Q3 GDP: U.S. economy picks up

[nyker96]

CNN money shows Q3 U.S. economy picks up:

http://money.cnn.com/2012/10/26/news/economy/gdp-report/index.html?hpt=hp_t3

 

[mshan]

Don't forget that the drought (destruction of feed corn and soybeans) was estimated to have knocked as much as 0.5% off of GDP, too.

Comments I saw on tv this morning said consumer spending was still strong, but businesses have pulled back alot because of political rheotoric and fiscal cliff (hopefully what happens is, like August vs. September employment reports, they pulled back too far and have to play catch up in few months from now).

"Despite the slow recovery and weak labor market, Americans opened up their wallets in the third quarter. Consumer spending accounted for most of the increase in GDP--real personal consumption expenditures climbed 2.0%, compared with only 1.5% in the second quarter. Purchases of long-lasting goods posted an especially strong 8.5% gain.

Government spending contributed to economic growth for the first time in more than two years, led by federal outlays on national defense. Overall federal government spending jumped 9.6%, versus a 0.2% fall in the second quarter. State and local government spending was down slightly."


http://news.morningstar.com/all/dow...55/000378/us-gdp-grows-20-in-3rd-quarter.aspx

I think commentators said construction was good, government spending (defense) was higher than expected, state and local government only modest drag, inventories low, and I think auto production was actually ramped down last month (don't know why).

I think it is a surprisingly good number, given all the uncertainty out there right now.

 

[ivwshane]

To understand whether or not this number is good I think we should look at the number historically:

http://www.tradingeconomics.com/united-states/gdp-growth


Average GDP is about 3.25%.

 

[Nemesis 1]

LOL improved housing lol. Increased military spending . How is that growth . Its tax dollars going out . Not coming in . YAY for the war machine . What a bunch of tards they take you people for . 600,000 new gobberment jjobs in last 2 months ya consumer spending would show a tick up . 600,000 also went on SS at the same time . So we have 600,000 new on ss. for Aug. sept . Military is spending and consumer spending ticked up while car sales declined . Dang this is really good sci fi

 

[mshan]

Population growth is only 0.8%, where it has historically been as high as 1.4% - 1.5%.

Morningstar analyst Bob Johnson said 2.3% real GDP growth might be equivalent to 3% real gdp growth for historical comparison purposes*

Plus, recovery from recession is normally driven by 1) construction, and 2) government spending.

Jeez, wonder why this recovery has been so tepid...

* "Stipp: The number was revised up from 1.5% to 1.7%. It was an upgrade. What was responsible for that little bump that we saw when they did the second read of second-quarter GDP?

Johnson: I think the single biggest number in there was the consumer services business, which they originally thought grew at 1.9%; it actually ended up growing at 2.4%. That's the best reading on consumer services since 2006. In other words, we were still in the upswing of the economy [in 2006]. We hadn't even gone into the recession. That was the last time that we saw a services growth number that looked that good."

...


"Stipp: So, let's take this 2% number that may get some of that noise out of [the reading]. That still feels kind of slow historically speaking. And I think there's a perception that this recovery has been slower or weaker. When you look over longer time periods, what does that 2% number stack up to what we might see in other time periods for a more normalized economic growth rate?

Johnson: I went through and looked at every decade since the 1950s to see what GDP growth has been, and it has ranged from about 3% to, in the 1960s, we had probably 4.5%. But if you look at them, most of them are very central on about 3%. And as I said, we're kind of at 2.3% right now year-over-year. So, we're below the 3% that I'd say, looking at past decades, looks normal. We're doing better than the decade of the 0.9% growth, but certainly nothing like the '60s. But the '60s was an exceptional period.

Then if you adjust for population--in some of those periods, we were growing 1.4% to 1.5% in terms of population and now we're only growing 0.7%--you start to see [how] a number [like] 2.3% [when] population growth was half a percent, six tenths of a percentage point less, gets a little bit closer to the 3% [norm].

I think we're not in quite as dire straits, but what does make it look dire, is that we had a severe recession and we haven't come back, and we've got a lot of people unemployed yet, and that's why this feels so terribly uncomfortable.

Unfortunately, I think the data I look at says we're going to have more growth in kind of this 2% to 2.5% range, so it's still going to take us a while to adjust and absorb all those people."


"Stipp: The last piece I want to talk to you about for the second half is the consumer, and consumer spending power. Inflation has been tame, has been giving a bit of a tailwind recently, especially compared to a year ago. But we also had the drought. There are worries about inflation going up. Is inflation going to help or hurt us in the second half?

