CPI Inflation, Jobless Claims Both Surge

from Zero Hedge:
Following yesterday's upside surprise in the PPI, it was only logical that CPI would come higher than expected. However, printing at a 0.7% swing M/M, or the highest in years, was not expected. Broad CPI came at 0.5% in July after dropping -0.2% in June, or 3.6% Y/Y. This was far more than consensus which expected 0.2%. Core CPI however was in line with expectations at 0.2%. The reason for the surge? Gas, food and clothes. "The gasoline index rebounded from previous declines and rose sharply in July, accounting for about half of the seasonally adjusted increase in the all items index. The food at home index accelerated in July and also contributed to the increase, as dairy and fruit indexes posted notable increases and five of the six major grocery store food groups rose...The apparel index continued to rise sharply, increasing 1.2 percent in July; it has increased 3.9 percent over the past three months....The index for nonalcoholic beverages increased 0.9 percent in July as the coffee index continued to rise sharply." Elsewhere confirming that as expected the unemployment situation is deterorating, with 408K initial claims printing, on expectations of 400K, and making sure we dont have a revised 19 out of19 week of consecutive 400K+ prints was last week's revised 395K claims to, hold on to your seats, 399K.  That's right: a 1K in jobs breaks the trend, huzzah! Just as importantly, those on EUCs and Extended benefits continued to plunge, dropping by 43K in the last week. And most frightening, the one year change in Americans receiving Emergency Compensation (EUC) has plunged from 4.7 Million to 3.1 Million. That's 1.6 million Americans who no longer even collect any benefits from the government.

Poor Economic Data Ignored (As Usual) By Wall Street

Market chopping higher today!

from CNBC:

"We are getting a very, very sharp rebound in core inflation and much more than the Fed had bargained for. We will be at price stability and possibly through it before the end of this year," said Eric Green, chief economist at TD Securities in New York.

A separate report showed a gauge of manufacturing in New York State fell again in July. The New York Federal Reserve said its "Empire State" general business conditions index was at minus 3.76 from minus 7.79 in June.

High inflation, driven by strong energy and food prices, undermined economic activity in first quarter, with growth slowing sharply to a 1.9 percent annual rate after a brisk 3.1 percent expansion in the final three months of 2010.

Stagflation Rages, Manufacturing Falters

Is it any wonder both both stocks and treasuries plunge on this news? Treasuries are now recovering, but higher inflation is going to take its toll, as it did yesterday. 

from Zero Hedge:


June brings us much more centrally planned stagflation. CPI increased 0.2% in May, higher than expected 0.1%, and up 3.6% Y/Y. This is the 11th consecutive increase in inflation. And so much for the CPI ex-Food and Energy which came at +0.3% on expectations of 0.2%, up from 0.2% in April: "The index for all items less food and energy increased 0.3 percent in May, its largest increase since July 2008. The indexes for apparel, shelter, new vehicles, and recreation all contributed to the acceleration, rising more in May than in April. These increases more than offset declines in the indexes for airline fare, tobacco, and personal care." More on the Chairman's failure to rein in inflation in 15 minutes: "The food index rose in May as well. The food at home index repeated its April increase of 0.5 percent as four of the six major grocery store food group indexes increased, with the index for meats, poultry, fish, and eggs rising the most. In contrast, the energy index, which had been rising sharply, declined in May. The gasoline index decreased for the first time since last June, although the index for household energy increased. The upward trend among the 12 month increases of major indexes continued in May. The 12 month change in the all items index, which  was 1.1 percent as recently as November, reached 3.6 percent in May. The energy index has increased 21.5 percent over the last 12 months, the food index has risen 3.5 percent and the index for all items less food and energy has increased 1.5 percent. All of these figures have been rising in recent months." But the real action was in the Empire Manufacturing Index which plunged from 11.88, and forget about expectations of 12.00, printing at -7.79 in June. The contraction is now confirmed. This is the first contraction since November 2010 when QE2 began. Hint: QE3 is coming. Also, the future general business conditions index fell thirty points, reaching 22.5, its lowest level since early 2009. And the kicker: margins continued to collapse as prices paid fell less than prices received. This is what stagflation is pure and simple; it has also been Zero Hedge's keyword of 2011 since January.
From the Empire State Mfg Index:
The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated in June. The general business conditions index slipped below zero for the fi rst time since November of 2010, falling twenty points to -7.8. The new orders and shipments indexes also posted steep declines and fell below zero. The index for number of employees dropped fifteen points to 10.2. The indexes for  both prices paid and prices received were positive but lower than last month, suggesting that increases in input prices and selling prices had slowed. Although future indexes were generally above zero, they were well below last month’s levels, indicating that the level of optimism  about the six-month outlook had deteriorated significantly.
In June, the general business conditions index fell below zero for the first time since November of 2010, declining a steep twenty points to -7.8. Eighteen percent of respondents—compared with 23 percent in May—reported that conditions had improved over the month, while 25 percent, up from 11 percent last month, reported that conditions had worsened. The new orders index fell twenty-one points to -3.6, and the shipments index tumbled thirty-four points to -8.0. The unfi lled orders index fell to zero. The delivery time index slipped fi ve points to -3.1,  and the inventories index dropped ten points to 1.0.
Level of Optimism Deteriorates Significantly
The six-month outlook was notably less optimistic in June than in May. The future general business conditions index fell thirty points, reaching 22.5, its lowest level since early 2009. While the index was still above zero—an indication that conditions were expected to improve in the months ahead—its June decline represented the second largest drop in the index in the history of the survey. The future new orders index fell thirty-two points to 15.3, and the future shipments index fell twenty-fi ve points to 17.4. The future inventories index retreated thirteen points to -9.2, suggesting that manufacturers expected inventory levels to fall over the next six months. Future price indexes fell but remained positive, implying that price increases were expected, but would occur at a slower pace than was expected last month. The index for expected number of employees fell fourteen points to 6.1, and the future average workweek index fell to -2.0. The capital expenditures index slid four points to 26.5, and the technology spending index dropped fi fteen points to 14.3.
And the kicker: Margins continue to collapse as drop in Priced Paid is smaller than in Prices Received:
Price indexes posted their first declines in several months. The prices paid index fell fourteen points, to 56.1–still a relatively high value, but a sign that price increases were smaller in June than in May. The prices received index retreated seventeen points to 11.2, with the share of respondents that reported an increase in selling prices falling from 33 percent last month to 17 percent this month. Employment indexes were also lower. The index for number of employees remained in positive territory, indicating that employment levels increased, but the index fell fifteen points to 10.2. After reaching a relatively high level last month, the average workweek index tumbled twenty-six points; at -2.0, the index suggested that hours worked fell slightly.
Summary:

Monthly CPI:

Inflation Surges

CPI was up this morning, sending stocks lower.

And this CPI chart shows inflation ready to explode!

Stock Futures Spike on CPI As-Expected

The Fed is still seeking to lie about true inflation. Interesting, however, that a figure precisely as expected would cause a spike. It suggests that we are still in the mode of ignoring risk. This will only fuel more Fed easy money.

CPI Tame But Housing Starts Plunge

from Zero Hedge:

Elsewhere housing starts and building permits both missed expectations by a wide margin, coming in at 519 (vs exp of 598K), and 550K (vs exp of 568). Starts plunged from a revised 588K the month prior. One wonders how this contraction for the builders will be spun.

CPI Explodes!

Americans saw prices rise two percent in the year to March according to the Commerce Department's personal consumption expenditures index published on Monday. The figure, which is closely watched by the Federal Reserve as a sign of broader inflation levels, is approaching the maximum the central bank normally considers sustainable.
Energy and food costs rose 18.7 percent against March 2009, up almost four percentage points compared with February.
Without food and energy spending the inflation level remained stable at 1.3 percent.
The Federal Reserve last Wednesday vowed to keep historically low interest rates for an "extended period," amid "subdued" inflation trends.
Pointing to a slightly quickening economic recovery, the Fed said labor and housing markets showed glimmers of improvement and spending had ticked up.
That impression was reinforced Monday by the Commerce Department, which said spending rose for the sixth consecutive month in March, up by 0.6 percent.
Seasonally adjusted figures showed spending, a key driver of the US economy, rose as Americans saved less.

