PIM of SPAIN | November 4, 2009 at 07:47 amby
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According to The Wall Street Journal, “fully 2.2 percentage points of the third quarter's 3.5% growth figure related to vehicle purchases and residential construction, both juiced by government support. Federal spending added 0.6%.”
The Bureau of Economic Analysis says, “car sales shot up 157.6% quarter on quarter.” That means cash for clunkers accounted for 1.66% of total GDP.
So subtract fake demand (1.66%) from the official GDP figure (3.5%), and you’re left with 1.84% GDP growth. Not so great after all…
And if you take away other forms of stimulus, the GDP picture appears even darker. According to David Rosenberg, GDP would have been flat or negative without stimulus.
"Don't believe the GDP hype," Dan Denning cautions. "The big problems in the economy - too much debt, too much leverage, too much government - are still there. They didn't go anywhere overnight. We'd suggest that getting sucked back into stocks now because of the US GDP figure is a very bad idea.”
"Of course, we could be wrong," Dan, continues. "Maybe stocks will go up another 20% from here, or 30%, or 50%. But it's not likely. It's more likely that the recession is over, but that the Depression has just begun.”
"It's begun because what the US GDP numbers actually show is a private sector in full retreat as its income shrinks, its assets fall in value and the cost of servicing debt rises. Into that terrible breach the public sector has stepped armed with an arsenal of inefficient and stupid programs that give the illusion of economic activity, but actually prevent the economy from liquidating excess capacity and bad debt (the two conditions required for a real recovery)."
“Never before did a gap between a 3.2% consensus GDP forecast and an actual print of 3.5% manage to elicit so much excitement in the equity market. It just goes to show how speculative the stock market has become.” The question is why the economy couldn’t do even better?
“Historically, the auto sector adds 0.1-percentage point or 0.2-percentage point to any given GDP report. In the third quarter, courtesy of cash-for-clunkers, the sector added 1.7 percentage points to the headline figure, which is less than 1-in-10 event in terms of probabilities. Tack on the rebound in housing and government spending and the areas of GDP that received the most medication from public sector stimulus contributed almost all of the growth in the economy. You read this right. If not for the entire government incursion into the economy in Q3, real GDP basically would have stagnated.”
Rosenberg puts the US “recovery” into perspective by comparing it to the eerily similar “recovery” experienced by the Japanese in the 1990s.
“While it seems very flashy, 3.5% growth is far from a trend-setter. Let’s go back to Japan. Since 1990, it has enjoyed no fewer than 19 of these 3.5%-or-better GDP growth quarters. That is almost 25% of the time, by the way. And we know with hindsight that this was noise around the fundamental downtrend because the Japanese economy has experienced four recessions and the equity market is down more than 70% from the peak. What is important for the future is whether the U.S. economy can manage to sustain that 3.5% growth performance in the absence of ongoing massive government stimulus.” In other words, it may be a little early to uncork the champagne.
The big risk going into Q4 is a renewed contraction in real final sales. That is not priced into the various asset classes right now. When good news starts generating the same volume as bad, then one can start with the champagne nibbling. Until then, be very careful with the interpretation of presented results. Don’t think easily that official GDP figures can be trusted like China does; most figures are cooked in the US too.
Look at the data from railroad traffic. Just like electricity demand, this indicator can’t be doctored. Statisticians eager to please the boss can’t massage those ones. Published last week, the Association of American Railroads reported a steep decline in rail traffic:
“Rail traffic remains down year over year for the week ended Oct. 24, 2009. U.S railroads reported originating 276,357 carloads, down 14.8 percent compared with the same week in 2008 and 17.3 percent from 2007.”
A 14.8% decline should cause concern to any bulls out there. One need to look beyond the government sponsored green shoots to see weeds sprouting up everywhere.
And this to think about:
“ If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State. ” (Joseph Goebbels)
Truth is the mortal enemy of the lie. This is a profound observation from such an evil man. The definition of truth is being in accordance with fact or reality. The Nazis were masters of using propaganda to manipulate facts and produce the reality that suited their wicked purposes. Other states have attempted to repress dissent and rule by using the Big Lie. The Soviet Union and Communist China come to mind.
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Los Angeles, California, United States
Los Angeles, California, United States
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