Johnson: Well, I don't think it's going to be quite as helpful as it was in the last quarter... Really we had four quarters in a row with essentially no inflation at all. I think we will see some more price increases in the second half, relative to food. Oil is going to be a bit of a wildcard; we don't know. I think a lot of it [will depend on] whether we have a hurricane or not and whether we have a political situation or not ... Oil seems a lot higher than it should be given the strength of the world economy right now; it really does to me. But if it does stay high, it will impact prices in the second half; there is no doubt about that.

But remember, last year we were looking at 4% inflation, and we had used car prices, new car prices, oil, gasoline, food, all moving up dramatically, all at the same time. This time we seem to have a couple of really good weeks for oil and then it goes back up, and then the fresh fruits and vegetables go down and help the food number, and we've seen lower cattle prices, which have helped the numbers a little bit. Probably next year, the cattle prices will be way up, but maybe the grains will be down. So, things have been offsetting this time around, so that we're not getting this general everything-is-up-at-once type of [inflation].


...


Stipp: All right, Bob. It sounds like the [GDP] trend has been down over the last couple of quarters, but we have some hopes that that trend will turn around a little bit. When you take a step back and look at it, we're kind of lower historically than we've been on GDP, looking at a year-over-year basis, but some population changes might explain some of that. So, we could be better, but we could be a lot worse than we are right now.

Johnson: Absolutely. And I am optimistic about the second half."


http://www.morningstar.com/cover/videocenter.aspx?id=566277

http://forums.anandtech.com/showthread.php?t=2267369&highlight=johnson+gdp

 

[EagleKeeper]

LOL improved housing lol. Increased military spending . How is that growth . Its tax dollars going out . Not coming in . YAY for the war machine . What a bunch of tards they take you people for . 600,000 new gobberment jjobs in last 2 months ya consumer spending would show a tick up . 600,000 also went on SS at the same time . So we have 600,000 new on ss. for Aug. sept . Military is spending and consumer spending ticked up while car sales declined . Dang this is really good sci fi

A large amount of the military spending even though it originates from taxes does go back into the economy.
Military salaries
Military equipment - much is US made
weapons/munitions

What is not pumped back in is the supplies needed to maintain the force.
Foodstuff, construction, fuel, bribes

 

[Fern]

An optimistic title for a rather depressing article.

Looks like most haven't actually read the article.

Fern

 

[gevorg]

its stagnant or negative if you adjust it to actual inflation:

Article from last year that is still relevant today:
http://articles.businessinsider.com...1_gdp-year-over-year-inflation-inflation-rate

 

[Nemesis 1]

An optimistic title for a rather depressing article.

Looks like most haven't actually read the article.

Fern

I read it but the auto thing jjust doesn't work for me . American made or imports. One is good one isn't both show up in the numbers.

The increase in military spending after 2 down qt . Seems to me these things are lies . Controlled by the gooberment which obummer is head. Than the 4th qt is expected to go down backwards from these reports . That will cause civil unrest big time . As all will awaken to the gooberment conspirecy against its people

 

[mshan]

Morningstar's Bob Johnson should have his written summary of this week's economy data on their website tomorrow, but from last Saturday's take:

"The last two months the auto industry production rates, at least according to the Fed, have been in a freefall. Auto and light truck production fell 7% in August and 6% in September. Auto production has been a big reason for the deterioration in the industrial production metrics over the past couple of months. Meanwhile, sales of autos produced in the U.S. were up 5% in August and flat in September. Therefore, I would expect auto production to rebound to the 10-million-unit level to catch up with the sales data as inventory adjustments work their way through the system. Interestingly, the most recent edition of Automotive News reported that 20 North American auto plants were using scheduled overtime in the most recent week, hardly consistent with collapsing production.

However, after that true-up, it is doubtful that total auto sales can be as big a driver of manufacturing in the years ahead. We have moved from 9 million units (including imports) at the bottom of the recent recession to almost 15 million units while 16-18 million units might represent the new normal that could be attained in the next two or three years. I anticipate continued gains in auto sales and production, but the growth rates won't be nearly as large as in the past few years."


http://news.morningstar.com/articlenet/article.aspx?id=571069&part=2

And President Obama's restructuring of GM means that their break even point is now around 10 million units:

"We think GM's earnings potential is excellent because it finally has a healthy North American unit and can focus its U.S. marketing efforts on just four brands instead of eight. The most critical cost-saving measure was setting up a voluntary employees' beneficiary association (VEBA) for the retiree health-care costs of the United Auto Workers. This move saves GM about $3 billion a year; other benefit concessions and plant closings have drastically lowered GM North America's break-even point to U.S. industry sales of about 10.5 million vehicles, assuming 18%-19% share. The actual point varies based on mix and incentive levels. We think the normative demand for U.S. light vehicles is about 16.1 million-17.3 million units, so we expect GM to report excellent earnings growth as vehicle demand comes back during the next few years."

