Commerce Department's Revised GDP Shows a Delineated Story for the Recession 25 comments
-
Font Size:
-
Print
- TweetThis
On July 31, the Department of Commerce’s BEA (Bureau of Economic Analysis) released an important set of numbers regarding GDP. Of most immediate interest, the advance estimate of GDP growth for the second quarter, April-June, 2009, was a very moderate -1 per cent per annum. The small magnitude of this negative number confirms an inflection point in the second quarter. As most of us had already thought, the economy is no longer in the free-fall of October 2008 to March 2009 — when the rate of output contraction was approximately 6% per annum – but, rather, is beginning to level out.
Furthermore, the figures reveal large depletion of inventories in the second quarter, which offers good grounds for hope that firms will begin to produce more in the second half of the year. In other words, the economy is probably bottoming out even as we speak.
But even if it turns out that the NBER Business Cycle Dating Committee eventually puts the trough sometime in the 2nd half of 2009, it will not make that decision until all the facts are in, which will be a long time. A major reason is that government statistics, especially for GDP, are always revised subsequently. That brings us to the other big component of the BEA release on Friday: comprehensive revisions to the GDP numbers going back many years. The BEA does a comprehensive revision generally every five years. In this case the statistics were substantially affected, especially those over the last dozen years, as the results of a number of permanent changes in methodology (such as how natural disasters are treated in the accounts).
These revisions produced two interesting implications for the current recession, quite aside from the question whether it is now ending.
First, the recession turns out to have been worse than the previous GDP numbers indicated. During the course of 2008, the economy apparently contracted 1.9%, more than double the previous estimate of 0.8%. The cumulative decline now appears to have been 2.8% (as compared to the previously reported 1.8%). Add in the latest quarter, and the 3% cumulative decline reinforces the claim of this recession to be the worst since the 1930s.
Second, that revision includes a conversion of the +0.9% that was previously reported for the first quarter of 2008 to the new estimate for that quarter: -0.7%.
That is important from the viewpoint of the NBER Business Cycle Dating Committee. Why? All through 2008 it was difficult to tell whether a recession had started at the end of 2007. Some measures such as employment and real income peaked, but on the other hand it appeared that GDP had continued to grow in early 2008. Even after the accelerated deterioration in the autumn of 2008, when it could no longer be doubted that the economy was in recession, the signals as to the date of its beginning still conflicted.
The Committee ended up, on December 1, 2008, declaring that the peak had occurred in December 2007. As always, there were critics. Some didn’t see how we could declare that a recession had begun six months before GDP growth turned negative. “Everybody knows that a recession is defined as two consecutive negative quarters” (More common, as usual, was the precisely opposite critique: “The NBER is just now saying what has long been obvious to everyone but them.”)
The new report from the BEA that the first quarter of 2008 was negative after all is thus another piece of evidence that validates the choice of end-2007 as the business cycle peak. Similarly, it validates the decision by the Committee to have made the call in December, rather than waiting for the BEA revisions of July 31, 2009.
The bottom line of all of this? We are less at sea than we had feared. The data now tell a story that is fairly well delineated, the story of a recession that, though upsettingly severe in amplitude, appears familiarly sinusoidal in shape.
(This post does not necessarily represent the views of the NBER Business Cycle Dating Committee or its members. Nor of the BEA or its Advisory Committee members.)
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 25 comments:
They revise down the old number from a 5.5% drop to a 6.4% drop and then compare us to the 6.4% drop ( and now the 5.5% drop). By defination that makes our current drop look less bad because they made the past look worse.
You take 6.4% off of 100 and you are left with a 93.6% shell of what you had. Then you compare to the 93.6%.
You take 5.5% off of 100 and you are left with a 94.5% shell of what you had.
So by making the past worse, it is an illusion of making the present better. And as you point out, who is to say the present won't be revised down later as well?
If this was all an honest mistake it wouldn't anger me, but I really in my heart feel like they are playing with the numbers to make them look better and to create better headlines in our "crisis of confidence". Make people more confident " real or fake" and they think they are doing "good". It isn't about the truth, it's about trying to engineer what you deem as right. It's sad.
Have you noticed every revision has been to the downside on GDP. Perhaps we were -3% in Q2, eh. Funny how that happens.
They get a free ride on our backs as long as we don't cotton on and buck 'em off, so they do all possoble to prevent that happening, and a few statistical and other type lies are their stock in trade: they don't even think they're lying, as they haven't even got that much empathy with real people!
Technically it looks good
No one dares to go Short
No one dares to go Long
No cash with consumers or retail investors
I wonder who is doing the trading and lifting these markets up. Is it another case of irrational exuberance, but initiated by the BIG boys using free government money??
