some investor guy, Yes, the problems in the financial sector will continue to pressure the economy for some time ... along with the poor shape of many household balance sheets, and the problems in housing will persist with falling prices ...
I don't expect an 'immaculate recovery' by any means. Just maybe (hopefully) the end of the cliff diving.
You will know the real recovery is taking place when new unemployment claims drop, and more things are being produced. You will know the financial system recovery is taking place when the net amount of credit and guarantees extended by the Federal Government starts declining.
CR-
What is wrong with Cliff Diving? The wide world of sports used to have Jim McKay as the announcer down there in Acapulco every year..the thrill of seeing the diver make a clean entry vs hitting the cliff was immeasurable....
On one hand, I'm heartened by the analysis and thank you, CR.
That said, I think that the PCE for 1Q09 are more of an anomaly given the tax rebates and possible shift in spending out of mortgages. And yeah, I see that happening.
As the unemployment continues to climb, I think that we'll see ourselves in a negative feedback loop with PCE again declining and RI falling again as well.
Does anyone have thoughts on whether personal consumption really be recovering in a sustainable way, when over-consumption (financed by leverage) has been at the heart of the bubble? Might this surge back in consumption just be a blip? The need to repair household balance sheets by consuming less and saving more seems big to me.
"(1) In recent recessions, unemployment significantly lagged the end of the recession. That is very likely this time too."
Why?
No really....WHY!? Because it always has? Because this downturn is the same as all others? Because the model used views the economy as some kind of machine?
This is a major mal-investment downturn. Those mal-investments are those that the gov't desperately is waisting even more resources on because otherwise we'll have "systemic failure". Or something. Probably the elites will get their mits burned. We, the sheeple are already toast.
This wasn't some kind of Keynsian inventory build up thing. This was a massive structual mal investment. Good luck with old models.
End of cliff diving? From everything I see here, the surge in PCE may be one of those little ledges sticking out from the cliff face halfway down, that you bounce off on the way to the rocks below.
The problem is this isn't just a local recession. There are really three effects going on. There is the housing/mortgage bubble. There is China/rest of world trade/capital imbalance. And there is a separate financial regulation crisis. The first quarter saw all three in play. The mortgage bubble issues should begin to wane but the other two issues plus the looming baby-boomer retirement will continue to drag on the economy.
Homedad said
"As the unemployment continues to climb, I think that we'll see ourselves in a negative feedback loop with PCE again declining and RI falling again as well"
I think that any further declines in PCE will probably due to pulling of credit from consumers Unemployment will keep it down near the bottom.
33 weeks later and whadya get?
The bills are still coming
Your unemployment ploy is wrecked
Sheriff foreclosed on me and told me to go
I owe my soul to the corporate whores...
The silence is deafening on US production of consumer goods produced by US consumers. Maybe we can all be monetarily savvy, professional parasites employed by our very own goverment.
Personal Income is down 2.0% in this report. The increase in consumption and the savings rate seem to be based on lower tax collections. Government spending was reported down for both Federal and for state and local governments. Given the balanced budget requirements of most states, I expect it to continue for several quarters.
feedback loops and reflexivity in operation are much larger than we are accustomed and are likely to push economic activity and prices farther off historical comparisons than expected.
Many households are like many corporations. Whether they realize it or not, they are both lenders and borrowers. To put it another way, households' balance sheets can have both positive and negative affects of default and interest rate moves.
Here are a few of them:
1. Real interest rates rise. The household pays more for credit card interest, and maybe ARM interest on a house. However, they also receive more interest on CDs, bank accounts, investments. Second order effects include higher taxes to pay for bond interest. Many people don't realize the extent to which they are borrowers via local, state, and Federal Government, or lenders via state and local pension systems. There is also a weak effect of reducing housing prices. On net, people who are net lenders are usually better off.
2. Default. The household itself might default, go bankrupt, or be foreclosed on. All of those improve the balance sheet, but will make future borrowing more expensive. For some, it will also make certain kinds of employment more difficult, even impossible. If other people default or get foreclosed on, the value of their investments may drop. MBS, corporate bonds, etc., will be worth somewhat less. Their home's market price will go down if there are a lot of foreclosures on the market.
Who doesn't like watching the Cliff Diversity ply their traits?
The next contestant is going to perform a 6 1/2 pike, followed by the cleanest belly-flop entry imaginable, and seeing as there is no water in the pool, the degree of difficulty is 6.66.
Just around the time household balance sheets stop hemhorraging the USG will be splitting at the seams with debt and the dollar will be on life support.
Meh, I'll stimulate equipment spending by buying that killer Gateway at the Goodwill store.
250 mb hard drive. Suh-weet.
And on a serious note, eldest came home yesterday with the news that on the heels of her chorus trip to Disney last month, the director has selected Hawaii as the destination for their tour in 2011.
She can't figure out why the response of her parents was so lacking.
CR, I don't think we have seen the last decline in PCE. Some people tend to react to fall in saving (stock market) in saying: At least let's enjoy the money we have left. Others have slammed the brakes last Q and are allowing themselves a bit more leeway this spring. The decline in PCE will resume once these trends will work themselves out.
Don't forget how higher tax rates and "fees" will effect the consumer. Unless China is a bottomless pit of cash and none of the govt. debt has to be paid down.
re: 6 of the 19 largest banks need to raise capital:
"After the Federal Reserve’s stress tests identify the country’s sickest banks next week, who will bear responsibility for shoring up their balance sheets?
Will it be solely the government? Or will the government force institutions that lent money to sick banks in better times — their creditors — to take a hit by forgiving some of the loans?"
Good one, Homedad. The audacity of chorus director ambitions has never failed to amaze me. When i was in HS we were lucky to travel 100 miles to All State. Nowadays they all want to go to Austria or England or whatever. How do they think parents are going to come up with that kind of moolah in the present economy?
As annoyed as I get at the incessant fund-raising for trips that I'll never get to take, I'm going to be seriously pissed if BoA and Citi start flogging candy bar sales.
One of the more interesting effects of the current crisis is net mortgage borrowers, and slackers with low incomes and low cost who don't plan ahead, are coming out fairly well. Net borrowers are defaulting, going bankrupt, getting foreclosed on. However, the difference in their housing cost often dwarfs the increase in future credit cost.
The slackers who aren't big savers or borrowers often had little direct effect of the crisis. If they aren't unemployed, they've probably noticed things costing a bit less.
People with little or no debt who were in the stock and bond markets got nailed.
What's going on here? The net borrowers took positions where someone else had most of the default risk. The slackers pretty much live only in the real economy, and don't interact much with lending or investment. The unleveraged investor was exposed to both direct and indirect credit and liquidity risk.
If default risk had been priced properly, or if underwriting standards had been better, much of the bubble, bust, and crisis would have been avoided.
That was one of the conversations last night as I explained why our response was so muted.
Actually, I was muted. Her mother blew a gasket.
It also created friction since she started talking about using her savings to help pay for this trip. I'll tolerate the fundraising, but her personal savings isn't for a week in Hawaii...
By PATRICK McGROARTY, Associated Press Writer – 43 mins ago
BERLIN – The World Health Organization warned Wednesday that the swine flu outbreak is moving closer to becoming a pandemic, as the United States reported the first swine flu death outside of Mexico, and Germany and Austria became latest European nations hit by the disease.
In Geneva, WHO flu chief Dr. Keiji Fukuda told reporters that there was no evidence the virus was slowing down, moving the agency closer to raising its pandemic alert to phase 5, indicating widespread human-to-human transmission.
""After the Federal Reserve’s stress tests identify the country’s sickest banks next week, who will bear responsibility for shoring up their balance sheets?
Will it be solely the government? Or will the government force institutions that lent money to sick banks in better times — their creditors — to take a hit by forgiving some of the loans?"
The NY Times is missing a whole bunch of options. 1. Buy up debt issued by the insolvent banks in the open market. It will be cheap. 2. Dissolve or break up at least some of them. The bondholders might get pennies on the dollar, or nothing. 3. Selling their performing loans and other assets, give the rest to the new RTC, FDIC, etc. 4. Do tons of short sales in problem areas. Don't let irresponsible people stay in those homes, but move them fast, perhaps with a govt subsidy.
"This wasn't some kind of Keynsian inventory build up thing."
Yeah we have a big fat debt bubble that is blowing out. I would not expect data from recent recessions to be particularly relevant. GD 1 would be a better model IMHO.
Plus. We have not fixed anything yet. Where are the perp walks, Sardanes/Oxley for the SEC, some fundamental BKs and new processes and management? What about the ratings agencies? I see the subpoenas are flying, but what has happend to keep them from ratting any damn thing AAA.
All we've done so fare is to start the Fed and Treasury borrowing and printing, and that rarely fixes anything. It might keep things from getting worse but it does not solve problems.
Who but the foolish have any confidence restored?
It is my opinion that hey still have not fixed the things that need to done yet, because they are still busy trying to hide how bad the problem is.
--
Q: Where would we be but for interventions from the USG and the Fed?
That is where we would end up after all the interventions are exhausted. BBAD didn't learn anything from the Housing Bubble, fed by all the interventions. Dopes are addicted to interventions (pumping dope). Withdrawal symptoms wouldn’t be worth the dope.
Jas, the tyranny of experts has bamboozled the dopey masses. Propaganda and disinformation is unreal. There is no more truth.
Denial is the high religion of the BABD.
“One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It is simply too painful to acknowledge — even to ourselves — that we’ve been so credulous.” — Carl Sagan
Dr. Sagan, thank you, your voice from the cosmos is heard. The big bamboozle that we need to painfully acknowledge, if only to ourselves, is that somehow we have been duped into believing that our leaders know what they are doing. Perhaps we could kindly call this “hero worship,” but it is more accurately described as the tyranny of the experts. Our culture is infatuated with heroes, and blinded by the fact that our leaders claim to be experts, but that in reality know nothing and are consistently wrong.
