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The Four Most Rigged Economic Indicators

On August 2, the Bureau of Labor Statistics will report the official unemployment rate. But this number doesn't tell the accurate story of the jobs picture here in the United States.

That's usually the case with government-produced economic indicators. Whatever the government figure will say, it will not truly reflect reality. Simply put, it's a rigged number.

When it comes to cheating the numbers, nobody does it better than Uncle Sam.

U.S. investors rely on accurate government data in order to make investment decisions in various sectors of the economy.

But what if these figures reflected negative headlines on a near-constant basis? It wouldn't instill much confidence. And it certainly would cost a lot of people in Washington their jobs.

That's why Uncle Sam plays games with the numbers and presents a far rosier picture of the world to low-information voters and investors. But we're paying attention here at Money Morning, and that's why we're holding a spotlight on the fuzzy math in Washington.

Counting down, here are the four most rigged government statistics in America today:

    4) Poverty Levels: Just in case we ever need to justify massive redistribution of wealth in the U.S., we need look no further than a recent decision by the Obama administration to redefine poverty in the United States.

    The old way of measuring poverty was based on purchasing power, meaning just how much meat and potatoes can one purchase with the income he or she has.

    But the new definition brought into the White House in 2010 is a measure of comparative purchasing power. This means, how much meat and potatoes can you by in comparison to your neighbors.

    This fixes a statistical figure to a percentage of Americans' buying power in comparison to the median income level and the richest in the U.S. When you look at this figure, it is unfair that some people can buy 100 steaks when others can only purchase five.

    Here's why it's a rigged trick.

    If Americans tomorrow become two times more productive, and income doubled for everyone in the country, there would still be the same level of poverty, because there would still be a statistical comparison of purchasing power.

    This means that poverty will always be an epidemic in the United States, even if individuals were given more opportunity and produced more. The statistical figure breeds class envy over the long-term.

    3) Consumer Price Index: Famed PIMCO bond manager Bill Gross once deemed the U.S. Consumer Price Index an "haute con job." And for good reason.

    The CPI measures the price level of goods and services purchased by consumers and is one of two definitions for inflation (the other being a calculated statistic from money supply figures).

    Unfortunately, CPI is a very broken economic indicator.

    Providing a measure of inflation, the CPI tells us just how much the price of goods is increasing over time.

    But here's the problem. The Core CPI number excludes food and energy from its formula. This is done because "these goods show more price volatility than the remainder of the CPI."

    But that's very convenient given that rising energy and food costs push up the price of many other products and services that Americans purchase.

    One can tell this figure is rigged just by factoring in just how under-reported the cost of energy is alone. In 2008, when oil hit $150 a barrel and food prices were near all-time highs, the official CPI was just 4%. With the cost of food and energy at record highs, the government tried to claim that the CPI was a mere 4% inflation. In reality, the real level of inflation was at least double this figure.

    But there's a reason why government does this.

    To overstate the economy's growth figures. Inflation is naturally bad for growth rates – particularly in GDP, which we'll look at in a minute.

    If GDP grows by 2% and inflation was 1%, then real growth was 1% in simple terms. That's good for politicos, but the reality is worse of anyone trying to maintain a standard of living. Rigging the CPI allows government to rig other numbers, including wages, GDP, and purchasing power.

    2) Gross Domestic Product: GDP is a measure of consumer spending, investment by industry, and government spending, plus the difference between exports and imports.

    Talk about a con job. Annual GDP is one of the most rigged government figures.

    There are two reasons that this is a rigged figure.

    First, it doesn't properly take inflation into the equation, meaning that the real GDP (growth minus inflation) doesn't truly reflect the value of the production over time.

    Yes, we have an annual GDP of $16 trillion, but how does that figure compare to the size the economy would be measured in the value of the dollar 50 years ago. In real terms that figure would be $2 trillion. The cumulative rate of inflation in the U.S. economy since the United States went off the Gold Standard in 1971 is 86.3%.

    Second, one of the best tools of rigging the books is the "readjustment" period. Since there is a lag in available information to confirm and complete its estimate, the Commerce Department's Bureau of Economic Analysis regularly puts out a number to quantify the quarterly growth figure.

    Then, as time passes, the BEA is able to readjust that figure as more information comes in. All too often, however, we find that the readjustment is lower than the previous estimate, meaning that the initial figure shown in the headlines is a gross exaggeration.

    Each quarter we've seen continued overstatements, only to have the BEA revise GDP growth downward and claim ignorance later. Finally, remember that so long as government can borrow money or print dollars, it can artificially inflate GDP to any level it wants to.

    Of course, there are consequences, which is why the government portion of this figure must always be monitored.

    In 2011, 38.9% of all U.S. spending was done by governments at the local, state, and Federal level, a staggering figure that retards real growth in the economy (all money spent by government is either taxed or borrowed).

    To put just how high that figure is, we spent more money at the government level than Canada (by percentage of GDP), and nearly twice the rate of China – a communist nation. The freest economies in the world typically reflect lower government spending, like Chile, Hong Kong, and Singapore.

    1) The Unemployment Rate: No figure is more important to a president and members of Congress than the unemployment rate, which is why they officially rigged it for good in 1994.

    There are two sets of the unemployment rate in the United States. The first is the U-3 or "Official Unemployment Rate." This masked rate gets in the news and fools the low-information voter into seeing the economy through rose-colored glasses.

    Graph of Civilian Labor Force Participation Rate

    But the U-3 unemployment index ignores millions of Americans who have been out of work for an extended period and have given up looking for work. It also counts part-time workers. This change began under Lyndon Johnson and has compounded under every Presidency since. As you can see in the chart above, the civilian labor force rate is now down to a 30-year low, as millions of disenchanted Americans have left the job market, gone on disability, and are not seeking a job (a requirement to be counted in the U-3 rate).

