DAILY UPDATE (April 19th to 21st) – Annual Growth Rates in Early April Money Supply Measures M1, M2 and ShadowStats M3 All Jumped to Record Levels (See Alternate Data Tab) / Next Postings – April 21st: ShadowStats Special Hyperinflation Commentary, Issue No. 1433 / – April 23rd: March New Home Sales Release.
HEADLINES: CORONAVIRUS – PANDEMIC-DEEPENED RECESSION CONTINUES TO UNFOLD – Consistent with an Unfolding 1q2020/ 2q2020 Recession, Latest New Claims for Unemployment Signaled an April 2020 Unemployment Rate Not Seen Since the Great Depression / March 2020 Housing Starts Plunged, but First-Quarter 2020 Held Positive / Historic Quarterly Collapses in First-Quarter 2020 Real Retail Sales and Manufacturing Were the Second Consecutive Quarterly Declines for Those Series / With Only One Month or Less of Coronavirus Impact, First-Quarter 2020 Real Retail Sales Annualized 10.9% (-10.9%%) Quarterly Drop Was Worst Since the Great Recession / March Industrial Production Plunge of 5.40% (-5.40%) Was Worst Since the Shutdown of World War II Production / March Cass Freight Index® Continued in Annual Decline for the 16th Straight Month, Down Year-to-Year by 9.2% (-9.2%) / March 2020 Money Supply Surged, Shifting Towards Cash (See ALTERNATE DATA TAB) / Headline March Inflation Was Hit by Collapsing Oil Prices and Sampling Disruptions / February 2020 U.S. Trade Deficit Narrowed Sharply as Pandemic in China Slashed Exports to the U.S.
PRE-PANDEMIC GDP ECONOMIC DATA – Fourth-Quarter 2019 Annualized Real GDP Growth Was Unrevised at 2.1%, With Initial GDI and GNP Reporting at 2.6% and 2.2%. Such Was Despite Headline Detail in Real Retail Sales, Manufacturing and the Cass Freight Index® All Showing a Contracting Pre-Pandemic Economic History (see prior CORONAVIRUS section)
PENDING PANDEMIC AND OIL-PRICE IMPACT: 1q2020 GDP Should Contract Sharply; 2q2020 GDP Likely Will See Deepest Drop in Modern History / Severe Deterioration in Pending Headline April 2020 Unemployment and Payroll Employment
• L A T E S T .. N U M B E R S .. [UPDATED] Week-Ended April 11th New Unemployment Claims Continued to Surge, Consistent With April 2020 U.3 Unemployment of Over 22%, Versus 4.4% in March (April 16th, Department of Labor – DOL). Weekly new claims for unemployment insurance continued to explode, albeit at a somewhat slowing pace of 5.245 million, versus an upwardly revised 6.615 [previously 6.606] million in the April 4th week, but up by 2485% against 0.203 million (203 thousand) in the year-ago April 6, 2019 week. New Claims have increased by 22 million since the March Unemployment Survey, suggesting something close to 22% headline U.3 Unemployment in April [UPDATE – For those of you running your own unemployment estimates, please note that my 22% estimate includes the yet unreported April 18th week of New Claims, an occasional rogue fifth week included in the April 2020 Unemployment Survey, given calendar irregularities]. Yet, that surge in unemployment is not over, where a new round of secondary furloughs is on the rise, with many who had been kept on payrolls until now, being shifted to State Unemployment Agencies. Insured Unemployment continued to increase, with each week the new “highest in history,” topping the Great Recession Peak.
(April 16) Nascent New Residential Construction Boom Was Impaled by Coronavirus Pandemic Hit to March 2020 Numbers (Census Bureau, HUD). In the context of usually random, and statistically worthless monthly volatility, compounded by major Pandemic disruptions to the surveying process, the Census Bureau monitored response and data quality with its March 2020 survey of New Residential Construction and “… determined estimates in this release meet publication standards.” That said, the massive headline month-to-month decline of 22.3% (-22.3%) in aggregate March Housing Starts was meaningful at the 90% confidence level, as was the 2.4% monthly gain in aggregate Building Permits.
Where these series had been trending in an upside Fourth-Quarter 2019 and First-Quarter 2020 boom, initial, full aggregate first-quarter quarterly activity ranged from flat to positive, with the trailing six-month moving averages in these series still broadly trending higher off their Great Recession troughs. Yet, at March 2020 levels of activity, headline 2q2020 New Residential Construction would see quarterly contractions. For example, 4q2019 Starts boomed in an annualized quarterly gain of 59.6%, and was on a two-month early track for a 1q2020 gain of 45.5%, which ended up at 7.3%. If March levels of activity held through June, 2q2020 aggregate Housing Starts would see an annualized quarterly plunge of 47% (-47%). Fourth-Quarter 2019 Building Permits boomed in an annualized quarterly gain of 23.3%, on early track for a 1q2020 gain of 9.4%, which ended up at 0.0%. If March levels of Permits held through June, 2q2020 aggregate Building Permits activity would see an annualized quarterly plunge of 25% (-25%). That said, headline March 2020 Housing Starts and Building Permits respectively remained shy of ever recovering Pre-Great Recession peak activity by 46.5% (-46.5%) and 40.2% (-40.2%).
