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Archive for the 'GDP' Category

Goldman revising Q2 GDP estimate up to 4.7%

Posted by WARREN MOSLER on 11th September 2014

This would be a stronger ‘bounce back’ from -2.1 in Q1, but that still leaves the total for the first half of 2014 at only about +1.3%, And over 1.5% of the Q2 gain was from inventory accumulation.

Goldman Sachs Revises Q2 GDP estimate to 4.7%

Posted in GDP | No Comments »

Construction, gasoline prices, manufacturing, state and local contribution to gdp, restaurant performance index, saudi output, sun spots

Posted by WARREN MOSLER on 3rd September 2014

Headlines sound a lot better than the charts look.

Absolute levels and growth rates continue to fall short of prior cycles:

Construction Spending

Construction outlays saw a broad-based gain in July. Construction spending rebounded 1.8 percent after a 0.9 percent dip in June. While all broad categories advanced, July’s increase was led by the public sector-up 3.0 percent, following a 1.8 percent decrease in June. Private nonresidential spending rebounded 2.1 percent in July after slipping 0.8 percent the month before. Private residential outlays gained 0.7 percent, following a 0.4 percent dip in June.

On a year-ago basis, total outlays were up 8.2 percent in July, compared to 7.0 percent the month before.

Overall, the latest construction data add to third quarter momentum. Third quarter GDP estimates will likely be nudged up. There is a lot of recent volatility in construction data but the residential gain is encouraging.

Unadjusted Construction Spending – Three Month Rolling Average Compared to the Rolling Average One Year Ago

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This helps consumers some and also puts downward pressure on ‘inflation’:

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Manufacturing continues to do reasonably well, chugging along about the way it always does until the cycle ends:

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Don’t be misled by the talk of state and local govt contributing to GDP. The spending side is only half the story- they also tax. So you need to look at state and local govt deficits to get an idea of their net contribution:

This is the spending side:

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It’s a bit tricky as you don’t want to double count federal $ spent by the states:

Sure enough, tax receipts which tend to be highly cyclical, going up when the economy does better, seem to have stalled, and state and local deficits have gone up. So is that an indicator of growth?

And it looks like state and local deficits did go up a tad, but not a lot:

And this just came out:

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The call on Saudi oil shows no signs of diminishing which they remain as ‘swing producer/price setter’, setting price and letting quantity adjust with demand:

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And this:

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Posted in Deficit, GDP, Government Spending, Housing | No Comments »

Charts and data from the last few days

Posted by WARREN MOSLER on 28th August 2014

Down for the cold winter then back up some, and a very weak first half of the year, and Q3 fading from Q2:


The second estimate for second quarter GDP growth came in a little stronger than expected, rising 4.2 percent annualized versus a 4.0 percent forecast and coming off a 2.1 percent weather related drop in the first quarter. With this second estimate for the second quarter, the general picture of economic growth remains the same; the increase in nonresidential fixed investment was larger than previously estimated, while the increase in private inventory investment was smaller than previously estimated.

Real final sales of domestic product-GDP less change in private inventories-increased 2.8 percent in the second quarter, in contrast to a decrease of 1.0 percent in the first. Real final sales to domestic purchasers gained 3.1 percent versus 0.7 in the first quarter.

Chain-weighted prices gained 2.1 percent annualized, compared to the consensus for 2.0 percent and the first quarter number of 1.3 percent.

Overall, the weather-related rebound in the second quarter was stronger than expected. Personal spending made a comeback and inventories were rebuilt. The economy is gradually regaining momentum-emphasis on gradually.

Corporate Profits

Again, for growth this year to exceed last year, all the components on average have to grow more than they did last year:

NAR: Pending Home Sales Index increased 3.3% in July, down 2.1% year-over-year

By Bill McBride

From the NAR: Pending Home Sales Pick Up in July

The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 3.3 percent to 105.9 in July from 102.5 in June, but is still 2.1 percent below July 2013 (108.2). The index is at its highest level since August 2013 (107.1) and is above 100 – considered an average level of contract activity – for the third consecutive month.

With purchase apps down 11% year over year and cash purchases down it’s hard to see how total sales can grow?

MBA Purchase Applications

Demand for purchase applications picked up in the August 22 week, rising 3.0 percent. But the trend remains stubbornly flat, down 11.0 percent year-on-year. The index for refinancing applications also rose 3.0 percent in the week. Mortgage rates were little changed in the week with the average for conforming loans ($417,000 or less) down 1 basis point to 4.28 percent.

Falling home prices are not a good sign:

S&P Case-Shiller HPI

Home price appreciation continues to unwind as S&P Case-Shiller 20-city adjusted data show a 0.2 percent decline in June following a 0.3 percent in May. Year-on-year, the adjusted rate is plus 8.1 percent vs 9.3 percent in May. Monthly declines swept 13 of the 20 cities with Minneapolis, Detroit, Atlanta and Chicago showing special weakness.

Unadjusted data, which are followed in this report, show a monthly gain of 1.0 percent that reflects the relative strength of summer months for sales. But the year-on-year rate, where this effect is offset, tells exactly the same story as the adjusted data, at 8.1 percent vs 9.3 percent in the prior month.

Home prices are weakening, based not only on this report but also on FHFA data, also released this morning, and on yesterday’s new home sales report as well as last week’s existing home sales report. Easing home prices are a plus for sales but a negative of course for homeowner wealth.

