Suspicion of government economic reports is at an all time high and given our government’s propensity towards happy news, and that we are in the midst of a political convention, traders must be looking at tomorrow’s unemployment report with a certain amount of trepidation.
That we are going into the number on the heels of a 344 point drop in the Dow Jones Industrial Average makes things more interesting. Did someone know something?
Initial unemployment claims for the week ending Aug. 30 jumped to 444,000, well above consensus estimates, contributed to negative sentiment. But tomorrow is the big one and given today’s move, a slightly better than expected report could cause quite a rally. As someone who followed these reports very closely, I can say that it is not that unusual for the unemployment report to come out completely counter to what initial claims showed. So it would not be proof of some conspiracy if tomorrow’s report is positive.
Though conspiracy theorists just need to look at last week’s Gross Domestic Product (GDP) report to get their juices flowing. That the surprise extremely positive GDP report for the second quarter (up 3.3%) may have ruined the Democrat’s convention narrative may raise suspicions. Economist John Williams of Shadowstats.com said this of the GDP report, “The nonsense continued with GDP reporting, today, with the preliminary estimate revision for the second quarter showing annualized real (inflation-adjusted) growth of 3.28%...The numbers reflected an equally unbelievable low second-quarter inflation rate for the GDP deflator of 1.33%, versus 2.56% in the first quarter. The revisions were dominated by highly questionable trade data. This heavily propagandized series now shows near-average economic growth, despite signals of recession in nearly every other economic series.”
The government however puts out thousands of numbers and if something funny goes on in one of the headline series, there is a conflict with other numbers. Williams, who was featured in the July issue of Futures, notes that “the Gross Domestic Income (GDI) measure, which is the income-side equivalent (in theory equal, but rarely so in practice) to the consumption-side GDP measure, now is in recession. Deflated by the GDP inflation rate, revised GDI contracted at an annualized real rate of 0.8% in fourth-quarter 2007, contracted at an annualized 0.1% in first-quarter 2008, and grew at an annualized 0.5% in the second quarter.”
When we spoke to Williams he had pointed out, by the way, that initial unemployment claims is one of the better indicators. Consensus expectations for initial unemployment claims is down 70,000 to 75,000 and the unemployment rate is expected at 5.7% or 5.8%.
AS Sgt. Phil Esterhaus would say, “Be careful out there.”