GDP Is 'Better'

Oh what a tangled web we weave....

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.5 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent.

Looks good, right?

Hmmmm.... or is it?

Motor vehicle output added 1.66 percentage points to the third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change.

....

Real federal government consumption expenditures and gross investment increased 7.9 percent in the third quarter, compared with an increase of 11.4 percent in the second.

Ok, from this we can compute a few things.

3.5 - 1.66 - (7.9 * 30%) = -0.53%

Now let's adjust for inventories:

The change in real private inventories added 0.94 percentage point to the third-quarter change in real GDP after subtracting 1.42 percentage points from the second-quarter change.

-0.53% - 0.94% = -1.47%.

Ok, that's bad but not catastrophic and is an actual improvement compared to the second quarter. But....

Current-dollar personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second.

Personal current taxes increased $4.8 billion in the third quarter, in contrast to a decrease of $119.1 billion in the second.

Eeeeehhh... those are both going the wrong way. Taxes up, income down. And...

Disposable personal income decreased $20.4 billion (0.7 percent) in the third quarter, in contrast to an increase of $138.2 billion (5.2 percent) in the second. Real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent.

That's worse. A lot worse. Disposable personal income decreased in nominal terms q/o/q by 5.9% while in real terms (inflation adjusted) it decreased q/o/q by 7.4%! That is an enormous swing in purchasing power and not in the right direction!

Personal outlays increased $148.2 billion (5.8 percent) in the third quarter, compared with an increase of $8.2 billion (0.3 percent) in the second. Personal saving -- disposable personal income less personal outlays -- was $364.6 billion in the third quarter, compared with $533.1 billion in the second.

The personal saving rate -- saving as a percentage of disposable personal income -- was 3.3 percent in the third quarter, compared with 4.9 percent in the second.

So into decreasing personal income and disposable personal income people tried to spend anyway. Best guess: most of this was "cash for clunkers", which is the worst sort of "spending" - it is the taking on of more debt by replacing a paid-off car with one that now comes with a shiny (and nasty) payment book. The Trade: Go long auto repo outfits (aside: as far as I know there are no publicly-traded repo companies.)

Nothing in here I like; to the contrary, this report sucks and on a drill-down appears to be full of outright lies.

Looking inside the data, the "big change" in private domestic investment is all residential fixed - up 23.4%. I don't believe it. I've been scouring the homebuilder earnings releases and data, and I don't see the numbers that support this. An improvement over the ditch-diving of the last many quarters, yes - but a 23.4% increase, a swing of fifty percent from Q2-Q3? Oh hell no. Where is it? It's not in Home Depot's (HD) or Lowe's (LOW) quarterly results, it's not in the homebuilders, and I can't find it in the suppliers (lumber companies, etc) either. This sort of move would result in monstrous top-line revenue increases reported by firms in this sector and that simply has not happened.

Nor do the export and import numbers look right. Port of Long Beach and LA, anyone? Those numbers also don't add up - swings of 20-25% in one quarter? Not reflected in container volumes and freight loadings. Yet it has to be - how do you get something in or out of here without it going through a port?

Government looks right, both federal and state/local. The "Obama will cut defense and war spending" folks have to be bashing themselves with a hammer - there's no evidence for that in the data, now three quarters into his administration. If you're anti-war and "bring the troops home", you may want to re-think whether voting for Barry was a wise decision - he sure as hell hasn't kept that promise. (Note that I didn't think he would either but that lie sure played well in San Francisco, didn't it?)

Forward the big problem is the deterioration in personal income. You can't spend what you don't have without credit creation, and that's fallen off a cliff. The Fed's credit reports continue to come in with huge contractions - this should not surprise, as demanding that banks lend to people who are seeing their income shrink is into the realm of pure idiocy.

The market likes the numbers although a lot of the move - perhaps all of it - is Bucky getting thrown under the bus once again.

You can't expect the cheerleaders on CNBC to read beyond the headline numbers, and they (once again) did not disappoint in this regard. The first 20 minutes of "analysis" brought not one mention of the decease in personal income or disposable personal income, yet on a forward basis this is in fact the most important piece of information in the report.

You cannot have an economic recovery when on a q/o/q basis real disposable income is contracting at a 7.4% annual rate and worse, the spread between nominal and real income is widening, indicating that mandatory purchases such as food, energy and health care - are increasing.

Comments

[GreatWhite:]

Your probably right FB5000, but there are some her that really get under my skin.

