The recent announcement of faster-than-expected national output growth in the second quarter should have been a cause for relief and optimism. However, both Wall Street and Main Street seemed unimpressed, as evidenced by the decline in broader stock market indexes like S&P and Nasdaq. This lackluster response can be attributed to the growing suspicion surrounding the accuracy of data released by the federal government.
The jobs data, inflation data, and GDP data have all become tools for political propaganda, undermining their credibility. In the case of GDP, the inflation adjustment used is the Personal Consumption Expenditures (PCE) instead of the consumer price index (CPI). This adjustment underestimates inflation, as it fails to account for factors like real home prices, interest rates, health insurance costs, and added fees. By using a more accurate measure of inflation, the reported growth would likely vanish.
Furthermore, the distortion of data is exacerbated by the sharp increase in government spending, reaching levels comparable to wartime. This spending is counted as economic growth, similar to how it was accounted for during the Second World War. However, when there is a sudden change in the trend line, as seen in the current scenario, the data becomes seriously distorted. This is evident in the record-high federal debt as a percentage of Gross National Product, discrediting the GDP reports.
It is not the first time that economists have questioned the reliability of data from wartime periods. The idea that World War II led to prosperity is refuted by the sacrifices and deprivation experienced during that time. Similarly, the current situation, with debt-to-GDP reaching wartime levels, raises concerns about the accuracy of the data and its impact on economic analysis.
Moreover, the data itself has become less credible due to the disruptions caused by the lockdowns in 2020. The normal metrics, such as jobs numbers and output, have been thrown off balance, making it difficult to collect reliable data. As a result, the reporting on jobs and price increases has become widely disregarded, leading to skepticism towards GDP data as well.
Despite the lack of trust in the data, it still influences the policies of the Federal Reserve and the financial markets. The perception of what the Fed may or may not do based on the data affects market behavior. Currently, there is pressure on the Fed to lower rates to sustain the stock market bubble. This creates a market psychology where bad news is seen as good news, as it provides an excuse for more monetary infusions, while good news is seen as bad news, as it eliminates the rationale for lower rates.
In this post-truth world of finance, where skepticism reigns, the GDP data release had little impact. The main question was whether it would provide an excuse for the Fed to accelerate its rate cuts, which it did not. This highlights the need to approach large data sets with skepticism and rely more on personal observation and experience to understand the true state of the economy.
In conclusion, the lack of enthusiasm in response to the GDP growth announcement can be attributed to the suspicion surrounding government data, the distortion caused by increased government spending, the unreliability of data from wartime periods, and the disruptions caused by the lockdowns. In this climate of skepticism, it is crucial to rely on personal observation and maintain doubts about official data.
