A Melman Minute
By: Leonard Melman
I never thought I would utter a really strong
compliment to American government number-crunching bureaucrats, but I must doff
my hat to them in a sincere salute. They have accomplished the impossible.
They have actually proved that up is down! No kidding around here. We are
being serious.
The case in point is the release of April’s
inflation numbers which showed that, among other things, gasoline prices FELL by
4.6 percent! When CNBC reported on the number, their exact quote agreed,
stating, “…Within the energy sector, gasoline fell by 4.6%, the largest drop
since December.”
We are sure the average consumer might blink hard at
such a statement as most of us found that, at least in Canada and the USA,
gasoline prices were not falling, but rising at a remarkably rapid pace. In
fact, when the U.S. Department of Labor finally gets down to reporting actual
facts, they acknowledge that the price of gasoline actually rose by 6.6% during
April, but, by their calculations, that was less than the normal seasonal
rise so, when a ‘seasonal adjustment’ is included into their numbers, they
were able to report that prices fell!
And so you have it, straight from the government’s
own economists. Up is officially down. Somehow, we doubt that such assurances
will provide any comfort to consumers whose wallets are being rapidly emptied to
pump ‘cheaper’ gas into their vehicles.
This whole episode also sheds light on why so many
people in the world of economic analysis and among the general populace itself
now regard the release of government data as an exercise directed more toward
spin control and apologizing for problems created by past economic policies than
simply providing facts for objective analysis. Monthly Labor figures provide
another particularly egregious example.
That situation has deteriorated so far that Robert
P. Murphy’s article on this subject, posted on the “Ludwig Von Mises Institute”
website, was entitled, “The Government’s Statistical Whopper of the Year.”
Anyone hoping for relief from the parade of dismal
residential real estate price figures in America was sorely disappointed by the
release of the latest Case-Shiller Home-Price Index for the month of March,
2008. The index, which calculates the movement of home prices from month to
month and offers year to year comparisons, shows the average price of residences
for a 20 metropolitan area sample is now down 14.4 percent from the year earlier
figures and the rate of decline continues to accelerate. Standard & Poor’s
release of the report tells us, “Prices continue to slide as record foreclosures
put more homes on the market and stricter lending standards make it harder to
get loans.” Senior Market Economist Kevin Logan of Dresdner Kleinwort in New
York noted, “There is excess supply, weakening demand, prices are falling and
will continue to fall. Housing sales are still trending lower.”
At the same time as the release of the Case-Shiller
Index numbers, the Conference Board published its latest figures on Consumer
Confidence, and they were equally dismal, noting that the level of consumer
confidence in the economy has dropped to the lowest figure in more than 15
years.
The combination of poor housing performance and
declining levels of confidence showed up in another figure released this morning
with the report from the Commerce Department that Durable Goods orders for April
declined by 0.5%, or an annualized rate of six percent. The weakest segments in
the report related to Autos and aircraft.
By the way, we feel compelled to point out that the
government couldn’t simply release the number, but had to add the comment that
the decline was ‘less than expected.’
Speaking of aircraft, a just-published article from
“Business Week” (BW) magazine describes the difficult conditions now facing
America’s and the world’s airline industry. As we noted in the chart of
American Airlines (AMR), posted on this site within the past few days, many
other airlines shares have cratered in the past year and we offer the chart of
giant United Airlines, whose stock has plunged from over $50 (all prices US$) to
under $8.00 per share as an even more dramatic example.
According to the BW article, the situation looks
particularly dire in this cycle. After acknowledging that the airline industry
has had some severe cycles in the past during which they lost money, they note
this time that, “…experts nonetheless believe that the current crisis has the
potential to profoundly reshape the industry in coming years. That means not
only far fewer carriers than at present, but forcing the survivors to rethink
every facet of how they operate.” The article also raises the specter of
foreign ownership of United States-based carriers, something politicians in
Washington have prevented to date.
As long time readers know, one of our pillar
philosophical concepts is that the United States is a nation in relative
decline, thanks to massive oil imports, massive consumer imports and horrendous
government debts owned by foreign powers. The loss of control of some of their
major domestic airlines would fit into that picture.
One other story is worth noting. According to a
Canwest News Service article this morning authored by Eric Beauchesne, the cost
of transporting the enormous flood of consumer goods from the Orient to North
America and Europe is beginning to become unsupportable, if low prices for those
goods are to be maintained. Should the influx of low-priced foreign-made goods
ebb, then it is our opinion that the entire retail price structure will be
adversely impacted, with a resultant increase of inflationary pressures. In
fact, we believe this trend may already be underway.
One of the potential beneficiaries of the entire
process may be Mexico as it possesses a large, low-cost labor pool and it has
distinct geographical advantages over the Orient.
Metals markets this morning show gold moving
dramatically lower in early trading, falling to below $890, before recovering
strongly to back above $900. Crude oil has recovered to near $131 per barrel
and financial markets are generally little changed.
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