse // DESPITE CONTINUED EXTREME MARKET VOLATILITY, INCLUDING SHORT-LIVED MARKET INTERVENTIONS: Flight from the U.S. Dollar and Stocks to Physical Gold and the Swiss Franc Should Continue and Intensify
• L A T E S T .. N U M B E R S .. February 2020 Cass Freight Index® Plunged Year-to-Year by 7.5% (-7.5%), Following a 9.4% (-9.4%) Drop in January, Continuing the Steepest Pattern of Annual Downturns Since the Great Recession Onset (March 16th, cassinfo.com, see the updated reporting at https://www.cassinfo.com/freight-audit-payment/cass-transportation-indexes/february-2020). The deepening annual plunges in Cass Freight Index® activity have been the steepest since the early months of the Great Recession.
The collapse in activity here remains consistent with an unfolding “Recession,” not with the FOMC’s pre-pandemic proclaimed “Sustainable Moderate Economic Growth.” The activity here, also has been consistent with the recently reported quarterly declines in Fourth-Quarter 2019 Real Retail Sales and Industrial Production. The Index’s consecutive monthly year-to-year declines and monthly declines in the 12-month trailing average held in place for the fifteenth straight month. Those year-to-year and 12-month-moving-average metrics neutralize seasonality in this unadjusted series. ShadowStats regularly follows and analyzes the Cass Index as a highest-quality coincident, leading indicator of underlying economic reality. Relevant to the ShadowStats comments following on Retail Sales and Industrial Production, and not otherwise reflected in Cass’s February reporting, Cass noted that the Port of Los Angeles had just reported February 2020 imports down by 23% (-23%) year-to-year. We thank Cass for their permission to graph and to use their numbers in our Commentaries, see pending ShadowStats Commentary, Issue No. 1430.
(March 18) Amidst Consistently Nonsensical Monthly Volatility and Extreme Revisions, February 2020 New Residential Construction Nonetheless Continued in a Six-Month Smoothed Broad Upswing (Census Bureau, HUD). Despite the usual, extreme and meaningless month-to-month volatility and revisions, February 2020 Housing Starts and Building Permits both continued in noticeable, smoothed uptrends, with their six-month moving averages hitting new post-recession highs. That said, Housing Starts and Building Permits respectively held shy of recovering their pre-recession peaks by 28.6% (-28.6%) and by 31.5% (-31.5%).
(March 17) Real February 2020 Retail Sales Dropped 0.6% (-0.6%) Month-to-Month, With Annual Growth Slowing to 2.0%, Against Upwardly Revised January Activity and Downwardly Revised December and 4q2019 Activity (Census). Fourth-Quarter 2019 “Holiday Season” Real Retail Sales revised to a deeper 0.8% (-0.8%) quarterly contraction, with First-Quarter 2020 on very-early track for a pre-pandemic 0.1% gain. This series should face extreme volatility in the next couple of months, reflecting pandemic-frightened consumers hoarding “necessary” and “survival” products, while postponing purchases of a less-urgent nature. The balance in activity of aggregate personal consumption over the next several months and quarters likely will be strongly negative.
(March 17) February 2020 Industrial Production Monthly Gain of 0.55% Was a Monthly Decline of 0.15% (-0.15%), Net of Continuing Extreme and Randomly Volatile, Weather-Driven Utility Usage (Federal Reserve Board). Where recent headline Industrial Production has been seesawed by extraordinary and unseasonable weather extremes impacting utilities, the headline gain of 0.55% in February 2020 Industrial Production, actual was a decline of 0.15% (-0.15%), net of the impact of a 7.12% rebound in weather-driven Utility usage, versus a monthly gain of 0.10% in the dominant Manufacturing sector and a 1.51% (-1.51%) drop in Mining (dominated by price-sensitive Oil and Gas Production and Drilling/Exploration). Those factors, combined with weakness in the Consumer Sector do not bode well for domestic production. On the other hand, pandemic-related loss of key, offshore supplies, could induce some needed return of manufacturing activity to the United States (again, see pending ShadowStats Flash Commentary, Issue No. 1430).
