Economist Roubini: Was Q3 GDP manipulated upwards because of elections?

[swag]

http://www.rgemonitor.com/blog/roubini/154588

. . .

This mismeasurement of motor vehicle production in Q3 is highly suspicious coming about ten days before the US mid-term elections. It is also highly suspicious as it is not clear how the Bureau of Economic Analysis (BEA) at the Department of Commerce could have made such a gross mistake when seeing an alleged 26% increase in auto production that was patently at odds with many facts. During Q3 all the major US automakers - Ford, GM, Chrysler - announced production cuts for both Q3 and Q4. So, how could the folks at BEA argue and estimate that production went up by a whopping 26%? These data also do not make any sense as the Federal Reserve Board data on automotive production in Q3 show a sharp fall in production of motor vehicles of 12% (see http://www.federalreserve.gov/releases/g17/Current/g17.pdf, Table 1).

So how come the FRB data show a -12.0% sharp drop in production while the BEA estimates show an incredible 26% increase in production in Q3? This is altogether fishy. If one wants to give the benefit of the doubt to the usually non-partisan statisticians at BEA one would have to conclude that they were clueless about estimating motor vehicle production and they used a wrong price index to deflate the value of auto sales. How could they make such a gross mistake and believe in their estimate 26% growth figure - when all news headlines for months have been presenting the bad news about the plight of US automakers - is anyone's guess? The alternative hypothesis is that the Q3 GDP growth number was "massaged" upwards less than two weeks before the US mid-term elections. While a 1.6% is bad and dismal enough, a 0.9% would have been an altogether awful headline.

When I brought up the issue of the wrong estimate of the Q3 GDP number during my interview at Kudlow & Co. on Friday, even the conservative host Larry Kudlow was forced to ask one of the other guests - David Malpass of Bear Stearns - whether the GDP growth figure had been manipulated upward because of the election. And Malpass agreed with me that the motor vehicle figures looked fishy and that actual motor vehicle production in Q3 was lower than officially estimated.

Personally I prefer to give to BEA - a respected and independent government agency - the benefit of the doubt before claiming political and electoral manipulation of the most sensitive macro indicator before the election. But now BEA urgently owes the public a rapid and clear response on how it estimated motor vehicle production, why its +26% growth estimate is at odds with the -12% estimate of the Federal Reserve Board, and what it is planning to do to correct such incorrect estimate. Statistical measurement is always an art rather than a science but this is such a gross and obvious mismeasurement that BEA owes the public a clear and open answer. The fudged answer that Brent Moulton of BEA gave to Bloomberg for this first estimate will frankly not do.

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http://www.rgemonitor.com/blog/roubini/154588

[WI_DEM]

1. They've been saying that the economy is rouring back for months

and the public hasn't been buying it.

[Selatius]

2. Most government statistics are whitewashed nowadays

All you have to do is look at statistics for inflation to see that they exclude gas and housing prices. If we had included those two, we'd be closer to 10 percent on paper.

If you look at unemployment statistics, it undercounts for the fact that those who run out of unemployment insurance drop off the rolls. Also, those who stop searching for work out of frustration also disappear from the rolls. They switched to this ridiculous measure in the early 1960s under Kennedy because it was easier to simply keep an eye on unemployment insurance rolls than it was to actually go out and do the homework necessary to get a better picture of what the unemployment situation is.

If you look at GDP statistics, you see ludicrous things that are counted in that figure, including home foreclosures. Why the hell should that be a "positive" figure in the final addition to obtain the GDP instead of a "negative" figure?

[swag]

4. "Core inflation" excludes energy and food. Top line PPI and CPI include them.

Lots of people have problems with the inflation stats, but lately "core" (ex-food/energy) has been exceeding top-line CPI because of the recent decline in fuel prices. The employment stats (all different batches of them) all have their own problems and are also subject to much debate.

I think Roubini and other economists are on to something in this particular instance of fudging GDP upward. The private economists have picked apart the stats (as they always do) and something just does not smell right here. BEA needs to come clean. Why were they so wrong with Q3 GDP?

[Selatius]

3. You might find this website very interesting:

http://www.shadowstats.com/cgi-bin/sgs

[swag]

5. Thanks.

I'll have a look.

[tom_paine]

6. Imperial Amerikan statistics were one of the first things to be Sovietized

by the Busheviks.

Lieslieslieslieslieslieslieslies.

Amazing how rapidly the transition has occurred. I don't think the Bushevik Lies are quite so ham-fisted as old Soviet lies. But every single number that comes out of a Bushevik orifice is suspect.