Durable Goods Orders

Durables orders soared in July due aircraft orders but otherwise came off a moderately strong core number in June. New factory orders for durables soared a monthly 22.6 percent in July, following a 2.7 percent boost in June. Econoday’s consensus called for a 5.1 percent gain in July. The high end of forecasts was 24.5 percent.

Excluding transportation, durables orders slipped 0.8 percent, following a 3.0 boost in June. Analysts forecast a 0.4 percent rise for July. But June earlier had been estimated to be up “only” 1.9 percent from the full factory orders report.

Transportation spiked a monthly 74.2 percent after rising 2.1 percent in June. Nondefense aircraft (Boeing) surged 318.0 percent (that is not a typo) after gaining 11.1 percent in June. Another but more moderate positive was motor vehicle orders which gained 10.2 percent, following a 1.3 percent dip in June. Defense aircraft fell 28.8 percent in July, following a rise of 9.2 percent the month before.

Outside of transportation, gains were limited with “other” gaining. Other categories slipped but followed upward revisions to June.

Orders for equipment investment edged down in July but followed a strong June. Nondefense capital goods orders excluding aircraft declined 0.5 percent, following a spike of 5.4 percent the month before. Shipments of this series, however, were positive, gaining 1.5 percent in July, following an increase of 0.9 percent in June. The latest shipments numbers suggest a favorable number for business equipment in third quarter GDP.

The Boeing order gets filled over approximately the next 10 years:

Posted in GDP, Government Spending, Housing | No Comments »

Real Fiscal Responsibility Today Radio and TV Show pilots

Posted by WARREN MOSLER on 20th August 2014

The Real Fiscal Responsibility Talk Show Pilot Project

This project is for everyone tired of hearing economic commentary from those who got everything wrong. For decades the the doctrine of “Fiscal Responsibility” interpreted as long-term deficit reduction and Government austerity has had a secure place in American politics. The three of us proposing this project believe that this doctrine is the economic equivalent of the medieval notion that patients must be bled to cure them of disease.

The notion that austerity is necessary after running budget deficits caused by economic downturns is false and damaging to economies all over the world. We have opposed targeted deficit reduction and austerity in the blogosphere and in an e-book since 2010. Yet despite our efforts and the efforts of many others who using the Modern Money Theory (MMT) approach to economics, as well as other post-Keynesians, the mythology of austerity still survives, waiting in the wings until the next debt ceiling or budgetary crisis provides an opportunity for austerity partisans to push their nostrums of spending cuts and “Grand Bargains” once again.

We value Real Fiscal Responsibility highly, but that doesn’t lie in targeted deficit reduction, or in spending cuts for their own sake. Instead, it lies in targeting real impacts, real benefits, and real results, and fulfilling the needs of real people. We want to replace the false and damaging austerian accountant’s green eyeshade paradigm of so-called Fiscal Responsibility, evaluated against the arbitrary standards and scare tactics of debt-to-GDP ratios and public debt levels, with the human scale paradigm of Real Fiscal Responsibility, evaluated against the standard of fulfilling public purpose.

We seek funding for a pilot project for a new radio/video series that will present, and advocate for this paradigm change. The project will create six shows that we will then use to get the series picked up by an existing cable network.

Please visit the donation page.

Posted in Deficit, GDP, Government Spending | No Comments »

retail sales, mtg purchase apps, global highlights

Posted by WARREN MOSLER on 13th August 2014

Growth decelerating for 3 consecutive months:

Retail sales disappointed for a second month in a row. Retail sales were flat in July, following a 0.2 percent gain the month before (originally up 0.2 percent). Analysts forecast for a 0.2 percent rise in July.

Motor vehicles slipped 0.2 percent, following a decrease of 0.3 percent in June. Excluding motor vehicles, sales edged up 0.1 percent, following an increase of 0.4 percent in June. Forecasts were for 0.4 percent. Excluding motor vehicles and gasoline, sales nudged up 0.1 percent in July after jumping 0.6 percent the prior month. The median market forecast for July was for 0.3 percent.

While consumer spending was healthy in the second quarter, that does not appear to be the case for the third quarter based on July data.

Mtg purchase apps down for the week and down 10% year over year:

MBA Purchase Applications

Demand for purchase applications remained flat in the August 8 week, down 1.0 percent for the second straight week. Year-on-year, purchase applications are down 10.0 percent. Demand for refinancing is also weak, down 4.0 percent in the week. The declines come despite a dip in mortgage rates where the average 30-year mortgage rate for conforming loans ($417,500 or higher) fell 2 basis points to 4.24 percent.

Home Price Growth Slowdown a Mixed Trend for Economy (WSJ) Single-family housing prices rose 4.4% in the year that ended in the second quarter, the slowest annual pace since 2012, according to a report released Tuesday by National Association of Realtors. The association found that median prices for existing single-family homes grew year-over-year in 122 of 173 metropolitan areas it tracked, while prices declined in 47 metro areas. Only 19 areas showed double-digit year-over-year price increases, a substantial drop from the 37 cities that showed such increases in the first quarter.While the median existing single-family home price between the second quarters of 2013 and 2014 rose 7.3% in the West to $297,400, home prices in the Northeast fell 0.9% to $255,500, the report said.