(April 15) Inflation-Adjusted March 2020 Real Retail Sales Collapsed by a Record 8.3% (-8.3%) in the Month, With First-Quarter 2020 Activity Plunging at an Annualized 10.3% (-10.3%), Worst Since the Great Recession. (Census). First-Quarter 2020 Real Retail Sales declined for the second consecutive quarter, down by an annualized 0.78% (-0.78%) in 4q2019, and by a Pandemic-accelerated 10.29% (-10.29%) for 1q2020. The March 2020 monthly decline of 8.34% (-8.34%) was the steepest in the history of the modern Series (since 1992), as well as earlier historical estimations, back to 1947. Most areas of Retail Sales dropped sharply in the month, due to Pandemic disruptions and shutdowns. Key exceptions were Grocery and Liquor Stores, Pharmacies and Drug Stores, Building Materials and Supplies. See ShadowStats Flash Commentary, Issue No. 1432.
(April 15) March 2020 Industrial Production Capacity Utilization Plunged to a 10-Year Low, With Production and Its Dominant Manufacturing Sector Both Showing Their Largest Monthly Percent Declines Since the Post-World II Production Shutdown (Federal Reserve Board – FRB). Capacity Utilization commonly used to time formal economic recessions, just took a record plunge, consistent with the unfolding Pandemic Recession. March 2020 Industrial Production declined by 5.40% (-5.40%) in the month, with Manufacturing down by 6.25% (-6.25%) [respectively having gained 0.46%, and dropping 0.06% (-0.06%) in February]. Neither the monthly decline of 1.92% (-1.92%) in Mining [some oil price impact] nor the 3.92% gain in the randomly volatile Utilities was unusual.
The Pandemic hit to Production and Manufacturing was late in the month of March, so where full First-Quarter (January, February and March) Production and Manufacturing plunged at respective, annualized rates of 7.53% (-7.53%) and 7.13% (-7.13%) [the second consecutive quarterly decline for Manufacturing], such otherwise would have rivaled Great Depression performance, had there been full quarterly impact (a Second-Quarter 2020 possibility). The monthly drop in Manufacturing pulled headline Production back below its Pre-Great-Recession High for the second time since its “Recovery” (breaking above its pre-recession peak in 2014, going into the 2014-2016 Mini-Recession). The hit to Manufacturing dropped it to a level 10.67% (-10.67%) shy from ever having recovered its pre-Great Recession December 2007 high. Such represents a 101-year record, 148-straight months of non-economic recovery in the Manufacturing Sector. See ShadowStats Flash Commentary, Issue No. 1432.
(April 13) March 2020 Cass Freight Index® Plunged Year-to-Year by 9.2% (-9.2%), Following a 7.5% (-7.5%) Drop in February, Continuing the Steepest Pattern of Annual Downturns Since the Great Recession Onset (cassinfo.com, see the updated reporting at https://www.cassinfo.com/freight-audit-payment/cass-transportation-indexes/march-2020). Deepening annual plunges in Cass Freight Index® activity through March 2020, where March caught some early negative Pandemic impact, have been the steepest since the early months of the Great Recession. The accelerating collapse in freight activity remains consistent with an unfolding, albeit still not yet recognized, pre-Pandemic “Recession,” now transitioning into a Pandemic-driven “Great Depression.” Pending March Retail Sales and Industrial Production should see parallel, deeper declines in activity, with an outright quarterly contraction looming for First-Quarter 2020 Real GDP.
The Cass Index’s consecutive monthly year-to-year declines and monthly declines in the 12-month trailing average held in place for the sixteenth 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. We thank Cass for their permission to graph and to use their numbers in our Commentaries, see ShadowStats Flash Commentary, Issue No. 1431 for more detail.
(April 10) March 2020 CPI-U Inflation Dropped by 0.4% (-0.4%) in the Month, Hit by Plunging Gasoline Prices and Airfares (Bureau of Labor Statistics – BLS). The March 2020 Consumer Price Index (CPI-U) Declined 0.42% (-0.42%) in the month and slowed to 1.54% year-to-year, versus monthly and annual gains of 0.09% and 2.33% in February. CPI-U inflation was pummeled by collapsing gasoline prices, which were down 10.52% (-10.52%) in the month, by 10.24% (-10.24%) year-to-year, due to the Oil Price War. As a separate issue, the Pandemic-driven economic shutdown and disruptions resulted in incomplete and inconsistent BLS surveying of prices.
