Bullet Edition Number 14 - Shadowstats.com · broad outlook for the U.S. economy and financial...

Copyright 2019 Shadow Government Statistics, Walter J. Williams, www.shadowstats.com 1

Bullet Edition Number 14

Public Debt and National Solvency, Faltering Economic Numbers,

Preview of Second-Quarter GDP and Revisions, Pending FOMC

July 25, 2019

____________

Congress and the White House Move to Expand Federal Spending, the

Federal Deficit and Debt Ceiling, as U.S. Economic Growth Falters

Federal Debt Outstanding in Excess of GDP Already Is Startling, and

That Excess Debt Growth Is About to Accelerate

Uncontained Federal Deficit and Debt Expansion Doom the Dollar

U.S. Economy Remains in Deepening Recession

Second-Quarter GDP Should Come in Below Expectations,

On Top of a Likely Downside Revision to First-Quarter GDP

Despite Hemming and Hawing of Some Fed Officials,

Major FOMC Easing Remains Likely by September

On the Brink of Perpetual Quantitative Easing?

____________

Shadow Government Statistics — Bullet Edition No. 14 — July 25, 2019


_________________________________________________________________________________

Note to Subscribers: Special Commentary No. 983-B provided extended coverage of the ShadowStats’

broad outlook for the U.S. economy and financial markets, updated in Commentary No. 984 and ALERT of

June 24th, along with all the subsequent Bullet Editions through today’s missive. The forecast of an

unfolding formal new U.S. recession remains intact. Today’s Overview section briefly reviews:

Deteriorating U.S. fiscal conditions, including a rather interesting graph in the Federal Debt section.

Deteriorating economic conditions, pending GDP reporting, and revisions, as expanded upon in

today’s Economic Conditions and Indicators section.

A still likely easing at next week’s regular FOMC meeting (announcement on July 31st).

As the economic contraction accelerates, the more negative will become the pressure on the U.S. Dollar, the

stronger the flight-to-safety in precious metals and the more dangerous the situation for domestic equity prices.

A rapidly weakening U.S. Dollar and rallying gold and silver prices are solid signs of impaired systemic and

market conditions that easily can mutate investor fears into concerns and actions in other markets.

The ShadowStats outlook has not changed, specifically including a rapidly deepening U.S. economic

downturn, reflected in mounting downside pressures on the U.S. dollar, flight-to-safety and upside

pressures on gold and silver prices, and increasingly high risk of heavy stock-market selling in the

weeks ahead. Your comments and suggestions are invited. Always happy to discuss what is happening.

Best Wishes — John Williams (707) 763-5786, [email protected]

_________________________________________________________________________________

ShadowStats Commentaries, Bullet Editions, Watches and Daily Updates:

The Daily Update posts regularly on the ShadowStats home page (www.ShadowStats.com),

covering major economic releases, usually within two-to-three hours of headline publication.

Unusual market circumstances and pending ShadowStats publications also are covered.

The Bullet Edition publishes multiple times per month, as dictated by economic and financial-market

developments. Simply put, the Bullet Edition conveys brief communications and analyses on topics

of particular near-term significance.

Regular Commentaries should publish every six weeks, or so, providing a more comprehensive

overview of general conditions, occasionally as a Special Commentary.

o Commentary No. 984 posted June 24th.

o Commentary No. 985 is planned for early next week, covering the July 26th GDP

benchmarking.

Hyperinflation and Consumer Liquidity Watches will update regularly, beginning shortly.

Telephone Consulting is part of the regular service for subscribers. If you have a question on the

ShadowStats outlook, or otherwise would like to talk, please call John Williams at (707) 763-5786.

All Current and Earlier ShadowStats Commentaries (back to 2004) are available here: Archives, otherwise

located in the left-hand column of the ShadowStats Home Page (www.ShadowStats.com).

_________________________________________________________________________________

http://www.shadowstats.com/article/c983b

http://www.shadowstats.com/article/c984.pdf

mailto:[email protected]

http://www.shadowstats.com/


http://www.shadowstats.com/commentaries?ym=-1&show=List+Commentaries




____________________

Contents – Bullet Edition No. 14

Overview 5

Budget Deficit and Federal Debt Ceiling Crises Threaten Financial and Economic Stability 5 Underlying Economic Numbers Still Show an Unfolding and Deepening Recession 5 GDP Should Begin to Catch Up With Tomorrow’s July 26th Reporting and Revisions 5 Second-Quarter 2019 GDP Expectations of 1.3% to 2.6% Should Be Disappointed 5 Real Quarterly GDP Contraction Remains Likely, At Least by the Second Revision 5 First-Quarter 2019 GDP Growth of 3.1% Should Revise Lower 5 Economy Cannot Resume Stable, Positive Growth Without an Active, Healthy Consumer 5 Major Fed Easing Looms; Renewed Quantitative Easing Could Be in Place by September 5 FOMC Easing Now Could Mark Onset of Perpetual Quantitative Easing 5

