GDP, Durable Goods

Consensus for Q3 GDP is 3.2%; the consensus range was from 2.5% to 4.0%.

I am on the low end of the range, but given how an under-reported inflation number enhances GDP, a higher data point would not surprise me.

NT’s Asha Bangalore  notes:

"Durable goods orders fell 1.7% in September, following a 5.3% drop in the prior month. The 38.7% drop in orders of durable defense items was the major cause for the drop in durable  goods orders.  Excluding defense, bookings of durable goods increased only 0.7%. Orders of  non-defense capital goods rose 4.4% in September after a 12.2% decline.   

The more troubling issue is the fact that both orders (-8.4%) and
shipments (-1.1%) of durable goods are weak on a year-to-year basis."

A few of Asha’s more interesting charts as we await GDP at 8:30 this morning:

Mfr_new_orders

Orders and shipments of non-defense capital goods excluding aircraft, the less volatile
component of durable goods, also send a similar message:

Cap_goods_exaircrft

Source:
Wilting Durable Goods Orders – Precursor of More to Come?
Asha Bangalore
Northern Trust, Global Economic Research October 25, 2007
http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0710/document/dd102507.pdf

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What's been said:

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  1. Neal commented on Oct 31

    GDP number will be on the low end to leave the Fed free for cuts today or later.

  2. Peter Boockvaar commented on Oct 31

    The day is finally here that the Fed either confirms that it’s Wall St’s bitch (I stole that from you-know-who) catering to their every wish or it’s an independent institution that defends the value of the US$ and thus price stability in addition to its growth focus. US Treasuries are trading down ahead of the news following a selloff in European bonds after euro region CPI rose 2.6%, .3% more than expected and the highest since bloomberg has data going back to Oct ’01. ABC confidence rose 2 pts to -15 but remains 8 pts below the 1 yr avg. Mortgage apps were mixed as refi’s rose 9.2% to the highest since March but purchases fell .7%. The BoJ left rates unch as expected and lowered its forecasts for both growth and inflation. ADP Oct private sector job growth expected to total 58k and would be the 8th month of 9 below 100k. Q3 GDP expected to rise 3.1%. Q3 ECI, Chicago PMI and Construction also out.

  3. dblwyo commented on Oct 31

    Marketwatch has a complementary article today that makes a point I agree with – this Q’s number isn’t as important as the next two because, my own spin, the trend is down, we’re in a growth recession and the riks of BigR are rising and accelerating.
    MW:
    Ignore Wednesday GDP report: Economists say next two quarters crucial, January-March 2008 most dangerous for sharp slowdown.If you’ve listened recently to some prominent Wall Street economists, the U.S. economy in the next two quarters is going to slip from the jaws of the credit crunch, hurdle the tiger-trap of the housing slowdown, swing across boiling oil prices, and land on its feet having narrowly escaped a recession. But many economists are skeptical. They say that this scenario of the economy as swashbuckling hero from a classic B movie isn’t very realistic. Instead, they are seriously concerned that the economy soon could slip into a recession.
    Economy as Indiana Jones: http://tinyurl.com/ytbjuf

  4. blam commented on Oct 31

    from John Hussman:

    Here is what the data look like since 1960. The graph below plots the year-over-year change in the U.S. current account (billions of U.S. dollars) against the year-over-year change in U.S. gross domestic investment. The slope of the best fitting line is literally -1.0. Every $1 “improvement” in the U.S. current account is typically associated with $1 of deterioration in U.S. gross domestic investment. Indeed, if you look in the lower right quadrant, you’ll notice that major year-over-year improvements in the current account are almost always associated with plunging gross domestic investment

    [ Graph Showing -1 d(Investment)/d(current Account)]

    So the idea that an “improving” current account deficit is good for GDP growth is a lot like believing that walking across the street to the donut shop is “good” for your weight. Sure if you think of the walk in isolation, you’re burning calories. But walking to the donut shop is usually directly correlated with eating a donut.

    The same idea applies here. If you look at the current account deficit in isolation, the GDP equation leads you to believe that a smaller current account deficit will improve GDP. Unfortunately, the improvements that we’re seeing are not coming from increased saving or productivity, but rather, from weakening domestic investment (particularly in the housing sector), which is creating a smaller demand for imported savings from foreigners. As Bill Hester notes this week, there are also growing risks in the area of fixed investment

  5. Winston Munn commented on Oct 31

    Indiana Jones and the Mountain of Debt – I like it.

