Courtesy of The Automatic Earth.
Jack Delano Military sentry at bridge over Colorado River, Topock, Arizona March 1943
With consensus building, after new health care data were released, that Q1 US GDP contracted by -2%, which is even worse than the latest -1% estimate, you’d think a bit of realism would pervade news reports. Think again. The ‘make it up as you go along’ factor only increases as numbers get worse. And, naive as I am, I can’t help wondering what the reason is for a journalist, whose MO should, at least in my view, contain a healthy dose of objectivity, to insist on making things look better and richer and growing more and faster than they really are. This attitude, which leans far too close for my comfort to viewing the world from a religious myopia, is practically all pervasive. And I strongly suggest that people keep that in the back of their heads no matter what they read. I personally – obviously – read lots of mainstream articles, and post links to quite a few, and I feel fine doing it because I have my BS radar on all the time. And I read and write lots of non-mainstream things to counter balance them. Hopefully, you do too. Here’s that latest contraction estimate (and again, I do adapt headlines at times to get to the essence of things):
US Q1 GDP Revised Downward To A -2% Contraction (WSJ)
The U.S. economy may have contracted more than previously thought during the first three months of 2014, private economists said Wednesday based on new health care-sector data from the government. Some analysts said economic output may have contracted at a 2% pace in the first quarter. That would be its worst performance since the recession. The Commerce Department’s latest estimate of GDP, the broadest measure of output across the economy, said it shrank at a seasonally adjusted annual rate of 1% in the first quarter. A revised estimate will be released June 25, and it could show an even larger contraction. That’s based on the Commerce Department’s Quarterly Estimates for Selected Service Industries report for the first quarter, released Wednesday. It showed that revenue in the U.S. health-care and social-assistance sector fell 2% in the first quarter from the fourth quarter of 2013, not adjusted for seasonal variations or price changes.
That’s pretty bad regardless of any other issues. If US GDP shrinks by -2% six-odd years into an alleged recovery, that is, to be frank, pretty frightening. That’s not how recoveries work or are supposed to work. Period. And while the mainstream press refuses to let go of the Q1 snow and ice story, and the non mainstream keeps on blowing holes in it, we did leave Q1 ten full weeks ago and things are not showing pent up demand or great surges in spending or recovery or anything like that. I mean, you can always hand pick a bunch of data and ignore the rest, but that just won’t do. Look, May is not Q1, it’s well into Q2:
Wholesale Prices in U.S. Unexpectedly Decreased in May
Wholesale prices in the U.S. unexpectedly fell in May, suggesting demand isn’t robust enough to push inflation closer to the Federal Reserve’s target. The 0.2% decrease in the producer price index compared with the median estimate in a Bloomberg survey of 71 economists that called for a 0.1% gain. Over the past 12 months, costs climbed 2%, figures from the Labor Department showed today. The May dip, the first in three months, suggests pricing power hasn’t yet materialized as the global economy is slow to accelerate. Muted costs are a problem for Federal Reserve policy makers, who have said they want inflation to increase closer to their 2% goal, a sign they will keep interest rate low well into 2015. “Producer price inflation is still fairly contained despite the big increases in the last few months,” Omair Sharif at RBS Securities said in a research note.
The most ‘out there’, and funniest at the same time, example today has got to be this Bloomberg piece, which was originally titled ‘May Sales Rise Less Than Forecast As Americans Take Respite’, and later changed into:
Cooling Sales Curb Optimism on U.S. Growth Rebound
American consumers paused for breath in May as retail sales climbed less than forecast following an impressive three-month run, tempering forecasts for a rebound in growth this quarter.
Americans took a breath, or a respite? From what, staying home in the cold? Or is it huge spending in April? Perhaps not.
This is from a May 13 Reuters article on April retail sales, Retail Sales Slow, But Growth Outlook Still Upbeat
… growth is expected to top a 3% rate this quarter. [..] While a gauge of consumer spending slipped in April, economists said the weak growth performance at the start of the year had probably made households more careful about spending. “It’s possible that consumers are being a bit more cautious in their spending habits as they await confirmation that the economy is, in fact, poised to reaccelerate,” said Jim Baird, CIO at Plante Moran Financial Advisors.
