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We continually confuse Gross Domestic Product – GDP – with the economy. GDP simply does not measure all the elements.

GDP is the total market value of all final goods and services produced in a country in a given year. If an item is imported into the USA, it is subtracted from GDP. This is correct if you are trying to measure the production inside a country, but incorrect if you are measuring economic activity.

Simply adding imports (instead of subtracting) inside of GDP, we can get a better feel of what our Great Recession has done to the economy.

In 1Q2009, the economy was falling at an annual rate of 15% – almost three times faster than GDP. And notice the difference in the direction of the curves in 1Q2009. The GDP was less bad, but economic activity was much worse.

But do not be fooled by this analysis. It does not even begin to encompass all the elements of our economy. GDP (and therefore the Economic Activity graphed above) excludes items such as buying and selling existing items such as equities and existing homes. With the collapse of values and volumes, our economy literally has hit the wall.

Unemployment (including marginally employed) is pushing 20%, industrial production off 20%, investment off 25%, consumer savings approaching 7%, exports off 10%, and imports off 17% – and the “economy” is only off the measly ~6% (annualized) as expressed by GDP.

We are a nation of Kool-Aid drinkers.

How much thought do you give to comparing the economic data? Because the data is put together using different methodologies by different groups, it does not necessarily correlate – which is what you are looking for to confirm trends. Take for instance personal savings rate and consumer consumption. You would normally expect some inverse correlation (especially since the credit consumption is falling – and unemployment at record highs with stagnant earnings). But here we have savings and consumption increasing at the same time.

The methodology in deriving employment / unemployment data continues to change throughout the years making comparison between the recessions more and more difficult. When you think unemployment data is not as bad as past recessions (and it is really worse) – investors and the government will make bad decisions. Was the loss of employment 467,000, or really almost 700,000 as some claim? Is the U-3 unemployment closer to 10 million than the 7 million published number?

Using the average job creation data since 2000 and the current level of initial unemployment claims – the real loss of employment this month should be closer to 1,000,000. Somehow the creation of new jobs has mysteriously doubled in the last few months.

Yes punters, you can throw out slogans like “history repeating” and “history rhyming” – but if the data you are working from is bogus you are not repeating or rhyming anything. I am flat ass telling you that the cuffs and collars do not match. The economy is not acting with historical precedent based on the data we are seeing.

Are things different this time or is the data we are looking at flawed.

Either way, you need to critically analyze the decisions you are making.

Enjoy the delusion.

The headline: Manufacturing Contracted in June, but Reached Highest Level Since August 2008 – US June ISM Mfg. business activity index was 44.8% vs. 42.8% in May

The reality: We use ISM surveys because it comes out a month in advance of quantitative data and it gives us a look at what the future might hold. If you skip on down in this article, you will find a paragraph on US industrial production for May which shows a significant decline. If we look at the ISM data for May, it shows an almost leveling of industrial production. The punters like to use ISM data because it continues to be a rose colored look at manufacturing. When quantitative data comes out you will have forgotten what the ISM survey conveyed.