I hate to say it and I NEVER thought it possible that it could happen here, but it is as simple as that.

There is very little in terms of shades of grey in a Totalitarian Nation like the old Soviet Union, Commie China, or Imperial Amerika. It's just that simple.

I yearn to be free once again, and to see the shades of grey again. But that is counterproductive when staring Nazis, even kinder and gentler ones, in the face.

[swag]

7. Interesting. I know a 30+ year veteran at US Dept of Energy.

She was and is a Reagan Republican. She hated Clinton for her own mysterious ideological reasons, but kept her job at the Forrestal building because she loved it, loved the analytical work.

After one year of Bush II, she couldn't take it any more and left the DOE. When I had dinner with her one night on a visit to DC, she explained, "all of the analytical work was being taken away from us. It was all being politicized. It's happening in every department."

It's going to take many many years to undo the damage to the nation's policy analysis infrastructure that Bush II has done to it.

[tom_paine]

8. Thanks for the anecdotal confirmation. It is merely a matter of history.

Knowing the immutable laws of human history, and knowing that what the Busheviks are engaged in is merely one of the oldest stories in human history going back to the caves, I have no doubt.

All Totalitarianisms, whatever their policial rationale Left or Right, behave similarly.

That is why Nazism and Stalinism looked so much alike in spite of the fact that one was a Left Authoritarian and the other was from the Right.

From Caeser to the fictional Palpatine, Hitler to the ancient Antiochus Epiphanes, it has always been the same.

Totalitarianism comes in many forms, but really they are variations on the same theme in the end.

[Old and In the Way]

9. Lying about bad news is worse than the bad news.

It shakes investor confidence. If the government is cooking the data, why shouldn't corporations? When honesty is restored, we are going to be shocked with how all the metrics have been politicized. It is a lot worse than the liars are telling us.

[swag]

10. Right. Imagine the capital markets and electoral politics had

GDP been posted at 0.9% for Q3 rather than the 1.6% that Roubini suggests it was inflated to.

It was the unfolding Worldcom accounting scandal, atop Enron and other scandals (the scandal of inflated corporate earnings reports at the center of them all), much more than 9/11, that kneecapped capital markets in the early years of the decade. When the malfeasance is revealed, when the numbers are revealed as untrustworthy, faith in the entire system collapses and, along with that faith, so do the capital markets. And so does the economy. Former head of the New York Stock Exchange laid out this case very well in The Betrayal of Capitalism, but anybody with eyes can see the cause and effect.

[Telly Savalas]

12. Who's to say that a material chunk of the capital markets

are managed by people who, like Roubini, recognize that the BEA isn't a reliable source of info?

I don't doubt for one second that the Bush Administration is bullshitting us, but it's rather disturbing to think that some guy managing a multi-billion dollar hedge fund could be more naive about such things than the lot of us sitting in our jammies surfing the internets.


Anyway, wouldn't only a moderately strong form of the efficient markets theory posit that Bush's lies are already worked into the price of stocks?

[swag]

13. Fun post.

"I don't doubt for one second that the Bush Administration is bullshitting us, but it's rather disturbing to think that some guy managing a multi-billion dollar hedge fund could be more naive about such things than the lot of us sitting in our jammies surfing the internets."

A hedge fund is, at this point, pretty much just an unregulated mutual fund with some fancy conceit, right? And just because someone runs a hedge fund doesn't mean she is more sophisticated than the lot of us in our jammies.

As for the last question, are you asking if strong EMT is required to have Bush's lies priced into stocks or to have a full understanding of Bush's lies priced into stocks? If the former, probably not. If the latter, probably so.

And as long as we're on the topic of EMT, note that cap-weighted index funds are once again beating about 3 of 4 active managers. So the run-of-the-mill CFA who's actively managing a mutual fund could be totally incognizant of the mendacities of the executive branch (most portfolio managers I know seem willfully incognizant of the mendacities of the executive branch) and would be in the same group, performance-wise, as her peer group of fund managers who are underperforming the market.

Still, I think I have probably missed your point completely. Nevertheless, time to check spelling.

[Telly Savalas]

14. I don't really have a point. That's why I'm dishing out questions.

One more question: in light of the stat about index funds beating most managers, where do I sign up to get a 6-digit income managing a fund? Not that I think that I could do any better than those guys and gals, but it blows my mind that people get so handsomely rewarded for such sub-par results.

[leesa]

11. Bear shit in the woods? Pope Catholic?, etc..