Archive for the ‘Gross Domestic Product’ Category

Prozac Nation

Friday, June 27th, 2014

It’s all stress-free bliss these days … at least for anyone who’s not paying attention.

Has someone been putting anti-depressants in the water supply?  That’s one way to explain Wednesday’s non-reaction to the report that the economy shrank by 2.9% in the first quarter – not the 1% drop previously reported.

It would also explain continued investor complacency reported last week, with the VIX (volatility index) approaching single digits.  And it would explain the plunge in junk bond yields to 5.6%, which is a full 3.4% points lower than the decade-long average of 9%.

GDP GrowthYet investors showed that they still have a pulse, when they took the Dow down 100 points after James Bullard, president of the St. Louis Federal Reserve, announced that an interest rate hike may take place in the first quarter of 2015.

So consider this in context.  In addition to the slumping economy, we have Russia’s continued takeover of Ukraine, which is now being overshadowed by the continued takeover of Iraq by Muslim terrorists known as ISIS and the possibility of U.S. military intervention.  We have civil war continuing in Syria and continued nuclear development in Iran, in spite of the lifting of sanctions.  We have U.S. veterans in need of medical treatment being ignored while the Veterans Administration fudges numbers.  We have the missing e-mails of Lois Lerner and six other IRS employees who allegedly targeted conservative groups.  We have continuing fallout in the healthcare industry from the pains of implementing Obamacare.  We have a stock market so overblown that price-to-earnings ratios are at levels higher than they’ve been through 89% of the history of the S&P 500.

So what’s moving the market?  A statement made by a Fed board member that repeats a statement he previously made.

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Attention Deficit Capitalism

Friday, June 13th, 2014

“Democracy would not be democracy, rule of the people, without at least a modicum of political attention and activity from its citizens.”                                                                                                                                                                                              James Bovard, Attention Deficit Democracy

Is anyone paying attention?

It seems as though the faster the world moves, the shorter our attention span becomes.  And today, speed is measured in nanoseconds.

Many have become complacent as technology has taken over.  High frequency trading, in which computers make the decisions, accounts for the majority of trades today.  HFT is based on arbitrage.  Computers look for discrepancies in pricing and take advantage of them, and that’s how money is made.  A company’s performance is irrelevant.

Humans created computers, but can’t compete with them.  They can try to produce a better algorithm, but the computers will make the decisions.epi_college_unemployment.png.CROP.promovar-mediumlarge

Technology has affected much more than just trading, of course.  Consider communications.  The telephone made it possible to communicate almost instantly.  The Internet, though, has made communications even faster.  Anyone with a computer can send a message to a database of thousands with the click of a mouse.  We can not only hear, but see people anywhere in the world while we talk to them, and our smartphones guarantee that we remain virtually connected at all times.

These and other technological developments have been a big boost to productivity, but they remove the human element.  Life in real time is also life on auto pilot.  We’re connected electronically, but disconnected socially and emotionally.

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Polar Vortex or Recession Redux?

Friday, May 30th, 2014

The recovery that wasn’t a recovery may have come to an end, as the Bureau of Economic Analysis reported that gross domestic product dropped by 1% during the first quarter of 2014.

Even with the drop in GDP, lower housing sales and continued high unemployment, no one is saying the economic is in a recession.  Perhaps when a recovery is as insignificant as the one we’ve experienced for nearly five years, the distinction between recession and recovery is insignificant.

The economy was in sad shape five years ago and it’s in sad shape today, in spite of record stimulus spending, bond buying, and warm and fuzzy messages from the President, Congress and the Fed.

Quarter-to-Quarter-Changes-in-Real-GDP-Percent-Change_chartbuilder-1But fear not.  The bar is so low now, even a baby step over it will look like a high jump.  At least that’s the opinion of PNC Chief Economist Stuart Hoffman who wrote, “I believe this real GDP decline, mostly due to the polar vortex, coiled the ‘economic spring’ even tighter for a sharp snap-back (boing!) this quarter, where I have an above-consensus forecast for a 4.0% annualized rise in real GDP.”

In other words, bad news for the first quarter is good news for the second quarter.  Stop me if you’ve heard that story before.

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Wishful Thinking Does Not Create Economic Recovery

Wednesday, April 30th, 2014

This was going to be the year.  Remember the predictions of 3% economic growth?

More recently, the consensus was 1.2% growth for the most recent quarter.

It turns out, though, that the economy has flat-lined, growing at a puny 0.1%, quarter over quarter.  Even the 2% growth we’ve experienced throughout the 58 months of economic recovery we’ve had (see last week’s post) looks good in comparison to what we’re experiencing.GDP

Keynesians, undaunted by being wrong 100% of the time, have been predicting for years that prosperity is just around the corner.  The only thing around the corner, though, has been another corner, then another.  It’s time to realize that we’ve been going in circles.

Growth of 0.1% is, of course, just a whisker’s width away from recession.  Maybe that’s what’s around the corner.

Two areas of weakness were trade, which subtracted 80 basis points from GDP growth, and inventories, which subtracted 60 basis points.  You may recall that in Q4 of 2013, when economists were talking about strengthening growth, it was because inventories were increasing.

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The Economic Recovery That No One Noticed

Friday, April 25th, 2014

The average recovery since the end of World War II has been 58 months.  The current “recovery” has just reached that milestone.

So maybe we should be celebrating.  But what’s to celebrate?econ_expansion25_405

If you were to define “recovery” as a period when gross domestic project (GDP) increases from one quarter to the next, yes, we’ve been in a recovery.  But a recovery is typically reflected by a period that also includes, among other things, low unemployment, strong consumer spending, increasing income, higher inflation and strong manufacturing.

Most of those signs of recovery have been either barely visible or missing, and GDP has been growing about as fast as a bonsai tree.

This has been, and will likely continue to be, the recovery that no one noticed.  It’s a recovery in name only, as for most Americans it doesn’t feel much different than a recession.  Consider what’s been happening:

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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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