Pollyanna Creep: Why Government Statistics Lie

from Smart Money:

How’s the economy treating you? Chances are, your answer is colored largely by three things: whether you’re working (if you want to), how much you’re making and how quickly your expenses are rising. Economists rely heavily on the same factors to judge the nation’s health. At last count, 9.4% of the workforce is jobless. Compared with a year ago, the goods and services we produce are worth 5.7% less while the ones we buy are 0.7% cheaper.

Two bright people might see sharply different things in those numbers. To one, the shrinking economy is a healthy unwinding of past excess, for example, while to another it’s a dangerous downturn that calls for bold government action. But what if the numbers themselves are something we should be debating? In the alarming view of a vocal few, America’s economic measures are misstated -- rigged, really.

The accusation goes like this: Surveyors collect the nation’s data and statisticians compile and report it. Politicians naturally want the numbers to show improvement. Not being able to change the facts, they focus on the handling of facts, pressuring statisticians to change their measurements. It’s not quite one grand conspiracy but decades of minor ones compiled. Today’s reports are so perverted, the theory holds, that the numbers have detached from common experience.

Pollyanna Creep

If the theory has a chief architect, it is John Williams, a semi-retired grandfather of five living in Oakland, Calif. The son of a chainsaw importer, Williams sold the family business in the 1970s and began consulting for corporations, recalculating government economic data to arrive at what he says were more reliable measures, and with them, truer forecasts. Today Williams runs Shadow Government Statistics (ShadowStats.com) from his home. For $175 a year subscribers get economic data and analysis adjusted to back out the accumulated effects of what Williams has dubbed the Pollyanna Creep -- Pollyanna being the orphan protagonist of the 1913 children’s book who learns to play the “glad game” to find cheery perspectives on life’s sorrows. In other words, he provides figures he feels are properly miserable, to offset government ones he says are too prettied-up.

If Williams is right, unemployment is over 20%, gross domestic product is shrinking by 8% and consumer prices are jumping by nearly 7%. His forecasts border on apocalyptic. The government is creating so much new money, he says, that the all but inevitable result is hyperinflation, where “your highest denomination, the $100 bill, becomes worth more as toilet paper than money.” Buy physical gold, he advises.

Whether we believe the forecasts or not, the possibility of a Pollyanna Creep has serious implications. Social Security payments are just one benefit adjusted each year for increases in the cost of living. If the figures hadn’t been corrupted, says Williams, checks might be close to double what they are.

Williams has managed to attract plenty of press. A year ago, Harper’s magazine featured a cover drawing of a grinning Uncle Sam fondling numeral-shaped party balloons, with the headline, “Numbers Racket: Why the Economy is Worse Than We Know.” The story centered on Williams’ data. The San Francisco Chronicle followed with “Government Economic Data Misleading, He Says.” Last fall in the London Times: “Forget Short-Sellers and Manipulators, Pollyanna Creep Could Be the Culprit.”

Government statisticians are frustrated. “Economic Data Seems Accurate” doesn’t make for a catchy headline, so the press, they say, are too quick to give credence to conspiracy theories. “We go out of our way to be transparent,” says Thomas Nardone, who during 32 years at the Bureau of Labor Statistics helped implement many of the changes in calculating the unemployment rate. “We’d be remiss if we didn’t make changes,” he says. “I’ve never seen measurement changes that were politically motivated.”

Katherine Abraham served as commissioner of BLS during the Clinton administration. Commissioners, unlike the statisticians who work for them, are political appointees. Now a professor at University of Maryland, Abraham says she did see political pressure, but rarely, and never with results. Once, she says, a prominent lawmaker told her the BLS might get more funding if it would agree to propose changes that reduce the appearance of inflation. Abraham says she rebuffed the offer.

Decide for yourself. Here’s a roundup of measurement changes at the heart of Williams’ claims, along with responses from people who work closely with the measurements. I’ll focus on unemployment and inflation, but not GDP, since the chief flaw with it, according to Williams, is how problems with the inflation measure overstate real, or after-inflation, growth. (There’s a different case to be made -- that GDP measures some fairly undesirable things, like the cost of war and divorce lawyers, and so isn’t a great proxy for economic well-being -- but I’ll save that subject for another day.)

