...or atleast better than expected, although the 1st quarter decline was worse than expected.
So, it brings the question, what will be the shape of the recession?
Here's four choices, it obviously can't be the first:
1) V shape- short, fairly shallow recession 2) U shape- long, fairly deep recession 3) W shape- basically a U, with an upward movement in the middle, in other words, a brief recovery then the economy slips back into recession. 4) L shape- long, drawn out recession (protracted stagnation)... see Japan (90s)
I think we may have a W scenario here. What do you think?
_________________ Are those lasers in Speed of Sound? Yes, those are lasers.
i think anyone calling a bottom, let alone a recovery, is doing so prematurely. and because a "bottom" is necessary (though not sufficient) for recovery, it's simply too early to starting counting recovery chickens before 75%+ of the debt chickens' eggs have hatched.
oh, and FTR, crude measures like GDP and consumer spending aren't necessarily the best reflections of the health of an economy.
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 1.0 percent in the second quarter of 2009, (that is, from the first quarter to the second), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent.
1% isn't so bad - but look at the revision - to negative 6.4%. So much for "final" on the previous release eh? (thodoks: report specifics are italicized)
The much smaller decrease in real GDP in the second quarter than in the first primarily reflected much smaller decreases in nonresidential fixed investment, in exports, and in private inventory investment, upturns in federal government spending and in state and local government spending, and a smaller decrease in residential fixed investment that were partly offset by a much smaller decrease in imports and a downturn in PCE.
Ok, so we got a reasonably-realistic set of numbers. PCE (personal consumption) declined, but note the bolded text: While federal spending may have been up and may continue to be up (so long as the Chinese will put up with the debt issuance) state and local governments are out of money. That's a booster that is out of fuel, and going forward it is a major problem. California anyone?
Real personal consumption expenditures decreased 1.2 percent in the second quarter, in contrast to an increase of 0.6 percent in the first. Durable goods decreased 7.1 percent, in contrast to an increase of 3.9 percent. Nondurable goods decreased 2.5 percent, in contrast to an increase of 1.9 percent. Services increased 0.1 percent, in contrast to a decrease of 0.3 percent.
The consumer is tapped out - as I have repeatedly noted, including on Kudlow's show, consumer debt peaked in January of 2009 and is on a decline. This means that spending is going to decline, and now we're seeing it. Durable goods orders were down (despite the pumping of "better" durables reported month after month on CNBC!) and non-durables - that is, consumed goods (in the short term) decreased as well. Services were essentially flat - no surprise, given that many of them are inelastic (health care anyone?)
Real nonresidential fixed investment decreased 8.9 percent in the second quarter, compared with a decrease of 39.2 percent in the first. Nonresidential structures decreased 8.9 percent, compared with a decrease of 43.6 percent. Equipment and software decreased 9.0 percent, compared with a decrease of 36.4 percent. Real residential fixed investment decreased 29.3 percent, compared with a decrease of 38.2 percent.
The rate of decline in investment has slowed, but given that it was cut nearly in half, how much further down could it really go? Most importantly there are no upturns in the data - anywhere. Equipment and software are a leading indicator of commerce (you have to buy gear, including computers and software, to hire people) and guess what: nobody is.
Real exports of goods and services decreased 7.0 percent in the second quarter, compared with a decrease of 29.9 percent in the first. Real imports of goods and services decreased 15.1 percent, compared with a decrease of 36.4 percent.
No really? How long have I been banging on that drum - freight loadings both road and rail, along with port traffic data? That's the "leading indicator" and this report validates what I've been saying for the last three months: both import and export demand has effectively collapsed! We are now anywhere from 40 to 60% below comparable levels on imports and exports. Those who believe that "China will save us" are delusional; how is that going to work when half of their exports to us are gone? Bluntly: The alleged "Chinese recovery" is a manipulated lie from the Chinese government.
