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Wednesday, June 25, 2014

-2.9%, Annualized

I was expecting something pretty bad after the last quarterly services survey, but not quite this bad.

The real source of the sudden downward revision is ACA, which sharply cut healthcare spending, and is still cutting healthcare spending. More on that later, but let's just say the earlier figures were strongly based on the idea that Americans have money to spend on health care when they don't even have money to spend on food. As a fantasy artifact, it was worthy of Walt Disney. 

Somewhat transient negatives were a truly awful winter and the need to pull down inventories. Those effects have passed out of the economy, but the income effect for many households probably hasn't.

Permanent factors remain - the rise in taxes on investment (hiking capital gains tax is remarkably counterproductive), a generally anti-business environment, and the fact, as so eloquently stated by Yulva in the comments on the last post:
Most people cannot afford a home even if you gave it to them for freeā€¦
It's incomes, stupid. It's cash flow. Real personal incomes ex current transfer benefits grew less than 30 billion from the previous quarter. Real disposable personal incomes (includes government benefits, subtracts taxes) grew about 43 billion. That's aggregate, so the reality is that higher needs expenses really cut into effective discretionary incomes last quarter.

Neither corporate profits nor Gross Private Domestic Investment show a strong economy. We are not really in a recession, but we are in a structurally VERY slow growth economy. From the quarter one year ago, corporate profits after taxes and when including inventory and capital consumption dropped 5.9%. Cash flow with inventory valuation adjustments fell 6.1% over four quarters.

GDI was approximately the same at -2.6%. 

I will post more later, but I am not sure when due to a pretty tight schedule.
 

Comments:

I keep seeing data like this, and wondering if 2Q 2014 is going to come in with GDP negative? It doesn't quite feel like we've tipped over into recession, but the numbers are awful.

Regarding health care, we certainly have had to start watching our pennies. I still have a grandfathered plan so the premiums aren't horrible, but our per-visit bills have doubled and sometimes tripled since 2010!

 
ACA is not a Health Plan, it's an economic suicide pact. And it will get worse as premiums rise and rise and...

We also are saving pennies and cutting back. FWIW, I would bet $5.00 we are IN a recession.

Any Takers?

Oh...Welcome Back, MOM....I missed you.
 
Charles - we aren't now, but crunching the numbers seems to show that it is hard to stay up from here.

It's the accumulating badness on top of a very low natural level of growth that seem so intimidating.

ACA is the gift that will keep subtracting GDP, and to that add the economic honeybee initiatives (ban pesticides, increase food costs), the international hullabaloo, and such a plethora of money walking around that errant speculative rises in commodities are almost baked in.

It's not what I would call a self-regulating system.
 
It is only going to get better with the price of electricity going higher due to closing a bunch of coal fired plants. It has the added benefit of lowering the price of coal so the Chinese can burn it.

And if your blood pressure is low, do you think that Lois Lerner's hard drive crashed and no one in the entire USA could recover it. Just how dumb do they think we are?

Glad to see you back and doing well.
 
How far will this recovery take us? All the way to the scene of the crash!!!
 
WSJ - I really do operate on the principle of excluding the impossibles and then playing in the space that's left, and 2015 ain't looking good.

Maybe with perfect weather. Maybe. But two back-to-back years with GDP growth of under 2% plus higher basic costs imply trouble ahead.

Add bad economic policy and rising local taxes due to state/local problems; add ACA added costs to consumers. Add honeybees and higher utility costs due to coal-crushing honeybee lovers.

Add international problems that do not help the US.

 
Let's just hope the honeybees aren't africanized.

 
M_O_M - the zone left for you to project in ranges from mediocre to bad, with very bad possible if we get very bad surprises.

Looking at foreign affairs the last two years, is there any reason to expect that we won't have a bad surprise sometime in the next two years?

I see big downside risks and no rainbows in sight.
 
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