(March 12) February 2020 Producer Price Index-Final Demand (PPI-FD) Plunged at Its Steepest Monthly Pace in Five Years (Bureau of Labor Statistics – BLS). Headline February PPI-FD inflation (Goods and Services) contracted month-to-month in all major categories, except Construction. The aggregate series declined by 0.59% (-0.59%) in February, having gained 0.51% in January, with annual inflation slowing to 1.28% in February 2020, from 2.05% in January. February 2020 Final Demand Goods PPI monthly inflation dropped by 0.94% (-0.94%) versus a 0.09% gain in January, gaining year-to-year by 0.52% in February, versus 1.84% in January. Prices declined in Food, Energy and “Core” (ex-food and energy). Even the mal-defined, dominant Services Sector, showed inflation down across the board, down by a monthly aggregate 0.33% (-0.33%) [up by 0.67% in January], up year-to-year by 1.52% in February [up by 2.04% in January]. Annual Construction Inflation notched higher to 3.76% in February, from 3.68% in January.
(March 11) February 2020 Consumer Price Index (CPI-U) Gained 0.09% in the Month, 2.33% Year-to-Year, Off January’s 15-Month Peak of 2.49% (BLS). Headline CPI-U inflation in February continued to be constrained by collapsing oil and gasoline prices, all of which were in advance of the Oil-Price Crash earlier this week, not due to FOMC policies, which likely will continue to shift in the days ahead.
By major category, seasonally adjusted February 2020 Food inflation rose by 0.37% in the month, versus 0.21% in January. February Energy inflation declined by 2.01% (-2.01%) in the month, having declined by 0.71% (-0.71%) in January, with February “Core” inflation up by 0.22%, versus 0.24% in January.
February 2020 ShadowStats Alternate CPI (1980 Base) Eased Minimally to 10.1% year-to-year, versus 10.3% in January, 10.0% in December, 9.8% in November and 9.5% in October. Graphs of that detail are found on the Alternate Data tab (also accessible by clicking on the mini-graph below), with the latest numbers and an inflation calculator also available there to subscribers.
(March 6) February 2020 Payrolls Showed Stronger Monthly and Annual Gains; Headline U.3 Unemployment Narrowed Minimally, While the Broader Unemployment Measures Widened (BLS). Following last month’s sharp downside benchmark revisions to last year’s payroll employment, monthly jobs and annual growth picked up in December and January.
Headline U.3 Unemployment Eased from 3.58% in January 2020, to 3.52% in February, Still Effectively at a 50-year Low, Yet the Broader Unemployment and Labor-Stress Conditions Showed Some Deterioration. Where the low U.3 should be consistent with an economic boom, high levels of Employment Stress (Employment-Population Ratio, and the Participation Rate) increased in February, while the headline ShadowStats Unemployment still signaled an economy that never fully recovered from the Great Recession. Broader than U.3, February 2020 U.6 Unemployment widened to 6.96% from 6.88% in January. Riding on top of U.6, the February 2020 ShadowStats Alternate Unemployment Estimate, including long-term displaced/ discouraged workers not counted by the BLS, rose to 21.1% in February, from 21.0% in January, all as posted on the Alternate Data Tab, along with hard numbers there for subscribers and a link to ShadowStats’ Public Comment on Unemployment.
• S Y S T E M I C .. R I S K – (UPDATED March 17) On March 15th, the FOMC Cut the Federal Funds Rate to Zero, Re-Expanded Quantitative Easing and Cancelled the Scheduled March 17/18 FOMC Meeting (see discussion in Special Commentary No. 1429 and pending No. 1430). Increasing Market Turmoil Ahead: It Has Become Increasingly Obvious That the Federal Reserve Has Lost Control of the U.S. Banking and Financial System. A Great Financial Crisis and Recession continue to unfold. Flight from the Dollar and Stocks to Gold and the Swiss Franc remains in play, despite some direct interventions and market disruptions, and it should intensify in the weeks ahead. Underlying issues with FOMC-mishandled crises can be reviewed in: http://www.shadowstats.com/article/c983b and http://www.shadowstats.com/article/c985s.pdf.
