Lies Your Government Tells You

February 24, 2023

Let’s do a quick side-by-side comparison of how the economy is doing. Here’s the government’s version…

Back on Valentine’s day, the chair of the US Council of Economic Advisors, Cecilia Rouse, penned a valentine op-ed to her boss Joe Biden.

In this political-economic love note, she spouted some of the most fawning and devoted rhetoric (along with the usual rehashed economic talking points) over the current administration. For example (all emphases are mine):

The employment report earlier this month suggested U.S. employers added 517,000 jobs in  January, well above what private forecasters were expecting. 

This is completely untrue. Of course she couched it cleverly by saying the employment report “suggested”  a gain of — not that the economy added — 517K jobs. In reality the economy lost 2.5 million jobs

She went on about the stellar employment situation…

Over 12 million jobs have been created since President Joe Biden took office

In no sane universe does “reopening” an economy count as “creating” jobs. Because no one ever mentions the nearly 22 million jobs that disappeared into thin air when the economy shut down! 

But let’s play her game…  If you count the seasonally adjusted jobs posted in nonfarm payrolls, yes, there have been just over 12 million jobs “created” (“added” is probably a better word) in the last 24 months. 

But by the same calculation, more than 12.5 million jobs were “created” during the last 9 months of the Trump presidency. That’d be roughly one-third the time it took old Joe.

Then she goes on to tout the financial security of the consumer.

Further, by a number of measures families are doing better financially than before the pandemic. Americans still have around $1 trillion in additional savings from the pandemic.

No they don’t. They still have around half of that. And what they have is almost as little as they had back in the good old days of the great recession…

Personal Savings

Source: The Federal Reserve Bank of St. Louis

On the topic of inflation she conceded that it was still too high but…

In fact, annual inflation has declined seven months in a row.

Sure… But prices paid are still as high as ever and they’re still going up — just a bit slower. 

She concluded…

In March 2020, economic activity suddenly came to a halt as people around the globe sheltered to stay safe from a novel virus. We were never going to power back up what was then a $22 trillion economy overnight, and bumps along the way to recovery were (and still are) inevitable. But the fact that we are almost back is a credit to the economic vision of this administration.

Of course it is.

Where Are We Really?

Last April, I wrote a weekly update titled, Believing Their Own Spin: How the Fed’s Wage-Price Myth Will Tank the US Economy. Here’s the Cliff’s Notes version: 

In that post I explained how the Fed was fretting over the potential for wages in a hot labor market to further fuel the inflation blaze. But the data — there were a bunch of charts — indicated the economy wasn’t quite as hot as they were fearing. In fact, the underlying strength of the economy was getting pretty shaky. And the Fed’s determination to cool this imaginary threat would push the economy into a recession.

Since I wrote that post, the Fed has raised its target interest rate by 425 basis points. Today, everyone is still zeroed in on the (apparently) strong labor market as the steam engine that’s keeping the economy chuggin ahead. I thought it might be a good time to review a couple of those numbers to see where we’re at. I’ve extended all the charts below from where the charts began 10 months ago. Let’s start with REAL earnings…

Inflation YoY

Source: Tradingeconomics.com

Average Hourly Earnings YoY

Source: Tradingeconomics.com

These charts are probably most striking.

In ordinary times, hourly earnings increases of over 5% would be considered booming! Except you’ll notice that annual earnings increases never come close to the accompanying annual rise in prices. 

That’s negative wage growth. And workers have been suffering losses in purchasing power of 1-3.5% for the past 22 months. That’s significant.

Given this struggle to keep up with inflation, consumer spending — which accounts for some 60% of GDP — has been struggling as well…

Here’s another look at spending vs. inflation…

US Consumer Spending (Quarterly)

Source: Tradingeconomics.com

Consumer Price Index YoY

Source: Tradingeconomics.com

Consumer spending (measured quarterly) increased a measly 3.5% since the second quarter of 2021. Why? Because the prices you pay (as measured by the Consumer Price Index) have soared 8.7% over the same period. Let’s face it, it’s getting harder and harder to stretch your dollars.

And in the bizarro world of government economic reporting, this loss in purchasing power, as I’ve explained in the past, actually shows up as a positive. 

Look. Retail sales are booming!

Retail Sales

Source: The Federal Reserve Bank of St. Louis

But those are nominal dollars. When you adjust for inflation (to get real dollars) you get a slightly different picture…

Real v. Nominal Retail Sales

Source: The Federal Reserve Bank of St. Louis

You can see the reality of nominal retail sales (the red line) and retail sales adjusted for inflation (the blue line)…

And when you look at retail sales as year-over-year change (the percentage change in the amount of money spent) you can see the trend has been flat to lower since mid-2021.

Retail Sales YoY

Source: Tradingeconomics.com

So I’d say it’s pretty clear the economy is not as strong as Ms. Rouse would have you believe. 

But how about some independent third party confirmation?

Tales from the Retail Sector

This past Tuesday, two retail giants released their fourth quarter earnings reports along with guidance for the coming months.

Walmart hit it out of the park from a numbers perspective reporting revenue of $164 billion (vs. $160 billion estimated) and $1.71 EPS vs. expectations of $1.51.

Home Depot was a little less impressive beating expectations on the earnings side, $3.30 vs $3.28 but coming up just short on revenue reporting $35.83 billion vs. $35.97 billion. (It was the first time they missed their revenue projections since 2019.)

Now I’ve said it before, earnings reports are about more than numbers. While both reports were enough to make the market generally happy where Q4 numbers went, the forward guidance they offered for the coming fiscal year dampened any excitement. 

Both retailers indicated they were bracing for a slowdown in consumer spending.

Home Depot reported that they were expecting flat sales growth in the coming year combined with slightly higher operating margins (including a $1 billion increase in frontline compensation)  and a decline in diluted-earnings-per-share. Home Depot CFO Richard McPhail said in an interview… 

“We’ve seen an increasing degree of price sensitivity as the year’s gone on, which is actually sort of what we predicted in the face of persistent inflation.” 

Neil Saunders, managing director of business consultant GlobalData added some color:

“Our data show that the number of improvement projects done by consumers fell over the prior year as people conserved cash for other activities over the holiday period.”

Over on the Walmart call they took an equally cautious tone. This was Walmart CFO John David Rainey:

“And if you look at economic indicators, balance sheets are running thinner and savings rates are declining relative to previous periods. And so that’s why we take a pretty cautious outlook on the rest of the year.”

They forecast US sales growth between 2-2.5% excluding fuel costs. 

Of course guidance estimates like these are not written in stone where company sales go.

Both of these retailers have a couple advantages over the competition that could protect them in the event of a sharp economic downturn.

Walmart sells everything from toiletries to televisions. The massive negotiating power this gives them can help them manage their inventories as well as wholesale prices better than most. 

But one of its biggest advantages is its grocery business. I mentioned in a post last December:

During the most recent quarter, households earning $100,000 or more helped push Walmart grocery sales higher, executives said.

That’s right. The six-figure crowd has found their way to Walmart for food. 

Where Home Depot goes, higher mortgage rates could push more homeowners back into DIY mode fixing up their current homes (instead of trading up every 7 years like a new car thanks to all the free money). 

Plus they have another advantage: A lot of their inventory — water heaters, washer/dryers, appliances, etc — is what a lot of people view as home necessities. 

Point is you’ve got two retail giants, based on what they are seeing in their numbers, concluding that the economy going forward may not be as rosy as some would have you believe.

The Bottom Line

So what’s the takeaway? 

Well first, never believe politically connected economists. It’s guaranteed they have an agenda. (Even supposedly “independent” parties like Fed Chair Powell.)

Second, don’t trust economic reports. They have agendas too!

Do your own research. I try to show you the truths behind government economic reports, but do your own research. Believe your own eyes. If something sounds unbelievable… it probably is. 

I’ve been talking about the likelihood of a recession for months now. It’s what will bring inflation (and prices) back to levels of sanity. Now two retail giants are now bracing for some hard times. 

Next week, two big mall retailers, Macy’s and Nordstroms, will be releasing their earnings. They don’t have the same retail advantages that Walmart and Home Depot have to protect them. 

Their reports might be even more telling.

Make the trend your friend,

Bob Byrne
Editor, Streetlight Confidential