Japan GDP shrinks sharper than after 1997 tax hike (Nikkei) The Cabinet Office said in a preliminary report Wednesday that real gross domestic product for April-June contracted at an annualized rate of 6.8% from the previous quarter. The decline was steeper than in the same quarter of 1997, after sales tax was raised from 3% to 5%. At that time, the economy shrank 3.5%. Economic and Fiscal Policy Minister Akira Amari was unfazed by the big contraction. “The backlash will ease down the road,” he said at a news conference after the GDP results were announced. He said the economy will return to a mild recovery path after summer. “Production shifts to overseas are well underway,” said Amari, indicating that the export decline this time is a long-term structural trend.

China July property investment slows, sales drop sharply (Reuters) Property investment grew 13.7 percent in the first seven months from a year ago, down from an annual rise of 14.1 percent in the first half. Newly started property construction dropped 12.8 percent in the January to July period from the same time a year ago, though the decline easing from an annual drop of 16.4 percent in the first six months. Meanwhile, property sales dropped 16.3 percent in July in terms of floor space, according to Reuters calculations based on official data. That compared with a 0.2 annual drop in June. The NBS data showed mortgage loans fell 3.7 percent in the first seven months of 2014, unchanged from the first half.

Surprisingly weak China July money data cast doubts on recovery’s durability (Reuters) China’s total social financing (TSF) aggregate fell to 273.1 billion yuan ($44.34 billion) in July, about one seventh of that in June. The People’s Bank of China took the unusual step of issuing a statement immediately after the data, reassuring markets that credit and financing growth was still reasonable and that it had not changed its monetary policy. Non-performing loans have now risen for 11 straight quarters, the central bank’s statement said. Chinese banks made 385.2 billion yuan ($62.53 billion) worth of new yuan loans in July, down sharply from 1.08 trillion yuan in June and well below expectations of 727.5 billion yuan, central bank data showed on Wednesday.–

Overly tight fiscal globally continues to put the squeeze on output and employment.

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Posted in GDP, Housing | No Comments »

Consumer credit, wholesale trade, productivity and costs

Posted by WARREN MOSLER on 8th August 2014

This has been going the wrong way since the post winter April ‘surge’:

Consumer credit rose $17.3 billion in June and was driven once again by the nonrevolving component, which rose $16.3 billion on vehicle financing and also the government’s continued acquisition of student loans from private lenders. The revolving component, which is key for retailers, did rise but not very much, up $0.9 billion following a revised $1.7 billion rise in May that followed a rare surge in this category of $8.8 billion April. Aside from vehicles, consumers remain reluctant to take on new debt.

Growth rate of student loans continues to slow:

Trade numbers resulted in upward Q2 GDP revisions, while today’s inventory report means downward revisions:

Wholesale Trade

Wholesale inventories rose 0.3 percent in June, a modest rise in line with a modest 0.2 percent gain in wholesale sales that leaves the stock-to-sales ratio unchanged at a lean 1.17. Activity has been strong in the auto sector with wholesale sales of autos jumping 2.1 percent, following gains of 1.4 percent and 3.1 percent in the prior two months. The gain in sales made for a 0.3 percent draw in wholesale inventories of autos, one that will have to replenished which is a plus for auto production.

Outside of autos, inventory draws are scarce but do include a major 5.3 percent draw in farm products which follows prior consecutive monthly draws of 4.4 percent and 0.4 percent. How much the draws in farm products will be replenished is uncertain given an 8.1 percent drop in wholesale sales for farm products during the month, not to mention current concern over the Russian embargo of US food products.

Turning back to sales, paper products, professional equipment (including computers), lumber, and metals show strong gains, all matched by what are likely desired builds on the inventory side. Weakness in sales, outside of farm products, includes chemicals, hardware, groceries, and apparel, groups all showing on the inventory side what are likely to be unwanted builds.

Outside of autos, this report on net points to soft growth in the wholesale sector during June. Next inventory data will be the business inventories report next Wednesday.

“Inventories are a key component of gross domestic product changes. The component that goes into the calculation of GDP—wholesale stocks excluding autos—increased 0.4 percent.

A report this week showed stocks of nondurable goods at manufacturers rose far less than the government had assumed in its advance second-quarter gross domestic product estimate published last week.

In that report, the government said inventories contributed 1.66 percentage points to GDP growth, which expanded at a 4.0 percent annual pace.

Wholesale inventories in June were held back by a decline in automobiles and nondurable goods.

Sales at wholesalers rose 0.2 percent after increasing 0.7 percent in May. There were declines in sales of nondurable goods, hardware and apparel.”

Unit labor costs below expectations:

Posted in Credit, GDP | No Comments »

Recent charts

Posted by WARREN MOSLER on 4th August 2014

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Notice that the govt deficit and savings rate more pretty much together?

Car sales off of last months pace, but forecasts for this year are for a slower rate of growth than last year:

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No sign of ‘consumer acceleration’ here?

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Manufacturing continues chugging along at it’s usual 4% rate of growth:

PMI Manufacturing Index:

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And Consumer Sentiment continues to bob around at levels that were the pretty much the lows of prior cycles:

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Slipping a bit after the year end surge to beat expiring tax credits?

Bank lending flattening some after growing to fund unsold Q2 inventories?

