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No, GDP Didn’t Jump “33.1%” in Q3, But 7.4%, after Plunging 9% in Q2: Time to Kill “Annualized” Growth Rates. Imports, Powered by Stimulus, Dragged on GDP

October 30, 2020

No, GDP Didn’t Jump “33.1%” in Q3, But 7.4%, after Plunging 9% in Q2: Time to Kill “Annualized” Growth Rates. Imports, Powered by Stimulus, Dragged on GDP

GDP back to Q1 2018. Worst ever “net exports.” The decline in government spending was also a drag. “GDP per Capita” bounced back only to 2017 level.

The spectacular spectacle of an absurd creature called the “annualized” growth rate of GDP appeared again this morning, and the headlines screamed that GDP, adjusted for inflation, surged by a record of “33.1%” in Q3. On the face of it, this would mean that the economy increased by one-third from Q2. But that’s the magic of “annualized” rates. And it’s time to kill them in headline reporting.

That “33.1%” reflected the jump in Q3 from Q2 but roughly multiplied by 4 to produce a theoretical figure of what GDP for the whole year would be if it kept surging four quarters in a row like this. And that’s not going to happen, just like the plunge in Q2 wasn’t actually “31.4%” and wasn’t repeated four quarters in a row. Deeper down in its GDP report this morning, the Bureau of Economic Analysis also reported “not annualized” figures. And not annualized, GDP jumped by a record of 7.4% from Q2, after the record 9.0% plunge in Q2 from Q1:

Both the jump in Q3 and the plunge in Q2 were the sharpest moves ever in the quarterly GDP data, which began in 1947. Before then, there were only annual data.

And we faced another “annualized” figure in today’s GDP reporting: that GDP in Q3 was $18.58 trillion “annual rate” and “seasonally adjusted” and “in 2012 dollars.” These “2012 dollars” are used to adjust for inflation (loss of purchasing power). And so these terms show how far economic activity dropped in Q2 and the partial bounce-back in Q3. This measure of GDP puts it back where it had first been in Q1 2018:

…click on the above link to read the rest of the article…

What Does it Mean, Saving Rate drops to 12-Year Low when 50% of Americans Don’t Have Savings?

January 30, 2018

What Does it Mean, Saving Rate drops to 12-Year Low when 50% of Americans Don’t Have Savings?

Or what the averages are hiding.

We will start with income and see what’s left over, and for whom.

Personal income increased by 4.1% in December from a year earlier, the Bureau of Economic Analysis reported today. This includes all income received by all persons from all sources, such as from labor, financial assets (dividends and interest income but not capital gains), business activities, homeownership (rentals), government transfers, etc.

“Real” personal income — adjusted for inflation via “chained 2009 dollars” — rose only 2.37%. This is for the US overall.

Per-capita “real” personal income – which accounts for 0.71% population growth in 2017 and measures income per individual – rose only about 1.7%. If the inflation measure even slightly understates actual inflation as experienced by these individuals, their personal income growth might go away entirely.

Next step down…

Disposable personal income – personal income less personal taxes – increased 3.9% year over year in December. This is the income that folks have available for spending or saving. “Real” disposable personal income rose 2.1%. And on a per-capita basis, it rose only 1.4%. So these are not exactly huge increases.

Not everyone is getting this income growth equally.

The economy can be divided up into layers. Bridgewater Associates founder Ray Dalio sees a split between the top 40% of income earners for whom the economy is doing well, and the bottom 60% for whom the economy is a series of setbacks. Or by it could be 30% and 70%. Wherever the split is drawn, the smaller group of top income earners has had it good while the larger group of income earners at the bottom is struggling.

But consumers, no matter what their income levels, are trying to do their best to prop up the economy, upholding an American tradition. And they’re spending more, the Bureau of Economic Analysis reported today.

…click on the above link to read the rest of the article…

How Much Illusion in GDP? What You See Is Not What You Get

October 28, 2017

How Much Illusion in GDP? What You See Is Not What You Get

Oh, the revisions.

The US economy, as measured by “real” GDP (adjusted for a version of inflation) grew 0.74% in the third quarter, compared to the prior quarter. That was a tad slower than the 0.76% growth in Q2, but up from the 0.31% growth in Q1.

GDP was up 2.3% from a year ago.