(from Morningstar Premium Membership stock analysis)

 

[LegendKiller]

its stagnant or negative if you adjust it to actual inflation:

Article from last year that is still relevant today:
http://articles.businessinsider.com...1_gdp-year-over-year-inflation-inflation-rate

SGS has already been proven to be utter bullshit, if you use the cume numbers it would lead to utterly moronic results. They won't even disclose their methods fully nor provide any reasonable context.

 

[gevorg]

SGS has already been proven to be utter bullshit, if you use the cume numbers it would lead to utterly moronic results. They won't even disclose their methods fully nor provide any reasonable context.

Even more bullshit than official GDP? Link? Proof?

 

[mshan]

Not sure, but wouldn't faster job growth be correlated with nominal GDP, not real (inflation adjusted) GDP?

"As the chart shows, that is the fourth consecutive quarter of decelerating NGDP growth. NGDP is now growing well below its historical trend of around 4.5 percent, at a time when it should be growing faster than trend if there is to be any hope of closing the NGDP gap, the output gap, the employment gap, or any other gap."

http://www.economonitor.com/dolanec...n-nominal-gdp-growth-adds-to-pressure-on-fed/

 

[werepossum]

A large amount of the military spending even though it originates from taxes does go back into the economy.
Military salaries
Military equipment - much is US made
weapons/munitions

What is not pumped back in is the supplies needed to maintain the force.
Foodstuff, construction, fuel, bribes

Which is a good reason to spend money on American-built fast lift capability rather than maintenance of troops in foreign bases, so that as much as possible stays in this country. Outside of perhaps South Korea and Kuwait, no country really wants Americans for security in today's world. They want us there to transfer money from our economy to their economy.

Democrats have an interesting dichotomy going. The economy is great! We need massive stimulus to fix the economy!

 

[Fern]

-snip-
Democrats have an interesting dichotomy going. The economy is great! We need massive stimulus to fix the economy!

Every time I see one of these threads about how the economy is improving (or housing, manufacturing, consumer spending etc.), and there have been a metric sh!t ton here, I think to myself that if just 10% were true our economy would be blazing by now.

It's been 3 yrs of hyping improvement yet nothing's perceptively changed.

Fern

 

[mshan]

I bet the Fed's take would be that yes, the economy is growing, but there are still substantial downside risks (fiscal cliff domestically, Europe and China, more importantly, internationally), which is probably why Bernanke surprised market with the potential aggressiveness of QE Infinity in September.

Unemployment still seems to be cyclical, but if it keeps persisting at these levels, then some of it can become structural because long-term unemployed lose skills to re-enter workforce successfully.

$4 trillion (give or take 10%) bite into deficit (mix of spending cuts and revenue increases), when spread out judiciously over 10 years, can put U. S. back onto stable footing that reduces risk that we get attacked by whatever this day's equivalent of bond vigilantes is.

And smart investments in infra-structure (after credible plan that markets believe that takes ~$4 trillion bite into debt over 10 years has been definitively implemented), especially when we can borrow near free after accounting for inflation, can spur growth, create jobs, and make the U. S. more competitive in future.



Goldilocks: http://www.economonitor.com/dolanec...ns-underline-need-for-goldilocks-budget-deal/

The latest analysis from the Congressional Budget Office (CBO) shows a sharp divergence between a baseline projection and an alternative fiscal scenario for the U.S. economy. To put it in language a child could understand, the baseline projection is too cold while the alternative scenario is too hot. It is clear from the report that we need a Goldilocks budget deal to get things just right.

The CBO’s baseline assumes no changes in current law. Paradoxically, no change in the law would mean big changes in policy. That is because we are facing the so-called fiscal cliff–a set of measures that include allowing the Bush tax cuts to expire as scheduled, making sharp cuts in Medicare payments to doctors, ending extended unemployment benefits, and allowing mandatory cuts to defense and nondefense spending to come into force. The CBO projects that those changes would shrink the budget deficit to about 4.0 percent of GDP, compared with a projected 7.3 percent for 2012. The deficit would decline to 1 percent of GDP by 2016.