Q2 could be revised to anything over the next couple of months, seems, as was Q1.

But at least for now the chart is what it is:

The second quarter rebounded more than expected from the adverse weather impacted first quarter. While there were a number of strong components, the rebound was led by inventory growth.

Posted in Credit, Employment, GDP, Housing | No Comments »


Posted by WARREN MOSLER on 31st July 2014

A few charts/comments below. More after the first revision to Q2 come out. Looks to me like the macro constraint narrative is still intact.

Just a word here about state and local govt spending adding to GDP. Yes, there was an increase in spending. But tax receipts also went up, which subtracts from private spending. The thing to watch is net state and local spending, including borrowing to spend. I don’t have any charts, but anecdotally state and local budgets are said to be ‘improving’ which means less net spending.


The second quarter rebounded more than expected from the adverse weather impacted first quarter. While there were a number of strong components, the rebound was led by inventory growth. The advance estimate for the second quarter posted at a healthy 4.0 percent annualized, following an upwardly revised decline of 2.1 percent in the first quarter (previously down 2.9 percent). The median forecast was for 3.1 percent. Today’s release includes annual revisions.

Final sales of domestic product rebounded 2.3 percent after dipping 1.0 percent in the first quarter. Final sales to domestic purchasers gained 2.8 percent in the second quarter, compared to 0.7 percent in the first quarter.

Turning to components, inventory investment jumped $93.4 billion after rising $35.2 billion in the first quarter. Importantly, personal spending posted a robust 6.2 percent gain, following a 1.0 percent rise in the prior quarter. Durables PCEs were particularly strong with nondurables healthy. Services posted on the soft side.

Residential investment rebounded notably in the second quarter and nonresidential investment was healthy. Government purchases were up but soft and net exports worsened notably.

On the price front, the chain-weighted price index firmed to a 2.0 percent increase, up from 1.3 percent in the first quarter. The core chain index increased 1.8 percent in the second quarter from 1.2 percent in the prior quarter.

Turning to annual revisions, 2013 on an annual average basis was revised up to 2.2 percent versus the prior estimate of 1.9 percent; 2012 revised down to 2.3 percent from 2.8 percent; and 2011 revised down to 1.6 percent from 1.8 percent.

Overall, the second quarter numbers point to a return to forward momentum after the deep freeze first quarter. While inventories led second quarter growth, this should not be disconcerting as the lack of production in the first quarter meant that significant inventory rebuilding was needed. Additionally, other GDP components (net exports being the key exception) were healthy.

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Average basic monthly wage posts 1st gain in June in over 2 years

July 31 (Kyodo) — The average basic monthly salary at companies with at least five employees rose 0.3 percent in June from a year earlier to 243,019 yen, marking the first rise in two years and three months, the labor ministry said Thursday. This year’s “shunto” spring labor offensive resulting in many unions winning a pay-scale increase pushed up the figure, according to the Health, Labor and Welfare Ministry. The total monthly average, including bonuses, increased 0.4 percent to 437,362 yen. Nonscheduled cash earnings, such as overtime compensation, grew 1.9 percent to 19,058 yen. Real wages, adjusted for inflation, decreased 3.8 percent, down over 3 percent for the third consecutive month following the consumption tax hike in April.

Posted in Deficit, GDP | No Comments »

Housing and Philly Fed

Posted by WARREN MOSLER on 17th July 2014

Note the Nov/Dec mini spike to capture year end tax credits (my story) followed by familiar down for the winter, then up, then back down some pattern.

Yes, you can have a low output gap without housing, and yes, manufacturing is chugging along nicely. But overall the charts show declining monthly growth rates of retail sales, industrial production, and housing starts, as what’s looking more and more like the macro constraint of the relentless demand leakages continue to take their toll.

Housing Starts

Fed Chair Janet Yellen was right to worry about the housing sector during Congressional testimony this week. Starts in June disappointed sharply, declining another monthly 9.3 percent after decreasing 7.3 percent in May. June starts came in at 0.893 million units annualized, up 7.5 percent on a year-ago basis. Expectations were for 1.026 million units.

The fall in the latest month was led by the multifamily component but closely followed by the single-family component. Multifamily family starts dropped 9.9 percent after falling 14.7 percent in May. The single-family component declined 9.0 percent in June, following a 2.6 percent dip the prior month.

Building permits also lost ground. Permits declined 4.2 percent after decreasing 5.1 percent in May. June’s 0.963 million units annualized was up 2.7 percent on a year-ago basis. Analysts forecast 1.038 million units for June.

The housing sector still needs propping up by the Fed. This sector is losing steam instead of improving. Recent NAHB HMI have pointed to start weakness with weak numbers on traffic.

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Posted in GDP, Housing | No Comments »

Industrial production, mtg purchase apps charts, homebuilder’s index

Posted by WARREN MOSLER on 16th July 2014

Slowed in Q1, rebound in Q2, H1 about the same old 4% rate IP usually grows at as previously discussed:

Industrial Production

As suggested by production worker hours, industrial production was soft in June. Industrial production slowed to a rise of 0.2 percent, following a jump of 0.5 percent in May. Expectations were for a 0.4 percent boost. The manufacturing component decelerated to a modest 0.1 percent gain after jumping 0.4 percent the prior month. The median market forecast was for 0.4 percent. Mining was healthy with a 0.8 percent increase, following a 1.1 percent surge in May. Utilities declined 0.3 percent, following a drop of 0.4 percent in May.

