Skip to comments.GDP, Q4 2008 (advance) -3.8%
Posted on 01/30/2009 2:05:29 PM PST by NVDave
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 3.8 percent in the fourth quarter of 2008, (that is, from the third quarter to the fourth quarter), according to advance estimates released by the Bureau of Economic Analysis. In the third quarter, real GDP decreased 0.5 percent.
(Excerpt) Read more at bea.gov ...
The numbers inside are pretty grim, and show demand destruction for even such non-discretionary things as food, we well as showing a collapse in consumer inflation.
Savings is suddenly popping up as consumption is going down, durable goods orders are collapsing, etc.
There is no good news inside this report. Zippo.
If people want to know why McCain lost the election, the details are in this report, plain as day. People vote their pocketbooks, and people's pocketbooks were not happy in Q4.
Well, a broker once told me when news is all gloomy, the bottom has arrived. This week would certainly seem that way.
If you spend a year telling everyone in the MSM and rest of idiots that voted for you (Obama), what the hell do you expect? It appears that the bounty over which you sought control has been stolen by your constituents already.
Now it is official.
We have two quarters of negative growth.
The recession is now. Who is President?
It is all your fault President Obama.
That “contribution” due to idle inventory means that it will have to be reflected in lower GDP in future quarters. I doubt January’s rounds of layoffs will be enough to absorb that additional downward pressure. It shaping up to be an ugly Q1.
Who freakin cares anymore? The government figures for the last 50 years have been nothing more than a sham. WHO CARES? They lie, they die. Nothing is Hoyle anymore. Inflation? Just wait. Durable goods? Just wait. I have a 50,000 SF building I am going to fill with new refrigerators, washers and dryers, dishwashers, dehydraters, pressure canners, canning supplies and then supplement my customers with 150 acres of produce they can process and survive. My turn. I’ve suffered long enough.
That is a statement of fact. Many here can't see it, thinking only in political terms. A strong conservative candidate MIGHT have galvanized the base, the way Palin began to do, but in the end people were going to vote against Bush's party because, "It is STILL the economy, stupid!
So, I wonder how many people still think this will be a typical 18 month V-shaped recession followed by a strong recovery. Some in the media are just starting to pick on the likelihood that all of 2009 will be very hard with a stagnant or contracting ecnomy, more layoffs and bankruptcies and contracting GDP.
Oh, there are still lots of folks here who link to the Fed’s historical GDP chart to try to argue that everything is fine because real GDP growth will be at an average 3% clip during this period. I’ve also noticed that those are the same folks that in Oct/Nov were saying that you should be buying stocks because by Q3-09 the economy will be roaring back, and many are now saying that perhaps it might take a little longer.
The recession was “official” when the NBER called it.
The key here is consumers. Since consumers became 70% of the GDP, and the economy became dominated by “service” sector activity, the economy of the US has rested upon consumers consuming. And in many cases, consuming utterly nonsensical goods and services.
Look down inside the report and see how consumers are now saving - savings jumped up: “disposable personal income less
personal outlays — was $310.3 billion in the fourth quarter, compared with $130.8 billion in the third.”
That’s big. Very big.
Retail sales of final domestic product dropped 5.1%. Again, big.
Consumers have snapped their wallets shut. You could see this coming in prior GDP reports as employment and wages softened, which is what the NBER was looking at a year ago to call the top of the expansion. Credit has also ceased expanding.
There will be no rapid recovery. The Fed and Congress can’t (and won’t) be able to perform effective reflation of the consumer economy before real mindset change sets in. A huge hole has been blown into the “balance sheet” of Joe and Jane America - their 401k’s are taking, coupled with the equity in their house collapsing. They now realize that they must save for retirement - the old fashioned way. And when they do that, they cut back on consumption, which will lead to further job losses, which will lead us down the path of debt deflation, just as described by Irving Fisher in 1933.
We’re in a full bore debt deflation. No longer any doubt about it. The recent paper out of the NBER shows that, on average in the OEDC 12 countries, we’re looking at a six or so year recovery period. We’re also looking at about 7% more unemployment before we get to the bottom.
Further, I think that the antics this week out of Geithner and the DNC-led Congress are telling the world that while they heard “Hope and change” - they’re about to get Smoot-Hawley all over again. The “buy American” provision in the “stimulus” package, coupled with Geithner’s remarks on the yuan.... what a bunch of amateurs.
It’s like the clown car just pulled up, all the occupants got out and now they’re using saws and hammers for surgery on some hapless bystander that they hit with their car.
I'm curious about something in the charts though: "Rental income of persons with capital consumption adjustment" What is that? It went up over 50% in 2008- obviously it's not simply rent.
Yeah, every time you hear “buy american” or “hire american” or anything at all about “currency valuations,” you just can’t help hear echoes of S-H.
Consumers will never be able to drive the economy as they have in the past. The wealthy have gotten wealthier by producing goods in China and elsewhere to sell in the U.S., and they have protected their racket by paying off politicians, academics, and media types.
The day of reckoning has arrived. There are not enough good jobs in America any more. American workers have no money left. People borrowed money to maintain the illusion of a middle-class lifestyle, and now they cannot pay it back. The golden goose has been bled dry.
This is what I find on the BEA’s website for your question:
I agree. I’m now of a mind that the day of reckoning is here.
The kicker for me is re-reading Fisher’s paper on debt deflations and just ticking off the predicted actions, in the order Fisher predicts. Complete, down-the-line conformance with how he describes debt deflations happening.
Thank you very much for finding that for me.
Yep. You got it.
Good summary. I confess to not really understanding the reports. My “feeling” was along what you’ve said but you are more precise and with conviction. It is interesting to note that we are now in a deflation, as opposed to disinflation. I’m not at all surprised. Like you found out, I’ve found that consumers have fallen off a cliff, and not with hardship. Most people are so saturated with new goods, most of us really won’t need replacements for our goods this year or even next. As a nation, we’ve been replacing out of fashion, convenience or to get a small upgrade in performance — all luxuries. Now that people are saving, they will make due with the old car, computer, cell phone.
I think you are right that in a few years people will begin to realize they were lied to and that “saving” is the most reliable way to get enough wealth to invest, and that $200/mo IRA contribution was never going to see the 15% returns they promised us in those free seminars.
I think the recession will last a solid 2 years, possibly more, and the recovery will be slow and stable.
Odds of inflation? I just don’t know but I am not counting it out. The spending for 2009 alone will be horrific. The LibDemComs can do this year after year after year.
Is Fisher’s paper on-line? Do you have a link?
Yes, at the St. Louis Federal Reserve:
Now, since we’re talking about debt, let’s talk about debt in terms of our national ability to service the debt; ie, relative to GDP. Well, this topic has been rattling around the halls of investment/market analysis shops for a year now... so here’s a link to a chart:
There ya go. Have a stiff drink whilst you’re reading Fisher’s paper.
You’ll need it.
Oh, on the subject of how long should we expect this to last?
Good question. Some nice people from the universities who are on the NBER have already been looking into that very question:
Executive summary: unemployment rises for about five years, housing takes six years to start recovering.
ie, we’re nowhere close to done yet.
Gonna get much worse. Some hospitals will be closing soon. Flat broke. The industrial rental units my business is located within will be at half occupancy in about a month or two. Getting real quiet and spooky around here. Commercial real estate collapse now occurring.
Where is ‘here’?
A business acquaintance of mine is in the medical field. Looks like the health sector is now being affected. They were one of the last men standing.
Fortunately I was already drinking. I admit that was compelling reading and he sounds like a sharp tack, right up until he stated that FDR’s spending pulled us out of the Depression. But then, that was the conventional wisdom at the time and I’m sure most all people thought it inconceivable not to believe FDR “solved” the Depression.
Good read though. You read his paper and without a doubt we have to be in or heading for deflation. There is going to be no breaking the strangle-hold of deflation in the short term and unemployment is going to skyrocket. Like all depressions, the key will be KEEPING your job or being independently wealthy like Rush “I refuse to participate in a recession with my $Millions” Limbaugh.
We are heading for a depression. I hope it is a Good Depression and not a Great Depression. I just want a little one... Well, I don’t want one at all of course, but I’m convinced it is a foregone conclusion.
If the natural course of deleveraging/deflation would not have caused it on its own, which I now think was extremely likely, you can be sure that the Democrats economy-robbing mis-allocation of future tax dollars spent today will certainly push us over the cliff and into depression. They are robbing us of the capital we need to dig out of the coming depression, and they are going to make it longer, deeper and worse.