If you read mostly bearish comments on SA, do not assume that there are no buyers. They are not commenting that much, they are busy making money. ;-)
On Aug 03 01:22 PM ecoco wrote:
> Fundamentally it looks bad
>
> Technically it looks good
>
> No one dares to go Short
> No one dares to go Long
>
> No cash with consumers or retail investors
>
> I wonder who is doing the trading and lifting these markets up. Is
> it another case of irrational exuberance, but initiated by the BIG
> boys using free government money??
If this is a BEAR rally or a BULL rally I don’t care, it is enough for now and I can afford to wait for a correction.
On Aug 03 01:41 PM Greyowl wrote:
> I am going long for one, making wonderful profits.
>
> If you read mostly bearish comments on SA, do not assume that there
> are no buyers. They are not commenting that much, they are busy making
> money. ;-)
>
> On Aug 03 01:22 PM ecoco wrote:
It may be good intentions to play with the numbers, and give people confidence to get back in to the market, but when things go bad, and there is still so many bad things that could suddenly go wrong (China Bubble Burst, India Bubble Burst, Banking Collapse in Europe, Natural Disaster (Hurricane Season), Terrorist Plot), then the truth of how weak our economy really is will show it's face, the market will collapse, and all those who got in to the market will lose everything.
Remember, the best indicator of a market meltdown is when everyone is telling you to get in.
At least (unlike many acquaintances and friends) I am not having to take furlough weeks or pay cuts. My consultant friends (in many fields) have no work.
Does anyone see and bright spots (or at least glowing spots) out there? Unlikely. Maybe a few people I know that work in fields relating to health care or defense might at least be in a position to say that for them things are about the same. Maybe I could call the fact that my wife's unemployment benefits keep getting extended a plus.
Until the numbers get pushed down until I see some anecdotal evidence I don't believe the macro economics.
Inventory build? What does that mean any more? Who is buying stuff beyond sales and clearance? Again, no one I know.
PS I live in the NE and things are not as bad here as other places, yet, this is what I see.
But I'm going to take Mr. Galt's and Jake's point at the top of the conversation and expand it: Every change in methodology in official US Government statistics in at least the last quarter century has ended up making the current situation (i.e.--at the time of the change) look better than the previous methodology. So, to add to the GDP argument:
---How about a CPI index change euphemistically called "hedonics" (sort like "preferences") that tries to account for changes in taste--such that, for common example, people are just as satisfied with ground beef as with beefsteak? Result: Lower inflation.
--How about the end of the Fed's tracking "M3"--because it was "not useful"--unless, of course, you wanted to take a measure of the full size of the US money supply.
--How about the re-defining unemployment (U3) to ignore all those who had to settle for part-time work or were so discouraged they quit looking? (Keeps those pesky unemployment numbers down; don't want the riffraff to become informed & unruly)
I would like someone to show me ANYWHERE the USG has made methodological changes that have shown the then-current situation was worse than previously reported. In the immortal words of Clint Eastwood, "Go ahead, make my day."
The GDP improvement looks like a "sugar high" after the government's unprecedented monetary and fiscal stimulus. This sugar high should dissipate in late fall and winter. Let us hope this "pump priming" by the government can jump start private consumption.
My target is start taking profit at S&P 1050. This has been a brutal bear and there will be many head fakes. The recovery will take longer than most people realize. I will consider ourselves lucky if we get back to S&P 1500 in 2015.
Will our debt overhang suffocate consumption? Probably, most everyone have known for years that we couldn't keep piling on debt that lasts for goods that don't last without one day having to pay the piper. So what does pay the piper mean?
On Aug 03 01:06 PM Schweizer wrote:
> Until monthly rail and truck tonnage reports improve, the inventory
> replenishment idea is just an idea.
>
> Have you noticed every revision has been to the downside on GDP.
> Perhaps we were -3% in Q2, eh. Funny how that happens.
On Aug 03 01:22 PM ecoco wrote:
> Fundamentally it looks bad
>
> Technically it looks good
>
> No one dares to go Short
> No one dares to go Long
>
> No cash with consumers or retail investors
>
> I wonder who is doing the trading and lifting these markets up. Is
> it another case of irrational exuberance, but initiated by the BIG
> boys using free government money??
If it takes a 1% decline in our currency to make the market rise 100 points then we are in deep trouble. I guess at least we can say thanks to global funds rebalancing. What happens when they decide not to and just go light on US equity risk? They aren't really making so much money after looking at things from the real perspective (taking into account dollar devaluation).
I agree with all the comments , minus 1 . About 1 year ago I read an article where Bernanke was explaining to his audience that managing the economy was " very much managing perceptions " or MOP " managing of perceptions ".He's f***ked ! as 1 reader called it " the people are broke + getting broker ". NO WAY JOSE are folks going to spend with this outlook . Even the baby boomers , formerly large spenders , are reading daily "that their benefits won't be there ". Gubment Lying re the # 's is an utter act of DESPERATION .
On Aug 03 01:41 PM Greyowl wrote:
> I am going long for one, making wonderful profits.
>
> If you read mostly bearish comments on SA, do not assume that there
> are no buyers. They are not commenting that much, they are busy making
> money. ;-)
>
> On Aug 03 01:22 PM ecoco wrote:
Why are all the commodity bulls spewing hatred for the Dollar? When the Dollar rises, the stock market (and commodity stocks) fall.
We're cutting off our nose to spite our face.
We need a strong dollar.
On Aug 03 09:55 PM Moon Kil Woong wrote:
> Not only does new administrations have to correct the actions of
> the previous ones, but they also have to correct the false reporting
> of them. Undoubtedly the belated joy of just -1% decreases this quarter
> will be revised down once the enthusiasm drops away. In reality today's
> rally was more of the same old story, the equity market rising to
> offset the drop in the dollar and the increasingly bad US Treasury
> bond rates.
>
> If it takes a 1% decline in our currency to make the market rise
> 100 points then we are in deep trouble. I guess at least we can say
> thanks to global funds rebalancing. What happens when they decide
> not to and just go light on US equity risk? They aren't really making
> so much money after looking at things from the real perspective (taking
> into account dollar devaluation).
What I do find interesting is that the author of this post didn't say anything about the composition of GDP. EVERY category was down big time except government spending, which increased 10%. Essentially, our private sector economy actually got WAY worse, but the Feds pumped us up.
No one wants to make a move when the fiat power of the U.S. government trashes the risk and reward metrics for a market.
Plus, we still have Maiden Lane coming due and a bunch of larger banks that will surely fail if Geithner doesn't get FDIC and OTS under the Fed. Then we have the Fed essentially printing money to help Goldman Sachs, JPM, BA, and the like prop up the equity market.
Sad times for free markets.
Every pundit is counting on "inventories bottoming out" to jump start recovery in the next six months. Good luck with that.
My vendors are slashing prices (and profits and staff and facilities and benefits) to try to sell ANYTHING.
My customers are buying only what is being used today. No inventory buildup.
My customers that are their local "go to" industrial supplier are dying on the vine. Their customers aren't buying or building, their inventories are still way overstocked.
The only customers doing well are Department of Defense suppliers - whom, by the way, buy more foreign made products than American made.
If history, and Obama's Administration (Clinton's Administration) is to be any guide, to "balance the budget" (what a farce), they will finish gutting American suppliers to save a dime.
Oh yeah, forgot to mention China. The average American, politician and investor have NO IDEA how little is actually made here anymore.
IF, and it is a big IF, companies begin to stock shelves again (with no sales, no credit wonder how they will manage that?), most will be stocked with Chinese made items. Other than a handful of warehouse and shipping jobs, just how is that going to stimulate our economy?
Pump priming is only useful if some one is working the handle. Otherwise it is a waste.
Further agree with above posts regarding stagnate consumer and business demand (consumption), leading to no need to build inventory, then causing shipping to be flat. Moreover, the preceding ingredients lend themselves to the phenomena of selling goods and services at reduced prices causing razor thin margins in many sectors.
However, the underlying cross currents, causing the above mentioned items, may well be these:
(1) Simultaneously deploying the theory of Keynesian Deficit Government Spending and the theory of Quantitative Easing, in a current environment of High Existing Government Debit (remember both theories were developed in an environment of zero or low government debt), becomes a very dicey project (Japan 2001-2006). Japan is experiencing a 20 year down turn/recession/malaise.
(2) The Quasi Stimulus plan is based on Political-Political rather than Political Economy,
(2a) The Quasi Stimulus plan is not a Traditional Keynesian Infrastructure spending program but more akin to Social Engineering,
(3) Government accumulating Debt, which is increasing at an increasing rate, causes major economic drag.
(4) major de-leveraging by business and consumers.
Hence there is no “jump start effect” for the Marco Economy but more of a “flat line effect”.
Finally, with record reductions in Federal and State tax revenues, one must assume the 9.5% unemployment rate is way off base. The massive fall in Federal and State tax revenues is an indicator that unemployment is well into the double digits (north of 15%). Hence consumer and business consumption increases are not around the corner.
Poor people can afford things that were made unaffordable by American taxes.
Manufacturing will come back to America when labor gets flexible (no unions) and government stops strangling business.