Disappearing Jobless?

About 13 million people were unemployed during the Great Depression, or around 25% of the work force, but those are fairly recent estimates. At the time, the government simply didn’t track data like it does today, which made it difficult to judge whether things were getting better or worse. Two main developments in the 1930s made tracking unemployment feasible. The first was an improvement in the way statistics are used to turn a relatively small sample into a faithful representation of the larger population. That allowed for the use of surveys. The second was the notion of basing one’s status as part of the unemployed work force on actions. Whether someone wants to work, after all, is a subjective thing. Whether they’re looking for work is not.

Today the BLS reports six measures of unemployment, called U-1 through U-6, for which the definition of unemployment gradually broadens. For example, 4.5% of the work force has been unemployed for 15 weeks or longer and is actively looking for work (U-1), while 15.8% is unemployed if we count those who say they want work but aren’t looking, and those who work part-time for lack of full-time options (U-6).

Williams takes issue with a 1994 change that coincided with a shift to computerized data collection from pencil and paper. Until then, a discouraged worker was someone who wanted to work but had given up looking because there were no jobs. The BLS tightened the restrictions with additional questions, which reduced the ranks of discouraged workers by half. As Williams puts it, “The Clinton administration dismissed to the non-reporting netherworld about five million discouraged workers.” Add those in, he says, and unemployment approaches Great Depression levels.

Nardone, the longtime BLS economist who today serves as assistant commissioner for current employment analysis, says the 25% unemployment rate often cited for the Great Depression is based on research that corresponds with today’s U-3, the unemployment rate most commonly reported by the media. It stands at 9.4%, recall -- not close to Depression-era levels. The 1994 changes did reduce the ranks of discouraged workers, but also introduced a new category: the marginally attached, who want jobs but aren’t looking for reasons like transportation problems and child-care requirements. The most commonly watched measure (now U-3, before the change U-5) is mostly unaffected, since it doesn’t include discouraged workers. The benefit of the changes, explains Steven Haugen, a BLS economist, is a less subjective measure of discouragement, and some additional ways to judge whether the nation is not only working, but working up to its ability. Williams says the change reduced the broadest measure of unemployment in a way that “doesn’t match with public perception, and for good reason.”

For a BLS paper describing changes to its unemployment measure, see here.

Rent, Geometry and Hedonism

The same agency that reports unemployment, the BLS, also reports the consumer price index. It tracks changes in the prices of more than 8,000 goods and services, from apples in New York to gasoline in San Francisco. There are several variants of the CPI index. For example, CPI-W weights things like fuel more heavily to better reflect the commutes of workers, and is the basis for Social Security adjustments. CPI-U, the measure most often reported in the media, includes items a typical urban consumer might buy, and determines adjustments to inflation-indexed Treasury bonds. Note that “core” inflation, which excludes food and fuel, isn’t used as the basis for any federal spending program (and isn’t called “core” by the BLS, which reports but doesn’t seem to especially prize the measure).

Most CPI criticism is based on three changes that affect all indexes. In 1983 the BLS replaced house prices with something called owners’ equivalent rent to measure the cost of shelter. Williams and other critics say it understates the cost, since house prices, until recently, had outpaced rents. John Greenlees, a BLS economist, says the new method is the most widely used among developed nations and is meant to fix a flaw in the old one. The CPI is supposed to measure things people buy to use, not things they invest in. For many people, houses are a little of both. The new measure attempts to isolate the portion of housing expenditures that best reflects the cost of living. Williams says the purchase price of housing is an important factor in determining a constant standard of living, and he doubts the ability of “the government to accurately calculate how much a person would pay to rent his own house.”