Federal Debt 7

Graph 1: Nominal U.S. GDP Minus Total U.S. Public Debt Outstanding ................................................................................ 8

Graph 2: Nominal Gross Federal Debt versus Gross Domestic Product .................................................................................. 8

Economic Conditions and Indicators – Preview of GDP 9

Durable Goods and Trade Deficit Details Likely Just Dampened the GDP Consensus Outlook 9

Graph 3: Real New Orders for Durable Goods (2000 to Date) ............................................................................................... 9

Graph 4: Real New Orders for Durable Goods – Ex-Commercial Aircraft (2000 to Date) .................................................. 10

Graph 5: Real New Orders, Ex-Commercial Aircraft, Yr-to-Yr Percent Change (2000 to Date) .......................................... 10

Graph 6: Real Merchandise Trade Deficit (1q1994 to 2q2019) ............................................................................................. 11

Graph 7: Net Exports of Goods and Services (GDP Accounting) 1q1994 to 1q2019 ............................................................. 11

Industrial Production and the CASS Freight IndexTM

Have Signaled Recession 12 Construction Spending and New Residential Construction Have Signaled Recession 12 Real Retail Sales Contracted in 4q2018 and 1q2019, but Rallied in 2q2019 12

Graph 8: Capacity Utilization 2000 to Date .......................................................................................................................... 13

Graph 9: CASS Freight IndexTM

2000 to Date ........................................................................................................................ 13

Graph 10: CASS Freight IndexTM

2000 to Date (Year-to-Year Percent Change) ................................................................... 14

Graph 11: Industrial Production Payroll Employment Year-to-Year Change, January 2000 to June 2019 ........................... 14

Graph 12: Industrial Production Payroll Employment, January 2000 to June 2019 ............................................................. 15

Graph 13: ShadowStats-Corrected Industrial Production (Compare with Graph 12 and Graph 14) .................................... 15

Graph 14: Industrial Production, 2000 to Date ...................................................................................................................... 16

Graph 15: Industrial Production, Year-to-Year Percent Change, 2000 to Date ..................................................................... 16

Graph 16: Manufacturing, 2000 to Date ................................................................................................................................. 17

Graph 17: Manufacturing, Year-to-Year Percent Change, 2000 to Date................................................................................ 17

Graph 18: Consumer Goods Manufacturing, 2000 to Date .................................................................................................... 18

Graph 19: Consumer Goods Manufacturing, Year-to-Year Percent Change, 2000 to Date ................................................... 18



Retail Sales 19 Construction and Housing 19

Graph 20: Real Retail Sales, January 2000 to June 2019 ...................................................................................................... 20

Graph 21: Real Retail Sales Year-to-Year Change, January 2000 to June 2019 .................................................................... 20

Graph 22: Retail Sales Payroll Employment, January 2000 to June 2019 ............................................................................ 21

Graph 23: Retail Sales Payroll Employment Year-to-Year Change, January 2000 to June 2019 .......................................... 21

Graph 24: Construction Payroll Employment, January 2000 to June 2019 ........................................................................... 22

Graph 25: Construction Payroll Employment Year-to-Year Change, January 2000 to June 2019......................................... 22

Graph 26: Index of Real Total Value of Construction Put in Place, January 2000 to May 2019 ........................................... 23

Graph 27: Year-to-Year Change in Real Construction Spending, January 2000 to May 2019 ............................................... 23

Graph 28: Single-Unit Building Permits vs. Housing Starts, 2000 to Date ............................................................................ 24

Graph 29: Year-to-Year Change in Real Construction Spending, January 2000 to May 2019 ............................................... 24

Current Labor-Market Stress Is Common to the Depths of a Recession, Not to Record-Low Unemployment 25

Graph 30: Civilian Employment-Population Ratio, January 1994 to June 2019 .................................................................... 25

Graph 31: Headline U.3 Unemployment Rate, Inverted Scale, January 1994 to June 2019................................................... 26

Graph 32: ShadowStats-Alternate Unemployment Rate, Inverted Scale, January 1994 to June 2019 .................................... 26

Some Likely Benchmarking Detail 27

Table 1: Likely Impact of Trade Deficit Benchmarking on the GDP Revisions ..................................................................... 28

____________________



Overview

Budget Deficit and Federal Debt Ceiling Crises Threaten Financial and Economic Stability

Underlying Economic Numbers Still Show an Unfolding and Deepening Recession

GDP Should Begin to Catch Up With Tomorrow’s July 26th Reporting and Revisions

Second-Quarter 2019 GDP Expectations of 1.3% to 2.6% Should Be Disappointed

Real Quarterly GDP Contraction Remains Likely, At Least by the Second Revision

First-Quarter 2019 GDP Growth of 3.1% Should Revise Lower

Economy Cannot Resume Stable, Positive Growth Without an Active, Healthy Consumer

Major Fed Easing Looms; Renewed Quantitative Easing Could Be in Place by September

FOMC Easing Now Could Mark Onset of Perpetual Quantitative Easing

U.S. Fiscal Conditions, U.S. Economic Activity and Federal Reserve Policy All Are in Turmoil, with

Domestic Financial Markets and the U.S. Dollar Eventually Taking Related Major Hits. Likely

weaker-than-expected second-quarter GDP should have negative implications for domestic financial-

market and fiscal stability.

U.S. Debt Versus the GDP. The Trump Administration and Congress reportedly have reached a deal on

U.S. fiscal policy to go beyond the 2020 election, with expanded deficit spending and an increased debt

ceiling. While there may be some needed economic stimulus in that package, the effects will intensify the

long-range solvency issues for the U.S. Government, with resulting mounting stress on the domestic

financial markets and particularly on the exchange-rate value of the U.S. Dollar and the U.S. Dollar

versus precious metals. The Federal Debt section expands upon these issues, including a rather startling

graph of the GDP minus Federal Debt (Graph 1).



Economic Conditions and GDP Preview. Second-Quarter 2019 GDP likely will come in below

expectations tomorrow, July 26th, with annual benchmark revisions to the GDP series back to First-

Quarter 2014 likely to show some downside revision to First-Quarter 2019 activity, as the current

deepening (albeit not yet formally recognized) recession continues to unfold. Consensus expectations for

second-quarter GDP growth now range from 1.3% to 2.6%, with the Atlanta Fed having just lowered its

―final‖ estimate from 1.6% to 1.3%, based on today’s headline reporting of June 2019 New Orders for

Durable Goods and the ―advance‖ estimate of the June trade deficit in goods (see later Graphs 3 to 7).

Nonetheless, headline Second-Quarter 2019 Real GDP activity should show a quarter-to-quarter

contraction, if not in its initial reporting, then by its second revision of September 26th, with Third-

Quarter 2019 also likely in contraction.

ShadowStats contends that the U.S. economy already has entered a recession, which should be timed

eventually from Fourth-Quarter 2018 (November), with real quarterly GDP contractions beginning in

First-Quarter 2019, although that may not be seen fully in the initial Second-Quarter 2019 GDP nor the

benchmark revised First-Quarter 2019. Fourth-Quarter 2018 and First-Quarter 2019 data disruptions from

the partial government shutdown could take another year of benchmarking to resolve, where key annual

benchmarkings did not take place this year due to budget constraints or the shutdown. The economic

background is reviewed in the Economic Conditions and Indicators – Preview of GDP.

FOMC Preview. The financial markets broadly are expecting an interest-rate cut from the Federal

Reserve’s Federal Open Market Committee (FOMC) at the July 31st conclusion of the pending regular

Committee meeting. Some easing indeed is likely.

The economy is weak enough that the banking industry should be beginning to see mounting systemic

stresses by September. That is circumstance that could trigger renewed Quantitative Easing (QE), which

openly is allowed for in the FOMC minutes. If circumstances indeed are that weak, and they appear to be

so, a return to QE could be the onset of effectively Perpetual Quantitative Easing (PQE). PQE would

have dire consequences for the long-term stability of the U.S. economy and financial markets. Greater

analysis will follow here should that circumstance begin to solidify,

[The “Federal Debt Section” begins on the next page.]



Federal Debt

Unhappy and Deteriorating Fiscal Circumstances. My friend, Economist and Energy Analyst Jay

Morse, suggested Graph 1 to me, which he had found on the Saint Louis Federal Reserve’s website.

