Revision: Economy shrinks in 1st quarter, first time in 3 years

[dario73]

Oh, but it was because of the weather

http://www.usatoday.com/story/money/business/2014/05/29/gdp-first-quarter-revised/9694823/


The U.S. economy shrank in the first quarter for the first time in three years as businesses increased inventories more slowly than initially believed and bad weather hampered activity.

The nation's gross domestic product in the first three months of 2014 fell at a 1% annual rate, vs. the 0.1% increase first estimated, the Commerce Department said Thursday. Economists expected the report to show that the nation's output declined about a half a percentage point compared to the fourth quarter.

The last time the economy contracted was in the first quarter of 2011

[OzmO]

The economy has been growing the last 3 years?

[GigantorX]

The economy has been growing the last 3 years?

GDP, as calculate now, is a meaningless number. I mean, "Intangibles" is an actual component of it, even with all the books being cooked they still couldn't eek out a positive number.

The real economy is dead, has been for 10 years. 

Also, 2 consecutive quarters of negative growth is a recession.

[syntaxmachine]

GDP, as calculate now, is a meaningless number. I mean, "Intangibles" is an actual component of it, even with all the books being cooked they still couldn't eek out a positive number.

The real economy is dead, has been for 10 years. 

Also, 2 consecutive quarters of negative growth is a recession.

How do you define 'the real economy'?

[GigantorX]

How do you define 'the real economy'?

Good question.

Buyers, sellers, job creation, wage growth, business start ups succeeding, investment, saving etc that drives growth. That's not to say that there wasn't large growth of credit and easy/insane Fed driven monetary policy, but at least there was a sturdy foundation.

The last 10 years, maybe more have been based completely on cheap debt, consumers leveraging themselves to the hilt, using cheap credit and leverage to pull forward multiple decades of demand, housing bubble, stock bubble, QE and all the other easy "injectables" to keep a patient flat lining alive.

[syntaxmachine]

Good question.

Buyers, sellers, job creation, wage growth, business start ups succeeding, investment, saving etc that drives growth. That's not to say that there wasn't large growth of credit and easy/insane Fed driven monetary policy, but at least there was a sturdy foundation.

The last 10 years, maybe more have been based completely on cheap debt, consumers leveraging themselves to the hilt, using cheap credit and leverage to pull forward multiple decades of demand, housing bubble, stock bubble, QE and all the other easy "injectables" to keep a patient flat lining alive.

1. Stagnant wages and the long term effects of the Federal Reserve's QE policy are compelling issues. But most aspects of the 'real economy' as defined above are gradually improving: jobs are being created, investment is up, savings rates are positive again, and after a healthy period of deleveraging, households are spending proportionally less of their disposable income on debt than anytime since 1980. All of this leads one to think that declaring the whole enterprise 'dead' is a rhetorical flourish.

2. It might not be wise to judge the recovery from the Great Recession in full quite yet, since it is, after all, still ongoing. Here are two points of optimism for the near-term:

i) the revised 1st quarter GDP estimate indicates that GDP declined largely because of dwindling inventories. ECON101 teaches us that a drop in inventories is an indication that not enough was produced and that therefore, production will increase in the following period as a result. It would be very surprising if 2nd quarter GDP growth was below 3%, let alone negative. And I'll bet money on that.

ii) Historically, the job market has recovered from recessions via a process known as 'cyclical upgrading,' where the unemployment rate is first driven down by a large amount due to small business hiring, then driven down a slight bit more by large company hiring (there are relatively fewer jobs in the latter).

So far, unemployment has been driven down a slight bit by large company hiring, but the small business phase has not kicked in. Sentiment in the small business world is changing, however, with more and more small businesses expressing the intent to hire. This suggests that the small business hiring phase of the recovery is still imminent, the consequences of which are a larger than expected drop in unemployment within the next 1.5 years.

[George Whorewell]

1. Stagnant wages and the long term effects of the Federal Reserve's QE policy are compelling issues. But most aspects of the 'real economy' as defined above are gradually improving: jobs are being created, investment is up, savings rates are positive again, and after a healthy period of deleveraging, households are spending proportionally less of their disposable income on debt than anytime since 1980. All of this leads one to think that declaring the whole enterprise 'dead' is a rhetorical flourish.

2. It might not be wise to judge the recovery from the Great Recession in full quite yet, since it is, after all, still ongoing. Here are two points of optimism for the near-term:

i) the revised 1st quarter GDP estimate indicates that GDP declined largely because of dwindling inventories. ECON101 teaches us that a drop in inventories is an indication that not enough was produced and that therefore, production will increase in the following period as a result. It would be very surprising if 2nd quarter GDP growth was below 3%, let alone negative. And I'll bet money on that.

ii) Historically, the job market has recovered from recessions via a process known as 'cyclical upgrading,' where the unemployment rate is first driven down by a large amount due to small business hiring, then driven down a slight bit more by large company hiring (there are relatively fewer jobs in the latter).

