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US Economic Growth 2.7% over last year. China about same.
Howard Richman, 12/24/2014

On December 23, the Bureau of Economic Analysis (BEA) of the Commerce Department issued its latest revision of U.S. economic growth during the third quarter period (July through September) of 2014. According to the BEA, the U.S. economy grew at a 5.0% annual rate during that quarter.

A more accurate estimate of the U.S. growth rate can be found by comparing each quarter with the quarter one year earlier. If the third quarter of 2014 is compared with the third quarter of 2013, the growth rate was 2.7%, not 5.0%, as shown in the graph below.

Unfortunately, the once honorable Bureau of Economic Analysis of the Census Bureau tweaked the quarterly GDP numbers in order to achieve the supposedly high growth rate. This tweaking was predicted by Tyler Durden of zerohedge.com.

When Durden analyzed the final revision for the first quarter back on June 25 (Here's the reason for the total collapse in Q1 GDP), he discovered that Obamacare payments had been removed by the BEA from the already dismal results for the first quarter. He predicted that they would be added to later quarters in order to achieve 5% growth during a quarter. Specifically, he wrote:

Stated otherwise, some $40 billion in PCE that was supposed to boost Q1 GDP will now be added to Q2-Q4.

And now, we all await as the US department of truth says, with a straight face, that in Q2 the US GDP "grew" by over 5% (no really: you'll see).

That is exactly what happened. Durden concluded his December 23 posting (Here's the reason for the "surge" in Q3 GDP):

In short, two-thirds of the "boost" to final Q3 personal consumption came from, drumroll, the same Obamacare which initially was supposed to boost Q1 GDP until the "polar vortex" crashed the number so badly, the BEA decided to pull it completely and leave this "growth dry powder" for another quarter. That quarter was Q3.

Under the Obama administration, the U.S. government has been moving toward the Chinese standard for statistics reporting. In China, government officials specify what they want the GDP growth rate to be and it is the job of statisticians to achieve the desired numbers. 

In an interview with Barrons' recently, Anne Stevenson-Yang, a research director of J Capital, discussed the validity of Chinese economic statistics. She said:

People are crazy if they believe any [Chinese] government statistics, which, of course, are largely fabricated. In China, the Heisenberg uncertainty principle of physics holds sway, whereby the mere observation of economic numbers changes their behavior. For a time we started to look at numbers like electric-power production and freight traffic to get a line on actual economic growth because no one believed the gross-domestic-product figures. It didn’t take long for Beijing to figure this out and start doctoring those numbers, too.

Currently, the official Chinese GDP numbers show 7.3% growth in real GDP from the third quarter of 2013 to the third quarter of 2014. In general, GDP growth is accompanied by corresponding growth in demand for imports. But here's a graph of Chinese imports. It shows imports growing steadily until February 2014, and then leveling off.

As shown in the above graph, Chinese imports for the year ending in November were the following: 

  • $1.727 trillion 2011
  • $1.809 trillion 2012, up 4.7%
  • $1.937 trillion 2013, up 7.1%
  • $1.967 trillion 2014, up 1.6%

Thus Chinese imports only grew at a 1.6% clip for the year ending November 2014. as compared to 7.1% for the previous year, and 4.7% for the year before that. 

Imports are a particularly difficult statistic to fudge, since each entry appears as imports on the Chinese books and as exports on the books of a Chinese trading partner. The import statistics suggest very little growth in the Chinese economy since February.

Other statistics are necessary in order to determine if the import statistics are representative of Chinese GDP. In a Barrons' interview, Stevenson-Yang cited Chinese indicators which have actually been declining lately:

Property sales are in decline, steel production is falling, commercial long-and short-haul vehicle sales are continuing to implode, and much of the growth in GDP is coming from huge rises in inventories across the economy. We track the 400 Chinese consumer companies listed on the Shanghai and Shenzhen stock markets, and in the third quarter, their gross revenues fell 4% from a year ago. This is hardly a vibrant economy.

Stephenson-Yang said she would be "shocked" if Chinese real GDP was actually growing faster than 4%, a much lower statistic than the official 7.3%. China's economic slowdown could partly explain rapidly falling world oil prices and the downward trend over the last six months in aluminum, copper, lead, nickle and zinc prices.

It is possible that lower oil prices will increase both world aggregate demand and world aggregate supply in 2015. After all, lower oil prices will leave more money in consumers' hands reduce business costs. Alternatively, the fall in world demand that is causing the fall in commodity prices could could prelude a Chinese recession and, possibly, a worldwide recession. 

Don't be fooled by false statistics about a rosy present, coming from both the U.S. and Chinese governments. Both countries are only experiencing slow economic growth at the moment.

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  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

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  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

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