    Meanwhile, sales at Harrison Ford are down -17% YOY.

  6. Logic commented on Oct 31

    Housing topped in 2005, we are going into 2008 pretty soon. When is this housing recession gonna finally hit? The housing doom and gloomers keep predicting recession but it never comes.

    I wonder.

  7. rob commented on Oct 31

    Hamlet dies in the Fifth Act.

  8. Neal commented on Oct 31

    GDP 3.9, deflator 0.8

    Let’s see, if deflator were 2.8, GDP would be 1.9

    Not so subtle.

  9. vega commented on Oct 31

    THE DEFLATOR IS BOGUS!!! THE CPI IS BOGUS!!! ALL THE NUMBERS ARE BOGUS!!!

    It’s the game we play, that’s all. There is no secret. The secret is there is no secret. Look at YOY price changes in oil, ALL commodities, the dollar, gold, whatever. Prices are much higher than anyone in the government will ever admit.

    It’s just a stupid game. Inflate away, lie about growth, lie about what’s really going on.

    Tell ya what, they can only play the game so long until the big reckoning comes. Until the dollar totally craters. As if it hasn’t already.

    Now even Rubin is starting to worry aloud.

    How much longer can the lies go on? FOREVER!!!!!!!!!!

  10. Sammy20 commented on Oct 31

    I watched V for Vendetta last night. I read this stuff and really believe that people are becoming brainwashed sheep!!!

    “Despite rising worries about commodity prices, the GDP price index, the broadest measure of price changes in the economy, rose just 0.8% annualized, matching a nine-year low. Inflation hasn’t been lower since John F. Kennedy’s administration.”

  11. fenner commented on Oct 31

    (meant to post this under this entry, not the last)

    If the Fed does cut today, after the GDP data, the market will eventually come to the understanding that “it”, not the Fed, has been appointed to look after inflation. It will also intuitively understand that inflation is detrimental to its health in the long run. Over the next few weeks, the market will start to react to inflatiion, not necessarily the doctored data, much as it would react to a Fed statement. In other words, the Fed will have made itself irrelevant. Bernanke may become the new Arthur Burns with his unfortunate relationship to the Nixon White House.

  12. Nova Law commented on Oct 31

    GDP better than expected. Let’s watch as the permabears try to explain away the good news.

    Let me take a stab at it:

    “The numbers are fake!”

    “The neo-cons are trying to con us again!”

    “Yes, but if you drill down on the numbers, the real GDP growth was -4.5%.”

    “Growth ex-growth means that gold goes higher, we’re in a terrible recession!”

    “The Dow is headed to 8600 this year.”

  13. Bill commented on Oct 31

    Wow 3.9 % !!

  14. RichardN commented on Oct 31

    Good number. Now people don’t expect 50bp, and… we get a surprise rally again. If that does happen, then either Friday employment sucks or the Fed will have a hard time justifying the cut.
    Nova Law: in the same way the bulls explain away the bad news (weak data, fed cut, stocks rally) you could make the opposite argument for the bears now, except higher rates at this particular point in time is a much better case for the bears, than lower rates on bad data is for the bulls.

  15. KP commented on Oct 31

    I love the smell of inflation in the morning.

  16. ARISTOTLE commented on Oct 31

    Okay, I have a question for the legions, if you accept the GDP numbers at face value, where is the logic for a rate cut? The economy is doing fine.

  17. KP commented on Oct 31

    Wallstreet’s bitch need not be concerned with logic, only obedience.

  18. SINGER commented on Oct 31

    Can anyone explain how the use of “chained” 2000 dollars in the calculation of GDP might skew the readings???I’ve checked out the last page of the release but alas can’t clearly make it out…

    Any skilled readers able to help???

  19. michael schumacher commented on Oct 31

    Yes everything is fine in NOGO land..

    Try interpreting what is presented to you instead of taking it for face value.

    This is the same commerce department that reported a 4K loss in jobs (coincidentally just prior to the last fed meeting) and then swiftly revised them upwards to show a gain of 89K after the rate cut was given.

    How you can have faith in anything they produce (it suits your position to do so this time) is just beyond comprehension.

    But I expected that from NOGO land…

    Ciao
    MS

    Ciao
    MS

  20. Pool Shark commented on Oct 31

    Let me see…

    Bad News => Markets go up

    Good News => Markets go up

    Okay, makes sense to me

  21. Nova Law commented on Oct 31

    Nice to see Michael Schumacher still hanging around here, slinging juvenile insults. He was doing the same thing, claiming the same bear BS back when the Dow was below 10,000.

    But then I love to make money (and have) while permabears and conspiracy theorists remain (as always) resolutely stuck on stupid.

  22. michael schumacher commented on Oct 31

    No insult from me unless having to tell you to make up your own mind and not just spout a gov’t report that says it’s all fine is an insult…..than I guess I just insulted you.

    You still miss the larger picture but I digress……

    On a day that produces this headline:

    “Economy Grows at Brisk 3.9 Percent Pace in Summer, Best Performance in 1 1/2 Years”

    What effing planet do we live on that produces an environment where we are even considering a cut in rates???

    To quote General Buck Turgison:

    “Look at the big board!”

    Ciao
    MS

  23. Philippe commented on Oct 31

    Not much to comment on the GDP figures as they are deemed to be revised they are just preliminary.Revised they have been more often than none.
    They will be revised in accordance with the definition of the economist
    “The one who will tell you tomorrow that the forecasts he made yesterday fo today are wrong”

  24. Cherry Picking PermaBull commented on Oct 31

    Ha ha ha ha ha, told you so!!

    (see you at the next bit of intermittent/falsely-prophetic scrap of good news)

  25. michael schumacher commented on Oct 31

    Trot out some figures on your own Nogo…..

    If you actually looked at almost all economic indicators what you call an argument would’nt be standing up for two seconds.

    Face it…Earnings suck…CAPEX is not going to rescue us and the numbers that you (and the permabulls) use are suspect at best since they are almost ALWAYS revised upwards to suit a position.

    That is not skill it’s just misrepresentation (something you seem to know alot about) so spare me the smug attitude that you are “on it” and making right calls left and right.

    AS Barry has asked you (and other permabulls) before…..Prove it with your “results”…

    Thought so..
    Ciao
    MS

  26. will rahal commented on Oct 31

    I agree with the lower inflation reading
    leading to a greater-than-expected GDP.
    Last night I posted a chart illustrating how, two meassures of inflation at the consumer level can easily differ by 1%
    I called the post “Surprise GDP!” and called for GDP of 3.9%. I would no be surprised, tough, of a lower revision in the future.

  27. W.Edwards commented on Oct 31

    Last month was shock and awe in the aftermath of weak employment numbers (which were later reversed). This month, GDP is strong, exports up, employment numbers relatively stable, construction spending up. Makes you wonder whether the rate decrease last month was overdone.

    0% change likely if the Fed is looking for credibility and wants to shake up the markets, show that the dog wags the tail, not the other way around. (My preference but next scenario most likely.)

    25bp down, hawkish outlook if Fed wants to keep markets stable but keep investors on edge. A declining dollar has an inflationary impact, would be more pronouced if not for the Rembini:USD peg. Current FX rates have factored in a 25bp with future cuts coming so a 25bp cut under this scenario may actually give the USD some legs to strengthen over the short term.

    25bp down, dovish outlook if Fed is looking to maintain market stability, encourage market sentiment and current level of moral hazard but is willing to let inflationary pressures build in light of a longer-term outlook of an economic downturn. No short-term change in USD.

    50bp down if they don’t give a damn about the USD or inflation. Man the life-preservers! This ship is going down!!

  28. justin commented on Oct 31

    No rate cut; tech is going to lift all boats…lol

  29. Nova Law commented on Oct 31

    Here’s the results line from my Fidelity account:

    Personal Rate of Return from 01/01/2007 to 10/30/2007 is 32.6%

    Read those numbers and weep, permabears. Continue to keep calling for an imminent collapse of the market/economy/world, etc… I’m laughing at your conspiracy theories all the way to the bank.

  30. Michael Donnelly commented on Oct 31

    Maybe a rate hike?

    3.9% GDP, low inflation (as reported anyway), great ADP employment number today so BLS employment on Friday (which I believe they have now) will likely be fine
    and
    Construction spending up 0.3% consensus had -.5%

    Ok so no hike, but the chance of a cut has come way down. I’d say it’s 50-50 on a 25bp cut and no cut.

  31. michael schumacher commented on Oct 31

    Like anyone believes you at this point Nogo…

    You have a job waiting for you at the Commerce Dept…..you are over qualified in one regard, spewing out nonsense.

    I did’nt actually think you wold put up any number but I guess everyone can be surprised by idiots…..