Manufacturing excluding motor vehicles increased 0.2 percent in June after a 0.3 percent rise in May.

Within manufacturing, the production of durable goods increased 0.4 percent in June and rose at an annual rate of 8.8 percent in the second quarter. In June, the gains were broad based among durable manufacturing industries, with increases of 1.0 percent or more in the indexes for nonmetallic mineral products, for primary metals, for fabricated metal products, for aerospace and miscellaneous transportation equipment, and for furniture and related products. The production of nondurable goods moved down 0.3 percent in June. In June, the output of petroleum and coal products fell 2.7 percent, in part because of a disruption at a major refinery; the production of apparel and leather declined 1.3 percent, and the index for food, beverage, and tobacco products moved down 0.6 percent.

The overall capacity utilization rate in June held steady at 79.1 percent. The latest number came in slightly lower than the consensus projection for 79.2 percent.

For the second quarter as a whole, manufacturing production rose at an annual rate of 6.7 percent after increasing 1.4 percent in the first quarter, suggesting that second quarter GDP will rebound nicely from the first quarter freeze shock.

We are seeing some volatility in manufacturing numbers recently. But on average, growth is healthy.

Mortgage purchase apps still way soft:

MBA Purchase Applications

The purchase index fell 8.0 percent in the July 11 week, more than reversing a 4.0 percent gain in the prior week. The refinance index was little changed, down 0.1 percent in the week. Rates were little changed in the week with the average 30-year rate for conforming loans ($417,500 or less) up 1 tenth to 4.33 percent. Watch for the housing market index later this morning at 10:00 a.m. ET.

MBA purchase applications:

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National Association of Home Builders index up:

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Posted in GDP, Housing | No Comments »

Warsaw conference

Posted by WARREN MOSLER on 30th June 2014

Posted in Deficit, GDP, Government Spending, Political | No Comments »

Big snap back in second quarter growth less likely

Posted by WARREN MOSLER on 26th June 2014

No mention yet of the deficit being too small…

At sub 3% we comply with the Maastricht limits.
Maybe the plan is to join the euro?
Why else would we allow this?

Big snap back in second quarter growth less likely

By Patti Domm

(CNBC) — After a shocking contraction in first quarter GDP, economists on Thursday pared back growth forecasts for the second quarter due to weaker consumer spending.

Consumer spending in May rose just 0.2 percent, half of what was expected, after being flat in April. Spending by consumers accounts for more than two-thirds of U.S. economic activity, and the lowered growth forecasts now raise concerns that the economy will not be able to rebound to the more than a 3 percent growth rate widely expected for the balance of the year.

Goldman Sachs economists trimmed second quarter tracking GDP to 3.5 percent from 4.1 percent, and Barclays economists said tracking GDP for the second quarter fell to 2.9 percent from 4 percent. At a pace below 3 percent, the economy could show contraction for the first half due to the steep first quarter decline of 2.9 percent.

The median estimate for second quarter GDP fell by a half percent to 3 percent, according to the CNBC Rapid Update of economists forecasts.

Posted in GDP, Government Spending | No Comments »

charts and comments GDP, durables, mtg apps, etc.

Posted by WARREN MOSLER on 25th June 2014

>   On Wed, Jun 25, 2014 at 8:52 AM, Sheraz wrote:
>   Very weak US numbers

And not one ‘nice call’ email!!!

And yesterday’s stock market action suggests a possible data leak???

US 1Q GDP has been revised lower by far than expected. After having initially been reported as a 0.1% rise, then a 1% contraction, the third release shows that GDP growth is now reported as -2.9 QoQ% annualised, which leaves annual growth at just 1.5%YoY.

The consensus expectation was for a -1.8% reading. The damage was largely done through the private consumption component, which is now reported as rising just 1% versus 3.1% previously.

Also ‘smoothing’ from numbers that looked high to me in H2 and an adjustment to ACA related healthcare expenses previously booked as PCE:

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Gross private investment remained an 11.7% contraction

Maybe after a Q4 surge due to expiring tax credits?

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while government consumption was left at -0.8%. However, exports were revised down and imports revised up meaning that the contribution from net trade is to subtract 1.5% from GDP growth rather than 0.95% as previously announced.

Reversing a similar, prior blip up, as previously discussed:

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Nonetheless, reaction should be fairly muted given widespread expectations of a sharp bounceback in 2Q14 and the fact that the weather had such a damaging impact on 1Q activity. Indeed, we suspect that we could see GDP rise by more than 5% annualised in 2Q.

And if so, H1 would be +1% :(

High frequency numbers for the quarter have looked good while inventories should also make a significantly positive contribution after having been run down sharply.

After having been run up in H2. We’ll see where they go from here.

And, as previously discussed after the jump up in Q3, inventory accumulation seldom leads a boom:

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Mortgage purchase apps still dismal:

According to the MBA, the unadjusted purchase index is down about 18% from a year ago.

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And May durables not so good either:

Durables orders were much weaker than expected for May. Durables orders fell 1.0 percent in May after rising 0.8 percent in April. Analysts forecast 0.4 percent. Excluding transportation, orders slipped 0.1 percent, following a 0.4 percent gain in April. Market expectations were for 0.3 percent.