Bill King echoes Sagan’s brilliance in his discussion of the soon to be released stress test of the country’s largest 19 financial institutions. “A major problem with the ‘stress test’ is it depends on modeling and it’s the precise practice responsible for much of this economic and financial mess. It’s extraordinary that so many people believe that the Fed and Treasury, after missing the financial disaster, housing debacle, recession and derivative implosion, can now extrapolate economic conditions and resultant financial affects from its models. How did all that rocket-science modeling for subprime defaults and securitization workout? Yet many people already forget or ignore this reality.” They don’t know what their doing with these models, they don’t represent the real world, but they are going to go by them and pretend that they’re not WRONG.
So, who are these tyrants, and why do we listen to them at all? Why do they have so much power when they are consistently wrong? Its because we citizens, the body politic, fail to call them out when they are categorically, unqualifiedly, and are consistently wrong. The list of tyrannical experts is innumerable so we will direct our attention on Ben Bernanke, Timothy Geithner, and Hank Paulson.
...bond investors reckon the U.S. government is determined to save all systemically important financial institutions. That belief will underpin these banks' bonds so long as the government can sell enough debt to pay for bailouts, analysts said.
"These banks when they come out the other side (of the global credit crisis) will have tremendous earnings power. You are consolidating institutions and eliminating a lot of competition," Sherman said.
I respectfully suggest that a HUGE part of the problem is the thinking brought on by the use of the pronoun "we" in the quoted sentence, and all that that entails.
Is it just me or do none of the markets make sense these days? I can't for the life of me understand stocks or commodities, is forex driving everything?
Recovery of what?
Leading, lagging indicators of what?
What good is a financial recovery if the misery index doubles?
What good is PCE going up 1.5% if 10 bankers bought discounted extra Ferrarris and 100 people cut back on worthwhile medical care?
These macro numbers, even if they are accurate, do not tell much of a story.
When GDP is flat, the first derivative is zero. If GDP goes up, 1st deriv. will be positive. If GDP goes down, 1st derriv. will be negative. Less negative GDP means that the rate of decline isn't as rapid as it was, not that it has turned around.
i checked with the choral director who informed me that those without credit should continue to attempt purchases until they are relieved of the burdens of freedom at the prison bus rapture.
Come on, folks. We all knew this will be a debt double down. If it works - great. If it doesn't, we get B-Woods III. We are THE Too Big to Fail, so we're going for it in a blaze of glory, knowing full well that if the bubble fails to inflate for the umpteenth time, we'll just sign on to one world currency and one world standard of living.
nades (homepage, profile) wrote on Wed, 4/29/2009 - 9:56 am reply Ignore user
Dawg can you expound. I cant figure out how to get a positive from a slowing decline. First deriv should still be negative right? TIA...
Because the PCE is chained the +1.5% we saw Q1 09 was measured from the baseline -3.0% Q4 08. If we come in at 0.0% next quarter we will still be 1.5% below Q3 08.
One of the more interesting effects of the current crisis is net mortgage borrowers, and slackers with low incomes and low cost who don't plan ahead, are coming out fairly well.
You mean the one's who obeyed basic reality, and didn't believe we could expand indefinitely in a finite system?
Most are just watching it collapse, as the delusion of grow based economics slowly becomes apparent, and those who have been living inside a casino all their lives (anyone under 40) finally get to go outside and see what the world actually looks like.
13:00 ET "Even news from Bloomberg.com that at least six of the 19 largest U.S. banks may require additional capital has generally been ignored. In fact, participants' willingness to pick up bank stocks after watching them slide in each of the past two sessions has the KBW Bank Index up 3.5%. The strength among bank stocks has helped lift the financial sector to a 3.5% gain, which is more than any other sector."
i have the following quote, which i ~think~ i grabbed from a thread here about 2 years ago, blown up in 72 point font, and posted on the wall behind my monitor.
it makes the day to day noise less troublesome.
The debt bubble took many years to manifest and the other side of the credit expansion will be profound. As the powers that be pull the strings -- desperate times call for desperate measures -- we must allow for relative upticks in the context of more pervasive deterioration.
The bottom in American stupidity has not been reached. No recovery until then.
Again, I don't think we "wake up" until we've reached the point where we feel like we've lost control. My personal experience, and my sense from reading history, is that while people are operating under the illusion that they are controlling the world (as opposed to merely surviving in it) they stop using their brains until something shakes them out of their stupor.
Unfortunately the US has been so successful in the past that we may have to walk very far off the edge of the cliff before we have our true Wile E. Coyote moment.
Then if things haven't degenerated too badly we may still have the opportunity to genuinely shine as human beings. Or maybe not.
Reality has a uniquely cruel way of dealing with people that think they've mastered it.
some investor guy (profile) wrote on Wed, 4/29/2009 - 9:57 am reply Ignore user
"The oil glut this summer will absolutely crush PCE."
The money might go to other consumption, savings/investment.
IF there is money. I suspect in aggregate there will be less total money in the hands of consumers due to unemployment.
Oh, and a mustard seed of the oil glut: Rotterdam.
I understand what you were talking about with gas gluts and PCE. My thought was it would allow people to get out more and increase spending. Then again they might not spend if they cant.
Hmm... Mr. Market seems to be having trouble breaching the previous highs from this rally today. (S&P, DJIA, NYSE... NASDAQ has broken through.) Could be significant?
~Potemkin villages were purportedly fake settlements erected at the direction of Russian minister Grigori Aleksandrovich Potemkin to fool Empress Catherine II during her visit to Crimea in 1787. According to this story, Potemkin, who led the Crimean military campaign, had hollow facades of villages constructed along the desolate banks of the Dnieper River in order to impress the monarch and her travel party with the value of her new conquests, thus enhancing his standing in the empress's eyes. wiki
Yes folks, Potemkin Village, smoke and mirrors, call it whatyuwill ...
The delusion has reached epic proportions ... the consumer is bust ...
Blackhalo (profile) wrote on Wed, 4/29/2009 - 10:13 am reply Ignore user
"The elite seem fairly comfortable."
Well they have to be discrete about it these days. And there are less of them.
We need to spread the rumor that their flesh protects against swine flu.
The cost of postponing downturns is bigger down turns in the future, with interest, of course. Dopes want more dope now until the dope becomes useless.
Only misery will lead Americans to their senses. Nothing else can.
Hmm... Mr. Market seems to be having trouble breaching the previous highs from this rally today. (S&P, DJIA, NYSE... NASDAQ has broken through.) Could be significant?
Total employment and aggregate hours have not increased in a decade. That just doesn't square with a growing eCONomy.
There was no recovery after the dot.CON bust. Only the illusion of a recovery while fools were impoverishing themselves with debt.
Random bonus thought: At the end of 2008, the FDIC had $19 billion in reserves against $4.8 trillion in insured deposits. One big bank failure and the FDIC is Enron.
@Angry Saver "At the end of 2008, the FDIC had $19 billion in reserves against $4.8 trillion in insured deposits. One big bank failure and the FDIC is Enron."
No no no. One big bank failure and the FDIC is just another recipient of a taxpayer bailout...
sportsfan, yes, "repaid" when I meant "repair" - but I guess that typo makes sense!
homedad43, I also think PCE will probably not be as strong later in the year. But I doubt we will see -5% quarters again unless there is an exogenous shock.
I vote Citi then BofA in the that order based on FT's earlier quote that they are both disputing "parts" of the stress-tests, arguing that they are plenty-capitalized against "more realistic" stress-test assumptions, like 7.9% unemployment verses the higher number.
Time to get stress test 2.0 going with assumptions of 8.5% unemployment as worst case scenario, and GDP slipping another 1%.
On the stress-test note: can we just turn this into reality t.v. with the 19 biggest bank officers and boards collaborating against each other in various exercises of starvation, subsistence, inter and intra-tribal cannibalization, and of course other contests of strength, guile and will?--who ever is left on the island gets a commuted sentence.
The fed's balance sheet is infinite. So is the Bank of Japan's balance sheet.
The fed's balance sheet is being used to allow imprudent wealth holders to extricate themselves from their foolish financial mistakes. There is plenty of wealth in America. It's just a matter of who gets what and how much.
Somehow, I don't think the majority will their share of fed grift.
I gave up on stocks back around 1998 and went primarily to intermediate duration treasuries. I also argued with coworkers about the bogus notion that we could become rich by owning houses. My coworkers told me I was risk averse - they were right in a sense.
I'm now retired while my former coworkers are shell shocked by their finacial situations. Risk and reward. So many forgot about the risk part it seems. Go figure.
/snip
April 29 (Bloomberg) -- At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said.
/snip
And where will said capital come from...
oh, don't answer, I know. My wallet feels lighter already.
--bh
broward (homepage, profile) wrote on Wed, 4/29/2009 - 10:56 am reply Ignore user
"I thought it was important to deny them your... essence."
I am Fed-like in nature.
I can provide almost unlimited liquidity.
Man. Tough crowd eh Broward? A few years ago we'd be getting complaints that co-workers were wondering what was so funny. Maybe none of us work in offices anymore. [I laughed but I'm in a shed in my backyard. The most that could happen is I ruin a putt on the golf course.]
" Angry Saver (profile) wrote on Wed, 4/29/2009 - 10:54 am
I gave up on stocks back around 1998 and went primarily to intermediate duration treasuries. I also argued with coworkers about the bogus notion that we could become rich by owning houses. My coworkers told me I was risk averse - they were right in a sense.
I'm now retired while my former coworkers are shell shocked by their finacial situations. Risk and reward. So many forgot about the risk part it seems. Go figure."
Well said. IMHO the stock market is not much more than a casino, hardly a place to put hard-earned retirement dollars. 2.5% dividend yield on the S&P? No thanks.
As I posted yesterday, I think the greatest threat to the stock market in the coming year will be the legalization of online gambling in the US, as people will find it more interesting to bet on whether Lebron can lead the Cavs to a world championship, than to bet on AAPL. Both bets have zero actual yield, but at least it is interesting to watch your Lebron bet.
