America's 3-Ring Economic Circus

by: Andy Sutton

For many years the title of "Greatest Show on Earth" belonged to Ringling Brothers and its travelling circus. I had the pleasure of seeing the extravaganza for the first time about a year ago and was amazed at the talent of the performers, their skills, and the hours and hours of practice time that went into making everyone sit on the edge of their seats for the better part of two and a half hours. Unfortunately, they’re losing their title. Another circus has come to town which causes us all to be on the edge of our seats, displays little in the form of talent, and yet charges an exorbitant fee for attendance, which some might say is mandatory.

Yes, we have our own three-ring circus in America today and it consists of the Bureau of Labor Statistics, the US Treasury, and the Commerce Department – all overlaid by the mainstream media.

All joking aside, we’ve again reached the point of absurdity on so many fronts that instead of focusing in on a single topic, it is time to dedicate an entire article to scanning the landscape in an attempt to make sense of the ludicrous.

Bureau of Labor Statistics – Ring #1

The monthly unemployment numbers were released last Friday by BLS and you could almost hear the clinking of the champagne glasses from the studio in the belly of the NASDAQ. Yes, the US only lost 36,000 jobs in February; good times must be just around the corner! Such a sham was this report that I actually dedicated an entire podcast to debunking it. The bottom line is that the jobs deficit for the month of February was around 350,000 jobs - nearly 10 times what BLS reported. This takes into account the 97,000 jobs mysteriously created by the birth/death model (completely unsubstantiated), the fact that our economy needs to create roughly 145,000 jobs each month just to break even in terms of population growth and new entrants to the work force, and finally the fact that most of the ‘new’ jobs created were temp jobs, a whole bunch of which were for the upcoming census.

Perhaps the most alarming part of this report was the revelation that 31,000 state and local government workers lost their jobs last month. These are the jobs most people make fun of, but would love to have because they’ve always been considered to be a job for life with a great pension. The paradigm is changing folks. Either recognize and deal with it or become cannon fodder for the new economic realities that are emerging. The days of borrow and spend are over; at least for the consumer. As you’ll see in the next section, the US Government apparently thinks it has an exemption from the laws of economics – and common sense.

The US Treasury – Ring #2

In the second ring, we have the US Treasury and its burgeoning FY2010 shortfall. So bad was FY2009’s shortfall that the report that outlines our actual financial position was delayed nearly 2 full months, FINALLY being released back on 2/26 to an absolutely comatose response from the belly of the NASDAQ. February’s outlay was massive, totaling $220.9 billion. Much of it was blamed on stimulus spending, tax credits, and TARP outlays of $2.3 Billion (Yes, they’re still handing out TARP money). The media cooed about the Fed’s contribution to the US Treasury, but says nothing about the fact that every dollar in our system is loaned to us by those same loan sharks at interest. Ah, the conveniences of selective reporting. To date, the Treasury’s gap stands at a whopping $651.5 billion, which is around $65 billion ahead of last year’s record pace. If they maintain this pace for another seven months, we’ll have a cash basis shortfall for FY2010 of $1.563 trillion - around $132 billion more than FY2009.

Let’s consider for a second all the money that has been spent on stimulus and other projects. Let’s consider the trillions spent bailing out banks. Finally, let’s overlay all that spending with the grossly awful jobs report from last Friday and the months preceding it. How can anyone in their right mind call the stimulus anything but an abysmal failure? The problem is that the government cannot create jobs. Simple. Yes, the government can pay people to perform services. They can pay for a guy to fill potholes. (Send someone to Pennsylvania while you’re at it please; I’ve seen some potholes here that are bigger than these new ‘mini’ cars everyone seems to want.) Once the potholes are filled, then what? Once the bridge is built, then what? Once the census is finished, then what? It all comes down to sustainability. None of the money that is being spent in ‘stimulus’ is being spent on anything that can sustain itself. It cannot pay for itself. How is an $8000 housing tax credit going to pay for itself? The consumer will take the $8000, spend it and create a temporary boost. Then what? This is why I’ve said for many months now that additional stimulus would be needed. And it will need to continue ad infinitum unless our policymakers wise up and start implementing policies that would foster genuine growth, provide for a return of manufacturing to the US, and create sustainable economic growth. Unfortunately, that just isn’t in the ringmasters’ plan. The new tactic in Washington is to devise stimulus packages, but call them anything but, as if somehow changing the name really makes a difference.

