Bernanke, Roubini Revise Down Q4 Estimates
Submitted by
CalculatedRisk on Tue, 11/28/2006 - 2:23pm (25 comments)
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My gut feeling is that the US economy has begun to contract as of late November. That would be consistent with Roubini's forecast - a 0% Q4 GDP would imply growth in the 1st half of the quarter and contraction in the 2nd half.
But my "gut feeling" comes from the recent flow of economic data and my observations of the bond market. It's felt substantially different to me in the past couple of weeks - I think a "flight to quality" has begun and is growing wings.
Strong holiday retail sales would cause me to rethink my position. Or if I'm just completely wrong.
Next Fed meeting Dec 12th 2006
Fed meeting Jan 30/31 2007
fed meeting Mar 21st 2007
I think the Deutsche Bank call is the most interesting. Not only is Joe LaVorgna one of the best economists (based on calls) on the street but DB actually has a lot to lose or gain by getting their call right.
As long as everyone is making predictions, here's mine: There will be an unscheduled Fed meeting taking place in Feb 07.
and if inflation were properly measured, we'd have entered negative real growth sometime back. i think that corresponds to the merger wave (no real organic growth, must buy it elsewhere) and the naked wealth grab by CEO's and management (get it now, because when the Great Unwashed wake up to the sorry situation it will be that much more difficult to steal the next Hundo)
Joe Lavorgna rocks! He's is totally in tune with the GAMES the Gov't is playing with all the economic data. He'll tell you that straight up. Anyway, he's very much a good economist and a good guy.
This guy has been right on the money with his calulations of m2-m1.
http://chevallier.turgot.org/a446-The_Treasury_Bonds_market_is_the_best_.html
Now predicting GDP of 0% or 0.4% at the best.
Here is what the NAHB has to say
(they have a good crystal ball they got on ebay).
IS IT BETTER TO WAIT UNTIL THE ECONOMIC PICTURE IS CLEARER SO MY HOUSE WILL APPRECIATE?
\t
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No.
The fact is, the economy is still solid. After expanding rapidly over the past couple of years, economic growth is moderating and this is actually good for housing. Most economists predict that overall GDP growth will average about 2.5 percent for the rest of the year. That means that job growth will continue to move forward at a pace that should not trigger higher inflation rates or higher interest rates. This period of moderate economic growth, job creation and low inflation, coupled with a true buyers market where there are plenty of homes to choose from, makes this an ideal time to purchase a new home.
National Association of Home Builders
Ya but what about Christmas?
lol - but not all that loud, really
I'm still guessing GDP surprises to the upside - but according to all that CR posted about anything north of zero is 'upside' now.
So when do the job numbers catch up? I know it is a 'lagging' indicator but usually not that far behind sentiment & sentiment seems pretty sour.
And if this is a real stinker it will mean more than just RE jobs - it will rapidly spill over into services & retail if this is a serious neg GDP event (used to be mfg but that was wiped off the map long ago)... anyone?
dryfly, I agree with this Bernanke comment today: "At this juncture, information about economic activity in the fourth quarter is limited, and the range of plausible outcomes remains wide."
Obviously housing will be terrible in Q4 and subtract another 1%+ off of GDP (like in Q3). But nonresidential investment will still be strong, so add back 0.5% or so. And net exports will probaby be slightly positive with the drop in oil prices. Last quarter net exports contributed negative 0.58%.
So it all comes down to personal consumption (as always). If Q4 is about the same as Q3, I'd guess GDP comes in at 2.5% or so. I don't think we have enough retail data to say 0% ... but it does seem weaker than Q3 ... so maybe 2% would be the high side right now.
An upside surprise is still possible.
Best Wishes.
watched Bernanke on TV tonight:
Inflation seem to be thrust of his speech and how the Fed is watching its every move. His final remarks regarding how the American economy would survive any crisis and be in great shape in the long term blah blah made me think that rough times may be coming and the Fed could be into tough love.
CR - I think 'consumption' will be high just because its the holidays and most folks haven't caught on how serious things are and there is SO much credit available.
I talk to a lot of people in my business as does my wife in hers - and we just don't think folks get it yet, not from what we hear. So my guess is they spend like it is any other holiday season.
Now my circle of contacts is decidedly 'regional' - upper midwest... maybe as far east as Pennsylvania and as far west as 'The Rockies'... so I have no solid take on sentiment on the west coast or the east coast... and as we all know lots more folks there than 'fly over'.
But I just don't sense the panic yet - not like in the 90-91 recession or the 80s (when it really sucked - you can't imagine how negative it was out here in the middle in the ag crisis).
As a result I still feel the consumer will deliver one more hurrah... after that who knows.
Your a blog is a real service - keep up the good work.
Damn, Roubini is definitely kicking but, forecasting-wise.
dryfly, I think you're making a mistake by pinning too much to anncdotal evidence. For one thing, you're survey seems to have missed what's going on in places like Michigan, Ohio and Indiana. Check out the 3rd qtr figures from NAR by metropolitan area. Just about every city in those states is experiencing significant price declines, even though they never had the big price increases.
And read the durable goods report from this morning: non-defense capital goods ex aircraft, -5%.
There isn't a panic, but I would bet big money that the three states I listed, all within your area, are actually in recession right now.
Roubini, and our own Tanta, called it very close very early. Hats off!
Todays report on Sacramento has been released!
Daily Home Price Analysis
I recommend CR run for prez in 08
There isn't a panic, but I would bet big money that the three states I listed, all within your area, are actually in recession right now.
