Seasonally Adjusted Data: Does It Make The Data More Useful?

The Data You Rely On Might As Well Be Picked From A Cloud

Employment Numbers Are A Driving Market Statistic

Twelve times a year the financial markets sit on the edge of their seats waiting for the release of the Non-Farm Payroll data. Stock prices can soar or sink, politicians can claim success or suffer negative headlines and in theory, businesses just might alter future business plans based on what they are seeing.

Earlier this month I asked if we live in a seasonally adjusted world:

https://ejmoosa.com/do-you-function-in-a-seasonally-adjusted-world/

What other aspects of our life are seasonally adjusted when we are given the data? Not many if any at all. You would not shop for a vehicle using seasonally adjusted pricing. Nor would you dress properly for winter with a seasonally adjusted forecast.

Magnitude of the Adjustments

Watching Fox Business News or CNBC and watching the guests discuss their estimates for the Non-Farm Payroll number, never did I imagine the magnitude of the adjustments being made. For example, if the estimates ranged from 175k to 250k, I thought the Seasonal adjustment might be 40-50,000. Not the magnitude I found. Let’s have a look:(remember that the Seasonally adjusted data released is the real number plus( or minus) the numbers for the month listed below):

Jan:  3,050,000

Feb:  (691,636)

March: (603,545)

April: (853,545)

May: (593,929)

June: (326,364)

July: 1,271,000

August: (156,700)

Sept.: (378,300)

October: (780,300)

Nov: (277,400)

Dec: 347,300

Seasonal Adjustments Leave False Impressions

Looking at just how large the adjustments are for each month is puzzling. Take a look at the average January adjustment listed :3,050,000. In reality, the economy could actually shrink by 2,000,000 jobs and the BLS will report that we added 1,050,000 jobs for the month of January. Does that make sense to you?

It makes no sense to be because what is reported and what is actually happening is not the same.

How do businesses make solid decisions on what is happening and what they should be doing to take advantage of the data if the data does not reflect the real world?

Is the American public too stupid to understand that lots of jobs are lost in January as the temporary Christmas jobs are terminated? Or do the seasonal adjustments mislead the Public because it is so easy to seasonally adjust giving people the perception of a more level and consistent economic environment?

What’s the Solution?

Because of the disconnect between Seasonally Adjusted Data and reality, I suggest we reduce the reliance on such misleading data. And to dump your investments in one sector and buy in another because of a blockbuster jobs number that is more a work of fiction than fact is likely a mistake.

But those that are profiting from this are those that make money when you buy and sell. They like this volatility created by the data because it causes knee-jerk reactions across the financial spectrum.

An obviously fictionalized number depicting economic activity that is anything but accurate is no way to manage your portfolio.

And that is the Naked Truth.

Georgia’s Anemic Job Growth

Southeastern Job Growth
2019 JobsTotal Jobs% Growth
Florida21200091040002.33%
Alabama4570021033002.17%
North Carolina9390045936002.04%
Tennessee4920031365001.57%
Georgia6670046537001.43%
South Carolina2720021937001.24%

While Georgia may have the second largest number of jobs relative to it’s neighboring states, the rate of job growth has Georgia only beating South Carolina.

As our tax burdens continue to increase in Georgia, and we work to attract more and more bodies to Georgia, we need to ask ourselves if we have are already being taxed at a level that is slowing business development.

Or we can just keep increasing the tax burden and hope for a better tomorrow.

The Naked Truth About (Subsidized) Wages

If you have read my work over the years, then you know that I am not a proponent of Minimum Wage.  An adult should be able to work for anyone at an agreed price.

However, a new issue has come into my view I did not realize existed until recently.

Apparently there are groups out there (think Chamber of Commerce) that works with your local governments to hold wages down by:

A)  Making sure that there is Affordable Housing in your area so their workers can live nearby

B) Making sure there is mass transit options so that low cost workers can get to the businesses that want to hirer low cost employees(A Chamber Objective for sure) Continue reading


The Federal Reserve Bank: Pumping Fuel onto the Bonfire of Inflation

We are in very uncertain times.  And they are becoming more uncertain.  The Federal Reserve Bank(FRB) just raised interest rates .25% and has stated it is their objective to raise rates perhaps 3 times in 2017, in an effort to effectively curb inflation.

And while that may seem to make sense based on the way both the FRB has worked in the past, and what we have been told about inflation and how it works, these actions, perversely, are going to have the opposite effect this time around.  Should I be correct, then the raising rates will actually fuel inflation, which will force more rate hikes, and then even more inflation. Continue reading


Worsening Economic Conditions: Where’s the Growth?

Today’s GDP report paints a bleak picture.  GDP for the first quarter was revised down to 0.8%.  The second quarter of 2016 came out at 1.2%, and will likely be revised lower.

Here is what they also released, but are not talking about:

Corporate profits before and after taxes have also been revised back to the first quarter of 2013.  And it is bleak.

Remember that businesses do not go into business just to sell you goods and services.  They do so to sell you goods and services to generate profits.

Would you trudge off to work every day to earn less than you did last year? And less than you did two years ago?  Or would you make some changes? Continue reading


Georgia’s Job Growth Is Higher Outside of Metro Areas

Despite the general perception that it is the metropolitan areas of Georgia that are its economic engines, the rate of year over year job growth is actually higher outside of those metropolitan areas.  And some of your Metro areas have very dismal growth, despite large state and federal expenditures in those areas. Continue reading


Earnings Crush(ed)

Total Earnings by quarter Up Same Down $952.48 $972.31 $999.32 $983.51 $1,099.24
QTR Change % year over year 49.94% 810 45 767 -13.35% -10.39% -2.96% 3.52% 11.25%

Here’s the pivotal point I have been watching for on the economy.  Less than 50% of the companies listed in the Valueline Index made more money for their most recently reported quarter than they did one year ago.  And the steepness of that drop is severe.