GW


On Oct 29 11:19 PM FB5000 wrote:

> Great White.
>
> Save your energy. You cannot reason with clowns. We have most of
> the SA clown show here with the last commenter.
>
> Ofcourse the numbers are made up. A positive number has to be wrong
> or diminshed depsite the fact that we just came out of the mother
> of all recessions and what would you expect at the begnning of the
> recovery. Karl wanted to see 4 to 5% growth after all of his interesting
> gymnastics.
>
> What we have here is the difference between a "belief" and knowledge"
>
>
> A "belief" can be held despite evidence. A beleiver will jump through
> all kind of hoops to rationalize a belief. The adherents of a belief
> will follow this and naturally reject all eviddence to thhe contrary.
>
>
> The SA boards are full of believers in the "armageddon scenario"
> They are pretty bought in and like other zealots are not going to
> be convinced by any argument. Beliefs are hard to shift.
>
> Knowledege is the opposite and is wasted on believers. Believers
> don't need knowledge they just need each other. Witness the attaboys.
>
>
> Lord knows I am no way near as smart as any of these guys. I could
> invent a whole alternative reality and keep at it. Too exhausting.
>
>
> Like I said. I read Karl because he's funny. The string he incites
> always brightens my day. Enjoy the show. Don't fight it.
>
> Carry on clowns.

Oct 30 12:03 AM

[AxIt:]

Like it or not my statement is simply a fact. Surf the internet and you wil find every kind of "objective" interpretation of this GDP data ranging from communists to anarcho capitalists. That is. I prefer to stick to the number. And please avoid gratuit offenses. Regards.

On Oct 29 07:18 PM jambo wrote:

> You idiot! Assumed 'political inclination' is in reaction to government
> policy, the policy (read lies) came first!
> It's not a case of Karl saying: well gosh, I dont like 'em so whatever
> they say is wrong. On the contrary he gives us every reasonable
> opportunity to make up our own minds. That is if we are not already
> predisposed toward a certain belief ourselves.
> If it looks like a turd, smells like... well you get the idea.
> Or maybe not. Go ahead and take it easy yourself, I'll take the
> proof as presented by a man with no axe to grind, thanks.

Oct 30 04:57 AM

[Karl Denninger:]

Ad-hominen attacks always come out when the people on the other side of the debate are unable to argue with the mathematics.

Oct 30 08:25 AM

[LoveShorting:]

Karl: THANK YOU for a great analysis. Maybe I am not crazy after all.
Maybe the Market is crazy, like yesterday.
HH: I am ! (see my assumed name)
Moon: Always great to read your opinions. I find it hard to disagree with your logic (so I don't even try)...... keep writing.

Oct 30 08:57 AM

[Dave Wrixon:]

Apparently this Clown Detector is a bit like a compass that won't function properly near a large magnetic source and the consequent disorientation is causing the owner nausea.

Oct 30 09:25 AM

[GreatWhite:]

No we are un-able to argue using logic and rational analysis against people that deny all figures and statistics that all normal intelligent people use to interpret the economy and markets.

GW


On Oct 30 08:25 AM Karl Denninger wrote:

> Ad-hominen attacks always come out when the people on the other side
> of the debate are unable to argue with the mathematics.

Oct 30 09:27 AM

[TeresaE:]

Great point Dave, and simple enough terms for even an American high school graduate to understand.

I hope.


On Oct 29 12:30 PM Dave Wrixon wrote:

> The acid test is whether the Federal Reserve actually believes these
> figures. If they do then they have no alternative but to draw down
> the money supply and put up interest rates. If they do not do this,
> then they obviously don't believe the figures to be credible and
> neither should any one else. No wonder the dollar is going to hell.
> What is going to be Ben? Ah, I can feel the rain on my back already!

Oct 30 10:42 AM

[TeresaE:]

Though this is anecdotal, and I know investors would rather believe in methodology and theory than actual experience, I can tell you that in '07 I had two of my employees take out loans against 401(k)s. (which in hindsight turns out to be a good thing as they pay themselves back with interest and lower stock prices)

The adviser that handles my account called because her fax machine ate part of an application. She apologized for the couple day delay and said she had been swamped with people cashing out their plans. Two years ago.

I just talked to her a month ago and her firm in Chicago is under deluge. She said they have never had to process the number of total cash outs ever in their history.

So, yes, I believe many people believe the market is irrational and cashing out while the cash out is good, added to the fear that tax rates are at the lowest we will ever see again.


On Oct 29 01:06 PM Papaswamp wrote:

> Saving decreased because the number of unemployed continues to increase.
> The unemployed are draining their reserves do to no job or only able
> to find part time/ less wage jobs. Bills are still the same, thus
> any saving are being depleted. I would be interested to see a stat
> of how many 401Ks, etc. are being liquidated because people are running
> out of options.

Oct 30 10:47 AM

[TeresaE:]

Mark, I have asked you this before and other than our land and natural resources, exactly WHAT do we export at such a clip it could save the economy of 300+million people?