So far, unemployment has been driven down a slight bit by large company hiring, but the small business phase has not kicked in. Sentiment in the small business world is changing, however, with more and more small businesses expressing the intent to hire. This suggests that the small business hiring phase of the recovery is still imminent, the consequences of which are a larger than expected drop in unemployment within the next 1.5 years.

You should replace Jay Carney as Obama's press secretary. You're either delusional or a shill pretending to know what he's talking about.

[GigantorX]

1. Stagnant wages and the long term effects of the Federal Reserve's QE policy are compelling issues. But most aspects of the 'real economy' as defined above are gradually improving: jobs are being created, investment is up, savings rates are positive again, and after a healthy period of deleveraging, households are spending proportionally less of their disposable income on debt than anytime since 1980. All of this leads one to think that declaring the whole enterprise 'dead' is a rhetorical flourish.

2. It might not be wise to judge the recovery from the Great Recession in full quite yet, since it is, after all, still ongoing. Here are two points of optimism for the near-term:

i) the revised 1st quarter GDP estimate indicates that GDP declined largely because of dwindling inventories. ECON101 teaches us that a drop in inventories is an indication that not enough was produced and that therefore, production will increase in the following period as a result. It would be very surprising if 2nd quarter GDP growth was below 3%, let alone negative. And I'll bet money on that.

ii) Historically, the job market has recovered from recessions via a process known as 'cyclical upgrading,' where the unemployment rate is first driven down by a large amount due to small business hiring, then driven down a slight bit more by large company hiring (there are relatively fewer jobs in the latter).

So far, unemployment has been driven down a slight bit by large company hiring, but the small business phase has not kicked in. Sentiment in the small business world is changing, however, with more and more small businesses expressing the intent to hire. This suggests that the small business hiring phase of the recovery is still imminent, the consequences of which are a larger than expected drop in unemployment within the next 1.5 years.

U.E. has been driven down by an ever plunging LPR and with the advent of the ACA those small businesses won't be hiring, if those small businesses even make it to a growth phase as more businesses are now being destroyed than created. The labor market is a disaster with more people unemployed compared with 5-6 years ago. The quality of jobs being created is also dismal. Large companies won't fuel a big rebound in hiring, due to ZIRP they have been able to horde cash and use the cheap debt to fuel stock buy backs and M&A, no reason to invest or expand when there isn't any demand and there is a less costly way to increase share price.

Your post reads like something that could have been spouted defensively 5 years ago when the stimulus failed and the Fed decided to double down on its madness. It rings pretty hallow now in 2014 when we have just entered a technical recession. It's always, "well, this or that hasn't kicked in yet, just wait...." Put down the "Econ101" book because those rules do not apply now that the economy and markets have been completely broken.

[GigantorX]

And here is your savings rate....



And your "healthy period" of deleveraging was driven by liquidation and bankruptcy, i.e. not by choice. Even with that consumers are still levered to the hilt.





Also, comparing anything to 1980 probably isn't the best year to use while attempting to make a point.

[George Whorewell]

Your post reads like something that could have been spouted defensively 5 years ago when the stimulus failed and the Fed decided to double down on its madness. It rings pretty hallow now in 2014 when we have just entered a technical recession. It's always, "well, this or that hasn't kicked in yet, just wait...." Put down the "Econ101" book because those rules do not apply now that the economy and markets have been completely broken.

End of thread.

[James28]

1. Stagnant wages and the long term effects of the Federal Reserve's QE policy are compelling issues. But most aspects of the 'real economy' as defined above are gradually improving: jobs are being created, investment is up, savings rates are positive again, and after a healthy period of deleveraging, households are spending proportionally less of their disposable income on debt than anytime since 1980. All of this leads one to think that declaring the whole enterprise 'dead' is a rhetorical flourish.

2. It might not be wise to judge the recovery from the Great Recession in full quite yet, since it is, after all, still ongoing. Here are two points of optimism for the near-term:

i) the revised 1st quarter GDP estimate indicates that GDP declined largely because of dwindling inventories. ECON101 teaches us that a drop in inventories is an indication that not enough was produced and that therefore, production will increase in the following period as a result. It would be very surprising if 2nd quarter GDP growth was below 3%, let alone negative. And I'll bet money on that.

ii) Historically, the job market has recovered from recessions via a process known as 'cyclical upgrading,' where the unemployment rate is first driven down by a large amount due to small business hiring, then driven down a slight bit more by large company hiring (there are relatively fewer jobs in the latter).