Real federal government consumption expenditures and gross investment increased 10.9 percent in the second quarter, in contrast to a decrease of 4.3 percent in the first. National defense increased 13.3 percent, in contrast to a decrease of 5.1 percent. Nondefense increased 6.0 percent, in contrast to a decrease of 2.5 percent. Real state and local government consumption expenditures and gross investment increased 2.4 percent, in contrast to a decrease of 1.5 percent.
So much for Obama destroying military spending eh? Uh, not so fast eh? 13% increase? Not bad. The Federal Government is attempting to pick up the pieces from the private sector, but without success. State and local governments are trying to pick up the pieces but all they're doing is going bankrupt; do not expect to see this contribution repeated in the 3rd and 4th quarters, as they're out of money!
The change in real private inventories subtracted 0.83 percentage point from the second-quarter change in real GDP after subtracting 2.36 percentage points from the first-quarter change. Private businesses decreased inventories $141.1 billion in the second quarter, following decreases of $113.9 billion in the first quarter and of $37.4 billion in the fourth.
Remember one of the CNBC memes has been "inventories bottomed in 1Q and are being rebuilt"? Uh, where? Either the BEA is lying or CNBC was absolutely full of crap.
Inventories decreased in the second quarter even more than they did in the first; businesses are not as dumb, nor are they seeing "green shoots" and building inventory back up, irrespective of the incessant media pumping of a big fat LIE from March onward.
Personal current taxes decreased $113.1 billion in the second quarter, compared with a decrease of $241.7 billion in the first.
You only pay taxes on earned and unearned income. It is collapsing. Good luck Mr. President with your claim that the deficit will be brought under control - you're going to need it.
Disposable personal income increased $121.1 billion (4.6 percent) in the second quarter, in contrast to a decrease of $9.9 billion (0.4 percent) in the first. Real disposable personal income increased 3.2 percent, compared with an increase of 1.1 percent.
The government handed out money like candy through its various programs. But...
Personal outlays decreased $18.1 billion (0.7 percent) in the second quarter, compared with a decrease of $27.6 billion (1.1 percent) in the first. Personal saving -- disposable personal income less personal outlays -- was $566.0 billion in the second quarter, compared with $426.9 billion in the first.
The personal saving rate -- saving as a percentage of disposable personal income -- was 5.2 percent in the second quarter, compared with 4.0 percent in the first.
Money is not being saved; debt is being paid down (to the extent it can be.) This trend is accelerating, not stabilizing, indicating that the consumer has much more deleveraging to go, as I have repeatedly said, including on Kudlow's show.
Three months of in-your-face falsehoods by the mainstream media have just been destroyed in seconds with one data release. The facts are irrefutable; the only remaining question is this: when will we see something approaching balance and honest reporting from the so-called media outlets?
Those "green shoots" were either marijuana plants (and were being smoked by the media) or worse, they have been running around with cans of green spray paint, "colorizing" the dead brown weeds, then pointing at them and screaming "green shoots!"
don't believe the hype. anyone who thinks we've hit bottom isn't paying attention...
i think anyone calling a bottom, let alone a recovery, is doing so prematurely. and because a "bottom" is necessary (though not sufficient) for recovery, it's simply too early to starting counting recovery chickens before 75%+ of the debt chickens' eggs have hatched.
oh, and FTR, crude measures like GDP and consumer spending aren't necessarily the best reflections of the health of an economy.
I agree that it's a guessing game. But, let's look a large leading indicator... the stock market. It's up fairly significantly from it's low point. There's typically a six month lag until GDP (or other coincident indicators... like NBER's business cycle data) reflects that.
Personally, I believe you are right about the debt issue. That's why my belief is we will have a recovery (using GDP or NBER's analysis as the gauge). Probably in the third or fourth quarter. Then I could see some issues creeping into light, like you say the debt storm hitting. In my opinion, there could be another recession or we could end up in a L scenario. I don't see growth being substantial again for another 3 years. But, my bet is we will have a brief recovery, then we may have anther set back. My hope is that we won't have stagflation, but I'd bet that's where we are heading at some point over the course of the next 3 years.