At this point, GDII would not surprise me in the least. I pray I am wrong.
The free trade crowd around here is going to be ecstatic to see the US workers wages follow that trend. But as we are a 'consumer society', who is going to have the wherewithal to consume?
Having followed your posts concerning 'deflation', may I ax you to make a prediction where the economy goes - providing we don't have a World War to tilt the scheme?
We're big boys, give it to us straight.
The issue of “who is going to consume?” when we have high unemployment, nervous consumers and declining wealth in both home equity and equity investments in retirement plans is a very real issue. The more money that people save, the less they spend. We can see the results of this most starkly in the collapsing rate of imports - part of what is propping up GDP (even as we’re seeing annualized rates of decline of -6%+) is the collapse in imports. If we were to factor out the collapse of the imports in the GDP report, we’d be seeing something more like a -12% annualized decline in GDP.
The economy will stagger along at a reduced rate of consumption and wealth. The place to look is Japan - they underwent a vicious debt deflation in the early 90’s, they propped up their bad banks for years and years, tried to pretend that their financial system was still viable (while no one trusted it) and they just sort of tottered along, with zero % interest rates (or darn near zero rates) and limited to no growth for years and years. They finally started to see a pick-up after 2002, only to go straight down into what is quite likely the most drastic recession (more like a depression) since WWII. As the US consumer as quit buying cars, electronics, etc - the Japanese export-driven economy is seeing a huge contraction.
Where we differ is that their economy is based on exports. Ours is based on services, rather than products. A fair number of service were in the financial sector - shuffling paper to and fro. Those jobs are going, going, gone, and quite likely not coming back. The vastly outsized proportion of the US GDP that the financial sector used to make up won’t be coming back. Easy credit won’t be coming back anytime soon, and neither will jobs in ‘service’ industries that are judged by the consumers to be non-essential. I have to laugh when I see Starbucks claiming what they’re going to do to plump up their sales. Why is anyone going to fritter away money on nasty take-away coffee, when you can buy a thermos bottle and pack your own?
Whenever I’m out and about any more, I look around and think “OK, let’s put ourselves into the mindset of the consumer one year from now - is that business over there essential enough to make it to the ‘need’ list, or is it on the ‘want’ list?”
For example, we’re in the mall in Billings in December, and I’m wondering “Does any mall need seven retail outlets to sell Little Miss Slut outfits to young women?”
Sure, there’s no doubt a business selling skankware. But *seven* of them in one mall? Where are young women getting the disposable income to keep all of these retail outlets in business? It isn’t their intrinsic earning power, unless these clothes are for business and trade, so to speak. When I watch young women spending in retail malls, I see nothing but plastic, plastic, plastic... and I wonder who is paying that Visa bill.
There’s an awful lot of businesses that are on the ‘want’ list. Wyoming is still the state with the lowest unemployment, and I’m starting to see the choices happen here: antique and knick-knack businesses, going bust. Pizza joints, bust. Even a chain fast food joint (KFC) went bust in the last six months.
More and more folks are looking hard at their spending habits and making choices that are going to put both local and national companies out of business - not because the business is run poorly, or they’re in debt over their head. Simply because the business provides something that is a ‘want’ not a ‘need.’
So I think it entirely possible we see a slow, but inexorable fundamental shift in consumer behavior, simply because the free-n-easy days are over. People who want to retire will have to save like never before, and the habit of thrift and savings will take down many retail outfits.
Autos sales won’t return to 16 million cars/year. Probably not ever. We already have 1.2 registered cars for every licensed driver in the US. How many more cars do we need?
We have more housing available than people who can afford them.
We have a shrinking export market, and stagnant wage growth.
For all these reasons, I could see a “recovery” that is very much like the Japanese model of the 90’s. We get things stabilized and there we sit.... just tottering along, with elevated unemployment, dysfunctional banks, high levels of government debt, high taxes to pay the interest on this debt, low discretionary spending, etc.
The major difference between our future and the Japanese experience might be that when the Fed runs out of rabbits in their hat, interest rates start going up - and we have a period of elevated interest rates and stagnant growth.
Ironically I did the same thing several weeks ago. My AO is a suburb of Portland, Oregon, which has been hard hit. Scary.
And thanks for the well thought out response.
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