Transportation fell 3.0 percent after a 1.7 percent rise in April. The latest dip was from weakness in nondefense aircraft. Motor vehicles and defense aircraft orders rose.

Outside of transportation, gains were seen in primary metals, fabricated metals, and “other.” Declines were posted for machinery, computers & electronics, and electrical equipment.

On a positive note, there was improvement in equipment investment. Nondefense capital goods orders excluding aircraft rebounded 0.7 percent in May after decreasing 1.1 percent the month before. Shipments of this series rebounded 0.4 percent after a 0.4 percent dip in April.

The good news is this series is muddling along ok:

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The latest durables report is in contrast to recently positive regional manufacturing surveys and also the sharp jump in manufacturing production worker hours of 0.8 percent for May. But durables data are very volatile and we likely need a couple of more months of data before taking a negative tone on this sector.

The next leg to fall may be employment, as the 1.2 million people who lost long term benefits at year end may have been taking menial jobs at the rate of maybe 75,000/month or more for 6 months or so, which may have front loaded the monthly jobs numbers. If so, monthly job gains may fall into the 100,000 range soon.

So in general it was down for the winter, back up some, and we’ll see what happens next.

The ‘survey’ numbers and professional forecasts look promising, however it still looks to me like we are under the macro constraint of a too low govt deficit that’s struggling to keep up with the unspent income/demand leakages, with scant evidence of help from growth in private credit expansion.

And I tend to agree with Fed Chair Yellen here, which would tend to keep rates lower/longer if she gets her way. However I don’t agree that low rates somehow support aggregate demand, so I don’t see the likelihood of any call from the Fed or other forecasters for the fiscal relaxation I’ve been proposing.

Yellen may be poised to rewrite Fed’s rule book on wages, inflation

June 25 (Reuters) — “My own expectation is that, as the labor market begins to tighten, we will see wage growth pick up some to the point where … nominal wages are rising more rapidly than inflation, so households are getting a real increase in their take home pay,” Federal Reserve Chair Janet Yellen said last week, adding: “If we were to fail to see that, frankly, I would worry about downside risk to consumer spending.” Over the last year Fed staff changed their main model for forecasting wage and price inflation to reflect evidence that companies were adjusting prices more slowly than in prior years.

My immediate proposals remain 1) A full FICA suspension, which raises take home pay by 7.6%, and, for businesses that are competitive, lowers prices as well, restoring sales/output/employment in short order 2) A $10/hr federally funded transition job for anyone willing and able to work to promote the transition from unemployment to private sector employment 3) A permanent 0 rate policy with Tsy issuance limited to 3 mo bills. 4) Unrestricted campaign contributions, however, say, 40% of any contribution goes to the opposition…

Posted in Employment, Fed, GDP, Government Spending, Political | No Comments »

Recent charts

Posted by WARREN MOSLER on 12th June 2014

I’m starting to believe my own narrative…

Soft for the winter, up some, then moderating again.

All under the ongoing macro constraint of aggressive automatic stabilizers that brought the deficit down even with a negative GDP quarter, and some degree of path dependency with weakness taking something away from subsequent periods.

Not to mention the story about 1.2 million who lost benefits at year end taking menial jobs, boosting headline employment, not adding to personal income as their pay was about the same as the lost benefits, and front loading job growth as ultimately more headcount isn’t a function of benefits lost. We’ll see.

And a world getting tougher to export to. Weaker CNY isn’t helping, for example.

First, another firm revises Q1 down further, and Q2 up some as well:

GOLDMAN: “… we are taking our tracking estimate for Q1 [GDP] down to -1.9% [and] raising our tracking estimate for Q2 by 0.3pp to 3.8%”

If these turn out to be correct, it implies H1 GDP will come in under 1%, and also implies 2014 somewhere around 2% of H2 can print over 3%.

The fiscal noose tightens. If the deficit is going to average 2.8% of GDP for the year and started higher than that and has been coming down, it means it’s running lower than that ‘instantaneously’- maybe around 2% of GDP or so:

Treasury: Budget Deficit declined in May 2014 compared to May 2013

By Bill McBride

June 11 (Calculated Risk) — The Treasury released the May Monthly Treasury Statement today. The Treasury reported a $130 billion deficit in May 2014, down from $138 billion in May 2013. For fiscal year 2014 through May, the deficit was $436 billion compared to $626 billion for the same period in fiscal 2013.

In April, the Congressional Budget Office (CBO) released their new Updated Budget Projections: 2014 to 2024. The projected budget deficits were reduced for each of the next ten years, and the projected deficit for 2014 was revised down from 3.0% to 2.8%. Based on the Treasury release today, I expect the deficit for fiscal 2014 to be lower than the current CBO projection.

Retail sales showing the down for the winter, up, then lower growth pattern, in the context of the longer term drift lower in growth:

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The retail sales ‘control group’ (ex food, autos, building materials, and gas stations) shows the same pattern even more clearly:

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Lastly, keep an eye on crude prices. Looked to me like the spike in 2008 might have been the catalyst for the collapse in demand…

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Nomura revises Q1 down to -2.4%

Posted by WARREN MOSLER on 11th June 2014

And the risk is we may be more path dependent than most realize with the deficit this low. That is, for example, if income dips due to ‘weakness’ such as weather, there is then that much less income to spend in the next period.

