Measurement problems abound. The housing component, frequently constituting a quarter of inflation indices, often uses the owners’ equivalent rent, which is highly subjective, with a small change in weighting—such as for single-family homes—affecting the outcome. There are multiple measures—consumer price index, producer price index, GDP price deflator— that produce different, often irreconcilable, results. Data-dependent central bankers can fit the statistics to policy—Satyajit Das
In this issue:
Philippines' Q2 GDP Growth of 6.3%: Unpacking the "Marcos-nomics" Stimulus, June 2024 Philippine Employment Rates—A Statistical Pump
I. June 2024 Philippine Employment Rates Hit Second to the Highest Level: A Statistical Pump
II. Q2 GDP Growth of 6.3%: Unpacking the "Marcos-nomics" Stimulus
III. The Unintended Consequences of Raising Government Salaries in the Philippines
IV. Q2 GDP: Consumers Struggle Under Marcos-nomics
V. The GDP is Debt: GDP Won’t Outgrow Total Debt or Systemic Leverage
VI. Q2 GDP Boosted by Devaluation Effect Amid Semiconductor Export Plunge and Stagnant Capital and Consumer Goods Imports
VII. The Money Illusion: Utility GDP Manifest ‘Undeflated’ Inflation; Real Estate GDP Reveals Worsening Signs of Malinvestments
VIII. The Disconnect between GDP Growth and the PSEi 30’s Performance
Philippines' Q2 GDP Growth of 6.3%: Unpacking the "Marcos-nomics" Stimulus, June 2024 Philippine Employment Rates—A Statistical Pump
"Marcos-nomics stimulus" powered Q2 GDP’s 6.3% as consumers struggled and as the government juiced up employment rate data
I. June 2024 Philippine Employment Rates Hit Second to the Highest Level: A Statistical Pump
Businessworld, August 11, 2024: THE UNEMPLOYMENT RATE in June fell to 3.1%, the lowest in two decades, as hiring in the construction sector surged, the Philippine Statistics Authority (PSA) reported on Wednesday. Preliminary data from the Philippine Statistics Authority (PSA) showed the jobless rate slipped from 4.1% in May and 4.5% in June 2023. The June unemployment rate was the same as in December 2023. It was also the lowest jobless rate since April 2005, when the statistics agency revised its definition of unemployed to Filipinos aged 15 years and older without a job, available for work, and actively seeking one. This translated to 1.62 million unemployed Filipinos in June, down by 486,000 from 2.11 million in May. Year on year, unemployment went down by 707,000 from 2.33 million in June 2023.
Beyond such sanguine statistics lies the issue of how this record number of employment rates was achieved.
Essentially, who has been investing?
Figure 1
The Philippines has a low savings rate (even when calculated based on inflated GDP statistics), foreign direct investments (FDIs) remain subdued (despite Php 4 trillion promises of investment from geopolitical allies of the administration), and the distribution in the growth of the Universal Commercial (UC) bank credit expansion remains heavily skewed toward consumers and the real estate sector. (Figure 1)
The next question is: who has been hiring?
Figure 2
The June data record employment data reveals that the primary source of hiring has been the construction sector: quarter-on-quarter (1.2 million), month-on-month (680,000), and year-to-date (556,000). This massive job expansion largely stems from government-related projects, as confirmed by the industry’s boost to the Q2 GDP. (Figure 2, lowest graph)
The second-lowest unemployment rate was supported by a jump in labor participation rates. (Figure 2, topmost chart)
On a month-on-month and quarterly basis, the agricultural sector represented second-largest employers. Despite staggering losses due to weather-related challenges (Typhoon Carina estimated at Php 3.04 billion and El Niño’s Php 9.5 billion) and structural issues from inflation and other industry imbalances (e.g., entrenched protectionism), the agricultural sector added 571,000 jobs month-on-month and 497,000 jobs quarter-on-quarter. (Figure 2 middle window)
Ironically, according to the Philippine Statistics Authority (PSA), agricultural volume reportedly plunged by 13% in Q2.
Government employment data suggest that agricultural investors appear to be immune to profit and loss conditions, as evidenced by the hiring spree despite ongoing losses and stagnation.
In reality, the only entity not subject to profit and loss is the government, whose existence depends on forced transfers from the public.
The trade industry was the third-largest employer month-on-month in June. Given the lackluster performance of consumers, who have become heavily dependent on credit, it is likely that we should see a reversal soon.
The PSA’s labor survey data represent one of the 31 data sources used for GDP calculation. The Consumer Price Index (CPI) and GDP are highly sensitive political-economic data, which means they are prone to reflecting the agenda of their creators rather than providing unbiased and objective estimates.
