Karim writes:

Hard to believe we are still getting August data, but durables came in better than expected:

  • Headline -0.1%, but core +1.1% and prior month revised from -1.5% to -0.2%
  • Core shipments up 2.8%
  • Shipments number likely reflects some impact from global supply chain resumption early in Q3
  • Q3 still looks about 2% growth

Yes, seems again this year markets fail to recognize the support for aggregate demand that comes from an 8.5% US federal deficit.

Q3 earnings should also be strong, as GDP has been increasing sequentially all year as well.

And with lower gasoline prices, Q4 could be up from Q3, though as Karim suggested, Q3 may have started higher and ended on a weak note.

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5 Responses to DGO

  1. mike norman says:

    Deficit spending is shrinking–fast. Nearly all major spending items are falling year over year. Only SS and Medicare is rising, but not enough to offset the decline seen in defense, eduction, unemployment benefits, Medicaid and other categories. Growth is WEAK with the deficit at $1.5T and it will be even weaker or negative with spending falling by over $200bln versus last year.


    Art Reply:

    @mike norman,

    Mike, agreed, trend matters as much as level.

    And based on demographics, credit trends and household balance sheets, and other factors, current deficit levels aren’t likely to provide the juice that they used to. The WW2-associated deficits that finally fostered robust growth were massive — mid-20% per annum or so? Try passing that in today’s Rubinesque, neoliberal dreamscape…

    Plus, even though the ‘super commitee’ should be able to come up with a “palatable” enough mix of spending reductions / revenue increases, there’s still a Damoclean end-game risk, starting as early as 2012 (USG’s 2013 fiscal year). Low probability, but an obvious risk.


    Art Reply:

    Or is it Jan 2013 that the automatic cuts are slated for?

    There’s also that clause re bringing a balanced budget amendment to a vote.



    the 200 billion is a bit over 1% of gdp and growth seems to be down by about that much?


  2. Roger Erickson says:

    Any fundamentals, pos or negative, could be wiped out at the wave of a pinky by stupid-policy-makers.

    Never seen mkts so at the whim of such uninformed policymakers.

    Since instability always precedes collapse, I’m personally still more cynical than fundamentals alone would suggest one be.


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