Debt Rattle May 29 2014: The New Normal is Negative

By The Automatic Earth

Arthur Rothstein President Roosevelt tours drought area, Bismarck, North Dakota August 1936
No, the nonsense will not stop, and neither will the torture. At least 5 years into the alleged recovery, US GDP contracted by -1% in Q1 2014, down from last month’s estimate of a 0.1% growth. Why? It’s still the weather, say the “experts”. But worry not, because now the sun will shine and we will reach the promised land our deity and his high priests laid out before us. Bloomberg has gathered this bouquet of whatever:

U.S. Economy Shrank for First Time Since 2011

A pickup in receipts at retailers, stronger manufacturing and faster job growth indicate the first-quarter setback will prove temporary as pent-up demand is unleashed. Federal Reserve policy makers said at their April meeting that the economy has strengthened after adverse weather took its toll. “We do have business investment picking up, the household sector is in pretty good shape with the labor market improving a bit,” Sam Coffin, an economist at UBS Securities LLC in New York, said before the report. “That combination of slightly braver businesses, slightly faster job growth, should add up to broader, better growth.” [..]

Wait. A pick-up at retailers? Retail was down, way down in Q1, the most in 13 years. Faster job growth? Excuse me? Pent-up demand? Where? People spent their sparse cash on heating fuel. And no, the proper expression would be: “That combination of slightly braver businesses (Geez!), slightly faster job growth, should HAVE ADDED up to broader, better growth.” And it didn’t, did it?

Companies boosted stockpiles by $49 billion in the first quarter, less than the $111.7 billion in the final three months of 2013. Inventories subtracted 1.62 percentage points from GDP from January to March, the most since the fourth quarter 2012. Slower inventory accumulation may encourage factories to step up production should demand accelerate.

“Growth in key indicators such as employment, income, and consumer spending have recently begun to improve from weather-affected levels earlier in the year,” Robert Niblock, the chief executive officer at home-improvement retailer Lowe’s, said on a May 21 earnings call. “Performance has already improved in May, and continued improvement in the macroeconomic landscape and the consumer sentiment” help give the chain a positive outlook in 2014. The economy in the second quarter will expand at a 3.5% rate, according to the median projection of 72 economists surveyed by Bloomberg from May 2 to May 7.

“Slower inventory accumulation may encourage factories to step up production should demand accelerate.” Or it may not, because retailers know demand is dead. Take your pick. What useless drivel.

Non-residential investment dropped at a 1.6% annualized rate. Companies reduced their spending on structures at a 7.5% pace, the biggest decrease in a year. Spending for equipment fell 3.1%, the most since the third quarter 2012. Consumer purchases, which account for about 70% of the economy, increased at a 3.1% annualized rate in the first quarter. The gain, which added 2.1 percentage points to GDP, was more than the previous estimate of 3%. The increase reflected a stronger pace of spending on services, including utilities as colder winter weather prompted Americans to adjust their thermostats, than the previous three months.

Hello! People spent more on keeping warm. That’s all the positives that are on offer. And they didn’t have that extra cash lying around somewhere either, so what they spent on heating they won’t spend again through some pent-up demand on something else, because they already spent it! So exactly how is that positive, and how positive is it exactly? Let me put it like this: if consumer purchases (70% of GDP) were up 3.1% annually in Q1, shouldn’t you guys be looking at how totally disastrous the rest of the economy was to still print a -1% rate for Q1, instead of cheerleading something that doesn’t even exist?

Today’s report offered a first look at corporate profits. Earnings fell 9.8% in the first quarter from the previous three months, and declined 3% from the same period last year. Exports declined at a 6% rate in the first quarter, while imports rose as trade subtracted 0.95 percentage point from GDP, the most since the second quarter 2010.

Less exports, less imports, less earnings and corporate profits down. Is that how you spell recovery these days? It’s all snow and ice? Let’s turn to Tyler Durden’s take:

US Economy Shrank By 1% In The First Quarter: First Contraction Since 2011

Weather 1 – Quantitative Easing 0. Joking aside, while the realization that nobody can fight the Fed except a cold weather front, is quite profound, in the first quarter GDP “grew” by a revised -1.0%, down from the +0.1% first estimate, and well below the -0.5% expected, confirming that while economists may suck as economists, they are absolutely horrible as weathermen. This was the worst print since the -1.3% recorded in Q1 2011. Bottom line: for whatever reason, in Q1 the US economy contracted not only for the first time in three years, but at the fastest pace since Q1 of 2011. It probably snowed then too. Some highlights:

  • Personal consumption was largely unchanged at 2.09% from 2.04% in the first estimate and down from 2.22% in Q4. Considering the US consumer savings rate has tumbled to post crisis lows at the end of Q1, don’t expect much upside from this number.
  • Fixed investment also was largely unchanged, subtracting another 0.36% from growth, a little less than the -0.44% in the first estimate and well below the 0.43% contribution in Q4.
  • Net trade, or the combination of exports and imports, declined from -0.83% to -0.95%, far below the positive boost of 0.99% in Q4.
  • The biggest hit was in the change in private inventories, which tumbled from -0.57% in the first revision to a whopping -1.62%: the biggest contraction in the series since the revised -2.0% print recorded in Q4 2012.
  • Finally, government subtracted another -0.15% from Q1 growth, more than the -0.09% initially expected.

So there you have the priced to perfection New Normal growth (inclusive of “harsh weather”, which obviously has to be excluded for non-GAAP GDP purposes), which also now means that in the rest of the year quarterly GDP miraculously has to grow at just shy of 5% in the second half for the Fed to hit the “central tendency” target of 2.8%-3.0%.

And now we await for stocks to soar on this latest empirical proof that central planning does not work for anyone but the 1%.

And whaddaya know, they did:

S&P 500 Pushes To All Time Highs On First Economic Contraction In Three Years

What do you do when GDP prints twice as bad as expected… buy stawks! And so it is that -1.0% GDP print for Q1 has been greeted with a buying drive in S&P 500 futures to lift it back near all-time record highs this morning. Gold, silver, and the USD are also rising.. and bond yields are rising very modestly.

There’s so much nonsense in all this it makes you wish that, while everyone can accept the government will lie as long and as much as it can (and is still forced to take a -1% number “lying” down), at least Bloomberg would make an attempt at actual reporting. Instead, something tells me the media are just getting started. Still, it’s of course absolute nonsense to contend that US retailers hit their worst patch in 13 years because it snowed. Wal-Mart, Staples and Target simply hit disastrous numbers in Q1, and less snow won’t change that.

The bottom line remains that 5 years into the “recovery”, there is no recovery to be seen other than in the S&P, and that is fully due to QE, which won’t last forever, a truth that will exert a heavy downward pressure on the future of America. Just not on the upper echelons. But other than them, Americans, and America, are getting progressively poorer day by day. That is the new normal. And that is what this GDP number tells you. It’s not an aberration, it’s a trend. Despite many trillions worth of QE, recovery has been elusive for 5 years now. Why do you think that is?

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