GDP: Negative 0.3%
GDP was negative in Q3 -- worst quarter since Q3 2001 -- and the headline number doesn't even do the extent of the contraction justice:
"Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 0.3 percent in the third quarter of 2008, (that is, from the second quarter to the third quarter), according to advance estimates released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 2.8 percent.
The decrease in real GDP in the third quarter primarily reflected negative contributions from personal consumption expenditures (PCE), residential fixed investment, and equipment and software that were largely offset by positive contributions from federal government spending, exports, private inventory investment, nonresidential structures, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased."
Thank goodness for Federal, State and Local government spending, and for exports:
Real personal consumption expenditures: -3.1%
Durable goods -14.1%
Nondurable goods -6.4%
Services expenditures +0.6%
Bloomberg notes that the 6.4% rate of decline in spending on non-durable goods, like clothing and food, was the biggest since 1950.
chart via Jake at Econompic
The Big Picture is moving! The new post here:
Breakdown of components:
Real nonresidential fixed investment -1.0%
Nonresidential structures +7.9%
Equipment and software -5.5%
Real residential fixed investment -19.1%
Real exports of goods and services +5.9%
Real imports of goods and services -1.9%
Real federal government consumption +13.8%
National defense +18.1%
Nondefense +4.8%
Real state and local government consumption +1.4 percent%Real change in private inventories +0.56%
Real final sales of domestic product (GDP less the change in private inventories) decreased 0.8%
The big collapse was in Consumer Spending -- it fell 3.1% (annualized). the first decline since 1991, and the weakest Quarter since 1980.
One last thing:
The Bureau emphasized that the third-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The third-quarter "preliminary" estimates, based on more comprehensive data, will be released on November 25, 2008.
Expect 0.3% to get revised downwards -- perhaps significantly so . . .
chart via Jake at Econompic
Source:
GROSS DOMESTIC PRODUCT: THIRD QUARTER 2008
8:30 A.M. EDT, THURSDAY, OCTOBER 30, 2008
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm
Thursday, October 30, 2008 | 09:36 AM | Permalink
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Goldilocks Lives!
-Larry Kudlow
Posted by: Jeff M. | Oct 30, 2008 9:55:27 AM
Consumer spending fell but it's likely locked into a level near here now.
Because we had to see the effect of removing credit lines from people who were living on them.
I think we've seen that number now.
Therefore, we should go up from here.
Any numnuts picking QID yesterday want to bark at me now?
Posted by: John Borchers | Oct 30, 2008 9:56:03 AM
I feel like I am in the land of Oz.
I want to buy Leftback's GDX so bad I can taste it.
But I see a situation where the driver of gold prices is doubt about the value of the dollar, not increasing inflation.
The GDP numbers will get worse, and certainly inflation won't occur in the near term.
What I can't get my mind to accept is that the price of gold will continue to increase in this deleveraging society without inflation, because of mistrust in the value of the dollar bill.
Leftback, help me out. Tell me again how gold is going to continue to rise. I want to believe, I do, I do, I do believe in gold...
(Apologies to the cowardly lion and ghosts)..
Posted by: Bruce in Tennessee | Oct 30, 2008 9:58:40 AM
Gotta love Yahoo. The market is up because 200 points because the drop in GDP wasn't as much as expected? WTF??
Posted by: Joe Klein's conscience | Oct 30, 2008 10:00:42 AM
ok i am a little lost...was the switchover postponed?
it's 9AM CST and new content is appearing here and not on ritholtz.com/blog
Posted by: bcd | Oct 30, 2008 10:01:52 AM
Isn't it guaranteed that the GDP numbers will be revised downward as we move forward? The perma-bulls are crowing because the preliminary estimate was slightly less than forecast, but what will they say when the final numbers confirm the initial estimate?
Posted by: PrahaPartizan | Oct 30, 2008 10:04:40 AM
Yes, thank goodness for government. Let's tax and spend our way to prosperity.
Posted by: IMM | Oct 30, 2008 10:05:36 AM
Energy losing it's gains from yesterday and Boone's fund out of energy in cash and announcing he is waiting on the sidelines. Excellent. This is just what the market and consumer needs. Cheap oil fixes a whole bunch and people are starting to realize that.
Posted by: John Borchers | Oct 30, 2008 10:07:49 AM
@ John Borchers
You think we've seen the full extent of what removing credit lines will do to consumer spending ?
wow
I think we won't see the full effects of that until '09. Lots more pain ahead for the economy, imo. Not saying the markets haven't fully discounted this, but I'm skeptical.
Posted by: ToddinFL | Oct 30, 2008 10:11:02 AM
We've seen the majority I think Todd.
Posted by: John Borchers | Oct 30, 2008 10:12:53 AM
@ Bruce : Everyone around the world is easing and printing together. That is a pretty good scenario for gold. Remember nothing goes in a straight line. I like gold here into the end of the year. At the end of the year I like QID and the 5-year Treasury.
@ JB: I picked up some QID late yesterday as a hedge against a REALLY bad Q3 GDP, caught that late sell off and took it off this morning. Not sure if that makes me a num-nut... I'm not too keen on the action today so I am going to sit this one out. Not bearish here but a pull-back would not be surprising after the recent run.
Posted by: leftback | Oct 30, 2008 10:14:25 AM
All right LB, you convinced me. I will dip a toe in on GDX, but the way I buy, I will buy more shares if they appreciate. I never do the Cramer, and reload on the dips. If it persists, we'll add and continue.
