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Denninger Goes Over The Fine Detail Of The Us Gdp Report

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jp runs through the figs on fsn 3rd Hour Part 1 and comes to similar conclusions - consumer spending down / govt. spending up.

denninger reckons that when the penny clicks with equity investors, the markets will decline but as jp points out the inverse relationship between the $ and stoxx / commods has been a prominent feature for a while and thus if the $ index breaks the 78 support, markets and commods will most probably go higher

it's all about the $

edit - sp.

Edited by p.p.

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Also he's critical of the Chinese recovereh!

No really? How long have I been banging on that drum - freight loadings both road and rail, along with port traffic data? That's the "leading indicator" and this report validates what I've been saying for the last three months: both import and export demand has effectively collapsed! We are now anywhere from 40 to 60% below comparable levels on imports and exports. Those who believe that "China will save us" are delusional; how is that going to work when half of their exports to us are gone? Bluntly: The alleged "Chinese recovery" is a manipulated lie from the Chinese government.


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Manipulated Government GDP Statistics Report is Just Plain Wrong


OK - now let's look at the GDP report.

I am going to avoid all of the massive complexity that normally accompanies discussions of the GDP report and go for the simplest possible illustration of just how spectacularly off-base and misleading it is.

On television, and from a raft of well-meaning experts, you will hear explanations for why this GDP report makes sense and they will trot out things like an increase in government expenditures, falling imports, inventory builds and all the rest. But we can skip all that and simply look at one thing.


All I want to focus on is just one component, circled in green above, consumer spending which represents over 70% of the economy. Given this prominence, and taking our argument that there must be some proportional relationship between consumer spending and corporate revenues, we need look no further than this one simple measure to determine that something is seriously out of whack in the GDP report.

From today's GDP release, we get these numbers for the total GDP and something called "PCE" which stands for Personal Consumption Expenditures (i.e. "Consumer Spending" in the formula above):


Going from the very peak of the economy in QIII of 08, we can see that the BEA reports that GDP and PCE have only dropped by 2.7% and 2.3%, respectively.


PCE is only down -2.3% from peak? With corporate revenues in total down more than 15%? How does that work?

Is there some way to explain how people are consuming away but doing so without spending money on products and services offered by companies? How do we explain a 15% drop in the solid, reliable corporate revenue numbers but a 2.3% drop in Personal Consumption Expenditures?

I really can't think of any possible explanation that makes sense and so I have to defer to the more reliable and trustworthy of the two numbers; corporate revenues.

Of course, comparing from the peak to current is not exactly what we should be doing because that is comparing a QIII to QII drop in PCE to a QII to QII drop in corporate revenues.

When we ask the question, "How much have GDP and PCE dropped between QII 08 and QII 09?" we get these results:


Well, there, that certainly makes me feel better!

Just kidding.

This means we are being asked by the Bureau of Economic Analysis (BEA) to accept a reported -2% drop in PCE and a decline in corporate revenue of -15% , a figure more than seven times larger.

Of course, the discrepancy between the two cannot be reconciled. It is impossible. One must accept one or the other.

I will point out that a -15% decline in corporate revenues is also in alignment with sales tax data from the states (down some 10% yr/yr), unemployment (9.5% and climbing) and many other economic measures. I will recall here that good data is that which aligns with other data.

How is such a misleading GDP report created? (hint: think sausages)

The answer lies in a disturbing mixture of seasonal and hedonic adjustments, imputations and other statistical wizardry not subject to review or insight. We are asked to simply accept the results without question. Disturbingly, the Wall Street/MSM (Main Stream Media) spin-machine runs off with the GDP report as though it were the sacred truth itself as we can see in this series of headlines I captured off of Google shortly after the release.


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I'm getting confused here are we talking about China or the Land of the Free, the bastion of the free market the good ole USofA?

If the USA is doing this, just think how much manipulation will be going into the Chinese figures. You can trust no one.

Luckily the free market doesn't function on transparency.

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