Analysis of Michael Green’s Reaction to the Second-Quarter U.S. GDP Revision
On the release of the revised second-quarter U.S. GDP data, Simplify Asset Management’s Michael Green raised significant concerns about the validity of the numbers, particularly focusing on the reported level of consumption on a per capita basis. His skepticism was underscored by an analogy to a flatline on an EKG, signaling something deeply unnatural about the data.
The GDP Revision and Its Implications
The revision showed a perfectly smooth level of consumption, which, on the surface, might appear reassuring. However, for seasoned analysts like Green, this smoothness is precisely what raises red flags. In a dynamic and complex economy, consumption patterns should reflect the ebbs and flows of real-world economic activity—responding to variables like inflation, employment shifts, consumer sentiment, and unexpected economic shocks.
Michael Green’s Skepticism: A Closer Look
Green’s statement, “I just don’t buy it,” encapsulates a broader concern within the financial community about the potential discrepancies between reported data and actual economic conditions. His skepticism likely stems from the following factors:
- Unusual Consistency in Consumption Data:
- Standard Deviation Analogy: Green’s reference to the data resembling “a dead person’s EKG” highlights the abnormal lack of volatility. In reality, consumption data should exhibit some degree of fluctuation due to the natural variability in consumer behavior.
- Questioning the Methodology: Green might be questioning whether the data revision process is smoothing out the natural noise in the data to an extent that it no longer reflects reality.
- Economic Indicators vs. Real-World Observations:
- Divergence from Other Indicators: Green’s skepticism could also be based on a divergence between the GDP data and other economic indicators. For instance, if employment figures, consumer confidence, or retail sales suggest more volatility, then the revised GDP data might not be capturing the full picture.
- Real-World Inconsistencies: Green, with his experience, might be noticing inconsistencies between what the data reports and what is observed in the real world, such as consumer spending patterns or business activity levels.
- Implications for Investors and Policy Makers:
- Investor Decision-Making: If the data does not reflect the true state of the economy, it could lead to misguided investment decisions. Green’s cautionary stance suggests that investors should be wary of taking the revised GDP data at face value.
- Policy Implications: Misleading data could also result in inappropriate monetary or fiscal policy decisions. If the economy is more volatile than the data suggests, policy responses might be delayed or misaligned with actual economic needs.
In A Nutshell . . .
Michael Green’s reaction to the revised second-quarter U.S. GDP data serves as a reminder of the importance of critically assessing economic reports. His skepticism is rooted in a deep understanding of how economic data should behave in a complex, real-world environment. For investors, analysts, and policymakers, Green’s warning is a call to dig deeper into the numbers and not simply accept them at face value. Always important to have a clear understanding and pull back the current before taking reports on face value only.