Thanks.
B in T
Posted by: Bruce in Tennessee | Oct 30, 2008 10:19:03 AM
@John Borchers: Not barking at you but I am idling the truck and biding my time for some more QID.
If you think this is the worst of it from a consumer spending standpoint, think again. I repeat: The job losses have just started and as we've seen, consumers usually hold out until the very end until they really are FORCED to change their purchasing habits (read: they lose their jobs, incomes AND easy access to credit). More wreckage is to come in '09. We'll revisit this after the holidays.
Posted by: Jeff M | Oct 30, 2008 10:20:05 AM
When you are saving $20 to $25 on every fill up and lots of companies saving big on energy costs---got to have a positive impact on the economy next year--maybe things are better then they look.
Anyone got an idea on what effect an Obama win will do for the stock market in the next couple of months?
Posted by: gunthestops | Oct 30, 2008 10:20:21 AM
@ ToddinFL:
"You think we've seen the full extent of what removing credit lines will do to consumer spending ?"
No...
But I think we may have seen the full extent of the removing of credit lines. What do you think this whole govt bailout thing is seeking to address? We're flooding the system with liquidity and back stopping banks so they CAN CONTINUE to issue credit... Whether you're opposed to that from some ideological sense is irrelevant. People will be able to load up on debt again, because its the juice that makes the machine run. What we've witnessed is the machine starting to break down...
"And when the machine breaks down, we break down..." (to quote Sgt Barnes from Platoon)
The fed and treasury will not let the machine break down.
The market knows this already, and thats why people are buying stocks again. The market is ever looking forward, and its broadcasting to everyone that things arent as bad as many folks on this blog continue to believe. Will things economically continue to slow? Most likely. But does that mean that the Dow is doomed to go down to 7000, or 3500, or 1000 or even zero as some idiots on here have boldly proclaimed???
No way. All the economy slowing means is that its doing what economies do, namely going through cyclical booms and busts...
I fear many of you underestimate the resiliency.
Posted by: I-Man | Oct 30, 2008 10:20:41 AM
QID comment of numnut only for people dissing me yesterday, not you left.
I dunno about Gold and Oil. I don't like those. I expect commodity and energy unwind to be huge. It should also make the alt energy play worthless.
Right now market trading down with oil. I think people still see oil down as deflation and they are scared.
Most people over the last 2 weeks I think bought with cash so it's going to be hard to make those people move out of the market. Getting a bid from the remaining people is where the tough part may be.
I'm not moving.
Posted by: John Borchers | Oct 30, 2008 10:23:47 AM
@I-Man: You may be right but I think you over-estimate the power the Feds have on this process. I think for most people the game is over. The Feds can liquidate but if there aren't enough qualified borrowers left to borrow, what then?
Posted by: Jeff M. | Oct 30, 2008 10:24:45 AM
There's only one reason I would sell now. If commodities reflate again.
Posted by: John Borchers | Oct 30, 2008 10:28:34 AM
Leftback - can you tell me why you have been long GDX vs an ETF like IAU? I have been in IAU for 6 months and have gotten destroyed, but seems as though GDX might be a better play on gold/inflation?
Posted by: jdamon | Oct 30, 2008 10:30:24 AM
Steve Barry - are you still holding QID? If so, why don't you trade it vs hold it long term? I can't even imagine how much you would have made if you would have sold it on big down days and loaded back up on big up days.....
Posted by: jdamon | Oct 30, 2008 10:33:10 AM
I must confess that I am extremely confused. When the pundits said we needed a capitulation, I thought they meant a huge equities sell-off - I didn't realize it meant the central bank throwing in the towel.
ZIRP American-style. I think I'll go to the bank, borrow a few bucks, and then buy a bottle of Kikoman to celebrate.
Posted by: Winston Munn | Oct 30, 2008 10:33:15 AM
Many more of these annnouncements to come. Hard to find a reason to go long here.....
American Express plans to cut about 7,000 jobs, or about 10%, of the company's work force, and is also suspending management salary increases and instituting a hiring freeze.
Posted by: Jeff M. | Oct 30, 2008 10:40:21 AM
I'm still bullish on the consumer, whatever that means... Duh....?
Best regards,
Econolicious
Posted by: ECONOMISTA NON GRATA | Oct 30, 2008 10:52:43 AM
I think the credit line issue is going to be much greater than we could possibly expect. I have been a customer of AmEx for 20 years, never paid late, below my credit limits, Platinum, etc.
They just lowered my platinum and my Optima levels to my current balances. Now, think about what that does to my credit rating? My limits are now my balances, instead of my balances being 60% of my limits. No way to kill a credit rating faster than spending 100% of your available credit. Luckily, I will be able to pay off the balances (which were high because my husband made partner at his law firm so we had to forego a monthly salary for half a year) in December.
Many people will not be able to rectify this. Goodbye any hopes of buying a car, home, getting a student loan, etc. The credit card companies are wrecking the credit ratings of both good and bad customers. As always, an overcorrection.
Posted by: bk | Oct 30, 2008 10:52:51 AM
I Man,
Can you share the dope cause, Tthe Fed will be out of ammo. Then what? the Saudis buy us off
Posted by: Phil | Oct 30, 2008 10:55:22 AM