    Have Fun with your “profits”

    Ciao
    MS

  32. Eddie commented on Oct 31

    MS is our resident bear. Every few months he is proven right for a day or two, but the other 90% of the time must be painful for his account.

    If I had been missing out on this bull run for the past 5 years I’d be cranky and bitter too.

  33. Sean commented on Oct 31

    I say evil Ben cut 0.5% again — Inflation is ONLY 0.8%! Financial Markets still NOT back to Normal. Housing Still slumping severely. And Most of ALL, Remember evil Ben is promoted to FED Chief because he is a DEFLATION Fighter, and his personal lesson learned in 1929 is FED Should have been much more proactive in cutting rates to 0%.

    Ben is NEVER EVER a Inflation fighter. Where have you guys read that he is an Inflation fighter?

    Back in Sept, When dollar was sitting at life support of index 80, and oil was near record high at $70s, and all other commodities also near record high, Bernanke cut anyway. This tells you he does not care a DAMN thing about Inflation.

    ——————————————-
    http://www.marketwatch.com/news/story/us-economy-grows-39-fastest/story.aspx?guid=%7B33464B2D%2D9070%2D4B37%2D95AA%2DE18239F34960%7D

    Despite rising worries about commodity prices, the GDP price index, the broadest measure of price changes in the economy, rose just 0.8% annualized, matching a nine-year low. Inflation hasn’t been lower since John F. Kennedy’s administration.

    Consumer prices rose 1.7%, while core consumer prices, which exclude food and energy prices, rose 1.8%, just within the Federal Reserve’s target zone

  34. David Price commented on Oct 31

    Hi Barry, I’ll bet your buddy Larry K. uses the “goldilocks” phrase numerous time tonight.

  35. michael schumacher commented on Oct 31

    and on cue people like “eddie” (who has made this mistake before) confuses economic discussions (or what passes for them now) and portfolio positions.

    Last time I checked this was not a stock picking blog that you permabulls make it out to be. Just wait for the largest market maker in the world (the Fed) to bail you out of a herd trade later on today.

    And the best part of it is that you think it’s all down to your skill….

    Totally Priceless…….

    Tech earnings have sucked (on a wholesale basis) however that does’nt stop the machine from continuing to upgrade them for the sole reason that they are already in them and need to somehow make money in a field with diminished earnings and growth fueled by stock buybacks.

    But hold on we have a 3.9% growth in GDP….

    ANd the tooth fairy will be here later on.

    Ciao
    MS

  36. Costa commented on Oct 31

    why do most bulls see, being bearish on the economy and the outlook for the long-term as I am short and losing my shirt and have no long positions?

  37. Joe Klein’s conscience commented on Oct 31

    Costa:
    They don’t seem to understand that just because you think the economy is going in the tank, or that Commerce or the Fed is fudging numbers that it’s impossible to bears to know how to make money regardless of the market.

  38. Michael Donnelly commented on Oct 31

    For Singer, Chained Dollars

    Chaining is just the latest and greatest way to measure inflation. There was some complicated math that was changed, but the most understandable change from the old way to the Chain was to adjust the market basket more frequently.

    The old way the basket of goods was held constant for 10 years, chaining allows the basket to be updated more frequently based on spending patterns that are chained together so they use the (5 or 10 I think) most recent time periods to weight the basket.

  39. Logic commented on Oct 31

    Actually from my reading most of the gains in the stock market have been from currency devaluation.

    You would have been better off being long gold which doesn’t even pay interest. :)

  40. michael schumacher commented on Oct 31

    and to add to the current sentiment…I guess you perma bulls forget that each and every day the brokers and banks are in a race to see who gets to offload that insolvent boat loan or foreclosed house first so that they can be guaranteed a space in what the Fed and Treasurey deem as an “auction”. Using that cash to drive up the market so that the billions of CDO’s and SIV’ they could’nt exchange for cash may, at some point, have some value to them. Because if they did they would’nt be accounted for in places that have no accepted valuations to them….only what they dream it is.

    You perma bulls have had help WAY beyond what constitutes any normal market forces. But are too blind or proud to admit it. For that I am too sorry for you…

    Pride is a bitch

    Ciao
    MS

  41. Nicolas commented on Oct 31

    The perma bears on this board are pathetic, they are alway trying to turn good news into bad news. Fact is we have a global boom under way, there’s a lot of wealth being created all over the world. It’s sad that people here are being seduced by stupid bearish arguments

  42. michael schumacher commented on Oct 31

    On the contrary Nicolas…..

