First Report of Q4 GDP Is Negative

The BEA is out with its Q4 first estimate of GDP (LINK).  I look forward to a detailed analysis from Dr. Rick Davis when he has had time to prepare one.

Here are some brief comments.  First, the BEA’s introductory summary:

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 0.1 percent in the fourth quarter of 2012

(that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the

Bureau of Economic Analysis. In the third quarter, real GDP increased 3.1 percent.

Consistent with the much-maligned view of ECRI, this estimate had a negative sign attached to it of 0.1%.  Minimal, but negative.

This is below consensus.  One of the positives, personal income, had some one-time factors boosting it due to fiscal cliff issues:

Current-dollar personal income increased $256.2 billion (7.9 percent) in the fourth quarter,

compared with an increase of $72.7 billion (2.2 percent) in the third. The acceleration in personal

income primarily reflected a sharp acceleration in personal dividend income, an upturn in personal

interest income, and an acceleration in wage and salary disbursements. The sharp acceleration in

personal dividend income reflected accelerated and special dividends that were paid by many companies

in the fourth quarter in anticipation of changes in individual income tax rates. The upturn in personal

interest income primarily reflected an upturn in interest rates for Treasury Inflation Protected Securities.

The acceleration in wages and salaries reflected the pattern of monthly Bureau of Labor Statistics

employment, hours, and earnings data for the fourth quarter, as well as a judgmental estimate of

accelerated compensation in the form of bonus payments and other irregular pay in the fourth quarter.

Consistent with the prior post about Boeing, the stock market has shrugged this one off.

Little matters anymore, it appears, except Fed action.  Thus, the worse the data, the longer the Fed will print, so stock prices can never drop:  a perfect equilibrium, n’est ce pas?

As Japanese investors have found out, that paradigm works until it does not.

We now have a certifiably dangerous stock market:  arguably over-valued but subject to rising competition from bonds and real estate.

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1 comment to First Report of Q4 GDP Is Negative

  • Linus Huber

    I follow your blog on a regular bases and I am mostly in agreement with your perception of the situation. In the context I would like to give you a wider view of the consequences for society when the respect for money is lost. I have put some considerable time into this subject and have reached a conclusion that does not simply concerns the economic sphere but all areas of social interaction and behaviour.

    Although Central Banks talk about price stability, in real terms, they all devalue their currencies to a lesser or higher degree. Currencies have been subjected to abuse in the form of manipulation by Central Banks with the idea to achieve a favourable economic outcome, and as a result, their function has been reduced to means of payment. The people have got used to this value erosion and have adjusted their own behaviour accordingly. Most persons that experienced the deflationary period after 1929 and who kept cash in high esteem have probably died by now.

    The loss of respect towards money (currencies) is best demonstrated by its continuous loss of its purchasing power and as a consequence of its lost function as a store of value. This led to the present crisis which I try to explain in the following listing that describe the consequential change in human behaviour.

    When we get trained that today’s money has more value than tomorrow’s, we automatically transfer this idea to other areas of our behaviour which leads to

    - short term thinking (consumerism)
    - the idea of immediate gratification (indebtedness)
    - unsustainable behaviour and policies (countless government programs)
    - reduction of responsibility and diligence (e.g. banks in assessing credit risks)
    - reduction of virtuous values like honesty (e.g. valuation according model)
    - undermining of the rule of low (might is right, non prosecution of theft etc.)
    - reduction in the respect for material things and nature (throwaway society)
    - reduction of values that bind society together (increased individualism, loss of empathy)
    - loss of democratic values and individual freedom as a result of unsustainable policies
    - promotion of wars and agression (individualism on the level of nations)

    When you treat a population like a herd of lab rats, you better expect them to slowly adopt the attributes of a rat.