Here’s the WSJ lede on GDP:
"The U.S. economy soared last summer, growing at a
rate much stronger than earlier estimated, but the earnings of
companies were flat, the government reported Thursday.Gross domestic product rose at a 4.9% annual rate July
through September, the fastest quarterly pace since 7.5% in
third-quarter 2003, the Commerce Department said.The new, 4.9% estimate for third-quarter 2007 GDP
reflected a revision up from a previously reported 3.9% increase.
Higher inventories and exports were behind the government’s revision to
GDP, a measure of all goods and services produced in the economy."
Bloomberg added:
"The world’s largest economy grew at an annual rate of 4.9
percent, the most in four years, according to revised data today
from the Commerce Department in Washington. The pace is a
percentage point stronger than estimated last month and follows
a 3.8 percent rate in the second quarter." (emphasis added)
This 4.9% number is one of the more "fanciful" government releases you will see in your lifetime, (outside of the state run media that exist only within totalitarian dictatorships).
Did this past quarter feel like the strongest growth quarter in 4 years?
Let’s begin with what we know about Q3 prices: They saw significant increases — yet the price index deflator was a 9 year record low of 0.9%. Rex Nutting observed: "Because of the way in the price index is constructed, it likely understates
real-world inflation, and thus overstates real growth."
Residential fixed investment, the GDP component that includes spending on housing, plunged by 19.7% in the third quarter (but Investments in structures increased 14.3%).
Profits for the 3rd quarter flipped negative, dropping 8.5%.
We have seen consumer spending falter, with the crucial opening salvo of the holiday weekend down 3.5%. That’s no surprise, given that second-quarter wages were revised lower by $44.8
billion. As a result, real disposable incomes fell 0.8% in the second
quarter, instead of rising 0.6% as the Commerce Department had previously
reported.
~~~
Question: How can Q3 GDP be 4.9% with corporate earnings, housing and retail sales so awful? Forget Goldilocks, this fairy tale sounds more like Cinderella . . .
Chart courtesy of Barron’s
>
Sources:
GROSS DOMESTIC PRODUCT: THIRD QUARTER 2007 (PRELIMINARY)
CORPORATE PROFITS: THIRD QUARTER 2007
U.S. Department of Commerce, November 29, 2007 8:30 a.m.
http://www.bea.gov/newsreleases/national/gdp/2007/gdp307p.htm
Economy Grew 4.9% in 3rd Quarter, Up From Previous Estimate of 3.9%
JEFF BATER
WSJ, November 29, 2007 9:38 a.m.
http://online.wsj.com/article/SB119634282761107912.html
U.S. Economy Expanded at 4.9% Rate in Third Quarter
Courtney Schlisserman
Bloomberg, Nov. 29 2007
http://www.bloomberg.com/apps/news?pid=20601068&sid=ajeZ0OYVe4.o&
U.S. GDP revised up to 4.9% for third quarter
Corporate profits fall even excluding subprime write-downs
Rex Nutting
MarketWatch, 9:14 AM ET Nov 29, 2007
http://tinyurl.com/22o75t
New math?
Revised upwards…….no surprise there..
Our monthly lie getting bigger by the month.
Soon we will surpass the entire planet on our growth at ANY cost strategy.
Ciao
MS
here’s more BS.
This is intolerable. The BS spin is criminally fraudulent.
October new home sales came in at 728,000
AND September’s sales reported last month of 770,000 were revised down an incredible 54,000 to 716,000. Horrible numbers, Yet guess what the headline was…. CBS marketwatch reported as an improvement over last month.
and do not forget that with the higher inventories causing some or much of the growth (I guess that depends on pce deflator) when companies cut back in January, jobs hit the skids (except of course for reporting purposes) and from an acctg perspective the remaining manufacturing here will become underabsorbed with overhead exacerbating reduction in profits already caused by inflation squuzes on margins and reduced sales.
But it is the strongest reported growth–and watch for inflation to be up because social security increases were based on last qtr.
