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Collapsing U.S. GDP Growth Belies Rosey Forecasts

 

  • Yesterday we got the government’s first estimate of Q2 GDP
  • Of course all of the pundits were looking for a big rebound from the very week 1.1% growth that the government claimed was reported in Q1
  • In fact, the consensus range went from a low of 2.2% to as high as 3.4%, so a lot of optimism, going into Friday’s release
  • When we got the number, everybody was surprised that the number was only 1.2% – substantially below even the lowest estimate
  • In fact, adding insult to injury, they made a lot of revisions to prior numbers; some up, some down going back a couple of years
  • Most significantly, they revised the last 2 quarters down
  • Q1, which had been reported as +1.1%, still very weak, was revised down to just =.8%
  • And 2015 Q4, which was reported at 1.4% was revised down to .9%
  • Remember, that’s the quarter when the Fed decided to raise interest rates for the first time in about 9 years
  • The Fed said that they were data dependent and that the data was finally good enough, that the economy finally looks strong enough for the Fed to raise rates, when in fact, the economy was slipping toward recession
  • If you look at the last 3 quarters of economic growth, the average is slightly below 1%
  • That’s assuming that the 1.2% number reported for Q2 actually holds up to scrutiny
  • My guess is that, just as the last 2 quarters were revised down…
  • And of course this assumes we buy the government’s definition of inflation
  • Remember, the nominal GDP numbers are always deflated
  • The government has to subtract out inflation and the inflation rate that they claim is so ridiculously low it is hard to believe
  • If we had a more realistic inflation measure, I think that, not only would the second quarter come in negative, but the 2 prior quarters, as well
  • And we would already be in recession
  • But who knows? At some point in the future the government may revise all its numbers much lower and they will be able to officially concede that this greater recession, that I believe we’re already in, actually started in Q4 2015 – the very quarter that the Fed waved the “all clear” on the economy and decided to raise interest rates
  • Of course, as soon as this weak number came out, all of the pundits were trying to rationalize why the number didn’t matter
  • One of the things they pointed to was the strong consumer – consumer spending was the lone bright spot in this report; it jumped up by 4.2%
  • That is a big number.  There have only been 2 other quarters where the number was that high since this supposed recovery began in 2009, but both of those numbers came in the 4th quarter
  • And we all know that the 4th quarter is when consumer spending really picks up because that’s when everybody does their holiday shopping
  • If you want to find a quarter when consumers increased their spending by this much, when it was not a 4th quarter, you have to go back 10 years
  • To me, that suggests that this number is probably now accurate
  • I don’t see anything in the economic data that would suggest that consumer spending is that robust, so I think they will revise that part down, in particular, in future months