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Thread: GDP Contracted at 1% Pace in First Quarter

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    Re: GDP Contracted at 1% Pace in First Quarter

    I don't think Bush-Obama GDP comparisons add much insight. Indeed, at this point in time, average annual GDP growth for the Obama Administration is almost identical to that during the Bush Administration.

    Bush:
    2000 Q4: $12,682.0 billion
    2008 Q4: $14,574.6 billion

    Average annual growth: 1.75%

    2014 Q1: $15,902.9 billion

    Average annual growth since 2008 Q4: 1.68%

    Average annual growth required to match the 1.75% average annual rate from now through 2016 Q4: 1.90%
    Average annual growth over the past four quarters: 2.05%

    In short, the bar is fairly low for the U.S. to match the GDP growth that took place during the Bush Administration. Needless to say, economic growth deals with many factors. It is overly simplistic to give full credit to any President, though public policy does have an impact.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by donsutherland1 View Post
    There were mentions of the weather in economic releases. Of course, weather is just one factor. Some examples of weather-related impacts in the economic releases:

    From the January retail sales report (released on February 13):

    The latest report suggests that fourth quarter GDP may be revised down and that first quarter GDP could be soft. Again, atypically adverse weather likely affected the data.

    From the January existing home sales report (released on February 21):

    Weather was especially cold in January and no doubt contributed to the sales weakness, especially in the Midwest, where sales fell 7.1 percent in the month, and also the Northeast where the decline was 3.1 percent.

    From the Philadelphia Fed’s February 2014 survey:

    Shipments, suffering from a lack of orders and also from weather effects, fell dramatically, down 22 points to minus 9.9. The weather effect is evident in delivery times, which slowed 5.7 points to 2.9.

    Weather is a temporary effect and isn't holding down the longer term outlook in the sample as six-month readings are all strongly positive led by a 6.8 point gain for general conditions to 40.2.


    Note: That latter observation is one of the reasons one should expect a rebound from Q1’s data (possibly with real annualized growth in the 3%-4% range with some upside potential).

    From the Fed’s Beige Book that was released on March 5:

    New York and Philadelphia experienced a slight decline in activity, which was mostly attributed to the unusually severe weather experienced in those regions… Retail sales growth weakened since the previous report for most Districts, as severe winter weather limited activity… Weather was also cited as a contributing factor to softer auto sales in many Districts… Manufacturing sales and production in several Districts were negatively impacted by severe winter weather…
    I was referring to purported effects on exports - it was claimed earlier that exports are one area we'd expect "bad weather" to have a significant effect on the economy. The news reports at the time pointed to low demand as the most significant driver of reduced exports. The citations above do not seem to provide evidence that weather played a significant role on exports. "Delivery times" perhaps comes closest to being relevant, and it showed only a very slight increase over the previous month (and was the indicator that changed the least on the entire survey).

    Overall, it would certainly not be fair to say that weather had no impact on GDP, but the headlines would have us believing the opposite (and equally untrue) assertion that the poor showing "was largely due to bad weather." The story reports that "economists believe that weather may have reduced GDP by up to 1.5%" - thus, even under the rosiest scenario, the economy would have grown at a dismal rate had weather not been a factor at all. Given their recent track record on estimates however, I'd say that even a 0.5% growth rate is wishful thinking.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by JRSaindo View Post
    Have you looked at the Fed balance sheet vs. the S&P 500 here? They move in lockstep.
    That doesn't actually prove anything. You'd need, at a minimum, a reason why Fed borrowing would in any way impact the S&P. At best you might suggest it encourages buying on margin, except that the Fed isn't actually loaning directly for that purpose. Nor would trading on margin really prop up stocks for years on end, if they were not able to convince buyers that the stock merited the price. The market can only defy gravity for so long.

    Or, to put it another way.... Spurious Correlations


    The weather doesn't prevent people from doing anything....
    I guess you don't live in an area that had a bad winter, then. It didn't impact consumer spending too badly, but it certainly slows down shipments, slowed down orders, which meant inventories pulled back a bit. Again, not the sole source of the issues, but it definitely had an effect.


    The two big losers for GDP are:
    1. Net trade, or the combination of exports and imports, declined from -0.83% to -0.95%, far below the positive boost of 0.99% in Q4.
    2. The biggest hit was in the change in private inventories, which tumbled from -0.57% in the first revision to a whopping -1.62%: the biggest contraction in the series since the revised -2.0% print recorded in Q4 2012.
    The net trade figures aren't actually a negative indicator. Exports actually went up quite a bit in April, from $19bn to $19.4 bn. Imports also grew, which is actually a good sign, because it means more people are purchasing foreign goods.

    Private inventories did go down in Q1, and this was a major reason for the negative GDP. So, that's legit, except that inventories are expected to rebound.

    As far as I know, most other indicators at this time are mildly positive. Not off-the-charts-outstanding, but just looking OK. Certainly not looking into an abyss:
    US Census Bureau: Economic Indicators


    Remember, we were told by the economists that Q1 would be great. Then they blamed the weather when the numbers weren't there.
    They predicted a -0.1% rate. Weather has been cited as one factor, inventory the other main factor.


    When it is 90-100 degrees outside this summer will they blame the weather again?
    Only if those high temperatures cause massive droughts, that turn America's farms into giant dustbowls.


    I agree if you are saying the FED is the cause of all the financial problems in this country. Along with the lack & easing of regulations for the financial industry during and ever since the Greenspan years.
    Uh... yeah, I am most certainly not saying "The Fed is the cause of all the financial problems in the US."

    I do agree Greenspan had a major role in refusing to regulate lots of complex financial instruments, and perhaps should have inched up interest rates and told businesses to suck it up. At the same time, there were all sorts of non-Fed factors and non-government actors who participated in creating the latest bubble.

    I have to point out that anti-central bank sentiment stretches back to the origins of the US, and it is often (but not always) espoused by those who don't actually know what happens when you don't have a central bank. Power abhors a vacuum, and bankers will always cast about for a lender of last resort. Without a central bank, that role usually falls onto a private bank, who operate with minimal oversight, no real mandate, no accountability, and the ability to profit from downturns. You also end up with an economy that see-saws between inflations and deflations.

    Ron Chernow's House of Morgan gives a bit of a glimpse of a world without a central bank, and with weak central banks.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by donsutherland1 View Post
    I don't think Bush-Obama GDP comparisons add much insight. Indeed, at this point in time, average annual GDP growth for the Obama Administration is almost identical to that during the Bush Administration.

    Bush:
    2000 Q4: $12,682.0 billion
    2008 Q4: $14,574.6 billion

    Average annual growth: 1.75%

    2014 Q1: $15,902.9 billion

    Average annual growth since 2008 Q4: 1.68%

    Average annual growth required to match the 1.75% average annual rate from now through 2016 Q4: 1.90%
    Average annual growth over the past four quarters: 2.05%

    In short, the bar is fairly low for the U.S. to match the GDP growth that took place during the Bush Administration. Needless to say, economic growth deals with many factors. It is overly simplistic to give full credit to any President, though public policy does have an impact.
    BEA states 4th qtr GDP as 10.4 Trillion not 12.7 as you report

    http://www.bea.gov/iTable/iTable.cfm...00&910=x&911=0

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Taylor View Post
    I was referring to purported effects on exports - it was claimed earlier that exports are one area we'd expect "bad weather" to have a significant effect on the economy. The news reports at the time pointed to low demand as the most significant driver of reduced exports. The citations above do not seem to provide evidence that weather played a significant role on exports. "Delivery times" perhaps comes closest to being relevant, and it showed only a very slight increase over the previous month (and was the indicator that changed the least on the entire survey).
    The above was a sample of reports. Part of the Philly Fed's report stated, "Shipments...and also from weather effects, fell dramatically." Shipments could be intended for elsewhere in the U.S. and also abroad. As evidence that the sharp drop in exports (especially goods, which require shipment) was the result of temporary factors, the trade reports showed a rebound in March. The April trade report will be released on July 3.