The Coronavirus Pandemic has exacerbated an already deepening Recession, based on significant anecdotal evidence, with some early impact likely visible in First- and Second-Quarter 2020 GDP, with headline real annual GDP contraction likely the most severe of modern, quarterly GDP reporting, which began post-World War II. Financial and systemic risks here from the impact of the Oil-Price turmoil likely will bring to a head issues with long-range systemic instabilities from the Federal Reserve’s 2007/2008 Banking System bailout, again as reflected the flight from the U.S. Dollar. Nonetheless, the ShadowStats ALERT and broad outlook remain little changed (see ShadowStats Special Commentary, Issue No. 1429). With U.S. economic reporting in a deepening downturn, the ShadowStats broad outlook in the weeks and months ahead remains in place for: (1) A rapidly intensifying U.S. economic downturn/ recession, reflected in (2) Mounting selling pressure on the U.S. Dollar, against currencies such as the Swiss Franc, (3) Continued flight to safety in precious metals, with upside pressures on gold and silver prices, and (4) Despite recent heavy selling and interventions in the U.S. stock markets, high risk of continuing major instabilities in the markets, complicated by possible continuing direct market interventions and intensifying Quantitative Easing FOMC policy shifts.
• P O S T I N G .. S C H E D U L E S .. *SHADOWSTATS CONCURRENT ANALYSES OF NEW DATA: February 2020 New-Home Sales will be published Tuesday, March 24th at 10:00 a.m. ET. ShadowStats initial analysis should post by 1:00 p.m. ET.
**SHADOWSTATS COMMENTARIES: ShadowStats Special Hyperinflation Commentary, Issue No. 1431, will publish as dictated by evolving systemic and economic circumstances, most likely around March 29th.
• ARCHIVES – VIEWING EARLIER COMMENTARIES. ShadowStats postings of November 2019 and before – back to 2004 – are open to all, accessible by clicking on “Archives,” at the bottom of the left-hand column of this ShadowStats homepage.
• ALTERNATE DATA TAB provides the latest headline and exclusive ShadowStats Alternate Estimates of Inflation, GDP, Unemployment, Money Supply (Including the Updated ShadowStats Ongoing M3), and the ShadowStats Financial-Weighted U.S. Dollar.
Best Wishes — John Williams
Walter J. “John” Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth’s Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies.
One of my early clients was a large manufacturer of commercial airplanes, who had developed an econometric model for predicting revenue passenger miles. The level of revenue passenger miles was their primary sales forecasting tool, and the model was heavily dependent on the GNP (now GDP) as reported by the Department of Commerce. Suddenly, their model stopped working, and they asked me if I could fix it. I realized the GNP numbers were faulty, corrected them for my client (official reporting was similarly revised a couple of years later) and the model worked again, at least for a while, until GNP methodological changes eventually made the underlying data worthless.
That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad), and my results led to front page stories in 1989 in the New York Times and Investors Daily (now Investors Business Daily), considerable coverage in the broadcast media and a joint meeting with representatives of all the government’s statistical agencies.
Nonetheless, the quality of government reporting has deteriorated sharply in the last couple of decades. Reporting problems have included methodological changes to economic reporting that have pushed headline economic and inflation results out of the realm of real-world or common experience.
Over the decades, well in excess of 1,000 presentations have been given on the economic outlook, or on approaches to analyzing economic data, to clients—large and small—including talks with members of the business, banking, government, press, academic, brokerage and investment communities. I also have provided testimony before Congress (details here).
An old friend—the late-Doug Gillespie—asked me some years back to write a series of articles on the quality of government statistics. The response to those writings (the Primer Series available at the top-center of this page) was so strong that we started ShadowStats.com (Shadow Government Statistics) in 2004. The newsletter is published as part of my economic consulting services. — John Williams