To confuse things further, in the US, we cling to the somewhat perplexing habit of expressing GDP as an “annualized” rate, which takes the quarterly growth rate (0.74%) and projects it over four quarters. This produced the annualized rate of 2.99%, or as we read this morning all over the media, “3.0%.”

This was the “advance estimate” by the Bureau of Economic Analysis. The BEA emphasizes that the advance estimate is based on source data that are “incomplete or subject to further revision by the source agency.” These revisions can be big, up or down, as we’ll see in a moment.

The BEA will release the “second estimate” for Q3 on November 28 and the “third estimate” on December 21. More revisions are scheduled over the next few years.

So 2.99% GDP growth annualized, or 0.74% GDP growth not annualized, or 2.3% growth from a year ago… is pretty good for our slow-growth, post-Financial-Crisis, experimental-monetary-policy era, but well within the range of that era, that goes from 5.2% annualized growth in Q3 2014 to a decline of 1.5% in Q1 2011. So nothing special here:

I circled Q1 2014 and Q1 2011 in blue to show how much GDP estimates can get revised as time passes: both of these decliners showed growth in the “advance estimate.”

The “advance estimate” of GDP in Q1 2014, released on April 30, 2014, showed a growth rate of +0.1% annualized. That was a measly growth rate. It was terrible. It caused a lot of hand-wringing. But it was growth.

…click on the above link to read the rest of the article…

Bank Of America Begins 66-Day Countdown Until The Terrible Ghost Of 1937 Returns

June 16, 2015

Bank Of America Begins 66-Day Countdown Until The Terrible Ghost Of 1937 Returns

In 66 trading days on September 17, 2015, the Federal Reserve will, according to Bank of America, hike rates for the first time since 2006, which according to BofA will “end the era of excess liquidity.”

We disagree entirely, but let’s hear what BofA’s Michael Hartnett has to say:

On September 17th the Fed will hike the Fed funds rate by 25bps according to Ethan Harris & our US economics team, the first hike since June 2006. 

Recent US economic data support this view, in particular the solid May payroll & retail sales reports. Note that after a Q1 wobble, one of our favorite cyclical indicators, US small business confidence, has also bounced back into expansionary territory. Ethan Harris forecasts 3.4% US GDP growth in Q2, after 0.2% in Q1, and US rates strategist Priya Misra forecasts a Fed funds rate of 0.5% by year-end, and 1.5% by end-2016. Like Ethan & Priya, the futures market also looks for a modest Fed tightening cycle: Eurodollar futures contracts are currently pricing in 3-month rates in the US rising from 0.01% today to 0.65% by year-end, and to 1.54% by end-2016.

Yes, the US economy is so strong the Bureau of Economic Analysis has tofabricate double seasonal adjustments to goalseek GDP data that is non-compliant with the narrative. As for economists being wrong about a rate hike, or overestimating future US growth, let’s just say it won’t be the first time they are wrong…

Still, one thing BofA is right about: this time the normalization process will be different.

 

…click on the above link to read the rest of the article…

A Recession Within A Recession

May 30, 2015

A Recession Within A Recession

Recession - Public DomainOn Friday, the federal government announced that the U.S. economy contracted at a 0.7 percent annual rate during the first quarter of 2015.  This unexpected shrinking of the economy is being primarily blamed on “harsh” weather during the first three months of this year and on the strengthening of the U.S. dollar.  Most economists are confident that U.S. GDP will rebound back into positive territory when the numbers for the second quarter come out, but if that does not happen we will officially meet the government’s criteria for being in another “recession”.  To make sure that the numbers for Q2 will look “acceptable”, the Bureau of Economic Analysis is about to change the way that it calculates GDP again.  They are just going to keep “seasonally adjusting” the numbers until they get what they want.  At this point, the government numbers are so full of “assumptions” and “estimates” that they don’t really bear much resemblance to reality anyway.  In fact, John Williams of shadowstats.com has calculated that if the government was actually using honest numbers that they would show that we have continually been in a recession since 2005.  That is why I am referring to this as a “recession within a recession”.  Most people can look around and see that economic conditions for most Americans are not good, and now they are about to get even worse.

For quite a while I have been warning that another economic downturn was coming.  Well, now we have official confirmation from the Obama administration that it is happening.  The following is an excerpt from the statement that the Bureau of Economic Analysis released on Friday…

…click on the above link to read the rest of the article…

 

 

Has The Fed Already Lost?

April 18, 2015

Has The Fed Already Lost?