    Weather, of course, was not the only variable that impacted exports. There were additional factors e.g., the slowing of China's economy, etc.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Conservative View Post
    BEA states 4th qtr GDP as 10.4 Trillion not 12.7 as you report

    http://www.bea.gov/iTable/iTable.cfm...00&910=x&911=0
    I was using real (inflation-adjusted) GDP, as the annualized 1% decline in Q1 GDP cited at the beginning of this thread is the real (inflation-adjusted) figure. FWIW, nominal (current dollar) GDP increased at an annualized 0.3% rate during Q1. The figure you cited is nominal GDP, which is not adjusted for inflation. The difference in the current or nominal GDP figures reflects both economic growth and inflation. That's why economists focus on real GDP, as the effects of inflation are removed so that one gets a clearer measure of economic growth.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Fenton View Post
    We tried to warn you people back in 2008 when Millions of Americans were equating empty plattitudes to Presidential qualifications.

    People like you supported this guy and his progressive policies. Voted for him and gave him the power to sign destructive legislation.

    So why are the Conns the bad guys ?
    I'll tell you what.... You live in that wonderful republican owned economy of 2008 then.

    PS... I did not vote for Obama in 2008.
    Quote Originally Posted by Moderate Right View Post
    The sad fact is that having a pedophile win is better than having a Democrat in office. I'm all for a solution where a Republican gets in that isn't Moore.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Perotista View Post
    Everyone in Washington has known they need to knock down some of these too big to fail companies a notch or two. But I suppose those too big to fail companies continue to donate much needed campaign cash to those in Washington just so they won't.
    Well this is what we get when our conservative scotus tells us corporations are people and money is speech. The too big too fail "people" become the only speech our politicians can and want to hear.
    Quote Originally Posted by Moderate Right View Post
    The sad fact is that having a pedophile win is better than having a Democrat in office. I'm all for a solution where a Republican gets in that isn't Moore.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Visbek View Post
    That doesn't actually prove anything. You'd need, at a minimum, a reason why Fed borrowing would in any way impact the S&P. At best you might suggest it encourages buying on margin, except that the Fed isn't actually loaning directly for that purpose. Nor would trading on margin really prop up stocks for years on end, if they were not able to convince buyers that the stock merited the price. The market can only defy gravity for so long.

    Or, to put it another way.... Spurious Correlations



    I guess you don't live in an area that had a bad winter, then. It didn't impact consumer spending too badly, but it certainly slows down shipments, slowed down orders, which meant inventories pulled back a bit. Again, not the sole source of the issues, but it definitely had an effect.



    The net trade figures aren't actually a negative indicator. Exports actually went up quite a bit in April, from $19bn to $19.4 bn. Imports also grew, which is actually a good sign, because it means more people are purchasing foreign goods.

    Private inventories did go down in Q1, and this was a major reason for the negative GDP. So, that's legit, except that inventories are expected to rebound.

    As far as I know, most other indicators at this time are mildly positive. Not off-the-charts-outstanding, but just looking OK. Certainly not looking into an abyss:
    US Census Bureau: Economic Indicators



    They predicted a -0.1% rate. Weather has been cited as one factor, inventory the other main factor.



    Only if those high temperatures cause massive droughts, that turn America's farms into giant dustbowls.



    Uh... yeah, I am most certainly not saying "The Fed is the cause of all the financial problems in the US."

    I do agree Greenspan had a major role in refusing to regulate lots of complex financial instruments, and perhaps should have inched up interest rates and told businesses to suck it up. At the same time, there were all sorts of non-Fed factors and non-government actors who participated in creating the latest bubble.

    I have to point out that anti-central bank sentiment stretches back to the origins of the US, and it is often (but not always) espoused by those who don't actually know what happens when you don't have a central bank. Power abhors a vacuum, and bankers will always cast about for a lender of last resort. Without a central bank, that role usually falls onto a private bank, who operate with minimal oversight, no real mandate, no accountability, and the ability to profit from downturns. You also end up with an economy that see-saws between inflations and deflations.

    Ron Chernow's House of Morgan gives a bit of a glimpse of a world without a central bank, and with weak central banks.
    QE's effect Bond yields drives investors out of fixed yields and into the equities and commodities markets.

    It also drives Hot money into the emerging markets.

    QE is artificially boosting asset prices and lowering risk.

    I thought this was common knowledge.

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    Re: GDP Contracted at 1% Pace in First Quarter

    Quote Originally Posted by Visbek View Post
    I'm saying that the shrinking of the labor force is a trend that started 8 years before Obama took office. I would also say that neither Bush 43's nor Obama's policies are causal factors.
    It has clearly and indisputably declined more severely since 2008-2009.

