GDP In Pictures: The Truth

GDP came out this morning and there’s only one word for it: Ugly.

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?

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.

Now let’s put it all together, right off the BEA’s release: (Table 3B)

Or if you prefer it in pictures….[see graph above]

Clear?  Good.  This is the raw data in constant dollars (that is, adjusted for inflation), before "seasonal adjustments" and backing out the so-called "revisions."

GDP is not only still negative it is still declining at an increasing rate when one looks at the actual numbers. 

The recession is not "easing", it is DEEPENING.

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!"