Singapore Preliminary GDP Estimate for 2009Q1 and Revised Forecast for 2009

On April 14th, Singapore's Ministry of Trade and Industry released its preliminary GDP estimate for the first quarter of 2009. It has also revised its economic forecast for 2009. Below are some of the highlights:

On the GDP Estimate for the First Quarter of 2009:

On a seasonally adjusted annualized basis, real GDP contracted by 19.7 per cent compared to the previous quarter, worse than the 16.4 per cent contraction in the fourth quarter of 2008. Compared to the same period last year, real GDP is expected to contract by 11.5 per cent, compared to the 4.2 per cent contraction registered in the last quarter.

The decline in the first quarter of 2009 affected every sector, with the exception of the construction sector. Falling external demand in late 2008 and early 2009 has severely affected domestic manufacturing output. In year-on-year terms, the manufacturing sector is estimated to have contracted by 29.0 per cent in the first quarter, compared to the 10.7 per cent contraction in the last quarter of 2008. The manufacturing decline was led by the electronics and precision engineering segments, but the chemicals cluster and the biomedical manufacturing cluster also saw large declines. With most of Singapore's key trading partners still in recession, the manufacturing sector will continue to remain weak for the rest of the year.

The services producing industries contracted by 5.9 per cent in year-on-year terms. The collapse in global trade in recent months severely affected the wholesale & retail trade sector and the transport & storage sector in the first quarter of 2009. For the rest of 2009, these sectors will continue to be weighed down by the poor prospects for global trade. ... The hotels & restaurants segment also contracted because of lower tourist arrivals. Financial services also continued to contract, but at a more moderate pace compared to the previous quarter.

The construction sector was the only sector that showed signs of robust growth. It is estimated to have grown by 25.6 per cent in the first quarter of 2009, supported by the strong pipeline of committed projects in both housing and infrastructure.

On 2009's GDP Forecast:

While there are tentative signs of some stabilization in the housing, financial and manufacturing sectors in the US, they do not point to a clear turnaround in economic activity. In recent months, the International Monetary Fund, the World Bank and the Organization for Economic Co-operation and Development have successively slashed their 2009 growth forecasts for the world, the developed economies, and regional economies.

Taking into account the sharp deterioration in the first quarter of 2009, and the weak global outlook for the rest of the year, MTI is revising the economic growth forecast for 2009 to -9.0 to -6.0 per cent.

A pdf copy of the report can be found here.

Singapore Preliminary GDP Estimate for 2008Q4 and Forecast for 2009

Singapore's Ministry of Trade and Industry has released its preliminary GDP estimate for the fourth quarter of 2008. It has also released forecasts for both 2009's GDP and consumer price index (CPI) inflation. Below are some of the highlights:

On the GDP Estimate for the Fourth Quarter of 2008:

Preliminary estimates for the Singapore economy show that real gross domestic product (GDP) contracted by 3.7 per cent in the fourth quarter of 2008, following the decline of 0.2 per cent in the preceding quarter. On a seasonally adjusted, annualised quarter-on-quarter basis, real GDP fell by 16.9 per cent, compared to a decline of 5.1 per cent in the third quarter of 2008. ... For 2008 as a whole, the economy is estimated to have grown by 1.2 per cent, compared with 7.7 per cent in 2007.

The manufacturing sector is estimated to have contracted by 4.1 per cent, down from an expansion of 5.8 per cent in 2007. Several clusters - electronics, precision engineering, and chemicals - were affected by the rapid decline in demand in Singapore's key export markets, especially in the last quarter of 2008. Industry-specific factors also exerted a negative impact. ... The construction sector grew by 17.9 per cent in 2008, compared to 20.3 per cent in 2007. The healthy level of construction output in 2008 was sustained by robust activity in the residential, industrial and civil engineering building segments. Construction demand was also supported by an upswing in the number of public housing and infrastructural projects committed.

Growth in the services producing industries moderated from the strong growth rates in 2007. Growth in the wholesale & retail trade and the transport & storage sectors moderated to 2.6 per cent and 3.2 per cent respectively in 2008, from 7.3 per cent and 5.1 per cent in 2007. After a robust 16.9 per cent growth in 2007, the financial services sector grew by 7.1 per cent in 2008. As a result of the global financial crisis, there was a significant decline in fund management and stock broking activities in the second half of 2008. ... The business services sector grew by 7.3 per cent, compared to 7.8 per cent in 2007, although segments such as real estate, legal services and accounting services slowed down in the last two quarters of the year.

On 2009's GDP Forecast:

MTI expects the economic downturn to continue in 2009. The weaker outlook for the Singapore economy compared to earlier forecasts reflects two factors: global economic activity has declined faster and deeper, and the spillover effects on key sectors of the economy will be stronger. ... [E]xternal demand conditions have weakened to a greater extent than earlier estimated. ... The electronics purchasing managers' index for Singapore posted a record low in December 2008. The chemicals cluster is expected to weaken with lower oil prices and lower global demand for other manufactured goods. Global trade is expected to contract in 2009, which will affect trade-related sectors such as wholesale & retail trade and transport & storage. The weak economic performance in the fourth quarter of 2008 reflects these spillover effects, and suggests that growth will weaken further in 2009.

Taking into account the above factors, MTI is revising the economic growth forecast for 2009 to -5.0 to -2.0 per cent.

On CPI Inflation:

The forecast for CPI inflation in 2009 has been revised to -1.0 to 0 per cent. This is largely in expectation of a continued downward correction of commodity prices from the peaks in 2008, in line with the weakening global economy. These global developments will ease upward pressures on domestic retail prices. ...

A pdf copy of the report, including further statistics, can be found here.

Kevin Phillips: Numbers Racket: Why the Economy is Worse Than We Know

Kevin Phillips, author of American Theocracy (a book I endorse), has an article in Harper's Magazine about the fudging of economic data by the American government. The problem, according to Phillips, apparently began with the Kennedy administration and has continued on an erratic basis through to the present day, with the guilt being shared by both Democratic and Republican administrations. The first third of the article documents how the Consumer Price Index (CPI), unemployment statistics, and the gross domestic product (GDP) numbers have all been manipulated over the decades, not necessarily out of some grand conspiratorial plot, but out of "accumulating opportunisms."


Sources: John Williams, ShadowStats.com, U.S. Bureau of Labor

The second third of the article looks a little more deeply at the opacity that has developed over the three economic statistics mentioned above:

Of the "big three" statistics, let us start with unemployment. Most of the people tired of looking for work, as mentioned above, are no longer counted in the workforce, though they do still show up in one of the auxiliary unemployment numbers. The BLS has six different regular jobless measurements—U-1, U-2, U-3 (the one routinely cited), U-4, U-5, and U-6. In January 2008, the U-4 to U-6 series produced unemployment numbers ranging from 5.2 percent to 9.0 percent, all above the "official" number. The series nearest to real-world conditions is, not surprisingly, the highest: U-6, which includes part-timers looking for full-time employment as well as other members of the "marginally attached," a new catchall meaning those not looking for a job but who say they want one. Yet this does not even include the Americans who (as Austan Goolsbee puts it) have been "bought off the unemployment rolls" by government programs such as Social Security disability, whose recipients are classified as outside the labor force.

Second is the Gross Domestic Product, which in itself represents something of a fudge: federal economists used the Gross National Product until 1991, when rising U.S. international debt costs made the narrower GDP assessment more palatable. The GDP has been subject to many further fiddles, the most manipulatable of which are the adjustments made for the presumed starting up and ending of businesses (the "birth/death of businesses" equation) and the amounts that the Bureau of Economic Analysis "imputes" to nationwide personal income data (known as phantom income boosters, or imputations; for example, the imputed income from living in one's own home, or the benefit one receives from a free checking account, or the value of employer-paid health-and-life-insurance premiums). During 2007, believe it or not, imputed income accounted for some 15 percent of GDP. John Williams, the economic statistician, is briskly contemptuous of GDP numbers over the past quarter century. "Upward growth biases built into GDP modeling since the early 1980s have rendered this important series nearly worthless," he wrote in 2004. "[T]he recessions of 1990/1991 and 2001 were much longer and deeper than currently reported [and] lesser downturns in 1986 and 1995 were missed completely."

