Posts Tagged ‘GDP growth’

WHAT DOES THE YIELD CURVE TELL US ABOUT FUTURE ECONOMIC CONDITIONS?

Pragcap asks: "WHAT DOES THE YIELD CURVE TELL US ABOUT FUTURE ECONOMIC CONDITIONS?"

There are few indicators more prescient than the yield curve. Over the years the curve has successfully predicted all but two post WW2 recessions.  In the last 40 years it is 7 for 7 in predicting recessions.  A negative yield curve is generally consistent with a Federal Reserve that is attempting to cool the economy.  Clearly, they have a tendency to overshoot.

The current curve, however, is quite steep and tends to be consistent with a Federal Reserve that is attempting to stimulate the economy (something they also have a tendency of overshooting).  Based on past readings the Cleveland Fed says the current environment is consistent with 1% growth in real GDP:

“Projecting forward using past values of the spread and GDP growth suggests that real GDP will grow at about a 1.0 percent rate over the next year, the same projection as in October and September. Although the time horizons do not match exactly, this comes in on the more pessimistic side of other forecasts, although, like them, it does show moderate growth for the year.”

But meager growth is better than no growth.  At current levels the probability of recession is virtually 0%. Unfortunately, low growth means this is going to continue feeling like a recession for a large portion of the country.  And in a balance sheet recession the usual Fed toolbox of altering interest rates is unlikely to have the usual stimulative impact.

 


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Market Cheers 1.6% Growth; Treasuries Hammered; What’s Next?

Market Cheers 1.6% Growth; Treasuries Hammered; What’s Next?

Courtesy of Mish

NEW YORK - AUGUST 25: Fans cheer during The Nike Primetime Knockout Tennis Event at Pier 54 on August 25, 2010 in New York City. (Photo By Al Bello/Getty Images for Nike)

Today the DOW has crossed the 10K line for the umpteenth time (at least 3 times in the past 3 days alone depending on how you count), smack on the heels of "fantastic news" that second quarter GDP was 1.6%.

For a change, economists were a bit too pessimistic but to get to that point, their estimates had to be ratcheted down twice from 2.5% to 1.4%. Now the market, temporarily at least, thinks 1.6% is good.

It isn’t. More importantly, GDP expectations looking forward for 3rd quarter are in the neighborhood of 2.5%, a number that is from Fantasyland. I expect a negative print.

GDP News Release

Inquiring minds are digging into the BEA’s report National Income and Product Accounts Gross Domestic Product, 2nd quarter 2010 (second estimate) for additional details.

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 1.6 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent.

The GDP estimates released today are based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.4 percent (see "Revisions" on page 3).

The increase in real GDP in the second quarter primarily reflected positive contributions from nonresidential fixed investment, personal consumption expenditures, exports, federal government spending, private inventory investment, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the second quarter primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending.

Real personal consumption expenditures increased 2.0 percent in the second quarter, compared with an increase of 1.9 percent in the first. Real nonresidential fixed investment increased 17.6 percent, compared with an increase of 7.8 percent. Nonresidential structures increased 0.4 percent, in contrast to a decrease of 17.8


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China: the coming costs of a superbubble

China: the coming costs of a superbubble

Courtesy of Vitaliy N. Katsenelson writing in the Christian Science Monitor 

Construction continues on the site of the World Expo in Shanghai

The world looks at China with envy. China’s economy grew 8.7 percent last year, while the world economy contracted by 2.2 percent. It seems that Chinese “Confucian capitalism” – a market economy powered by 1.3 billion people and guided by an authoritarian regime that can pull levers at will – is superior to our touchy-feely democracy and capitalism. But the grass on China’s side of the fence is not as green as it appears. 

In fact, China’s defiance of the global recession is not a miracle – it’s a superbubble. When it deflates, it will spell big trouble for all of us. 

To understand the Chinese economy, consider three distinct periods: “Late-stage growth obesity” (the decade prior to 2008); “You lie!” (the time of the financial crisis); and finally,  “Steroids ’R’ Us” (from the end of the financial crisis to today).

Late-stage growth obesity

About a decade ago, the Chinese government chose a policy of growth at any cost. China’s leaders see strong gross domestic product (GDP) growth not just as bragging rights, but as essential for political survival and national stability. 

Because China lacks the social safety net of the developed world, unemployed people aren’t just inconvenienced by the loss of their jobs, they starve; and hungry people don’t complain, they riot and cause political unrest. 

Continue reading here.>>

See also: China’s Red Flags - A White Paper by GMO’s Edward Chancellor. H/tip Zero Hedge. 


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Rosenberg: U.S. GDP is overstated

Rosenberg: U.S. GDP is overstated

Courtesy of Edward Harrison at Credit Writedowns

Abandoned lemonade stand

This morning, David Rosenberg of Gluskin Sheff had another wonderful piece. I am only going to take on one part of it here. I have linked to the full article below so that you can read his analysis in it’s entirety (registration free but required).

The part I want to focus in on has to do with GDP revisions. Basically, the GDP numbers the U.S. government releases are always revised when more complete data come in. Often the data come in years later via tax returns and other slower-to-report channels, so we can get huge disparities in what was reported at the time and what ends up being the final data series. Rosenberg thinks Q3 is going to see major, major downward revisions because of small businesses.

He says the following (highlighting added):

We noticed an interesting piece of research on U.S. GDP from Goldman Sachs’ Economics team that’s worth highlighting. The team questions whether the official government GDP statistics capture how poorly small businesses (ie, sole proprietorships) are doing. The weakness in small business sentiment is seemingly at odds with the recent 3.5% Q3 GDP reading but may explain why the unemployment rate has continued to steadily increase. Part of the reason for small business weakness is that most don’t have the same access to credit as larger firms and larger firms’ output tends to be better captured in the GDP data. While sole proprietorships tend to be small they collectively account for a nontrivial 17% of the U.S. economy.

The Goldman team uses a couple of different statistical approaches to test their thesis. They use timely data from the National Federation of Independent Business (NFIB) confidence survey, which shows that despite a recent improvement, confidence remains exceptionally weak (in fact two standard deviations below long-run trends). The first model suggests that the NFIB survey is consistent with overall GDP growth of 2.5% to 3.0% — not the 3.5% reported. As well, they find that current NFIB readings are more in line with below-50 readings on the ISM manufacturing index versus the actual reading of 55.7.

The second approach has to do with revisions to the GDP data and their relationship to the NFIB. U.S. GDP goes through many revisions as more, and


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China’s retail sales growth figures are not consumption growth figures

Michael Pettis discusses China’s retail sales numbers (not a proxy for consumption) and the mounting trade tensions between China and the U.S. – Ilene

China’s retail sales growth figures are not consumption growth figures

china tradeCourtesy of Michael Pettis at China Financial Markets

A lot of people, via emails, letters and phone calls, have been asking me how I can be so pessimist about consumption growth in China given the spectacular consumption growth figures coming out of China – 15.4% year to date.  An editor who asked me for a piece, after reading it also wondered if my view – that China’s GDP growth would be constrained by its consumption growth – was such a worrying thing given China’s 15% growth rate of consumption. 

The problem is that these are not consumption growth figures.  They are retail sales figures.  Fair enough, you might think, but the retail sales growth rate should still be a reasonable proxy for consumption growth.  It isn’t.  Among lots of other noise retail sales figures include government purchases and shipments to retailers even before these shipments are sold to consumers.  That makes it a very bad proxy for consumption.

Take a look why.  I took the following chart from the September 14 issue of Jim Walker’s excellent Asianomics report.  This shows retail sales for the past decade.  As you can see, first of all, for all the excitement there has not been much of a surge in retail sales.  Secondly, retail sales have been supposedly growing between 13% and 24% for the past six years, which even on an inflation-adjusted basis (I assume it is inflation that explains the late 2007 and early 2008 surge) significantly exceeds GDP growth.  But if retail sales were really a decent proxy for consumption growth, it would be hard to tell from this graph that consumption has plunged as a share of GDP.

China retail sales 

But it has.  Consumption has been growing over the past several years by about 8-9% a year, while GDP has been hurtling forward by 10-12% a year and, not surprisingly, this implies arithmetically that consumption is declining as a share of GDP.

This is supposed to be a short entry, but before closing I should discuss the recent 35% tariffs on Chinese tires imposed by the Obama administration, especially since that seems to have been one of the hottest topics of conversation today. 


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THOUGHTS ON THIS MORNING’S DATA

THOUGHTS ON THIS MORNING’S DATA

Courtesy of The Pragmatic Capitalist

GDP came in more or less in-line with expectations and the market seems to like the underlying news.  There were a lot of moving parts here, but some are clearly more important than others.  On the weak side we had business investment, housing, personal consumption, and inventories. On the strong side we have the trade gap and a rebound in government spending.  This appears to neatly summarize the driver of hope that has been the last few months.  Despite continued declines in personal consumption and house prices, large components such as government spending continue to offset the overall weakness.

Much like the cost cutting that has led to “better than expected” earnings we have to ask ourselves how much of this GDP report is sustainable?  Will housing turn into a positive or will it continue to be a drag?  Will personal consumption continue to be weak?  Can the government continue to spend enough to offset the overall weakness?   The overall U.S. economy is very similar to a corporation.  In this case the top line growth comes mainly from personal consumption.  Are we in essence, doing the same thing that our corporations are doing – improving the near-term without the necessary long-term driver of top line growth?  This GDP report would certainly reflect that.

As I generally try to do, I’ll cut out the fat and get right to the meat.  In this consumer driven economy the PCE component of GDP should scare investors.  While we’re seeing recovery in many sectors of the economy it is still very clear that the consumer is not recovering.  PCE was down 1.2% versus last quarter’s 0.6% rise.  The weekly sales reports here at TPC reflect these figures.  There is little to no recovery in the consumer.

gdp rep real gdp growth

Charles Rotblut at Zacks makes an excellent point with regards to future GDP:

Furthermore, the economy still has a long way to go just to get back to breakeven. GDP fell at a 6.4% pace in the first quarter and a 5.4% pace in the fourth quarter. Even if the more optimistic forecasts prove to be correct, the economy will end 2010 with pretty much not showing any growth during the first 2 years of the Obama presidency.

For stocks, this means a


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Phil's Favorites

Why Jack Dorsey's Square paid a record $39 billion for Afterpay

 

Why Jack Dorsey’s Square paid a record $39 billion for Afterpay

Courtesy of Lien Duong, Curtin University and Sonny Pham, Curtin University

The A$39 billion (US$29 billion) that Twitter founder Jack Dorsey’s digital payments company Square is paying to acquire Australian upstart payments outfit Afterpay is the biggest takeover deal in Australian corporate history.

It surpasses the A$32 billion European commercial real estate giant Unibail-Rodamco agreed to pay for Frank Lowy’s Westfield Corporation in 2...



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Zero Hedge

Texas Judge Blocks Governor's Order Halting Transport Of Covid-Positive Illegals

Courtesy of ZeroHedge View original post here.

In a short-term victory for the Biden administration, a federal judge in Texas blocked an executive order which restricts the transport of infected illegal immigrants on Tuesday, suggesting that the order itself would have the effect of "exacerbating the spread of COVID-19."

U.S. District Judge Kathleen Cardone of El Paso agreed with the Justice Department, which accused Governor Greg Abbott (R) of potentially worsening the spread of the virus - as impeding the transfer of undocumented migrants would prolong the ...



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Chart School

RTT browsing latest..

Courtesy of Read the Ticker

Please review a collection of WWW browsing results. The information here is delayed by a few months, members get the most recent content.



Date Found: Saturday, 13 March 2021, 06:40:57 PM

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Comment: @crossbordercap Peak liquidity already evidence from our GLI momentum signal...has 6-9 month lead-time on markets and 15-20 months on economies



Date Found: Friday, 19 March 2021, 10:55:22 PM

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Biotech/COVID-19

Americans Tend To Stick To Their Stance On COVID-19 Vaccines

 

Source: Bloomberg, via ZeroHedge

Courtesy of Felix Richter, Statista

As U.S. health officials and the Biden administration desperately try to kickstart the stalling rollout of COVID-19 vaccines in face of the highly contagious Delta variant, President Biden...



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Digital Currencies

What are stablecoins? A blockchain expert explains

 

What are stablecoins? A blockchain expert explains

Stablecoins promise more stability than other cryptocurrencies. DenBoma/iStock via Getty Images

Courtesy of Stephen McKeon, University of Oregon

Stablecoins are a type of cryptocurrency linked to an asset like the U.S. dollar that doesn’t change much in value.

The majority of the dozens of stablecoins that currently exist use the dollar as their benchm...



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Politics

Bipartisan infrastructure deal begins to address consequences of a warming planet: 3 essential reads

 

Bipartisan infrastructure deal begins to address consequences of a warming planet: 3 essential reads

A lot of coastal infrastructure wasn’t designed for the frequent flooding and crashing waves brought by rising seas. Jeffrey Greenberg/Universal Images Group via Getty Images

Courtesy of Bryan Keogh, The Conversation and Stacy Morford, The Conversation

...



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Promotions

Free Webinar Wednesday: July 7, 1:00 pm EST

 

Don't miss Phil's Webinar on July 7 at 1:00 pm EST. It's FREE and open to all who wish to join.

Click here: 

https://attendee.gotowebinar.com/register/6552545459443187211

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Kimble Charting Solutions

Crude Oil Cleared For Blast Off On This Dual Breakout?

Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

Crude Oil has created lower highs over the past 13-years, since peaking back in 2008, along line (1).

It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

The countertrend rally in Crude Oil has it attempting to break above its 13-year falling resistance as well as its double top at (3).

A successful breakout at (3) would suggest Crude Oil is about to mo...



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ValueWalk

Managing Investments As A Charity Or Nonprofit

By Anna Peel. Originally published at ValueWalk.

Maintaining financial viability is a constant challenge for charities and nonprofit organizations.

Q4 2020 hedge fund letters, conferences and more

The past year has underscored that challenge. The pandemic has not just affected investment returns – it’s also had serious implications for charitable activities and the ability to fundraise. For some organizations, it’s even raised doubts about whether they can continue to operate.

Finding ways to generate long-term, sustainable returns for ...



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Mapping The Market

Suez Canal: Critical Waterway Comes to a Halt

 

Suez Canal: Critical Waterway Comes to a Halt

Courtesy of Marcus Lu, Visual Capitalist

The Suez Canal: A Critical Waterway Comes to a Halt

On March 23, 2021, a massive ship named Ever Given became lodged in the Suez Canal, completely blocking traffic in both directions. According to the Suez Canal Authority, the 1,312 foot long (400 m) container ship ran aground during a sandstorm that caused low visibility, impacting the ship’s navigation. The vessel is owned by Taiwanese shipping firm, Evergreen Marine.

With over 2...



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The Technical Traders

Adaptive Fibonacci Price Modeling System Suggests Market Peak May Be Near

Courtesy of Technical Traders

Our Adaptive Fibonacci Price Modeling system is suggesting a moderate price peak may be already setting up in the NASDAQ while the Dow Jones, S&P500, and Transportation Index continue to rally beyond the projected Fibonacci Price Expansion Levels.  This indicates that capital may be shifting away from the already lofty Technology sector and into Basic Materials, Financials, Energy, Consumer Staples, Utilities, as well as other sectors.

This type of a structural market shift indicates a move away from speculation and towards Blue Chip returns. It suggests traders and investors are expecting the US consumer to come back strong (or at least hold up the market at...



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Lee's Free Thinking

Texas, Florida, Arizona, Georgia - The Branch COVIDIANS Are Still Burning Down the House

 

Texas, Florida, Arizona, Georgia – The Branch COVIDIANS Are Still Burning Down the House

Courtesy of Lee Adler, WallStreetExaminer 

The numbers of new cases in some of the hardest hit COVID19 states have started to plateau, or even decline, over the past few days. A few pundits have noted it and concluded that it was a hopeful sign. 

Is it real or is something else going on? Like a restriction in the numbers of tests, or simply the inability to test enough, or are some people simply giving up on getting tested? Because as we all know from our dear leader, the less testing, the less...



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Insider Scoop

Economic Data Scheduled For Friday

Courtesy of Benzinga

  • Data on nonfarm payrolls and unemployment rate for March will be released at 8:30 a.m. ET.
  • US Services Purchasing Managers' Index for March is scheduled for release at 9:45 a.m. ET.
  • The ISM's non-manufacturing index for March will be released at 10:00 a.m. ET.
  • The Baker Hughes North American rig count report for the latest week is scheduled for release at 1:00 p.m. ET.
...

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