Guest Post: What Data Can We Trust?

Tyler Durden's picture

Submitted by Chris Martenson contributor Charles Hugh-Smith,

Modern investing offers the promise that investors who "do their homework" and use data more intelligently than the herd can gain a valuable edge. But what if the underlying data available to the investing public is fundamentally flawed? 

The federal government agencies that issue headline data and the mainstream media that reprints the data without skeptical analysis would have us believe that these indicators -- the unemployment rate and the consumer price index (CPI), for example -- accurately reflect economic realities.

The other indicator that is implicitly or explicitly assumed to reflect the economy’s health is, of course, the stock market, generally represented by the S&P 500 index.

That the government indicators and the stock market are both suspect is now a given.

The chart below, one of many possible examples, proves this suspicion is well-founded. This is a chart of a broad measure of employment in the U.S. published by the U.S. Department of Labor, Bureau of Labor Statistics (BLS). As we can see, when 140 million people had jobs in 2009, the official unemployment rate was 7.3%.

Yet when 140 million people had jobs in early 2012, the unemployment rate was 8.3%. How can the rate change when the number of jobs remain constant? The reason is that the unemployment rate is based not just on the number of jobs but on the number of people who are ready, willing and able to work—the labor force. The unemployment rate is based on the labor force minus the number of employed equals the number of people counted as unemployed.  The government games the unemployment rate by keeping the labor force number artificially low. Despite the working-age population rising by 9.4 million people since 2008, the official labor force has been 154 million since 2008. Where did the government put all those millions new workers? In the “not in the labor force” category, which rose by roughly 8 million since early 2009. In other words, dropping millions of people from the labor force artificially lowers the unemployment rate. 

It doesn’t take any fancy analysis to conclude that if the true labor force were counted, then the unemployment rate would be much higher -- and that is, of course, politically unacceptable.

So the numbers are gamed, massaged, adjusted... However you choose to describe it, the “headline number” of unemployment reflects political expediency, not reality.

The same can be said of the CPI and a slew of other headline data points issued by the government and blithely accepted by a corporate mainstream media committed to presenting the “recovery” as real.

If We Can’t Trust Headline Indicators, What Can We Trust?

If these headline indicators are not a reliable reflection of economic reality, what is?

To the degree that any government statistic can be massaged, seasonally adjusted, or simply rejiggered behind the curtain, we must always be alert to the possibility that numbers have been gamed for political expediency.

But the farther we move away from headline numbers, the farther we also get from the political pressure to make the numbers either positive or benign. For example, relatively few people are going to study chart PRS85006173, showing labor’s share of the non-farm business sector (i.e., the vast majority of the economy).

This charts reveals that labor’s share of the economy has been falling sharply since the dot-com top in 2000, and has been in a downtrend of lower highs and lower lows since 1982. This suggests that the number of counted jobs (which includes part-time, temporary, and self-reported self-employed) may be less valuable as a metric of economic recovery than income and labor’s share of the economy.

Indeed, if income is adjusted for inflation, then real household mean incomes have been declining since the housing-credit bubble topped in 2006-7:

In the following chart, income is not adjusted, and so it appears to be resuming its decades-long ascent. But if we add household debt, then another picture emerges, one of household debt rising far faster than income. Debt must be serviced, and rapidly rising debt imposes a burden on household income. Income may be rising in nominal terms, but if it is declining in real terms and the debt that must be serviced out of that income is skyrocketing, then how meaningful is nominal income?

Rather than reflecting meaningful growth, the apparently rising nominal income deceptively masks the reality of declining real income and avoids the costs imposed by a stratospheric rise in debt.

Since income is taxed, then tax receipts are another measure of income. Obviously the amount collected depends on the tax rates that are in effect for that year, so tax receipts may decline if tax rates fall. Nonetheless, in aggregate, tax receipts are a metric that is difficult to game or “seasonally adjust” to serve political expediency.

Here is a graph of total federal tax receipts.

Note that the data is not adjusted for inflation; it is nominal. We can see the sharp declines in federal tax receipts after the dot-com and housing bubbles popped, along with the resurgence of tax receipts in the “recovery.”

According to the BLS, what cost $1 in 2008 now costs $1.07 -- an absurd under-reporting of inflation by many analysts’ calculations. But the point here is that tax receipts remain well below 2006 peaks; they are also 7% less just from the loss of purchasing power. If official inflation is grossly underestimated, that loss might well be much greater. In other words, simply getting back to the previous peak in nominal terms still leaves tax receipts down 7%-10% (or more) in real terms.