Let us hear it from the horse’s mouth (bold added):
CPI allows individuals, businesses, and policymakers to understand inflation trends, make economic decisions, and adjust financial plans accordingly. The CPI is also used to adjust other economic series for price changes. For example, CPI components are used as deflators for most personal consumption expenditures in the calculation of the gross domestic product. Moreover, it serves as a basis to adjust the wages in labor management contracts, as well as pensions and retirement benefits. Increases in wages through collective bargaining agreements use the CPI as one of their bases. (PSA, FAQ on CPI)
The System of National Accounts (SNA) helps economists to measure the level of economic development and the rate of economic growth, the change in consumption, saving, consumption, investment, debt and wealth of the economy. From the data of SNA, economists can either forecast the future growth of the economy or study impacts on the economy and the institutional sectors of identified government policies and programs. (PSA, FAQ on CPI)
Recent data suggests that authorities have inflated employment figures to boost the GDP.
II. Q2 GDP Growth of 6.3%: Unpacking the "Marcos-nomics" Stimulus
In a nutshell, is the BSP concerned about how the gloomy views of consumers and businesses may translate into weaker GDP growth? (Prudent Investor, June 2024)
It is not helpful when the establishment confuses the GDP with the overall economy, for the simple reason that the GDP has been skewed to reflect the growth of the government and the elites—the "trickle-down syndrome." (Prudent Investor, July 2024)
So, didn’t we get it right?
While publicly unstated by authorities, the Q2 GDP growth of 6.3% represented the "Marcos-nomics" stimulus, which was anchored by near-record historic spending in Q2.
Figure 3
First, despite the cheerleading by the establishment and mainstream media, the Q2 2024 GDP remained below the exponential trend line of pre-pandemic nominal and real GDP. (Figure 3, topmost image)
Second, Q2 GDP was, in essence, another story of "Marcos-nomics ": government spending surged by 14.8% (nominal) and 10.7% (real), with government GDP posting a 16.8% share, marking its fourth highest level in the national accounts. (Figure 3, second to the highest window)
Once more, Q2 GDP validated our analysis and forecasts.
Third, Government GDP understated the public sector’s contribution to national GDP. Construction GDP was chiefly responsible for the 9.5% and 11.5% growth spikes in gross fixed capital and gross capital formation, accounting for 71.1% and 71.25% of the latter, respectively. (Figure 3, second to the lowest graph)
Importantly, real Construction GDP also represented 19.4% of the national GDP—an all-time high!
As a side note, the surge in jobs in this sector most likely relates to government-related construction projects or contractors.
Combined with government spending, direct government expenditures accounted for 27.4% of the Q2 2024 national accounts—the second highest ever! (Figure 3, lowest image)
Of course, this data exclusively represents direct expenditures.
The private sector’s direct contribution to government political projects (e.g., PPPs), as well as the direct and indirect supply and demand chains of these entities and those associated with the bureaucracy, are not included.
Briefly, the government’s direct and indirect contributions to the economy may easily account for about two quarters or approximately 40% of GDP.
So, while the government promotes partial economic liberalization to the public (benefiting the elites), it has been centralizing the economy through the administrative and bureaucratic state, the welfare state, and the warfare state.
The government doles out crumbs of liberalization while fortifying its political stranglehold on the economy.
Domestic wars (against vices such as drugs and POGOs, as well as inflation and poverty) and the promotion of nationalism to expand the warfare state has led to increased socialism or neo-socialism (fascism/cronyism).
The essence of so-called war prosperity; it enriches some by what it takes from others. It is not rising wealth but a shifting of wealth and income. (Mises 1919)
This shifting of income is most evident in the erosion of consumer spending.
III. The Unintended Consequences of Raising Government Salaries in the Philippines
As an aside, the political leadership has announced that it will begin increasing salaries for government bureaucrats in three tranches.
Beyond the overall impact of adding to the record fiscal deficit, if government pay levels rise above those in the market economy, it could attract more individuals into the bureaucracy at the expense of the private sector. The rising cost of employment would exacerbate the crowding-out effect on the private sector.
Since the government does not generate wealth on its own but instead extracts resources from the private sector through direct and indirect taxes, any increase in household spending by bureaucrats is likely to be offset by a decrease in spending by the private sector.
Moreover, this situation could lead to greater politicization of the hiring process, entrenching corruption, favoritism, and nepotism.
Jobs may increasingly be awarded to the highest bidders, friends, personal networks, or as payoffs for political favors. There will likely be more "ghost employees."
Consequently, the motivation of those in power is to increase economic interventions by introducing more laws, funded by the continuing expansion of the government’s budget, which should deepen the centralization process through the expansion of the administrative state.
