David Rosenberg On What « April In January » Means For Seasonal Adjustments

Zero Hedge

Remember last year when the tiniest snowfall was reason for everyone and their grandmother to miss every possible estimate, always blaming it on the weather? Or rainfall in the spring? Or warm weather during the summer? Oddly enough one never hears about the opposite: the beneficial, and one-time, impact to trendline due to countertrend weather, such as the fact that we just had April weather in January. Granted, nobody in the programmed MSM will touch this topic, which is why we go to the most trustworthy filter of real economic data – David Rosenberg.

From Gluskin Sheff

Data Skew

…Be careful in assessing the seasonally adjusted data when January weather feels like April. It was four to five degrees warmer than usual and the third fewest snowflakes to hit the ground in the past 50 years. On top of that, let’s not lose sight of what real GDP did in Q4 — considerably below consensus view from last summer and sub-1% at an annual rate once inventories are stripped out. The only variable preventing real GDP from stagnating completely was the fact the price deflator collapsed to just 0.4% at an annual rate. If it had averaged to what it was in the previous three quarters, real GDP growth would have come in close to a 0.7% annual rate. Strip out the inventory build-up and real sales would have contracted at a 1.3% annual rate and recession would be dripping off everybody’s tongue right now.

The data have been bizarre to say the least. Auto sales are up 11% from a year ago and yet miles driven have declined 1%. So people are buying more cars but using them less. Consumer credit in December soared $19 billion and yet the total consumer expenditures shrunk $2 billion. So people are borrowing more but spending less. Speaking of shrunk, I think 1 need a shrink. And here we have housing turnover supposedly rising 4% from the year ago level, yet home prices have managed to deflate 3%. U.S. exports are up 10% over the past year while European imports have barely risen as recessionary pressure mounted.

Despite the reported two million-plus jobs « created » over the past year, Federal government income tax revenues are down 1.5% (thanks to Zero Hedge for that little tidbit). Call it a wageless job recovery, I suppose. The equity market is on fire even with only 60% of companies beating their EPS estimates for Q4 and a mere 55% surpassing top line forecasts. Go try and figure these things out, because I have a headache just thinking about it.

To be sure, January’s jobs data may have ended up being decent even without the weather effect, but keep in mind that the number of jobs is still 5.6 million lower today than at the end of 2007, so we are still climbing our way out of a very deep hole four years later. Note that this is now month 48 in which employment has been below the pre-recession peak (exceeding the post-2001 stretch of malaise and making this the longest time period since the Depression in the 1930s) and payrolls have not managed to make a new high. That says something.

So many other indicators as well, such as manufacturing shipments, industrial production, real incomes, real retail sales, housing starts and home sales — all these macro indicators, remarkably, are still below where they were before the last recession began. That should help put things into a certain context— the economy is still healing four years after the initial detonation.

One final note. Not only are gasoline prices on the rise, therefore putting a cloud over the consumer spending outlook, but also keep in mind that Congress is still in a stalemate regarding the extended payroll tax and unemployment insurance benefits that expire at the end of this month. Estimates we have seen suggest that this will result in at least a 0.7 of a percentage point drag on overall GDP growth in 2012, if this withdrawal of fiscal stimulus is actually allowed to happen.

I keep hearing about the 8.3% unemployment rate and how it is at its lowest level since February 2009 and how it is playing out so well for President Obama’s re-election chances. Nobody seems to know that the U6 measure is still north of 15%, which includes both unemployment and underemployment.

The fact of the matter is that discouraged workers are dropping out of the labour force like flies, and so what is key is the ’employment rate’ or the employment¬to-population ratio — you can drop out of the labour force for a whole host of reasons, but you only drop out of the population base if you die or leave the country. You don’t have to survey people as to whether they are actively searching for work — the population count is not subject to opinions. And the employment rate at 58.5% has not budged for three months and remains very close to the depressed lows for the cycle

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