Lobbyist Ben Dover (profile) wrote on Wed, 4/29/2009 - 11:05 am reply Ignore user
How many guess Chrysler gets an extension to finish working out a deal?
Timmay has yet to turn in an assignment on time. Why not?
Thoughts - yes. PCE sustainable - no. Q1 PCE was dependent on two things: 1) Obama hope; and 2) discounting. Whoever did spend in Q1 is now looking at credit card bills and has watched the banks gorge on hand outs and fees and higher cc rates, not to mention layoffs and the end of whatever severance and savings may have been depleted in Q1. I'm a consumer with disposable income but we're just looking at every big purchase as avoidable.
Over Q1 I looked at a new car purchase--too much debt to take on--and even postponed a used car purchase for 3-4 months. Banks want to lend at extremely high rates. Home prices not going anywhere so I will continue to rent. I even looked at a flat screen tv purchase but found none in a price range to my liking. Families looking at Fall college bills and continued paydowns on other debts, I just don't see a reason to spend.
Short of it--PCE falls in Q2 along with every other category.
"6 car bombings in the last 4 hours in Iraq. Isn't that lovely. "
Doesn't surprise me at all. Bone head move by Obama setting a date for withdrawal was a green light for factions to start grabbing position. It will pick up more soon.
BofA, Citi, Suntrust, KeyCorp, Regions Financial will be converting preferred to common and in doing so diluting shareholder value...and exactly why would any of these stocks be up? WTF!
I can't stand all the Volcker adulation. It is totally undeserved.
Volcker was at the helm when OER replaced actual housing costs in the CPI. That idiotic change was the root cause of the credit and housing bubbles and was only necessary because Volker had NO intentions of eliminating the fed's inflationary policies. The change was made to mask inflation shenanigans as "investment" gains. What a sham.
Seriously. Why would that change have been necessary if Volker was indeed trying to eliminate inflation? Volker helped put the CON in our eCONomy.
Lobbyist Ben Dover (profile) wrote on Wed, 4/29/2009 - 2:10 pm reply Ignore user "6 car bombings in the last 4 hours in Iraq. Isn't that lovely. "
Doesn't surprise me at all. Bone head move by Obama setting a date for withdrawal was a green light for factions to start grabbing position. It will pick up more soon.
:Quite right. I would have burned their cities, towns, and villages to the ground, salted their fields, and carried off all their woman. Truly boneheaded.
Depends what "currency" you're measuring yield in. There is a grain of truth in the notion that the stock market produces investment in companies that produce value. Whether that's a net gain over the next best system is an open question, as the costs and outright negatives are always minimized.
Regarding Q1 vs. Q4 PCE: Don't forget that Q1 was also when the gift-cards-for-Christmas revenue was actually recognized. I know a couple % of my extended family's Q4 PCE went into gift cards for distressed family members.
Doesn't surprise me at all. Bone head move by Obama setting a date for withdrawal was a green light for factions to start grabbing position. It will pick up more soon.
BS.
This was going to happen no matter WHO won - it was obvious AQ would try to rattle the in coming admin no matter which one it was and what their 'plan' was.
As for O's date - THAT attack will come after we leave - not before. Think '72 Paris peace talks, Nixon telling us all it is 'peace with honor' and later overloaded helicopters lifting off roofs in Saigon [and then tossed empty into the sea from carriers] circa 1975. The big push in Iraq will wait until we are REALLY gone... this is just positioning and testing and would have happened ANYWAY..
Clarifying previous comment: as most posters here probably know, but some readers may not: if you buy a gift card in November/December, but the gift recipient doesn't use the card for a purchase until January or February, the spending is recognized (by the company anyway) in January or February.
Addendum: as a household we also made a conscious decision to downsize on holiday spending (except for the kids' toys) and give ourselves "coupons" to be redeemed during the post-holiday sales, when we could pick up the items we really wanted at a nice discount. This is anecdotal but it seems to fit the nationwide data.
The point of stockmarket gains producing investment is based on the notion that any given publically traded company can raise and/or borrow more capital if its market price is appreciating. However, this says nothing about whether or not the busines is raising money toward productive activites that will in fact generate more money, or doing anything useful to revenue. Usually this money is simply catipulted back to the top-management and officers in bonus form, and re-distributed as dividends to the investor class (pumping/pimping the stock) and if there's money left over, or more money to borrow, you acquire some facile "strategically" aligned business via purchase/takeover and call it day.
"Bone head move by Obama setting a date for withdrawal was a green light for factions "
If he gives no date, then why would anti-American factions believe him and not continue attacks? And if he just leaves on a surprise date, there would the same factional fight, probably worse.
Iraq has been slowly healing and they need more time to finish and gain more public strength. Korea worked and yes we are still there. Who did we fight in Viet Nam?
Obamas cut and run like Viet Nam. Welcome to reality as the last war we won was WWII. War is not chess with people.
If only he would cut sooner and run faster. These kinds of wars are NEVER won or ever done and the idiots who send our blood and treasure there never learn [And why should they? They don't have kin who bleed there & don't really care]...
I agree and disagree. These are not wars, They used the term Police actions (UN) and do end messed up. We now have a volunteer military, so the people are professionals and decided it was the job for them. Iraq should have been finished with Dessert Storm. The manner of a complete invasion was wrong in my opinion. The US divided in to two sides made the war last at least two years longer and the obvious cost. This makes Obamas decision all the more bone head. It was starting to wind down and here we are with it reving back up. I see us being there for a longer time now.
Viet Nam was a mistake from the word go. We were fighting China and Russia. That is why we would never win. The winners wright the history books. I was raised by two Vets. One WWII and the other WWII, Korea, and Viet Nam. Long list of military in my family and take none of it lightly.
I will add a couple of rooms to my beach house because the contractors are hungry and available and will make deals. Materials are a little cheaper too. My business is looking pretty crappy. So why am I spending? Who knows. It's what we do. Plus I might as well be a little poorer and a lot more comfortable. I can have unemployed friends out to the beach.
In the first reading of the first quarter, GDP declined by 6.1%, which was almost as bad as the -6.3% decline in the fourth quarter. This is the first time we have booked back to back quarters of down 6% or more since the end of WWII. The number was also far worse than the consensus expectation of a 4.7% decline.
However, digging deeper into the numbers there is some reason for optimism going forward. In this analysis I will focus on the percentage contributions to GDP rather than the percentage change in the individual components. After all, a 30% decline in a component that makes up 1% of GDP is not as significant as a 5% decline in a component that makes up 20% of GDP.
Perhaps the biggest positive surprise in the report was that Personal Consumption Expenditures (PCE) actually contributed 1.50% to GDP, after subtracting 2.99% points of growth in the fourth quarter. Regular readers of this blog will recall that I forecast that PCE would be stronger than most expected. However, I thought we might just marginally break into the plus column on the biggest part of GDP.
A contribution of 1.50% is much higher than I was expecting. All three parts of PCE were up, with spending on Durable Goods adding 0.61 (vs. -1.67 in the 4Q), Non-Durable Goods kicking in 0.26 (vs. -1.97 in the 4Q) and Services adding 0.63 (vs. +0.66 in 4Q).
Going forward, there is a big question if this strong performance can continue in the face of rapidly rising unemployment. However, in the first quarter it is clear that consumers were taking advantage of post-Christmas sales.
Looking forward, perhaps the best part of the report was that inventory investment subtracted 2.79 points from growth (vs. -0.11 in 4Q). Large inventory draw-downs in one quarter have a tendency to be reversed in the next quarter. When the shelves are bare, people start to order more to restock them, causing output to rebound.
The drop off in inventories contributed to a horrific 8.83 point decline in Gross Private Domestic Investment (GPDI). This was more than twice as bad as the already ugly -3.47 point decline in the fourth quarter.
Essentially all investment in the real economy, both fixed and inventory, residential and non-residential, came to a screeching halt in the quarter. While ugly contributions from inventories are a good thing, the same cannot be said about fixed investments. There, bad is bad, and this was real bad.
Total fixed investment subtracted 6.04 growth points, or on a stand alone basis was responsible for the entire decline in GDP (everything else offset each other). This came on the heels of a 3.36 point drag in the 4Q. Of that 6.04 point decline, 4.68 points came from non-residential investment (vs. -2.56 in the 4Q). That in turn was split between a 2.13 point drag from non-residential structures (vs. -0.38 in 4Q) and a 2.55 point drag from spending on equipment and software (vs. -2.18 in the 4Q).
Businesses simply stopped investing in new productive capacity. It is not hard to see why, when over 30% of current capacity is sitting idle. Why buy that new machine tool when you have a dozen of them sitting around gathering dust? Why build a new office building when the place across the street is half empty and the tenant is laying off workers? Expect this part of the economy to remain weak for at least several more quarters.
This is particularly true on the structures side. I suspect that most of the spending we did see in the quarter was simply finishing off projects that were started in earlier quarters. The Commercial Real Estate (CRE) bust is just getting started and will last at least another year (see graph below, larger version available at Blogger: Page not found. Investment in structures (blue line) has only started to decline and was a major contributor to GDP up until the third quarter of last year.
The decline in equipment and software has been unusually steep, and it now represents the smallest share of the economy since the mid-1960's. The decline will probably continue, but is may be at a slower rate in coming quarters.
Perhaps the most surprising number on the downside in fixed investment was the subtraction of 1.36 points from Residential Investment (RI). This was the 13th straight quarter that RI was a drag on GDP growth, and the biggest subtraction since a 1.40 point drag in the 3Q of 2006. RI is now only 2.7% of GDP, down from a peak of 6.3% in the 4Q of 2005.
At some point RI will have to stop being a big drag on GDP simply because it no longer exists. It is now at by far its lowest level relative to GDP since the end of WWII (see graph below, larger version available at Blogger: Page not found. Note that RI turning up is a classic signal that a recession is ending.
Normally the rebound is very sharp, but I have my doubts that it will be so this time around, given the huge inventory of unsold houses -- both new and used -- and the second wave of foreclosures that is starting to crash upon the shore.
Net exports helped prevent the quarter from being a total disaster, adding 1.99 points to growth, versus a subtraction of 0.11 points in the fourth quarter. This was, however, not due to a surge of exports, but rather a collapse of imports. Declining exports subtracted 4.06 points from growth in the first quarter, following a 3.44 point decline in the fourth quarter.
With the rest of the world in recession along with us, don't look for a surge in exports to help out the GDP figures anytime soon. The decline in imports was stunning (imports are a subtraction from GDP so when they fall GDP goes up) and it contributed 6.05 points to growth. Put another way, if we had continued to import in the first quarter at the rate we had in the fourth quarter, then GDP would have crashed at an annualized rate of over 12% in the first quarter.
A good part of the decline in imports can be traced to lower oil prices, but even our non-energy imports have been declining fast. When inventories are drawn down, we buy less from China as well as less from domestic manufacturers. In case you have not noticed a lot of the stuff on the shelves of Wal-Mart (WMT) and Target (TGT) comes from overseas. If PCE can continue its surprising strength going forward, the decline in imports is unlikely to continue.
Finally, and probably surprising to many in view of the concerns about the budget deficits and federal spending, the government was overall a drag on GDP -- subtracting 0.81 points after it had added 0.26 points in the fourth quarter. The Federal government was a drag of 0.32 points, more than reversing its 0.52 point addition to growth in the fourth quarter.
Defense spending swung from adding 0.18 points in the fourth quarter to subtracting 0.35 points in the first quarter. Non-defense spending added just 0.03 points vs. adding 0.34 points in the fourth quarter.
The stimulus bill had not kicked in the first quarter, and I would expect that Federal spending, particularly non-defense spending will be a much larger positive contributor to GDP in future quarters.
State and Local spending subtracted 0.49 points (vs. -0.25 in 4Q). With local tax revenues plunging and an inability to engage in deficit spending, S&L will be an increasing drag on the economy for the rest of the year. Yes, there was some support in the stimulus bill for S&L governments, but it is no where near enough to prevent them from being a big drag on the economy going forward.
Barring a negative revision in the figures, it now looks like the worst of the recession was in the fourth quarter. The second quarter will probably be very negative, but not nearly as bad as the first quarter. In turn, the third quarter will also be negative, but again less than the second quarter decline. The earliest we are likely to see a positive print for real GDP growth is the fourth quarter of this year.
If a negative revision does come for the first quarter, the most likely place to look would be in the surprisingly good PCE numbers. I would not be surprised to see inventory investment actually add to GDP in the second quarter. Even if it proves to be a zero, it would greatly help the overall GDP numbers.
On the other hand, I wonder if the PCE numbers are sustainable going forward. Non-residential investment is going to continue to be a drag on the economy for the foreseeable future, particularly in structures. Residential Investment will be less of a drag for the rest of the year.
We cannot count on net exports to continue to help as much as they did in the first quarter. Federal spending will turn into an addition to GDP by the second quarter, and will continue to grow into next year. This will only be partially offset by S&L spending being more of a drag on the economy.
The longest recession since the Great Depression is not over by a long shot, but it will not last forever. We are past the steepest rate of decline, but are still going down. As the third graph shows, the worst damage done in this quarter came from the parts of the economy that tend to be coincident or lagging to the overall economy, not those that have historically been leading indicators of the economy (once again, larger version available at Blogger: Page not found.
There are still very substantial risks out there that could cause the rate of decline to accelerate again, most notably the prospect of long messy bankruptcies in Detroit, and the worst fears of the Flu epidemic coming true (almost impossible to tell at this point).
However, the seeds of recovery have been planted. Inventory will need to be restocked and eventually businesses will have to replace some of their equipment and will start to spend again. Then again, I would not expect a bumper crop from those seeds. The recovery, when it comes, is likely to be very anemic.
Two recoveries, one real, one financial.
I'm a lagger.
getting better... slowly
It's gross being thought of as a domestic product of my environment.
"how come we never hear the good news coming out of America?"
some investor guy, Yes, the problems in the financial sector will continue to pressure the economy for some time ... along with the poor shape of many household balance sheets, and the problems in housing will persist with falling prices ...
I don't expect an 'immaculate recovery' by any means. Just maybe (hopefully) the end of the cliff diving.
best wishes.
You will know the real recovery is taking place when new unemployment claims drop, and more things are being produced. You will know the financial system recovery is taking place when the net amount of credit and guarantees extended by the Federal Government starts declining.
CR-
What is wrong with Cliff Diving? The wide world of sports used to have Jim McKay as the announcer down there in Acapulco every year..the thrill of seeing the diver make a clean entry vs hitting the cliff was immeasurable....
On one hand, I'm heartened by the analysis and thank you, CR.
That said, I think that the PCE for 1Q09 are more of an anomaly given the tax rebates and possible shift in spending out of mortgages. And yeah, I see that happening.
As the unemployment continues to climb, I think that we'll see ourselves in a negative feedback loop with PCE again declining and RI falling again as well.
glimmer of green shoots in my pants...
Note: Any recovery will probably be sluggish, because household balance sheets still need repaid (more savings),
Interesting typo, CR. I assume you meant balance sheets need "repair," but the best way for some to accomplish that would be to repay debt.
Does anyone have thoughts on whether personal consumption really be recovering in a sustainable way, when over-consumption (financed by leverage) has been at the heart of the bubble? Might this surge back in consumption just be a blip? The need to repair household balance sheets by consuming less and saving more seems big to me.
Sarah Jessica Parker reminds me of God invoking the Cubist school of art.
"(1) In recent recessions, unemployment significantly lagged the end of the recession. That is very likely this time too."
Why?
No really....WHY!? Because it always has? Because this downturn is the same as all others? Because the model used views the economy as some kind of machine?
This is a major mal-investment downturn. Those mal-investments are those that the gov't desperately is waisting even more resources on because otherwise we'll have "systemic failure". Or something. Probably the elites will get their mits burned. We, the sheeple are already toast.
This wasn't some kind of Keynsian inventory build up thing. This was a massive structual mal investment. Good luck with old models.
bleh,
........too much information.
End of cliff diving? From everything I see here, the surge in PCE may be one of those little ledges sticking out from the cliff face halfway down, that you bounce off on the way to the rocks below.
The problem is this isn't just a local recession. There are really three effects going on. There is the housing/mortgage bubble. There is China/rest of world trade/capital imbalance. And there is a separate financial regulation crisis. The first quarter saw all three in play. The mortgage bubble issues should begin to wane but the other two issues plus the looming baby-boomer retirement will continue to drag on the economy.
Homedad said
"As the unemployment continues to climb, I think that we'll see ourselves in a negative feedback loop with PCE again declining and RI falling again as well"
I think that any further declines in PCE will probably due to pulling of credit from consumers Unemployment will keep it down near the bottom.
Dammit, CR works hard at being balanced.
Shut up and be respectful, at least he's not Kudlow.
Or as Rich once said, "don't bring that sunshiny shit in here."
Great line...
I don't believe any of these numbers until the revised, revised edition comes out.
Who on earth is responsible for the increase in PCE.
Everyone I know has slowed way down in the last quarter.
Is it tax related or something?
bleh (profile) wrote on Wed, 4/29/2009 - 11:28 am glimmer of green shoots in my pants
You'd better get checked for swine flu, I hear that is one of the symptoms...
33 weeks later and whadya get?
The bills are still coming
Your unemployment ploy is wrecked
Sheriff foreclosed on me and told me to go
I owe my soul to the corporate whores...
The silence is deafening on US production of consumer goods produced by US consumers. Maybe we can all be monetarily savvy, professional parasites employed by our very own goverment.
Personal Income is down 2.0% in this report. The increase in consumption and the savings rate seem to be based on lower tax collections. Government spending was reported down for both Federal and for state and local governments. Given the balanced budget requirements of most states, I expect it to continue for several quarters.
feedback loops and reflexivity in operation are much larger than we are accustomed and are likely to push economic activity and prices farther off historical comparisons than expected.
Many households are like many corporations. Whether they realize it or not, they are both lenders and borrowers. To put it another way, households' balance sheets can have both positive and negative affects of default and interest rate moves.
Here are a few of them:
1. Real interest rates rise. The household pays more for credit card interest, and maybe ARM interest on a house. However, they also receive more interest on CDs, bank accounts, investments. Second order effects include higher taxes to pay for bond interest. Many people don't realize the extent to which they are borrowers via local, state, and Federal Government, or lenders via state and local pension systems. There is also a weak effect of reducing housing prices. On net, people who are net lenders are usually better off.
2. Default. The household itself might default, go bankrupt, or be foreclosed on. All of those improve the balance sheet, but will make future borrowing more expensive. For some, it will also make certain kinds of employment more difficult, even impossible. If other people default or get foreclosed on, the value of their investments may drop. MBS, corporate bonds, etc., will be worth somewhat less. Their home's market price will go down if there are a lot of foreclosures on the market.
How can software spending be down? I just got a copy of Win 98 at the Goodwill Store.
Who doesn't like watching the Cliff Diversity ply their traits?
The next contestant is going to perform a 6 1/2 pike, followed by the cleanest belly-flop entry imaginable, and seeing as there is no water in the pool, the degree of difficulty is 6.66.
Just around the time household balance sheets stop hemhorraging the USG will be splitting at the seams with debt and the dollar will be on life support.
Immaculate recovery indeed!
Crap, I just dumped mustard on the keyboard.
Meh, I'll stimulate equipment spending by buying that killer Gateway at the Goodwill store.
250 mb hard drive. Suh-weet.
And on a serious note, eldest came home yesterday with the news that on the heels of her chorus trip to Disney last month, the director has selected Hawaii as the destination for their tour in 2011.
She can't figure out why the response of her parents was so lacking.
CR, you're going to see a spike in PCE over the next two years as 100 kids saturate the nation with more effin' candy bar sales.
