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Friday, April 26, 2013

GDP, Briefly

Advance Q1. The headline is 2.5%. GDP counts adds to inventories as positives and draws to inventories as negatives, and while there was a heavy draw on private inventories in Q4 (-47 billion), there was an add in Q1 (+ 37 billion). The real dollar measure of annualized quarterly changes was 12.9 billion in Q4 versus 84.7 in Q1. 

In Q1 PCE contributed the bulk of the gain at 76.1 billion versus Q1's 43.8 billion. That was more localized in services, and given the colder weather it shouldn't be surprising that services picked up. All property and casualty insurance rates need to rise due to low investment returns, and so there was a relatively large gain there (10 billion). This is all the more notable because we should be shedding medical insurance costs right now as more people go on Medicare! 

Gross Private Domestic Investment moved from 6 billion to nearly 57 billion. A lot of that was the change in private inventories. Nonresidential fixed investment fell from 46 billion to about 8 billion. This category is mostly business spending, and the weakness there is a warning. It may be somewhat weather related. Residential investment did not change much, especially considering generally adverse weather, moving from 15.3 billion to 11.6 billion. It should pick up in Q2.

In short, although the headlines were quite different (+0.4 versus +2.5) there is not a huge amount of underlying change. My diagnosis would be that we move into Q2 running at about 1.8-1.9% GDP growth, which is not materially different than it has been.

Without inventory the average annual percentage real GDP growth:

2010 0.9
2011 2.0
2012 2.1
2013 1.5 Q1

Real Final Sales, at the bottom of Table 1 is my preferred number. If they revise Q1 up to say, 1.7%, people will think it wasn't that bad of a slow down.
Joseph - keeping in mind that these figures are really only accurate to about 1/2 of a percentage point (less when the economy is changing rapidly) I'd say that the economy has been on a steady-to-slight-decline pattern since last summer.

Real final sales went something like 1.7, 2.4, 1.9, 1.5 for the last four quarters.

We started off this year extremely slack on MVs, and production picked up from late Jan. I suspect we have another month's slowdown, and then it ratchets up.

But the slowing in intermodal figures on rail indicates that there is not a lot of life here.

So my prediction for Q2 is 1.7 to 1.2 on real final sales. Not particularly brilliant. Winter will end finally, and then there's a boost.

Without the oomph from retirements, I suspect we'd be going into a flat-out recession.

I don't see anything coming out of the Fed's actions, really.
PS: The 2.4 in the third quarter was generated by frantic defense spending, which I believe was a deliberate pre-election strategy. Also, of course this came at the end of the fiscal year.

The story about consumer spending is greatly overblown. That's not surprising because of the dividend bonuses produced by the impending tax increase, but that's something that just goes into the economy and evaporates right out. Now the drag from the FICA tax increase picks up.

Also, I think raising capital gains taxes can't help but damage business investment.

I guess I don't really understand how increased enrollment in SS and Medicare is good news. Sure, it provides some extra income to retirees and creates some job openings, but doesn't it also pull forward the inevitable debt implosion?
Of course it does, Anon. Of course it does.

Technically we are close to entering the fifth year of a recovery (June) but the fact that only government spending is really holding the economy up is pathetic.

But this explains why.
Q2 will be 1%.
CF, you win the gloomstakes again! Don't misunderstand me when I write that I sort of hate this particular victory.

After looking at Chicago PMI, I'm pissing my britches and Treasuries are looking good.

You know what really worries me about this is the high-end capital gains tax increases.

Because what I originally had for this year just on legal changes was pop, sag, oomph (May-June) as the FICA increases took hold, recovery by August as consumers recouped through minimal spending, and then additional sag toward the end of the year as the capital gains increases slowed investment.

So now where am I? Lower mfrg surveys can't possibly help consumers recoup, and can't possibly make investors more enthusiastic about investing.

Up until now this year, I could at least rely on the M_O_M fudge factor to keep us sort of staggering along, but I've always known that any additional weakness in jobs would nullify the fudge factor. It's not that much, truthfully.

Relatively to last year, I now have Treasuries overvalued due to lower inflation factors.

I just expect us to have 2% growth +/- for a long time. So we had our typical Q1 bounce and now we pay for it. Frankly I think given how bad the country is being run 2% is pretty darn good.
I would be very, very happy to have 2% growth.

I just don't think we're going to get it this year, and I am terribly concerned that investment will be suppressed due to bad tax policy, which will weaken us further later in the year.

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