"I did not have sexual relationships with that economy. I do, however, wish I had a magic wand so I could wave it furiously." Don't cha just love all this technicality speak?
Is this a big nothingburger? Anyone know why they are doing this and whether we should care? (Sorry 'bout the OT CR)
Treasury...brings back one year bill
WASHINGTON (MarketWatch) - The Treasury Department will auction $21 billion in notes and bonds next week in its quarterly refunding auctions, the government said Wednesday. The department will auction $15 billion in 10-year notes and $6 billion in 29-year, 6-month bonds to refund $74 billion in maturing securities and pay down approximately $53 billion. In addition, to meet growing financing needs, the Treasury announced that it is bringing back the 52-week T-bill. The first of the monthly auctions will take place on June 3. In a report to the government, a panel of experts said that the department must take more steps to meet the projected deficit. "The majority of members believe that the addition of the year bill combined with increases to the size and frequency of existing coupon debt over coming quarters will still not be sufficient to satisfy the increased financing needs of the Treasury over the intermediate and longer term," the panel said. Analysts believe the next option will be to bring back the 3-year note.
Also, in order to believe the positive GDP you have to buy into the following:
Price inflation gauges eased in the first quarter. For instance, the price index for personal consumption expenditures rose by 3.5% after increasing 3.9% in the fourth quarter. The PCE price gauge excluding food and energy rose 2.2%, after increasing 2.5% in the fourth quarter.
I generally argue the deflation case and even I'm not falling for the "easing inflation pressures" argument.
Anyone know why they are doing this and whether we should care?
They need the money. So far the deficit is far ahead of projections, so they need to sell a lot more debt. With limited demand due to the falling dollar (and other factors, e.g. inflation), they need to cast the net was widely as possible, including by introducing more (US debt) 'products'. Otherwise rates will rise (even more than they will in any case), which defeats the Fed's efforts. And we all want the Fed to succeed (at whatever it is trying to do), don't we?
A realistic headline inflation deflator for Q1 is probably more like 4.5%, rather than the 2.6% used. Puts a slightly different spin on the gdp number methinks.
My greatest fear with the future of the economy lies within these two charts. We have overcapacity in housing and, with consumer discretionary income falling, we have overcapacity in commercial.
While exports and domestic goods substitution for imports will help the GDP numbers going forward, will this be enough to offset the very large fall off in construction & related manufacturing that is going to occur once existing projects are completed?
So if GDP is positive, price inflation is a still a threat, credit markets have calmed down, and GWB said there is no recession, then there is absolutely no need for a rate cut today, right?
umber2son, with these numbers and a weak Q2 (assuming no major revisions), the NBER will date the recession starting in December 2007 or January 2008. They look through the inventory changes and use other factors like employment to date the recession.
I assume they really don't want to saturate the long end of the curve now and drive mortgage rates up.
Mortgage rates are more closely tied to the 10-year than the 30-year, but your point is valid.
And it's worth noting that as the need for selling additional Government debt increases, the pressure by (ahem) the seller of that debt to keep inflation measures low (and thus the blinders on the bond bullies) will increase in step. "Smoke and mirrors" numbers like this 2.2% are part and parcel of this activity.
"Non-RI structure investment has finally turned negative, and will probably decline sharply during 2008"
Is it possible that due to dollar devaluation investment in factories and warehouses will finally revive enough so investment in this area will not "decline sharpy ?
If you believe the deflator or not, makes little difference in the medium term. The real economic growth feeds corporate profits, and if the reported growth in Q1 is a figment of the low deflator, coporate profits will reflect it in Q1 and Q2. I am betting that the real economy is shrinking.
I was just about to give Sebastian an atta boy for the correct call. No official recession yet. So far, this is verifying the shallow but long call.
By the "two quarters of negative GDP" definition, there was never much of a chance of a recession in '08 once the stimulus package was announced.
Even if this quarter had been negative (which, I'll admit, I was expecting), there's gonna be $150B of "found money" sloshing around the hands of consumers in late Q2 / early Q3. There's almost no chance Q2 will be negative as a result; in fact I wouldn't be surprised to see a Q2 GDP of +3.0 - maybe higher.
IMO, that doesn't do much to change the macro picture, though.
The investment in factories for exported goods is such a small piece of the overall investment pie right now...my gut says that in the short term at least it can't really grow fast enough to offset the declines in the rest of the investment pie.
Lets not forget that Q2 GDP will benefit from refund & rebate checks. The rubber really hits the road in Q3 & Q4 when construction spending falls off the cliff (imo) and MEW & HELOCs are tapped out. These circumstances might give NBER a bit of a challenge in calling the official recession start date.
Guys, guys, guys. Recession in the US is not, no matter what you hear on NPR, it is not "two quarters of faling GDP". Recession is when NBER says there is recession. That's it. It is entirely possible, though not highly likely, to have two quarters of falling GDP without a recession. It is also possible to have a couple of quarters of very slow growth followed by a single quarter of contraction declared a recession. In fact, that is probably more likely than no recession when GDP falls for 2 quarters.
By the way, every major category of investment fell in Q1. Both durable and non-durable consumer spending fell. Real final sales fell. Trade added less to growth than any quarter in a year.
Sterlingirl,
Treasury has resurrected the 1-year bill in part because it anticipates a short-term widening in the fiscal deficit to around $600 bln. Short-term => bills. The other reason is that bills have been in real demand, and Treasury polls dealers to see what part of the curve they favor.
Yep, I'd have to say the chances of an official recession call have been greatly reduced. There's a good chance that this number will be revised down, but even if inventories are a drag in Q2, the stimulus package is about 1% of gdp, which should be enough to keep gdp officially positive in Q2 and 3. Of course if you're going to under-report inflation by almost 2%, the official numbers are utterly meaningless anyway.
NBER adjusts for inventory in recession calls? That doesn't sound right. The classic recession was from excessive inventory, and the recession was always considered to cover the period during which inventory was worked off, not the period during which it accumulated.
Put simply, if the inflation figure for the quarter exceeds the GDP growth for the quarter, then in real terms there is a contraction. In order for GDP to grow in real terms, GDP growth must exceed inflation.
0.6% annualized rate comes to 0.15% actual growth. This is sufficiently close to zero that there is good probability it could even be negative. Does anyone know measurement error (+/- %) for GDP figures?
IMO there won't be a recession call now because of the political implications. If Q1 is positive, then they can drag out the recession call until Q3 numbers are released, which will be after the election. Given a borderline recession call, government analysts - who work for the Republicans at present - will figure out a way to call "no recession". Back in 91 there were many jokes made about the first Bush administration's hard work to avoid admitting a recession, and this time the stakes are higher and the scruples lower.
One Salient Oversight: the figures released by the BEA are for "Real gross domestic product", i.e. already adjusted for inflation. That's why people above are discussing the merits of the deflator used by the BEA.
Gary wrote:
And there is absolutely no reason to >pat Sebastian on the back.
Indeed, it's worth remembering this:
Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?
A:: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. According to current data for 2001, the present recession falls into the general pattern, with three consecutive quarters of decline. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.
Q:Could you give an example illustrating this point?
A:On July 31, 2002, the Bureau of Economic Analysis released revised figures for gross domestic product that showed three quarters of negative growth in 2001-quarters 1, 2 and 3-where previously the data had shown only quarter 3 as negative. This revision shows why the committee does not rely on a simple rule of thumb such as two consecutive quarters of negative growth, nor relies on GDP data alone, in making its determinations, but rather looks at a broader array of statistics. In November 2001, the committee determined the date of the peak in activity in March 2001 using its normal indicators. The two-quarter-decline rule of thumb would not have allowed the declaration of the recession until August 2002, let alone a declaration that it had begun early in 2001, as in the statement that the committee made in November 2001. It was not until eight months later that revisions in the GDP data showed declining real GDP for the first, second, and third quarters of 2001.
Why all the spin? 0.6% growth is 0.6% growth. During boom time I don't see people complaining that GDP growth was underestimated. I don't see people spinning the Q4'07 figure before (also at 0.6% growth). But now (not just this site, quite a few others who predicted a recession in Q1'08) you all try to spin. I hope that's not because because you all predicted a recession and it didn't happen and so you want to save face.
Regardless of whether we have an official recession or not, we are at the very least in a period of no real growth and relatively high inflation (by the 2% target standards of the last 15 years or so) - stagflation lite. Still not a very happy state for consumers or corporate profits.
This "discussion" is amazing, absolutely amazing. Any time now, I expect y'all to start talking about whether Army Group Steiner is going to make it into Berlin soon enough to save the Reich.
drob - do you believe headline inflation was 2.6% in Q1? It seems a "tad" under-reported to me, and under-reported inflation directly becomes over-reported gdp. I don't think questioning that statistic is spin.
The electronic checks began to trickle out this week, so we may see a lift in Q2. However, the pattern is for the biggest part of spending of rebate checks to take place over 3 to 6 months. Thus Q2 will get some lift, but may not get enough to overcome a big drag from inventories on top of falling investment (investment declines tend to persist and the record for tax subsidied to boost investment spending is not good) and residential contruction.
I guess no one told the good people at Kraft that things were looking up.
Kraft Foods Inc., the nation's largest food and beverage maker, said Wednesday its first-quarter earnings dropped 13 percent amid higher costs for the ingredients that go into its products.
I believe it was yesterday that I predicted that companies would have these sort of results despite our gov't saying we were "growing".
Drove past an S&L yesterday with a huge banner advertising 5.25% HELOC's and quick approval. Where do these guys get their money. Maybe they are funnelling all this in to the Big Boys who sell it to the FED?
Forgetting for a moment that all of the reported numbers are opinions in the best circumstances - a true measurement being impossible and an honest, conservative opinion being preferable - isn't this type of slanted, propagandistic bullshit what got us here in the first place?
Is more of the same voodoo really what we need right now?
The economy repudiates the numbers.
Who you gonna' believe - their numbers or your own lying eyes?
In other news, Citi just increased their stock offering to 4.5 billion using the same bogus excuse Merrill used, high demand. Hey, all is well, until 3 months from now when they got to go out beging again for another 7 billion.
I am a rookie at this but it astounds me that a bank would borrow money at 8.5% to pay a dividend at 4-5%. I wish Pandit and the rest of Citi well. I hope they make it thru the next 2 years.
"drob - do you believe headline inflation was 2.6% in Q1? It seems a "tad" under-reported to me, and under-reported inflation directly becomes over-reported gdp. I don't think questioning that statistic is spin."
My point is, it seems that those who predicted a Q1'08 recession are questioning the GDP calculation now but not before. GDP calculation has never been perfect, even Econ101 students know that. But the timing and the people who question the calculation (like Roubini) is definitely making me raise the red flag.
Others look at rising inventory with a different view than CR:
First-quarter growth stronger than forecast
WASHINGTON (Reuters) - A buildup in inventories kept the economy afloat in the first quarter despite the weakest consumer spending since 2001 and the biggest drop in home building in more than 26 years, a government report showed on Wednesday.
The Commerce Department said gross domestic product or GDP expanded at a 0.6 percent annual rate in the first quarter, matching the fourth quarter's advance and handily topping a forecast for 0.2 percent growth in an advance poll of economists by Reuters.
And for the record, I think the economy is bad right now, it's just that people are too attached to the term 'recession'. It doesn't matter how you name it IMO. I just don't like it when people try to spin to make themselves look 'right'.
drob - the last headline cpi number reported was 4.0%, yet the gdp deflator used was 2.6% - if you had of given me that little tidbit in advance I would have actually forecast gdp of +0.8% for Q1. As for your econ 101 quip, I used to teach econ 101 and I can tell you those are extremely simplified concepts that you spend the next 3 years unlearning if you actually took a major in econ.
"drob - the last headline cpi number reported was 4.0%, yet the gdp deflator used was 2.6% - if you had of given me that little tidbit in advance I would have actually forecast gdp of +0.8%"
The point is, predicting components that affect GDP is part of the job of forecasting. If you don't predict right, you don't, you can explain to people why you didn't predict right, and that'd help people understand, but that won't reverse the result (that you didn't get it right).
"As for your econ 101 quip, I used to teach econ 101 and I can tell you those are extremely simplified concepts that you spend the next 3 years unlearning if you actually took a major in econ."
Everyone seems to pick up this line as me meaning I only took econ 101. Funny. I was in Robert Lucas macro class, and that's not undergraduate/master (hint), but I certainly don't want to imply that I'm as good as some of you guys. But it's irrelevant. I was just trying to say that everyone should know there are flaws of GDP/inflation/etc. calculation. We don't talk about them when we predict those statistics wrong because that'd make us look like a fool (trying to spin).
k harris - I agree, but I think we've seen the probability of an official recession call drop from 90% to more like 50/50 though. Q1 could well be revised negative, Q2 could be negative (but I kind of doubt it at the moment), and even though we all know the economy is crap, I doubt the NBER will date a recession without a quarter of negative growth. The economy is still pretty crap though, I think we agree on that.
sterlingerl said: "So if GDP is positive, price inflation is a still a threat, credit markets have calmed down, and GWB said there is no recession, then there is absolutely no need for a rate cut today, right?"
You're right, but they might cut anyway. If you look at previous Fed responses it's very common for it to continue to ease (or maintain low rates) beyond the point that it's needed. The Fed is looking at lagging indicators and it errs on the side of caution. (And the Fed chair is scared, just like the President, Congress, and so many others.)
o drob, the question is do you believe headline inflation in Q1 was 2.6% (as was used in this calculation), or 4.0%, as the government itself previously reported? I'm inclined to go with the latter, and questioning what clearly doesn't make sense is common sense, not spin.
Simple. He's now long Citi because that's what the Fed said to do, and that's paying off, but that doesn't change the fact that the economy is going into the tank.
Conjure is not burdened by ideology or statistical minutae, but is driven by market realities.
Pardon me while I do this. I don't know if this is too much troll feeding.
My point is, it seems that those who predicted a Q1'08 recession are questioning the GDP calculation now but not before.
Modern Republican-style arguing technique:
Make a bold assertion that takes 10 seconds but forces your enemy to riffle through reams of minutia to "prove" that you were wrong.
The best part is, the person making the assertion gets to grade your results, and the grade is always failing.
You are automatically on the defensive and they have to concede to validate you. So for phase 2, when an answer is produced, move the goalposts in some fashion, or attack your enemy as "obviously justifying" because they produce an answer that is given in anything but precise, prescient foreknowledge of your question.
GDP calculation has never been perfect, even Econ101 students know that.
When you must concede, minimize the degree to which it matters. Yes, everyone knows its imprecise. Why is it imprecise? Because of political pressure. Also taught in Econ 101.
Let's not talk about that, though, let's just talk about how it's no big deal that you are in essence conceding the central point so you can prove him "wrong" when you assay whatever minutia is presented to you.
But the timing and the people who question the calculation (like Roubini) is definitely making me raise the red flag.
Another GOPer technique. Blame instantly, usually in a way that seems to taint the individuals. If possible, bring up some known past moral shortcoming or other mistake. If not possible, just use a condescending tone as if their failures are well known, and make sure you name someone who your allies know has been singled out as an enemy of the Movement.
In answer, we're not questioning it -- any more than you conceded we are correct to as people who got through Econ 101 or the equivalent professional experience.
The deflator was manipulated to conceal crucial commodity inflation, which was done to flatter the administration. You admit everyone who knows anything about this knows it happens. Tell me again how we are going out on a limb here, you-who-are-swift-with-accusations, I must have missed it during the rhetorical slight of hand.
The fact is, I think that inflation has been under-reported all along. It was concealed during the boom to mask the fact that this run-up didn't just fall out of the sky like a freshly-minted similie. Growth has been over-reported as real prices have been spiraling upwards for years now. It is concealed now to keep real growth positive.
It's unfortunate that most of you GOPer-types use these tactics. You have too much interest in the argument, not enough interest in the facts.
This is pose to you: 2.6% real inflation. Let's stop arguing about notional lacks-of-argument in the past, and you start explaining to me that you think the real economy I am experiencing on a day to day basis is experiencing only a 2.6% annual price climb. Bring out some data sets that show we are wrong and these data are reliable under these circumstances. After you have put some shoeleather in and created whole and concrete arguments, maybe someone will refute you.
Uh, in case some of you missed it, you don't need two consecutive quarters of GDP to have a recession. Since Seb is basically a CNBC styled cheerleader, he can confidently predict no recession based on the simpleton definition of two consecutive quarters of negative GDP, and say we aren't in one because we haven't had a negative quarter yet. Then he feels like a winner for once.
Well, by that definition, we didnt have a recession during the period from 2000-2002 either. Well, it sure seems to me that the NBER called a recession in there, right?
So, please, dispense with the GDP crap arguments, and those of you giving Seb credit for his prediction abilities are encouraging more of his disingenuous arguing. Not needed.
Look at the numbers - contraction across all investment. Contraction in durables and non-durables cons spdg. Buildup in inventories. Govt spending of 4.6% annualized? (shocker, huh?) Lower than expected inflation.
And remember, that the numbers got worse as January to March progressed. This is the picture of an economy heading into the toilet.
MLM - it's month-end, which tends to be a heavy day for putting cash to work, and the past few Fed days have tended to be pretty sweet for stocks and bonds.
Since 80% of the American people believe we are already in a recession, I don't think it really matters politically when the official pronouncement is made.
Why do Americans believe we are in a recession? Because they are experiencing it. They don't need to have it verified by government officials.
If we have 3%+ inflation and .6% GDP doesn't that mean we are in a recession. The only thing is that prices rose. No new activity was created. Does anyone know what the real rates are now?
GDP deflator came in a good deal lighter than forecast, and the GDP came in slightly above. Gee, I wonder how that happened ?
What a pleasant surprise! They should change the GDP reporting altogether - remove all the details and just print a number. Recession worries are a thing of the past!
CPI measures inflation for, well, for consumers. The GDP deflator measures inflation for all domestic output. It's quite possible for the GDP deflator to be lower than CPI and for both figures still to be right. In particular, food is has a far greater weight in CPI than in the GDP deflator, and consumer food prices rose at a 5.3% annual pace in Q1, in the CPI data.
On Canadian CBC last night: Canadian's looking at Arizona Realestate. House that last went for $275,000, realtor suggested Canadian offer $100,000. Since our dollar is up, Canadian can by for $100,000 what would have cost them $371,250 a few years ago. Deflation?
A study of Miinesota foreclosures was released. It was based strictly on sheriffs sales number (actual foreclosure).
Two significant findings-RealtyTrac underestimated (yes,underestimated) foreclosures by 40 to 50%. Second, foreclosure rates were highest not in the big cities, but on the perimeter counties beyond the urban counties.
The 2.6% GDP deflator is so low because the import/export price deflator is -1.03%. I'm still scratching my head what is the rationale for counting import price increases (annualized 12.7%) as decreases in the GDP deflator. It means that import price increases are positive for the GDP.
scav, everytime I hear that line about a magic wand I can see Will Ferrel doing a skit where he finds a wand as GW and wanders around with that clueless look getting himself into trouble.
"Can one of you financial gurus out there explain to me why both the stock market and the bond market are up today."
I'm no guru, but there was an interesting post on BP yesterday about the best stock market performances in history. Based on data compiled on the blog PoliticalCalculations (for the Best Case Inflation-Adjusted S&P 500 Rates of Return for Investment Holding Periods of 1 to 50 Years), three of the top four investment periods occurred during the Great Depression.
Anyone with slightest bit of interest can dig through and read what the real GDP was in the nitty gritty of the report. It was pathetic. Consumer spending was attrocious and people spent less money on everything, even non-durables (think food, gas), which are up in price.
I'll echo the point about "two quarter of negative GDP" being wrong. It's a recession when NBER declares it to be, and given the level of fraud and corruption rampant in our society, I'm not holding my breath for anyone to tell me something I can plainly see with my own eyes in the data. Being on this blog should mean that you aren't one of the sheeple, so you're not being lead to slaughter. Who cares what "they" say, just watch what "they" do, and more importantly - watch what you do!
I'm not sure why everyone is hell-bent on reaching the technical definition of "recession".
Millions of Americans are hurting, and the pain is just beginning.
I agree with Drew. Whether politics label the current economic status as recession or not is irrelevant. Neither does a blud bar in the chart. Human suffering cannot be revised away. Our government lead us all into this mess...
This report further indicates that GDP is a poor predictor of economic decline. An economy is not growing when it cuts 250,000 jobs in one quarter, where discretionary spending is falling, where thousands are turning to food stamps, and record numbers of families are being evicted from their homes. If anyone has been a poor urban area recently, you will find it is not a "short, shallow recession." The other day, on the way to DC, I noticed a several signs that said "Foreclosure Auction at this number." The number of "desperate" crimes like burglary and robbery are rising sharply in many areas.
Whether or not GDP says we are in recession is immaterial, as reality is not in agreement. Reality doesn't spoke around what GDP does, reality should be the one shaping GDP. Obviously, that's not the case in today's report. The game was lost at the end of 2006 when the bust became official, and because the ends do not justify the means, there is no positive outcome based on that, because, yes, it does matter what happens along the way. At this point, there is only recovery (however long that takes.)
It was the first expansion in decades to not have positive median household income growth, where 5 million more people are below the poverty line since 2000, and where average monthly job growth in the 2001-2007 expansion was the lowest since record keeping began. What a winner of an "expansion" we had. Yes, people will continue to focus on the short term matters like monthly and quarterly data, some to gain perspective on what is yet to come, and others do it to verify their past hypotheses. To those in the latter camp, your point has already been proven. The period 2002-2007 will be recalled as a notorious period of rampant lending and shattered dreams.
The only problem is even though we read blog and make decisions on our investments based off reality, the ppt, government and fed somehow still find a way to screw us.
Thanks for pointing that out. As far as I can tell by comparing the monthly import price series to the quarterly GDP import price series, up is down. Import prices were last shown falling in the monthly data in Q4 of 2006, and that is the last time the quarterly import price series was positive. I don't know how the math is done (spencer?), but it seems to work so that up is down.
The Federal gummint changed the way inflation was measured in 1983 and in 1998. If the pre-1983 method is used, inflation today would be 11.6%, not 4.0%.
If you think that the method yielding 4.0% gives a more accurate picture of reality, then logically inflation during the Carter years was much less serious than it was thought to be at the time.
byzantine_ruins, thanks for the propaganda dissection. Perhaps few here actually need this help, but I feel better after seeing it offered. Maybe there is hope for us 'merkins....
The PPT is the government and the Fed, along with those top secret attendees of Cheney's energy policy meetings. I wonder who replaced Kenny-boy's seat at the table?
Beemer writes:
bsneath- "I am worried, very worried."
Why are you worried? You just called a housing bottom last week.
Beemer | 04.30.08 - 10:32 am | #
Per the Real Estate Asking Price web site, housing is bottoming out in the heartland and energy states and anecdotally it looks to me as though home sales may be recovering in Tampa which was a major player in the housing bubble craziness. That being said, the high inventories of available vacant houses does not bode well for new home construction. Also, I do not see commercial bottoming out for a very long time because the era of excessive personal consumption is over. Public works construction will likely be subdued because of declining state & local gov't revenues and unfavorable muni bond mkt. Industrial construction may increase in export related areas and domestic goods in lieu of import areas, but not so in mfg related to home and commercial property construction.
Major job losses in construction and related mfg will be a major drag on the economy going forward.
k harris - agreed on cpi vs deflator, I just wasn't expecting the gap to be that large, but Poszi - looks like you have the explanation, thank you. Reminds me why most of the time I just try to look at the trend, and not get sucked into the statistical minutia anymore.
If a weak dollar was key to the strength of GDP, what will a halt of fed cuts do? If the dollar strenghtens will GDP drop? Or will it be offset by the free money from the Govt?
I agree, numbers are what they are and we are not winning in Iraq and the economy esp housing is not at a bottom.
Fast Eddie, different chart - I just didn't add the current recession bars yet.
REBear, you can see the contributions to GDP here. Inventories add 0.81. Last quarter inventories subtracted 1.79. So Q4 probably wasn't as weak as the headline number, and Q1 isn't as strong.
Got this from treasurydirect:
"The Savings Bond Purchase Limitation has been changed to $5,000 per series
and TIN per calendar year. Please cancel any pending purchases that exceed
the yearly $5,000 limit."
For what it is worth, year-over-year inflation through March 2008 was:
Official CPI-U: 3.98%
Shadow Government Statistics
reconstructed traditional CPI: 11.58%
Inflation understatement: 7.60%
P.S. The Shadow Stats numbers are closer to my shopping experience than the Official numbers, but then I live in the real world, not the DC all-spin zone.
By the same token, I'm sure one of the first things the Obama/McCain administration will do is to re-check the economic data to ensure that a recession didn't start (and end!) before they took office.
Of course, by then no one in "the market" will care if we had a recession last year, they just want to know how to goose the next bubble to their advantage.
I said it before: there will be NO official Recession, at least not until it is needed for some political end. It doesn't matter that jobs are vanishing, inflation is out of control, and people are being eaten by their debt-trap houses - there will be no recession.
It is all too easy to use an absurdly low inflation deflator - do you really believe inflation is running at around 2%? - or to count inflation as "growth." Prices go up, so the economy is "healthy" - absurd!
Bernanke Positive Inflation helping grow the economy, as corporations ignore the consumer recession!
Re: Virtually everything we sell is not discretionary. You know, it's a staple," Lafley told analysts in a conference call. "You have to go to the bathroom. You have to get up in the morning and brush your teeth. You've got to shower. You've got to shave ... you've got to wash your clothes."
Earlier this year, P&G raised prices by 6 percent or more for products including Iams dog food, Cascade dishwasher detergent and Zest bar soap. The company said Wednesday it has increased spending on marketing and has more price hikes coming this summer, ranging from 4.5 percent on Tampax Tanta feminine products to 11 percent for Oral-B power toothbrushes.
The company now expects fiscal 2008 earnings to be between $3.48 and $3.50 per share, up from previous guidance of $3.46 to $3.50 per share. Analysts expect $3.49 per share.
BSR writes:
0.6% annualized rate comes to 0.15% actual growth. This is sufficiently close to zero that there is good probability it could even be negative. Does anyone know measurement error (+/- %) for GDP figures?
BSR | 04.30.08 - 9:56 am
Per the BEA release linked by CR, for Real GDP, the average adjustment between Advance release (this one) and the Final release (in about 2 months) is 0.6%. The Standard Deviation is 0.4%.
These data are based on 1983-2004, no idea of whether quality of advanced reports improved or degraded since then.
Positive inflation will result in higher foreclosures where higher cost of living is associated with deceased cash flow:
Nevada, California and Arizona posted the top foreclosure rates in the first quarter, according to new data from the foreclosure tracking firm RealtyTrac.
"Credit where credit is due: Sebastian is right so far"
That assumes the 2.6% GDP deflator is really correct. Does anyone with a brain really believe inflation is only 2.6%!!? Growth was positive only if you believe the governments cooked books.
Definitely, the American Economy is in recession and no matter how you distort the figures or "mis-interpret" the data, the real GDP growth in the Q1 of 2008 would be negative and the pile-up in inventory is unsold goods and when the final version of the Q1 GDP growth is out, it surely is negative and we could foresee the Q2 figure should also be negative judging from the PCE figure as well as overall corporate earnings and in particular, if we look at the sales figures as well as capital expenditure of the giant retail outlets like Home Depot, WalMart as well as auto sales.
Besides, people are saving the tax rebates instead of using the money originally used as fiscal stimulus to boost consumer expenditure is now saved for the more rainy days ahead of them.
Yes, the Equity Market seems to continue to rally, which should reflect the additional liquidity injected into the financial markets by the Fed is now finding its way to the equity market which should not be regarded as healthy growth in the strictest sense. Besides, the Fed's rate cut of another 25 bps has sent the dollar further down the road so that inflation continues to spiral. Under such condition as well as the low interest rate, excess liquidity all channel to the equity market for a last bite before actual recession sets in and that is why the stock market booms whilst the economy is edging into recession simultaneously.
GDP gets a bump when Americans buy things made in China at Wal-Mart. So it is a little hard to take it seriously.
Without the unwanted buildup in inventory, GDP would have been negative, suggesting the economy is in recession.
Gasp! CR, how dare you contradict the Wright Model B!
Credit where credit is due: Sebastian is right so far.
Bush said yesterday that the economy was not in recession and was growing slowly. Did someone tell him in advance ?
"I did not have sexual relationships with that economy. I do, however, wish I had a magic wand so I could wave it furiously." Don't cha just love all this technicality speak?
Yeppers, accumulation of inventories are not a good thing and this sets the stage for the official start of the recession next quarter.
I won't be surprised if this provides the FOMC the cover it needs to hold rates for now. They'll need some dry powder come summer.
Funny th,i mean seb, just pat yourself on the back.
Is this a big nothingburger? Anyone know why they are doing this and whether we should care? (Sorry 'bout the OT CR)
Treasury...brings back one year bill
WASHINGTON (MarketWatch) - The Treasury Department will auction $21 billion in notes and bonds next week in its quarterly refunding auctions, the government said Wednesday. The department will auction $15 billion in 10-year notes and $6 billion in 29-year, 6-month bonds to refund $74 billion in maturing securities and pay down approximately $53 billion. In addition, to meet growing financing needs, the Treasury announced that it is bringing back the 52-week T-bill. The first of the monthly auctions will take place on June 3. In a report to the government, a panel of experts said that the department must take more steps to meet the projected deficit. "The majority of members believe that the addition of the year bill combined with increases to the size and frequency of existing coupon debt over coming quarters will still not be sufficient to satisfy the increased financing needs of the Treasury over the intermediate and longer term," the panel said. Analysts believe the next option will be to bring back the 3-year note.
I was just about to give Sebastian an atta boy for the correct call. No official recession yet. So far, this is verifying the shallow but long call.
obiligatory "beware the Deflator" reminder.
Also, in order to believe the positive GDP you have to buy into the following:
Price inflation gauges eased in the first quarter. For instance, the price index for personal consumption expenditures rose by 3.5% after increasing 3.9% in the fourth quarter. The PCE price gauge excluding food and energy rose 2.2%, after increasing 2.5% in the fourth quarter.
I generally argue the deflation case and even I'm not falling for the "easing inflation pressures" argument.
LOL.
0.6 can be revised away pretty easily with a deflator reading that comes close to reflecting reality. There will be a few revisions to come yet.
Q1 2006 is a typo right?
Obama's luster rusted!
not that i care
The Treasury is bringing back the one year in to issue more debt and at the same time attempt to avoid a selloff in the other durations.
Look over here while I steal your wallet.
Anyone know why they are doing this and whether we should care?
They need the money. So far the deficit is far ahead of projections, so they need to sell a lot more debt. With limited demand due to the falling dollar (and other factors, e.g. inflation), they need to cast the net was widely as possible, including by introducing more (US debt) 'products'. Otherwise rates will rise (even more than they will in any case), which defeats the Fed's efforts. And we all want the Fed to succeed (at whatever it is trying to do), don't we?
They need the money. So far the deficit is far ahead of projections, so they need to sell a lot more debt.
I guess this is the opposite of when the 30 year dissappeared for a while?
I assume they really don't want to saturate the long end of the curve now and drive mortgage rates up.
Loved the "magic wand" comment. It almost makes me think he writes his own speeches.
A realistic headline inflation deflator for Q1 is probably more like 4.5%, rather than the 2.6% used. Puts a slightly different spin on the gdp number methinks.
Great charts as always!
My greatest fear with the future of the economy lies within these two charts. We have overcapacity in housing and, with consumer discretionary income falling, we have overcapacity in commercial.
While exports and domestic goods substitution for imports will help the GDP numbers going forward, will this be enough to offset the very large fall off in construction & related manufacturing that is going to occur once existing projects are completed?
I am worried, very worried.
So if GDP is positive, price inflation is a still a threat, credit markets have calmed down, and GWB said there is no recession, then there is absolutely no need for a rate cut today, right?
umber2son, with these numbers and a weak Q2 (assuming no major revisions), the NBER will date the recession starting in December 2007 or January 2008. They look through the inventory changes and use other factors like employment to date the recession.
My guess is December 2007.
Best to all.
I assume they really don't want to saturate the long end of the curve now and drive mortgage rates up.
Mortgage rates are more closely tied to the 10-year than the 30-year, but your point is valid.
And it's worth noting that as the need for selling additional Government debt increases, the pressure by (ahem) the seller of that debt to keep inflation measures low (and thus the blinders on the bond bullies) will increase in step. "Smoke and mirrors" numbers like this 2.2% are part and parcel of this activity.
CR, dryfly:
"Non-RI structure investment has finally turned negative, and will probably decline sharply during 2008"
Is it possible that due to dollar devaluation investment in factories and warehouses will finally revive enough so investment in this area will not "decline sharpy ?
If you believe the deflator or not, makes little difference in the medium term. The real economic growth feeds corporate profits, and if the reported growth in Q1 is a figment of the low deflator, coporate profits will reflect it in Q1 and Q2. I am betting that the real economy is shrinking.
Effe
I was just about to give Sebastian an atta boy for the correct call. No official recession yet. So far, this is verifying the shallow but long call.
By the "two quarters of negative GDP" definition, there was never much of a chance of a recession in '08 once the stimulus package was announced.
Even if this quarter had been negative (which, I'll admit, I was expecting), there's gonna be $150B of "found money" sloshing around the hands of consumers in late Q2 / early Q3. There's almost no chance Q2 will be negative as a result; in fact I wouldn't be surprised to see a Q2 GDP of +3.0 - maybe higher.
IMO, that doesn't do much to change the macro picture, though.
The investment in factories for exported goods is such a small piece of the overall investment pie right now...my gut says that in the short term at least it can't really grow fast enough to offset the declines in the rest of the investment pie.
Lets not forget that Q2 GDP will benefit from refund & rebate checks. The rubber really hits the road in Q3 & Q4 when construction spending falls off the cliff (imo) and MEW & HELOCs are tapped out. These circumstances might give NBER a bit of a challenge in calling the official recession start date.
bsneath- "I am worried, very worried."
Everyone should be worried. It's going to require more than magic wands to fix this problem.
It's going to require toad bones, ground-up dog balls, and lots of fairy dust.
Mortgage rates are more closely tied to the 10-year than the 30-year, but your point is valid.
Well, I generally refer to the 10+ range as the long end.
It seems like I've seen others do the same, no?
Guys, guys, guys. Recession in the US is not, no matter what you hear on NPR, it is not "two quarters of faling GDP". Recession is when NBER says there is recession. That's it. It is entirely possible, though not highly likely, to have two quarters of falling GDP without a recession. It is also possible to have a couple of quarters of very slow growth followed by a single quarter of contraction declared a recession. In fact, that is probably more likely than no recession when GDP falls for 2 quarters.
By the way, every major category of investment fell in Q1. Both durable and non-durable consumer spending fell. Real final sales fell. Trade added less to growth than any quarter in a year.
Sterlingirl,
Treasury has resurrected the 1-year bill in part because it anticipates a short-term widening in the fiscal deficit to around $600 bln. Short-term => bills. The other reason is that bills have been in real demand, and Treasury polls dealers to see what part of the curve they favor.
Yep, I'd have to say the chances of an official recession call have been greatly reduced. There's a good chance that this number will be revised down, but even if inventories are a drag in Q2, the stimulus package is about 1% of gdp, which should be enough to keep gdp officially positive in Q2 and 3. Of course if you're going to under-report inflation by almost 2%, the official numbers are utterly meaningless anyway.
If you look at inflation figures for the last quarter, you'll see that inflation outstripped GDP growth.
This means that, while the numbers grew, they grew less than inflation. In other words, a contraction.
The same problems besets quarter 4 2007. This means that America is, by one measurement, technically in recession.
To see my argument in more detail, click here
Please further define the residential investment graph. Is that "new construction" investment?
NBER adjusts for inventory in recession calls? That doesn't sound right. The classic recession was from excessive inventory, and the recession was always considered to cover the period during which inventory was worked off, not the period during which it accumulated.
Inventory build? That is to manfacturing as the housing boom was to real estate: future markets pulled forward; today's gain for tomorrow's pain.
Ah...I see the party is just getting started. I'm sure I didn't miss anything.
Regards,
Put simply, if the inflation figure for the quarter exceeds the GDP growth for the quarter, then in real terms there is a contraction. In order for GDP to grow in real terms, GDP growth must exceed inflation.
Where do I join the line for the "utterly meaningless piffle" interpretation?
0.6% annualized rate comes to 0.15% actual growth. This is sufficiently close to zero that there is good probability it could even be negative. Does anyone know measurement error (+/- %) for GDP figures?
GDP deflator: 2.6%. Cookin' the books.
Cool the engines...
she's gonna blow!
Spu's up 30???
IMO there won't be a recession call now because of the political implications. If Q1 is positive, then they can drag out the recession call until Q3 numbers are released, which will be after the election. Given a borderline recession call, government analysts - who work for the Republicans at present - will figure out a way to call "no recession". Back in 91 there were many jokes made about the first Bush administration's hard work to avoid admitting a recession, and this time the stakes are higher and the scruples lower.
One Salient Oversight,
The 0.6 GDP number IS adjusted for inflation.
auto sales NA down
home sales down
what, exactly is up, to have pos gdp, other than the price of every widget out there?
One Salient Oversight: the figures released by the BEA are for "Real gross domestic product", i.e. already adjusted for inflation. That's why people above are discussing the merits of the deflator used by the BEA.
It's not what's up....it's what's artificially low...the Deflator!
APPL up 50%, $61 since feb lows!
In a non-recessio
Conjure Bag says, "The US economy needs an enema."
Conjure also says he is considering the implementation of a new macro clock.
Commisars & Baghdad Bobs
politico writes:
Obama's luster rusted!
What does that even mean, let alone have to do with this thread?
And there is absolutely no reason to pat Sebastian on the back.
JD, RI include both new construction, and home improvement - plus broker's commissions. Here is a break down of RI.
Best Wishes.
Indeed, it's worth remembering this:
Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?
A:: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. According to current data for 2001, the present recession falls into the general pattern, with three consecutive quarters of decline. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.
Q:Could you give an example illustrating this point?
A:On July 31, 2002, the Bureau of Economic Analysis released revised figures for gross domestic product that showed three quarters of negative growth in 2001-quarters 1, 2 and 3-where previously the data had shown only quarter 3 as negative. This revision shows why the committee does not rely on a simple rule of thumb such as two consecutive quarters of negative growth, nor relies on GDP data alone, in making its determinations, but rather looks at a broader array of statistics. In November 2001, the committee determined the date of the peak in activity in March 2001 using its normal indicators. The two-quarter-decline rule of thumb would not have allowed the declaration of the recession until August 2002, let alone a declaration that it had begun early in 2001, as in the statement that the committee made in November 2001. It was not until eight months later that revisions in the GDP data showed declining real GDP for the first, second, and third quarters of 2001.
The NBER’s Recession Dating Procedure
USSA
toad bones, and DogB's, i can find,
fairy dust, not so much...
how does one aquire this potion?
Why all the spin? 0.6% growth is 0.6% growth. During boom time I don't see people complaining that GDP growth was underestimated. I don't see people spinning the Q4'07 figure before (also at 0.6% growth). But now (not just this site, quite a few others who predicted a recession in Q1'08) you all try to spin. I hope that's not because because you all predicted a recession and it didn't happen and so you want to save face.
Regardless of whether we have an official recession or not, we are at the very least in a period of no real growth and relatively high inflation (by the 2% target standards of the last 15 years or so) - stagflation lite. Still not a very happy state for consumers or corporate profits.
****CONJURE COMMUNIQUE****
This "discussion" is amazing, absolutely amazing. Any time now, I expect y'all to start talking about whether Army Group Steiner is going to make it into Berlin soon enough to save the Reich.
****CONJURE COMMUNIQUE****
drob - do you believe headline inflation was 2.6% in Q1? It seems a "tad" under-reported to me, and under-reported inflation directly becomes over-reported gdp. I don't think questioning that statistic is spin.
Turbo,
The electronic checks began to trickle out this week, so we may see a lift in Q2. However, the pattern is for the biggest part of spending of rebate checks to take place over 3 to 6 months. Thus Q2 will get some lift, but may not get enough to overcome a big drag from inventories on top of falling investment (investment declines tend to persist and the record for tax subsidied to boost investment spending is not good) and residential contruction.
We may also see some drag from states and locals.
I guess no one told the good people at Kraft that things were looking up.
Kraft Foods Inc., the nation's largest food and beverage maker, said Wednesday its first-quarter earnings dropped 13 percent amid higher costs for the ingredients that go into its products.
I believe it was yesterday that I predicted that companies would have these sort of results despite our gov't saying we were "growing".
Drove past an S&L yesterday with a huge banner advertising 5.25% HELOC's and quick approval. Where do these guys get their money. Maybe they are funnelling all this in to the Big Boys who sell it to the FED?
Accounting tricks and economic fraud.
Forgetting for a moment that all of the reported numbers are opinions in the best circumstances - a true measurement being impossible and an honest, conservative opinion being preferable - isn't this type of slanted, propagandistic bullshit what got us here in the first place?
Is more of the same voodoo really what we need right now?
The economy repudiates the numbers.
Who you gonna' believe - their numbers or your own lying eyes?
In other news, Citi just increased their stock offering to 4.5 billion using the same bogus excuse Merrill used, high demand. Hey, all is well, until 3 months from now when they got to go out beging again for another 7 billion.
I am a rookie at this but it astounds me that a bank would borrow money at 8.5% to pay a dividend at 4-5%. I wish Pandit and the rest of Citi well. I hope they make it thru the next 2 years.
That nice man Mr. Bernankie will be passing out candy today he'll go over and get those BLS guys straightened out.
bsneath- "I am worried, very worried."
Why are you worried? You just called a housing bottom last week.
"drob - do you believe headline inflation was 2.6% in Q1? It seems a "tad" under-reported to me, and under-reported inflation directly becomes over-reported gdp. I don't think questioning that statistic is spin."
My point is, it seems that those who predicted a Q1'08 recession are questioning the GDP calculation now but not before. GDP calculation has never been perfect, even Econ101 students know that. But the timing and the people who question the calculation (like Roubini) is definitely making me raise the red flag.
Others look at rising inventory with a different view than CR:
First-quarter growth stronger than forecast
WASHINGTON (Reuters) - A buildup in inventories kept the economy afloat in the first quarter despite the weakest consumer spending since 2001 and the biggest drop in home building in more than 26 years, a government report showed on Wednesday.
The Commerce Department said gross domestic product or GDP expanded at a 0.6 percent annual rate in the first quarter, matching the fourth quarter's advance and handily topping a forecast for 0.2 percent growth in an advance poll of economists by Reuters.
it seems that those who predicted a Q1'08 recession are questioning the GDP calculation now but not before
ROFLMAO
no one, ever, in the history of GDP, has ever,ever, questioned gdp calc....ok
Econ101 students know only enough simplified concepts to get into trouble. Take that from an a long-ago econ major.
I hope they make it thru the next 2 years.
Tom Servo |
why?
"drob" is a four letter word for T-R-O-L-L
Rally Monkey:
I know a few people who work there. Not all people are evil aorking at Citi, thats all.
Remember, economic growth below population growth is a contraction.
Jus saying that when one protects weakness, un-intended consequences follow.
namely px's
""drob" is a four letter word for T-R-O-L-L"
That won't help.
And for the record, I think the economy is bad right now, it's just that people are too attached to the term 'recession'. It doesn't matter how you name it IMO. I just don't like it when people try to spin to make themselves look 'right'.
drob - the last headline cpi number reported was 4.0%, yet the gdp deflator used was 2.6% - if you had of given me that little tidbit in advance I would have actually forecast gdp of +0.8% for Q1. As for your econ 101 quip, I used to teach econ 101 and I can tell you those are extremely simplified concepts that you spend the next 3 years unlearning if you actually took a major in econ.
"drob - the last headline cpi number reported was 4.0%, yet the gdp deflator used was 2.6% - if you had of given me that little tidbit in advance I would have actually forecast gdp of +0.8%"
The point is, predicting components that affect GDP is part of the job of forecasting. If you don't predict right, you don't, you can explain to people why you didn't predict right, and that'd help people understand, but that won't reverse the result (that you didn't get it right).
"As for your econ 101 quip, I used to teach econ 101 and I can tell you those are extremely simplified concepts that you spend the next 3 years unlearning if you actually took a major in econ."
Everyone seems to pick up this line as me meaning I only took econ 101. Funny. I was in Robert Lucas macro class, and that's not undergraduate/master (hint), but I certainly don't want to imply that I'm as good as some of you guys. But it's irrelevant. I was just trying to say that everyone should know there are flaws of GDP/inflation/etc. calculation. We don't talk about them when we predict those statistics wrong because that'd make us look like a fool (trying to spin).
k harris - I agree, but I think we've seen the probability of an official recession call drop from 90% to more like 50/50 though. Q1 could well be revised negative, Q2 could be negative (but I kind of doubt it at the moment), and even though we all know the economy is crap, I doubt the NBER will date a recession without a quarter of negative growth. The economy is still pretty crap though, I think we agree on that.
acyually if you take into account all this rice inventory I have build up the (GDP-inventory build up) is much lower than reported.
Kudos to Sebastia
mp - What's up with Conjure?
If I understand correctly, after saying 30 seconds to Global Financial Meltdown, he's long Citi?
What's he been eating?
sterlingerl said: "So if GDP is positive, price inflation is a still a threat, credit markets have calmed down, and GWB said there is no recession, then there is absolutely no need for a rate cut today, right?"
You're right, but they might cut anyway. If you look at previous Fed responses it's very common for it to continue to ease (or maintain low rates) beyond the point that it's needed. The Fed is looking at lagging indicators and it errs on the side of caution. (And the Fed chair is scared, just like the President, Congress, and so many others.)
Sebastia
o drob, the question is do you believe headline inflation in Q1 was 2.6% (as was used in this calculation), or 4.0%, as the government itself previously reported? I'm inclined to go with the latter, and questioning what clearly doesn't make sense is common sense, not spin.
Barry Ritholtz says "Congratulations, It's a Recession":
The Big Picture
Re: Citi
Does anyone remember the Frank Loesser musical Where's Charlie? In particular the song Pernambuco?
Pernambuco, unbelievable town
Where the crops go to seed
And the bank is in need
Of financing,
Still the people keep dancing.
Of course he was celebrating that Joi de Vie, but should we be doing so now?
jus me- "What's up with Conjure?
Simple. He's now long Citi because that's what the Fed said to do, and that's paying off, but that doesn't change the fact that the economy is going into the tank.
Conjure is not burdened by ideology or statistical minutae, but is driven by market realities.
I thought he was driven by toad bones and ground-up dog balls.
Pardon me while I do this. I don't know if this is too much troll feeding.
My point is, it seems that those who predicted a Q1'08 recession are questioning the GDP calculation now but not before.
Modern Republican-style arguing technique:
Make a bold assertion that takes 10 seconds but forces your enemy to riffle through reams of minutia to "prove" that you were wrong.
The best part is, the person making the assertion gets to grade your results, and the grade is always failing.
You are automatically on the defensive and they have to concede to validate you. So for phase 2, when an answer is produced, move the goalposts in some fashion, or attack your enemy as "obviously justifying" because they produce an answer that is given in anything but precise, prescient foreknowledge of your question.
GDP calculation has never been perfect, even Econ101 students know that.
When you must concede, minimize the degree to which it matters. Yes, everyone knows its imprecise. Why is it imprecise? Because of political pressure. Also taught in Econ 101.
Let's not talk about that, though, let's just talk about how it's no big deal that you are in essence conceding the central point so you can prove him "wrong" when you assay whatever minutia is presented to you.
But the timing and the people who question the calculation (like Roubini) is definitely making me raise the red flag.
Another GOPer technique. Blame instantly, usually in a way that seems to taint the individuals. If possible, bring up some known past moral shortcoming or other mistake. If not possible, just use a condescending tone as if their failures are well known, and make sure you name someone who your allies know has been singled out as an enemy of the Movement.
In answer, we're not questioning it -- any more than you conceded we are correct to as people who got through Econ 101 or the equivalent professional experience.
The deflator was manipulated to conceal crucial commodity inflation, which was done to flatter the administration. You admit everyone who knows anything about this knows it happens. Tell me again how we are going out on a limb here, you-who-are-swift-with-accusations, I must have missed it during the rhetorical slight of hand.
The fact is, I think that inflation has been under-reported all along. It was concealed during the boom to mask the fact that this run-up didn't just fall out of the sky like a freshly-minted similie. Growth has been over-reported as real prices have been spiraling upwards for years now. It is concealed now to keep real growth positive.
It's unfortunate that most of you GOPer-types use these tactics. You have too much interest in the argument, not enough interest in the facts.
This is pose to you: 2.6% real inflation. Let's stop arguing about notional lacks-of-argument in the past, and you start explaining to me that you think the real economy I am experiencing on a day to day basis is experiencing only a 2.6% annual price climb. Bring out some data sets that show we are wrong and these data are reliable under these circumstances. After you have put some shoeleather in and created whole and concrete arguments, maybe someone will refute you.
Of this, this now means GDP per capita has been negative for two quarters, which is more important since it adjusts for population growth.
Can one of you financial gurus out there explain to me why both the stock market and the bond market are up today. Is it just joie de vivre?
Uh, in case some of you missed it, you don't need two consecutive quarters of GDP to have a recession. Since Seb is basically a CNBC styled cheerleader, he can confidently predict no recession based on the simpleton definition of two consecutive quarters of negative GDP, and say we aren't in one because we haven't had a negative quarter yet. Then he feels like a winner for once.
Well, by that definition, we didnt have a recession during the period from 2000-2002 either. Well, it sure seems to me that the NBER called a recession in there, right?
So, please, dispense with the GDP crap arguments, and those of you giving Seb credit for his prediction abilities are encouraging more of his disingenuous arguing. Not needed.
Look at the numbers - contraction across all investment. Contraction in durables and non-durables cons spdg. Buildup in inventories. Govt spending of 4.6% annualized? (shocker, huh?) Lower than expected inflation.
And remember, that the numbers got worse as January to March progressed. This is the picture of an economy heading into the toilet.
MLM - it's month-end, which tends to be a heavy day for putting cash to work, and the past few Fed days have tended to be pretty sweet for stocks and bonds.
Since 80% of the American people believe we are already in a recession, I don't think it really matters politically when the official pronouncement is made.
Why do Americans believe we are in a recession? Because they are experiencing it. They don't need to have it verified by government officials.
If we have 3%+ inflation and .6% GDP doesn't that mean we are in a recession. The only thing is that prices rose. No new activity was created. Does anyone know what the real rates are now?
CR, What happened to the vertical blue bands on the charts for recession in '08? Yesterday they were a year long weren't they?
GDP deflator came in a good deal lighter than forecast, and the GDP came in slightly above. Gee, I wonder how that happened ?
What a pleasant surprise! They should change the GDP reporting altogether - remove all the details and just print a number. Recession worries are a thing of the past!
Turbo,
CPI measures inflation for, well, for consumers. The GDP deflator measures inflation for all domestic output. It's quite possible for the GDP deflator to be lower than CPI and for both figures still to be right. In particular, food is has a far greater weight in CPI than in the GDP deflator, and consumer food prices rose at a 5.3% annual pace in Q1, in the CPI data.
when will this blow up:
The Market Ticker
On Canadian CBC last night: Canadian's looking at Arizona Realestate. House that last went for $275,000, realtor suggested Canadian offer $100,000. Since our dollar is up, Canadian can by for $100,000 what would have cost them $371,250 a few years ago. Deflation?
Yahoo! 404 - Page Not Found
I'm not sure why everyone is hell-bent on reaching the technical definition of "recession".
Millions of Americans are hurting, and the pain is just beginning.
CR/Others,
How much boost did the GDP get from inventory buildup?
Thanks!
REbear: I read 0.8
OT
A study of Miinesota foreclosures was released. It was based strictly on sheriffs sales number (actual foreclosure).
Two significant findings-RealtyTrac underestimated (yes,underestimated) foreclosures by 40 to 50%. Second, foreclosure rates were highest not in the big cities, but on the perimeter counties beyond the urban counties.
http://gmhf.com//programs/fpp/reports/MN-foreclosure-report-042808.pdf
The 2.6% GDP deflator is so low because the import/export price deflator is -1.03%. I'm still scratching my head what is the rationale for counting import price increases (annualized 12.7%) as decreases in the GDP deflator. It means that import price increases are positive for the GDP.
scav, everytime I hear that line about a magic wand I can see Will Ferrel doing a skit where he finds a wand as GW and wanders around with that clueless look getting himself into trouble.
hi yal, you mean -0.8%?
yal .. never mind
"Can one of you financial gurus out there explain to me why both the stock market and the bond market are up today."
I'm no guru, but there was an interesting post on BP yesterday about the best stock market performances in history. Based on data compiled on the blog PoliticalCalculations (for the Best Case Inflation-Adjusted S&P 500 Rates of Return for Investment Holding Periods of 1 to 50 Years), three of the top four investment periods occurred during the Great Depression.
Anyone with slightest bit of interest can dig through and read what the real GDP was in the nitty gritty of the report. It was pathetic. Consumer spending was attrocious and people spent less money on everything, even non-durables (think food, gas), which are up in price.
I'll echo the point about "two quarter of negative GDP" being wrong. It's a recession when NBER declares it to be, and given the level of fraud and corruption rampant in our society, I'm not holding my breath for anyone to tell me something I can plainly see with my own eyes in the data. Being on this blog should mean that you aren't one of the sheeple, so you're not being lead to slaughter. Who cares what "they" say, just watch what "they" do, and more importantly - watch what you do!
I'm not sure why everyone is hell-bent on reaching the technical definition of "recession".
Millions of Americans are hurting, and the pain is just beginning.
I agree with Drew. Whether politics label the current economic status as recession or not is irrelevant. Neither does a blud bar in the chart. Human suffering cannot be revised away. Our government lead us all into this mess...
YIPEE!!!!! The "Bull" is back!!! With all these pump monkeys on CNBS and FOX, I thought I would join in and help so with that said:
2006?
fast eddie=Eddie McFast?
This report further indicates that GDP is a poor predictor of economic decline. An economy is not growing when it cuts 250,000 jobs in one quarter, where discretionary spending is falling, where thousands are turning to food stamps, and record numbers of families are being evicted from their homes. If anyone has been a poor urban area recently, you will find it is not a "short, shallow recession." The other day, on the way to DC, I noticed a several signs that said "Foreclosure Auction at this number." The number of "desperate" crimes like burglary and robbery are rising sharply in many areas.
Whether or not GDP says we are in recession is immaterial, as reality is not in agreement. Reality doesn't spoke around what GDP does, reality should be the one shaping GDP. Obviously, that's not the case in today's report. The game was lost at the end of 2006 when the bust became official, and because the ends do not justify the means, there is no positive outcome based on that, because, yes, it does matter what happens along the way. At this point, there is only recovery (however long that takes.)
It was the first expansion in decades to not have positive median household income growth, where 5 million more people are below the poverty line since 2000, and where average monthly job growth in the 2001-2007 expansion was the lowest since record keeping began. What a winner of an "expansion" we had. Yes, people will continue to focus on the short term matters like monthly and quarterly data, some to gain perspective on what is yet to come, and others do it to verify their past hypotheses. To those in the latter camp, your point has already been proven. The period 2002-2007 will be recalled as a notorious period of rampant lending and shattered dreams.
Gamma,
The only problem is even though we read blog and make decisions on our investments based off reality, the ppt, government and fed somehow still find a way to screw us.
poszi,
Thanks for pointing that out. As far as I can tell by comparing the monthly import price series to the quarterly GDP import price series, up is down. Import prices were last shown falling in the monthly data in Q4 of 2006, and that is the last time the quarterly import price series was positive. I don't know how the math is done (spencer?), but it seems to work so that up is down.
The Federal gummint changed the way inflation was measured in 1983 and in 1998. If the pre-1983 method is used, inflation today would be 11.6%, not 4.0%.
If you think that the method yielding 4.0% gives a more accurate picture of reality, then logically inflation during the Carter years was much less serious than it was thought to be at the time.
byzantine_ruins, thanks for the propaganda dissection. Perhaps few here actually need this help, but I feel better after seeing it offered. Maybe there is hope for us 'merkins....
"the ppt, government and fed"
The PPT is the government and the Fed, along with those top secret attendees of Cheney's energy policy meetings. I wonder who replaced Kenny-boy's seat at the table?
Beemer writes:
bsneath- "I am worried, very worried."
Why are you worried? You just called a housing bottom last week.
Beemer | 04.30.08 - 10:32 am | #
Per the Real Estate Asking Price web site, housing is bottoming out in the heartland and energy states and anecdotally it looks to me as though home sales may be recovering in Tampa which was a major player in the housing bubble craziness. That being said, the high inventories of available vacant houses does not bode well for new home construction. Also, I do not see commercial bottoming out for a very long time because the era of excessive personal consumption is over. Public works construction will likely be subdued because of declining state & local gov't revenues and unfavorable muni bond mkt. Industrial construction may increase in export related areas and domestic goods in lieu of import areas, but not so in mfg related to home and commercial property construction.
Major job losses in construction and related mfg will be a major drag on the economy going forward.
k harris - agreed on cpi vs deflator, I just wasn't expecting the gap to be that large, but Poszi - looks like you have the explanation, thank you. Reminds me why most of the time I just try to look at the trend, and not get sucked into the statistical minutia anymore.
If a weak dollar was key to the strength of GDP, what will a halt of fed cuts do? If the dollar strenghtens will GDP drop? Or will it be offset by the free money from the Govt?
I agree, numbers are what they are and we are not winning in Iraq and the economy esp housing is not at a bottom.
Fast Eddie, different chart - I just didn't add the current recession bars yet.
REBear, you can see the contributions to GDP here
. Inventories add 0.81. Last quarter inventories subtracted 1.79. So Q4 probably wasn't as weak as the headline number, and Q1 isn't as strong.
My guess is the recession started in December.
Best to all
Got this from treasurydirect:
"The Savings Bond Purchase Limitation has been changed to $5,000 per series
and TIN per calendar year. Please cancel any pending purchases that exceed
the yearly $5,000 limit."
Any ideas why?
byzantine_ruins, that was an excellent takedown. Well deserved, too, by the looks of it.
that was beautiful, byzantine_ruins
For what it is worth, year-over-year inflation through March 2008 was:
Official CPI-U: 3.98%
Shadow Government Statistics
reconstructed traditional CPI: 11.58%
Inflation understatement: 7.60%
P.S. The Shadow Stats numbers are closer to my shopping experience than the Official numbers, but then I live in the real world, not the DC all-spin zone.
By the same token, I'm sure one of the first things the Obama/McCain administration will do is to re-check the economic data to ensure that a recession didn't start (and end!) before they took office.
Of course, by then no one in "the market" will care if we had a recession last year, they just want to know how to goose the next bubble to their advantage.
I said it before: there will be NO official Recession, at least not until it is needed for some political end. It doesn't matter that jobs are vanishing, inflation is out of control, and people are being eaten by their debt-trap houses - there will be no recession.
It is all too easy to use an absurdly low inflation deflator - do you really believe inflation is running at around 2%? - or to count inflation as "growth." Prices go up, so the economy is "healthy" - absurd!
Bernanke Positive Inflation helping grow the economy, as corporations ignore the consumer recession!
Re: Virtually everything we sell is not discretionary. You know, it's a staple," Lafley told analysts in a conference call. "You have to go to the bathroom. You have to get up in the morning and brush your teeth. You've got to shower. You've got to shave ... you've got to wash your clothes."
Earlier this year, P&G raised prices by 6 percent or more for products including Iams dog food, Cascade dishwasher detergent and Zest bar soap. The company said Wednesday it has increased spending on marketing and has more price hikes coming this summer, ranging from 4.5 percent on Tampax Tanta feminine products to 11 percent for Oral-B power toothbrushes.
The company now expects fiscal 2008 earnings to be between $3.48 and $3.50 per share, up from previous guidance of $3.46 to $3.50 per share. Analysts expect $3.49 per share.
BSR writes:
0.6% annualized rate comes to 0.15% actual growth. This is sufficiently close to zero that there is good probability it could even be negative. Does anyone know measurement error (+/- %) for GDP figures?
BSR | 04.30.08 - 9:56 am
Per the BEA release linked by CR, for Real GDP, the average adjustment between Advance release (this one) and the Final release (in about 2 months) is 0.6%. The Standard Deviation is 0.4%.
These data are based on 1983-2004, no idea of whether quality of advanced reports improved or degraded since then.
Positive inflation will result in higher foreclosures where higher cost of living is associated with deceased cash flow:
Nevada, California and Arizona posted the top foreclosure rates in the first quarter, according to new data from the foreclosure tracking firm RealtyTrac.
Try this out: City Compare
Compare Cities: Scottsdale, AZ - Burbank, CA
Cost of living is the same in either place, but, Maricopa County has 6,667 Foreclosures, compared to Los Angeles County Foreclosures
of 9,033.
Maricopa County Foreclosures
County Foreclosures - 6,667
Clark County Foreclosures
County Foreclosures - 5,227
Los Angeles County Foreclosures
County Foreclosures - 9,033
Orange County Foreclosures
County Foreclosures - 2,810
Riverside County Foreclosures
County Foreclosures - 5,962
San Diego County Foreclosures
County Foreclosures - 4,336
"It is all too easy to use an absurdly low inflation deflator - do you really believe inflation is running at around 2%?"
Use of an artificially low deflator / ridiculous lies. PoTAYto, PoTATo.
"Credit where credit is due: Sebastian is right so far"
That assumes the 2.6% GDP deflator is really correct. Does anyone with a brain really believe inflation is only 2.6%!!? Growth was positive only if you believe the governments cooked books.
Definitely, the American Economy is in recession and no matter how you distort the figures or "mis-interpret" the data, the real GDP growth in the Q1 of 2008 would be negative and the pile-up in inventory is unsold goods and when the final version of the Q1 GDP growth is out, it surely is negative and we could foresee the Q2 figure should also be negative judging from the PCE figure as well as overall corporate earnings and in particular, if we look at the sales figures as well as capital expenditure of the giant retail outlets like Home Depot, WalMart as well as auto sales.
Besides, people are saving the tax rebates instead of using the money originally used as fiscal stimulus to boost consumer expenditure is now saved for the more rainy days ahead of them.
Yes, the Equity Market seems to continue to rally, which should reflect the additional liquidity injected into the financial markets by the Fed is now finding its way to the equity market which should not be regarded as healthy growth in the strictest sense. Besides, the Fed's rate cut of another 25 bps has sent the dollar further down the road so that inflation continues to spiral. Under such condition as well as the low interest rate, excess liquidity all channel to the equity market for a last bite before actual recession sets in and that is why the stock market booms whilst the economy is edging into recession simultaneously.
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