And to whom are we selling it to?

I truly want to know what the "low dollar equals good thing" crowd thinks we are exporting.


On Oct 29 01:34 PM Mark Anthony wrote:

> Karl:
>
> How is your little "long the dollar cautious" play play out? Get
> out today before you take a loss. The dollar is DOOMED, but NOT the
> US economy. Do you understand the fundamental difference between
> the two concepts? Time for you to admit being wrong.
>
> Why the dollar is doomed but the US economy survives. Read the reasonings:
>
> seekingalpha.com/insta...
>
>
> seekingalpha.com/insta...
>
>
> You are wrong; Roubini was wrong. The dollar collapses because there
> is nothing supporting the value of this fiat currency. The US economy
> survives and prosper, because America still produces stuffs that
> the world wants from us. We just need to produce more, and consume
> less. The only way forcing this is for the dollar to collapse and
> for us to return to honest money.

Oct 30 10:50 AM

[TeresaE:]

The criteria and presentation of the numbers were intentionally changed in the mid 90s.

You cannot compare today's statistic to anything pre-1993 without taking the changes into account.

Yet, the government and Fed pretend like the stats are in a straight line with no alterations. As do you.

And, why is it that the Lollipops & Sunshine crowd always result to name calling when they "dispute" the facts? If you had sound analysis to back up your thoughts, would the vitriol be necessary?

I guess you think it would be.


On Oct 29 05:08 PM GreatWhite wrote:

> I am not here claiming "Glory Hallelujah" the good times are back,
> lets all go out and buy some them there foreclosed, big mc-mansions
> and 60 inch flat screens the new party of the century has just started.
>
>
> What I am saying you D&G buffoons deny, twist and turn everything
> that doesn't suit your end of the world scenario. Data and stats
> that are used and have been used for decades (in good and bad times)
> are shite to you D&G when they start showing a reversal of a
> down turn.
>
> Bernanke in not going to choke off a recovery before is has barely
> begun. He will raise rates when we are on a more secure footing,
> when unemployment is coming down and when the consumers come realize
> you idiots are just that idiots, It's not the end of the world, not
> the end of the US, not the financial Armageddon simple
> minded half wits like Jeff Nielsen constantly scream about.
>
> GreatWhite

Oct 30 11:00 AM

[Graham and ...:]

We really did create a "New Economy" in the early 1990s, around, and stemming from, the (successful) Persian Gulf War.

One that is totally disconnected from what went on before.

Apples vs. oranges.


On Oct 30 11:00 AM TeresaE wrote:

> The criteria and presentation of the numbers were intentionally changed
> in the mid 90s.
>
> You cannot compare today's statistic to anything pre-1993 without
> taking the changes into account.
>
> Yet, the government and Fed pretend like the stats are in a straight
> line with no alterations. As do you.
>
> And, why is it that the Lollipops & Sunshine crowd always result
> to name calling when they "dispute" the facts? If you had sound
> analysis to back up your thoughts, would the vitriol be necessary?
>
>
> I guess you think it would be.

Oct 30 11:18 AM

[jambo:]

On Oct 30 09:27 AM GreatWhite wrote:

> No we are un-able to argue using logic and rational analysis against
> people that deny all figures and statistics that all normal intelligent
> people use to interpret the economy and markets.
>
> GW

Dontcha love it! GW, in his consummate arrogance has placed himself at the top of the "all normal and intelligent people..." stack!! I know its gotten nippy but apparently hell hath frozen over whilst I was sipping "the scotch".
Its far too late for your snappy, vitriolic comebacks my unfortunate brother. Indeed Great White has shown himself to be nothing more than a quivering tadpole out of water in this forum.
Have you mistaken us for the loatheyouradversary.com site? Your illness is pervasive- but not incurable! May I suggest something like, oh, say, getting laid? the drugs arent working! It is possible that your difficulties are born of an over rich testosterone level...just sayin. For the sake of anthropology, were you beaten as child as well?
Please, for your own sake Tadpole, desist while there is still time... you are shrinking by the moment before us all.

Oct 30 11:33 AM

[jambo:]

On Oct 30 11:18 AM Graham and Dodd Investor wrote:

> We really did create a "New Economy" in the early 1990s, around,
> and stemming from, the (successful) Persian Gulf War.
>
> One that is totally disconnected from what went on before.
>
> Apples vs. oranges.

