Recent Economic Data: More Fiction Than Fact

The advance estimate of Q3 GDP was released on Thursday, October 29th. The headline number was 33.1% (annualized rate) vs 31% expected and negative 31.4% for Q2. This was John Williams’ (Shadowstats.com) comment on the headline number: “ShadowStats contends that the headline BEA estimates understated the 2q2020 quarterly plunge and have overstated the 3q2020 rebound.” On a quarterly basis, the reported GDP growth from Q2 was roughly 10%. To get back to the GDP level reported in Q1 prior to the virus shutdown, Q4 GDP will need to increase roughly 15% annualized. This is highly improbable.

I don’t want to dissect the GDP report for areas in which the estimates differ from actual real world numbers reported by companies. But keep in mind the jump in GDP in Q3 was largely generated by the momentum of businesses reopening, furloughed employees rehired and the stimulus provided by the $1.8 trillion CARES Act, which was signed just before the end of Q2.

As I’ve been detailing on a weekly basis, it appears that most of the sugar high from the Fed’s money printing and the CARES Act has worn off. While weekly jobless claims have dropped to an average of 787,000 over the last four weeks, down from a peak of 7 million at the end of April, the weekly number of new claims is still 3.7x higher than the weekly claims right before the lockdown period began.

Including the supplemental jobless benefits that were rolled out as part of the stimulus bill, over 23 million people are still filing weekly claims. Moreover, several large companies have announced 10’s of thousands of more layoffs, including Disney, Boeing and Exxon. If the Government does not soon pass another stimulus bill that includes bailing out States and local governments, there will be a large-scale layoffs of teachers, firemen and police.

ADP employment report vs Government employment report – The employment report released by the BLS on Friday purports that the economy added 638k new jobs in October. Wall St. expected 600k. The manipulative “button” pushed by the BLS this time was the Birth/Death model. The BLS estimates the number of new businesses started less businesses shut down during the month and derives a guesstimate of the net new number of jobs from this. It’s entirely based on flawed modeling theory. For October the BLS added 344k jobs based on its B/D model. Of course, this chart completely discredits the BLS B/D model(chart sourced from @soberlook):

The small business jobs index suggests that business “deaths” currently exceed “births” by a considerable margin. Data on business closures since March reinforce this.

It’s just amazing how the BLS seems to find jobs in the private sector that ADP, the payroll processing business, is unable to detect. ADP’s jobs report, released two days ahead of the Government report, showed 365k new employees were added to payrolls in October (note, this reflects hirings only, not cuts). Also note that the announced layoffs by big companies during Oct also escaped BLS detection. Finally, as John Williams points out on his Shadowstats.com website, “the BLS acknowledged continuing misclassification of some ‘unemployed’ persons as ’employed.'”

In all likelihood, the economy is much weaker that it would appear from stimulus-juiced economic reports that emerged over the summer. Auto and new home sales are already starting to roll over precipitously. With the stock market historically overvalued.  The upward movement since May was largely driven by hedge fund and newly minted retail “expert” momentum-chasing.  These two factors have set-up the potential for breath-taking market sell-off sometime in the next 3-6 months.

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