CR, I don't think we have seen the last decline in PCE. Some people tend to react to fall in saving (stock market) in saying: At least let's enjoy the money we have left. Others have slammed the brakes last Q and are allowing themselves a bit more leeway this spring. The decline in PCE will resume once these trends will work themselves out.
"Meh, I'll stimulate equipment spending by buying that killer Gateway at the Goodwill store."
don't you mean simulate?
Don't forget how higher tax rates and "fees" will effect the consumer. Unless China is a bottomless pit of cash and none of the govt. debt has to be paid down.
homedad stay away from Gateway computers not very robust.
re: 6 of the 19 largest banks need to raise capital:
"After the Federal Reserve’s stress tests identify the country’s sickest banks next week, who will bear responsibility for shoring up their balance sheets?
Will it be solely the government? Or will the government force institutions that lent money to sick banks in better times — their creditors — to take a hit by forgiving some of the loans?"
ECONOMIC SCENE; Haircuts And Their Discontents - NY Times
I think you are putting too much on a one-month variation in PCE.
--
The US economy has turned into a HOPE based economy. For BBAD, debt = hope. That is why the USG and the Fed are in debt pushing business.
The bottom in American stupidity has not been reached. No recovery until then.
Jas
Good one, Homedad. The audacity of chorus director ambitions has never failed to amaze me. When i was in HS we were lucky to travel 100 miles to All State. Nowadays they all want to go to Austria or England or whatever. How do they think parents are going to come up with that kind of moolah in the present economy?
dum luk:
As annoyed as I get at the incessant fund-raising for trips that I'll never get to take, I'm going to be seriously pissed if BoA and Citi start flogging candy bar sales.
stand and applaud when the emperor enters the chamber. continue standing and applauding until the emperor speaks.
when the emperor pauses, stand and clap until he resumes speaking.
when you see the green "applause" sign begin clapping and continue until the light goes off.
folks at home should applaud by hitting their Buy Button repeatedly.
One of the more interesting effects of the current crisis is net mortgage borrowers, and slackers with low incomes and low cost who don't plan ahead, are coming out fairly well. Net borrowers are defaulting, going bankrupt, getting foreclosed on. However, the difference in their housing cost often dwarfs the increase in future credit cost.
The slackers who aren't big savers or borrowers often had little direct effect of the crisis. If they aren't unemployed, they've probably noticed things costing a bit less.
People with little or no debt who were in the stock and bond markets got nailed.
What's going on here? The net borrowers took positions where someone else had most of the default risk. The slackers pretty much live only in the real economy, and don't interact much with lending or investment. The unleveraged investor was exposed to both direct and indirect credit and liquidity risk.
If default risk had been priced properly, or if underwriting standards had been better, much of the bubble, bust, and crisis would have been avoided.
evodevo:
That was one of the conversations last night as I explained why our response was so muted.
Actually, I was muted. Her mother blew a gasket.
It also created friction since she started talking about using her savings to help pay for this trip. I'll tolerate the fundraising, but her personal savings isn't for a week in Hawaii...
Later, folks. Gotta run.
1 quote of the day:
"The audacity of chorus director ambitions has never failed to amaze me."
PCE is chained and that means all we did was erase half the decline from the previous quarter. This sets us up for a monster Q2 drop.
"when you see the green "applause" sign begin clapping and continue until the light goes off."*
*The first to stop clapping when the light goes off will be shot.
homedad read SIG's post above. She might be better off spending it and just bumming around the world... LOL!
Oh, and this got lost in the early morning hours. The oil glut this summer will absolutely crush PCE.
Yahoo! 404 - Page Not Found
By PATRICK McGROARTY, Associated Press Writer – 43 mins ago
BERLIN – The World Health Organization warned Wednesday that the swine flu outbreak is moving closer to becoming a pandemic, as the United States reported the first swine flu death outside of Mexico, and Germany and Austria became latest European nations hit by the disease.
In Geneva, WHO flu chief Dr. Keiji Fukuda told reporters that there was no evidence the virus was slowing down, moving the agency closer to raising its pandemic alert to phase 5, indicating widespread human-to-human transmission.
Looks like the EOTWAWKI has been postponed, at least until the deficit starts to bite.
""After the Federal Reserve’s stress tests identify the country’s sickest banks next week, who will bear responsibility for shoring up their balance sheets?
Will it be solely the government? Or will the government force institutions that lent money to sick banks in better times — their creditors — to take a hit by forgiving some of the loans?"
The NY Times is missing a whole bunch of options. 1. Buy up debt issued by the insolvent banks in the open market. It will be cheap. 2. Dissolve or break up at least some of them. The bondholders might get pennies on the dollar, or nothing. 3. Selling their performing loans and other assets, give the rest to the new RTC, FDIC, etc. 4. Do tons of short sales in problem areas. Don't let irresponsible people stay in those homes, but move them fast, perhaps with a govt subsidy.
"This wasn't some kind of Keynsian inventory build up thing."
Yeah we have a big fat debt bubble that is blowing out. I would not expect data from recent recessions to be particularly relevant. GD 1 would be a better model IMHO.
Plus. We have not fixed anything yet. Where are the perp walks, Sardanes/Oxley for the SEC, some fundamental BKs and new processes and management? What about the ratings agencies? I see the subpoenas are flying, but what has happend to keep them from ratting any damn thing AAA.
All we've done so fare is to start the Fed and Treasury borrowing and printing, and that rarely fixes anything. It might keep things from getting worse but it does not solve problems.
Who but the foolish have any confidence restored?
It is my opinion that hey still have not fixed the things that need to done yet, because they are still busy trying to hide how bad the problem is.
--
Q: Where would we be but for interventions from the USG and the Fed?
That is where we would end up after all the interventions are exhausted. BBAD didn't learn anything from the Housing Bubble, fed by all the interventions. Dopes are addicted to interventions (pumping dope). Withdrawal symptoms wouldn’t be worth the dope.
Jas
Dawg can you expound. I cant figure out how to get a positive from a slowing decline. First deriv should still be negative right? TIA...
Jas, the tyranny of experts has bamboozled the dopey masses. Propaganda and disinformation is unreal. There is no more truth.
Denial is the high religion of the BABD.
THE BARRICADE » Blog Archive » The Tyranny of Experts and why it’s ok to say “They Wuz Wrong!” - Contrarian Grapeshot for a Teetering World
“One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. It is simply too painful to acknowledge — even to ourselves — that we’ve been so credulous.” — Carl Sagan
Dr. Sagan, thank you, your voice from the cosmos is heard. The big bamboozle that we need to painfully acknowledge, if only to ourselves, is that somehow we have been duped into believing that our leaders know what they are doing. Perhaps we could kindly call this “hero worship,” but it is more accurately described as the tyranny of the experts. Our culture is infatuated with heroes, and blinded by the fact that our leaders claim to be experts, but that in reality know nothing and are consistently wrong.
Bill King echoes Sagan’s brilliance in his discussion of the soon to be released stress test of the country’s largest 19 financial institutions. “A major problem with the ‘stress test’ is it depends on modeling and it’s the precise practice responsible for much of this economic and financial mess. It’s extraordinary that so many people believe that the Fed and Treasury, after missing the financial disaster, housing debacle, recession and derivative implosion, can now extrapolate economic conditions and resultant financial affects from its models. How did all that rocket-science modeling for subprime defaults and securitization workout? Yet many people already forget or ignore this reality.” They don’t know what their doing with these models, they don’t represent the real world, but they are going to go by them and pretend that they’re not WRONG.
So, who are these tyrants, and why do we listen to them at all? Why do they have so much power when they are consistently wrong? Its because we citizens, the body politic, fail to call them out when they are categorically, unqualifiedly, and are consistently wrong. The list of tyrannical experts is innumerable so we will direct our attention on Ben Bernanke, Timothy Geithner, and Hank Paulson.
"The oil glut this summer will absolutely crush PCE."
The money might go to other consumption, savings/investment.
Now you're totally confusing me. Unless of course this was snark... (I missed the news)
...bond investors reckon the U.S. government is determined to save all systemically important financial institutions. That belief will underpin these banks' bonds so long as the government can sell enough debt to pay for bailouts, analysts said.
"These banks when they come out the other side (of the global credit crisis) will have tremendous earnings power. You are consolidating institutions and eliminating a lot of competition," Sherman said.
Bond bets show government favors banks over autos
Bond bets show government favors banks over autos
| Reuters
Blackhalo,
"Plus. We have not fixed anything yet."
I respectfully suggest that a HUGE part of the problem is the thinking brought on by the use of the pronoun "we" in the quoted sentence, and all that that entails.
“Most truths are so naked that people feel sorry for them and cover them up, at least a little bit.” -Edward R. Murrow
The United States is a nation of laws, badly written and randomly enforced. - Frank Zappa
--
"Looks like the EOTWAWKI has been postponed, at least until the deficit starts to bite."
Scone,
TEOTWAWKI? Dream on. The same crooks who got us here are in-charge and have more power. Americans are screwed. Denial wouldn't change things.
Jas
Is it just me or do none of the markets make sense these days? I can't for the life of me understand stocks or commodities, is forex driving everything?
"folks at home should applaud by hitting their Buy Button repeatedly"
Thanks, Otis.
I hit "Buy" numerous times but it kept asking for a credit card number.
I need your help.
Recovery of what?
Leading, lagging indicators of what?
What good is a financial recovery if the misery index doubles?
What good is PCE going up 1.5% if 10 bankers bought discounted extra Ferrarris and 100 people cut back on worthwhile medical care?
These macro numbers, even if they are accurate, do not tell much of a story.
Swine harshes my mellow, may I suggest "Carnitas Flu" instead?
When GDP is flat, the first derivative is zero. If GDP goes up, 1st deriv. will be positive. If GDP goes down, 1st derriv. will be negative. Less negative GDP means that the rate of decline isn't as rapid as it was, not that it has turned around.
Jobless rates rise in March in all Metro areas...
Yahoo! 404 - Page Not Found
Broward,
i checked with the choral director who informed me that those without credit should continue to attempt purchases until they are relieved of the burdens of freedom at the prison bus rapture.