Another change: In 1999 the BLS adopted a geometric mean formula to replace its arithmetic mean one. The new method weights goods less as their prices rise, and is supposed to reflect patterns of consumer substitution. Critics say that treats consumers as if they’re no worse off when they switch to hamburger from steak. Greenlees says the analogy is flawed; the methodology allows substitution only between similar goods in the same region -- from steak in Chicago to a different type of steak in Chicago, and not to hamburger. The old measure was really an overstatement of price increases, one that assumed consumers don’t react at all to higher prices, he says. Also, the impact is relatively small. The BLS has continued to calculate prices under both methodologies and says over five years ended 2004 the new measure reduced CPI growth by 0.28 percentage points a year. Williams says geometric weighting has moved the CPI away from measuring a constant standard of living. He says that when the effects are combined with those of other changes, like increased price surveying among discount stores (which he contends offer poorer service and thus a lower standard of living than the shops they replaced) the overall impact is larger than the BLS states.

Finally, in 1999 the BLS began using what it calls hedonic adjustments. Williams explains the approach with a dash of sarcasm: “That new washing machine you bought did not cost you 20% more than it would have cost you last year, because you got an offsetting 20% increase in the pleasure you derive from pushing its new electronic control buttons instead of turning that old noisy dial.” He calls the impact on CPI “substantial.” Greenlees says the name “hedonic” was an unfortunate choice, since the technique has little to do with making judgments about pleasure. It’s designed to measure the quality difference between goods when one is discontinued and must be replaced in the index with another that’s not quite the same. Adjustments can push the index in either direction, but Greenlees says the overall impact since the change has been a tiny increase in the CPI -- about 0.005% a year. Williams says some hedonic adjustments are indeed necessary, like when the size of a box of crackers changes from 12 ounces to 10 ounces. But more theoretical adjustments, he says, “overstate the quality of what the public is buying."

The BLS has published a 17-page paper countering what it calls misconceptions about the CPI. Find it here.

Williams suspects his charges motivated the paper, and has issued a response — a rebuttal to the rebuttal, if you like — here.

This Inflation Fudge Don't Taste So Good!

When the news media report US economic data, they typically only report the headlines. When was the last time we heard any of them spend more than a few cursory seconds (and usually no time at all) discussing how the government has fudged those statistics over the years? I have known for years that the government doctors the statistics, misleading the American people. I'm not suggesting that it is intentional, because I really don't know if it is. But whether it is intentional or not is really quite irrelevant. The fact is that it happens. As I have said several time in other posts: reasons are irrelevant. So are intentions.

I even knew how they do it, using hedonics, weightings, and substitutions. However, until now, I didn't know how much. I hadn't seen precise quantification of how much the government fudges the statistics. I ran across an interesting article that discusses the "how much". Here is an excerpt:

"...from 2007 to 2008, CPI showed a 4.1% rise in the price of food. But according to the Farm Bureau, that tracks the same basket (without using substitution, weighting or hedonics), food prices actually rose 11.3%!"

What this short quote is telling us is that while the official inflation statistics released by the Bureau of Labor Statistics reports inflation of only 4.1% (which is still twice the amount the Fed is comfortable with), the true, undoctored statistics, as collected by the Farm Bureau, using historical methods, is much higher -- 11.3%! Ouch!

Perhaps this is why universally around the globe, from the Arabian Peninsula to China, all the countries that have pegged their currencies to the US Dollar, are finding that inflation is out of control. Only the U.S. continues to claim that inflation is "contained" or soon to come down.

Here is the rest of the article:

Government Statistics: Perfecting the Art of Mass Deception

Inflation: CPI Soars 1.1% -- In ONE Month!

The Consumer Price Index surprised everyone this morning, with the reported number being nearly twice the expected inflation rate and the highest monthly rise in 26 years. While 1.1% percent for a single month may not seem particularly high, by multiplying it out for an entire year, eyebrows should rise quickly. The inflation rate this month nearly doubled from the previous month! If inflation is accelerating, then it should get almost anyone's attention!

CPI Surprises to Upside

Monthly CPI for May was 4.2%, still higher than expected and modestly higher than the Fed's comfort zone. Unfortunately, most people I know give little credibility to the BLS measurement methodologies. Most people recognize that inflation is much higher than government statistics indicate. This is underscored by the fact that most other industrialized nations show much higher inflation that the U.S., despite their having stronger currencies. If only the U.S. reports data that is consistently lower than these other nations, it calls into question the accuracy of the data.

Since both treasuries and equities are moving higher, we must assume that the market is greeting the news with a yawn. If inflation had been hotter, we would have expected the opposite to occur.

CPI Data Flawed -- Again!

Last month, the US Government reported that gasoline prices at the pump fell 2%. Here is the daily chart for the price of gasoline future for April and early May. In fact, prices rose 13% -- in one month! You decide how accurate the government's reporting of the data was. Needless to say, the calculation and reporting mechanism for inflation by the U.S. government is fundamentally flawed. While all other developed -- and most developing -- nations' central banks are expressing strong concerns of future inflationary pressures, only the United States' central bank focuses only on "core" inflation and continually understates its impacts. The answer for "why" probably lies in the governments incentive to mislead so they can continue spending irresponsibly and suppress Social Security cost of living increases.

Food price inflation was reported at the highest in 18 years -- 8.4% annually!

Consumer Inflation, Housing

Year-over-year CPI inflation just reported at 4%, with core at 2.4% March inflation registered at .3% and core was .2%. The Euro is reaching new record highs against the US Dollar as a result. The US Dollar Index futures on the NYBOT are modestly lower (71.550), but not threatening the all-time low of 71.205 on 3/17.

The Goldman Sachs Commodity Index futures are reaching fresh all-time highs today, suggesting even higher commodity prices.

Housing starts for March were down 11.9%.

US Dollar: Fresh New Lows

The US Dollar today has once again sunk to fresh new lows, both as an all-time low and a new closing all-time low. There has been some tough talk this week by the Bank of Japan and the European Central Bank about intervening in the currency markets to prop up the Dollar, but with the tame CPI report earlier today, renewed certainty of fresh Fed rate cuts has resulted in the market ignoring threats, and the USD sinking to new lows today.

US Gov: Feb CPI, Inflation Tame

The U.S. government CPI data released this morning is reporting that energy and commodity prices during February 2008 dropped! I'm not sure what planet they were living on, but the consequence is a stout rally in stock market futures. It also makes a near certainly the likelihood that the Fed will lower interest rates aggressively next week when the FOMC meets. Fed Fund futures are predicting a 75 basis point cut with nearly 100% certainty.

Perhaps there is an explanation for this clearly erroneous number. If the data was collected in the early days of the month, when crude oil prices fell to $86.34, it is possible that the reported data accurately recorded a price drop from earlier figures. However, since the consequence of this CPI report is 1) further aggressive Fed easing and 2) an even weaker US Dollar, it is even more likely that future inflation data will heat up even more.

If the data for CPI and commodities was collected prior to the most recent run-up occurred, then the market reaction, combined with next month's explosive numbers, will both add even greater fuel to inflation down the road. This CPI report will provide the Fed with cover to ease even more aggressively, thus further weakening the dollar and likely igniting still higher inflation and commodity prices.

It appears that just about everyone suspects this CPI report as containing bad data, and this simply increases the likelihood that CPI will go much higher in future months. Perhaps it will also moderate the impact if market participants view the CPI report with suspicion.

How Much Will the Dollar Buy at Current Inflation Rates?

Here is an interesting article that calculates how much less the US Dollar will buy at current rates of inflation based upon the CPI and PPI. Read it and weap! The above chart is a glimpse. Read the article for the details:

Inflation's Power: The Dollar in 25 Years!

CPI Moves Higher, Stubbornly Above Fed's Target Rate!

CPI as reported for December is up, but not by amounts that set off alarm bells! December CPI was up .3%, and annual CPI was up 4.1%, the highest in 17 years. Of course, we all know that CPI is grossly underestimated, and that the Fed ignores total inflation, ignoring food and fuel costs. The real inflation rate is closer to 7-8%.

Paul Volcker has also criticized the current Fed leadership today. Where is the man, Volcker, when we need him? The Volcker Fed was far more effective, and didn't pander to Wall Street.

This CPI report will probably encourage continued Fed easing of interest rates. This alone will probably cause commodities prices to rebound higher, since continued devaluation of the US Dollar is a natural consequence.

In the minutes following the CPI data release, gold and oil prices are moving higher, and the US Dollar is moving lower. Surprised?