Friday, April 11, 2014

The BLS Adds a New Dose of BS to the Producer Price Index

File under: New methods in government manipulation of price inflation indexes.

From MarketWatch:

Though PPI has been around for years and years, the BLS changed the design of the report in January. Stephen Stanley, the chief economist at Pierpont Securities and one of the better economists as measured by MarketWatch, doesn’t get it. He said the agency has “completely ruined” what, in his eyes, had “very limited relevance to anything” to begin with.
In his words:
The bulk of the new index reflects the wholesale price of services and other elements for which the entire concept of a wholesale price is slippery at best.  For example, what exactly is the wholesale price of “retail trade services?”  Not the wholesale price of the goods that retailers sell (that is a different category), but the wholesale price of the act of retailing.  What is that?  Wages?  The price of heating/cooling and lighting the space?  Sweeping the parking lot?  Beats me.  Same for “wholesale trade services.”  What is that?  Those two items together make up 23% of the PPI – about the same as food and energy and core goods put together.  So, I have no clue what I’m supposed to think about this data.
Got that? These new categories, which will be very difficult for outsiders to verify, now account for 23% of the PPI.

1 comment:

  1. Robert, i appreciate you reporting this. however, as someone working on Wall St. you will be surprised by how many of us are unintentionally libertarian and don't pay any attention to these figures (the ones that do have incredibly short time horizons and only see if numbers beat estimates).

    During an easing phase bad data is ignored completely and good data is overreacted to, vice versa during tightening (post trend reversal cycles). We find it easy to follow the trend than try to predict, early on in my career i hated this part of our business but given how a single person cannot think for millions of other market participants, the rational thing to do is join the herd.

    I've made quite a bit of money for my firm this way...eventually I will use this money for pro-Liberty causes and hopefully start my own 24x7 free online news channel. Currently however I am still young and I haven't saved enough.

    Bravo for your diligent posts. My only complain (if you could call it that) is you ought to post how a pragmatic libertarian should deal with this fa├žade and chicanery (not necessarily an investor) and otherwise ignore headline-grabbing "noise".


    The Red Baron