>   (email exchange)
>   In the race to see who can revise their Q1 estimates the lowest, I think Nomura is in the
>   lead so far at -2.4%…

Nomura Economists revise down First Quarter US GDP to -2.4%

Incorporating relevant information from Quarterly Service Survey which was released today, we revised down our Q1 GDP tracking estimate by a full percentage point to -2.4% from -1.4%. Personal consumption on services was much weaker than BEA has assumed. We haven’t revised Q2 GDP tracking estimate because we don’t know how the montyly profile of personal consumption for Q1 will be revised in reaction to QSS. That being said, the fact that personal consumption lost some traction in Q1 appears to be negative.

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downward revisions for Q1

Posted by WARREN MOSLER on 11th June 2014

who would have thought?

U.S. Economy’s First-Quarter Contraction Could Be Even Worse Than You Thought

By Ben Leubsdorf

June 11 (WSJ) — The U.S. economy may have contracted more than previously thought during the first three months of 2014, private economists said Wednesday based on new health care-sector data from the government.

One analyst said economic output may have contracted at a 2% pace in the first quarter. That would be its worst performance since the recession.

The Commerce Department’s latest estimate of gross domestic product, the broadest measure of output across the economy, said GDP shrank at a seasonally adjusted annual rate of 1% in the first quarter. A revised estimate will be released June 25, and it could show an even larger contraction.

That’s based on the Commerce Department’s Quarterly Estimates for Selected Service Industries report for the first quarter, released Wednesday. It showed that revenue in the U.S. health-care and social-assistance sector fell 2% in the first quarter from the fourth quarter of 2013, not adjusted for seasonal variations or price changes. Hospital revenue fell a seasonally adjusted 1.3% from the prior quarter.

The Commerce Department’s last GDP report, though, said inflation-adjusted spending on health-care services surged to a seasonally adjusted annual level of $1.848 trillion in the first quarter from $1.808 trillion in the fourth quarter of 2013. That estimate for spending on health care boosted overall GDP growth by 1.01 percentage point, keeping the 1% contraction from being even worse.

J.P. Morgan Chase economist Daniel Silver and Pierpont Securities economist Stephen Stanley both cautioned that it’s not clear exactly how the Commerce Department will adjust GDP to account for the new data.

But they both downgraded their estimates for the first quarter based on the new survey, as well as other recently released data. Mr. Silver predicted GDP declined at a 1.6% pace in the first three months of the year, and Mr. Stanley predicted contraction at a 2% pace.

“Ouch,” Mr. Stanley said in a note to clients.

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Review of last weeks data

Posted by WARREN MOSLER on 2nd June 2014

So my narrative is:

The Federal budget deficit is too small to support growth given the current ‘credit environment’- maybe $400b less net spending in 2014. The automatic fiscal stabilizers are ‘aggressive’, as they materially and continually reduce the deficit it all turns south. The demand leakages are relentless, including expanding pension type assets, corporate/insurance accumulations, foreign CB $ accumulation, etc. etc.

The Jan 2013 FICA hike and subsequent sequesters took maybe 2% off of GDP as they flattened the prior growth rates of housing, cars, retail sales, etc. etc. Q3/Q4 GDP was suspect due to inventory building, a net export ‘surge’, and a ‘surge’ in year end construction spending/cap ex etc. I suspected these would ‘revert’ in H1 2014. It was a very cold winter that slowed things down, followed by a ‘make up’ period. The question now is where it all goes from there. For every component growing slower than last year, another has to be growing faster for the total to increase.

The monthly growth rate of durable goods orders fell off during the cold snaps and the worked it’s way back up, though still not all the way back yet, and the ‘ex transportation’ growth rate was bit lower:

And of note:

Investment in equipment eased after a robust March. Nondefense capital goods orders excluding aircraft dipped 1.2 percent, following a 4.7 percent jump in March. Shipments for this series slipped 0.4 percent after gaining 2.1 percent the prior month.

In general the manufacturing surveys were firm.

Mortgage purchase applications continued to come in substantially below last year, even with the expanded, more representative survey:

According to the MBA, the unadjusted purchase index is down about 15% from a year ago.

MBA Mortgage Applications

Mortgage applications for home purchases remain flat, down 1.0 percent in the May 23 week to signal weakness for underlying home sales. Refinancing applications, which had been showing life in prior weeks tied to the dip underway in mortgage rates, also slipped 1.0 percent in the week. Mortgage rates continue to edge lower, down 2 basis points for 30-year conforming loans ($417,000 or less) to 4.31 percent and the lowest average since June last year.

And then there was the Q1 revised GDP release:

What drove it negative was a decline in inventories, net exports, and construction/cap ex:

The largest revisions to the headline number were from inventories (revised downward by -1.05%) and imports (down -0.36%), and although exports improved somewhat from the prior report, they still subtracted -0.83% from the headline. Fixed investments in both equipment and residential construction continued to contract.

PCE growth was revised up to +3.1% (adding 2.09% to GDP) but seems over 1% of that came from ACA (Obamacare) related and other non discretionary expenditures like heating expenses, etc. The question then is whether the increases will continue at that rate and whether the increased ACA related expenses will eat into other, discretionary expenditures.

