US GDP growth rate is unsustainable; recovery will fade
by ilene - April 30th, 2010 5:14 pm
US GDP growth rate is unsustainable; recovery will fade
Courtesy of Edward Harrison at Credit Writedowns
The US turned in a fairly robust quarter in Q1 2010, with real GDP growth meeting expectations at 3.2% annualized. This comes on the back of a very robust annualized 5.6% growth in the previous quarter. This is the best growth two-quarter growth we have seen since 2003.
However, when one digs deeper, it is obvious this growth is unsustainable because it is predicated on a reduction in savings rates and a releveraging of the household sector. As a result, I expect weak GDP growth in the second half of 2010.
The problem with the BEA reported numbers is the composition of GDP growth. The BEA says in its data release:
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 5.6 percent.
The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The "second" estimate for the first quarter, based on more complete data, will be released on May 27, 2010.
The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by decreases in state and local government spending and in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, and a larger decrease in state and local government spending that were partly offset by an acceleration in PCE and a deceleration in imports.
So the gain in GDP was due to consumption, while GDP decelerated from Q4 2009 due to inventory, exports, residential investment, and state and local government spending.
Translation: These numbers are entirely dependent on an increase in consumer spending. Everything else is becoming a drag on…
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DiggAnother Big Disconnect
by ilene - February 20th, 2010 4:15 pm
Another Big Disconnect
Courtesy of Michael Panzner at Financial Armageddon
In "Not Entirely Stuck in the 70′s," W.C. Varones highlights a disturbing graphic from the Wall Street Journalthat illustrates another big disconnect: the divergence between what ordinary Americans are taking in and what Washington is throwing around:
I hope you love your government 3.5 times as much as you did in 1970, because that’s how much more they are spending, even adjusted for inflation.
Deficit Hawk Logic: Hummers, howitzers, and helicopters, yes. Health care, no.
by ilene - February 1st, 2010 1:12 pm
Deficit Hawk Logic: Hummers, howitzers, and helicopters, yes. Health care, no.
Courtesy of Lynn Parramore at New Deal 2.0
So is the government running out of money? Not when it goes on a military spending spree…
A recent Bloomberg report reveals that the Pentagon is seeking $14 billion to train forces in Iraq:
The U.S. military next week will request about $14.2 billion more to train and equip Afghanistan’s forces, according to two Obama administration officials. The Defense Department’s proposed budget for fiscal 2011, which begins Oct. 1, will include $159 billion for the wars in Afghanistan and Iraq. That includes $11.6 billion to accelerate the growth of the Afghan military and police. The Pentagon separately will seek about $2.6 billion more for Afghan forces in fiscal 2010 over the $6.6 billion already approved by Congress, according to the officials, who requested anonymity.
This is where the myth and reality of federal deficits collide. The most cynical interpretation of deficit hawk warnings about improved health care and other things we can’t “afford” is that they know perfectly well that that their logic is faulty — they are simply using scare tactics to undermine social programs that our most vulnerable citizens depend on.
This agenda becomes apparent when the hawks go strangely silent on military expenditures tied to questionable missions. Hummers, howitzers, and helicopters, we can afford, apparently. Decent health care for our citizens, we can’t.
Question to hawks: Is the threat posed by Afghanistan more significant than that posed by a broken health care system that leaves our citizens sick and dying? Inquiring minds want to know.
*****
See also: Op-Toons Review: Democrats Announce Bold Plan to Get Debt Limit to Neptune by 2016
Washington, D.C.--Since President Obama came into office, he and a Democrat-controlled Congress increased the public debt by $3 trillion in one year, which is as much as the previous administration increased it in eight years. Continue here. >>
Path to Neptune photo by Op-Toons Review.
GDP Mirage – The Last Hurrah
by ilene - January 29th, 2010 4:33 pm
GDP Mirage – The Last Hurrah
Courtesy of Mish
4th quarter GDP came in at 5.7%. Discounting revisions (and probably even counting them), that was the last hurrah. Here is the story from two highly respected analysts.
Dave Rosenberg: The Houdini Recovery
First, the report was dominated by a huge inventory adjustment — not the onset of a new inventory cycle, but a transitory realignment of stocks to sales. Excluding the inventory contribution, GDP would have advanced at a much more tepid 2.2% QoQ annual rate, not really that much better than the soft 1.5% reading in the third quarter.
Second, it was a tad strange to have had inventories contribute half to the GDP tally, and at the same time see import growth cut in half last quarter.
Third, if you believe the GDP data — remember, there are more revisions to come — then you de facto must be of the view that productivity growth is soaring at over a 6% annual rate. No doubt productivity is rising — just look at the never-ending slate of layoff announcements. But we came off a cycle with no technological advance and no capital deepening, so it is hard to believe that productivity at this time is growing at a pace that is four times the historical norm. Sorry, but we’re not buyers of that view.
In the fourth quarter, aggregate private hours worked contracted at a 0.5% annual rate and what we can tell you is that such a decline in labour input has never before, scanning over 50 years of data, coincided with a GDP headline this good. Normally, GDP growth is 1.7% when hours worked is this weak, and that is exactly the trend that was depicted this week in the release of the Chicago Fed’s National Activity Index, which was widely ignored. On the flip side, when we have in the past seen GDP growth come in at or near a 5.7% annual rate, what is typical is that hours worked grows at a 3.7% rate.
No matter how you slice it, the GDP number today represented not just a rare but an unprecedented event, and as such, we are willing to treat the report with an entire saltshaker — a few grains won’t do.
Calculated Risk: A Few Comments on Q4 GDP Report
Any
…
Jim Rogers on the Tiger Woods solution
by ilene - December 11th, 2009 10:42 pm
Jim Rogers on the Tiger Woods solution
Courtesy of Tim Iacono at The Mess That Greenspan Made
It’s been a while since a Jim Rogers quote graced the pages of this blog – it seems it was well worth the wait after looking at the gems offered up in this interview with CNBC today.
Gov’t Spending Is Like Tiger’s Dating: Jim Rogers
The U.S. government’s plan to increase spending as a way to kick-start the economy will leave the country with no way to help its way out of the next crisis, Jim Rogers, chairman of Jim Rogers Holdings, told CNBC Thursday.
The Treasury Department "has been putting out all of this stimulus and now they’re talking about extending the (Troubled Asset Relief Program)," Rogers said.
…
Geithner "is a very smart person," but "he’s been wrong about everything for the last 15 years," Rogers said."Why are we listening to any of those guys down there? They’re making our situation worse," he said. "They said in writing yesterday the solution to our problem is to spend more money … that’s what got us into this problem: too much debt."
"That’s like saying to Tiger Woods, ‘you get another girlfriend and it will solve your problems’ or ‘five more girlfriends and you will solve your problems,’" he said.
Rogers sees a currency crisis of some sort occurring somewhere around the world sometime in the not-too-distant future and asks how the U.S. government intends to solve future financial and economic crises if they borrow and print so much money to solve the current one, "What are they going to do, quadruple the debt again? Print more money?"
This was one of the best rhetorical questions I’ve heard all year…
MUST WATCH: Glenn Beck And The Dollar Carry
by ilene - November 18th, 2009 11:49 am
Trilogy of Must Watch (Glenn Beck), Must Read (China’s pollution problem) and Must Write that outrageously duplicitous Watt and your Congressional Reps (WatTF!) courtesy of Karl Denninger at The Market Ticker. – Ilene
MUST WATCH: Glenn Beck And The Dollar Carry
Manhattan Institute Says “New York must declare a financial emergency”
by ilene - November 15th, 2009 11:31 am
Manhattan Institute Says "New York must declare a financial emergency"
Courtesy of Mish
E.J. McMahon, director at the Manhattan Institute says New York deficits amount to financial emergency.
New York state’s huge and growing budget gap requires government to take drastic actions to correct it, said E.J. McMahon, director of the Empire Center for New York State Policy at the Manhattan Institute.
McMahon spoke to the Council of Industry, a regional trade group, Friday at the Powelton Club.
He charted flat revenues against expected spending if nothing is changed and showed a $20 billion gap looming by 2012-13.
McMahon said the state must declare a financial emergency and enact a statutory freeze on public-sector wages for at least three years. State law allows this and enables contracts to be voided, he said. It would save at the rate of $2 billion a year for state, local and school taxpayers.
McMahon also called for shutting down the state’s pension systems to new entrants and giving them instead a plan similar to one of the alternatives for the State University system, in which a stable amount is contributed by the state and employees can add their own.
He said some parts of the state’s Taylor Law, governing labor relations with public employees, should be repealed, including compulsory arbitration for police and fire unions. Other laws should also be targeted for repeal because they’re costly, including the rule requiring that on most public work the "prevailing wage" be paid, usually the union scale.
State spending should be capped by changing the state constitution, he said, recommending the "tax expenditure limitation" approach exemplified by Colorado.
He laid blame on politicians."It’s their failure to stop the growth in spending that is the underlying problem," he said. "New Yorkers are voting with their feet and heading for the exits."
Tax Expenditure Limitation Analysis
There is surprisingly little in the way of current analysis of TEL analysis. I did find this TEL Impact Study by the Cato Institute that seems to predate 2000.
The existence of a TEL may not be sufficient to influence the size of government. The way a TEL is written can have an important impact on its effectiveness. Hidden loopholes may make it easy for a state legislature to work around the law.
…
Confirmed: Defense Spending Creates Fewer Jobs Than Other Types of Spending
by ilene - November 12th, 2009 12:27 pm
Confirmed: Defense Spending Creates Fewer Jobs Than Other Types of Spending
Courtesy of Washington’s Blog
Yesterday, I pointed out that a study by one of the leading economic modeling companies shows that military spending increases unemployment and decreases economic growth.