Fully updated detail in my plot shows the difference between the seasonally adjusted, annualized level of

quarterly U.S. Gross Domestic Product, in nominal terms—not adjusted for inflation—minus the quarter-

end level of the unadjusted, nominal total U.S. Public Debt Outstanding. Since the Great Recession, the

level of and growth in total U.S. Federal Debt has exceeded the level of and growth in the total GDP,

where the GDP presumably will generate the funding needed to cover and service the exploding debt

levels. The purported new budget deal between the Administration and Congress will be reflected in

further rapid deterioration of the GDP/Debt coverage.

Graph 2 reflects basically the same information, by fiscal year and comparative level as opposed to the

difference in levels, as previously published and discussed in Special Commentary No. 983-B and

Commentary No. 984. Beginning on page 41 of No. 984 is an extensive discussion of the unfolding

crises and resulting, eventual insolvency of the U.S. government, or a more likely Hyperinflation

circumstance that has the same general effect. This assumes the underlying issues are not addressed,

which remains the most likely outcome. Detail updated for Second-Quarter 2019 GDP and related

benchmark revisions will follow for both Graphs 1 and 2 in pending Commentary No. 985.

[Graphs 1 and 2 follow on the next page.]

http://www.shadowstats.com/article/c983b




Graph 1: Nominal U.S. GDP Minus Total U.S. Public Debt Outstanding

Graph 2: Nominal Gross Federal Debt versus Gross Domestic Product

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U.S Gross Domestic Product Minus Total Public Debt Outstanding

Level in Billions of Nominal Dollars 1q1965 to 1q2019 [ShadowStats, U.S. Treasury, Bureau of Economic Analysis, St. Louis Fed]

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Gross Federal Debt versus Nominal U.S. GDP Fiscal-Year-End Debt versus Fiscal-Year GDP to FY2018

Adjusted for Year-End Debt-Ceiling Distortions [Sources: ShadowStats, U.S. Treasury, BEA]

GDP

Gross Federal Debt



Economic Conditions and Indicators – Preview of GDP

Durable Goods and Trade Deficit Details Likely Just Dampened the Consensus Outlook

The Atlanta Fed Just Dropped Its Second-Quarter GDP Estimate to 1.3% from 1.6%, Based on

Today’s Reporting of the June Trade Deficit and Durable Goods Orders. The Atlanta Fed’s model

of where headline GDP growth will come out is the best one in terms of the mimicking Bureau of

Economic Analysis (BEA) official estimates. Where headline weakening in June 2019 New Orders for

Durable Goods and the quarterly deterioration indicated by the ―advance‖ June Trade Deficit in Goods

knocked the Atlanta model estimate lower, consensus forecasts likely dropped some, today, too.

Plots of those two series follow in Graphs 3 to 7. The unfolding recession is evident, where levels of

activity have turned lower, quarter-to-quarter, as seen in Graphs 3 and 4 of Real New Orders for Durable

Goods, and where both Real Total New Orders and New Orders Net of the Volatile Commercial Aircraft

Orders in Second-Quarter 2019 contracted quarter-to-quarter for the third consecutive quarter, along with

year-to-year change turning negative in Second-Quarter 2019, as seen in Graph 5.

Graph 3: Real New Orders for Durable Goods (2000 to Date)

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Real New Orders for Durable Goods Billions of Constant $2009, Deflated by PPI Durable Manufactured Goods

To June 2019, Seasonally-Adjusted [ShadowStats, Census, BLS]

Six-Month Moving Average

One-Month Reported



Graph 4: Real New Orders for Durable Goods – Ex-Commercial Aircraft (2000 to Date)

Graph 5: Real New Orders, Ex-Commercial Aircraft, Yr-to-Yr Percent Change (2000 to Date)

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Real New Orders for Durable Goods (Ex-Commercial Aircraft) Billions of Constant $2009, Deflated by PPI Durable Manufactured Goods

To June 2019, Seasonally-Adjusted [ShadowStats, Census, BLS]

Six-Month Moving Average

One-Month Reported

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Real New Orders for Durable Goods (Ex-Commercial Aircraft) Year-to-Year Percent Change, Deflated by PPI Durable Manufactured Goods

Monthly to June 2019, Seasonally-Adjusted [ShadowStats, Census, BLS]



Graph 6: Real Merchandise Trade Deficit (1q1994 to 2q2019)

Graph 7: Net Exports of Goods and Services (GDP Accounting) 1q1994 to 1q2019

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Real U.S. Merchandise Trade Deficit (Census Basis) Quarterly Deficit at Annual Rate, 1q1994 to "Advance" 2q2019