The alternative fiscal scenario assumes that Congress will make the kinds of changes to current law that it has regularly made in the past. Tax cuts will not be allowed to expire (except for the temporary reduction in payroll taxes); Medicare cuts will be postponed (the so-called “docfix” and mandatory spending cuts will be cancelled or postponed. Under those projections, the deficit for 2013 would be 6.5 percent of GDP, never falling below 4.2 percent of GDP.

The alternative fiscal scenario—business as usual—is “too hot” in the sense that it keeps the deficit and debt on unsustainable paths. The following chart shows that under business as usual, the debt will reach nearly 90 percent of GDP in ten years; after that it would grow indefinitely. By contrast, the fiscal tightening in the baseline projection is sufficient to begin bringing the debt ratio down almost immediately.

On the other hand, the baseline projection—running the economy off the cliff—is “too cold” in the sense that it is predicted to put the economy back in recession in 2013, with an estimated 0.5 percent decrease in real GDP. That result shows up in the following chart as a temporary widening of the output gap (the gap between actual and potential real GDP) before the gap begins to narrow again.

Clearly, neither path is optimal for the economy. Pursuing the alternative fiscal scenario would mean driving the economy toward eventual default or inflationary monetization of the deficit. Those outcomes could be avoided only by undertaking fiscal consolidation measures that, because of the delay, would be even more painful than those of the dreaded fiscal cliff. On the other hand, an optimal fiscal consolidation undertaken immediately would not be so strongly front-loaded as to drive the economy into recession.

The Goldilocks outcome of fiscal consolidation that begins immediately but is phased in gradually as the economy recovers will require political compromise. The components of compromise are known to everyone:

• Tax reform that increases revenues while broadening the base and reducing the disincentives inherent in high marginal rates.

• Discipline regarding both defense and nondefense components of discretionary spending without compromising growth-enhancing expenditures like education and infrastructure.

• Reform of social security and Medicare that recognizes both budgetary and demographic realities.

Where are we headed? Will our political system deliver us a bowl of porridge that is just right, or will it, like the Mama Bear in this cartoon, throw us into the pot as Goldilocks stew?

 

[LegendKiller]

Even more bullshit than official GDP? Link? Proof?

Here, since you fail so much at the intarweb I'll help you out. Do try to think about this a bit.

http://www.econbrowser.com/archives/2008/09/shadowstats_deb.html

http://traderscrucible.com/2011/02/01/why-shadow-government-statistics-is-very-very-very-wrong/

I know it may be *very* hard for you to do this, but please try to strain your brain a bit. It might actually be beneficial to your knowledge.

 

[gevorg]

Here, since you fail so much at the intarweb I'll help you out. Do try to think about this a bit.

http://www.econbrowser.com/archives/2008/09/shadowstats_deb.html

http://traderscrucible.com/2011/02/01/why-shadow-government-statistics-is-very-very-very-wrong/

I know it may be *very* hard for you to do this, but please try to strain your brain a bit. It might actually be beneficial to your knowledge.

Seriously? Fuck off douchebag.

 

[LegendKiller]

Seriously? Fuck off douchebag.

Dude, I'm not the one quoting from a website who has practically admitted his proxy for inflation is to take CPI-U and add a fixed amount which he has no fucking idea about. Where did he get the number? NOBODY KNOWS.

Yet you'll run around parroting this shit just because it fits within your narrow knowledge of the subject. You didn't even study it.

Hell, even Mish bashed the guy's idiotic measurements.

 

[Moonbeam]

Seriously? Fuck off douchebag.

Uh, FUCK OFF now, hear? Sounds like somebody got an authoritarian little brain dead Nazi's panties in a bunch, and he brought out the big logical argument guns.

 

[Munky]

I notice how these puppets keep preaching the good news even when there is no good news. I stopped listening the BS a long time ago.

 

[mshan]

Bob Johnson of Morningstar's take on this week's economic data: http://news.morningstar.com/articlenet/article.aspx?id=572461&part=1

GDP Grows Faster than Expectations

"The broadest measure of economic activity, inflation-adjusted GDP, grew 2%, ahead of the second quarter's 1.3% rate and last week's consensus growth rate of just 1.6%, and in line with my most recent guess of 2.0%. The broad outlines of the report were as expected: a very strong consumer, an improved housing market, a business community stuck staring into the headlights, and a very modest detraction from net exports. Consumption improved by 2% on an annualized basis when compared with the second quarter. That represents an improvement from the 1.5% level in the second quarter, accounting for the bulk of the improvement in GDP compared with the second quarter.