Figure 4
According to the Civil Service Commission, the number of government employees in the new administration vaulted in 2023. Consider how rising salaries in 2024 might lead to further increases in government jobs. (Figure 4, highest diagram)
IV. Q2 GDP: Consumers Struggle Under Marcos-nomics
Circling back to consumer spending:
Although real consumer spending grew at the same rate of 4.6% in Q1 and Q2, the share of real consumer GDP plummeted from 74.4% to 67.8% as the share of government spending spiked. (Figure 4, second to the highest pane)
This trend is not an anomaly; such an antipodal path has emerged since the advent of the new millennium. This divergence accelerated in 2016 and intensified further during the pandemic recession.
Moreover, since peaking in Q1 2022, the downtrend in consumer spending growth continued into 2024, even as trade and retail GDP marginally outperformed at 6.6% in Q1 and 5.8% in Q2. (Figure 4, second to the lowest chart)
They failed to recognize that BSP policies—characterized by liquidity injections and bank credit expansion rather than productivity growth—were the primary drivers of this trend.
In other words, a large segment of retail entrepreneurs has clearly misread signals indicating that the recent bout of "revenge" spending is "sustainable."
Consequently, the rising vacancies in commercial, office, and residential properties translate to mounting losses and rising credit delinquencies that have yet to surface in bank data.
The poor top-line performance of several PSE-listed firms, which have reported their Q2 2024 results, underscores this issue.
Furthermore, consumer spending per capita continues to erode, ironically, despite record-high employment rates. More evidence of inflated employment rates? (Figure 4, lowest graph)
V. The GDP is Debt: GDP Won’t Outgrow Total Debt or Systemic Leverage
By the same token, rising leverage has barely added to consumer spending.
UC bank lending to consumers grew by 25.01% to a record Php 1.4 trillion (excluding real estate loans) last June, marking its sixth consecutive quarter of over 25+% growth. In contrast, nominal consumer spending GDP grew by 4.6% in the first half of the year. This translates to Php 5 borrowed for every Php 1 of consumer GDP produced!
Incredible.
Figure 5
In the same vein, historic levels of systemic leverage (public debt plus UC bank credit) have barely supported growth in consumer spending per capita. (Figure 5, topmost image)
The aggregate UC Bank credit plus public debt in June amounted to an unprecedented Php 27.23 trillion, representing 108% of the annualized 2024 GDP!
Authorities are engaged in peddling smoke and mirrors, or advocating the GDP myth, when they claim that the GDP growth rate will outgrow public debt.
Fundamentally, a significant portion of GDP is derived from debt-financed public spending, which means public debt is a crucial factor behind GDP. So how can GDP outgrow debt when deficit financing—the current driver—is based on debt?
Secondly, similar to the period from 2009 to 2018, when slower public spending reduced the public debt-to-GDP ratio, banking debt to GDP took over. Banking credit expansion to the private sector became the principal source of finance for government revenue. (Figure 5, second to the highest diagram)
Debt doesn’t melt away; it is juggled!
In summary, under today’s de facto fiat money system, GDP is essentially debt.
Today, we are now witnessing the twin engines of debt operating at full throttle.
VI. Q2 GDP Boosted by Devaluation Effect Amid Semiconductor Export Plunge and Stagnant Capital and Consumer Goods Imports
The devaluation effect or stronger US dollar FX via a weaker peso also magnified the contributions of external trade to GDP.
Yet, the 29.5% plunge in semiconductor exports underscores the fragile state of local producers. Real manufacturing GDP increased by 3.6% (slower than the 4.4% growth in Q1), even as UC bank credit growth to the sector rose by 8.94% (down from 10.11% in Q1). (Figure 5, second to the lowest window)
Stagnant nominal imports of capital and consumer goods in June further reinforce the lethargy of the private sector. (Figure 5, lowest chart)
In addition to the slowing retail GDP, other sectors in the industry show signs of weakness.
Figure 6
The previously smoldering GDP of the Accommodation and Food Services sectors has dramatically slowed to their lowest growth levels since Q1 2022. Accommodation GDP fell from 16.1% to 12.9% in Q2, while Food Services GDP dropped from 11.8% to 9.4%. (Figure 6, topmost chart)
In seeming confirmation, air transport Cebu Pacific's Q2 2024 revenue growth of 15.3% pulled its H1 2024 growth lower to 18.1%. Meanwhile, PAL's Q2 2024 revenues contracted by 0.3%, which also weighed on its 1H 2024 revenue growth, reducing it to 3.97%.
Still, the transport GDP surged from 5.4% in Q1 to 14.8% in Q2. Air transport GDP spiked 22%.