Indeed, an economic paper published in 2007 by The Political Economy Research Institute at the University of Massachusetts, Amherst – entitled "The U.S. Employment Effects of Military and Domestic Spending Priorities" – concludes:
We present in Table 1 our estimate of the relative effects of spending $1 billion on alternative uses, including military spending, health care, education, mass transit, and construction for home weatherization and infrastructure repair.
[Click for larger image]
The table first shows in column 1 the data on the total number of jobs created by $1 billion in spending for alternative end uses. As we see, defense spending creates 8,555 total jobs with $1 billion in spending. This is the fewest number of jobs of any of the alternative uses that we present. Thus, personal consumption generates 10,779 jobs, 26.2 percent more than defense, health care generates 12,883 jobs, education generates 17,687, mass transit is at 19,795, and construction for weatherization/infrastructure is 12,804. From this list we see that with two of the categories, education and mass transit, the total number of jobs created with $1 billion in spending is more than twice as many as with defense.
"Military Keynesianism" – the idea that war is the best economic stimulus – is false.
Thanks to Gordon for the tip.
Confirmed: Defense Spending Creates Fewer Jobs Than Other Types of Spending
by Zero Hedge - November 12th, 2009 2:09 am
Confirmed: Defense Spending Creates Fewer Jobs Than Other Types of Spending
Courtesy of Washington’s Blog
Yesterday, I pointed out that a study by one of the leading economic modeling companies shows that military spending increases unemployment and decreases economic growth.
Indeed, an economic paper published in 2007 by The Political Economy Research Institute at the University of Massachusetts, Amherst – entitled "The U.S. Employment Effects of Military and Domestic Spending Priorities" – concludes:
We present in Table 1 our estimate of the relative effects of spending $1 billion on alternative uses, including military spending, health care, education, mass transit, and construction for home weatherization and infrastructure repair.
[Click for larger image]
The table first shows in column 1 the data on the total number of jobs created by $1 billion in spending for alternative end uses. As we see, defense spending creates 8,555 total jobs with $1 billion in spending. This is the fewest number of jobs of any of the alternative uses that we present. Thus, personal consumption generates 10,779 jobs, 26.2 percent more than defense, health care generates 12,883 jobs, education generates 17,687, mass transit is at 19,795, and construction for weatherization/infrastructure is 12,804. From this list we see that with two of the categories, education and mass transit, the total number of jobs created with $1 billion in spending is more than twice as many as with defense.
"Military Keynesianism" – the idea that war is the best economic stimulus – is false.
Thanks to Gordon for the tip.
Why the Dow is Hitting 10,000 Even When Consumers Can’t Buy And Business Cries “Socialism”
by ilene - September 22nd, 2009 11:54 am
Many may be asking this question, as the market surges higher and the news (looking out past gov’t influenced near term numbers) looks so bleak…
Why the Dow is Hitting 10,000 Even When Consumers Can’t Buy And Business Cries "Socialism"
Courtesy of Robert Reich at Robert Reich’s Blog
![[IMG_0516.JPG]](http://4.bp.blogspot.com/_r3bP1mw8CJE/SOtptPlKxEI/AAAAAAAAAAs/qPwWlVCoJcw/S220/IMG_0516.JPG)
So how can the Dow be flirting with 10,000 when consumers, who make up 70 percent of the economy, have had to cut way back on buying because they have no money? Jobs continue to disappear. One out of six Americans is either unemployed or underemployed. Homes can no longer function as piggy banks because they’re worth almost a third less than they were two years ago. And for the first time in more than a decade, Americans are now having to pay down their debts and start to save.
Even more curious, how can the Dow be so far up when every business and Wall Street executive I come across tells me government is crushing the economy with its huge deficits, and its supposed “takeover” of health care, autos, housing, energy, and finance? Their anguished cries of “socialism” are almost drowning out all their cheering over the surging Dow.
The explanation is simple. The great consumer retreat from the market is being offset by government’s advance into the market. Consumer debt is way down from its peak in 2006; government debt is way up. Consumer spending is down, government spending is up. Why have new housing starts begun? Because the Fed is buying up Fannie and Freddie’s paper, and government-owned Fannie and Freddie are now just about the only mortgage games remaining in play.
Why are health care stocks booming? Because the government is about to expand coverage to tens of millions more Americans, and the White House has assured Big Pharma and health insurers that their profits will soar. Why are auto sales up? Because the cash-for-clunkers program has been subsidizing new car sales. Why is the financial sector surging? Because the Fed is keeping interest rates near zero, and the rest of the government is still guaranteeing any bank too big to fail will be bailed out. Why are federal contractors doing so well? Because the stimulus has kicked in.
In other words, the Dow is up despite the biggest consumer retreat from the market since the Great Depression because of the very thing so…
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