Seasonally-Adjusted [ShadowStats, Census]

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Real U.S. Net Exports of Goods and Services (GDP) Quarterly Deficit at Annual Rate (1q1994 to Third-Estimate 1q2019)

Seasonally-Adjusted [ShadowStats, BEA]



Graph 6 of the Real Merchandise Trade Deficit through Second-Quarter 2019 showed a net deterioration

(an economic negative) in the second–quarter deficit. Graph 7 shows the Net Export Account of the GDP

through First-Quarter 2019, where it had narrowed. It should deteriorate now in tandem with the Real

Merchandise Trade Deficit in the headline second-quarter GDP detail.

Industrial Production and the CASS Freight IndexTM

Have Signaled Recession

Construction Spending and New Residential Construction Have Signaled Recession

Real Retail Sales Contracted in 4q2018 and 1q2019, but Rallied in 2q2019

The June 2019 CASS Freight Index™ Fell Year-to-Year by 5.3% (-5.3%), Following an Annual

Decline of 6.0% (-6.0%) in May, Parallel to the Deepening Annual Declines at the Onset of the

Great Recession. The Index’s 12-month moving average declined month-to-month for the seventh

straight month. Those year-to-year and 12-month-moving-average metrics neutralize seasonality in this

unadjusted series, and both are signaling a new recession and deepening Second-Quarter 2019 Economic

Contraction. The last time annual growth in the series declined to a year-to-year drop of 6.0% (-6.0%)

was at the onset of the Great Recession in 2008.

Recession Signals Abound from the June 2019 Production Series:

Aggregate Second-Quarter 2019 Industrial Production showed a second consecutive quarterly

downturn, at an annualized 1.18% (-1.18%, versus 1.91% (-1.91%) in first-quarter 2019.

Having shown no economic expansion for 11½ years, a record period never before seen in the

100-plus year history of the series, otherwise 44-straight quarters or 138-continuous months

without activity recovering the December 2007 pre-recession peak, the dominant Manufacturing

Sector also dropped for a second straight quarter at an annualized 2.25% (-2.25%) in second-

quarter 2019, versus 1.86% (-1.86%) in first-quarter 2019.

Reflecting FOMC-induced, stressed consumer liquidity conditions, Consumer Goods Production

fell at an annualized 3.67% (-3.67%) pace in second-quarter 2019, versus 4.15% (-4.15%) in first-

quarter 2019.

While the randomly volatile Utilities Sector also contracted for a second quarter, the Mining

Sector picked up sharply in the second quarter, at an annualized quarterly pace of 8.88%,

dominated by increased Oil and Gas production.

Graphs of Production and Freight Activity Related to the Unfolding Recession. The following

pages of graphs tell a story of unfolding recession, first as to Industrial Production and the CASS Freight

IndexTM

, followed by indicators tied to the Construction Sector and to Retail Sales. Consider first Graphs

8 and 9 of Industrial Production Capacity Utilization and the Cass Freight Index, where a downturn in

Capacity Utilization is a traditional marker of the onset of recession. Both plots reflect a the likely shaded

recession period for the current onset, they also reflect the 2014/2015 mini-recession that never was

recognized formally, largely because it was masked for a number years, until it fell out of annual

benchmark revisions, as detailed in Bullet Edition No. 3.

http://www.cassinfo.com/

http://www.shadowstats.com/article/cSBE3.pdf



Graph 8: Capacity Utilization 2000 to Date

Graph 9: CASS Freight IndexTM 2000 to Date

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Capacity Utilization: Total U.S. Industry to June 2019 With An Alternate Recession Definition

Percent of Capacity, Seasonally-Adjusted [ShadowStats, FRB]

Alternate Definition and ProspectiveRecession

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Cass Freight Index™ (Jan 2000 = 100) To June 2019, Not Seasonally Adjusted

[ShadowStats, Cass Information Systems, Inc.]

Alternate Definition - Prospective Recession

Monthly Level, Not Seasonally Adjusted

12-Month Trailing Average



Graph 10: CASS Freight IndexTM 2000 to Date (Year-to-Year Percent Change)

Graph 11: Industrial Production Payroll Employment Year-to-Year Change, January 2000 to June 2019

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Cass Freight Index™ (Year-to-Year Percent Change) Monthly to June 2019, Not Seasonally Adjusted [ShadowStats, Cass Information Systems, Inc.]

