Yesterday the Commerce Department reported some statistics about the economy. The markets responded very favorable. The Dow made another record before declining slightly. News headlines were positive. All of officialdom and reporterdom seemed pleased with this newest sign that things are finally improving on the economic front.
I will make my own observations about about these numbers at the end of this post. Before doing so, however, let’s view these numbers the way people who deem them favorable view them. Readers here must prepare themselves for this excursion into the Alice In Wonderland realm of present day economic interpretation by doing the following:
Close your eyes real tight. Clear your mind. Repeat over and over the following mantra: Up is down. In is out. Black is white. Round is square. Now let your lips go loose and wet, open your eyes slowly, pant happily. You may now proceed to learn why these new numbers from the government are viewed so positively by market watchers and officialdom.
The 2012 gross domestic product (GDP) increase reported by the Commerce Department was 2.8 percent. Not a great number. Not something that lifted the economic well being of anyone not in the top one percent, but a number that by itself was modestly not all that bad.
Yesterday’s second quarter annualized reported GDP growth from the Commerce Department was only 1.7 percent. Less than 2.8 percent by quite a lot, but at least better that the 1.1 percent annualized growth reported in the first quarter of this year. Hence the positive market and media reaction.
But wait, you say. The Commerce Department reported annualized growth of 1.8 percent in the first quarter. The second quarter’s number of 1.7 percent was therefore worse, and not a sign of the “upward economic momentum” reported in the press.
Ah, I reply, but the Commerce Department has now revised its first quarter number to 1.1 percent, which means that the 1.7 percent in the second quarter, while actually a lousy number, was an improvement over the previous quarter.
You mean to tell me, you now cry aloud, that in order for things to appear to be getting better, all the government has to do is change past numbers that show they used to be even worse? That’s crazy, That’s…
Shhh. Back to sleep. Close your eyes real tight. Clear your mind. Repeat over and over the following mantra: Up is down. In is out. Black is white. Round is square. Let your lips go loose and wet, open your eyes slowly. And back we go to contemporary economic thinking.
It wasn’t just a Commerce Department first quarter revision that made the new second quarter number seem rather good. No, sir. It was analyst expectations. When a number beats analyst expectations these days, whether that number is a company’s quarterly earnings or an entire economy’s quarterly growth, markets cheer and the media follow suit.
Temporarily aroused from your stupor, you cry out again. That’s crazy. Crazy! Just because some news organization polls a few economists and averages their guesses to come up with an “expectation,” what kind of reason for that to move markets? Reality is reality. A bad number is a bad number even if some experts guessed a worst number. If I’m feeling crappy but a dozen doctors guess I might be feeling worse, what has that got to do with my real feelings?
Analyst expectations as market movers is a stupid gimmick (you’re almost hysterical now). It’s madness, its, it’s…
Shhh. Back to sleep. Close your eyes real tight. Clear your mind. Repeat over and over the following mantra: Up is down. In is out. Black is white. Round is square. Let your lips go loose and wet, open your eyes slowly. Don’t worry about a thing. The Authorities know what they’re doing.
Now here’s my personal observation about present day market behavior. Markets, in cahoots with government, have for years been changing official economic numbers on things like inflation, GDP growth, etc. to jolly people up and hide the terribly worrisome fact that our economy is a house of cards. Having fudged official numbers so blatantly and so much and so often that even the most gullible have spotted the game, a new approach is being employed. It is to make even terrible numbers seem like good ones.
The bigger, the more elaborate, the more widespread the con, the bigger the ultimate fall out. No. Up is not down. In is not out. Black is not white. Round is not square. These shenanigans are going to end very, very badly.
(Now available from Amazon in print and ebook formats — Michael Silverstein’s The Devil’s Dictionary Of Wall Street.)