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Thursday, January 30, 2014

No Surprises There, But An Interesting Story

I refer, of course, to Q4 GDP. This is the first release and there will be revisions.

There are several interesting things about this, but the takeaway is real disposable personal income, which explains the subdued inflation. If you refer to Table 7, you'll see that 2013 racked up an astounding 0.7% increase in real disposable personal income. In total. Of course that's due to tax changes, and also to the drawing-forward of dividends and investment proceeds in Q4 of 2012 in order to evade the 2013 tax increase. 

But still. ... FICA increases of course hit the average wage earner the hardest. Final sales of domestic product increased 1.7%, and final sales to domestic purchasers increased 1.5% for 2013. This is probably a better measure of economic activity than fficial 2013 GDP increase (1.9%) is

There are some other interesting aspects of this release, such as residential fixed investment (see Table 3) which fell 12.7 billion in the fourth quarter. In fact, even with the addition of the "intellectual property products" to GPDI, we still only picked up 22.2 billion in Q4. Fixed investment, which excludes inventory builds but now includes software, R&D and the creation of sculptures from dung by highly enterprising community-funded artists, only increased by 5.6 billion. Of that, intellectual property products accounted for 5 billion. You may perhaps be relieved to know that the mission-essential investment in Duck Dynasty episodes and dung sculptures only accounted for 0.1 billion of that, with software and R&D having a much more significant contribution. But still, I would cautiously comment that since this category was a 2013 invention, in effect we had no increase in fixed investment in Q4. 

Personal income is not quite as bad as it seems, because the investment payout pop in Q4 2012 had such  strong influence. If you will refer to Table 10, you'll see that real disposable personal income was 11,743 billion in Q4 2012, and then fell to 11,502 billion in Q1 2013. After that it rose for two quarters quite strongly to return to 11,704 in Q3, but in Q4 it only increased a bit to 11,726, thus ending 2013 year at a lower point than the end of 2012. But such increases in income have a delayed effect on spending, so Q4 2012's money contributed to the economy in 2013, and the later rebound will show up somewhat in 2014. 

So, for 2013 the official increase of real GDP was 1.9%, the actual real increase was closer to 1.7% and what is the forward trajectory for 2014? 

Here's my guess as to that question. First, it is highly unlikely that we could ever exceed 2.4%, because I think both housing and autos are near sustainable tops. But I also think that the floor is close to 2%, because although both are near the top money wants to come into the US, and neither are totally overblown. There is a downshift in the US economy now, but it's not a bad one. 

The thing that stuns me mostly is that there is so little change in forecast. Last year in the fall I calculated that the end June/early July 2014, the 10 year Treasury should be yielding around 2.83 or 2.84, and I don't come up with anything very different. Perhaps 2.78%? 

I  do expect income gains in the US to be quite subdued this year, partly due to last year's overhang, partly due to ACA effects, and partly due to whacky government policies which include actual impediments to growth, especially in regulation and taxation, which is now grossly unfavorable to actual investment.

Comments:
It would be interesting to know how unintended these consequences really were. On another point I have found that a large # of your blog links on the left side are dead. Below is a list of these down to Revenge of the Mad Tech: last post (lp for short) 2011. Starting from the top of the list:
Truthlaidbear: "404"
Q&Obser: lp 2009
galenslog: lp 5/2013 only 3 posts since 2007
beldarlog: lp 8/2013 only 2 in 2013
bayouranter: lp 2004
sinequanon: lp 2011
letstryfreedom: peddling medical
transcription and billing training
Transcriptionists are a dying profession with EMR
assymmetric info: "404"
toward a good samaritan: lp 2007
critiqueofreason: lp 2006
transatlantic intel: lp 2009
kosmoblog: lp 2006
diplomad: 3 posts in 2013,
harrysplace: "404"
movermike: moved to twit/FB
wanderingmind: lp 2004
Tomcartersnotes: lp 2008
StrategicRev: "404"
Klotzyscorner: lp 2004

If this is worthless I will stop here.
 
Whoops, blog links are on the RIGHT
side column...

Steve
 
Personal income is not quite as bad as it seems,

Disagree. We're looking at a macro number, so the top 10% getting big gains distorts the 90% taking losses.

The rich are getting richer, the poor are getting poorer. That's the way central bank QE works. BY DESIGN.
 
Oct Nov were strong with a very weak Dec. I suspect this preliminary number is front weighted wrt assumptions. When Dec is fully accounted we could see a size able downward revision.
 
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