US Economic Data: The Impact of Revision Disease

The revision disease in U.S. economic data raises concerns about the true state of the economy.

### The US Economy: A Tale of Revisions and Contradictions
* 📉 Major US economic data, including payrolls, retail sales, and industrial production, are being **significantly revised downwards** after initial positive reports.
* 🛒 Retail sales in July were reported as **1.0% growth**, but recent revisions have shown **negative adjustments to previous months**, calling the **accuracy of the headline figure** into question.
* 🏭 Industrial production, particularly in manufacturing, also experienced **sharp downward revisions**, with the Federal Reserve indicating a **potential slowdown** as early as May.
* 📊 The consistency of **downward revisions** across different economic indicators and agencies raises concerns about the **accuracy and reliability** of the data being reported.
* 🏦 Despite some positive indicators, such as retail sales in July, anecdotal evidence from companies like Walmart and industrial manufacturers suggests a **more cautious outlook on the economy**.
* 📉 The trend of **downward revisions and conflicting data points** is leading some analysts to believe that the US economy may be **closer to a recession** than previously thought.
* 🏛 Federal Reserve officials are starting to express concerns about the economic data, with some hinting at the **possibility of rate cuts** in response to **weakening indicators**.
* 🔄 The back-and-forth nature of market reactions to economic data reflects the **ongoing uncertainty and potential for further negative developments** in the US economy.

what is going on with the major US economic data? We're seeing this revision disease spread all throughout the economic accounts. It started with payrolls, the most well-known, and now lately it's infected retail sales as well as a big one, industrial production. The numbers that just came out, all of these government agencies, they result report preliminary results, and then through the normal process of revision, will revise those initial estimates lower, and oftentimes, especially over the last year, substantially lower. And it isn't just one month or one agency. As I said, we started out with the Bureau of Labor Statistics and the establishment survey. It's now reached the Census Bureau and retail sales, as well as the Federal Reserve itself in industrial production. And this revision disease has become entirely too commonplace and spread all throughout some of these major economic accounts. So the question is, what is actually happening here, and what does it mean? Does it really change the characterization of the economic data points? And I'll give you an example. Let's start with retail sales because

Retail sales in the United States for the month of July were way above everyone's expectations, which many people took to mean the recession has been called off. Where the payroll report for July had suggested things were going wrong, suddenly we get another economic data point that looks really good, saying that consumer spending is holding up in the US, is strong and resilient all over again. But this revision process raises all sorts of questions. If you remember back in June, the retail sales report was basically flat, and already the Census Bureau in its first revision revised that lower by about two-tenths of a percentage point. So what was supposed to be zero was actually, is actually now thought to be pretty substantially negative for the month of June. And while the May retail sales figure was revised higher a little bit from around one-tenth of a percent to plus two-tenths of a percent, the April number, which had been very close to zero, fractionally positive, was actually revised negative all over again. That was down to minus 0.15%. And even some of the better retail

sales reports from earlier in the year, March, which was originally estimated at 0.7%, now they say it was just 0.46%. And even February, which was almost as big as the one that we just got for July, originally thought to be 0.94%, is now just 0.70%. So, there's a couple of things here. One is, as these government agencies issue these releases and these preliminary data points, keep in mind number one that this revision disease means it's likely overstated, and number two in high-frequency data like we just went over with retail sales, you can see a big number one month only for it to quickly disappear. And when you put the two things together, the tendency for that big number to disappear is actually much larger than you might think. So, let's start thinking about what the retail sales report actually means, and I'm going to bring in here Mr. Stephen Van Meter. Steve, what did you think about the retail sales report, the big number, bigger than everything?

what do you think about the revisions that go with it, Jeff? The revisions really aren't surprising anymore. It kind of makes me wonder, that's why I'm on Wall Street here today. Is this really about the markets? Is this about, you know, give them a big headline number and don't worry, you revised the prior months because nobody really cares about that anymore. And yet, when we look at it and we continue to see that the economy is not as strong, and we now see that headline number, we look at it and say, Well, okay, it sounds good, but probably next month it's going to be a whole lot worse. But it's okay, we'll get a new headline number, stocks will rally, consumers will be confident that everything's okay, and maybe they'll go out and spend. The problem is the real data, you know, the real revised data does not show their spending. The factory survey data doesn't show demand. Everywhere we look, even in corporate earnings, companies are saying, We're not seeing the foot traffic, people are not spending on the discretionary.