    When said “good news” is easily dissected and shown for what it truly is…..it becomes bad news?

    or maybe the people tasked with putting out the news should do a better job in presenting the story they are tasked to do.

    The constant revisions to all the commerce dept. data makes anything they release suspect at best, especially since they are always revised higher to suit the spin it’s trying to present.

    B.R.’s post ( shenanigans on GDP ) did’nt have to peel away much to see what it really was……total bullshit.

    Ciao
    MS

  43. Frankie commented on Oct 31

    Nova et al:

    Pray tell, since when one person own economic outlook is supposed to reflect the composition of a portfolio?

    I, for one, am really bearish on the socio-economic outlook. But when I sit at the computer after the market close, I look at ONE thing…the price action.

    Said price action indicates a uptrend. OK then, let’s trade in the direction of the trend.

    Why should I care about being right or wrong? I want to make moolah, dinero, plata. What in the world being “right” or “wrong” means to begin with? Who’s to say that the worst fears of the bears won’t come true say in 6 months, a year or later? Or the the DOW may indeed trade up to 36,000 within the next 5 years?

    The truth is: I do not know. And that is really liberating to be ignorant of the future.

    Because all I need to do is have a plan before executing a trade. Which market do I trade? Is there sufficient volatility to trade? Is there too much volatility? How much do I put on a given trade? What is my stop loss? When do I cash in? How much do I cash in?

    Al the above questions on my checklist have nothing to do with how I perceive the world at this time.

    So, why this constant pissing contest about “Well Dude! You’re a permabear/bull, let’s see your results”

    What does one has to do with the other?

    I still don’t understand this compulsion to correlate a personal view with trading results.

    Barry, for one, had made his own position crystal clear about that, yet, people still defiantly and smugly ask him to show his “results” (or worse, what he recommend to his clients) every time they disagree with his analysis.

    What do you guys want? Being right OR make money? It’s hard enough to make money; achieving both is way too exhausting IMO.

    Francois

  44. Nova Law commented on Oct 31

    Nice point well argued Frankie.

    My response:

    The point of this entire marketwatching exercise is to make money. If the only thing we ought to care about is price action and trend, then why the endless chest-thumping about “crooked numbers” and “pump pump pump” and that correction/recession/depression that has been so often predicted in these pages for 2002/2003/2004/2005/2006/2007/2008? If the marketwatching and hypothesizing about the economy doesn’t effect my personal returns, then the time spend bloviating on this topic would be better spent discussing baseball (and just as relevant to my account returns as the Red Sox World Series victory).

    People who constantly badmouth the market, stocks, and the economy but then turn around and say how much money they’re making are either lying or they are talking the talk but not walking their talk.

    If I had paid even the slightest attention to all the permabear gloom and doom talk here, I’d have long ago converted my portfolio to gold bars and diamonds, and buried the lot in my backyard, waiting for the apocalypse that somehow never comes (doubtless because of all the “dishonest” numbers coming out of the government – but just you wait, it’ll be a DOOZY when it finally does happen).

  45. michael schumacher commented on Oct 31

    now you are the voice of reason….too funny…

    Ciao
    MS

  46. Francois Theberge commented on Oct 31

    Nova,

    Your point is well taken. That said, making a distinction between my econ view and my trading system does not mean that I will neglect the potential warning signals coming from the socio-economic big picture (Yes, the pun was intended) as guides to my my trading.

    Why the apparent contradiction?

    Blame it on Nassim Taleb and Pr. Sornette. After reading their work on the effect of randomness and catastrophic events that dislocate markets from time to time, I realized that years of gain can easily get wiped out in one swoop.

    Hence, it pays to stay attentive to the environment. Whenever the markets exhibits a dynamic radically at odds with the economic reality, (as I think it is the case now, like it was in 1999-2000) I tend to tighten my stops, be more selective and demanding before getting into a trade. I will also bet a smaller percentage of my capital per trade.
    Bearish investors have warned for years that the current situation could end up very badly. I happen to believe they are absolutely correct, for a host of reasons that’d be way too long to describe here. It is way too easy to dismiss their arguments in view of a rising market. But, as the Internet bubble SHOULD have thought us, there could be powerful reasons to believe something was wrong with the current picture. I disagree when you wrote “it’ll be a DOOZY when it finally does happen.” But that’s my take, and my take only.

    The crucial variable in all this is of course, the timing. Therefore, in the meantime, the only reasonable thing to do is keep trading the trend with exit plans in place for when the trend reverse.

    Francois

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