By Charles Biderman
The secret of my success, in my opinion, has been my ability to accurately describe parts of the market and economy exactly the way they are and exactly the way they are not. I say power to make change starts with being grounded in what is actually happening right now. Not knowing what is really so and just guessing will make any existing problem much worse. If certainty creates power, uncertainty destroys power.
That leads directly to the two major problems with US government data. First and most important is that the both the monthly Employment and Gross Domestic Product initial releases are based primarily upon surveys not reality. That's right surveys. In today's real time world, the US government depends upon sample surveys subject to massive revisions when the actual data arrives months and years later. In other words, both initial jobs and GDP are nothing more than wild ass guesses!
The second problem is that all government data is sequential. Not year over year, but month over month. All public companies report year over year and not month over month. Only the government uses month over month comparisons. To do month over month, massive seasonal adjustments are required. And in today's volatile financial world there is no way seasonal adjustments can be accurate since they are based upon the past and today is different than last year. What's more to come up with those seasonal adjustments, at least hundreds if not thousands of government economists are required. So if we were to scrap month over month seasonal adjustments those economists would be totally unnecessary.
Back to the problem with government guessing as to what is happening right now in the US economy. Chairman Bernanke is on the record saying that unemployment dropping below 7% will be the key to tapering. However, there is a major problem with the unemployment rate. The Bureau of Labor Statistics bases the unemployment rate upon a US Census Bureau conducted survey monthly of 60,000 households to determine how many of the 155 million Americans or so of working age are employed. And who knows how many of the 60,000 they actually reach each month.
What's more the Census Bureau also surveys 145,000 employers monthly. That's right. Of the millions of employers all of 145,000 are surveyed monthly and then the BLS guesses as to how many are actually working.
All that is insane. On Thursday, September 26 the BLS will revise all the past year's jobs data based upon first quarter of 2013 quarterly unemployment data from the states that is six to nine month old! This annual revision is always massive. So if these revisions are massive, that means the initial releases are basically worthless.
And what makes the initial employment numbers an even bigger joke is that there is real time income and employment data available, but totally ignored by the US government. Every time you or I get paid, the amount of withheld income and employment taxes gets sent to the US Treasury and reported the next day online in the Daily Treasury Statement. We at TrimTabs have been tracking this data for about 15 years and keep wondering why no one else seems to.
For what it's worth, we adjust the daily withholding data for changes in tax rates, earnings and inflation. The bottom line is that wages and salaries currently are growing by less about 1.7% year over year after inflation. Growth topped out around 2+% this spring and dropped to 1% in August. For a bigger picture, this year's wages and salaries are growing about 1% less than last year. Why 1% less? Simple, higher taxes this year.
The worst number of all is Gross Domestic Product put out by the Bureau of Economic Analysis with spending data based on a Census Bureau survey. I will bet that almost all of you viewers do not know that the initial GDP numbers are based on, and I quote, sample surveys. The Census Bureau says the estimates of consumer expenditures are based on a subsample of approximately 5,000 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million retail and food services firms.
This is a huge joke that unfortunately is not funny. Do you realize that all the nonsense spouted by Wall Street about the US economy and GDP is based on a survey of 5,000 retailers? Did the Census Bureau ever hear of Visa, Mastercard, American Express? Do you know that all the credit card companies sell their aggregate data? But does the Government use it? No. Why not? The only answer I can come up is that all the Census, BEA and BLS economists would be out of a job!
So if whether or not to taper is based upon US economic data, no wonder the markets are confused. Ignorance of what is really is so the first step on the road to economic calamity.