Economic News: Not as Bad as Feared

I'm back from vacation, surveying the news of the past week and a half. Here's my take on the data: not so bad.

Gross domestic product is our broadest measure of the economy, and its growth rate was certainly anemic, but it was not negative, as I had expected.

Positive is certainly better than negative. Some of the pessimists noted that final sales were down. (That's GDP that actually got sold, excluding the buildup of inventories.) And it's true that there was a small buildup of inventories that prevented GDP from declining. But you can make the same point about every positive contribution to the economy: GDP would have turned down if not for exports, GDP would have turned down if not for consumer services, GDP would have turned down if not for everything that turned up. The truth is that the economy is growing, but just barely.

Employment declined again, but not by too much. (A drop in jobs is consistent with total production that's flat, thanks to improved productivity per person.)

The latest monthly decline in total employment was 20,000 jobs, on a base of 138 million. In fact, such a small drop is far less than the reliability of the official employment statistics. (The standard deviation for month-to-month changes in total employment is 65,000 jobs, so a 90% confidence interval for the latest report goes from minus 117,000 jobs to plus 97,000 jobs gained.) My conclusion: bad, but not so bad as we feared.

We also got data on new home sales: down, at about the same rate of decline we've seen in recent months. Non-residential construction resumed its expansion:

Strength was surprisingly widespread, with notable gains in hotel/motel, office, power production and manufacturing. Yes, construction of manufacturing buildings expanded, despite the drop in manufacturing employment. Somebody is optimistic out there.

Consumers continued to be gloomy, according to various polls. I'm not too concerned about their attitudes, because once the fundamentals turn up, attitudes will follow. Actual consumer spending was good in March. Car sales don't follow that pattern, though:

The detail is interesting. Over the past 12 months, total light vehicle sales (what the chart shows) dropped by 4.3 percent. The worst component: domestic trucks, down 8.6 percent. The best component: import cars, down only 0.4 percent. What I think we're seeing is the abandonment of gas-guzzlers more than anything else.

The theme of these comments is that the news has not been as bad as I had feared. I'll work up a new forecast after a sojourn to Starbucks. (Why, oh why, are the Europeans incapable of brewing a decent cup of coffee? Why does Starbucks not have a single store in Amsterdam?)

Comments

[fxtrader07]

superficial glances at the officially reported statistics lead to superficial conslusions and assessments. the gdp numbers were bogus as 1) only the absurdly low (i.e. unreal) pce-deflator prevented a negative real growth and 2) even the so massaged positive gdp number did only happen due to large build-ups in inventories. the jobs report, beneath the surface was ugly - really ugly. if you just look at the lipstick (i.e. the headline -20k losses) you miss of course the pig.

[billddrummer]

fxtrader,

I fully agree with you, and respectfully disagree with the contributor. One of the major fallacies with the jobs report is that it continued to show growth in construction-related and financial services sectors. Only the most naive observer would agree with that assessment of those employment groups. Some businesses that cater to illegal Hispanic workers are struggling now, because pick-up construction jobs are impossible to find. Laborers, carpenters and framers have been laid off en masse, and pawnshops are starting to refuse construction tools--they've got enough already, thank you very much.

Lipstick can make a pig attractive, but only until last call.

[iThinkBig]

I can say I am not buying financials. Love pharmas, especially Schering Plough. In 2012 I am running for Congress. To change this country, some of us most go to Washington.

I would have run this year but the pain point of most Americans has not been reached for them to wake up to at least understand what happened in our economy and culture as a whole. Rapid changes are occuring in the globe to America's benefit, or continued detriment. I would simply be a voice of dissent amoungst a tide of socialism if I made it to office this term.

I am also starting a social network site called RagingDebate.com and the economy and energy are the first topics. It will be laid out for investors, entrepenuars, politicians, engineers, scientists and consumer alike to all interact on critical topics and coming up with solutions.

Washington does not seem capable of global research on giving what the citizen or global customer needs to compete at least not in a timeframe that will allow our citizens to retain our quality of life.

Outside perspective will be needed by people whom love this country and are phillanthropists.

Let's face it, this country and our way of life have changed! Our whole consumption economy must hit a hard crash bottom. I hate saying that but erasing trillions of dollars of real or paper wealth is happening and will continue to happen to correct the markets. We can either embrace and attack the problems or run and hide.
Re-hashing what is likely to occur in a multi-year downturn and reporting and discussing with each other as it plays out in slow motion is not going to change things.

America will regain our dominant financial position but it will not happen without We the People changing it, innovating to give the global consumer what it needs. To do that requires millions of us with the brains and balls in joint cooperation. I love this site and the people here. You have inspired me to use my talents as a connector to influence how we reshape this nation.