Peter Schiff Is Furious At "Double Seasonally Adjusted" Economic Data

Tyler Durden's picture

Days before the BEA made it official that it would "double seasonally adjust" GDP data so it is more in fitting with a recovery narrative, Zero Hedge first suggested that this is simply an exercise in giving Janet Yellen a green light for a rate hike later in the year as not even the Fed would dare proceed with tightening at a time when the first half of the year shows a GDP that is on the cusp of, if not outright, negative.

And while career economists, who have been wrong for about 6 years that the "imminent, self-sustaining" US recovery is just around the corner, were ebulient at this latest data fudge even if in reality it means that reported model data is increasingly more divorced from reality, one person who is less than euphoric about what it means is Peter Schiff.

Here is his take.

The Fed Considers a More Seasoned Approach

Just as the steady torrent of awful economic data, which began in the First Quarter and continued well into April and May, had forced many market analysts to grudgingly concede that 2015 would not see the robust economic growth that most had expected, the statisticians arrived on the scene like a cavalry charge and routed the forces of pessimism with a wave of their spreadsheets.

The campaign began in late April with some seemingly groundbreaking analysis by CNBC's Steve Liesman showing that over a 30 year time frame GDP data had consistently measured first quarter growth at 1.87%, which was far lower than the 2.7% rate averaged in the following three quarters of the year. He pointed out that the trend had gotten even more pronounced since 2010, when first quarter growth averaged just .62% and the remaining three quarters averaged 2.3%. The disparity caused Liesman, and others, to question whether first quarter data should be regarded as reliable.

The problem hinges on the efficacy of the "seasonal' adjustments that are baked into the GDP methodology. These filters are designed to smooth out the changes in spending, production, and consumption that occur over the course of the year. After all, business and consumers behave differently in December than they do in July.

When Liesman pressed the Bureau of Economic Analysis (the government entity that supplies the data) to explain his findings, the agency responded "BEA is currently examining possible residual seasonality in several series, which may lead to improvements in...the regular annual revision to GDP." We should understand "improvements" to mean changes that make first quarter GDP higher. A few weeks later the BEA provided some specifics saying methods for counting government defense spending and "certain inventory investment series" could be improved to help address the distortion. It promised to correct these deficiencies by July 30. It promised to correct these deficiencies by July 30. But to make sure that everyone understood that the help was definitely on the way, the BEA issued a blog post on May 22 in which it specified a number of areas in which it will eliminate what it calls "residual seasonality." This term should be accurately defined as "areas that we think should be higher."

As if on cue, the Federal Reserve itself waded into the debate with its own new study (released by the San Francisco Fed - Janet Yellen's former stomping grounds) that seemed to confirm and expand on Liesman's analysis and the BEA's concessions (makes one wonder if these campaigns are coordinated). Fed economists took a hard look at the disappointing .2% annualized first quarter 2015 growth, and determined that the seasonal adjustments that have been in use for years were insufficient to fully reveal the true health of the economy. When the San Francisco Fed added a second level of seasonal adjustments, it determined that Q1 growth should have been measured at 1.8% annualized. While that growth rate would not be considered strong, it is much closer to the 2.7%-3.0% that most forecasters had predicted at the end of 2014. No matter that the Atlanta Fed's "GDP Now," which was designed to be a more objective and contemporaneous measurement tool, was confirming near zero growth in Q1, many economists and media outlets jumped on the Fed study as proof positive that the economy is stronger than the pessimists portray.

In reality, few people actually understand how the complex and opaque seasonal adjustments really work (I know I don't). Fewer still have the patience to wade through the formulas to determine inefficiencies and potential remedies. This provides the statisticians with a good deal of convenient refuge against critics. But it's important to realize that unlike straight GDP measurement, which is ideally a strict accounting of spending, these adjustments can introduce an element of subjective institutional bias.

Government entities (and to a lesser extent media outlets) have many reasons to suggest that the economy is better than it really is. The Fed wants us to believe that its policies are effective; the Federal government wants us to believe that the economy is healthy, and financial media outlets depend on confident investors. I'm not saying that these biases are insidious or conspiratorial, but it does produce an environment where there is more emphasis placed on finding reasons to explain why GDP measurements are low, than there is to find reasons why it is too high. The subjectivity of the seasonal adjustments gives these biases room to run.