VII. The Money Illusion: Utility GDP Manifest ‘Undeflated’ Inflation; Real Estate GDP Reveals Worsening Signs of Malinvestments
Furthermore, while the Utilities GDP (electricity, steam, water, and waste management) outperformed in Q2 2024, rising from 4.3% in Q1 to 6.1%, its real growth (despite being netted out by the deflator) reflects the oscillations of the CPI. (Figure 6, middle image)
This highlights the "money illusion"—GDP attributed to growth when, in fact, it reflects changes in spending caused by price fluctuations.
Elevated inflation, rising interest rates, and increasing leverage and non-productive economic activities have severely constrained consumer spending.
Lastly, the supply side segment of the Real Estate (RE) sector via its GDP surged from 4.5% in Q1 to 7.2% in Q2 2024.
The industry's GDP has been backed by a surge in loan growth.
UC bank lending to the RE sector’s supply side expanded by 12.34%, marking growth rates above 10% for the eighth consecutive month.
Interestingly, despite the sector’s strong Q2 GDP performance, its value-added contribution to national accounts continues to dwindle, with its share of the total falling from 5.6% to 5.4% in Q2 2024, reinforcing its downtrend. (Figure 6, lowest graph)
On the other hand, the share of bank lending to the sector continues to rebound after an interim low in Q3 2023.
That is, more borrowing results in lesser and lesser value-added contributions or diminishing returns, which are signs of escalating malinvestments.
VIII. The Disconnect between GDP Growth and the PSEi 30’s Performance
Anyhow, the establishment and social media seem desperate to see the PSEi 30 rise, attributing any good news to it.
For instance, some claim that Friday’s rebound was caused by a "stronger economy. " Baloney.
On the contrary, this reflects the politicization of the PSEi 30 through attribution bias: if the index falls, external forces are blamed; but when it rises, credit is claimed for any internal factor, with indirect allusions to politics.
Of course, cheerleaders—who don’t declare their interests—evade the details. They fail to mention the engineered pumps. (Figure 7, topmost visuals)
Friday’s syndicated rescue operations, which centered on the Sy Group of companies (comprising 32.4% of the PSEi 30 as of August 10th), erased the week’s losses and delivered a 0.64% weekly return on mediocre volume.
Yet, why hasn’t GDP been boosting the PSE?
First, GDP is not the economy. While it attempts to measure the complex nature of millions of moving parts operating spontaneously—supposedly reflecting the economy—it cannot do so effectively.
This is because one cannot average spending on rice with subscriptions for software. Individual utilities are not only subjective but also change frequently. I may want a burger for one meal but spaghetti for the next, depending on my means and willingness to pay the offered price.
Second, the distribution of costs and gains is uneven.
Record government spending benefits politicians, the bureaucracy, and their cronies, while small and medium enterprises (SMEs), which can hardly access formal credit, barely benefit from such political activities. Instead, the costs are borne by average citizens.
In a corporatist or neo-fascist state, benefits are concentrated while costs are diffused, resulting in privatized gains and socialized losses.
Third, despite the myriad regulations designed to curtail and control it, market economies operate on the division of labor and division of knowledge. Unfortunately, specialization, knowledge, and entrepreneurial skills cannot be averaged.
Fourth, statistics are historical accounts derived from selective assumptions that incorporate specific inputs and calculations. They do not encompass all the causal factors that lead to multifarious and intertemporal outcomes.
Fifth and finally, the PSE-GDP data indicate that there is confusion in associating a high GDP with the performance of the PSEi 30, which is currently in a bear market. (Figure 7, middle window)
The GDP trendline has failed to revert to its former trajectory, which coincides with the PSEi 30’s bear market. (Figure 7, lowest chart)
Given its structural trickle-down political-economic framework, which is entirely dependent on debt, it also bears substantial balance sheet risk.
The consensus overlooked the last and most critical aspect of the economy.
Fifteen minutes of glory doesn’t a bull market make.
____
References:
Philippine Statistics Authority, Frequently Asked Questions, Consumer Price Index, psa.org.ph
Philippine Statistics Authority, Frequently Asked Questions, Philippine System of National Accounts (PSNA), psa.org.ph
Prudent Investor, Could the Philippine Government Implement a 'Marcosnomics' Stimulus Blending BSP Rate Cuts and Accelerated Deficit Spending? June 30, 2024
Prudent Investor, Marcos-nomics stimulus: Yields of the Philippine Treasury Curve Plunged, The Turbocharging of Pre-Election Liquidity Growth July 14, 2024
Ludwig von Mises, Nation, State, and Economy, 1919 p.190, Mises.org
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