Archive for the ‘Gross Domestic Product’ Category

No Records This Month

Friday, January 17th, 2014

Markets go up and markets go down, so maybe it’s not surprising that January’s stock market performance has less exuberance to it than the performance to which we’ve become accustomed.

As of yesterday’s market close, the S&P 500 was down 0.13% year to date, which is not a big deal, especially considering that the S&P 500 Index finished 2013 up 32.4%.  Even with the recent downward trend, the S&P 500 is up 25.35% for the past 12-month period.

The Dow Jones Industrial Average has been a bit creakier, down 0.96% year to date, but still up 21.51% for the past year.

It’s doubtful, then, that the markets will break any records this month.  But if you believe the hype, good things are headed our way.  The unemployment rate has slimmed down to 6.7%, gross domestic product (GDP) was revised upward to 3.6% for the third quarter of 2013 and, with Janet Yellen’s appointment to head the Federal Reserve Board, quantitative easing can continue ad nausem.

So why worry?

To begin with, as we explained last week, the falling unemployment rate is an illusion.  The rate dropped only because so many people have stopped looking for work.  The number of non-working Americans exceeds 102 million, which is a record.

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The Economy Is Booming – Unless You’re A Consumer

Friday, November 8th, 2013

At least it sounds like good news.

The U.S. Bureau of Economic Analysis announced that the economy grew at a rate of 2.84% during the third quarter.  That’s up significantly from recent growth, which has been below 2%.

But if you find a silver lining in today’s economy, it’s sure to be surrounded by a black cloud.  There are a few black clouds in this report:

  • Preliminary numbers are almost always wrong.  Funny how sometimes they’re overly optimistic.
  • In spite of the higher growth rate, consumer spending is at its lowest level since the second quarter of 2011.  In a healthy economy, consumer spending usually drives growth.
  • Fixed investment, an indication of capital spending, dropped from 0.96% in the previous quarter to just 0.63%.
  • Inventory doubled from 0.41% the previous quarter to 0.83% of the 2.8%.  An increase in inventory is an underwhelming sign of economic growth.

Interestingly, government grew 0.04%, in spite of sequestration cuts.  The numbers predate the 16-day government shutdown.

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The Off-On-Off Economy

Friday, August 9th, 2013

The economy recently has been full of stops and starts, ups and downs, good news and bad news.

Optimists will say that progress is being made, as we’ve moved beyond the all-bad-news days of 2007 and 2008.  Those of us who are less than optimistic would instead ask why it’s taken five years to get to the current dismal economic state.

Recovery always seems to be just around the next corner.  But the world is round and there is no next corner.

Zerohedge recently ran a series of 13 charts showing that any economic exuberance is irrational.  The charts compare the current “recovery” with four previous recoveries.  The trend lines in most cases are almost identical – except that the lines representing the current Keynesian-inspired recovery are well below the lines representing the previous four recoveries.  They show that:

  • Growth in gross domestic product is pitifully low.  If it were a patient, GDP would be signing up for hospice care.
  • The ISM Manufacturing Index has fallen significantly from two years ago.
  • Business inventories have risen significantly, signaling that new orders will likely drop.
  • Productivity is down, consumer spending is lackluster and housing starts, though improving, are nowhere near what they should be if the housing market were really recovering.

But cheer up … vehicle sales are up!  The recovery must be just around the next corner, wherever that is.

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Bad News Is Good News

Friday, June 28th, 2013

Good news.  The economy still stinks.

In today’s economy, which is driven by The Federal Reserve Board’s quantitative easing (QE) program, bad news is good news and good news is bad news.  That’s because if the economic news is bad, The Fed will be more likely to continue buying bonds, propping up the stock market.

DJIA for the past five days.

A month ago, the U.S. Bureau of Economic Analysis (BEA) estimated an annualized growth rate of 2.4% for the first quarter of 2013, but on Wednesday the BEA revised its estimate and said the economy grew at a rate of only 1.8%, a full 25% drop.

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Europe – The Weakest Link

Friday, February 15th, 2013

With the election, sequestration showdown and other pressing domestic news, we’ve hardly had time to think about Europe.  Yet the continent is as troubled as ever and is crying out for attention again.

