We've been assaulted with assurances from brokerage firms, bloggers, journalists and the Fed that the first quarter of 2014 was weak because of the harsh winter. And most people are swallowing it. Joseph Goebbels not the first to note that if you tell a lie often enough people will start to believe it.
That's not to say the winter of 2014 wasn't a harsh one - in some parts of the country. It just happened to be most severe in the parts of the country where most of the economists, bloggers, journalists and brokerage firms reside and work. Remember the humorous map of New York that shows the five boroughs with Manhattan way over-sized and everything west of the Hudson as frontier country? There be dragons. Maybe there is a slight bias to reflect on one's view outside their 30th floor corner office and call it Armageddon.
But the truth is, for some parts of the country the winter was less harsh than in most years. And if that's the case, shouldn't the home-buyers, auto-buyers, furniture-buyers, et al, in those places have purchased more new goodies since they were able to get out more days than normally would have? And, if that were so, shouldn't they have negated at least some meaningful percentage of the decline in others' ability to buy, buy, buy?
After all, the three most populous states in the Union are now California, Texas and Florida. All three enjoyed a balmy winter, much to the chagrin of those of us who had to travel to Colorado or back East to find decent skiing. Between them, these three states have roughly 85 million inhabitants. New York, New Jersey, Pennsylvania, and all of New England only have 56 million.
Of course, unknown to those hiding out in their corner offices while waiting for their limo driver to tell them they were now waiting in the indoor garage, much of the rest of the nation was having a pretty rough go of it, as well. The entire Midwest and some South Central states were getting hammered. But remember as well that the rest of the Pacific Coast and Southwest were either above normal temperatures or enjoying their usual balmy weather.
Further, the GDP in each state likely reflects, with some adjustments, the buying power of its residents. In this, New York and New Jersey together don't equal the GDP of California alone. All of New England together doesn't even come near Texas all by itself, etc.
For a clever look at just how much each state's GDP is relative to other nations, check out this map, created by Reddit user "Phaenthi:"
So if the problem wasn't the weather, or at least wasn't all because of the weather, what did cause the US GDP to actually decline by an annualized rate of 1% in the first quarter of 2014?
There are many causes, but a few that leap to mind might include:
- A tax code that sends US companies scurrying to relocate their headquarters or major subsidiaries in more tax-friendly nations.
- A decline in top-line revenue growth for many companies.
- "Earnings" that increased, in spite of the decline in top-line sales, mostly because companies aggressively bought back shares of their own stock, decreasing the float and thus increasing the earnings "per share." (While, at the same time, insiders at the same companies are selling their own shares at a record pace.)
- A housing recovery that has stalled across the country, whether the weather was unseasonably good or unseasonably bad. Doubt it? May was hardly a month in the grip of winter weather, yet new housing starts for May fell nationwide by 6.5%, while permits for new starts fell 6.4%. If you didn't notice that, perhaps it was because it was somewhat overshadowed by media jubilation that home-builder confidence rose from 45% to 49% in June. (Which means that only 51% of builders are now pessimistic about the coming year!)
I could go on but you get the picture. And I've already covered these issues in previous articles. We need to face the fact, as a nation and as investors, that we are not as business-friendly a place as we were even a half-dozen years ago. Six years ago, coincidentally, was of course the last time we saw the market go into a tailspin.
I am not predicting a similar market decline here (though the level of investor complacency doesn't match, but actually exceeds, the numbers from then!) I am merely noting that we seem awfully happy to whistle past the graveyard at midnight on a moonless All Hallows Eve as if no evil can ever befall us.
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