side rich people are going to Walmart. There's all this anecdotal evidence that this headline government data is wrong. So, I mean, there's lots of reasons that we look at some of these reports and think, Okay, what is it really telling us that's going on here? It's not just about automobile sales or consumer spending overall. And when you see this type of revision activity all across these various government agencies, as you just said, Steve, we're not supposed to see them, or if we do see revisions, because revisions happen all the time, they should not always be in one direction. In fact, the fact that they're more often than not, the vast majority, are revised lower over the last year, year and a half, however long it's been, suggests that there's something really going on with these statistics. And we always have to remember that what they're presenting is the best possible case. They're overstating, whether it be retail sales or payrolls or everything else. And so, because it's so consistent, we have to

factor retail sales were likely positive in July, but it doesn't mean what everybody seems to think it means. Yeah, Jee, and this is a concern because in an expanding economy, let's say you have a non-farm payroll report comes out and the number is good, but the next month you get revisions to the upside. In fact, if every month you're consistently getting upside revisions, then you'd have to feel, well, yes, this expansion is real, the economy is growing, and we're seeing the revisions going up. But on the way down, if you're riding that escalator to the downside, if you're constantly seeing revisions to the downside, it's kind of telling you that something isn't right. Now, maybe there is a reason the government's putting out these bigger numbers, maybe it's just what they come up with. I don't know the real reason more than anyone else, but the downside revisions are the big concern here because we look at trends, and all this is doing is establishing that you could forget about whatever the

real number they're posting is because in the months to come is going to be lower. But again, I come back to a lot of the survey data. It's telling us the same thing. I mean, what do we see from the New York manufacturing survey this week? You know what they said? That demand is going down in terms of new orders. They're seeing people leaving. They're firing people. And that hours worked contracted at a huge rate. So, this doesn't really inspire confidence that you get this 1% number. And yes, maybe it's due to auto sales being pushed forward because of there was, you know, the cyber attack. Maybe there's some other reasons. But the reality of the situation is if you're looking at this report and see, Wow, 1% increase in retail sales. Consumers are strong. They can deal with inflation and high interest rates and massive debt loads and rising unemployment. No, they can't because the future data is going to reflect the reality is that if this is a true number, it's all based on debt, not true economic.

fundamentals. Yeah, I don't think it is based on any economic fundamentals because the most egregious example of this revision disease was from the Federal Reserve itself. Industrial production for the month of July. Now, first of all, and of course, there's always an excuse, right, Steve? You just mentioned for car sales. It was the cyber attack. That's a plausible explanation, but does it explain everything that we're seeing for industrial production? Industrial production. The Federal Reserve comes out with its estimates for July, and they were sharply negative. And everybody said immediately, Okay, sharply negative. That's the hurricane. That's definitely weather. That can't be realistic. That can't be real economic weakness. But if it was, if the hurricane negatively impacted industrial production, why didn't it negatively impact retail sales? It's almost like the rate hike-rate cut thing that we always talk about, right? Rate hikes take a long, inv-variable lag, but rate cuts, they affect everything immediately. And like you said, what's really happening is it's part of a narrative and part of

that narrative needs to be as we're talking about here these revisions, okay, the industrial production revisions, because these are just nuts. The industrial production figure for July was minus 0.64% month over month. That's just in July. And of course, again, everybody said that's the hurricane, but why wasn't anything else? So industrial production was down sharply, there had been relatively sharply, in fact, the exact same amount on the plus side in June, which everybody said, Okay, industry is on the comeback, manufacturing's the revival of manufacturing is really gaining steam here. And so they had estimated June to be plus 0.64%, but then with this month's estimates and revisions, now they say it's just 0.27%. Not only that, the revisions made down May, May's growth rate down too. So what they're actually saying with the current decline in July is that industrial production looks like it was rolling over around May and may be moving sharply lower. And when you look