So far, unemployment has been driven down a slight bit by large company hiring, but the small business phase has not kicked in. Sentiment in the small business world is changing, however, with more and more small businesses expressing the intent to hire. This suggests that the small business hiring phase of the recovery is still imminent, the consequences of which are a larger than expected drop in unemployment within the next 1.5 years.

How does this have anything, ANYTHING  at all to do that you're a flaming homo that makes zero sense? A monkey could've taken a dump on a keyboard and come up with something more intelligent than the utter shit you just posted.

[2Thick]

Our labor participation rate is the lowest it's been in 35 years - such a decline will definitely make unemployment numbers look "better".

As for "the weather" being to blame, I guess that's another way of saying it's because of "climate change".

Slowest recovery ever. And teh Fed keeps printing, pumping, and squashing interest rates. And we're $17.6 trillion in debt and counting.

[syntaxmachine]

.

I made two claims: i) the economic conditions you mentioned as comprising the 'real economy' save wage growth are in fact improving, hence rendering the claim that the economy is "dead" hyperbole; and, ii) the labor market and GDP growth are liable to improve more quickly than many suppose due to a conjunction of inventory replenishment in the 2nd quarter and an uptick in small business hiring over the next year and a half.

Claim (i) pertains to the relative improvement in the economy, not about whether the economy is where it should be, could be, or would be (with different policy), etc. Therefore, citing metrics indicating that the economy isn't where it should be don't even begin to address my claim.

My argument for (i) was: If the economic conditions comprising the 'real economy' are improving, then it is hyperbole to label the economy 'dead'; the economic conditions comprising the 'real economy' are improving; therefore, is it hyperbole to label the economy 'dead'.

We don't want to get bogged down in semantics by debating whether the label 'dead' is appropriate or not, and it's clear that our disagreement boils down to the truth of premise 2 -- whether the economy is improving or not. So that's obviously where we need to focus attention.

Let's take the most salient metrics you rebutted me on. The facts -- mere facts -- are that U6 unemployment is down by nearly a third from its peak 4 years ago and that most of the decline in labor force participation since then has been driven by retirements and disabilities. This study makes the latter point, but even without a study we could have figured it out: since U6 includes discouraged workers, we wouldn't see a nearly one-third drop in U6 if discouraged workers were driving down the labor participation rate over the same period.

Unfortunately, you seem intent on demonstrating that the economy isn't where it should be, something that we more or less agree about. Meanwhile, the charts you post are evidence for the claim that I actually made: the savings rate chart evinces a 33% higher savings rate from the beginning of the Great Recession; what it leaves out is that savings rates were negative starting in the second quarter of 2005 (thus making the relative improvement even more significant). And the leverage chart evinces similar, albeit less significant, directionality. it also ignores the relative cost of administering that (declining) leverage, which is what I referred to in my original post. I used 1980 because that is as far back as that particular dataset goes.

Are these metrics where they should be? I have no clue. Luckily, this is literally irrelevant to my claim that they are all evincing gradual improvement.

[syntaxmachine]

.

Claim (ii) is what I take to be a reasonable projection of the performance of the labor market and GDP growth relative to commonly held expectations. I'd rather not write an essay defending the claim, so will instead have to be content with saying:

i) my point about the increase in inventories imminent in the second quarter is very basic economics and isn't really debatable;

ii) I don't understand which 4th quarter data you're looking at to suggest we are in a recession;

iii) we clearly have different projections -- rather than waste effort assessing the projections now, let's submit them to the tribune of empirical reality and see what nature decides, judging their relative merits for us;

iv) I think that your reasoning about economic affairs has been overly colored by the Great Recession, and suggesting that my post in any way reeks of political apologism implies that you have read too many Soul Crusher posts -- a proven way to kill brain cells. My claims have nothing to do with anyone in power and make no judgment of the efficacy of Obama Administration policy;

AND

v) we should make our projections more specific so that nature might judge them properly: I project that 2nd quarter 2014 GDP growth will be greater than or equal to 3% and will clearly show an increase in inventories, and I project that unemployment will be lower than the Federal Reserve's estimate of 5.5% by the end of 2015.

We can also put some skin in the game: I bet $300 (pathetic, yes) on the 3% bet; we can have a neutral third party -- I'd prefer a mod like OMR -- hold the funds until 30 July when the provisional estimate gets released.

[GigantorX]

U.E could go to 4%, wouldn't matter much if it's due to further drops in yhe LPR.