I am gonna take my bat and ball and go home.
We now know that $1.5T of consumer spending is fiction, an accounting gimmick for housing
services…
I have a question. Why do the homebuilders offer gift incentives instead of reducing the house price? Is the area property tax base that important to the concerns? Is it return back / spruce up the community? I might have answered it myself typing this.
Oh for crying out loud, GDP goes up by $28 billion and of that amount $17.2 billion is greater inventory.
Plus consumption is revised down by $7 billion. This is good news? NOT. Sounds more like a classic inventory swing to me.
Sure fixed investment was revised higher, but that train will come to a grinding halt. Profits dropped like a stone in the third quarter, and business doesn’t invest when that happens.
JOHN CRUDELE
NEW YORK POST
November 29, 2007 — AFTER a year and a half of stalling, the US Treasury finally complied with The Post’s requests for information about The President’s Working Group on Financial Markets – by delivering 177 pages of crap.
In essence, the Treasury’s Freedom of Information officials said that the Working Group – affectionately nicknamed the Plunge Protection Team – doesn’t keep records of its meetings.
How interesting and convenient!
Included in the 177 pages that the Treasury said responded to our request on the actions of The President’s Working Group were 53 pages on which something was redacted – blacked out so that the discussion was unreadable.
Many of those 53 pages contained no words at all – just a big black blob.
Starting in June of 2006 The Post asked for an accounting of the actions of The President’s Working Group, which was formed under President Reagan. The Group seems to have the ill-defined task of keeping an eye on the financial markets. We also asked for e-mails related to our request through the Freedom of Information Act (FOIA).
The Working Group operates out of the Treasury Department and includes the heads of the various exchanges in the US, as well as top-ranking government officials.
Hank Paulson, the Treasury Secretary, and Ben Bernanke, the head of the Federal Reserve, are the two most prominent members.
Back in August, Paulson said in a television interview that “we’ve reenergized The President’s Working Group on Financial Markets.”
The Wall Street Journal last year said that Paulson, upon becoming Treasury Secretary, was insisting that the Working Group meet every six weeks.
Whatever the schedule of meetings, one of those meetings occurred on Aug. 17 – the day the Federal Reserve surprised the financial markets with a cut in its discount rate.
According to records that someone else got from Bernanke’s office through a FOIA request, there was an 11 a.m. conference call on Aug. 17 of the “PWG” – the President’s Working Group.
Fed Governor Kevin Warsh and Patrick Parkinson, a Treasury staffer, took part in that call, according to Bernanke’s phone log.
The day before – Aug. 16 – Bernanke and Paulson had lunch, but it isn’t clear whether this was just two guys having a meal or if it, too, was related to The President’s Working Group.
Hours after that lunch, word got around on Wall Street that the Fed was about to make a move and the stock market staged a tremendous rally.
The next day those rumors of Fed action proved accurate.
So what’s the Working Group up to?
I suspect the group is ready to come to the rescue of the financial markets – even equities – in the case of a meltdown.
And as I’ve said in the past, that would be a completely acceptable task as long as it remains a limited power that is used infrequently.
But who decides when a rescue is needed?
And if no records are kept, who is held accountable if The Working Group’s power is abused?
George Stephanopoulos, a former top aide to President Clinton, tried to calm fears right after the terrorist attack in 2001 by explaining that The President’s Working Group was at the ready to prop up the stock market.
I, too, had a similar conversation with a Fed official in Sept. 2001.
But the chance of abusing this presidential man date – even for personal gain – is great whenever an organization operates in secrecy.
And that’s exactly how The President’s Working Group is operating.
Included in the pile of manure we received from Treasury this week is an internal e-mail dated April 9, 2007 that Heidilynne Schultheiss, director of the Treasury’s Office of Financial Market Policy, sent to six people.
The subject “Minutes of PWG Meetings?”
“Hi All, We received a FOIA request asking for minutes of meetings of the President’s Working Group on Financial Markets (PWG). As far as we know, minutes are not (and never have been) kept . . . A search of our records turned up nothing,” Schultheiss wrote.