People understand that holiday spending juices GDP at the end of the year, and that post-holiday depletion and cold winters cause consumers to retrench. This causes them to try to compensate for the weakness in the first quarter. But there is no pressure for them to find reasons that GDP may be too high in December and May (when Christmas lists and pleasant weather should be encouraging shopping).

Given that, why do we really need seasonal adjustments in the first place? Yes December is different from July, but those differences persist every year. If we are looking at full year GDP, which is the measure that everyone is really after, why not keep a cumulative tally that we compare to prior years rather than prior quarters? Wouldn't this strip out a needless and opaque system of adjustments from a measurement system that is already overly complex to begin with? I believe the truth is the system is getting more complex because we want it that way. We prefer the ability to manipulate figures rather than allowing the figures to tell us things that we don't want to hear.

The real disconnect lies in the failure of the economy to grow, as most people assumed that it would, after the Fed's quantitative easing and zero interest rates had supposedly worked their magic. But as I have said many times before, these policies act more as economic depressants than they do as stimulants. As long as these monetary policies persist, our economy will never return to the growth rates that would be considered healthy.

In any event, many market watchers are grabbing at the San Francisco Fed report to conclude that Janet Yellen will raise rates this year, despite the weakness that the unadjusted GDP reports indicate. Such a conclusion is premature. I believe that the Fed wants us to think that the economy is strong, in the hopes that perception may one day soon become reality. If people think the economy is strong their optimism could influence their spending, hiring, and investing decision. As a result, optimistic Fed pronouncements should be considered just another policy tool; call it "open mouth operations." But I do not believe the Fed has any actual intention of delivering the rate increases that it may expect will damage our already weak economy.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
NoDebt's picture

Did I mention that I hate Steve Liesman yet today?  Good.  I always try to say that at least once a day.

He's not even an economist.  He's a JOURNALIST who covers Economics as his beat.  And he doesn't even do that well.

ZippyBananaPants's picture

lol, I read that fast and thought you said he covers Economics and beats his meat!

VinceFostersGhost's picture

 

 

Pick a number, any number.

whotookmyalias's picture

There is absolutely nothing wrong with beating your meat, and it's no less irrelevant in this discussion than the shit the FED shovels.

 

Shocker's picture

Mix up the data how you want.. its still not good

Layoff / Closing List: http://www.dailyjobcuts.com

-

Oh regional Indian's picture

About the man, very interesting....from his wickedpedia page: 

Schiff was born to a middle-class Jewish family[10] in New Haven, Connecticut. His father is Irwin Schiff, an immigrant from Poland who is a prominent figure in the U.S. tax protester movement, who, as of 2015, was serving a 13-year sentence for tax evasion in federal prison.[11][12] 

I always thought he was associated with the terrible banking Schiffs!

SpiOpsChiwowwow's picture

"Peter Schiff Is Furious At..."

WHO GIVES A SHIT!!!!!!!!!!!!!!!!

boogerbently's picture

I don't always agree with him but,

 

 "We prefer the ability to manipulate figures rather than allowing the figures to tell us things that we don't want to hear."

 

is pretty right on.

clooney_art's picture

And Peter Schiff thought Gold was going to $5000 soon.

Dude, the Federal reserve will create growth out of thin air with smoke, mirrors and dry ice.

disabledvet's picture

We can always kick back and relax as Connecticut goes bankrupt anyways.

napper's picture

The FED will do whatever it can to delay the demise of the dollar, but it cannot deflect the demise.

 

 

Fun Facts's picture

He'll be really mad when they start triple seasonally adjusting the numbers.

prefan4200's picture

Or they could be really bold and skip the triple seasonally adjusted numbers and go straight to the triple dog dare seasonally adjusted numbers.

indygo55's picture

Don't think he is really in jail. There is a look a like in there. Just like Ken Lay and even Tim McVeigh. They are all stiil alive and living the high life.

https://youtu.be/Vgfi1QZILxk

 

 

kchrisc's picture

Seeing only ethnicity can be blinding and counterproductive, and just what the Zionist would like us to do.

The problem is Zionism, not Judaism. While most Zionist are Jewish, not all are (Corzine?!). Zionists hide behind their ethnic Judaism as a shield. So while being Jewish is often a red flag of Zionism, it should be that person's behavior that truly defines whether he is a Zionist or not.

And then what is a Zionist's chief defining behavior or orientation? That would be plunder. If a person is suspected of being a Zionist and their lives and behavior are oriented toward power and plunder, then in all likelihood, they are a Zionist. As the saying goes, "You will know them by their fruits."