Come on, folks. We all knew this will be a debt double down. If it works - great. If it doesn't, we get B-Woods III. We are THE Too Big to Fail, so we're going for it in a blaze of glory, knowing full well that if the bubble fails to inflate for the umpteenth time, we'll just sign on to one world currency and one world standard of living.
nades (homepage, profile) wrote on Wed, 4/29/2009 - 9:56 am reply Ignore user
Dawg can you expound. I cant figure out how to get a positive from a slowing decline. First deriv should still be negative right? TIA...
Because the PCE is chained the +1.5% we saw Q1 09 was measured from the baseline -3.0% Q4 08. If we come in at 0.0% next quarter we will still be 1.5% below Q3 08.
One of the more interesting effects of the current crisis is net mortgage borrowers, and slackers with low incomes and low cost who don't plan ahead, are coming out fairly well.
You mean the one's who obeyed basic reality, and didn't believe we could expand indefinitely in a finite system?
Most are just watching it collapse, as the delusion of grow based economics slowly becomes apparent, and those who have been living inside a casino all their lives (anyone under 40) finally get to go outside and see what the world actually looks like.
Our ever-rising markets are glorious!
13:00 ET "Even news from Bloomberg.com that at least six of the 19 largest U.S. banks may require additional capital has generally been ignored. In fact, participants' willingness to pick up bank stocks after watching them slide in each of the past two sessions has the KBW Bank Index up 3.5%. The strength among bank stocks has helped lift the financial sector to a 3.5% gain, which is more than any other sector."
Briefing.com: Stock Market Update
"What good is a financial recovery if the misery index doubles?"
Whose misery index. The elite seem fairly comfortable.
I thought we were through with the lies when Bush left ...
Yeah, I know, change YOU can believe in ... not US!
No B-Woods III until the Treasuries collapse.
Not even Jas will be safe then.
............
i have the following quote, which i ~think~ i grabbed from a thread here about 2 years ago, blown up in 72 point font, and posted on the wall behind my monitor.
it makes the day to day noise less troublesome.
The debt bubble took many years to manifest and the other side of the credit expansion will be profound. As the powers that be pull the strings -- desperate times call for desperate measures -- we must allow for relative upticks in the context of more pervasive deterioration.
--
The Real US GDP (Grossly Disgusting products)
Crooks and dopes! Where is the good news in that, CR?
Jas
The bottom in American stupidity has not been reached. No recovery until then.
Again, I don't think we "wake up" until we've reached the point where we feel like we've lost control. My personal experience, and my sense from reading history, is that while people are operating under the illusion that they are controlling the world (as opposed to merely surviving in it) they stop using their brains until something shakes them out of their stupor.
Unfortunately the US has been so successful in the past that we may have to walk very far off the edge of the cliff before we have our true Wile E. Coyote moment.
Then if things haven't degenerated too badly we may still have the opportunity to genuinely shine as human beings. Or maybe not.
Reality has a uniquely cruel way of dealing with people that think they've mastered it.
Exactly. Even the misery index (unemployment plus inflation) is too macro to mean much.
some investor guy (profile) wrote on Wed, 4/29/2009 - 9:57 am reply Ignore user
"The oil glut this summer will absolutely crush PCE."
The money might go to other consumption, savings/investment.
IF there is money. I suspect in aggregate there will be less total money in the hands of consumers due to unemployment.
Oh, and a mustard seed of the oil glut: Rotterdam.
Thanks.
........................
I understand what you were talking about with gas gluts and PCE. My thought was it would allow people to get out more and increase spending. Then again they might not spend if they cant.
nullpointer what industry are you in and how weird do your coworkers think you are?
Q: Where would we be but for interventions from the USG and the Fed?
Just think if they hadn't stopped that market correction in 1998.
Or the one in 1927 for that matter.
Our Glorious Markets Will Never Fail!
when you see the green "applause" sign begin clapping and continue until the light goes off.
Hmm... Mr. Market seems to be having trouble breaching the previous highs from this rally today. (S&P, DJIA, NYSE... NASDAQ has broken through.) Could be significant?
"go outside and see what the world actually looks like"
Wow.
That really sucks.
I'm going back in to watch "Jerry Springer".
"The elite seem fairly comfortable."
Well they have to be discrete about it these days. And there are less of them.
Potemkin Markets ... Potemkin Country ...
~Potemkin villages were purportedly fake settlements erected at the direction of Russian minister Grigori Aleksandrovich Potemkin to fool Empress Catherine II during her visit to Crimea in 1787. According to this story, Potemkin, who led the Crimean military campaign, had hollow facades of villages constructed along the desolate banks of the Dnieper River in order to impress the monarch and her travel party with the value of her new conquests, thus enhancing his standing in the empress's eyes. wiki
Yes folks, Potemkin Village, smoke and mirrors, call it whatyuwill ...
The delusion has reached epic proportions ... the consumer is bust ...
Blackhalo (profile) wrote on Wed, 4/29/2009 - 10:13 am reply Ignore user
"The elite seem fairly comfortable."
Well they have to be discrete about it these days. And there are less of them.
We need to spread the rumor that their flesh protects against swine flu.
--
ac,
The cost of postponing downturns is bigger down turns in the future, with interest, of course. Dopes want more dope now until the dope becomes useless.
Only misery will lead Americans to their senses. Nothing else can.
Jas
"The cost of postponing downturns is bigger down turns in the future ... "
or
a complete crash ...
Well they have to be discrete about it these days. And there are less of them. -- Blackhalo
They generally are discrete, separate units. And there seem to be fewer of them. Whether they are discreet is another question.
spx breaching 875 .......ouch
Over 875!
Volcker ~
Downturn leveling off ...
Bernanke doing a great job ...
~ courtesy of Bloomberg
Hmm... Mr. Market seems to be having trouble breaching the previous highs from this rally today. (S&P, DJIA, NYSE... NASDAQ has broken through.) Could be significant?
And we have a breach.
Potemkin spell checker?
In Soviet America, Potemkin Village fools YOU.
In less than 1 hour, FED may throw some more gas on the fire.
Feh! There's nothing sublimely rediculous in the news today (except the GDP thingy which everyone has ignored like the fart in the elevator).
Even Jas is tame (or stale).
What's for excitement?
It is going to be nearly irresistible to fade the frenzy that will undoubtedly follow todays Fed alphabet soup announcement.
OK I better sell some junk bonds while this bubble lasts.
Volcker has now lost all credibility ...
another Potemkin voice ...
In less than 4 hours, FED may throw some more gas on the fire.
Fed announcement at 2:15 EDT, no? 45 minutes.
Total employment and aggregate hours have not increased in a decade. That just doesn't square with a growing eCONomy.
There was no recovery after the dot.CON bust. Only the illusion of a recovery while fools were impoverishing themselves with debt.
Random bonus thought: At the end of 2008, the FDIC had $19 billion in reserves against $4.8 trillion in insured deposits. One big bank failure and the FDIC is Enron.
WOW! I think it's time for a new 4 Bad Bears chart update.
Incredible equities rally.
@Angry Saver "At the end of 2008, the FDIC had $19 billion in reserves against $4.8 trillion in insured deposits. One big bank failure and the FDIC is Enron."
No no no. One big bank failure and the FDIC is just another recipient of a taxpayer bailout...
-- Wisdom Speaker, feeling breached at 875...
You are right ... less than an hour ... I was thinking in the wrong time zone.
sportsfan, yes, "repaid" when I meant "repair" - but I guess that typo makes sense!
homedad43, I also think PCE will probably not be as strong later in the year. But I doubt we will see -5% quarters again unless there is an exogenous shock.
best to all.
I vote Citi then BofA in the that order based on FT's earlier quote that they are both disputing "parts" of the stress-tests, arguing that they are plenty-capitalized against "more realistic" stress-test assumptions, like 7.9% unemployment verses the higher number.
Time to get stress test 2.0 going with assumptions of 8.5% unemployment as worst case scenario, and GDP slipping another 1%.
good grief.
--bh
"Volcker has now lost all credibility"
He was merely a puppet in the play.
Shirley this was clear in the original news conference when he first appeared?
unless there is an exogenous shock.
Like a meltdown in the banking sector?
"unless there is an exogenous shock."
~~~~
Swine Flu blamed for tanking economy ...
I can see the headlines now ...
On the stress-test note: can we just turn this into reality t.v. with the 19 biggest bank officers and boards collaborating against each other in various exercises of starvation, subsistence, inter and intra-tribal cannibalization, and of course other contests of strength, guile and will?--who ever is left on the island gets a commuted sentence.
--bh
But I doubt we will see -5% quarters again unless there is an exogenous shock. - CR
Oil glut? California bailout? Double digit UE? Dollar crisis?
I think the question is how many exogenous shocks we can expect.
So who's forcing the rally-- the institutional buyers or the average Joe types?
"unless there is an exogenous shock."
CR readers go bust as they remain persistently neagtive and their shorts are pulled over their ears thereby draining the market of liquidity.
"10y bond 3.02% +0.02 (0.67%)"
Dollar is looking peckish too.
This rally might just run into some fundamentals before too long.
Agree with Rob Dawg.
I'm thinking Shoe Rain.
-bh
"Volcker has now lost all credibility ... "
He's been compromised. They've gotten to him.
swine flu civil disobedience:
404 - PAGE NOT FOUND
Swine flu blamed for tanking economy....Sounds much better than Wallstreet Bankers facing Rico for looting the US Treasury.
nades-
i am a sr. geek.
coworkers thought i was a nut job 2 years ago.
but now that they are "re-assessing" their retirement plans....not so much.
The fed's balance sheet is infinite. So is the Bank of Japan's balance sheet.
The fed's balance sheet is being used to allow imprudent wealth holders to extricate themselves from their foolish financial mistakes. There is plenty of wealth in America. It's just a matter of who gets what and how much.
Somehow, I don't think the majority will their share of fed grift.
"In less than 4 hours, FED may throw some more gas on the fire.