That same day someone at Treasury named Mary Kertz e-mailed a bunch of folks “re: meeting notes from last PWG meeting on Financial Markets.”
The e-mail said: “Thanks. Just spoke with Norman – he said the Fed Chairman had said he believed minutes were recorded for these meetings. Strange.”
I don’t know who Norman is. But I agree that having a powerful organization like this meet in secret is very, very strange.
And extremely dangerous. john.crudele@nypost.com
“…Included in the 177 pages that the Treasury said responded to our request on the actions of The President’s Working Group were 53 pages on which something was redacted – blacked out so that the discussion was unreadable…”
Posted by: Stuart | Nov 29, 2007 10:17:30 AM
_______
This ability to redact would be really helpful should anyone decide to do something criminal. Not that anyone would consider doing anything criminal. The CEO Presidency – what a hoot!
What’s sad is that the NY Post is doing this kind-of investigation, whereas the New York Times repeats word for word everything the government gives them.
It’s like some bizarro universe here.
Great job boys and gals keeping the flame of fear burning. I have some more money to put to work. Can you you guys start another stampede to the downside? I would really appreciate it.
Hey Werner,
If you think this humble blog has that kind of authority, then more power to ya!
Well the 3rd Quarter FDIC Banking Report came out yesterday and is full of good news,
INSURED INSTITUTION PERFORMANCE
Credit Quality Problems Drag Down Earnings
-Almost Half of All Institutions Report Lower Profits
-Loss Provisions Surge to 20-Year High
Industry Net Income Falls to Four-Year Low
-Loan Losses Are Higher in Most Loan Categories
-Residential Real Estate Accounts for More than Half of the Increase in
Noncurrent Loans
and the list goes on, full report at, http://www2.fdic.gov/qbp/2007sep/qbp.pdf
Given that the bulk of ARM resets are yet to happen I don’t see how we avoid major bank failures in 2008.
Page 3 and 4 of the verbiage release of GDP discussing corporate profits tells it all. Profits, no matter how you measure them before tax, after tax, cash flow, financial, non financial, ALL FELL.
How does GDP grow 4.9% while profits fell significantly from the second quarter?
The point of posting the NY post article was this:
It’s simply not credible to assert there were no notes taken yet that’s what the stewards of this committee were in fact claiming. That is a remarkable admission. Think about that for a second. Irrespective of obvious contractions exemplifying clear deceit, the fact remains communications of the most powerful group of financial mangers of this country outright lied about this, and we are still to trust that the departments, firms, interests they represent are going to be straight forward with financial results and broader economic reporting? In that context, can anyone really be surprised that they overstated GDP to the benefit of their own interests? I’ve mentioned before, transparency, confidence and implicit trust in leadership is the biggest casualty here and now. The GDP reporting, just another example in a long list.
You guys. Please stop acting shocked. The Bush administration has shown how amazingly successful you can be by lying all the time about everything.
Why in the world should the economy be any different?
Maybe they’ll pull Colin Powell out of retirement to present these GDP charts to congress. He’s good with Powerpoint.
We just made a deal with Maliki to keep permanent bases in Iraq. So don’t expect this fudging of economic numbers to stop anytime before the rapture. If we were in a recession it would be a lot harder to justify spending a trillion dollars a year on Halliburton’s holy war. The Republicans have another election to steal–i mean win. So mark my words — the GDP will keep turning that imaginary corner every quarter until 2009.
Most of it is annualization. Q4 may be negative hence. Remember, Q1 1990 had a 4.1% rise.
Government data is just useless. It has been completely politicized. It is a shameful thing and shame on anyone who supports such manipulation!
Great example. New home sales reported as higher this month. Only because of a major downward revision to last months number.
If we look at august numbers we see how this really works.
Originally reported at 795,000.
Revised last month to 735,000
This month revised again to 717,000.
That is a 10% drop! If that happens to this months numbers that means that a 1.7% increase is really an 8.3% decrease!