Yes. Much, perhaps most of it was technology driven, as it was in the Reagan trickle down/ Star Wars economy before it.
Loudly decried as travesty (and that was a kinder comment) at the time, that government fueled R & D (yes we had to print money, we werent really saving much at the time) and resulting technological blossoming gave rise to Silicon Valley itself and subsequent world domination in those sectors. Talk about seed money! Two subsequent presidencies fed from its fruit.
Of course in the faithfully nearsighted revisionist history, it has been billed as "an unprecedented printing of money", which it must be said is true. What has been left off of the statement is "an unprecedented (without war at least) expansion of the economy as well".

Oct 30 01:14 PM

[AxIt:]

Ad hominem attacks always come where there are no arguments of discussion, and is a symptom of insecurity.

On Oct 30 08:25 AM Karl Denninger wrote:

> Ad-hominen attacks always come out when the people on the other side
> of the debate are unable to argue with the mathematics.

Oct 30 02:35 PM

[AxIt:]

I'll take your comment as a confirmation that I'm probably right. A person that every ten words writes "idiot", "idiotic" and the like is obviously not worth any consideration. I guess that you are very well represented by the words that you use.

On Oct 29 07:42 PM jambo wrote:

> That statement is so idiotic I should not have wasted these 30 seconds
> on it.
> NEWS FLASH The leg wont heal when the government is busy stealing
> the bone.
> You are in waaayy over your head here, why dont you go add your brilliance
> to Keith Olberman's webspite and leave this site for the thoughtful.
>

Oct 30 02:43 PM

[Mark Anthony:]

Teresa:

The US dollar is a fiat currency, something unreal and purely come out of blind trust in the US government. It is printed out of thin air. The dollar will be doomed ultimately.

And the American nation, it's people, and the great things they produce, are REAL, and wanted by the world. The Boeing planes we produce, the computers we produce. The food products we produce, are REAL and of good quality.

For years we import more than we export. The imbalance is filled by us exporting the US dollar, something unreal and with no intrinsic value. This imbalance must be broken. That means we will have export as much as we import. That balance must be reaches one way or another. The dollar can go to zero. But the economy will survive. We will export Boeing planes for gold, and then use gold to buy imports.

We will be doomed if the world does not need any of our produce, if the world does not need computers and airplanes. But that is not going to be the case. We still have stuff to sell that the worlds want. Good stuff that the world can not complain about.

Physical assets preserve value in a currency collapse.

On Oct 30 10:50 AM TeresaE wrote:

> Mark, I have asked you this before and other than our land and natural
> resources, exactly WHAT do we export at such a clip it could save
> the economy of 300+million people?
>
> And to whom are we selling it to?
>
> I truly want to know what the "low dollar equals good thing" crowd
> thinks we are exporting.

Oct 30 02:56 PM

[GreatWhite:]

TeresaE
Here is a snippet of your logic from a previous post of yours.

"The dollar "rallied" last year for a very simple reason, the Fed was flooding the WORLD with fake dollars. If the currency value went up, then the "help" flooding into foreign countries, other central banks and our local banksters was worth more for them to play with."

I don't believe I need to beat up on your lack of intellect anymore than your own theory does in your comment(s).

Are you sure there isn't a hair salon or soap opera blog you wouldn't rather comment on? And I seen a previous commenter state that if you change your photo to something more current you would not get another single thumbs up" I have to agree with them.

GreatWhite


On Oct 30 11:00 AM TeresaE wrote:

> The criteria and presentation of the numbers were intentionally changed
> in the mid 90s.
>
> You cannot compare today's statistic to anything pre-1993 without
> taking the changes into account.
>
> Yet, the government and Fed pretend like the stats are in a straight
> line with no alterations. As do you.
>
> And, why is it that the Lollipops & Sunshine crowd always result
> to name calling when they "dispute" the facts? If you had sound analysis
> to back up your thoughts, would the vitriol be necessary?
>
> I guess you think it would be.

Oct 30 03:05 PM

[User 494952:]

GW, as regards to your last paragraph to TeresaE. Pot, meet kettle. Your attempts at witty and "intellect" fall far short. Perhaps you should heed your own advice. Tired of BS

Oct 31 10:46 AM

[GreatWhite:]

"Tired of BS"

THEN LEAVE THE FORUM! THAT SIMPLE

GW


On Oct 31 10:46 AM User 494952 wrote:

> GW, as regards to your last paragraph to TeresaE. Pot, meet kettle.
> Your attempts at witty and "intellect" fall far short. Perhaps you
> should heed your own advice. Tired of BS

Oct 31 01:24 PM

[FB5000:]

Dude seriously. You are a clown. Analysis????

Your stuff is a joke. What is the point of arguing or debating. It is like trying to teach your dog to play chess.


On Oct 30 08:25 AM Karl Denninger wrote:

> Ad-hominen attacks always come out when the people on the other side
> of the debate are unable to argue with the mathematics.

Oct 31 09:46 PM