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Industrial Production Payroll Employment Year-to-Year Percent Change to June 2019

Not Seasonally Adjusted [ShadowStats, Census Bureau]



Graph 12: Industrial Production Payroll Employment, January 2000 to June 2019

Graph 13: ShadowStats-Corrected Industrial Production (Compare with Graph 12 and Graph 14)

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Industrial Production Payroll Employment to June 2019 Seasonally-Adjusted [ShadowStats, BLS]

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ShadowStats-Corrected Industrial Production Hedonic-Adjusted Inflation Understatement Removed, Index Jan 2000 = 100

Through June 2019, Seasonally-Adjusted [ShadowStats, FRB]



Graph 14: Industrial Production, 2000 to Date

Graph 15: Industrial Production, Year-to-Year Percent Change, 2000 to Date

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Index of Industrial Production (2012 = 100)

Level to June 2019, Seasonally-Adjusted [ShadowStats, FRB]

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Industrial Production (Year-to-Year Percent Change) To June 2019, Seasonally-Adjusted [ShadowStats, FRB]



Graph 16: Manufacturing, 2000 to Date

Graph 17: Manufacturing, Year-to-Year Percent Change, 2000 to Date

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Industrial Production - Manufacturing (SIC) (2012 = 100) Level to June 2019, Seasonally-Adjusted [ShadowStats, FRB]

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Industrial Production - Manufacturing (Yr-to-Yr Percent Change) To June 2019, Seasonally-Adjusted [ShadowStats, FRB]



Graph 18: Consumer Goods Manufacturing, 2000 to Date

Graph 19: Consumer Goods Manufacturing, Year-to-Year Percent Change, 2000 to Date

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108

112

116

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Ind

ex L

evel,

2012 =

100

Production - Consumer Goods (2012 = 100) Level to June 2019, Seasonally-Adjusted [ShadowStats, FRB]

0

1

2

3

4

5

6

7

8

9

10

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Year-

to-Y

ear

Perc

en

t C

han

ge

Production - Consumer Goods (Year-to-Year Percent Change) To June 2019, Seasonally-Adjusted [ShadowStats, FRB]



Retail Sales

Second-Quarter Real Retail Sales Gained Sharply in the Quarter, but Annual Growth Still Held

Within Traditional Recession Territory, Along With Retail Trade Employment in Annual

Contraction. In the context of the June 25th downside benchmark revisions to the Retail Sales series,

(see Bullet Edition No. 12), nominal June Retail Sales gained an above-consensus 0.42% in the month,

although the increase was not statistically different from 0.0% (unchanged) at the 90% confidence

interval, as reported by the Census Bureau on July 16th. Annualized real second-quarter growth was a

strong 4.46%, against negligible first-quarter growth of 0.33%. That said, real year-to-year growth in

second-quarter 2019 was 1.53%, versus 1.14% in first-quarter 2019. While real annual growth below

2.0% rarely is seen outside of formal recessions, the initial, strong quarterly estimate likely will boost

second-quarter GDP growth and expectations for same. Still, a variety of indicators, such as employment,

suggested there might be some downside revisions pending (Graphs 20 to 23 begin on page 20).

Construction and Housing

May Construction Spending Showed Deepening Nominal Year-to-Year Declines, Last Seen at the

Onset of the Great Recession, With Second-Quarter Real Construction Spending on Track for a

Fourth Consecutive Annual Decline (see Graphs 24 to 27 on page 21; see Bullet Edition No. 13).

Second-Quarter 2019 New Residential Construction: The Dominant and Statistically Stable Single-

Unit Building Permits Series Showed Its Fifth-Consecutive Quarter-to-Quarter and Third-

Consecutive Quarterly Year-to-Year Declines. More-stable Building Permits, which lead Housing

Starts, showed statistically meaningful aggregate monthly and annual declines of 6.1% (-6.1%) and 6.6%

(-6.6%), dominated in June by highly irregular swings in the Multiple Unit Permits category. The unit-

count-dominant and most-stable series, though, is Single Unit Permits, which gained 0.4% in the month,

and declined 4.7% (-4.7%) year-to-year, with 2q2019 Single Unit activity declining quarter-to-quarter at

an annualized pace of 6.2% (-6.2%), and year-to-year by 6.2% (-6.2%). Again, those were the fifth

consecutive quarterly and third consecutive annual declines, a pattern consistent with a continuing

recession in housing activity (see Graphs 28 and 29 on page 24).