Paulson: “Economy to grow despite housing, gas, credit woes”
New economic term, “Core Economy” equals economy less reality…
>>The Republicans have another election to steal
Surely thats a typo and you meant “Republicrats”, nearly all top teir candidates Dem/Rep are card carrying CFR members, there is little if any practical differences in policy, with the exception of Ron Paul.
Stormrunner is right. The last time I voted was 1968 for Nixon/Agnew. Republicrats and Demoplicons. Samo, samo.
Hoard canned goods.
Gross Domestic Income Tells Different Story Than GDP
According to the latest gross domestic product revision, the U.S. economy swelled at nearly a 5% clip last quarter, almost double the economy’s noninflationary limit.
Or did it?
Gross domestic income – a lesser-known gauge that the Fed has highlighted in the past as perhaps a better alternative — increased less than 2% last quarter, well below the economy’s potential. The first estimate of GDI is released with the second GDP estimate because it incorporates data that isn’t available earlier. (See line 11 on this chart.)
GDP counts economic activity based on expenditures, while GDI bases it on income. In theory, they should add up the same, though the often diverge — albeit not as much as they did last quarter.
Earlier this year when the Fed was trying to reconcile slower GDP growth with still-strong labor markets, it noted that GDI “might better capture the pace of activity.” GDI was running hotter than GDP at the time.
But the tables appear to have turned since early in the year. GDI has grown more slowly that GDP over the first three quarters of 2007 as a whole.
The main difference between the two gauges last quarter was corporate profits, which GDI includes and GDP excludes. Corporate profits from current production fell last quarter. GDI also doesn’t explicitly include net exports and inventories, as GDP does. GDI, in contrast, relies more heavily on employee compensation data.
But when there are differences, Fed officials may lean towards GDI, especially when it comes to signaling economic downturns. Fed economist Jeremy Nalewaik wrote in a March paper that GDI “has done a substantially better job recognizing the start of the last several recessions than has real-time GDP.”
GDP-based models in Nalewaik’s study pegged odds for the past four NBER-defined recessions since 1980 at their starting points at 52%, 40%, 45% and, for the 2001 recession, just 23%. GDI-based measures, in contrast, signaled odds of 78%, 44%, 72% and, for 2001, 70%.
For some time now I’ve had a sneaky, but unspoken, sense that a lot of this kind of happy news from the government (as well as, say, unemployment numbers) might be at best tweaked and more realistically a blatant lie; it’s nice to know I’m not alone.
So once the curtain is pulled back, presumably not sooner than January ’09 but hopefully not much after that, what do we do?
Jmay – or worse a disaster that puts the election on hold due to a State of Emergency.
If things close up today, I believe Sy Harding will get his MACD crossover on the SP500 today, initiating the “favorable season” for his “Seasons in the Sun” market timing strategery.
Included in the 177 pages that the Treasury said responded to our request on the actions of The President’s Working Group were 53 pages on which something was redacted – blacked out so that the discussion was unreadable.
I can clear this up. Back in August, the President’s Working Group was having their Fantasy Football Draft.
“So once the curtain is pulled back, presumably not sooner than January ’09 but hopefully not much after that, what do we do?”
I would suggest start rebuilding the country on a more rational basis. But the Republicans would have a fit about that and probably start investigating someone’s penis again.
Mark Thoma posted this wsj blog on Economists View
“Gross Domestic Income Tells Different Story Than GDP
According to the latest gross domestic product revision, the U.S. economy swelled at nearly a 5% clip last quarter, almost double the economy’s noninflationary limit.
Or did it?
Gross domestic income – a lesser-known gauge that the Fed has highlighted in the past as perhaps a better alternative — increased less than 2% last quarter, well below the economy’s potential. The first estimate of GDI is released with the second GDP estimate because it incorporates data that isn’t available earlier. (See line 11 on this chart.)
GDP counts economic activity based on expenditures, while GDI bases it on income. In theory, they should add up the same, though the often diverge — albeit not as much as they did last quarter.
Earlier this year when the Fed was trying to reconcile slower GDP growth with still-strong labor markets, it noted that GDI “might better capture the pace of activity.” GDI was running hotter than GDP at the time.
But the tables appear to have turned since early in the year. GDI has grown more slowly that GDP over the first three quarters of 2007 as a whole.
The main difference between the two gauges last quarter was corporate profits, which GDI includes and GDP excludes. Corporate profits from current production fell last quarter. GDI also doesn’t explicitly include net exports and inventories, as GDP does. GDI, in contrast, relies more heavily on employee compensation data.
But when there are differences, Fed officials may lean towards GDI, especially when it comes to signaling economic downturns. Fed economist Jeremy Nalewaik wrote in a March paper that GDI “has done a substantially better job recognizing the start of the last several recessions than has real-time GDP.”
GDP-based models in Nalewaik’s study pegged odds for the past four NBER-defined recessions since 1980 at their starting points at 52%, 40%, 45% and, for the 2001 recession, just 23%. GDI-based measures, in contrast, signaled odds of 78%, 44%, 72% and, for 2001, 70%. –Brian Blackstone”
I remember reading a post somewhere, about the time the 3.9% number was released, that explained how an increase in the price of oil actually produced a lower GDP deflator because of the formula used (offsetting import prices vs. domestic prices or something to that effect). My friends don’t believe anything could possibly be that @#$%^ed up. Could anyone refer me to a source? Thanks.
The way these stats are published reminds me of the way mainstream press handled the global warming “debate”.
What do I mean?
Examination of the peer-reviewed scientific press (the REAL science for the obtuse out there) from 1994 – 2004 show that the consensus among publications was UNANIMOUS; there is global warming, it’ll get worse and the only question the role of human activities as a contributor to it is rather large.
Examination of the mainstream press during the same period showed a 55-45% pro vs. con on this question.
…
By the same token, the financial “peer-reviewed” (a.k.a. the no-bullshit) media (including this very one you are reading now) agree that these numbers are, er, shall we say victims of cognitive dissonance?
The headlines-driven press, in the meantime, just re-transmit and amplify the spin machine stuff in order to force-feed to Joe and Jane Public, a validation of “everything is alright dude!” first impression.
Problem is, this force-feeding is starting to suffer some serious cognitive dissonance of its own. People instinctively know that “something’s just not right”.
When they realize how “not right” things are, heads will start to roll.
Thank you Stormrunner for that last post.
As I suspected, the inflation drop in business investment over the past two quarters is a leading indicator. (see chart)
In other words the GDP pop that we are getting due to a drop in inflation has also happened right before every other recession we’ve gotten.
So go wave those pomp-pomps ’cause the recession hits in q4 or q1
(chart here)
http://pbp.typepad.com/economy/2007/11/faster-gdp-but.html
I agree with Brian Blackstone as quoted by Mark Thoma as quoted by user:me, as opposed to Brian Blackstone quoted by himself just above that.
The Coming Consumer Crunch A 15% tumble in home prices would produce a $300 billion pullback in spending, or about 3% of personal income…
Three percent — that doesn’t sound like a lot. Look a little closer, though, and it’s a bigger hit than it seems. The reason is that much of what the government counts as consumer spending is not directly controlled by households. For example, the $1.7 trillion in medical costs is counted as consumer spending, but 85% of that is spent by the government and health insurers, not individuals. And $1.5 trillion in “housing services” is listed as part of consumer spending, but for homeowners it really just represents the value of living in a home rather than any spending they can change. It’s mainly a bookkeeping convention, not a real outlay.
So that 2%-3% decline in income directly hits the wallet and the discretionary purchases that households actually control.
Snippet:
U.S. Households Worth $5 Million or More Exceed 1 Million for First Time Ever
These Richest Households Grew 23% in 2006 to a Record 1.14 Million
Households Worth $1 Million or More Hit 9 Million
http://www.spectrem.com/
Let them eat cake.