Keep in mind that, in this era of a global economy, our fates are intertwined.  Europe and America are heavy trading partners and our multinational businesses are located throughout each other’s continent.  Our banks own European bonds.  So when Europe is in trouble, so is the U.S.

Well, Europe is in trouble.  We’d say “in trouble again,” but it’s never really gotten out of trouble; at least not since Greece triggered the sovereign debt crisis.  The popular British game show, “The Weakest Link,” could serve as a metaphor for the whole continent, except that what’s happening in Europe is not nearly as entertaining.

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The Incredible Shrinking Economy

Friday, February 1st, 2013

Only in today’s America would a shrinking economy cause the stock market to rise.

The federal government reported this week that the U.S. economy contracted by -0.1% in the last quarter of 2012. That helped the stock market finish its best January performance since 1994, with the Dow Jones Industrial Average up 7% since November (it was the best performance since 1989 for the S&P 500).

As the chart shows, S&P 500 performance since November has been eerily similar to last year’s performance at this time.

So why did a shrinking economy produce a rising stock market?  Because it all but guarantees more quantitative easing (QE), as well as resistance to federal spending cuts, which would reduce gross domestic product (GDP).

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News You May Have Missed

Friday, October 26th, 2012

With the election season in full swing, dominating the airwaves, Internet and print media, you may have missed some of the other news from the past week.  Here are a few lowlights:

What Recession?  We recently reported that the unemployment rate miraculously improved to under 8% just before the election.  Now, according to a preliminary report, annual growth in gross domestic product (GDP) is miraculously above 2%.

An unemployment rate under 8% is none too impressive and neither is a growth rate of just above 2%, but we live in times of low expectations – and these benchmarks, if achieved honestly, would indicate that the economy is moving in the right direction.

But have they been achieved honestly?  And are they accurate?

According to zerohedge.com, over one third, or 0.71% of the growth was contributed by an increase in “Government Consumption:’

“This was the biggest rise in government spending in 3 years, and only the first contribution by Uncle Sam to its own GDP print since Q2 2010. So in much the same way as the September jobs print soared courtesy of government employee hiring, this same government is now juicing its own numbers to make itself look better.”

Recall that Q2 GDP was revised down from 1.7% to 1.25%.  Revisions to Q3 GDP will be released after the election.

As for the unemployment rate, none other than former GE CEO Jack Welch questioned the employment numbers in a Wall Street Journal op-ed.  Even if you accept the numbers from the U.S. Bureau of Labor Statistics, gains were in “involuntary part-time” help – meaning people who were looking for full-time work are now flipping burgers to make ends meet.

Because the unemployment rate excludes those who have stopped looking for work and includes those who are underemployed in part-time jobs, others put the real unemployment rate at 14.7%.  An analysis by The Wall Street Journal, which factors in historical shifts in the labor market, puts the rate at 9.3%.

Whatever analysis you accept, many Americans are still out of work and economic growth is well below what it should be.

Muni Massacre.  Moody’s Investors Service cut its credit ratings on more than $200 billion worth of municipal bonds through the first nine months of 2012, exceeding the total for 2011 – and “there’s no end in sight.”

Moody’s cites increased risk because of the “difficult economic and industry environments.”  And we thought the economy was improving!


Stimulus spending.  If government spending does, indeed, stimulate the economy, we should now be growing at a record pace.  U.S. debt has reached $16.6 trillion, while total GDP is $15.76 trillion.  In other words, debt exceeds GDP by 2.4%.

Lower Profits, Home Building.  The stock market’s performance continues to be erratic at best, reflecting economic data that one day sounds hopeful and the next day sounds hopeless.

Profits have been generally disappointing, as previously reported, but at least the housing market has been rebounding, as we announced last week.  However, anyone who jumped into homebuilders’ stocks to take advantage of the improving market would have to be disappointed by this week’s performance, as the SPDR S&P Homebuilders ETF dropped 1.2% this week.

The ETF dropped because the National Association of Realtors (NAR) reported that the speed of growth in housing sales decreased last month.

NAR Chief Economist Lawrence Yun said, “Home contract activity remains at an elevated level in contrast with recent years, but currently appears to be bouncing around in a narrow range. This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013.”

Sorry for being such an optimist last week!

U.S. vs. China

Friday, October 19th, 2012

As China has emerged as a world power, it has increasingly been a case of Us (as in U.S.) vs. Them.  Not in military combat, fortunately, but in day-to-day trade battle and all-out currency competition.