Fed announcement at 2:15 EDT, no? 45 minutes.
"
it might be already priced in.
Bien Dien Flu
"their shorts are pulled over their ears thereby draining the market of liquidity."
Sorry, but that's my girlfriend's job, bud.
Fed announcement at 2:15 EDT, no? 45 minutes.""""
fed announced early:
everything is fine.
go back inside.
Hit Buy
Your girlfriend gives you wedgies? To each his own, I suppose.
The fed's balance sheet is infinite. So is the Bank of Japan's balance sheet.
Unlimited, perhaps. Infinite, no.
"The fed's balance sheet is infinite."
if you are an ant, a football field might seem infinite as well.
it might be already priced in.
Sure seems possible. The 1:30 burst seemed like someone who knew or thought they knew something buying the rumor.
CR readers go bust as they remain persistently neagtive and their shorts are pulled over their ears thereby draining the market of liquidity.""""
let's see if this rally holds through june.
nothing but exogenous shocks in the Newzac.
broward (homepage, profile) wrote (in reply to...) on Wed, 4/29/2009 - 10:48 am reply Ignore user
"their shorts are pulled over their ears thereby draining the market of liquidity."
Sorry, but that's my girlfriend's job, bud.
I thought it was important to deny them your... essence.
Nullpointer,
I gave up on stocks back around 1998 and went primarily to intermediate duration treasuries. I also argued with coworkers about the bogus notion that we could become rich by owning houses. My coworkers told me I was risk averse - they were right in a sense.
I'm now retired while my former coworkers are shell shocked by their finacial situations. Risk and reward. So many forgot about the risk part it seems. Go figure.
"Your girlfriend gives you wedgies?"
No, she drains my liquidity.
--
""Volcker has now lost all credibility ... " He's been compromised. They've gotten to him. "
Otherwise, he wouldn't have the job. Summers is the quarterback. Volcker, a big guy, is the lineman. Obama is Summers' cheerleader on the sidelines.
What a system!
Jas
"I thought it was important to deny them your... essence."
I am Fed-like in nature.
I can provide almost unlimited liquidity.
CalculatedRisk,
One simple question-
How can we have a recovery if the systemic imbalances and behaviors that led us here are not corrected?
"Swine flu blamed for tanking economy....
Sounds much better than Wallstreet Bankers facing Rico for looting the US Treasury."
~~~~
Doesn't it ?
The MSM will only be too happy to comply ...
10 yr moving...
Lucifer - the system has never been and will never be perfect. The recovery will arrive and you will miss it.
Fed Is Said to Seek Capital for at Least Six Banks (Update2) - Bloomberg.com
/snip
April 29 (Bloomberg) -- At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests, people briefed on the matter said.
/snip
And where will said capital come from...
oh, don't answer, I know. My wallet feels lighter already.
--bh
Lucifer, your query appears to be more rhetorical than simple.
don't hit the Sell Button until U3 reaches 40%.
unlock codes will be sent by carrier pigeon.
Behold Our Glorious Markets!
6 car bombings in the last 4 hours in Iraq. Isn't that lovely.
broward (homepage, profile) wrote on Wed, 4/29/2009 - 10:56 am reply Ignore user
"I thought it was important to deny them your... essence."
I am Fed-like in nature.
I can provide almost unlimited liquidity.
Man. Tough crowd eh Broward? A few years ago we'd be getting complaints that co-workers were wondering what was so funny. Maybe none of us work in offices anymore. [I laughed but I'm in a shed in my backyard. The most that could happen is I ruin a putt on the golf course.]
" Angry Saver (profile) wrote on Wed, 4/29/2009 - 10:54 am
I gave up on stocks back around 1998 and went primarily to intermediate duration treasuries. I also argued with coworkers about the bogus notion that we could become rich by owning houses. My coworkers told me I was risk averse - they were right in a sense.
I'm now retired while my former coworkers are shell shocked by their finacial situations. Risk and reward. So many forgot about the risk part it seems. Go figure."
Well said. IMHO the stock market is not much more than a casino, hardly a place to put hard-earned retirement dollars. 2.5% dividend yield on the S&P? No thanks.
As I posted yesterday, I think the greatest threat to the stock market in the coming year will be the legalization of online gambling in the US, as people will find it more interesting to bet on whether Lebron can lead the Cavs to a world championship, than to bet on AAPL. Both bets have zero actual yield, but at least it is interesting to watch your Lebron bet.
Carnitas Flu
+10
"How can we have a recovery if the systemic imbalances and behaviors that led us here are not corrected?"
~~~~
This comment has been reported to the NSA for possible action ...
--
VIX is crumbling. Great market for those who know how to stangle.
Jas
How many guess Chrysler gets an extension to finish working out a deal?
We went through this last night too.
This is an economics blog not a math blog.
I love math and could spend hours thinking about the differences between infinite, unlimited, unbounded, undefined, irrational and imaginary.
But for the purposes of inflation, the FED can print more money than you can dream.
Is anyone factoring in the massive layoffs coming from local governments in July?
Lobbyist Ben Dover (profile) wrote on Wed, 4/29/2009 - 11:05 am reply Ignore user
How many guess Chrysler gets an extension to finish working out a deal?
Timmay has yet to turn in an assignment on time. Why not?
Thoughts - yes. PCE sustainable - no. Q1 PCE was dependent on two things: 1) Obama hope; and 2) discounting. Whoever did spend in Q1 is now looking at credit card bills and has watched the banks gorge on hand outs and fees and higher cc rates, not to mention layoffs and the end of whatever severance and savings may have been depleted in Q1. I'm a consumer with disposable income but we're just looking at every big purchase as avoidable.
Over Q1 I looked at a new car purchase--too much debt to take on--and even postponed a used car purchase for 3-4 months. Banks want to lend at extremely high rates. Home prices not going anywhere so I will continue to rent. I even looked at a flat screen tv purchase but found none in a price range to my liking. Families looking at Fall college bills and continued paydowns on other debts, I just don't see a reason to spend.
Short of it--PCE falls in Q2 along with every other category.
mmckinl;
Just one of those stupid conundrums.
"Oil glut? California bailout? Double digit UE? Dollar crisis?
I think the question is how many exogenous shocks we can expect."
"Is anyone factoring in the massive layoffs coming from local governments in July?"
~~~~~
Everything going that is going wrong WILL, I repeat WILL, be blamed on :
The Swine Flu ...
"6 car bombings in the last 4 hours in Iraq. Isn't that lovely. "
Doesn't surprise me at all. Bone head move by Obama setting a date for withdrawal was a green light for factions to start grabbing position. It will pick up more soon.
BofA, Citi, Suntrust, KeyCorp, Regions Financial will be converting preferred to common and in doing so diluting shareholder value...and exactly why would any of these stocks be up? WTF!
--bh
--
STRANGLE.
Obama told me to spend so I just spent 25K of BoA's money. Details next Tuesday so don't ask questions.
I can't stand all the Volcker adulation. It is totally undeserved.
Volcker was at the helm when OER replaced actual housing costs in the CPI. That idiotic change was the root cause of the credit and housing bubbles and was only necessary because Volker had NO intentions of eliminating the fed's inflationary policies. The change was made to mask inflation shenanigans as "investment" gains. What a sham.
Seriously. Why would that change have been necessary if Volker was indeed trying to eliminate inflation? Volker helped put the CON in our eCONomy.
Boo on Volcker and the rest of the fed.
Lobbyist Ben Dover (profile) wrote on Wed, 4/29/2009 - 2:10 pm reply Ignore user "6 car bombings in the last 4 hours in Iraq. Isn't that lovely. "
Doesn't surprise me at all. Bone head move by Obama setting a date for withdrawal was a green light for factions to start grabbing position. It will pick up more soon.
:Quite right. I would have burned their cities, towns, and villages to the ground, salted their fields, and carried off all their woman. Truly boneheaded.
"Boo on Volcker and the rest of the fed."
~~~
It was the Swine Flu ...
"Both bets have zero actual yield,..."
Depends what "currency" you're measuring yield in. There is a grain of truth in the notion that the stock market produces investment in companies that produce value. Whether that's a net gain over the next best system is an open question, as the costs and outright negatives are always minimized.
Regarding Q1 vs. Q4 PCE: Don't forget that Q1 was also when the gift-cards-for-Christmas revenue was actually recognized. I know a couple % of my extended family's Q4 PCE went into gift cards for distressed family members.
And the Fed says... ??
3rd stage ignition? orbit?
Doesn't surprise me at all. Bone head move by Obama setting a date for withdrawal was a green light for factions to start grabbing position. It will pick up more soon.
BS.
This was going to happen no matter WHO won - it was obvious AQ would try to rattle the in coming admin no matter which one it was and what their 'plan' was.
As for O's date - THAT attack will come after we leave - not before. Think '72 Paris peace talks, Nixon telling us all it is 'peace with honor' and later overloaded helicopters lifting off roofs in Saigon [and then tossed empty into the sea from carriers] circa 1975. The big push in Iraq will wait until we are REALLY gone... this is just positioning and testing and would have happened ANYWAY..
"Fed calls U.S. economic outlook modestly improved"
I agree...sorry
Clarifying previous comment: as most posters here probably know, but some readers may not: if you buy a gift card in November/December, but the gift recipient doesn't use the card for a purchase until January or February, the spending is recognized (by the company anyway) in January or February.
Addendum: as a household we also made a conscious decision to downsize on holiday spending (except for the kids' toys) and give ourselves "coupons" to be redeemed during the post-holiday sales, when we could pick up the items we really wanted at a nice discount. This is anecdotal but it seems to fit the nationwide data.
The point of stockmarket gains producing investment is based on the notion that any given publically traded company can raise and/or borrow more capital if its market price is appreciating. However, this says nothing about whether or not the busines is raising money toward productive activites that will in fact generate more money, or doing anything useful to revenue. Usually this money is simply catipulted back to the top-management and officers in bonus form, and re-distributed as dividends to the investor class (pumping/pimping the stock) and if there's money left over, or more money to borrow, you acquire some facile "strategically" aligned business via purchase/takeover and call it day.