As for Schiff, he seems to forthright and honest; Just as horrified as the rest of us to the plundering tyranny that we are surrounded by. This can be evidenced by his many truth to power interviews he has given on noiZ-media. That he is invited less and less on these propaganda soapboxes is evidence that he is not just some shill playing a part.

His father did not just "evade" taxes, but proved that the DC US is unlawfully taxing people on their incomes. For this he was persecuted, thrown in a gulag, and his book banned.

Don't just see the ethnicity, see the behavior.

Liberty is a demand. Tyranny is submission..

 

One can see Zion and the workings of Zionists in many ways, but the easiest is 9/11. 9/11 IS Zion thru and thru. Look into 9/11, and in short order you will be right up to your ass in Zionist alligators.

WillyGroper's picture

Just keeps getting better.

They'll have this place completely gutted in no time.

yrad's picture

Double, secret, probation.

kchrisc's picture

One of the interesting things about going to dailyjobcuts.com daily is how it is apparent that Sears/Kmart are in a slow-mo liquidation.

One or two new closings a week it seems.

Liberty is a demand. Tyranny is submission.

KnuckleDragger-X's picture

You just need to torture the data till it confesses, I figure triple seasonal adjustments are next......

cooky puss's picture

Their version of data "waterboarding", by yours truly the B(L)S gang ;-)

Uber Vandal's picture

Re: Pick a Number, Any Number:

Red?

TeamDepends's picture

Liesman, he's a dead man! Krugman, dead! Bernanke,....

onewayticket2's picture

"Guess what i (the market) am now....."

greenskeeper carl's picture

Crazy idea, how about we don't seasonally adjust anything. The number is just by what % did the economy grow or contract over the past quarter. Same with jobs data, and all the rest of it.

And schiff better watch out talking like this, if the bernank heard him saying these things, he might not wanna be friends any more...

r101958's picture

Yes, and regarding another statistic, how about we get rid of the 'birth/death model' too?

Perimetr's picture

Here's how they do the math:

First: Decide Upon a Final Figure

Second: Develop a variety of formulas to arrive at the Final Figure

 

It is the same methodology they use to create "safety standards" for the nuclear industry

yogibear's picture

"Steve Liesman"

His name says it all.

That other guy, Ron Insana, reminds one of Jason Alexander.

Groundhog Day's picture

I just love how he has changed the pronunciation to "lease-man".  your a LIES-MAN no matter how you pronounce it

Kirk2NCC1701's picture

Bastard.  You beat me to it.

+1 from Kirk 

oudinot's picture

With you NoDebt, I hate the prick too but I think him being a journalist  is perfect training  for his role.

 He's not about numbers, he's  disseminating  'propaganda'; that's journalism school.

It probably helps him in his progaganda campaign as he remains ignorant of technical economnic factors; ie reality.

IGNORANCE IS BLISS.

ATM's picture

He is first and foremost a propagandist for the leftist totalitarians.

Journalist? Is there such a thing any longer?

Oh regional Indian's picture

Nope, has not been for a long time....bought up, paid for and telling lies man, telling lies...

https://aadivaahan.wordpress.com/2010/09/21/meet-the-press/

 

Everybodys All American's picture

Did you know that Liesman spent time in the former Soviet Union? It's not an accident that he's on this financial network misinforming people as we go down the rabbit hole of economic collapse. He's firmly on the list of traitors of this country.

ATM's picture

Joe Kernan got Liesman to admit recently when questioned about his time in Moscow that socialism sucks. Too bad Kernan didn't ask the compelling follow up question, "well how about Communism?"

Everyone in the world agrees that socialism sucks but some people believe it is a necessary evil on the way to the workers nirvana. I'd bet that liesman is on that team.

Hal n back's picture

I think he was asst bureau Chief  for WSJ in Moscow.

indygo55's picture

Steve Liesman is a journalist? Could'a fooled me. I thought he was a lieing stinking mother fucking shit mouthed card reading face plant of the oligarchy.

 

Headbanger's picture

Stay away from nail guns Pete!

dontgoforit's picture

Double-secret probation.  Time for Delta House to rule.  This show is taking a powder and we're all going to sweat blood over it.

Parsecs Taxi's picture

The economy grew robustly for the people that matter, the winners.

This is it's picture

Calm down Pete, this is normal.

And your existence isn't gonna change the future of things.