30/4/17: The Scariest Chart in the World

The scariest chart in the world this week, indeed this month, comes from the U.S. and plots U.S. real GDP growth with 1Q 2017 print at just 0.7% y/y.

Yes, the print ranks 13th from the bottom for any positive growth quarter since 2Q 1947. And yes, the rate of growth is (a) preliminary (subject to revisions) and (b) seeming one-off (driven by fall-off in consumer demand, despite strong indicators on consumer confidence side). There are reason and heaps of arguments why this print should not be treated as huge concern and that things might improve in 2Q and on.

But... the really scary stuff is longer-term trend in U.S. growth. And that is illustrated in the chart below:

Look at the grey bars: these take periods of expansion in the U.S. economy and average rates of growth over these periods. Notice the patter? Why, yes, the average expansion-consistent rates of growth have fallen, steadily, since 1975 through today. Worse, controlling for volatile growth (average rates) in pre-1975 period, an exponential trend for average expansion-consistent growth rates (the yellow line) is solidly trending down.

The latest period of economic expansion is underperforming even that abysmal trend. And 1Q 2017 is underperforming that worse than abysmal average.

Now, let me highlight that point: yellow line only considers periods of consistent growth (omitting official recessions, and one unofficial recession of  2001). So, no: the depth of the Great Recession has nothing to do with the yellow line direction. If anything, given the depth of the 2008-2009 crisis, the most current grey bar should have been at around 4%, almost double where it sits today.

That is what makes the chart above the scariest chart of April. And will probably make it the scariest chart of May too.

27/1/17: U.S. GDP Growth is Down, Not Quite Out...

So President Trump wants U.S. economy growing at 4 percent per annum. And he wants a trade tussle with Mexico and China, and possibly much of the rest of the world, or may be a trade war, not a tussle. And he wants tariffs on imports from Mexico to pay for the Wall. And all of this is as likely to support his 4 percent growth target, as a crutch is to support a two-legged sheep.

Take the latest U.S. GDP figures. The latest preliminary estimates for the 4Q 2016 U.S. GDP growth came out today. It is pretty ugly. The markets expected 4Q GDP print to come in up 2.2 percent, with some forecasters being on a much more optimistic side of this figure. Instead, q/q growth (preliminary estimate) came in at 1.9 percent. This puts full year 2016 growth estimate at 1.6 percent which, if confirmed in subsequent revisions, will be the one of the two lowest rates of growth over 2010-2016 period. In 2015, FY growth was 2.6 percent.

The key reason for the drop in growth that everyone is talking about is net exports. In 4Q 2016, net exports subtracted 1.7 percentage points from the U.S. GDP, which is the largest negative impact for net trade figures since 2Q 2010. This was ugly. But less-talked about was a rather not-pretty 1 percentage point positive contribution to GDP from inventories which was the largest positive contribution since 1Q 2015. And more: inventories overall contribution to 2016 FY growth was higher than in both 2014 and 2015.

Quarterly GDP Growth and Contributions to Growth

Source: ZeroHedge

Good news: business investment rose, adding 0.67 percentage points to overall growth, and private sector equipment purchases rose 3.1 percent. Good-ish news: (after-tax) disposable personal income rose 1.5 percent in real terms on an annualised basis, but this marked the lowest growth rate in income over 3 years. Slower rate of growth in personal income over 4Q 2016 was down to “deceleration in wages and salaries”. Structurally, this suggests we might see some capex growth in 2017, while wages and salaries growth slowdown is likely to give way to more labour costs inflation, consistent with headline unemployment figures. If so, 1.6 percent annual growth can shift to 2-2.2 percent range.

Adding a summary to the above, BEA report notes:  “The increase in real GDP in 2016 reflected positive contributions from PCE [private consumption], residential fixed investment, state and local government spending, exports, and federal government spending that were partly offset by negative contributions from private inventory investment and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.” In other words: borrowed money-based personal spending, plus borrowed money-based government spending, borrowed money-based property ‘investments’ were up. Capacity investments were down.

So, about that 4% target figure, Mr. President... time to hire some Chinese 'state statisticians' to get the figures right?..


In a final caveat: this is the first print of GDP growth and it is subject to future revisions.

29/5/15: That U.S. Engine of Growth Is Going 'Old Fiat' Way

Folks, what on earth is going on in the U.S. economy? Almost 2 months ago I warned that the U.S. is heading for a growth hick-up (http://trueeconomics.blogspot.ie/2015/04/4415-another-sign-of-us-growth-slowdown.html). Now, the data is pouring in.

1Q 2015 GDP growth came in at a revised -0.7%. And that's ugly. So ugly, White House had to issue a statement, basically saying 'damn foreigners stopped buying our stuff and weather was cold' for an excuse: https://m.whitehouse.gov/blog/2015/05/29/second-estimate-gdp-first-quarter-2015. Rest is fine, apparently, though U.S. consumers seem to be indifferent to Obamanomics charms and U.S. investors (in real stuff, not financial markets) are indifferent to the charms of ZIRP.

For the gas, the WH added that "The President is committed to further strengthening these positive trends by opening our exports to new markets with new high-standards free trade agreements that create opportunities for the middle class, expanding investments in infrastructure, and ensuring the sequester does not return in the next fiscal year as outlined in thePresident’s FY2016 Budget." Now, be fearful…

Source: @M_McDonough 

Truth is, this is the third at- or sub-zero quarterly reading in GDP growth over the current 'expansion cycle' - which is bad. Bad enough not to have happened since the 1950s and bad enough to push down 4 out of 6 key national accounts lines:

Source: @zerohedge

Good news, 1Q 2014 was even worse than 1Q 2015. Bad news is, 1Q 2015 weakness was followed by April-May mixed bag data.

Un-phased by the White House exhortations, the Institute for Supply Management-Chicago Inc.’s business barometer fell to 46.2 in May from 52.3 in April. Readings lower than 50 indicate contraction. Per Bloomberg: "The median forecast of 45 economists surveyed by Bloomberg called for the measure to rise to 53, with estimates ranging from 51 to 55. The report showed factory employment contracted this month."

Yep, that is a swing of massive 6.8 points on expectations.

Source: @ReutersJamie


Worse news, for the overheating markets that is, "Profits from current production (corporate profits with inventory valuation adjustment (IVA) and capital consumption adjustment (CCAdj)) decreased $125.5 billion in the first quarter, compared with a decrease of $30.4 billion in the fourth. …Profits of domestic non-financial corporations decreased $100.4 billion, in contrast to an increase of $18.1 billion. The rest-of-the-world component of profits decreased $22.4 billion, compared with a decrease of $36.1 billion."

Source: @ReutersJamie

Gazing into the future, the doom is getting doomed.

Source: @GallupNews

The above is via http://www.gallup.com/poll/183407/no-improvement-economic-confidence-index.aspx. The economic confidence index fell two points from the previous weekly score, Economic outlook component at -11, and Current conditions score of -6 higher than outlook. The index has been in negative territory for all but one of the past 14 weekly readings.

Source: @GallupNews 

Yes, the engine of global growth is spewing oil and smoke like the old 'Fix it up, Tony' Fiat... and the White House is just not having any new ideas on sorting it out.

Bad weather… Bad Double-Bad foreigners… Bad Triple-Bad Consumers/Savers…

1/2/2014: US GDP growth Q4 2013

US Q4 GDP numbers posted a surprisingly strong performance, with third quarter in the row coming at above the 2009-2013 average rates:

Source: Pictet

At the top level, GDP posted 3.2% q/q expansion and annual (y/y) growth accelerated from 1.3% to 2.0% to 2.7% between Q1 and Q4 2013.

The quality of growth also improved. In Q2-Q3 2013, personal consumption grew 1.8% and 2.0% respectively (annualised), with Q4 2013 growth registering 3.3%. Private final demand grew 4.0% in Q4 2013, against 3.4% and 2.8% in Q2 and Q3. Bad news came only on private residential investment side, where activity declined massive 9.8% having posted  14.2% and 10.3% expansions in Q2 and Q3.

Government spending fell 4.9% in Q4 2013, compared to decline of 0.4% in Q2 2013 and growth of 0.4% in Q3 2013.

Excluding Government spending, GDP grew 5.2% in Q4 2013, beating 5.0% growth in Q3 2013 and 3.2% growth in Q2 2013.

Economics 29/01/2010: US Economy Blistering Growth

US GDP grew at annualized rate of 5.7% in real terms in Q4 2009 (q-o-q growth), according to the "advance" estimate released by the Bureau of Economic Analysis. This is a massive jump on 2.2% real rise in Q3 2009.

Q4 increase reflected gains in private inventory investment (two consecutive quarters rise), exports, and personal consumption expenditures (PCE). Imports, which reduce GDP, also increased in Q3, signaling improved consumer and producer (intermediates) demand, but the rate of growth fell in Q4. An upturn in nonresidential fixed investment was partially offset by slowdown in federal government spending.

Real personal consumption expenditures increased 2.0% in Q4, down from an increase of 2.8% in the third quarter. Durable goods decreased 0.9%, in contrast to an increase of 20.4% in Q3 2009. Nondurable goods increased 4.3%, compared with an increase of 1.5% in Q 3. Services increased 1.7%, compared with an increase of 0.8% in Q3. This suggests rather anemic holidays season and potential reversal in consumer confidence (see below). It certainly does not add up to a robust change in the crisis-driven increases in marginal propensity to save (up 4%+ in Q4) and enhanced risk-aversion (keeping durables sales down).

Real nonresidential fixed investment increased 2.9% in Q4, in contrast to a decrease of 5.9% in Q3. Nonresidential structures decreased 15.4%, compared with a decrease of 18.4%. Equipment and software increased 13.3 percent, compared with an increase of 1.5 percent. Real residential fixed investment increased 5.7 percent, compared with an increase of 18.9%. All indicating the beginnings of a new business investment cycle - a very good sign.

A note to European policy makers: weaker currency works magic: real exports of goods and services increased 18.1% in Q4, compared with an increase of 17.8% a quarter earlier. Real imports of goods and services increased 10.5%, compared with an increase of 21.3%. This again points to depressed consumer rebound, but it also signals that inventories rebuilding might have been completed by now - a sign that we might expect much weaker contribution to GDP growth from that side of the NA in the next 2-4 months.

Stimulus is thinning out and rapidly, but on the military spending side, not in civilian consumption. Real federal government consumption expenditures and gross investment increased 0.1% in the fourth quarter, compared with an increase of 8.0% in the third. But non-defense spending increased 8.1%, compared with an increase of 7.0% in Q3.

Another lesson to European leaders: cut taxes and see things grow faster. Current-dollar personal income increased $119.2 billion (+4.0%) in Q4, compared with an increase of $35.1 billion (1.2%) in Q3. Personal current taxes decreased $11.7 billion, in contrast to an increase of $3.5 billion in Q3. Thus, disposable personal income increased $130.8 billion (+4.8%) in the fourth quarter, compared with an increase of $31.6 billion (+1.2%) in the third.

The miracle that is the resilient US economy is about to swing into action, assuming no adverse news on the Federal Reserve side.

Charts on Consumer Confidence finding upward support, again... over the downward cycle
but not over a deviation from historic trend...
not yet. Which means that we are now in the optimistic (exuberantly) territory relative to historic trends:
and