    1) Buybacks aren't "artificial" inflations, they're a standard practice -- and don't explain multi-year broad-based rises in prices. Plus, if shares are bought back with credit, that will show up on the company's ledger.
    They are a standard practice, partly because they artificially inflate the price of stocks. It is simple supply and demand. Decrease the supply of stock on the market and prices will rise even if demand is flat. Certainly, buybacks on their own do not explain it all. They are just one piece of the puzzle.

    2) Policies like QE have nothing to do with high-frequency trading; even without QE, that was going to happen. Perhaps we can say that the Obama administration hasn't tried to rein in HFT, but then we're back to issues of an obstructionist Congress.
    Never said any of them have to do with HFT, just that it is one of the ways the market is rigged. Do you disagree?

    3) Again, it's not clear how actions like QE would really prop up a stock market. Nor would that seem necessary, since (again) the corporations are reporting huge profits and sitting on big cash hoards.
    Aside from increasing the amount of cash on the market generally, the Fed forces buyers out of other markets where they might put their cash otherwise.

    4) Stock prices are only one part of the LEI.
    They have their part, though. For one, as prices rise, so do the liquid assets of corporations.

    Actually, it suggests that the companies aren't interested in accumulating debt (a practice that contradicts your implication that Fed lending policies are encouraging stock buybacks). There's plenty they could spend it on, such as improving wages or making capital improvements. Regardless of the rationale, it makes the company's bottom line look better, and is a reason for high stock prices, unrelated to Fed actions.
    If they have cash on hand that inherently implies they do not need to accumulate debt in order to put money back into the system. The amount of money they spend is dependent on demand. You can bet they would be spending more if there was sufficient demand to justify it.

    1) LTCM's bailout was engineered by the New York Fed, not Washington. And it didn't cost the taxpayers a cent.
    Not sure what cost to taxpayers has to do with it, but the point is that such actions will not really be sufficient to avoid an economic hit on Obama's watch.

    2) I do agree that the seeds of the housing bubble do extend to the Clinton years, namely a reluctance to regulate derivatives. However, blaming any President for the housing bubble is incorrect. Aside from a lot of non-governmental factors, the same lax policies were pursued by Clinton and Bush and Greenspan, and aided by players from both sides of the aisle.
    Lack of regulation, oh boy. You buy that tripe? Bush and Greenspan certainly kept the bubble growing and made it worse, but it was under Clinton that it started due to various governmental pressures seeking to "help" the poor.

    3) It is slightly ridiculous to suggest that anyone intentionally started a housing bubble to cover for a stock market crash. You're looking at nearly 8 years of Fed policies of keeping interest rates low, with wide-spread resistance to the Fed raising any rates. Plus, again, many other factors had nothing to do with any government policies.

    In terms of "moral hazards," it's worth noting that before the modern Fed was created, the banks often bailed each other out in similar crisis. Oddly enough, no one seemed to fear the moral hazard when private banks were taking on the role of the "lender of last resort." Hmmm.
    Private banks didn't have the power to just print the money they used to bail out others.

    But that still leaves the question: Which "meaningful indicators" suggest we are heading for another recession this year, as you claim?
    Inadvertently, you cited one of them. Percentage of GDP represented by corporate profits has been in double digits for several years and in each period that happened a recession followed shortly afterwards. You also have the cyclical factors where recessions usually occur after a certain number of years of growth. Labor force participation is also something I would consider an indicator as you can't keep pulling people out of the system at this pace without it impact the economy.

    Quote Originally Posted by Redress View Post
    Who is this everyone? You and?
    Goldman On The Weather's Economic Impact - Business Insider

    Recap: Live blog of New York Fed President William Dudley interview - Capitol Report - MarketWatch

    Economists estimate severe weather could have chopped off as much as 1.5 percentage points from GDP growth.
    Source: Reuters

    None of that explains how a supposed 3% growth ended up as a 1% decline. They have tried to blame weather for housing troubles as well, even though the worst of the housing decline has typically been in the Pacific West and Southwest, where weather was unseasonably warm.
    "For what is Evil but Good-tortured by its own hunger and thirst?"
    - Khalil Gibran

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