The Commerce Department – Ring #3

Not to be outdone we have the Commerce Department, and more specifically the Census Bureau, in the third ring. This morning’s release of retail sales data will no doubt serve to thoroughly confuse anyone who pays attention to such matters. Granted, it is extremely hard to reconcile, but one must look just in the opening statement of the release to get a window into what is really going on here. Repetition notwithstanding, it must be noted (again) that retail sales are reported in nominal terms. From Friday's release:

The US Census Bureau announced today that advance estimates of US retail and food services sales for February, adjusted for seasonal variation and holiday and trading day difference, but not for price changes, were $355.5 billion...

It would be much more useful, albeit challenging to accomplish, if these numbers were reported in units as opposed to dollars. But we can do some reasonable discounting on our own. The ‘headline’ retail sales number was up .3%. Ignore for a second that the media takes sales ex-autos when that shows a bigger gain or smaller loss. Basically, whichever number is better is the one they’ll focus on. While we don’t yet have February’s CPI, let’s assume the headline is .2%-.3%, which is pretty much in line with what has been reported over the past half year. That pretty much wipes out the headline gain. Our internal metric was .55% for February, which when applied to the headline number would take it to a .25% contraction.

Of course, you’ll never hear this from the belly of the NASDAQ. You’ll be led to believe that all is well, consumers are tripping over each other to spend money, and that a return to the boom times of 2005 can only be a few short months around the corner. While that would be nice, it would be extremely irresponsible to predict such an occurrence based on the evidence that now lies before us.

Some potentially useful tidbits of information from the report are presented below. It must be noted that these useful bits of information can be gleaned from each month’s report for monitoring purposes.

  • Seasonal Adjustments added $38 billion or 12.28% to February’s total.
  • Removing the seasonal adjustments, retail sales fell in February from $321.8 billion to $316.7 billion; a change of $5.1 billion or 1.59%
  • Gasoline station sales are up 26.4% in the last year.
  • The 3.7% jump in electronic and appliance stores comes in concurrence with several states doing ‘cash for appliances’ type programs. See Iowa as an example. The state gave away nearly $200 million in funds to such a program. While that may not sound like a lot, it accounts for nearly all of February’s gain for the sector. And that is just Iowa. I realize this is highly anecdotal in nature, but these are the types of things that can skew reporting and promulgate false assumptions so I’m bringing it up.
  • The data for MARTS (Monthly Retail and Food Services Survey) is gathered by sending surveys to 5000 businesses. The responding firms’ data accounts for nearly 65% of the national monthly sales estimates.
  • The estimates use the 90% confidence level. If the range established by the use of this level includes zero, then the change is not statistically significant. The headline number was .3% with a range of ±.5%, meaning that zero lies in the range, and therefore this month’s retail sales change from last month is not statistically significant. The December 2009 – January 2010 change of .1% with a range of ±.3% was also not statistically significant. Put simply, retail sales are just as likely to have been flat or even negative as they were to gain .3%.

Obviously the points above are enough to cast serious doubt on the veracity of consumer spending. When one overlays the jobs situation, relatively stagnant incomes, and other factors on top of this, it would seem fairly likely that this report represents something of an outlier. It is also instructive to note the role that borrowed government spending plays in skewing the numbers as in the case of cash for clunkers last year, homebuyer tax credits, and now cash for appliances. Also not commonly known is that Medicare spending also counts as part of retail sales. So if Medicare pays for a knee replacement for your uncle, that counts as retail sales and is parlayed as consumer spending.

Sorry Ringling Brothers, but the government-media complex, which puts out and then appropriately spins the numbers and information has stolen your title of “Greatest Show on Earth”; and they’ve done it hands down.