--bh
"Bone head move by Obama setting a date for withdrawal was a green light for factions "
If he gives no date, then why would anti-American factions believe him and not continue attacks? And if he just leaves on a surprise date, there would the same factional fight, probably worse.
Obamas cut and run like Viet Nam. Welcome to reality as the last war we won was WWII. War is not chess with people.
Iraq has been slowly healing and they need more time to finish and gain more public strength. Korea worked and yes we are still there. Who did we fight in Viet Nam?
Obamas cut and run like Viet Nam. Welcome to reality as the last war we won was WWII. War is not chess with people.
If only he would cut sooner and run faster. These kinds of wars are NEVER won or ever done and the idiots who send our blood and treasure there never learn [And why should they? They don't have kin who bleed there & don't really care]...
dryfly,
I agree and disagree. These are not wars, They used the term Police actions (UN) and do end messed up. We now have a volunteer military, so the people are professionals and decided it was the job for them. Iraq should have been finished with Dessert Storm. The manner of a complete invasion was wrong in my opinion. The US divided in to two sides made the war last at least two years longer and the obvious cost. This makes Obamas decision all the more bone head. It was starting to wind down and here we are with it reving back up. I see us being there for a longer time now.
Viet Nam was a mistake from the word go. We were fighting China and Russia. That is why we would never win. The winners wright the history books. I was raised by two Vets. One WWII and the other WWII, Korea, and Viet Nam. Long list of military in my family and take none of it lightly.
I will add a couple of rooms to my beach house because the contractors are hungry and available and will make deals. Materials are a little cheaper too. My business is looking pretty crappy. So why am I spending? Who knows. It's what we do. Plus I might as well be a little poorer and a lot more comfortable. I can have unemployed friends out to the beach.
We won in Iraq and Afghanistan. It's just going to keep costing billions to keep winning.
My write up on GDP for Zacks:
In the first reading of the first quarter, GDP declined by 6.1%, which was almost as bad as the -6.3% decline in the fourth quarter. This is the first time we have booked back to back quarters of down 6% or more since the end of WWII. The number was also far worse than the consensus expectation of a 4.7% decline.
However, digging deeper into the numbers there is some reason for optimism going forward. In this analysis I will focus on the percentage contributions to GDP rather than the percentage change in the individual components. After all, a 30% decline in a component that makes up 1% of GDP is not as significant as a 5% decline in a component that makes up 20% of GDP.
Perhaps the biggest positive surprise in the report was that Personal Consumption Expenditures (PCE) actually contributed 1.50% to GDP, after subtracting 2.99% points of growth in the fourth quarter. Regular readers of this blog will recall that I forecast that PCE would be stronger than most expected. However, I thought we might just marginally break into the plus column on the biggest part of GDP.
A contribution of 1.50% is much higher than I was expecting. All three parts of PCE were up, with spending on Durable Goods adding 0.61 (vs. -1.67 in the 4Q), Non-Durable Goods kicking in 0.26 (vs. -1.97 in the 4Q) and Services adding 0.63 (vs. +0.66 in 4Q).
Going forward, there is a big question if this strong performance can continue in the face of rapidly rising unemployment. However, in the first quarter it is clear that consumers were taking advantage of post-Christmas sales.
Looking forward, perhaps the best part of the report was that inventory investment subtracted 2.79 points from growth (vs. -0.11 in 4Q). Large inventory draw-downs in one quarter have a tendency to be reversed in the next quarter. When the shelves are bare, people start to order more to restock them, causing output to rebound.
The drop off in inventories contributed to a horrific 8.83 point decline in Gross Private Domestic Investment (GPDI). This was more than twice as bad as the already ugly -3.47 point decline in the fourth quarter.
Essentially all investment in the real economy, both fixed and inventory, residential and non-residential, came to a screeching halt in the quarter. While ugly contributions from inventories are a good thing, the same cannot be said about fixed investments. There, bad is bad, and this was real bad.
Total fixed investment subtracted 6.04 growth points, or on a stand alone basis was responsible for the entire decline in GDP (everything else offset each other). This came on the heels of a 3.36 point drag in the 4Q. Of that 6.04 point decline, 4.68 points came from non-residential investment (vs. -2.56 in the 4Q). That in turn was split between a 2.13 point drag from non-residential structures (vs. -0.38 in 4Q) and a 2.55 point drag from spending on equipment and software (vs. -2.18 in the 4Q).
Businesses simply stopped investing in new productive capacity. It is not hard to see why, when over 30% of current capacity is sitting idle. Why buy that new machine tool when you have a dozen of them sitting around gathering dust? Why build a new office building when the place across the street is half empty and the tenant is laying off workers? Expect this part of the economy to remain weak for at least several more quarters.
This is particularly true on the structures side. I suspect that most of the spending we did see in the quarter was simply finishing off projects that were started in earlier quarters. The Commercial Real Estate (CRE) bust is just getting started and will last at least another year (see graph below, larger version available at Blogger: Page not found. Investment in structures (blue line) has only started to decline and was a major contributor to GDP up until the third quarter of last year.
The decline in equipment and software has been unusually steep, and it now represents the smallest share of the economy since the mid-1960's. The decline will probably continue, but is may be at a slower rate in coming quarters.
Perhaps the most surprising number on the downside in fixed investment was the subtraction of 1.36 points from Residential Investment (RI). This was the 13th straight quarter that RI was a drag on GDP growth, and the biggest subtraction since a 1.40 point drag in the 3Q of 2006. RI is now only 2.7% of GDP, down from a peak of 6.3% in the 4Q of 2005.
At some point RI will have to stop being a big drag on GDP simply because it no longer exists. It is now at by far its lowest level relative to GDP since the end of WWII (see graph below, larger version available at Blogger: Page not found. Note that RI turning up is a classic signal that a recession is ending.
Normally the rebound is very sharp, but I have my doubts that it will be so this time around, given the huge inventory of unsold houses -- both new and used -- and the second wave of foreclosures that is starting to crash upon the shore.
Net exports helped prevent the quarter from being a total disaster, adding 1.99 points to growth, versus a subtraction of 0.11 points in the fourth quarter. This was, however, not due to a surge of exports, but rather a collapse of imports. Declining exports subtracted 4.06 points from growth in the first quarter, following a 3.44 point decline in the fourth quarter.
With the rest of the world in recession along with us, don't look for a surge in exports to help out the GDP figures anytime soon. The decline in imports was stunning (imports are a subtraction from GDP so when they fall GDP goes up) and it contributed 6.05 points to growth. Put another way, if we had continued to import in the first quarter at the rate we had in the fourth quarter, then GDP would have crashed at an annualized rate of over 12% in the first quarter.
A good part of the decline in imports can be traced to lower oil prices, but even our non-energy imports have been declining fast. When inventories are drawn down, we buy less from China as well as less from domestic manufacturers. In case you have not noticed a lot of the stuff on the shelves of Wal-Mart (WMT) and Target (TGT) comes from overseas. If PCE can continue its surprising strength going forward, the decline in imports is unlikely to continue.
Finally, and probably surprising to many in view of the concerns about the budget deficits and federal spending, the government was overall a drag on GDP -- subtracting 0.81 points after it had added 0.26 points in the fourth quarter. The Federal government was a drag of 0.32 points, more than reversing its 0.52 point addition to growth in the fourth quarter.
Defense spending swung from adding 0.18 points in the fourth quarter to subtracting 0.35 points in the first quarter. Non-defense spending added just 0.03 points vs. adding 0.34 points in the fourth quarter.
The stimulus bill had not kicked in the first quarter, and I would expect that Federal spending, particularly non-defense spending will be a much larger positive contributor to GDP in future quarters.
State and Local spending subtracted 0.49 points (vs. -0.25 in 4Q). With local tax revenues plunging and an inability to engage in deficit spending, S&L will be an increasing drag on the economy for the rest of the year. Yes, there was some support in the stimulus bill for S&L governments, but it is no where near enough to prevent them from being a big drag on the economy going forward.
Barring a negative revision in the figures, it now looks like the worst of the recession was in the fourth quarter. The second quarter will probably be very negative, but not nearly as bad as the first quarter. In turn, the third quarter will also be negative, but again less than the second quarter decline. The earliest we are likely to see a positive print for real GDP growth is the fourth quarter of this year.
If a negative revision does come for the first quarter, the most likely place to look would be in the surprisingly good PCE numbers. I would not be surprised to see inventory investment actually add to GDP in the second quarter. Even if it proves to be a zero, it would greatly help the overall GDP numbers.
On the other hand, I wonder if the PCE numbers are sustainable going forward. Non-residential investment is going to continue to be a drag on the economy for the foreseeable future, particularly in structures. Residential Investment will be less of a drag for the rest of the year.
We cannot count on net exports to continue to help as much as they did in the first quarter. Federal spending will turn into an addition to GDP by the second quarter, and will continue to grow into next year. This will only be partially offset by S&L spending being more of a drag on the economy.
The longest recession since the Great Depression is not over by a long shot, but it will not last forever. We are past the steepest rate of decline, but are still going down. As the third graph shows, the worst damage done in this quarter came from the parts of the economy that tend to be coincident or lagging to the overall economy, not those that have historically been leading indicators of the economy (once again, larger version available at Blogger: Page not found.
There are still very substantial risks out there that could cause the rate of decline to accelerate again, most notably the prospect of long messy bankruptcies in Detroit, and the worst fears of the Flu epidemic coming true (almost impossible to tell at this point).
However, the seeds of recovery have been planted. Inventory will need to be restocked and eventually businesses will have to replace some of their equipment and will start to spend again. Then again, I would not expect a bumper crop from those seeds. The recovery, when it comes, is likely to be very anemic.
coworkers thought i was a nut job 2 years ago.
but now that they are "re-assessing" their retirement plans....not so much.
LOL !
It's slowly getting better and better now. I must say it's a positive sign.