For the most recent data I have, companies earned $952.48 on a per share basis.  That is down from the same period of a year ago of $1,099.24 on a per share basis.

The most recent quarter was also the worst of the last four quarters.

On average, the stocks made 13.35% less in income per share than they did one year ago.  This means that adding up all the stocks that made more than they did a year ago and all the ones that made less than they did a year ago, and the total is down a whopping 13.35%.

Do you think those businesses will be expanding for the rest of the year?  Or fighting for survival?

I have not seen this indicator of mine turn negative since the last recession.  It’s not a normal event, and it indicates that there is something wrong with this economy.

The regulatory and tax burdens faced by American businesses are crushing the bottom line.  Obamacare is crushing the bottom line.

The Federal Reserve, with rising fuel prices year over year, and low unemployment(thanks to a plethora of low paying part time waiter and bartender jobs) will have no choice to but to raise rates at least once more this year.

Those rate increases, which will affect the refinancing of the the debt that American corporations hold at record levels, will decimate the bottom line even further.

These are not one time or one off events.  This is the cost of doing business in the United States today.

Further compounding the bleak picture is the outlook going forward.

Dow 30 Profits Analysis 20160517

 

2012 2013 2014 2015 2016 2017 2021
Dow 30 Total Profits(millions) $347,711 $341,897 $351,263 $326,459 $319,660 $351,990 $469,760
Change $24,953 -$5,814 $9,366 -$24,804 -$6,799 $32,330 $143,301
% YOY 7.73% -1.67% 2.74% -7.06% -2.08% 10.11% 40.80%

Above is an analysis of the profits of the DOW 30 Industrials in total dollars earned.

The year 2015 was the worst  since the year 2011.  Adding icing to that cake is the forecast that 2016 will be worse than 2015.

The year 2017 will get us back to the performance we saw in the year 2014.  We have lost years of economic performance gains while the Federal Reserve Bank has constantly told us that we had an improving US economy.

Do the numbers in the table above appear to indicate that our economy has been improving?

Not even close.

The US economy is dead in the water, and is taking on water.  The forecasts for future years are way too optimistic in my view, and there is no economic stimulus available, other than reducing regulations and cutting taxes that will get this economy moving again in a healthy manner.

Prepare accordingly.


Corporate Profits: Continuing to Drop and Expected to Drop Even Further in 2016

FrownIt’s becoming harder and harder for the Federal Reserve to continue selling us on the idea that things are getting better and better.  One of my built from scratch spreadsheets shows the profits in total dollars for the Dow 30 Industrials.  The numbers continue to get bleaker for how 2015 really was, and now the forecast for 2016 is now showing that 2016 will be weaker than 2015.

Have a look at the following data, which I have completed updating today.  The outlook is not good.

Dow 30 Profits Analysis 20160408

We have actually given back five years of profit growth and are now back to where we were in the 2011 time frame.  Which makes me ask the question why are you paying record prices for companies that are earning what they did five years ago?  When will the price correction occur?  Your guess is as good as mine.  But when the stampede heads for the exits, you will wish you had already left the playing field.

At what point are we really going to admit that the US economy is headed in the wrong direction.  If things were better, there would be profit growth.  There isn’t.

Last evening the four living individuals who have headed the Federal Reserve and are still alive had gathered to discuss the economy in New York City.  There was a comment made by Bernanke that there is a 15% chance of a recession in any given year.  And he emphasized that there is not a greater chance of recession the longer you go between recessions.  The risk is still 15%.

Unfortunately his logic is wrong.  If you are in an economic situation where profits are falling, GDP is flat, and things are not getting better, you will indeed have a recession.

Corporate profits drop prior to recessions, not after they have officially started.  One day they may wake up.  Until then, I hope you are paying attention and are prepared for what is coming.

 


The Real Economy? It’s MUCH Worse Than You Think

This week Janet Yellen, Chairman of the Federal Reserve Bank reiterated her outlook on the US economy and how well we are doing.  Many armchair economists such as myself have suggested that that perception is far from reality.

Over the last four quarters, I have watched profits per share from continuing operations declining while at the same time the Federal Reserve and the Obama Administration jawbone about just how great things are.  They are lying, to put it bluntly.

We’ve been told that the weakness is limited to the Energy sectors within our economy.  They are lying about that as well.  Below is a list of all the sectors where the Earnings Per Share from Continuing Operations are lower than they were the previous year. And the amount of that drop follows the Sector Name.

Businesses are in business to earn a profit.  When profits fall, they will right-size their businesses in operations and headcount to return to a profit growing enterprise. This occurs during the twelve months following the drop in earnings.  That is why employment is a trailing economic indicator, and not a leading economic indicator as the “professional” economists want to insist.

Have a look at the list for yourself.  The pain being experienced in this economy is far and wide, and spreading rapidly.  We are fast approaching the 50% mark, where more companies are earning less than they were a year ago.

How bad will it get?  How bad will it have to get before we can actually discuss that we do have a problem, and get to the real solutions that can grow the economy in a healthy manner once again?

The Federal Reserve was the last entity to acknowledge we had a problem the last time around.  Rest assured, they will do the same this time.  Trust your instincts. Those empty storefronts you see are empty for a reason.

Click here to see the list:

Continue reading