A great article on the website Safe Haven asks the important question: Can you trust the government’s data. I had the same question in a post called “Last week’s GDP numbers.” Here’s what Michael Pento has to say in his article:
The following graphs show G.D.P. growth rates using the chain type price index, annualized quarterly growth rate in C.P.I. and the year over year growth rate in C.P.I.
Nominal G.D.P.
Chain Type Index
Real G.D.P.
Q1 – 2008
3.2%
2.6%
0.6%
Q4 – 2007
3.0%
2.4%
0.6%
Nominal G.D.P.
C.P.I. Annualized
Growth RateReal GDP
Q1 – 2008
3.2%
2.8%
0.4%
Q4 – 2007
3.0%
5.6%
-2.6%
Nominal G.D.P.
C.P.I. Year Over
Year Growth RateReal G.D.P.
Q1 – 2008
3.2%
4.1%
-0.9%
Q4 – 2007
3.0%
4.0%
-1.0%
Using the government’s data on year-over-year inflation growth rates instead of chain, the recession began in Q4 2007 and the last two quarters produced negative real G.D.P growth rates. I hasten to add that investors know this; they experience real-world inflation everyday and know actual economic growth is much weaker than reported. And I’m not even using a more realistic rate of inflation, just the understated, “official” gauge that is the C.P.I.
The two most important takeaways from this are that A) the economy is much slower and B) inflation is much higher than what is generally accepted. And it is that misconception that provides investors with the ongoing investment opportunity in real assets.
It does make you wonder.