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Is this the beginning of a 2014 recession and the end of the fake stock bull run?
U.S. GDP Dropped 1% In The First Quarter 2014, Down From First Estimate
New data shows the U.S. economy contracted in the first quarter of this year, keeping pace with shifting expectations but down sharply from the prior — already disappointing — estimate.
On Thursday, the Bureau of Economic Analysis’ second estimate of real gross domestic product showed output produced in the U.S. declined at an annual rate of 1% in the first quarter of 2014. This is relative to fourth quarter 2013, when real GDP increased 2.6%. The estimate is down significantly from BEA’s 0.1% advance estimate released last month and makes Q1 the U.S. economy’s worst quarter in three years. However, economists were anticipating a downward revision and the major stock indices remained in the green immediately after the release indicating investors were also prepared for bad news.
In a note on the release PNC Chief Economist Stuart Hoffman wrote, “I believe this real GDP decline, mostly due to the polar vortex, coiled the ‘economic spring’ even tighter for a sharp snap- back (boing!) this quarter where I have an above-consensus forecast for a 4.0% annualized rise in real GDP. I expect real GDP growth to settle back down to near a 2.8 percent annual rate in the second half of this year.”
The revision, BEA explained in a release, was largely due to a greater than previously estimated decline in private inventories. The 1% decrease in real GDP reflected the negative contribution from private inventory investment as well as declining exports, declines in both residential and nonresidential fixed investment and lower local government spending. The rate was also negatively impacted by an increase in imports but partially offset by an increase in federal government spending (the first in a year and a half).
Like Hoffman, RBS Economist Guy Berger takes an optimistic view. He pointed out in a note that much of the downward revision was due to inventories — which were built up at the end of 2013 — and trade deficit. Stripped of inventories and trade GDP was revised up marginally from 1.5% growth to 1.6% which, he said, is not great but is better than shrinkage. ”Moreover,” Berger added, “the downward revision to Q1 inventories is a plus for Q2 GDP growth (i.e., forecasts for Q2 will likely get revised up).”
Mike Jakeman, global analyst for The Economist Intelligence Unit, noted that private consumption growth was revise up. This, he wrote, “suggests that there is some real momentum behind consumer spending. Given that households account for 70% of GDP, we remain confident that the economy will bounce back strongly in the second quarter.”
The price index for gross domestic purchases — which measures prices paid by U.S. residents — increased 1.3% versus the 1.4% advance estimate and 1.5% growth in the fourth quarter. Real personal consumption expenditures increased by 3.1%, compared to the 3% advance estimate and an increase of 3.3% in the fourth quarter. BEA — a division of the Department of Commerce – will release its third and final Q1 GDP estimate on June 25. –
In a note on the release PNC Chief Economist Stuart Hoffman wrote, “I believe this real GDP decline, mostly due to the polar vortex, coiled the ‘economic spring’ even tighter for a sharp snap- back (boing!)
oh boy....
and we keep hearing that "its different this time...."
some of this 'ole downeast yankee logic' starts to sound downright plausible, vs some of the 'experts' - dontcha tink?
.... this quarter where I have an above-consensus forecast for a 4.0% annualized rise in real GDP. I expect real GDP growth to settle back down to near a 2.8 percent annual rate in the second half of this year.”
The revision, BEA explained in a release, was largely due to a greater than previously estimated decline in private inventories. The 1% decrease in real GDP reflected the negative contribution from private inventory investment as well as declining exports, declines in both residential and nonresidential fixed investment and lower local government spending. The rate was also negatively impacted by an increase in imports but partially offset by an increase in federal government spending (the first in a year and a half).
Like Hoffman, RBS Economist Guy Berger takes an optimistic view. He pointed out in a note that much of the downward revision was due to inventories — which were built up at the end of 2013 — and trade deficit. Stripped of inventories and trade GDP was revised up marginally from 1.5% growth to 1.6% which, he said, is not great but is better than shrinkage. ”Moreover,” Berger added, “the downward revision to Q1 inventories is a plus for Q2 GDP growth (i.e., forecasts for Q2 will likely get revised up).”