    As of June 2013, the labor participation rate stood at 63.5%. If the workforce population were the same size today as it was in January 2009, the official unemployment rate would be above 10%.

    Currently the broader measure of unemployment, the U-6 rate, sits just shy of 15%. But some economists have argued that the real unemployment rate in the U.S. sits around 21% to 22% when you factor in all of the working-age Americans who are able to work, but can't find a job and undocumented workers who are part of the labor force and are also jobless.

The government has been rigging the books as long as politicians have been trying to maintain a grip on power. I wouldn't go bowling with anyone in Washington and let them keep score.

So what other numbers do you know about that are rigged?

Education, test scores, crime data? Let us know about the tricks your local or state government is playing with the numbers with your comments below.

And for how the government decided to change the GDP calculation to make us look richer, check this out.

Join the conversation. Click here to jump to comments…

  1. H. Craig Bradley | July 22, 2013


    Unfair or not, one manager of the upscale grocery chain Trader Joe's told me recently that about 10% of their customers pay for their food purchases with an "EBT" Card (a.k.a. "food stamps"). This is especially true at the beginning of each month. Furthermore, its true of other retail grocery stores like Safeway or King Scoopers (Kroger). This pattern applies in most American cities, as well. The Federal government pays for people's most basic needs (food and shelter) inorder to claim that the economy is in "recovery". Its quite opposite this is a lie.

  2. jose | January 4, 2014

    Are you implying that 10% of sales are EBT or 10% of traffic? Obviously, lower income patrons limit their purchases. When I have cash, I supplement my FS spending. otherwise I am a beans and tater guy.

  3. jose | January 4, 2014

    Anyone that believes the economy isn't manipulated on purpose is deceiving themselves. There are always a select few who somehow manage to profit from others misery. This is the real issue.

  4. Jack Smith | January 16, 2014

    Funny how a well-supported article can show how high the unemployment rate is right now, but if this were reported on Fox News, the Democrats would cry about media bias. Yet all other mainstream media channels won't touch it for the same reasons. Sigh.

    • Peter Attwood | March 7, 2014

      Jack, what does this have to do with Democrats. The flim-flam spoken of here is entirely bipartisan. Who touched it when Bush was in office?

      How do you get exponential growth in a finite world, once you start hitting limits? Energy return on energy invested is headed one way – down, so real energy costs can only go up. The growth of the last 300 years is gone for good.

      But a debt economy that has to keep growing in order to enable debt repayment has to be made like it's still growing in order to keep the music playing. It takes ever more accounting fraud to make it look that way, and ever more creative forms of it.

  5. fallingman | March 11, 2014

    Good article. I commend you guys for taking this subject on.

    I would go further. These numbers are so distorted as to be a complete fraud and anyone reporting them as real is either a dupe or a liar.

    Three additions to the article:

    The BLS (Bureau of Labor Statistics) routinely estimates a certain number of jobs into existence via the "Birth/Death model." Because they can't survey small employers the way they do big ones, they have to estimate how many new small businesses have been created or died, many of which would be one person operations. Large numbers of these "ghost jobs" are routinely added to the employment figures…even during times when it's most unlikely any were actually created.

    Do some of theses jobs exist? Sure. There are people starting up small businesses and solopreneurial operations all the time. And, a lot of those fail, and a lot of them are really marginal…selling Herbalife, etc. The bottom line is they add in WAY too many ghost jobs just to make the numbers look better. And who's to question the validity? The enemedia? Ha.

    The CPI is managed lower for another very important reason. The social security cost of living allowance (COLA) is based on it. If the politicians in both parties hadn't schemed to keep it down, the Feds would be paying out a whole lot more every year, and borrowing even more from the Fed (the Chicoms aren't so interested anymore) to pay for it. The deficit would bulge. The debt would expand even faster than it is. My 98 year old mother routinely pays more in increases on her AARP supplemental policy ALONE than she gets from the COLA. It's a joke.

    The way they calculate GDP was changed last year. Did you know that? Guess what? It increases the figure. They made the changes to "account for the information economy." That allows them to call research and development expenses "investments," for example. They're no longer a cost. SOME of the changes have some merit, but most of them are tricks designed to puff up GDP to make things LOOK better. It's scandalous, but how much reporting have you heard on it?

    It's all lies all the time, but you shouldn't be surprised. Governments are run by sociopaths and conning people is what sociopaths do.

  6. catherinekylie | April 5, 2014

    Agreed. They should try entering into emerging markets like China so that they cater to the masses and the population is also in a huge amount. The GDP growth of China is more than double as compared to US because of their population size of the economy.

  7. jim | April 6, 2014

    I worry our sociopaths will continue to lie and control the airwaves until a 2008 will be twice as bad. The goods and services will decide how far the unemployment will be. Obamacare is having an effect two ways: doctors will retire and we suckers will be told which doctor to see. Capitalism is no more. Then what will happen to our debt. Hello China. God help us!

  8. Johninohio1 | April 18, 2014

    "But here's the problem. The Core CPI number excludes food and energy from its formula. This is done because "these goods show more price volatility than the remainder of the CPI."

    "But that's very convenient given that rising energy and food costs push up the price of many other products and services that Americans purchase."

    The second paragraph seems to miss the mark. If CPI includes everything except energy and food, then any effect the cost of those items has on the cost of other items is already in the cost of those other items. The point is that all people directly purchase and consume energy and food, so the cost of those items would add to the CPI on their own, and not be buried in other products. In fact, I don't see how the cost of food can drive the cost of anything else. After all, trucks, for instance, burn fuel, not food.

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