Also, if GDP or other forms of coincident indicators aren't the best reflection of the health of an economy, what is? I certainly don't think the unemployment (employment) rate is a good gauge when looking into the future because it's a lagging indicator. In my opinion, GDP is the best measure available for understanding the ups and downs of the business cycle.
_________________ Are those lasers in Speed of Sound? Yes, those are lasers.
I agree that it's a guessing game. But, let's look a large leading indicator... the stock market. It's up fairly significantly from it's low point.
so?
i think the run-up of the dow to close to 15,000 was evidence enough that the perma-bull groupthinkers on wall street have an almost religious belief in equity markets. in quarter 1, the year-over-year EPS drop was -31.49%. in quarter 2, the drop is -32.41%. and revenues are much, much worse. basically, if you believe a recovery is imminent, it would require a nearly 100% increase in projected EPS growth in the next two quarters. that's right...somehow you'd have to conclude that an environment where jobs are being slashed, no one is hiring, consumers are servicing debt in lieu of saving or spending, and revenues are plummeting will somehow produce double the earnings.
what i'm saying is that this rally isn't supported by ANY economic fundamentals or data. wall street, it seems, has as much faith in crude keynesian stimuli and quantitative easing as geithner, bernanke, and the rest of the nitwits in washington.
saveuplife wrote:
Personally, I believe you are right about the debt issue. That's why my belief is we will have a recovery (using GDP or NBER's analysis as the gauge). Probably in the third or fourth quarter. Then I could see some issues creeping into light...
what issues?
saveuplife wrote:
I don't see growth being substantial again for another 3 years.
why 3 years? what event exists 36 months out that i don't know about?
saveuplife wrote:
Also, if GDP or other forms of coincident indicators aren't the best reflection of the health of an economy, what is?
frankly, i don't puch much faith in ANY broad macro indicators. most are quantitative exercises that do little to illuminate the relative quality of the phenomena they describe.
the majority of mainstream macro indicators told us in the middle of 2007 that all was well, that we'd turned the page and debt securitization had ushered in a new era of prosperity. it was only the few who understood the qualitative nature of debt-based finance that (correctly) cried foul.
saveuplife wrote:
In my opinion, GDP is the best measure available for understanding the ups and downs of the business cycle.
what is your understanding of the nature of the business cycle? what is your explanation for booms and busts?
Falling Imports versus Falling Exports (GDP = -2.38%) I noted earlier that the oddity of imports versus exports calculation would produce a positive contribution to GDP. Let’s look at the details of this, and find a way to understand what this means.
First, off conceptualize the difference between what imports and exports are. At the most basic level, Imports represent our consumption of overseas production, i.e., We buy what they make.
Exports are where overseas consumers purchase our production, i.e., They buy what we make.
What were the specifics of the GDP data regarding import/export?
-Real imports of goods and services decreased 15.1%
-Real exports of goods and services decreased 7.0%
So in Q2, both consumption by us of overseas goods and services and by them of US made goods and serivces declined significantly.
The Differential between imports and exports — who dropped fastest — was the key to this quarter’s GDP data.
According to Bloomberg, Decreasing Exports subtracted 0.76% from GDP. At the same time, falling Imports added 2.14%. Net contribution of the fact that Imports are free falling twice as fast as Exports are = 1.38%.
If they were both falling at the same rate — if Europe and Asia’s consumers were hurting as much as ours – GDP would have been -2.38%.