So which country currently holds the edge?

Master of Finance.org compared the two on many different levels – with some interesting results.  Overall, the U.S. retains its top position as THE world superpower.  But China is closing in.

Some of the figures used are outdated, but consider just a few of the comparisons given:

GDP.  The U.S. gross domestic product (GDP) is nearly twice as large as China’s — $15.29 trillion vs. $7.298 trillion, but U.S. GDP is growing at 1.7% annually vs. 9.28%.

Government spending.  U.S.  government expenditures are a whopping $3.599 trillion for a population of 313 million, while China’s government expenditures are $1.729 trillion for a population of 1.343 billion.  The deficit in the U.S. is 8.6% of GDP compared with 1.1% in China.

Poverty and employment.  The U.S., with a labor force of 153 million, has an unemployment rate of 9% and a poverty level of 15.1%.  China, with a labor force of 795 million, has an unemployment rate of 6.5% and a poverty level of 13.4% (of course, it’s all relative).

Freedom.  For economic freedom, the U.S. ranks 4th, while China ranges 118th.  However, the U.S. ranks first for incarceration, with 730 of every 100,000 people in jail, while Chine ranks 124th with 121 of every 100,000 people in jail.

The results, which we found on zerohedge.com, are interesting, but we are very happy to be living in the United States instead of China.

Is Everybody Happy?

Friday, August 10th, 2012

Forget about growth in GDP, the unemployment rate, inflation, stock prices and all things relevant to money.

Federal reserve Chairman Ben Bernanke suggested this week that happiness should be used to measure the country’s economic strength.

According to Bernanke, economics isn’t just about money, it’s also about understanding and promoting “the enhancement of well-being.”  We’re not sure how or whether “well-being” can be enhanced, but it’s probably a good thing that measuring happiness is about as feasible as measuring a person’s thoughts.

Of course, there is a Misery Index, which is calculated by combining the unemployment and inflation rates.  The Misery Index hit a 28-year high of 12.7 in June 2011.  It has since dropped to 9.83, but few Americans are dancing with joy these days.

Perhaps Bernanke is hinting that The Fed’s next stimulus plan will be to pass out prescriptions to anti-depressants to all Americans.

GDP Doesn’t Stand For Great DePression

Saturday, July 28th, 2012

Measuring growth in Gross Domestic Product (GDP) is like taking the economy’s temperature.

The annualized growth rate of 1.5% at the end of the second quarter – which is a sliver above the projected 1.4% rate – indicates that the patient is still alive, but barely.

The economy is not quite on life support, but compare that growth rate with cumulative growth in the three years following previous recessions.  For the four recessions in the ‘60s, ‘70s and ‘80s, the cumulative growth fell between 15% and 20%.  For the most recent recession, the cumulative growth rate for three years is just 7.13%, according to The Wall Street Journal.

As the chart shows, post-recession growth was lower than the +16% cumulative rate of other modern-day recessions, and even well below the 9% growth rate of 2001.  That’s in spite of extensive government efforts, including the $814 billion economic stimulus program, two rounds of quantitative easing, Operation Twist and other efforts … or could these government programs have possibly slowed economic growth?

“In addition to years of negative real interest rates courtesy of the Fed, federal borrowing has grown at about three times the rate typical for postwar recoveries,” according to The Wall Street Journal.  “In other words, Washington already has unleashed far more firepower on the downturn than usual and received scant bang for its buck.”

In addition, 2010 GDP was revised from 3.0% to 2.4%, while Q3 2011 GDP was revised from 3.0% to 4.1%, according to Zerohedge.com, “indicating that the slowdown we are experiencing is in fact far worse than previously expected.”

Typically, the farther the economy falls, the greater the recovery in GDP growth, so the current recovery should have been stronger than other recent recoveries.

Under the Rule of Monetary Policy

Given overall economic conditions, it’s no surprise that profits are softening, too.  Facebook’s first quarterly report, for example, was underwhelming and did not cheer holders of its stock.

But some are cheered by this news, because they believe it will force the Federal Reserve Board to take action yet again and give us another round of quantitative easing (QE3).

It’s not a good sign when the market is moved by monetary policy, but by market fundamentals.