Nothing, however, can match the tortured evolution of the third key number, the somewhat misnamed Consumer Price Index. Government economists themselves admit that the revisions during the Clinton years worked to reduce the current inflation figures by more than a percentage point, but the overall distortion has been considerably more severe. Just the 1983 manipulation, which substituted "owner equivalent rent" for home-ownership costs, served to understate or reduce inflation during the recent housing boom by 3 to 4 percentage points. Moreover, since the 1990s, the CPI has been subjected to three other adjustments, all downward and all dubious: product substitution (if flank steak gets too expensive, people are assumed to shift to hamburger, but nobody is assumed to move up to filet mignon), geometric weighting (goods and services in which costs are rising most rapidly get a lower weighting for a presumed reduction in consumption), and, most bizarrely, hedonic adjustment, an unusual computation by which additional quality is attributed to a product or service.

...

"All in all," Williams points out, "if you were to peel back changes that were made in the CPI going back to the Carter years, you'd see that the CPI would now be 3.5 percent to 4 percent higher"—meaning that, because of lost CPI increases, Social Security checks would be 70 percent greater than they currently are.

Furthermore, when discussing price pressure, government officials invariably bring up "core" inflation, which excludes precisely the two categories—food and energy—now verging on another 1970s-style price surge. This year we have already seen major U.S. food and grocery companies, among them Kellogg and Kraft, report sharp declines in earnings caused by rising grain and dairy prices. Central banks from Europe to Japan worry that the biggest inflation jumps in ten to fifteen years could get in the way of reducing interest rates to cope with weakening economies. Even the U.S. Labor Department acknowledged that in January, the price of imported goods had increased 13.7 percent compared with a year earlier, the biggest surge since record-keeping began in 1982. From Maine to Australia, from Alaska to the Middle East, a hydra-headed inflation is on the loose, unleashed by the many years of rapid growth in the supply of money from the world's central banks (not least the U.S. Federal Reserve), as well as by massive public and private debt creation.

U.S. Unemployment Rates:
Red - Including workers who are part-time for "economic reasons"
Yellow - Including other "marginally attached" workers
Blue - Including "discouraged" workers
Black - The official "unemployment rate"

Source: US Bureau of Labor Statistics

The last third of the article sums up the numerous economic problems the U.S. is currently facing:

The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today's U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent; economic growth since the recession of 2001 has been mediocre, despite a huge surge in the wealth and incomes of the superrich, and we are falling back into recession. If what we have been sold in recent years has been delusional "Pollyanna Creep," what we really need today is a picture of our economy ex-distortion. For what it would reveal is a nation in deep difficulty not just domestically but globally.

Undermeasurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt (from less than $11 trillion in 1987 to $49 trillion last year) that props up the American economy. Moreover, the rising cost of pensions, benefits, borrowing, and interest payments—all indexed or related to inflation—could join with the cost of financial bailouts to overwhelm the federal budget. As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering.

Arguably, the unraveling has already begun. As Robert Hardaway, a professor at the University of Denver, pointed out last September, the subprime lending crisis "can be directly traced back to the [1983] BLS decision to exclude the price of housing from the CPI. . .With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectations of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the teaser rates." Were mainstream interest rates to jump into the 7 to 9 percent range—which could happen if inflation were to spur new concern—both Washington and Wall Street would be walking in quicksand. The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy. The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope.

The credit markets are fearful, and the financial markets are nervous. If gloom continues, our humbugged nation may truly regret losing sight of history, risk, and common sense.

HT: Economist's View