If it seems weird to you that the ratio of domestic and overseas shrinking economies and their reduced consumption somehow turned into a positive GDP contributor, well, welcome to the wonderful world of government statistics.
i think the run-up of the dow to close to 15,000 was evidence enough that the perma-bull groupthinkers on wall street have an almost religious belief in equity markets. in quarter 1, the year-over-year EPS drop was -31.49%. in quarter 2, the drop is -32.41%. and revenues are much, much worse. basically, if you believe a recovery is imminent, it would require a nearly 100% increase in projected EPS growth in the next two quarters. that's right...somehow you'd have to conclude that an environment where jobs are being slashed, no one is hiring, consumers are servicing debt in lieu of saving or spending, and revenues are plummeting will somehow produce double the earnings.
what i'm saying is that this rally isn't supported by ANY economic fundamentals or data. wall street, it seems, has as much faith in crude keynesian stimuli and quantitative easing as geithner, bernanke, and the rest of the nitwits in washington.
First, I don’t have any faith in Keynesian stimuli in the long-run. But, as they say, in the long run we’re all dead. In the short-term, even as one who is deeply opposed to Keynesian theory, I do believe it can have a positive affect. In this realm of thinking, I believe that the government can assist in improving consumer confidence, which despite a recent slip has appeared to have bottomed out earlier this quarter. That said, I believe that government tampering is always worse in the long-run. So, we will suffer for this down the road, despite a recovery towards the end of the year.
Second, my point is that leading indicators are called leading indicators for a reason. EPS is all well and good, but there’s a deep significant historical relationship between leading indicators and their ability to predict coincident indicators several months (6 or so) down the line. In this case, the leading indicator I mentioned was the stock market. The Dow is up more than 2000 points from it’s low point. That is significant. I agree that there is no reason to believe it will approach 15000 any time soon, or even continue to increase. But, that doesn’t matter. The fact that it has bottomed matters. Typically, 6 months afterwards we see a bottom in the recession, and hence growth typically follows.
Third, I don’t think you are right about there being ANY economic fundamentals supporting the rally. Here’s a few… the TED spread has improved dramatically, almost all indicators in housing (the issue that got us here) have shown signs of a bottom or atleast we are closing in on one… look at house prices this week for an example.
thodoks wrote:
what issues?
Inflation.
thodoks wrote:
why 3 years? what event exists 36 months out that i don't know about?
It’s an assumption. I personally, do not believe our growth rate will be substantial for quite some time. Our credit industry needs to return to some level of normalcy. Housing needs to work off excess inventories. The financial markets need to be able to utilize credit in an easier manner. As these occur, and the unemployment rate, which will most likely hit double digits by next year and increase through mid-2010, slowly improves…. We can then start to approach some level of potential GDP growth. We won’t be there in my opinion for roughly three years.
thodoks wrote:
frankly, i don't puch much faith in ANY broad macro indicators. most are quantitative exercises that do little to illuminate the relative quality of the phenomena they describe.
the majority of mainstream macro indicators told us in the middle of 2007 that all was well, that we'd turned the page and debt securitization had ushered in a new era of prosperity. it was only the few who understood the qualitative nature of debt-based finance that (correctly) cried foul.
I don’t believe it was the securitization that got us here. In my opinion, it was government intervention and it’s affects on the housing market that got us here. The housing downturn caused this recession. MBS and CDS contributed to the duration. There were plenty of people claiming that housing had a bubble before the bubble burst, those individuals used quantitative data to explain that there was a bubble.
thodoks wrote:
what is your understanding of the nature of the business cycle? what is your explanation for booms and busts?
My opinion is that business cycles are real. However, they are exacerbated (good or bad) by government intervention and new technology. So, these are the explanation for large scale booms and busts. As I alluded to earlier, I believe the monetary policy (which I do fit into the category of gov’t intervention) post-9/11 was a major component that led to the bubble in housing, which led to this recession.
_________________ Are those lasers in Speed of Sound? Yes, those are lasers.
Users browsing this forum: No registered users and 9 guests
You cannot post new topics in this forum You cannot reply to topics in this forum You cannot edit your posts in this forum You cannot delete your posts in this forum You cannot post attachments in this forum