Re: Is this the beginning of a 2014 recession and the end of the fake stock bull run?
What's funny is that they blamed the weather for the negative output. I mean, you pretty much never hear the economists give credit to good weather when GDP rises, but all of a sudden when it falls, weather finds itself in the middle of analysis. Anyways, I think if Q2 turns out negative and the U.S. goes officially into recession, there will really a shake up in the market because it will finally show people that QE isn't everything
Why is the stock market making new highs if the Q1 GDP was bad?
Perhaps there is an expectation that, in light of bad economic data, the Federal Reserve will cease asset purchase reductions and launch another round of quantitative easing?
What's funny is that they blamed the weather for the negative output. I mean, you pretty much never hear the economists give credit to good weather when GDP rises, but all of a sudden when it falls, weather finds itself in the middle of analysis.
Not true. Is Spring not the "home buying season"? How about the seasonal fluctuations in finished gasoline prices that occur ever year because as the weather changes, the blends change? The difference being, when these things and their alleged affect on econonomic data is mentioned in the news, no one ever directly cites the weather, even though it's clearly a factor.
Last edited by Slimprofits; June 02, 2014, 02:45 PM.
Re: Is this the beginning of a 2014 recession and the end of the fake stock bull run?
I think most of us here agree that the stock and bond markets are that "sand pile" that many theorists talk about where instability builds as each ounce of sand is added. The last two crashes I was able to see. The dot com crash was visible by seeing the astronomical p.e.'s of companies with no earnings. The 2008 crisis showed up in CDS market stress.
I look at a lot of variables such as stock prices, valuations, credit spreads, interest rates, gdp growth, government finance, debt growth,
and I just can't see the stress this time. I just feel it's there. I think the seeds of it are planted in the destruction of the middle class.
With most of my aquaintences, there is a little less money left over after the bills are paid year after year. Regulations meant to help society slowly grind us away and have more unwanted consequences than benefit.
Is this what a world looks like with increasing resource scarcity and increasing fiat money? Something just doesn't pass the smell test here.
I think most of us here agree that the stock and bond markets are that "sand pile" that many theorists talk about where instability builds as each ounce of sand is added. The last two crashes I was able to see. The dot com crash was visible by seeing the astronomical p.e.'s of companies with no earnings. The 2008 crisis showed up in CDS market stress.
I look at a lot of variables such as stock prices, valuations, credit spreads, interest rates, gdp growth, government finance, debt growth,
and I just can't see the stress this time. I just feel it's there. I think the seeds of it are planted in the destruction of the middle class.
With most of my aquaintences, there is a little less money left over after the bills are paid year after year. Regulations meant to help society slowly grind us away and have more unwanted consequences than benefit.
Is this what a world looks like with increasing resource scarcity and increasing fiat money? Something just doesn't pass the smell test here.
Isn't it the size of the debt(s), not the growth, that doesn't pass the smell test? Everywhere one looks we're paralyzed by an inability to see a way to pay down debts (either through economic growth or austerity) and a mortal fear of adding to them. Take away half of all these current debts and future commitments, and I think we'd all be feeling pretty good (or at least not nearly as bad) right now.
Isn't it the size of the debt(s), not the growth, that doesn't pass the smell test? Everywhere one looks we're paralyzed by an inability to see a way to pay down debts (either through economic growth or austerity) and a mortal fear of adding to them. Take away half of all these current debts and future commitments, and I think we'd all be feeling pretty good (or at least not nearly as bad) right now.
Today’s high levels of private and public debt are called unsustainable. That may not be true at all.
At the highest level, one can look at goods and services rather than look at money.
All the food we ate last year was grown last year, and we can grow it again next year.