http://www.shadowstats.com/article/csbe12.pdf




Graph 20: Real Retail Sales, January 2000 to June 2019

Graph 21: Real Retail Sales Year-to-Year Change, January 2000 to June 2019

0

1

2

3

4

5

6

7

8

9

10

150

155

160

165

170

175

180

185

190

195

200

205

210

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Bil

lio

ns

of

1982

-1984 D

oll

ars

(C

PI-

U)

Real Retail Sales Level (Deflated by CPI-U) To June 2019, Seasonally-Adjusted [ShadowStats, Census, BLS]

0

1

2

3

4

5

6

7

8

9

10

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Ye

ar-

to-Y

ea

r P

erc

en

t C

ha

ng

e

Real Retail Sales Year-to-Year Percent Change To June 2019, Seasonally-Adjusted [ShadowStats, Census, BLS]



Graph 22: Retail Sales Payroll Employment, January 2000 to June 2019

Graph 23: Retail Sales Payroll Employment Year-to-Year Change, January 2000 to June 2019

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

14.0

14.5

15.0

15.5

16.0

16.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Mil

lio

ns

of

Jo

bs

Retail Trade Payroll Employment to June 2019 Millions of Jobs, Seasonally-Adjusted [ShadowStats, BLS]

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Year-

to-Y

ear

Perc

en

t C

ha

ng

e

Retail Trade Payroll Employment Year-to-Year Percent Change to June 2019




Graph 24: Construction Payroll Employment, January 2000 to June 2019

Graph 25: Construction Payroll Employment Year-to-Year Change, January 2000 to June 2019

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

5.2

5.6

6.0

6.4

6.8

7.2

7.6

8.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Mil

lio

ns

of

Jo

bs

Construction Payroll Employment to June 2019 Seasonally-Adjusted [ShadowStats, BLS]

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-20%

-15%

-10%

-5%

0%

5%

10%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Year-

to-Y

ear

Perc

en

t C

ha

ng

e

Construction Payroll Employment Year-to-Year Percent Change to June 2019




Graph 26: Index of Real Total Value of Construction Put in Place, January 2000 to May 2019

Graph 27: Year-to-Year Change in Real Construction Spending, January 2000 to May 2019

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

60

70

80

90

100

110

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Ind

ex L

evel,

Jan

ua

ry 2

000 =

100

Index of Real Total Value of Construction Put in Place

To May 2019, Inflation Adjusted (Jan 2000 = 100) Seasonally-Adjusted [ShadowStats, Census Bureau]

Reflects all forms of U.S. construction spending, public and private, ranging from residential and office buildings, to highways and water systems. Inflation-adjustment is based on the ShadowStats Composite Construction Deflator (using weighted industry cost surveys and related GDP deflators).

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Real Y

ear-

to-Y

ear

Perc

en

t C

ha

ng

e

Real Value of U.S. Construction Put in Place Year-to-Year Percent Change to May 2019

Seasonally-Adjusted [ShadowStats, Census Bureau]



Graph 28: Single-Unit Building Permits vs. Housing Starts, 2000 to Date

Graph 29: Year-to-Year Change in Real Construction Spending, January 2000 to May 2019

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Th

ou

san

ds

of

Un

its

Single-Unit Building Permits vs. Housing Starts (Monthly Rate) To June 2019, Seasonally-Adjusted [ShadowStats, Census and HUD]

Recession

Single-Unit Housing Starts

Single-Unit Building Permits

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-60%

-40%

-20%

0%

20%

40%

60%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Year-

to-Y

ear

Perc

en

t C

ha

ng

e

Single-Unit Building Permits and Housing Starts Year-to-Year Percent Change

To June 2019, Seasonally-Adjusted [ShadowStats, Census and HUD]

Recession

Housing Starts

Building Permits



Current Labor-Market Stress Is Common to the Depths of a Recession,

Not to Record-Low Unemployment

[Excerpted from Bullet Edition No. 13.] The major issue with the historically low U.3 headline

unemployment rate remains that it still runs counter to Labor-Market Stress (Employment-Population

Ratio), which continued to hold at levels consistent with a recession, reflected in Graph 30. Under

normal economic circumstances, the high levels of employment stress seen at present, usually would be

consistent with high levels of unemployment and recession, not near-record low unemployment, as seen

in the comparative inverted-scale Graphs 31 and 32 of the current, low-level headline U.3 unemployment

rate and the high-level ―recessionary‖ ShadowStats Alternate measure.

