Peter Schiff Podcast: GDP + HRC = Rigged Election

Friday’s release of the latest GDP numbers at 2.9% showed the biggest economic growth in two years. With the presidential election less than two weeks away, the timing of the release along with the estimate itself seems overly convenient for Hillary Clinton’s campaign. Weak GDP numbers and a stagnant economy have been one of Donald Trump’s biggest policy issues.

A closer look at the government’s GDP estimate reveals something else at work. In his latest podcast, Peter crunches the numbers and shows how 2.9% growth just doesn’t add up. The estimate is highly improbable given several different factors like a one-time surge in soybean exports due to poor South American harvests, incorrect deflator used in calculations, and a curiously low consumer sentiment level.

Taking just a few of these factors into consideration, the 2.9% becomes a much more likely 1.1%, which is more consistent with what we’ve seen this year. Even if the government’s GDP estimates are fairly accurate, the average for the year still suggests weak growth.

Highlights from the show:

Yesterday we finally got the release of the initial estimate for the third quarter GDP. That is the GDP estimate the Atlanta Fed had originally come out with an estimate of about 3.8 early on and had steadily reduced their estimate. They got down as low as 1.9 before ratcheting it up a couple of times and their estimate was at 2.1 when we got the official release. And the number came out at 2.9; not only much higher than what the Atlanta Fed’s had been estimating but much higher than the consensus forecast, which had been 2.5.

I am very suspicious of this number. This is the strongest number in over two years, and it comes out less than two weeks before the election. Of course, one of the issues Donald Trump’s has had has been the weak GDP growth, which has averaged just 1% for the last three quarters. All of a sudden it’s 2.9? I mean triple? Does anybody really believe that suddenly the US economy in the fall of 2016 all of a sudden was three times as strong as the last three quarters? I don’t think so.  I don’t believe that for a second. I do believe that after the election when we get the revisions we will get a downward revision to this number.

But, even if this number were real, and even if it holds up, if you average the last four to get the entire year, you’re still barely at 1.5%, just below 1.5% for the entire year, which is still extremely weak growth.

Once you look beneath the surface of this 2.9, it’s very easy to see how they rigged it, to use Donald Trump’s expression. Not that it’s some kind of a conspiracy, but look at these numbers … there was a 10% spike in exports. This the biggest gain in exports in three years. It’s not in manufactured products that we’re exporting, where you’ve got some high-paying jobs. It was primarily led by a one-time surge in soybean exports.

I read that if you take out just the soybeans, which accounted for a third of the GDP growth, and we exported the normal amount of soybeans … we’d of gotten 1.9%.

Remember, all of this is based on the deflator, which I think significantly understates inflation. But if you look at the number that the government used for the third quarter, it’s 35% lower than the assumption they made for the second quarter. For the second quarter, they used a deflator of 2.3, which that’s a little more believable. But for the third quarter, they decided to use 1.5.

Assuming that you use the same deflator in the third quarter as you used in the second quarter, that would have taken another 0.8% off of the GDP. If you factor out the one-off bump in soybeans and then you use the same inflation that we use in the second quarter in the third quarter, now you’re down to 1.1%, which is pretty much the same as we’ve had for the last three quarters.

The other factor that really boosted the GDP, was a big boost in inventories. I’m not sure where that came from. Is it that retailers are just stocking up early for the Christmas season? In which case, we simply pulled forward GDP from the 4th quarter to the third quarter, which is very convenient for Hillary Clinton. By the time we get the 4th quarter GDP numbers, the new president will already have been sworn in by the time we find out what the number was for Q4.

I think retailers are overestimating the ability of Americans to go shopping this Christmas season. As much as they want to buy stuff they can’t afford, they can’t afford it so much that they can’t even do it.

In addition to the GDP numbers, we got the consumer sentiment number, which was below estimates. It was the lowest consumer sentiment number in two years. So we got the highest GDP growth in two years, yet the lowest consumer sentiment in two years? That doesn’t seem right. You figure consumers should be happy if the economy was growing so much faster than it was in the past.

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