Wait, wait, hold on. Consumer spending slipped in April after a -2% Q1 number, and that’s because they were no longer cold, but … eh, but what? They were afraid it would get cold again? Or could it perhaps be that they spent all their money trying to stay warm? Just saying …
So-called core sales, which strip out automobiles, gasoline, building materials and food services and correspond most closely with the consumer spending component of GDP, dipped 0.1% in April. That followed a 1.3% advance in March. Still, economists were largely unframed by the drop and said consumer spending was on track to post a third consecutive quarter of robust growth, citing a firming labor market. “Despite an overall seemingly weak April retail sales report, thanks to the pop in March, the second quarter is starting off at a higher level that is consistent with strong consumption in the quarter,” said Bricklin Dwyer, economist at BNP Paribas.
A -2% Q1 GDP, but a “pop in March”, and ‘consumer spending slipped in April’. Now I’m getting confused. Anyway, April was weak, May was weak, but we still think Q2 GDP will ‘top a 3% rate’? That means June need to give us what, a 6%,7% gain? Really?
And moving back to the Bloomberg piece, excuse me, an impressive three-month run? What happened to the snow then? You see, three months ago we were still mired in Q1, and GDP fell -2% in that quarter. Did I miss something?
“It’s a story of gradual improvement,” said Michelle Girard, chief U.S. economist at RBS Securities [..] “We’re not getting the big acceleration that many people hoped for.”
That’s what I thought. No pent-up demand in sight. But that does make me wonder why someone would call it ‘gradual improvement’.
Consumers’ spirits are rising as job prospects strengthen. [..] “The most important of all economic indicators is employment, and since the jobs picture has improved, consumer attitudes are more upbeat,” said Richard Yamarone, a senior economist at Bloomberg. “If sustained, this could result in greater spending and overall economic growth.”
How is this not merely wishful thinking? If retail sales are cooling one month after GDP, 70% of which is consumers, was down -2%, where and how are ‘consumer spirits rising’?
Let’s try this angle: there was a cold winter, we all agree, but why don’t we subtract the increase in heating costs from the GDP number on the premise that it’s not an actual boost to the economy, since for many people it involved money they couldn’t spend twice, i.e. it directly interfered with the promise of any pent-up spending behavior. What would GDP look like then? How about -3%? I think we can all at least figure out the direction it would go in, even if not the exact percentage or amount. And yeah, unemployment at 6.3% is less bad than it was, but between ‘out of the labor force’ data and WalMart greeter and burger flipper “jobs”, don’t we all of us by now have a hunch of what jobless numbers are really like stateside? Why must we insist to persist in fooling one another about them? It only leads to a bewildering sequence of awfully wrong forecasts.
Governments, analysts, experts, pundits and journalists. A huge conspiracy built up to fool the American people. The Automatic Earth would do much better, attendance-wise and financially, if we were to simply follow that trend. Just keep on telling people the next quarter will be better, much better, and only have to swallow that sort of thing back half a year later, when no-one cares anymore and everyone’s fixated on newer data again. The media can say they only quoted government and experts, who in turn can claim their models really showed that dramatic uptick. But then every single one of you would be walking around in the emperor’s new clothes, perhaps feeling better short term, but exposed to ridicule, the elements and the debt you’ve gathered.
Let’s get this clear: the US economy is not doing well, at all, and it’s not picking up in any significant sense either, despite all the forecasts that always need to be revised downward at some later date (that’s not a coincidence, it’s an MO). Nor are other economies. China, Japan, EU, they’re all gasping for breath, not taking a breath. They’re also all issuing forecasts that are as rosy as they are absolute nonsense. But, you know, if everybody does it, that’s a safe place to be in, for who’s going to blame you?
I think Americans should be taking a breath alright, just not from spending money they don’t have to begin with or getting even deeper into debt, they should take a breath from “reports” intended to make them look like dumb-ass patsies.