I spend time in Ohio & Michigan - I have siblings in both states. One near Cleveland and the other near Detroit... so ya I see that too.
And the durables were a disaster - not just bad. Overshadowed by the NAR report & BB but in many ways a bigger story economy wise.
These parts of the country are in recession or damned close, no doubt... but it's been bad in mfging in those states for almost a decade now, so what's all that new? If you were out here you'd know that. I was talking to some of my mfg contacts last week before the holiday and they all said the same thing - 'ya we're down, what's new?'
I think the rest of the country might be catching up with the story & THATS new... but enough so they don't buy presents this holiday? I don't think so - not yet.
That's my point - Visa & Master Card are still out there pounding away at people - credit is still READILY available. I will be surprised if this Holiday Season is down much at all.
After the Holiday Season? Then it get's interesting. That's why I think 4Q-06 surprises to the upside.
Just my hunch.
CR, with home starts and permits consistently ratcheting down, month after month, wouldn't you think that fixed residential investment will shave off more from 4th Qtr. GDP than it did in the 3rd Qtr.?
winjr, we will know more when construction spending is released later this week. I'll post how they calculate fixed residential investment - and what I think the October report shows for Q4.
Best Regards.
dryfly,
Moreover, the average family is now spending 14.4 percent of its disposable income on debt repayments -- the largest share since the Fed began collecting such data in 1980.
Spending more than we make
While I guess everybody is free to spend themselves into total oblivion, I would think it might start having an impact out on the margins which might just be enough.
dryfly,
Also, the housing boom ended due to sheer exhaustion. Easy credit was, and in many cases is, still readily available for home buyers. Easy credit doesn't necessarily translate into increased consumption - although for the past four years it pretty much has.
Like the Doctor says, its just the marginal consumer that needs to start cutting back.
It'll be interesting. We'll all know shortly.
I'm about as far from a Keynsian as you can get, but he did have some astute observations. One was along the lines of economic change takes much longer than forecast to begin, but then happens much faster than expected. The other was his depression era observation on the paradox of thrift - when indebted consumers decide to start saving, it becomes a race to the bottom for the economy. One day Joe six pack is going to wake up and realize that debt spending doesn't equal prosperity. We're not there yet, but that day is getting very close.
Dryfly, I disagree with you about the shopping continuing.
Ignore the NFR advertisement - or rather, treat it with the same trust you treat the ones from the NAR, for much the same reason. (Not least, a report of sales over a three day weekend based on surveys that started the day before and ended halfway through the second day of the sale? This is "data"?) What I'm seeing in hard numbers is sales lower than expected - Walmart's lower numbers, the ICSC reporting an expectation of YOY sales increase to be less than 3%, etc. (Really looking forward to Thursday's release of sales numbers from the ICSC as the one from yesterday only took things halfway into the weekend -- tomorrow's release will get the whole weekend and so give us a better picture.)
At best, I'm anticipating an increase less than inflation. I don't think it'll be less than last year in absolute numbers - at least, I hope not - but that sets the range of my expectations: Absolute growth is 0 to 3 percent YOY. Adjusted growth is negative.
Vader's New Capitalism.
Issue credit cards to prime customer.
Issue Mortgage to prime customer.
Issue Car Debt to prime customer.
Take fees.
Take interest.
Package debt for more fees.
Sell Debt for profit.
Service payments for fees.
Issue debt to former prime customer.
refi Mortgage to former prime customer for fees.
Issue more credit cards to former prime customer.
Issue New Car Debt to former prime customer.
Take fees.
Take interest.
Package debt for more fees.
Sell Debt for profit.
Service payments for fees.
Issue debt to regular customer.
refi Mortgage to regular customer for fees.
Issue more credit cards to regular customer.
Issue New Car Debt to regular customer.
Take fees.
Take interest.
Package debt for more fees.
Sell Debt for profit.
Service payments for fees.
Issue credit cards to subprime customer.
Issue Mortgage to subprime customer.
Issue Car Debt to subprime customer.
Take fees.
Take interest.
Package debt for more fees.
Sell Debt for profit.
Service payments for fees.
Give Debt management classes for fees.
Collect BK fees.
Collect debt collection fees.
Collect foreclosure fees.
Issue credit cards to newly bankrupted customer.
.......................
The consumer hasn't tapped out yet. MEW is at record levels this year and I'm sure there are plenty of appraisers that will ignore a few of the more recent sales to provide an assessment that allows more equity withdrawal based on early '06 or late '05 housing prices. With long rates continuing to drift lower more will opt for the cash out refi to play santa.
Credit card companies have also become more agressive now that they got their BK reform passed. The have no need to provide credit prudently when they have enlisted Uncle Sam to be their bill collector.
I think growth will not be negative until 3Q 07. It is not wise to underestimate the wilingness of the american consumer to spend beyond their means.
I think growth will not be negative until 3Q 07. It is not wise to underestimate the wilingness of the american consumer to spend beyond their means.
I agree - I'll believe the drop in consumption when I see it and not before... not with all the credit available to less than average let alone average income consumers.
All the 'reasons' given above for why it should stop are 100% rational & valid... however they do not take account for the 'irrational' & 'emotional' motives... and they won't kick in until fear (moral hazard) is re-established. Anything in those reports hint a that happening anytime soon? Like between now and X-Mas?
I mean I could very well be wrong - but right now I'm in a 'Show Me' stubborn mood.
.