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Flatlining GDP & NFP

As much as I typically like to discuss NFP on the first Friday of each month, I find myself unable to muster the usual blather. Not because the initial data is near garbage, subject to massive revision, and wildly off from reality -- that's a given.

No, today I find myself unable to get enthused about NFP because I am still reeling from the horrific GDP data we got yesterday.

Yesterday we learned that in Q1 2007, the economy expanded at the near zero growth pace of 0.15%. That's practically flatlined. This was the worst reading since a 0.2% increase in Q4 of 2002.

What's that, you ask? In the media, GDP was reported at 0.6% you say? Um, no -- that's the annualized rate -- take Q1 GDP and go mulitple it 4X and THAT's how you get to a still pitiful 0.6%.

The sunshine crowd bamboozled the press on this big time. Articles such as this one: U.S. Economy: First Quarter May Have Been Low Point -- report conjecture as fact and completely ignore what the actual data is. The WSJ was no better:  Slow Growth May Presage Pickup.

Or not. 

Here are the facts: The U.S. economy grew last quarter at the slowest pace in more than four years. The initial GDP report of 1.3% was actually more than double twhat the updated data showed, and was 25% below economists consensus. Housing, slack capex investment, declining consumer activity all are responsible for part of the slowdown.

Meanwhile in Europe, Business Investment has picked up dramatically. Europe's economy is growing about 4X the rate of the US in Q1.

Also included in the Commerce Department Data was that consumer spending was revised upward, to 4.4% from 3.8%. Note that if not for this revision, we would be talking about a sub 0% GDP. That would be the first quarter of 2 needed for the official measure of a recession.

How is it possible that consumer spending rose, when 80% of retailers have been missing numbers? Easy: Rising prices (not sales) in food and energy. You know, those elements the Fed hates to measure when it comes to inflation.

How and why most economists think that this is the low point is simply beyond me.

>

Sources:
U.S. Economy: First Quarter May Have Been Low Point
Shobhana Chandra
Bloomberg, May 31, 2007
http://www.bloomberg.com/apps/news?pid=20601068&sid=amY1npUWWskA&

Europe's Economy Grows 0.6%, Led by Investment Surge
Fergal O'Brien
Bloomberg, June 1 2007
http://www.bloomberg.com/apps/news?pid=20601068&sid=aVGPpxHmSbpk&

Slow Growth May Presage Pickup
Thinned-Out Inventories Mean More Output Ahead; Consumers Propel Economy
SUDEEP REDDY
WSJ, June 1, 2007; Page A2
http://online.wsj.com/article/SB118061455598919992.html

Friday, June 01, 2007 | 07:38 AM | Permalink | Comments (91) | TrackBack (1)
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Comments

Thanks for your commentary it is greatly respected and appreciated.
My response was WTF to those same headlines. Am following the ball until the trend changes. Have a feeling that when fear returns the weak hands will end up with soiled pants. Have a great weekend!

Posted by: Don | Jun 1, 2007 7:49:01 AM

You guys don't get it, the Govt and big business are controling the media spinning BS and will continue to paint the rosy picture we "need" to see from all different perspectives.

Same reason goes for not showing the dead soldiers from IRAQ coming home in the caskets. The news is sanitized and twisted so we the "weak Americans" can handle it.

Government in action.

Posted by: Jim | Jun 1, 2007 8:25:01 AM

So housing will have a minimum impact on the economy? No equity jumps this year seems to have translated to no big spending. I think when MEW is analyzed for this year it will be found to have flatlined as well.

Posted by: metroplexual | Jun 1, 2007 8:29:38 AM

One must understand that market always moves up right before GDP hits the lowest. That is why economists cannot be traders.

Posted by: toon | Jun 1, 2007 8:34:52 AM

wow had no clue about that spin the media pulled yesterday. Thank you Barry this site is great.

Posted by: costa | Jun 1, 2007 8:38:06 AM

"There [is a measure] which if not taken we are undone...[It is] to cease borrowing money and to pay off the national debt. If this cannot be done without dismissing the army and putting the ships out of commission, haul them up high and dry and reduce the army to the lowest point at which it was ever established. There does not exist an engine so corruptive of the government and so demoralizing of the nation as a public debt. It will bring on us more ruin at home than all the enemies from abroad against whom this army and navy are to protect us." --Thomas Jefferson to Nathaniel Macon, 1821. (*) FE 10:193

If he could see what debt is doing today...

Posted by: mhm | Jun 1, 2007 8:53:00 AM

but...but... everything is sunshine and roses and it is springtime and everything is wonderful and the future is so bright and it is a great time to buy a house and the stock market is rewarding the faithful and productivity is rising...

Posted by: wally | Jun 1, 2007 8:55:33 AM

Oh please, I hate the 'its all a media conspiracy?' blather, its what I expect to hear from ardent Republicans when talking about Iraq.

And the 'data sucks' complaint is not much better. When has the data not sucked?

Really, you can do better than that.

Deal with the reality. The weakness was due to inventory reduction, trade timing, and weak defense spending. Real consumer spending actually accelerated a bit.

And this is the news. The new news shows initial jobless claims falling, employment up, hours worked up. Durable goods orders have been strong.

If we just stop cutting inventories and get on with the business of war, GDP in Q2 will be back to 2.5%, not great but good enough to keep profits growing and the stock market headed higher.

~~~

BR: Its not a conspiracy -- its merely a failing of the government's modelling -- All models are biased, and the gov'ts models are biased to show more growth/less inflation.

The way the media reports it is sometimes pretty awful . . .

Posted by: daisycolorado | Jun 1, 2007 8:59:01 AM

There is a question here. We are now realizing, in no small part due to information exchange on the internet, how unreliable almost all measures of economic activity in the US are - from employment to inflation to GDP to housing sales and prices.
Was it always this way? Are we looking at a modern corruption by political process or are we just realizing that these numbers never were reliable?

Posted by: wally | Jun 1, 2007 9:00:14 AM

from PIMCO

Detailed data in the Bureau of Labor Statistics (BLS) Business Employment Dynamics (BED) release, which comes out with a two-quarter lag, show employment growth of only 19 thousand in 2006Q3, while the nonfarm payroll tally for that quarter was over 450 thousand. More recently, the BLS’s more timely Job Opening and Labor Turnover Survey (JOLTS) for April – last month! – showed job openings rose only 24 thousand, with this series essentially flat since last August. The JOLTS report also showed that new hires in March (this data subset is released with a one month lag) fell 29 thousand.

Something smells more than fishy here. Not that I’m accusing the BLS of any skullduggery. None! Rather, it is a historical fact that nonfarm payrolls – before annual benchmark revisions, which continue for six years! – understate employment early in recoveries (leading to the inevitable contemporaneous label of "jobless recovery"), while they overstate employment late in expansions.

Posted by: jmf | Jun 1, 2007 9:17:27 AM

How fortuitous that both the housing bottom and the GDP bottom coincidntally occured - let's hope this isn't the bottom also for food prices, energy prices, and interest rates.

There seems to be a Kubler-Ross 5 stages of grief mentality about the economy, and the initial stage is denial - it can't get worse or we are screwed; therefore, this must be the bottom.

Posted by: Winston Munn | Jun 1, 2007 9:21:33 AM

Couple of positive news (atleast for tbe bulls) ...

1) Inflation falls back to Fed's comfort zone
Personal incomes fall for first time in 20 months

WASHINGTON (MarketWatch) -- Core consumer price inflation increased just 0.1% in April, bringing the year-over-year increase down to 2%, just inside the Federal Reserve's target, the Commerce Department reported Friday.
It's the first time in 14 months that core prices have been inside the Fed's unofficial target zone of 1% to 2%. Core inflation peaked at 2.4% in February; it was 2.1% in March

http://www.marketwatch.com/news/story/inflation-falls-back-feds-comfort/story.aspx?guid=%7BAC83AE34%2DF414%2D45AD%2D96C8%2D668C7870C272%7D

2) Employers Add 157,000 Jobs in May

WASHINGTON (AP) -- Employers showed a decent appetite to hire in May, boosting payrolls by 157,000, the most in two months. The unemployment rate held steady at 4.5 percent.

http://biz.yahoo.com/ap/070601/economy.html?.v=18

S&P 500 futures expiring this month added 5.9 to 1538.8 as of 9:05 a.m. in New York. Dow Jones Industrial Average futures increased 40 to 13,690. Nasdaq-100 Index futures climbed 8.25 to 1940.5.

As I predicted, we will have an excellent summer rally.

Posted by: ManhattanGuy | Jun 1, 2007 9:21:56 AM

If everything is as bad as it looks (or worse) I guess I should be buying bonds.

Posted by: boy | Jun 1, 2007 9:31:24 AM

I too was struck by the positive spin placed on the abysmal gdp number. "Those low inventories mean gdp, like Fast Eddie, is back this quarter!" In truth, I'd expect a better number in the second quarter, if for no other reason than that cpi, as measured, is almost certainly going to be lower, due to the Owner's Equivalent Rent calculations. That means that the subtraction from nominal to real is smaller, so real may pick up.

Having said that, when you look at that 4.4% consumption growth that you noted, and combine it with the impending ARM reset chart that you posted yesterday, it's hard to construct a bullish longer term argument for gdp. Consumer spending lags the housing/mortgage problem, and those resets are only beginning to kick in.

And when you look at quarterly gdp numbers as a time series over a slightly longer horizon, the trend is pretty clear. From Q1 '06, they go as follows: 5.6%, 2.6%, 2.0%, 2.5%, 0.6%. Hard to make that into a bullish looking chart.

Whether you want to annualize it as 0.6%, or diminish it further by calling it 0.15%, this last quarter is already in hard landing, growth recession territory--hardly the goldilocks scenario the stock market's placed all its chips on. Maybe the liquid refreshments the casino operators have been serving will keep participants from noticing, but the investment thesis upon which the rally has been based is disappearing fast.

Posted by: Scott Frew | Jun 1, 2007 9:31:42 AM

Barry,

Why did you divide Q1 GDP by 4?!?

I am puzzled as to why you are doing it.
Are you saying that all quarterly GDP numbers heed to be divided by 4 to get “the real numbers”?

By the way, applying the same logic to EU GDP, you should get the same 0.15% growth in Europe.

European Manufacturing Growth Unexpectedly Slowed (secondary to US slowdown)
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOvSeMqnh78Y

Japan's Industrial Production Falls for Second Month (secondary to US slowdown)
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aO5soeOOiBYk

P.S. It just shows that the US economy (housing bubble) was the driving force behind this global expansion.

~~~

BR: The US GDP is reported as annualized (i.e., extrapolating the Q into a full year's data).

The European data is reported on a quarterly basis (not annualized)

Posted by: V L | Jun 1, 2007 9:31:59 AM

Employment table for this month's NFP release

What I couldn't find easily was the birth/death adjustment. Anyone else know?

~~~

BR: Its here:

http://www.bls.gov/web/cesbd.htm

Posted by: s0mebody | Jun 1, 2007 9:42:35 AM

Now that the headline is safely out of the way we can eventually expect the revisions with little fanfare. Federal agencies are notorious for missing changes in trend.

I say, if inflation can be reported ex-inflation then the GDP can be reported ex-GDP. Excluding food and energy AND adjusting for popualtion growth... why just that last puts us to flat per capita economic growth. Why stop there? Adjust for inflation, ouch.

Posted by: Robert Cote | Jun 1, 2007 9:43:02 AM

Manhattan guy-

Usually people try to interpret data instead of just merely restating the same crap over and over again.

Where is your analysis??

Thought so

Ciao
MS

Posted by: michael Scumacher | Jun 1, 2007 9:49:18 AM

birth /death table

http://www.bls.gov/web/cesbd.htm

Posted by: jmf | Jun 1, 2007 9:55:29 AM

Personal saving down again, personal income down again but consumer spending increased.

Posted by: costa | Jun 1, 2007 9:56:05 AM

Ok, Barry...let's roll up our sleeves, and make some money.

"The U.S. economy grew last quarter at the slowest pace in more than four years. The initial GDP report of 1.3% was actually more than double twhat the updated data showed, and was 25% below economists consensus. Housing, slack capex investment, declining consumer activity all are responsible for part of the slowdown."

- and this is a surprise??? This has been the most telegraphed slowdown I can remember...how many Recession calls here?

"Meanwhile in Europe, Business Investment has picked up dramatically. Europe's economy is growing about 4X the rate of the US in Q1."

- Agree...also baked in. Now here's where we sharpen our pencil and make money...where do you place your bets at this point of the cycle?

- US$ "cheap", so US stocks cheap on a currency basis.

- Rates RISING in Europe - fight that trend? CB trying to slow economy down.

- US rates in processs of "dis-inverting"...meaning growth is making a comeback (don't need short term rate cuts)

So here's the INVESTMENT (not economic) question -- do you make more money investing in an expensive currency/stock market entering a tightening cycle, or in a currency that sits at (long term) support, where signs show a return of growth (with core CPE under control)? Given the (backward looking) "slack capex", you mention, and very low expectations, ANY pickup in Capex will give huge leverage in earnings. Inventory levels also point to more positive earnings going forward as well.

We're nearing the inflection point where foreign investors will flock here for a better "bet", imho.

Posted by: Fred | Jun 1, 2007 10:00:10 AM

Manhattan guy-

Sorry for you not having any opinion other than what is spoon fed to you by the media.

Thanks for you're concern I do quite well for myself.

when backed into a corner the questions about the size of one's wallet are always brought up. Thanks for sticking to the stigma of XXXXXXXX ......you fit the bill perfectly

Ciao
MS

Posted by: michael schumacher | Jun 1, 2007 10:11:09 AM

XXXXXXXXX? Why is that anytime I say something positive in this blog, people call names? Is this a way for you to defend yourself?

Again sorry for your situation. You do sound like a loser to me!!

Posted by: ManhattanGuy | Jun 1, 2007 10:14:59 AM

I remember reading that there was quarterly jobs data which was an actual survey with a very large sample. Can someone tell me about any jobs data which is a count of jobs?

Posted by: Aaron Byrnes | Jun 1, 2007 10:19:41 AM

Thanks jmf,

FWIW birth/death addition this month was 203,000 jobs.

Posted by: s0mebody | Jun 1, 2007 10:24:44 AM

December 2008

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