By major category, seasonally adjusted March 2020 Food inflation rose by 0.34% in the month [previously up 0.37% in February], with Energy inflation dropping by 5.78% (-5.78%) [previously down by 2.01% (-2.01%)]. The FOMC’s favored “Core” inflation — ex-Food and Energy — was down in March by 0.10% (-0.10%) [previously up by 0.22%], slowing to an unadjusted year-to-year 2.09% from 2.36%.
March 2020 ShadowStats Alternate CPI (1980 Base) Eased to 9.2% Year-to-Year, from 10.1% in February, Incorporating the Slowing Annual Headline March CPI-U. Such followed 10.3% (Jan), 10.0% (Dec), 9.8% (Nov) and 9.5% (Oct). 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. Extended inflation discussion follows in pending No. 1433
(April 3) Pandemic-Hit March 2020 Unemployment Spiked and Payrolls Sank, but the Bad News Was Understated Heavily, Due to Survey Timing; April Numbers Will Be Horrendous (BLS). Timing of the BLS Household (Unemployment) and Payroll Surveys for March 2020 was before most of the Pandemic-driven jobs loss in the month. Headline March U.3 Unemployment Rate of 4.4%, up from 3.5% in February, would have topped 9%, given the 10-million count of new claims for unemployment filed in the last two weeks of March (see the updated New Claims note, above). In like manner the headline payroll drop of 701,000 (-701,000) was understated heavily. Even so, headline slowing in annual payroll growth to 0.97% in March 2020 was the weakest level since 2010, when the economy was recovering from the Great Recession.
Headline U.3 Unemployment jumped from an effective 50-year low of 3.52% in February, to 4.38% in March, with the broader unemployment and labor-stress conditions also deteriorating markedly. Broader than U.3, March 2020 U.6 Unemployment widened to 8.72%, from 6.96% in February. Riding on top of U.6, the March 2020 ShadowStats Alternate Unemployment Estimate, including long-term displaced/ discouraged workers not counted by the BLS, rose to 22.9%, from 21.1% in February, all as posted on the Alternate Data Tab. Expanded detail follows in Issue No. 1433.
• S Y S T E M I C .. R I S K – Updated April 16th – Economic and Systemic Crashes Should Intensify, Moving Towards a Hyperinflationary Great Depression. Economic, FOMC and Market circumstances continue to evolve, but the broad outlook has not changed; market, economic, social and political turmoil are just beginning. The Coronavirus Pandemic containment efforts continue (1) to drive a severe near-term, economic collapse, as surfacing in all unfolding, major March and Second-Quarter 2020 economic numbers and (2) to drive unfettered U.S. dollar creation, with the Federal Funds Rate now targeted at 0.0% along with unrestricted FOMC Quantitative Easing and Systemic Funding, combined with the Federal Government putting forth a $6 trillion-and-ever-expanding support package in an environment where the Federal Deficit already is out control. A Hyperinflationary Great Depression has started to unfold. See the discussions in Special Commentary, Issue No. 1430 and those pending in Issue No. 1433.
SHADOWSTATS ALERT: In the context of the evolving Coronavirus Pandemic and surrounding circumstances, near-term financial-market risks from negative economic, liquidity and political issues, have been exacerbated by the potential for a U.S. Dollar Hyperinflation. Such continues to unfold from the current systemic disruptions and turmoil, combined with Federal Reserve and Federal Government Response to same. ShadowStats otherwise has long viewed Hyperinflation as the ultimate fate of the U.S. Dollar. That said, the ShadowStats broad outlook in the weeks and months ahead is for: (1) A rapidly intensifying U.S. economic recession/ depression, potentially an unfolding Hyperinflationary Great Depression, reflected in (2) Continued flight to safety in precious metals, with accelerating upside pressures on gold and silver prices, (3) Mounting selling pressure on the U.S. dollar, against currencies such as the Swiss Franc, and (4) Despite recent extreme Stock Market volatility — with heavy selling and direct interventions — high risk of continued major instabilities and selling, complicated by ongoing direct Market Interventions.
• P O S T I N G .. S C H E D U L E S .. SHADOWSTATS CONCURRENT ANALYSES OF NEW DATA: March 2020 New Home Sales (Census Bureau/HUD) will be published Thursday, April 23rd at 10:00 a.m. ET. ShadowStats analysis should post by 1:00 p.m. ET.
SHADOWSTATS COMMENTARIES (Subject to Change): ShadowStats Special Hyperinflation Commentary, Issue No. 1433 likely will publish April 21st, possibly the 20th. Subsequent ShadowStats Flash Updates will follow frequently, thereafter, updating the still-evolving, highly unstable systemic and economic circumstances.
• ARCHIVES – VIEWING EARLIER COMMENTARIES. ShadowStats postings of December 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 – See Updated Graphs [Apr 19]), and the ShadowStats Financial-Weighted U.S. Dollar, all recently updated.
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