The recent resurgence in tax receipts can be presented as evidence of “recovery.” But just as the financial health of households can only be measured by plotting both income and debt, we must look at government debt, not just its income. Here is a chart of federal debt held by the public -- that is, all federal debt excluding “intergovernmental” debts that arise from the government “borrowing” (i.e., expropriating) Social Security funds.

Notice how the federal government borrowed/squandered $6 trillion from 2008 to the present. Once we understand the enormity of this unprecedented borrow-and-spend policy, it is underwhelming to find that $200 billion “trickled down” in increased federal taxes paid.

Since virtually all workers drawing a wage or salary and all self-employed people with a meaningful net income pay Social Security taxes, the next chart, 'Contributions for Social Insurance,' offers a reasonably accurate reflection of actual earnings.

This decline is at odds with nominal increases in income and supports the notion that earned income is actually declining regardless of how many jobs are being counted (or imagined) by government agencies.

How about all of those corporate profits, which are presumably the foundation of the stock market’s glorious double from March 2009 lows? Corporate taxes have yet to recover pre-recession levels, too; perhaps this is the result of American corporations’ famous ability to lower tax liabilities, or perhaps the recovery in real corporate profits hasn’t been quite as spectacular as is broadly assumed.

No enterprise can be accurately assessed without understanding its profit and loss statement and balance sheet of assets and liabilities, and why should it be any different for households and government? In looking at the income and debts of both households and our government, we have a more balanced and accurate assessment of the “recovery” than that afforded by politically expedient headline numbers.

In Part II: The Three Key Indicators to Watch, we answer the question, What's an investor to do? What investment-actionable indicators of financial and economic reality can we rely on?

The "good" news is that the options of potential outcomes for the macroeconomic picture are narrowing, making the future a little easier to predict and plan for. The sobering truth is that the narrowing choices ahead of us each involve a magnitude of pain we'd rather avoid. Now more than ever, investors need reliable compass points by which to navigate.

Click here to access Part II of this report (free executive summary; enrollment required for full access).

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BanjoDoug's picture

The misrepresentation of data is one thing, but now we have an inherently unstable marketplace that cannot be escaped from.....   even shorting key strategic areas have the risk of not being able to "cash out" when a crisis hits......

Gully Foyle's picture

Everybody Lies All the Time


LowProfile's picture




gangland's picture

how about this data: aapl earnings beats cinco de mayo....not good for consumer spending

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akak's picture

LOL LowProfile, that was my FIRST thought as well upon reading this article's headline!

Yes, where is our new Leo-clone Bruschetta to tell us how trustworthy and "uncooked" every bit of so-called data from the BLS actually is?

Harbanger's picture

Yes, unfortunately lying has become acceptable as a way to get ahead.  It doesn't change the TRUTH.  Truth is always there to remind or ream you.   Seperating truth from BS is part of our growth. 

Future Tense's picture

That's true, the best long term short is the "black swan" event of interest rates rising, but it appears the Fed would rather watch the world burn before letting treasury rates rise. If they do rise, then it is game over for housing and the FHA mortgages sitting on their 4% down "write down" loans. Good article discussing what would happen if the government had to step away:

JohnKozac's picture

great post FT. Here is a quote from your link:


Someone took the time to walk me through a large portion of the information presented here back in 2007.  After careful consideration, I walked away from a contract on a town home I was ready to purchase in Virginia in foreclosure for $205,000 ($20,000 less than the asking price).  The price of the town home has since fallen to below $120,000 and continues downward in one of the most desirable housing locations in the country.

MeelionDollerBogus's picture

Solution: stack assets. Physical things from food and gold to copper wire and fuel, any land producing useful things and food. When currency is in large supply and when volatility of being paid is too high then having physical things works. Just don't get junk like toasters & bbq's and other nonsense for trade because you better know you have a use AND a market for each item you have PLUS can endure the cost to move, store / protect each item.


All data is an excuse to pimp what you believe in, or what you are getting paid to say. Period. Stop. End of story.

bank guy in Brussels's picture

Title reminds me of a sign I saw in the US long ago:

« In God we trust, all others pay cash »

batterycharged's picture

Or "believe none that you hear and half of what you see".

When a billionaire entrepreneur Mark Cuban refuses to invest because even he can't match the mind trusts and manipulation of the major players, what hope does anyone else have?

Perpetual Burn's picture

Read "Getting it Wrong: How Faulty Monetary Statistics Undermine the Fed, the Financial System, and the Economy"


The Fed knows they print garbage data.

JustObserving's picture

"But what if the underlying data available to the investing public is fundamentally flawed? "

Who cares about the data if the markets are rigged?


jus_lite_reading's picture

I've noticed that social tension is rising on a daily basis and this is to be expected. My 30 something year old nephew was arrested for assaulting someone randomly. He's been on the edge since he lost his job 3 years ago and has ran out of unemployment. He we go!!

blunderdog's picture

If he makes it out the other side, he'll be happier and wiser.  There's a major upside to losing it all, probably best summarized as "perspective."

That sucks about the assault, tho.  Hopefully it doesn't turn out like that Mamet movie Edmond.

jus_lite_reading's picture

He is already out... There's a lot to the story but I believe he was just simply lost. He sees everything that is going on and asks his mother "why the hell isn't anybody doing anything about it..." (referring to the criminal banksters and corporate America) Not a week later he asaults a guy at the mall for cutting him off.  

blunderdog's picture

Glad he did OK.

"why the hell isn't anybody doing anything about it..."

Yeah, that's the problem.  The vast majority of folks who are even aware of the issues tends to say the same thing.

francis_sawyer's picture

Good news!... He'll be a salted veteran by the time he arrives at the FEMA camp... Maybe even play the Steve McQueen role...

Buy him a baseball glove...

cossack55's picture

If the data is acquired from ZH or Egon-Jones there is a higher prabability that it is solid. Anywhere else, ya pays your money and ya takes your chances.

MassDecep's picture

There they cry, but none giveth answer, because of the pride of evil men.

But evil men and seducers shall wax worse and worse, deceiving, and being deceived.

If a ruler hearken to lies, all his servants [are] wicked.

And they bend their tongues [like] their bow [for] lies: but they are not valiant for the truth upon the earth; for they proceed from evil to evil, and they know not me, saith the LORD.

silver surfer's picture

X counts as Y in C .  


Debt counts as Wealth in the West.

Gold counts as Wealth in the East.

casey13's picture

The only thing that matters now is the amount of money being printed. Without newly injected liquidity it all goes poof.  

JustObserving's picture

And controlling gold and silver prices.  Or confidence in fiat goes poof.

Jack Sheet's picture

In scientific investigation you always have to look at the individual raw data (numbers at the source of data collection) and assess whether they are plausible. Have they been collected properly? Were there transcription errors ? Were "outliers" eliminated ? etc. Only then can you start analyzing them and drawing valid conclusions. All the above graphs are at least 3 steps away from the raw data. So in spite of the issues raised by CHS, we in addition have no way of validating the raw numbers used to create the graphs or the tables that underlie them.

Crash N. Burn's picture

What is where does one go to escape governments fraud  err flawed statistics, Alex.

DCFusor's picture

You gotta be careful about outliers too.  Often as not, they represent another valid distribution you failed to tease out due to an inability to properly pick a classifying idea for what you're measuring.  So just tossing them isn't always the right thing to do.


Me, I just watch the tape.  Even if I always got good numbers, I wouldn't be the first to get them usually (see Juniper earnings today) and the ticker is still the truth.

Silversem's picture

It are very difficult times for investors. You don't know who or what to trust anymore. That is why i think you are better off trading than investing. For trading you can rely for the most part on technical analysis instead of unrelyable economical data.

no life's picture

"In Alpo We Trust."

HarryM's picture

A little late for this discussion... no?

Amish Hacker's picture

Yes, but the real problem isn't so much one of timing as a question of the ability of the US public to grasp the reality at all. Back in the Watergate era, otherwise-intelligent Americans said, "Gee, if you can't trust the President of the United States, who can you trust?" Then they got a political education.

Today we say, "Gee, if we can't trust the data..." Prepare for a hard lesson in financial education.

An education is what you get when you don't get what you wanted.

Jason T's picture

Going long $50 light bulbst that'll last me up to 30 years.  

malek's picture

You know the quip in Eastern Germany before the wall came down:  "Only trust the data you've falsified yourself."

But even that stopped working after all levels of reporting entities applied that approach.

Ted Baker's picture


G_T_A_44's picture

"National, corporate and consumer debt. This was a major concern and still exists today. First issue on the agenda after re-election, raise the debt ceiling limit by $800 Billion, bringing the total to $8.2 Trillion in order to satisfy our November 2004 obligations. Budget and current account deficits continue to soar at alarming levels, roughly $600 Billion each, third world status. Remember, when Russia, Mexico, Brazil and Argentina went bankrupt? Well, we’re at those levels. Corporate balance sheets are in repair mode and appear to be in better shape. After numerous re-fi’s and virtual exemption from Federal income taxes, US corporations are on the mend. However, consumers continue to spend, or should we say borrow, like there’s no tomorrow. The scary part, this has been encouraged by both the Fed, as well as the government. Consumers continue to live well beyond their means. The US dollar continues to deteriorate. After so much printing to reliquify the system, the world’s reserve currency status could possibly be in jeopardy. Although the dollar is short-term oversold, continued hurdles still exist. So much so, that foreigners are lining the streets of China to exchange dollars for anything but US dollars. Apparently, faith in the currency is starting to diminish. Employment or, should we say Unemployment? Over 8 million Americans remain unemployed, and that number may actually be higher than one is led to believe. If you’re a believer in the Birth/Death ratio model, then you’re probably a sympathizer with the numbers being released by the BLS. Unfortunately, we’re suspect of any and all reports by government agencies. Housing bubble? What housing bubble? What are we talking about? Well, in a recent release, figures suggest that currently, only 19% of California households can afford the median priced home, which stands in the mid-to upper $400,000’s. Back in the east, it’s quite apparent that rents do not support housing prices. For instance, take a peak at the housing market in Boston. Rent prices on multi-family dwellings have been hit to the tune of 20-35% in recent years, yet, home prices have tripled during the past ten years, not to mention the 19% commercial vacancy rate in downtown Boston. Lax lending practices, interest only loans, adjustable rate mortgages, and if you have a pulse and can sign your name on the dotted line, come on down, you’re the next contestant on this, “Home is right for you”. O.K., we’re being cynical, yet, when people are buying a property that they can rent for $1100-1200 per month, and they purchase the exact same property, size, and location, and paying a mortgage of $2,500 per month, something’s amiss. Does the tax allowance for home ownership outweigh the difference in rent? Do the numbers, and we have, and you’ll find that at some point, the real potential for mass foreclosures may await those who are in over their heads. HELOCS (Home Equity Lines of Credit) appear to be the means of today’s down payment. Thus, today’s buyers, who have no down payment, yet, due to their FICA score, are piggybacking a second mortgage (20% down to alleviate PMI) on top of their primary, have nothing at stake, except for a potential personal bankruptcy and foreclosure. And as we all know by now, these are not considered shameful these days. Matter of fact, “The Donald”, thinks that bankruptcy is good thing. Whew…….." - GTA Report December 2004

DCFusor's picture

Gee, you guys with the all bold and all caps and no whitespace - give it a break, no one reads that dense shit even if it makes sense. 

If you're too lazy to type in a format that's easy to read, why should we put effort into figuring it out?


Taint Boil's picture



Ctrl + A, then Ctrl + B .......... yeah, JFC my eyes hurt

kengland's picture

Data is irrelevant in a liquidity driven environment

Conax's picture

I'm fairly ignorant of finance, which is why I buy silver and hang onto it, come high or low prices.  In a way I'm lucky. You guys have to suffer more, ignorance is bliss.

As long as you have a nice pile of silver buried in the swamp.

NEOSERF's picture

You're only as good as the hopium you are long as Uncle Fed is supplying the goods, you can "invest" with confidence...if the hopium starts to drift away, you are left with only your confidence the gov(s) will step back in and throw more cheap money at the problem..has been a good bet for the last 2 years...this year it ends in June...expect the market to throw a tantrum in May and get its way by the time you are grilling dogs for the 4th...there is no doing your homework, buy and hold, fundamental analysis or valuations anymore, just how quick on the draw you are on the next headline...

Gringo Viejo's picture

I have to laugh at CFTC data. If I believe that government data is inherently a lie, why would I believe additions and withdrawals of PM stocks? THERE IS NO GOLD AND SILVER! IT'S GONE!

q99x2's picture

Labor statistics are political statistics and not to be used for economic purposes.

the 300000000th percent's picture

This is why volume is low

ChacoFunFact's picture

OT but Frontline/PBS is running money,power and wall street and it is full on propaganda... I actually laughed. Will Lyman's voice is cool but too bad the media octopus has a hold of Frontline. Some parts were almost unbearable. No mention of how Hank Paulson got a cool 50,000,000 tax write off when he joined the treasury dept and was forced to liquidate his GS holdings as a prerequisite. what a gig! No mention eithervof how his team wanted TARP to be open ended for future disasters (Europe, not so lucky). The O b a ma media machine (C F R?) is revving up... because they have to...

icanhasbailout's picture

Here's a data point you can trust:


0% - the amount of your money that you can expect to be returned, if entrusted to the crooks at the helm of our economy