Friday, October 27, 2006
Thank you, Boeing
Advance GDP coming in at 1.6% for the third quarter ought to cause a few rewrites of yesterday's optimistic articles (example) about the bubble-proof economy, but it probably won't. These figures are generally substantially revised by later releases. As the BEA explains:
From the advance estimate to the preliminary estimate (one month later), the average revision to real GDP without regard to sign is 0.5 percentage point, while from the advance estimate to the final estimate (two months later), it is 0.6 percentage point.Still, no matter how you slice it and dice it, the reality is that housing isn't going to recover anytime soon. It will be a drag for years to come, so in order to push against that drag we have to make stuff. And one of the things we do possess the capacity to make competitively is energy, so the best possible public policy is to remove some of the regulatory and legal roadblocks to energy production, which are huge. We can have a good environment and develop energy resources, if we could get the nutcase environmentalists and the courts off our backs. To do so would require Congressional action. You might want to write your piece of political yuck on this issue.
BTW, real inflation is running very high:
The value of all goods and services produced by the economy, the world's largest, rose to an annual rate of $11.4 trillion after adjusting for inflation. Unadjusted for price changes, GDP rose at a 3.4 percent annual pace to $13.3 trillion.That's reality. You can play with various indexes all you want, but the American consumer's ability to consume is being sucked away by real declining wage incomes, which is why so much debt is building up. And the problem with the housing market is that drawing down on bubble-produced asset inflation has a nasty double rebound effect when the asset inflation stops. You are then left paying higher percentages of debt supported by less real value, which cuts further into the consumer's ability to spend. Since the negative savings rate dropped in the third quarter, we have a long way to go before beginning to stabilize on personal debt.
Not withstanding the extremely preliminary nature of this report, the fact remains that it is likely not to be revised much above 2%. Since the consistent pattern over recent years has been for a fourth quarter substantially slower than the third, the real question now is whether the fourth quarter can come in over 1% growth.
We are most definitely going to be in recession nationally by the end of the first quarter 2007.
I tend to think that the "true" inflation is significantly larger than the CPI number, but obviously most bond buyers don't agree or they wouldn't be purchasing 10-year stuff at the current rates.
Is Boeing important because of it's affect on West Coast Real Estate?
Mixed drinks in downtown Manhattan are $12. Yes, Virginia, there's inflation.
Inflation indexed treasuries are yielding inversely to term. Thus the Fed has so far suppressed fears of out-of-control inflation. On the 25th, five year TCM yield was 4.75 and the inflation-indexed 5 year was 2.55. That is a commentary on inflation expectations.
Links to this post: