Not much reaction to the negative GDP -0.1%.

Was this a one off, special circumstances, or the start of something more significant.

Discuss . . .

 

 

Category: Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

45 Responses to “Negative GDP. Discuss”

  1. mitchn says:

    Pretty simple story, if you ask me: Sandy, fiscal cliff uncertainty (the whole month of December!), and (apparently) inventory draw-downs. Things aren’t great, but they’re not bad. About what you’d exepct at this point in the deleveraging process after a massive 30-year credit bubble. The New Normal, baby. (And Rick “I Know Nothing” Santelli should find a new gig.)

  2. If great numbers of suburbanites tore up their lawns, fired the gardener and started growing their own fruits and vegetables while raising chickens for eggs and meat…

    Would the GNP go up or down?

    I’m not suggesting it… and it may not be the perfect example… but I am suggesting that GNP is a lousy measure of economic health.

    Here’s another one:

    Suppress wages but keep purchasing up by extending cheap credit …. and keep printing money to rollover the ever accumulating interest and principal …

    This is very clever and creates an enormously successful and cancerous financial ‘services’ sector which can eventually completely such the life out of a civilization.

  3. mcmanus.tom says:

    3.4% private sector growth is not too bad. I will take a negative GDP with positive private sector growth. Government needs to reduce leverage and reduction in spending is the first step.

  4. Petey Wheatstraw says:

    “Was this a one off, special circumstances, or the start of something more significant.’

    Every blip is one or the other.

    All things considered, all of the buried bodies will start to surface, someday — and there are one hell of a lot of buried bodies out there. No telling what event will push them to the surface.

    Remember counter-party risk?

    WE are now THE counter-party. Thanks, Timmy. Thanks, George. Thanks, Barack. Thanks, Ben. Thanks, Hank.

    Then again, maybe it’s just gas.

  5. Greg0658 says:

    my 1st input is separate the GDP types/levels some and then state that new negative number .. ok answer this:
    “aaeee – I totally can do without that – my life will go on without it – it was nice while we had it – but aaeee”

  6. Lee Adler says:

    This report was just wrong. An economy that added nearly a million jobs in the quarter, continued to see unemployment claims drop at the trend rate of the last 2 years averaging around 5-10% declines, and saw federal revenues grow by 3.7%, did not shrink. This advance estimate that will be revised and revised again. By the time they’re done with the revisions it will show a gain. But meanwhile it gave the Fed the perfect excuse it needed to keep pedal to the metal. http://wp.me/p2r1d8-AbM

  7. Angryman1 says:

    A waste of time. Matter of fact GDP “numbers” take years alot of times to get right. They do 10 years worth of revision. Rediculous this gets so much hype.

    A better use would be to abolish quarterly GDP “releases” given the next quarter. Release yearly numbers broken down into quarterly components and then update at years end for every year to the number doesn’t change for 3 straight years.

  8. There is much noise in conventional Real GDP rates. GDP growth had an 8% range in Y2k. Now it’s about 4%. TRI filters the data and reporting periods to provide a smoother baseline for investor use. This metric reveals Real GDP has steadily improved since the Spring 2011 trough: 1.1% Q3, 1.5% Q4 & higher in 2013H1.

    That said, Real GDP is artificial due to the massive trillion dollar Deficits. Structural GDP remains a dire -4.9% today. It is this metric that ECRI, Rosenberg and all the bears have been watching but they’ve underestimated their quantification of the fiscal multipliers which had been keeping Real GDP positive since mid 2009.

    structural & real GDP outlook chart: http://trendlines.ca/free/economics/RecessionIndicatorUSA/USA-TRI.htm

  9. CSF says:

    The significant contributors to GDP weakness (from the BEA table: Real GDP percentage changes):

    1. Defense spending (reversal of a Q3 buildup anticipating the fiscal cliff?)
    2. Domestic Private Investment (fiscal cliff?)
    3. Net Exports (European recession?)

    It’s hard to see these as one-offs, since Washington foolishness will continue, and Europe is stuck in recession. On the other hand, housing is decent, consumption is holding up, and QE is propping up the markets.

    The Wildcard: we haven’t yet seen the impact of tax hikes. Moreover, Q4 included pay, bonuses, and capital gains pulled forward into 2012, and there will be payback in Q1 2013.

    The Fallout: this report is a shot across the bow of budget hawks. It means fewer cuts and a green light for QE.

  10. mitchn says:

    What @CSF said:

    > It means fewer cuts and a green light for QE.

    Yes and yes.

  11. pjmason says:

    I’ve never posted before but felt inclined to do so. Yes, if you analyze some of the underlying data points the report doesn’t seem to as bad as the headline number. But to totally dismiss the fact that the largest economy in the world just indicated contraction seems to scream that there is a lot of complacency in the market place to me. Maybe the revisions will prove this to be an anomaly but I feel this is something that should not be taken this lightly. Especially in light of valuations in the US that are priced for perfection.

  12. Rouleur says:

    …There must be some kind of way out of here, Said the joker to the thief…

  13. Rightline says:

    I think Lakshman Achuthan should postpone his victory lap.

    Government was a huge drag with military preparing for the sequester. Inventory and trade as well.

    The Sandy effect may seem like a distant memory but I think it is big in this report also the concern over congress potential bickering caused indecision.

    Underlying strength with software business investment up nicely. 2 companies I follow FTNT and FFIV had good reports and guidance going forward. Residential investment up strong as well.

    The fed implicitly addressed this as transient issues in the first paragraph of the statement today.

    I think it get revised up ultimately and we continue incrementally higher slowly.

  14. Angryman1 says:

    “This report was just wrong”

    The overall numbers in the 4th quarter does suggest that growth slowed from above average to below average. Like going from 3.5% to 1.5%. But yes, a contraction did not happen. Clear error in the hedonics, but that isn’t new. They happen all the time and alot of times, take years to iron out.

  15. DSS10 says:

    Per Bloomberg this morning: “Federal spending dropped at a 6.6 percent annual pace from October through December, subtracting 1.3 percentage points from growth, according to today’s GDP report. The decrease was led by a 22.2 percent fall in military spending that was the biggest since 1972, during the Vietnam War era.”

    And did you see the Case Schiller graph showing Washington as one of the few markets with a decline….

  16. Marc P says:

    Pretty easy. All the increase in GDP over the past four years is due to increases in government spending. This article says military spending has gone down and that caused GDP to decline.

    http://www.bloomberg.com/news/2013-01-30/economy-in-u-s-unexpectedly-shrinks-as-defense-spending-plunges.html

    ~~~

    BR: Fail. The data overwhelmingly shows that BOTH Federal and State spending is at the smallest growth rate in decades:
    • EPI: Today’s teachable GDP moment: Slower government spending => slower GDP growth
    • FORBES: Who Is The Smallest Government Spender Since Eisenhower? Would You Believe It’s Barack Obama?
    • MARKETWATCH: Government outlays rising at slowest pace since 1950s

  17. ellsworth says:

    Hmmm…most people seem to be brushing it off as “wrong”, possibly because it does not fit their current investment stance (long). Confirmation bias is such a beautiful thing!

  18. Angryman1 says:

    eh, maybe, but lets be honest, when does the “prelim” ever get it right and with other indicators not agreeing with it? It just didn’t add up.

  19. Rouleur says:

    …who doesn’t have confirmations bias…if there are more than one contrarian…

  20. stonedwino says:

    DSS10 nailed it!

    Per Bloomberg this morning: “Federal spending dropped at a 6.6 percent annual pace from October through December, subtracting 1.3 percentage points from growth, according to today’s GDP report. The decrease was led by a 22.2 percent fall in military spending that was the biggest since 1972, during the Vietnam War era.” – So Obama is cutting indeed and not increasing spending…

    Well that, and inventories were a drag too…

  21. GeorgeBurnsWasRight says:

    First off, the GDP number is preliminary and reacting to the preliminary number is a fool’s errand, especially before the trade adjustment. Second, it will take months to even roughly gage the impact of Sandy.

    From what I can tell, the decline in DOD spending is what would happen if the military concludes that there’s at least enough of a chance of the sequestration cuts occurring that DOD should reduce new military contracts. If this is the case, then the DOD cuts will affect at least the first quarter of 2013 GDP, and maybe more depending upon when Congress finally resolves the issue and what the resolution is.

    So, yes, it’s the start of something significant at least for one more quarter. Longer than that depends upon what our politicians do, something I’ve never been good at predicting.

  22. Concerned Neighbour says:

    Aside from the issue of whether this reading was a blip or the start of something more significant, it illustrates to us for the umpteenth time that fundamentals no longer matter. There was a time when a >1% miss to US GDP – regardless of the underlying reasons – would matter in the market. No longer. Perhaps quarterly shrinkage of 10% might nudge the S&P down a percentage or two. Maybe. Assuming, of course, Ben didn’t immediately double asset purchases to $170B per month.

    CSF, regarding this being a green light for more QE, I would simply say that metaphor no longer applies. Ben is driving such a massive vehicle that he need not obey lights of any shade.

  23. Frilton Miedman says:

    I can’t think of anything meaningful to add beyond latent effects of Sandy and the Fiscal cliff, but had to respond to this –

    Rightline Says:
    January 30th, 2013 at 9:34 pm
    “I think Lakshman Achuthan should postpone his victory lap. …”

    ~~~

    The poor guy has to be eating alka-seltzer by the bottle at this stage, ECRI has had a recession call for , what, over a year now?

  24. Mike in Nola says:

    Reality bites.

  25. JimRino says:

    With housing sales up, then future numbers will be better.
    - But, new housing might go down in the next quarter, as labor can get higher wages fixing homes in the private sector, then working for a contractor. So, GDP could go up.

  26. constantnormal says:

    “Don’t fight the Fed” remains excellent advice, right after “Markets can remain irrational longer than you can remain solvent”.

    That said …

    OF COURSE the GDP is going to shrink!  When you take away spending, from government or anyone else, the GDP shrinks!  The trick is to redeploy that spending into things that are more productive, “investments” in the US … like infrastructure, or maybe education.  And you have to make sure that these things are done right, otherwise you may as well be putting it into bullets, bombs, and soldiers’ lives.

    The surest way to kill this recovery is to go full-on austerity, cutting spending without redeploying the money “saved” in any meaningful way, which means shrinking the economic pie. Simple as that. But so far, I don’t think the reductions in government spending have left so much as even a bruise … but I could be wrong about that.

    Oh, and as noted by others, GDP is a lousy measure of the economy. Perhaps it is not possible for a single number to measure something as diverse and complex as an economy, not in any meaningful way …

  27. Joe Friday says:

    Depends what it turns out to be.

    Some are claiming it is as a result of businesses allowing their warehouse inventories to draw down because they were spooked by the so-called fiscal cliff. If so, that could turn around fairly quickly.

    But if it’s the austerity, massive spending cuts on top of non-defense discretionary spending already being at Eisenhower levels, then we can look to Britain for our future, and they’re in a triple-dip recession.

  28. Herman Frank says:

    Is the dip in GDP growth a fact, a fiction, a trend or a blip?
    Some considerations if you please. What is GDP and who measures its size with what tools? Privates and corporates report till all the ink has been spent, but the inside story of the IRS is that the biggest culprit of the submerged (black/grey-) economy is the small enterprise segment. “The sardines hide in a shoal from the prying eyes.” The reporting is only what they want to report. That is for the positive side – GDP could actually be 30% larger and growing!
    The negative is that the US economy is services-based, depending on consumer confidence, consumer spending, fads and foibles. Companies like Boeing, Caterpillar or Ford are not the huge corner stones of production-GDP anymore, they have shifted production abroad, keep their profits abroad, and “tax-management and finance” have become profit-center s in themselves. Do the QE-exercises support a market artificially? Sure they do, as it is openly stated.
    The growth of shale oil & gas will contribute mightily to “a growth” in GDP, but that’s the formula “a 24/7 mechanical pump and (volume x commodity price)”; in itself it points to a shift away from the reflection of “healthy Average-Joe GDP-growth benefiting the population at large” to a reality-based “pockets of wealth and a maxed-out, deleveraging, scrounging mass of consumers who are looking at stretching their income by buying less, for less”. The reduction in sales-tax and other taxes at the State-income level is more appropriate as an indication of economic growth, or not.
    Statistics can be made to go where you want them to go. Does a GDP statistics figure have any meaning if the markets it reflects are artificially managed/propped up by an entity who doesn’t care about it balance sheet because of “seigneurich” (i.e. you have a reserve currency and print as you want). Actual GDP development will turn lower, propped up by the fancy commodity prices x volume and the B/S wizzardry.

    ~~~

    BR: Even if the BEA models are “wrong,” they are consistently wrong, and their is information in the data series.

  29. phillips49 says:

    Just my opinion……one off, but a sign of the general condition we are in. Stable but weak. Out of intensive care and in recovery. I know the “street” pipers are playing and the crowd loves the tune, but the reality is we’re in long term rehab, not a boom and will be in rehab several more years. This year we will be doing good if GDP just matches last year.
    When the crisis hit and the recession took a grip, the government stepped in and became a buyer and lender of last resort. This role has it’s limits. The burden now must shift back to the people and businesses. The shift will cause a drag to recovery. The first shots can be seen in the payroll tax. The consumers will have 2% less money to spend (70% of GDP). Wage growth won’t offset it, real wages have been declining. Automation, globalization, excess capacity, high unemployment will continue to pressure wage growth. Reduced government spending (financed) will also be a drag since the government has been the buyer of last resort. Increased taxes will also be a drag since it will take more money out of circulation. New medical costs will be a drag. My view this year will be critical year, not a party year. CYA!

  30. Bruman says:

    ECRI leading indicators have been suggesting a recession for a long time. Hussman has been assuming that we entered one in 3rd and 4th quarter. Employment figures look promising, but tend to be lagging indicators, not leading or even concurrent ones.

    It’s also been about 4 years since the last recession, which suggests that if this business cycle isn’t finishing up, it’s in the late part of the cycle.

    So I don’t think it’s a blip.

    That said, the firming of housing is a promising sign, not the least because it may make labor more mobile. And the Fed continues to be willing to keep printing as needed to prop things up, so I suspect that we’re in for a mild recession. Unfortunately, that’s like having a mild migraine while still recovering from a shotgun blast.

  31. Permabear says:

    The financial media has been telling us endlessly how great things were. How the economic stats were turning around, how the housing market had bottomed, and how the stock market was bracing for a new secular bull market. Bull is the right word. While this GDP number had a lot to do with inventories and a temporary cut in government (Defense) spending, it also indicates that the economy isn’t as rosy as we’ve been led to believe. With payroll taxes going back up, oil prices approaching $100 again, interest rates beginning to back up, and Republicans determined to let the sequestration cuts kick in, be prepared for more lousy GDP reports this year. And watch the stock market top out in the coming weeks.

  32. debrabradley says:

    What CSF said “Washington foolishness”. We have allowed the economy to be influenced too much by politics and in the hands of a few, disconnected people. Who knows how to fix that? Both parties need to go back to hearings on steroids in baseball and leave the real business to real people.

  33. Clem Stone says:

    Ask me in another 3 months. Until then it’s just more whipsaw bait.

  34. jadogsl says:

    Simple

    The administration pulled allocated Defense spending into the 3rd Qtr from the 4th Qtr

    Election year

  35. NickAthens says:

    Well we are taught about three key financial reports all interconnected. It would appear that when it comes to the govt/economy, our income statement and balance sheets have become immaterial. All that seems to matter now is cash flow. AS long as Bernanke has a helicopter…we should continue as is?

  36. TLH says:

    The questions going forward.
    How much will the tax increases affect the consumer?
    Oil is up. Will gas prices follow?
    Stock market is now in a fed induced bubble. When will we run out of buyers?
    Our faith in government. Up or down?
    Interest rates manipulated. So who knows?

  37. GDP numbers weren’t actually bad, other than the headline. As I noted in the morning report, Inventory alone knocked 1.3% off the GDP as it declined sharply and, without that, real final sales increased 1.1% as IPhones and IPads flew off the shelves. Government spending dropped a whopping 6.6%, led by a 15% decline in Federal spending while Congress screwed around with cliff issues and that’s 20% of our GDP for another 1.32% hit on GDP.

    Consumption was up 2.2%, Fixed Investments were up 9.7%, Residential Investment was up 15.3% and our Trade Deficit was also up on rising oil prices and Christmas imports and that knocked another 0.25% off the GDP. Here’s Briefing.com’s breakdown: http://www.briefing.com/Investor/Calendars/Economic/Releases/gdp.htm

    CNBC was hysterical, as usual. Bob Pisani says “well some bulls are arguing we should look at the inventories in GDP, but I don’t want to get into that kind of granularity…” Yes Bob, ignoring an item that accounts for more than 100% of the miss is “granularity” when it doesn’t make your point. Jeez, you have to be really careful who you listen to these days…

    Then the same idiot begins lauding the rising trend in industrial metals and the builders – which, of course, COMPLETELY conflicts with his bad GDP premise. Doesn’t matter – doublespeak allows for holding two contrary thoughts at the same time and believing both are equally true.

  38. constantnormal says:

    Chile posts 2012 fiscal surplus of 0.6 pct of forecast GDP  [Reuters]

    … a country that is run on strict Keynesian economics, adjusting government spending down in boom times and cranking it up during recessions and natural disasters.  They also run a government-managed, privately-operated, publicly-owned Social Security system, investing in a national fund of stocks and bonds, with companies required by law to distribute 30% of net profits to stockholders in the form of dividends. Their national debt is only about 10% of GDP, as compared with our own 100%-plus debt load. Their central bank rate is steady at 5%.  And this is despite being a nearly completely export-driven economy, hugely dependent on imported oil (they are working hard on expanding various green energy projects), and with their biggest export customers being Europe, China, and the US, in that order.

    Our lobbyist-dominated form of government could never accomplish such a thing.

    We may not be able to manage our national government as well as this, but we can do better than we are doing today. Of course, we can also do worse, and emulate the EU …

  39. ilsm says:

    Pentagon cuts, the multiplier is less than 1, and much less than one for overseas adventures.

    @CSF,

    Military checks declined in calendar Q4 is independent of the cliff or sequestration. Stuff was not delivered from orders made in previous accounting periods as large a bottom line as calendar Q3.

    The 2013 pentagon ‘budget’, in calendar Q4 was doing “obligations”, orders for goods and services same as 2012 using continuing resolution. It matters when military checks are issued a thing the green shades in the pentagon call “expended”. That happens when equipment is delivered and the check sent to pay for the good or service. Expenditure and delivery for big items like F-35 can take 5 years or more.

    @Rightline,

    Military obligated at same rate as in FY 2012, under continuing resolution. I know of no case where the pentagon has slowed obligations, they are whining they want larger obligations than FY 2012, but that is typical pentagon bluster.

    The main issue is when they sequester a paltry 7% of DoD spending they would have obligated 75% of the FY 2013 budget. That is future losses of “expending”, likley phased over the 5-6 year “expenditure” pattern DoD fumbles with.

    @stonedwino;

    “The decrease was led by a 22.2 percent fall in military spending that was the biggest since 1972, during the Vietnam War era.” – So Obama is cutting indeed and not increasing spending…”

    Expending is not obligating! Pentagon new business is being (obligated for future delivery) booked at FY 2012 rates which are pretty high.

    @GeorgeBurnsWasRight

    The first quidance on what to do about the sequestration went out in Jan 13. The pentagon has been spending/obligating like FY 2012. When the sequestration happens the military pay 30% of DoD will not be cut, that leaves cutting R&D, Procurement and “support”. The only factor that sees expenditure soon after obligation is support. So the R&D and procurement will be cut at a rate not seen in GDP until it is delivered, 5 or so years.

    Support cuts go with closing out the quagmires and reducing formations, both needed for long term US growth.

    Overseas Contingency Operations may be declining due to Iraq drawdown and finsihing that backlog of repairs. That stuff was always overand above the DoD baseline budget and happens when quagmires recede. Note: Vietnam came out of hide and was not funded with OCO like the current quagmires.

  40. cowboyinthejungle says:

    “The increase in real GDP in 2012 primarily reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, residential fixed investment, and private inventory investment that were partly offset by negative contributions from federal government spending and from state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.”

    http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

    I’m not much of a believer in GDP as a measure of real economic health, but isn’t this what the vocal public have been clamoring for? Government spending decreased at all levels, while private contributions tended to increase.

    Are we really in so warped of a world that we expect decreased government spending, lower taxation, and a shrinking deficit while growing GDP, increased consumer spending and debt accrual with decreased imports, increased exports with a rising dollar, higher interest rates with a housing recovery, and a perma-bull market in bonds and stocks? I’m not as financially experienced as many of the readers here, and so maybe many of these things are not in direct opposition, but it sure seems to a semi-literate person like myself that the vocal public wants it all.

  41. rd says:

    The Q3 3% GDP spike was heralded as demonstrating that the economy was not sliding into recession – and then we get a -0.1 Q4, so it is clear that the economyis struggling along at a slow 1%-2% plod and that the federal, state, and local government fiscal issues are going to be a key economic driver over the next couple of years. Local government employment and spending has been plunging for several years and has been a primary reason why employment has lagged in this recovery.

    Federal spending and the deficit have been declining as a percent of GDP for several years now. The graphs I have seen indicate that a surplus would be possible 3-4 years from now at the current rate of the annual deficit decline, especially now that the war spending is largely done. BTW – I heard today that Naples, Italy has had to shut down its transit system because they couldn’t afford to buy fuel – I am sure that will help their employment and economic growth! At a certain point government austerity becomes absurd.

    The reductions in defence spending and total government head count will likely set us up well in several years to work off a strong fiscal base for the future but it is likely that the economy will be slow during that period of adjustment. Expect employment growth to be slow until the local and state government force reductions bottom out. That will likely coincide with the baby boomers finally retiring out of the labor force allowing for a more balanced labor force demographically. I still think this depression has 5 years to run but bad government policies, including an excessive period of ZIRP and government austerity, could extend that to 10 years.

  42. carleric says:

    It would be greatt if military spending really did drop 22% and not simply an accounting gimmick but I fear the hand wringers, pant wetters and perma-fear mongers will never let that happen

  43. Robert M says:

    Looking at the breakout on income and wages from other guides during the quarter, what we are looking at is the continuation of the slow grind economy coming off a financial bursting bubble. Each segment of the economy will ebb and flow on its own momentum. The exception is those subject to the financial sector. IF and when interest rates become less constrained by the FED, we will know what real stresses the economy is undergoing.

  44. Lugnut says:

    GDP figures are next to worthless given the huge amount of distortion Federal spending introduces into the economy. If this country operated on anything approaching a balance budget we’d be classified as in a depression.

  45. bear_in_mind says:

    While it’s great that UE is declining (U-3 and U-6), it’s a bit unsettling to see the downward GDP trend since Q4 ’11 given all the QE the Fed is shoveling-out attempting to keep the economy from stalling.

    Given that UE is lagging indicator, hard to discern if we’re coasting toward:

    1) A brief, shallow recession
    2) Phase 2: Great Recession (w/3rd leg down in secular bear trend)

    I suspect it’ll be the former… and maybe not even an ‘official’ recession. But America is still confronted with the $64K question: how does the Fed extract and unwind QE without throwing the economy into quicksand? I think the only viable approach out of this quandary is to shift the trillions Bernanke is using to back-stop Wall Street and redirect those funds to upgrading and modernizing America’s infrastructure.