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GDP Contracted at 1% Pace in First Quarter

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.

Have you looked at the Fed balance sheet vs. the S&P 500 here? They move in lockstep.

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.
Depends which companies. Most hoard cash because debt is cheap. Once QE is done, noone will want to accumulate debt and we will see the cash reserves being used again.

The bad weather doesn't explain it all, but it's a big chunk. More to the point is that one quarter with a -1% GDP growth is not an indicator that the entire economy is going to hell in a handbasket (as the OP implies). Nor have you actually articulated which indicators are currently negative.

The weather doesn't prevent people from doing anything. It just happens to be a good scapegoat. I bought a house in December. The weather didn't enter my mind when deciding this. I don't see how people can just accept this as the reason for most of the downturn in consumption.

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.

Remember, we were told by the economists that Q1 would be great. Then they blamed the weather when the numbers weren't there. :roll: So when it is 90-100 degrees outside this summer will they blame the weather again?

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. ;)

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.
 
Going back to the original topic, I think Calculated Risk Blog had some great comments on this adjustment:

The BEA reported this morning that GDP declined at a 1.0% annual rate in Q1. This is disappointing, but not concerning looking forward.

The key driver of the downward revision was a much larger negative change in private inventories (see table below that shows the contribution to GDP from each major category). In the advance release, change in private inventories subtracted 0.57 percentage points from GDP. With the 2nd release - based on more data - change in private inventories subtracted 1.61 percentage point. This was payback from the positive contribution in Q3 last year (change in private inventories tends to bounce around quarter-to-quarter).

There were also downward revisions to investment in nonresidential structure, trade, and state and local government.

PCE was revised up from 3.0% to 3.1% in Q1 (annualized growth rate), and the contribution from PCE to GDP increased slightly.

This weakness will not continue - growth has already picked up in Q2. And I expect both residential investment and state and local governments to add to growth soon. And even investment in nonresidential structures should turn positive.

The growth story is intact. No worries.
Read more at Calculated Risk: A comment on GDP Revisions: No Worries
 
When ports are periodically closed and bad weather prevails, one would expect hits in exports (goods cannot be shipped from factories to ports and then out of the country) and reduced construction activity. If one takes a closer look at the GDP data, that’s where some of the biggest drag on economic activity occurred (annualized changes): Nonresidential structures: -7.5%; Residential investment: -5.0% (some housing-related dynamics; some weather-related issues); Exports of goods: -9.8%
If that were the case, one would also expect to see news stories of these severe shipping delays as they occurred. Instead, what you find are reports of low demand for exports (not due to the weather, but poor economic conditions overseas).
 
If that were the case, one would also expect to see news stories of these severe shipping delays as they occurred. Instead, what you find are reports of low demand for exports (not due to the weather, but poor economic conditions overseas).

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 suppose we could wait until Q2 results to prove that you're wrong.

What ?

Growth of .1 percent ?

.5 percent ?

Whatever the "improvements" are we still have a economy thats on life support.
 
What ?

Growth of .1 percent ?

.5 percent ?

Whatever the "improvements" are we still have a economy thats on life support.

Which just goes to show how poorly informed and educated most liberals are regarding economic issues. To a liberal who believes in European socialism 1-3% economic growth is booming. Coming off the recession of 2007-09 that economic growth is meager at best. Have noticed how liberals love to use the percentage change argument when it comes to Reagan/Bush economic results but never Obama's. Wonder why? could it be that Reagan Doubled GDP and had a 60% increase in FIT revenue with his tax cuts? After the 81-82 Carter double dip, Reagan had 7.5% GDP growth. That shows what leadership can and will do.
 
He hasn't done anything. The do nothing republican congress won't let him. They are content on continuing the GBR.

Congress?

The one where he has a clear majority in the Senate? The one where he had a complete majority for the first two years? Where he triggered this "recovery" and glowingly promised an Obamaphone in every hand? The one where he characterized his fellow and duly elected law makers "enemies"?

That congress?

And here I thought it was the fault of the founding fathers, where in a speech this past week stated the equal senate was at the heart of his problems....never mind the fact he has had a somewhat unprecedented majority in the senate for six years.

Come on. It's time to stop whining.
 
Actually, pretty much everyone agrees there were other reasons for bad indicators and that weather does not come close to explaining it all. The pent-up demand is probably true, which is why some of the indicators look better right now.

Interesting that the Obama camp would want to try playing the weather game. Apparently unaware of a northern neighbor that suffered far worse winter weather, interruptions in home heating oil supply in the east and other tragedies, and outperformed the US again.

There is nothing too minor to which they will apportion blame for Obama's failures.
 
Congress?

The one where he has a clear majority in the Senate? The one where he had a complete majority for the first two years? Where he triggered this "recovery" and glowingly promised an Obamaphone in every hand? The one where he characterized his fellow and duly elected law makers "enemies"?

That congress?

And here I thought it was the fault of the founding fathers, where in a speech this past week stated the equal senate was at the heart of his problems....never mind the fact he has had a somewhat unprecedented majority in the senate for six years.

Come on. It's time to stop whining.

It is always going to be something with the Obama Apologists who never accept responsibility for the incompetence of this Administration. Now it is Congress's fault when Democrats controlled the Congress from 2007-2011 and I don't hear liberals blaming Congress for the recession that began in December 2007, one year after Democrats won control, yet still blame Bush. Guess it only matters who is in the WH. Bush President with a Democrat Congress, economy is Bush's fault. Obama President with a Democrat and then split Congress, economy is Congress's fault. Think I have the liberal logic down now.
 
It is always going to be something with the Obama Apologists who never accept responsibility for the incompetence of this Administration. Now it is Congress's fault when Democrats controlled the Congress from 2007-2011 and I don't hear liberals blaming Congress for the recession that began in December 2007, one year after Democrats won control, yet still blame Bush. Guess it only matters who is in the WH. Bush President with a Democrat Congress, economy is Bush's fault. Obama President with a Democrat and then split Congress, economy is Congress's fault. Think I have the liberal logic down now.


I agree, but I would not be so sure about having it down. I have found that the "progressives" of the US tend to have a rather fluid idea of logic, similar to their views on truth, ethics, and honesty.
 
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.
 
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.
 
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.
 
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.cf...i=1&904=2012&903=5&906=q&905=2000&910=x&911=0
 
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.
 

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.
 
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.
 
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.
 
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.
 
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.

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.
 
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