The contribution made by consumer services spending remained essentially the same at 1.93% (up 0.36% from the 1.57% in the prior quarter). As mentioned last month, the increased spending was primarily for non-discretionary healthcare, housing, utilities and financial services – i.e., increased expenses that stress households without providing any perceived improvement to their quality of life.

And seems this Chart is consistent with my narrative:

And not that it matters, but just an interesting observation:

And lastly, for this report the BEA assumed annualized net aggregate inflation of 1.28%. During the first quarter (i.e., from January through March) the growth rate of the seasonally adjusted CPI-U index published by the Bureau of Labor Statistics (BLS) was over a half percent higher at a 1.80% (annualized) rate, and the price index reported by the Billion Prices Project (BPP – which arguably reflected the real experiences of American households while recording sharply increasing consumer prices during the first quarter) was over two and a half percent higher at 3.91%. Under reported inflation will result in overly optimistic growth data, and if the BEA’s numbers were corrected for inflation using the BLS CPI-U the economy would be reported to be contracting at a -1.52% annualized rate. If we were to use the BPP data to adjust for inflation, the first quarter’s contraction rate would have been a staggering -3.64%.

And looks like this will be limiting the next quarter:

Real per-capita annual disposable income grew by $95 during the quarter (a 1.03% annualized rate). But that number is down a material -$227 per year from the fourth quarter of 2012 (before the FICA rates normalized) and it is up only about 1% in total ($359 per year) since the second quarter of 2008 – some 23 quarters ago.

And remember this?

So the question is, how strong will the Q2 recovery be, and where does it go from there?

Again, looks to me like the deficit is having trouble keeping up with the demand leakages, and it keeps getting harder with time?

Jobless claims continue to work their way lower, but they are a bit of a lagging indicator and even with 0 claims there aren’t necessarily any new hires, either, for example.

And there’s another couple of issues at work here.

First, 1.2 million people lost benefits at year end, and it’s expected up to half of them will find ‘menial’ jobs during H1. However, corporations don’t add to head count just because unskilled workers lose benefits, so the employment numbers may thus be ‘front loaded’ with higher numbers of hires in H1, followed by fewer hires in H2.

Second, seems the new jobs don’t pay a whole lot, and a lot of higher paying jobs continue to be lost, so the increased employment isn’t associated with the kind of subsequent growth multipliers of past cycles.

Corporate profits were down over 10% in the Q1 GDP report, and mainly in the smaller companies as the S&P earnings saw a modest increase. Hence the small caps under performing, for example? Not mention earnings also tend to up and down with the Federal deficit:

This year over year pending home sales chart speaks for itself:

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Another series following the pattern- down for the winter weather, then back up some, and this time then backing off some:

Personal income & spending, up 0.3 percent and down 0.1 percent, fell back in April following especially strong gains in March. Wages & salaries slowed to plus 0.2 percent vs a 0.6 percent surge in March while spending on durables, reflecting a pause in auto sales, fell 0.5 percent vs gains of 3.6 and 1.3 percent in the prior two months. Spending on services, however, also fell, down 0.2 percent on a decline in utilities and healthcare after a 0.5 percent rise in March. In real terms, spending fell 0.3 percent following the prior month’s 0.8 percent surge. Price data remain muted, up 0.2 percent overall and up 0.2 percent ex-food and energy. Year-on-year price rates are at plus 1.6 percent and 1.4 percent for the core.

And again, the ACA and other non discretionaries added about 1% in Q1. So, again, it’s down for the winter, then up and this time back down to begin Q2 (with the growth of healthcare expenses backing off some):

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Posted by WARREN MOSLER on 29th May 2014

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Real final sales domestic product

Posted by WARREN MOSLER on 7th May 2014

Real final sales domestic product chart not looking good

Full size image

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housing starts and manufacturing

Posted by WARREN MOSLER on 16th April 2014

Another anemic ‘bounce’- down 5.9% from last year. And more reason to believe the much touted November/Dec ‘spike’ had something to with expiring tax credits. And with mtg purchase applications still running almost 20% lower year over year the housing contribution to GDP in general is so far looking lower than last year.

Housing Starts

Housing starts picked up in March but not as much as expected. However, strength was in the single-family component while it was expected to be in the multifamily component. So, the expectations shortage really is not bad. Overall starts rose 2.8 percent after a 1.9 percent increase in February. The March annualized pace of 946,000 fell short of analysts’ forecast for 965,000 and was down 5.9 percent on a year-ago basis.

Single-family starts jumped 6.0 percent, following a 2.9 percent rise the month before. Multifamily starts slipped 3.1 percent in March after no change the month before.

Overall permits dipped 2.4 percent in March after surging 7.3 percent the prior month. The annualized rate of 990,000 was up 11.2 percent on a year-ago basis. The median market forecast was for 1.010 million. The softness came from the multifamily component which declined 6.4 percent after a 22.8 percent spike in February. The single-family component rebounded 0.5 percent, following a 1.7 percent dip in February.

Overall, the headline number was below expectations but the fact that moderate strength was in the single-family component is encouraging. Last month’s data in permits suggested more strength in the multifamily component. But the multifamily component is volatile and based on recent permits, there still is strength in that component. The gain in the single-family component is a bonus.

Somewhat volatile but over time just chugs along at a steady pace.

It’s generally the rest of gdp that’s does the moving and shaking:

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