Graph 30: Civilian Employment-Population Ratio, January 1994 to June 2019

0

1

2

3

4

5

6

7

8

9

10

58%

59%

60%

61%

62%

63%

64%

65%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Civ

ilia

n E

mp

loym

en

t-P

op

ula

tio

n R

ati

o

Civilian Employment-Population Ratio To June 2019, Not-Seasonally-Adjusted [ShadowStats, BLS]




Graph 31: Headline U.3 Unemployment Rate, Inverted Scale, January 1994 to June 2019

Graph 32: ShadowStats-Alternate Unemployment Rate, Inverted Scale, January 1994 to June 2019

0

1

2

3

4

5

6

7

8

9

103.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

U.3

Un

em

plo

ym

en

t R

ate

(S

cale

In

vert

ed

)

U.3 Unemployment Rate (Inverted Scale) To June 2019, Seasonally-Adjusted [ShadowStats, BLS]

0

1

2

3

4

5

6

7

8

9

1010%

11%

12%

13%

14%

15%

16%

17%

18%

19%

20%

21%

22%

23%

24%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Sh

ad

ow

Sta

ts U

ne

mp

loym

en

t R

ate

(S

cale

In

vert

ed

)

ShadowStats-Alternate Unemployment Rate (Inverted Scale) Long-Term Discouraged/Displaced Workers Included (BLS Excluded Since 1994)

To June 2019, Seasonally-Adjusted [ShadowStats, BLS]



Some Likely Benchmarking Detail

Limited Benchmarking. Initial reporting of Second-Quarter 2019 GDP and accompanying GDP

benchmark revisions back to First-Quarter 2014 will be published on July 26th. GDP Headline First-

Quarter 2019 GDP real growth of 3.1% remains heavily overstated against underlying economic reality,

still reflecting likely government-shutdown distortions and disruptions to underlying headline data.

Unusually large and sharp downside revisions to first-quarter GDP remain a fair bet, given the patterns of

reporting in, and major revisions to those underlying series, as could be seen in tomorrow’s

benchmarking.

Whether or not the GDP annual overhaul turns the headline series negative for First-Quarter 2019,

intensifying quarterly contractions still should follow in both Second- and Third-Quarter 2019, in the

context of headline economic reporting broadly having continued to deteriorate, as discussed earlier in

this section.

What normally would have been negative annual benchmark revisions to Industrial Production, New

Orders for Durable Goods and Construction Spending were canceled, due to budget constraints or delayed

by the December/January Partial Government Shutdown. Nonetheless, the impact of any existing survey

catch-ups or corrections from those delays should be reflected in the GDP revisions. Otherwise, the

corrections should show up in next year’s benchmarkings.

Headline Benchmark Revisions that Took Place Should Have Minimal Near-Term GDP Impact.

-- Retail Sales. Detailed in Bullet Edition No. 12, Retail Sales were revised lower by roughly 0.2%

(-0.2%) to 0.3% (-0.3%), but the changes largely were in 2016 and 2017, which means that the near-term

GDP quarters should see minimal revisions in terms of quarter-to-quarter or year-to-year percent change.

-- Trade Deficit. 2019 benchmark revisions to the Trade Deficit (see Bullet Edition No. 1) likely will

reduce aggregate 2018 GDP annual real growth from 2.9% to 2.8%, with shifting growth by quarters as

reflected in Table 1.

[Table 1 follows on the next page.]

http://www.shadowstats.com/article/csbe12

http://www.shadowstats.com/article/cBul1



Table 1: Likely Impact of Trade Deficit Benchmarking on the GDP Revisions

Estimated Impact of December 2018 Revisions to the

Real Merchandise Trade Deficit on Real GDP Growth

Period Current Adjusted Current Adjusted

Headline for Trade Headline for Trade

Growth Revisions Growth Revisions

Yr/Yr Yr/Yr Yr/Yr Yr/Yr

2017 2.2% 2.2% 2.2% 2.2%

2018 2.9% 2.8% 2.9% 2.8%

Qtr/Qtr Qtr/Qtr Yr/Yr Yr/Yr

4q2017 2.3% 2.3% 2.5% 2.5%

1q2018 2.2% 2.0% 2.6% 2.5%

2q2018 4.2% 4.2% 2.9% 2.8%

3q2018 3.4% 3.3% 3.0% 2.9%

4q2018 2.6% 2.7% 3.1% 3.0%

Sources: Census Bureau, Bureau of Economic Analysis (BEA), www.ShadowStats.com (ShadowStats)

# # #


Bullet Edition Number 14 - Shadowstats.com · broad outlook for the U.S. economy and financial...

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