All the medical services provided to everyone on earth last year can be provided again next year, all our doctors and nurses and pharmaceutical plants are available again next year.
All the clothing distributed last year was manufactured last year, and we can make those clothes again next year.
Everyone on the planet lived somewhere last year, and those houses still stand. We can all live in them again next year.
That seems generally true as far as the eye can see into the future.
So from a viewpoint of physical reality, this situation is completely sustainable.
It is only when we put on green eye shades and engage in accounting that we become convinced that the situation is unsustainable.
Numbers are piling up in ledgers. Graphs are going exponential.
Debt and interest are accelerating, and institutions are borrowing money to pay interest on prior loans.
Any sane person looking at the accounting ledgers would declare the situation unsustainable.
So how do we reconcile these two opposing views? I honestly have no answer, though I feel both points are true.
Re: Is this the beginning of a 2014 recession and the end of the fake stock bull run?
Originally posted by thriftyandboringinohioView Post
All the clothing distributed last year was manufactured last year, and we can make those clothes again next year.
Everyone on the planet lived somewhere last year, and those houses still stand. We can all live in them again next year.
That seems generally true as far as the eye can see into the future.
So from a viewpoint of physical reality, this situation is completely sustainable.
It is only when we put on green eye shades and engage in accounting that we become convinced that the situation is unsustainable.
Numbers are piling up in ledgers. Graphs are going exponential.
Debt and interest are accelerating, and institutions are borrowing money to pay interest on prior loans.
Any sane person looking at the accounting ledgers would declare the situation unsustainable.
So how do we reconcile these two opposing views? I honestly have no answer, though I feel both points are true.
My opinion would be that yes, everything is sustainable, but what will be the price of goods and services? How much will food cost, the same food that was grown last year, if there is a significant change in the debt-sytem? Etc.
Re: Is this the beginning of a 2014 recession and the end of the fake stock bull run?
Originally posted by thriftyandboringinohioView Post
Today’s high levels of private and public debt are called unsustainable. That may not be true at all.
At the highest level, one can look at goods and services rather than look at money.
All the food we ate last year was grown last year, and we can grow it again next year.
All the medical services provided to everyone on earth last year can be provided again next year, all our doctors and nurses and pharmaceutical plants are available again next year.
All the clothing distributed last year was manufactured last year, and we can make those clothes again next year.
Everyone on the planet lived somewhere last year, and those houses still stand. We can all live in them again next year.
That seems generally true as far as the eye can see into the future.
So from a viewpoint of physical reality, this situation is completely sustainable.
It is only when we put on green eye shades and engage in accounting that we become convinced that the situation is unsustainable.
Numbers are piling up in ledgers. Graphs are going exponential.
Debt and interest are accelerating, and institutions are borrowing money to pay interest on prior loans.
Any sane person looking at the accounting ledgers would declare the situation unsustainable.
So how do we reconcile these two opposing views? I honestly have no answer, though I feel both points are true.
I came to the conclusion a little while back that the only real limiting factor is energy - and now I understand why this plays such an important point in the analysis by iTulip and the PCO thesis.
Regarding debt and money, I think you are right, there is no reason it cannot continue indefinitely, as long as CONfidence is not lost OR international conflict causes an irrecoverable dislocation. The global financial crisis is the most recent evidence of this. Central banks flooded the system with liquidity and it held together and there is no reason why they can't continue to do this - all this talk about "at some point something will have to give" Or "it can't go on forever" while technically true is really meaningless when you realize how long forever is.
The threat to the debt based system is spiraling debt deflation, but the FED has that figured out; all it needs to do is buy as much bad debt as it needs to with new created money and that problem has been solved.
This time it is different (well sort of). The CBs have discovered that the liquidity hose can keep the fires controlled, and the only class who can effect control, i.e., the wealthy class, are content with the system as long as asset inflation is guaranteed. It is a paradoxical in that we have a hyper-complicated system yet a child can understand the overall dynamic.
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