As for the charts....deleverageing was due, for the most part, to bankruptcy and liquidation. Even with the drop the level is still very high. The savings rate has plummeted over the last year as the chart indicates. It's at a level not seen in 7-8 years so I'm not sure how that can be construed as a positive. Especially when you see any rise in consumer spending offset with drops in the savings rate. The heart of the consumer is barely beating, just look at the poor holiday spending and retail earnings.

All this after massive intervention and attempts to re-bubble everything. That's a dead economy, if it isn't it's damn close.

I took the liberty of calling this a technical recession because of the negative GDP print and the .1% print for Q4 which was only positive because of government spending.

[syntaxmachine]

U.E could go to 4%, wouldn't matter much if it's due to further drops in yhe LPR.

As for the charts....deleverageing was due, for the most part, to bankruptcy and liquidation. Even with the drop the level is still very high. The savings rate has plummeted over the last year as the chart indicates. It's at a level not seen in 7-8 years so I'm not sure how that can be construed as a positive. Especially when you see any rise in consumer spending offset with drops in the savings rate. The heart of the consumer is barely beating, just look at the poor holiday spending and retail earnings.

All this after massive intervention and attempts to re-bubble everything. That's a dead economy, if it isn't it's damn close.

I took the liberty of calling this a technical recession because of the negative GDP print and the .1% print for Q4 which was only positive because of government spending.

I'm afraid you haven't addressed many of the points I've raised. I don't necessarily blame you: it's a casual bodybuilding board and not everybody wants to engage in in-depth arguments on complex economic matters.

Less forgivable, however, is your confusing the initial 0.1% first quarter 2014 growth estimate with the fourth quarter 2013 growth rate, which was 2.6%. We are in no sense in a recession, 'technical' or otherwise.

Reality will soon arbitrate between our divergent opinions: data collected over the next year and a half, while being decidedly non-demonstrative, is probably going to make one of us look foolish in retrospect (beginning perhaps as early as the July Q2 growth estimates). Good luck!

[flipper5470]

We are not in a recession...yet.  We have been scraping along with GDP growth too anemic to generate jobs and let people feel good about the future since the recession ended.  2.6% isn't going to cut it....

[GigantorX]

I'm afraid you haven't addressed many of the points I've raised. I don't necessarily blame you: it's a casual bodybuilding board and not everybody wants to engage in in-depth arguments on complex economic matters.

Less forgivable, however, is your confusing the initial 0.1% first quarter 2014 growth estimate with the fourth quarter 2013 growth rate, which was 2.6%. We are in no sense in a recession, 'technical' or otherwise.

Reality will soon arbitrate between our divergent opinions: data collected over the next year and a half, while being decidedly non-demonstrative, is probably going to make one of us look foolish in retrospect (beginning perhaps as early as the July Q2 growth estimates). Good luck!

Ah yes, my mistake.

As for the economy, no real pickup or anything above a death rattle until the employment situation becomes anything but a disaster.

You can't lose a ton of good jobs and replace them with no/low skill/low wage jobs and have any sort of of sustained recovery. But then I guess that depends on your definition of a "Recovery." Does one lead us back to where we were or is it something that has the majority scraping along on wage poor jobs and govt. assistance?

And of course, one of us will be wrong or both of us will be kind of right.

[GigantorX]

And there was actually a further "revision" to the negative side for Q1 2014

http://news.yahoo.com/u-healthcare-data-points-much-weaker-first-quarter-012521260--business.html

The government reported that the economy contracted at a 1.0 percent annual rate in the January-March period. But with healthcare spending data now in hand, economists say growth probably declined at a rate of at least 1.7 percent.

[dario73]

And there was actually a further "revision" to the negative side for Q1 2014

http://news.yahoo.com/u-healthcare-data-points-much-weaker-first-quarter-012521260--business.html

The government reported that the economy contracted at a 1.0 percent annual rate in the January-March period. But with healthcare spending data now in hand, economists say growth probably declined at a rate of at least 1.7 percent.

It gets worse everytime.

But, it's ok according to morons like andrethelittleboy. He looks at 200k new burger joint jobs and believes we are a OK.

Doesn't even care about the labor participation rate. Nah, he just looks at the pulled out the air unemployment rate number that the government comes up with.

[GigantorX]

It gets worse everytime.

But, it's ok according to morons like andrethelittleboy. He looks at 200k new burger joint jobs and believes we are a OK.

Doesn't even care about the labor participation rate. Nah, he just looks at the pulled out the air unemployment rate number that the government comes up with.

Exactly, numbers will be what they are. But if GDP is 3%, which isn't very good given today's context, what will it really matter if LPR is plumbing new lows, still pushing 200k jobs prints where vast majority of jobs being created are burger joint jobs or state level debt supported jobs and the majority sinks lower and lower into nothingness? Demographics proves where we are and where we are headed. And it isn't pretty.