at manufacturing that really drives this point home because the revisions there actually flipped the sign for June manufacturing was originally for the month of June. This is part of industrial production. Manufacturing output was was first initially estimated at 0.38%. So that sounds really good, especially in the context of a manufacturing recession. The FED comes out and says 0.38% for June. You think, okay, maybe this is, maybe there's the inventory cycle turned around. But now they say, oh no, it wasn't even positive, minus 0.04%. Even though it's a fractional negative, more importantly, they went from this is a pretty good number to suddenly this is actually a little bit of a contraction. And then the current month on top is minus 0.26%. And because of the downward revisions, we're thinking, okay, it's probably something like maybe 0.5% or 0.6% to the downside. So what we're saying here is that these revisions suggest that it's a distraction number one, but when you see these positive numbers come

out there. They're almost certainly overstated, and so you have to look at the trend. And as Steve was just saying, we look at the trend in all these economic accounts. They go up and down by the month every once in a while, but more often than not, they revert to where the real economy and the fundamentals are, which is exactly what you just said. Yeah, Jee, it's almost like everybody wants the soft landing narrative so bad. That's like, okay, it's not happening, but look at this great headline number and forget about the revisions because those really don't matter at all. And that's maybe the hope here is that's, gosh, this has to be working, but it doesn't because every time they revise, it's like, oh, that was horrible. But we see this in the continued unemployment claims data. We look at initial claims, and when they go up, it's, oh, it's a hurricane or some bus drivers are, you know, out because school's out, and they have to file for unemployment. But the continued unemployment claims

they're not going down, and when they do, it's only just fractional. And then, after a couple of weeks, they trend back up. It's telling us something seriously is wrong with the economy, and this soft landing narrative isn't happening. Of course, we know that the Fed realizes this because the Fed speakers are starting to hint like, Hey, you know, maybe we need a rate cut. And you and I know, Jeff, when Fed speakers start to get nervous, it's not a good sign because they're going to try to spin this as, you know, We overtightened, and we just need to pull back a little bit because we're getting right in the zone where we want. But the reality is, you start taking these revisions into account, you can throw away whatever the headline number comes out, and start looking at the trend, and you got to realize the trend is not your friend here. Yeah, you just mentioned the Fed speakers. The latest one was Austin Goolsbee from Chicago, and he's the one that comes up quite a bit. And just recently, he said

It feels like, on the margin, I'm getting more concerned about the employment side of the mandate. If you were going into a recession, or you believe that you were going into a recession, that would affect the rate at which you'd be doing the cuts. Conditions are what will warrant the size of the cuts, he said, which of course is what we all know, and that is of course the data dependence of the Fed means they look at the last number that comes in and react to it. And what he's basically saying is, I've looked at the last numbers that are coming in, and I'm reacting to them unfavorably because they are increasingly unfavorable. Despite the fact that retail sales may have been positive in the month of July, there was just one number out of a whole bunch of others around the rest of the world that did the opposite. I talked about earlier this week Chinese economic data that just came in, and it was woeful across the board. Industrial reduction, we just went through those.

numbers, so you had a choice when those both came out on the same day. You could say retail sales look better, though I know they're overstated, or industrial production looks pretty bad here, and all the revisions suggest it's going downward. And so everybody picked on retail sales because that was, as you just said, that's the, that sounds, I mean, it's more fun to talk about a soft landing than it is stuff that we talk about, but it doesn't change the fact that what industrial production is suggesting is that manufacturing may have had a little bit of a revival, but that's gone now. And the rest of it suggests, as even the Fed people say, employment is becoming the major concern, the most, the biggest concern, not because it's a risk, but because it's actually happening to an extent that even the Fed people can see it. You know, GE and GBI has every reason to be concerned because we heard from Walmart this week, and if we were indeed seeing a soft landing, we would expect

the co to come out and say hey you know what we're seeing spending increase. We're seeing people with bigger ticket, you know, bills coming out the door. We're seeing them buy other stuff that they haven't touched in a while. And what did he actually say? He said, Well, things are sort of stabilizing, as if they're not getting worse, but they're certainly not getting better. And they went on to say that rich people are still coming and spending money there, and that the grocery business was booming. Of course, we know when grocery booms at Walmart, it's not actually a good sign for the economy. And so yes, KSBY has every reason to be concerned because the discretionary side of the economy is not coming back at all. And we're seeing that in the other data suggesting that yes, we may be on the cusp here, maybe in a matter of weeks or months before we see the layoffs come back. Now perhaps it's some seasonal stuff because school's back. Yes, there's some demand, but I think

from the retail side, if this 1% number was real, then why wouldn't Walmart come out and sort of validate by saying, Man, things were just right out amazing. We moved so many goods this time. Boy, we are really seeing a boom here. No, we didn't see that, and that's why, as you've noted, we're likely going to see pretty substantial revision to the downside. Yeah, the thing here is you never want to focus on one number, certainly not one month of one number. As you said, the trend is really the overriding concern, but it's also we want the economic data that comes from these government agencies to line up at least reasonably well with what we're hearing from inside the real economy. As you were just saying, Walmart should validate retail sales for more than just a single month, and instead, Walmart is validating retail sales, but just not the July figure, at least the July figure that's currently there. And instead, you know, we got this all throughout the economic, all throughout the econ. Here's

let's leave with one more. This comes from an industrial company that was reported by Bloomberg just this week, and it said, In the wake of the industrial production number, the second half sales recovery that many industrial companies factored into their earnings guidance for 2024 is failing to materialize. A growing number of manufacturers are instead warning of weakening demand and mounting project delays as high interest rates and political uncertainty take their toll. That's just, I mean, they got to put a narrative on why the is falling off anyway. But here's the thing, the economy is at the quote edge of a significant slowdown, according to Antonio Petri, who's the CEO of industrial software company Aspen Technology. So, not a small firm. As he said in an interview, Everyone is a bit more cautious, the edge of a significant slowdown. Yeah, and Jee, if we were seeing a big rebound in retail sales, wouldn't industrial production go up because new orders were going up? But we're not seeing that. We're seeing the exact

opposite. That's exactly why we know more data is going to get revised, and at the trend we're headed, I don't know how many months away, but we're on a direct path for the next recession. Yeah, and we know that the market's got a taste of that earlier this month, and that's how it goes too. The marketplace doesn't just go one. It's not like flipping a switch where everybody's just happy one day and then, Oh crap, it's recession, the next. It's always this back-and-forth tug-of-war in economic data as well as the marketplace. So, everybody kind of got an initial taste of recession in data as well as the markets, and then they backed away, which is absolutely normal until the next piece of confirmation comes out that everybody can't ignore. And then we get more recession, and then back away, then there's more recession, back away, and over time you go back and forth, but you're moving all the time in the wrong direction for

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The Spread of Revision Disease in US Economic Data

Major US economic data is experiencing widespread revisions, starting with payrolls and now affecting retail sales and industrial production.

Government agencies are consistently lowering their initial estimates, raising questions about the reliability of the data.

The revision process has led to a significant downward adjustment of previous months' figures, challenging the perception of a strong and resilient economy.

The frequent revisions of government data are raising doubts about the true state of the economy.

Despite positive headline numbers, real data and corporate earnings indicate a lack of consumer spending and demand.

The consistent pattern of downside revisions suggests that the government's statistics may be overstating economic growth, leading to concerns about the accuracy of the data.

Concerns Over Economic Data and Retail Sales

The recent increase in retail sales by 1% is misleading, as survey data shows declining demand, layoffs, and reduced hours worked.

The Federal Reserve's negative revision of industrial production for July raises questions about the accuracy of economic indicators.

The revisions suggest a potential downturn in industrial production since May, contradicting the narrative of a manufacturing revival.

Revisions in Manufacturing Data and Economic Trends

Recent revisions in June manufacturing output shifted from a positive 0.

The current month's output is also negative, suggesting a downward trend in manufacturing.

These revisions and the persistent high unemployment claims indicate that the soft landing narrative for the economy may not be realistic, leading to hints of a potential rate cut from the Federal Reserve.

Concerns About Employment and Economic Conditions

The speaker is increasingly worried about the employment aspect of the economic mandate, especially with the possibility of a recession.

They highlight the Fed's data dependence and unfavorable recent numbers, particularly contrasting positive retail sales with poor industrial production and Chinese economic data.

The speaker notes that despite a potential soft landing, the discretionary side of the economy is not improving, leading to concerns about upcoming layoffs.

Discrepancies in Economic Data and Retail Sales

Walmart's lack of validation for the 1% retail sales figure suggests a potential downward revision.

Industrial companies are warning of weakening demand and project delays, indicating a failed sales recovery for the second half of 2024.

The CEO of Aspen Technology warns of a significant economic slowdown, with the current trend pointing towards a potential recession.