Growth is dying & the Fed has few options left

Increasingly we live in a world of Now. Instantaneous access to digital real time data and news has simply become a given in our lives of the moment.

You may be surprised to know that the Federal Reserve has taken notice.

GDPNow

To the point, GDP data that routinely comes to us from the US Bureau of Economic Analysis (BEA) arrives after the fact. From the perspective of the financial markets and investors — who are always looking ahead and trying to discount the future — GDP data is “yesterday’s news.” Moreover, revisions to quarterly GDP can come to us three months after the original data release (with final revisions sometimes years later), essentially becoming an afterthought in terms of relevance to decision making.

Recently the Atlanta Federal Reserve has developed what they term a GDPNow model. This model essentially mimics the methodology used by the BEA to estimate real GDP growth. The GDPNow forecast is constructed by aggregating statistical model forecasts of the 13 subcomponents that comprise the BEA’s GDP calculation.

Private forecasters of GDP, such as the Blue Chip Consensus, use similar approaches to “forecast” GDP growth.  These forecasts are usually updated monthly or quarterly, but many are not publicly available, and many do not specifically forecast the subcomponents of GDP that speak to the character of the top-line number.

The Atlanta Fed GDPNow model acts to circumvent these shortcomings. By replicating the key elements of the data used by the Bureau of Economic Analysis, the new Atlanta Fed GDPNow model forms a relatively precise estimate of what the BEA will announce for the previous quarter’s GDP prior to its official announcement.  For now, the model is still young, but it’s beginning to be discovered more widely among the analytical community.

…click on the above link to read the rest of the article…

 

 

 

Economy Finally Reaches “Escape Velocity,” Heads South

March 18, 2015

Economy Finally Reaches “Escape Velocity,” Heads South

It’s hard to measure the growth rate of a vast, complex economy with just one number, accurately, and on a timely basis.

The Chinese found an ingenious solution. They decree the growth rate and announce it in advance, and that’s about what the number says when it comes out. It’s faster than any other major country can produce its GDP numbers. It avoids nasty surprises and doesn’t need messy revisions. Whether or not establishing statistical data by decree is an accurate reflection of reality is a hotly disputed topic.

But then, the accuracy of any statistical data is a hotly disputed topic.

In the US, it’s a slog to get to the final answer. Quarterly changes in GDP, as measured by the Bureau of Economic Analysis, come in a series of estimates. The first estimate gets all the press, but subsequent revisions in the second and third estimates can be significant. Further revisions follow over the years. By the time the BEA has a fairly good handle on what actually happened back in the day, no one cares anymore.

So the Atlanta Fed started a new approach in 2011. The forecasting model is supposed to reflect a more immediate picture of the economy. Taking into account economic data when it is released, the model adjusts its GDP forecast accordingly and closer to real time. It has plenty of quirks. It’s jumpy as it reacts to incoming monthly data that is itself highly volatile and subject to revision. But it’s a good indication of where the economy has been going over the past few months.

 

…click on the above link to read the rest of the article…

Magic Growth Numbers — Paul Craig Roberts – PaulCraigRoberts.org

December 28, 2014

Magic Growth Numbers — Paul Craig Roberts – PaulCraigRoberts.org.

Everyone wants good news, so the government makes it up. The latest fiction is that US real GDP grew 4.6% in the second quarter and 5% in the third.

Where did this growth come from?

Not from rising real consumer incomes.

Not from rising consumer credit.

Not from rising real retail sales.

Not from the housing sector.

Not from a trade surplus.

The growth came from a Bureau of Economic Analysis survey of consumer spending on services. The BEA found that spending on Obamacare drove the US real GDP growth to 5% in the third quarter. http://www.zerohedge.com/news/2014-12-23/here-reason-surge-q3-gdp

In America, unlike in other countries, a huge chunk of medical spending goes to insurance company profits, not to health care. Another big chunk goes to paperwork, which has a variety of purposes such as collecting personal information on patients and combating fraud (probably the paperwork costs more than fraud). Another chunk goes for tests and procedures in order to justify further procedures. For example, if a doctor thinks a patient’s diagnosis requires a MRI, he must often first order an x-ray to establish that a cheaper procedure does not suffice. If a cancerous skin growth needs to come off, first a biopsy must be done to establish that it is a cancer so that a needless removal is not performed. And, of course, medical practicians must order unnecessary tests in order to protect themselves from the liability of relying on their medical judgment.

…click on the above link to read the rest of the article…

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