Ireland falls back into recession despite multibillion-euro austerity drive

Classic headline!!!!

Ireland falls back into recession despite multibillion-euro austerity drive

By Henry McDonald

June 27 (Guardian) — Ireland is back in recession for the first time since its 2010 bailout, official figures have confirmed.

Irish GDP shrank 0.6% in the first quarter of 2013, but the recession was confirmed when official data revised down the economy’s performance in the final three months of 2012 to a decline of 0.2%. It means that Ireland has endured three successive quarters of contraction, despite the presence in Ireland of multinationals such as Apple, Google, IBM and several big pharmaceutical companies.

The blow comes as Ireland reels from the unfolding Anglo Irish Bank scandal, in which executives at the bailed-out bank were caught on tape joking about their multi-billion euro rescue in 2008 and, at one point, singing “Deutschland über Alles” as they quipped about German deposits shoring up the bank.

The output drop reflects an ongoing depression in consumer demand, amid unemployment of nearly 14%. Personal expenditure declined by 3% between the fourth quarter of 2012 and the first quarter of 2013. The decrease in demand reflects Irish consumers’ fears for their jobs and a reluctance to get into debt following the credit-fuelled spending boom of the Celtic Tiger years. Exports fell by 3.2% in the first quarter, in a stark reversal for an economy that had enjoyed an export-led recovery.

The slip back into recession will be deeply disappointing for the Fine Gael-Labour coalition, which has slashed public spending in a bid to drive down the country’s debt while placating the troika of the International Monetary Fund, European Union and European Central Bank who bailed out the country in 2010. Ireland’s deputy prime minister, Eamon Gilmore, admitted this week that the Anglo Irish revelations could harm attempts to win further debt relief from the European Union.

On a brighter note, the construction industry in the Republic is showing some signs of recovery. The latest figures point to a 2.1% increase in building across the state in a sector which was devastated by the property crash of 2008-09, and which has been a huge factor in lengthening the country’s dole queues.

Interest Income

>   
>   (email exchange)
>   
>   On Thu, Jun 27, 2013 at 11:23 AM, wrote:
>   
>   From CS: Low interest rates and the interest income shortfall. Lower interest rates may
>   support the economy in the broad, but the interest income shortfall is a substantial
>   side-effect. Interest income is currently tracking $1.029 trillion at an annual rate
>   almost $400bn below the peak level of summer 2008. By comparison, wages and
>   salaries are up $539bn over the same period, and government transfer payments are
>   up $572bn.
>   

Thanks!

(and govt’s a net payer of interest)

pce, personal income yoy

Maybe it’s just me but to me this looks like it’s still decelerating, as it was before the tax hikes and spending cuts, which are still ongoing.

So I still see downside risk here?

But, of course, bad news for the economy is good news for stock prices for as long as markets think QE supports equity prices.

PCE Y/Y:


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Core PCE Y/Y:


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Personal Income Y/Y:


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Posted in GDP

stocks bonds qe dynamics

Until markets recognize QE for the tax that it actually is, the QE policy is stabilizing for stocks, destabilizing for bonds.

For example, good economic news is fundamentally good for stocks, but means QE may end, so the effects are offsetting.

Same with bad economic news. Fundamentally bad, but means QE continues, so offsetting.

Bonds are different. Good econ news is fundamentally bad for bonds and means QE may end, both negatives. And bad econ news is fundamentally good for bonds, and means QE continues, also good.

Carney quotes me again

The Real Reason 1Q GDP Took a Hit

By John Carney

June 26 (CNBC) — The economy grew more sluggishly in the first three months of the year than the government first reported, as higher taxes on payrolls dampened consumer spending and held overall growth down to just a 1.8 percent annual rate.

Make no mistake about it: this is really grim. And to make matters worse, it’s something we did to ourselves.

The Commerce Department had earlier estimated growth at 2.4 percent. Most economists expected that number to remain when the final revision came out Wednesday.

This follows an expansion of just 0.4 percent in the fourth quarter of last year.

The biggest source of the downward revision came from consumer spending. Government economists had estimated that consumer services consumption (excluding housing and utilities) would grow by 2.5 percent, instead it grew at just 0.7 percent.

That’s stall speed for consumers. Far worse, in fact, than the 2.4 percent growth seen in the fourth quarter.

There were also downward revisions to nonresidential structures investment, equipment and software spending, and the change in inventories. Government spending shrunk by slightly less than expected, so the sequester spending cuts weren’t as big of a deal as some predicted. Residential investment was up by far more than expected, 14.0 percent.

The main culprit behind the consumer pullback seems to be what Fed Chairman Ben Bernanke calls “fiscal headwinds.” Specifically, the end of the payroll tax holiday left less money in the hands of consumers to spend. We taxed ourselves out of growth.

“The lower consumption estimate provides some indication that the impact from fiscal austerity may have been more than previously thought, and that the economy started the year on weaker footing than previous estimated,” TD Securities analyst Millan Mulraine wrote in a note.

But don’t entirely discount the federal spending cuts known as “sequester,” which kicked in on March 1. Even though the sequester did not directly diminish government spending by as much as possible, its anticipated effects may have dampened investments.

Gross private investment was revised down to 7.4 percent growth from the estimate of 9.0 percent. Commercial investment fell 8.3 percent, compared with an estimated fall of just 3.5 percent. Business investment was revised down slightly lower to 4.1 percent from 4.6 percent. Those drops likely reflect a projected weakness in the economy going forward.

That growth could fall so low in a quarter in which the Federal Reserve was engaging in a new round of quantitative easing, buying $85 billion of bonds each month, might cast doubt on the effectiveness of the program. That would be bad news for stocks, which rose for the first four months of the year on the idea that QE could prop up a weak economy. (And have recently fallen after the Fed began to explain when it would pare back the program.)

“‘QE on’ was a misguided speculative bubble in any case, as QE is, at best, a placebo, and in fact somewhat of a tax as it removes a bit of interest income,” bond investor Warren Mosler said.

Mosler is a long-term critic of QE. He believes that because the interest paid on bonds the Fed buys under the program gets paid to the Fed instead of private bond holders, it acts as a tax on the private sector. The economic benefits are illusory, according to Mosler.

On the other hand, sluggishness in the economy could mean that expectations about the Fed tapering QE and raising rates get pushed back. Bernanke has stressed that decisions about policy changes would be dependent on economic data.

Wednesday’s news about the first quarter, while backward looking, certainly casts doubt on whether the economy is strong enough to justify lower levels of bond purchases.

Not everyone buys that way of thinking, however. Some doubt that Wednesday’s news will have any effect on the Fed’s plan to reduce the bond-buying program.

“The Fed will presumably continue to maintain its primary focus on labor market data, so while this revision obviously will impact their thoughts at the margin, I highly doubt that it will be a game changer, especially since I am skeptical that policymakers are as data-dependent as they want to believe,” Stephen Stanley of Pierpont Securities wrote in a note Wednesday morning.