By Category, Consumer and Government Drive GDP; Trade and Corporate Investment Hurt

Consumption is always the most important part of this report, because if consumers continue to spend, businesses will have to invest in plant and equipment, inventory, and most importantly, employees. Furthermore, consumption spending represents about 70% of GDP.

Residential construction was also strong, growing 14% in the third quarter and contributing 0.3% to GDP growth. As good as that residential housing number was, I thought it could have been better. The inflation index for housing materials cut hard into the housing numbers (residential construction prices were up 2.6%, which was behind only non-durable goods [gasoline] in terms of inflation).

Business investment spending, including buildings, equipment, and software, fell 1.6% (and took 0.1% off of GDP growth) as businesses pulled back because of fears of the fiscal cliff and slowing world markets. While business spending diverged from consumer spending this quarter, this trend cannot go on for long. Net trade took about 0.2% off of GDP as both imports and exports fell, but exports fell faster. Still, for all the world's problems, exports fell just 1.6% on an annual basis (and subtracted 0.2% from GDP growth). A full table of the GDP contributors appears below:

Beneath the GDP Covers, Some Dramatic and Offsetting Factors

The factor that stands out, and which many commentators are mentioning, is that overall government spending jumped 3.7% after eight straight quarters of decline (and contributed 0.7% to GDP growth). A dramatic 13% increase in federal defense spending was the biggest reason for the increase, but other federal categories were up as well. I suspect that some of this might be "use or lose it," year-end spending (the federal government's fiscal year ends in September). While state and local government spending growth was basically unchanged, that was the best reading in more than 12 quarters. Unfortunately, even as state and local spending potentially move into the black next quarter, the defense spending number is likely to slump again in the quarters ahead, creating yet another drag on GDP growth down the road.

While many naysayers are focusing on the government contribution, farm inventories and the auto sector were hugely negative, and unlikely to recur. I suspect the drought was behind the drop in farm inventories, which took an unusually large 0.42% off of the GDP calculation. Looking back at four years of data, it's hard to find quarters where the farm inventory impact was more than 0.1%, and impossible to find anything as big as this quarter's 0.4% decrease.

In last week's piece I highlighted the fact that auto production was likely to be a detractor from GDP in the third quarter (however, a big plus for consumption), but the 0.47% subtraction for net auto production surprised even me. This will surely reverse itself in the fourth quarter and provide a bit of a tailwind. Recall that auto sales have been flat at almost 15 million units for practically every month of 2012. Yet, auto production, at least according to government statistics, fell off of a cliff in August and September. I believe faulty seasonal factors, the Japanese finally catching up with adequate inventories after the 2011 tsunami, and a big inventory build and subsequent plant shutdown and retooling at a GM (GM) pickup truck facility all contributed to this one-time anomaly.

Summing up all the anomalies, the net effect is that the GDP report could have been almost 0.2% higher without this strange set of circumstances, or 2.2%. However, some of that benefit will be offset by some downward revisions in other categories in the next version of this report next month. It strikes me that business capital spending was a little worse than the initial report suggests and non-farm inventory growth looks slightly overstated. However, construction spending is likely to be revised higher in the next report given the very recent strength we have seen in new home sales."

Great Improvement in Spending, However, Solid Income Growth Will Fall Short of Spending

The income and expenditures report should look good in September based on the September employment report (more employment, more hours per week, more pay per hour) and solid retail sales reports for July, August, and September. Not adjusted for inflation, incomes are expected to be up 0.3% and spending a more robust 0.6%, with inflation running about 0.4%.

Both these numbers would have looked even better but August retail sales and July and August employment data had not been revised sharply upward subsequent to the last income and expenditures report. If not for the revisions, incomes could have been as high as 0.5% and expenditures up 0.8%. The net takeaway in either case is that consumers are continuing to spend regardless of what is happening in Europe and worries about the fiscal cliff. In fact, spending growth has outpaced income growth for three months in a row following two months of underspending.

Auto Sales Remain Rock-Solid

Motor vehicle sales are expected to hit 15 million units in October, just slightly topping September's 14.9 million units. Auto sales have been rock-solid this year, though two months of sharp auto production declines have economists scratching their collective heads. A good sales number on Thursday would alleviate concerns that manufacturers know something bad about the economy and auto sales that rest of us haven't yet figured out.

:thumbsup: