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GDP Miss Far Bigger Than Announced; Real GDP is 0% Using More Reasonable Deflator
Townhall.com ^ | April 28, 2012 | Mike Shedlock

Posted on 04/28/2012 8:13:11 AM PDT by Kaslin

The Advance Estimate for Q1 GDP came in at 2.2%, down from 3.0% in the previous quarter, and below most mainstream media estimates of 2.5%.

However, my friend BC notes ....

The GDP deflator is reported to have averaged 1.2% annualized in the past 2 qtrs. Had the trend rate from '11 persisted, the deflator would have subtracted 2.6% annualized from real GDP, resulting in a 2-qtr. growth of real GDP of 0%. 

ECRI's Achuthan would appear correct that a recession were imminent instead of looking like a dummy.

Rick Davis at the Consumer Metric Institutes makes a similar calculation.

In their "advanced" estimate of the first quarter 2012 GDP, the Bureau of Economic Analysis (BEA) found that the annualized rate of U.S. domestic economic growth was 2.20%, down more than three-quarters of a percent from the fourth quarter of 2011. The vast bulk of the downturn was in commercial activities, with both fixed investments and inventories lowering the headline number substantially. Consumer spending on both goods and services improved slightly, and the ongoing contraction in governmental spending moderated somewhat. The BEA's bottom-line "real final sales" improved about a half-percent to an annualized growth rate of 1.61% -- hardly robust and certainly not the kind of numbers we would expect to see nearly three years into a recovery.

Once again the BEA has used "deflaters" that will strain the credibility of the public, especially if they buy gasoline. To correct the "nominal" data into "real" numbers the BEA assumed that the annualized inflation rate during 1Q-2012 was 1.54%. As a reminder, lower "deflaters" cause the reported "real" growth rates to increase -- and once again very low seasonally adjusted BEA inflation "deflaters" have been the headline number's best friend. If the raw "nominal" numbers were instead "deflated" by using the seasonally corrected CPI-U calculated by the Bureau of Labor Statistics (BLS) for the same time period, nearly the entire headline growth rate vanishes -- and the resulting growth rate would have been a minuscule 0.08% with "real final sales" contracting.

And real per capita disposable income actually shrank during the quarter shrank at an annualized -0.27% rate (from $32,699 per capita to $32,677 per capita) -- and it remains lower than it was 5 quarters ago. -- even using the BEA's optimistic "deflaters." Real-world households likely felt the pinch even more.
Doug Short at Advisor Perspectives has some interesting charts is his post GDP Q1 Advance Estimate Disappoints at 2.2%.

This chart shows the disturbing trends.



click on chart for sharper image

GDP Trends



Take a good look at the last decade. The US only managed 1.7% growth in the biggest housing boom in history followed by the biggest multi-trillion dollar global stimulus effort in world history.

Three years into a recovery, growth (if you believe preposterous deflators) is a mere 2.2% but only 0% if you don't.  Moreover, with parts of Europe in an outright depression, with even Germany and the UK in recession, and with China slowing significantly, the odds the US economy decouples for too much longer is now approaching zero.

I think the ECRI has its recession forecast reasonably correct. However, it may take a well-deserved GDP revision (likely after the next election) to prove it.


TOPICS: Business/Economy; Editorial; Front Page News; Government
KEYWORDS: lostdecade

1 posted on 04/28/2012 8:13:15 AM PDT by Kaslin
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To: Kaslin
Mish made a bet several years ago that unemployment wouldn't fall under 8% for a decade at least. As long as Gov't doesn't fudge their numbers more than they usually do. He will win.

But, more importantly. If someone comes into office and they actually cut govt and spending. I don't know if the American populace has the knowledge and patience to allow the needed changes to occur.

2 posted on 04/28/2012 8:17:35 AM PDT by Theoria (Rush Limbaugh: Ron Paul sounds like an Islamic terrorist)
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To: Kaslin

From Market-Ticker

http://market-ticker.org/akcs-www?post=205277

GDP: Chickens Roosting; Don’t Walk Under Them


3 posted on 04/28/2012 8:19:54 AM PDT by HangnJudge
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To: Kaslin
And...
From Zerohedge

Chart Of The Day: Change In Q1 American Debt And GDP

http://www.zerohedge.com/news/chart-day-change-q1-american-debt-and-gdp

Presented without much commentary, because little is necessary: the only ratio that matters for the US economy, the change in US public debt ($359.1 billion) and US GDP ($142.4) in the first quarter, hit 2.52x and rising.

It takes $2.52 in new debt to "buy" $1 of economic "growth"


4 posted on 04/28/2012 8:26:36 AM PDT by HangnJudge
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To: Kaslin
If everybody won't mind spreading this FACT. The numbers are being fudged.. BIG TIME. Inflation and Unemployment. When and if the Republicans take over look for a huge spike in those numbers.

We as conservatives need to flood the news fax and email accounts with this propaganda war that the libs are going to use to derail the tax cuts and government parasite cutting that needs to be done in the next administration.

We need to stand firm and elect conservative legislative members to oppose Obama or Obama's brother by another mother- Romney. ugh...

This is the game and spread it around. Let Rush, Cavuto and Stossel know. At least they have a big enough audience that when the big lie is released we have it on record.

I don't believe ANYTHING our government releases as far as labor and economic statistics is concerned and very little of anything else while the quisling marxists run the asylum.

5 posted on 04/28/2012 8:32:49 AM PDT by Dick Vomer (democrats are like flies, whatever they don't eat they sh#t on.)
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To: Kaslin

Weirdest darn Recovery I’ve ever seen!


6 posted on 04/28/2012 8:37:14 AM PDT by ClearCase_guy (Like Emmett Till, Trayvon Martin has become simply a stick with which to beat Whites.)
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To: Dick Vomer
I'm reminded of when Pataki became governor of NY. During a press conference either immediately after the election or his inauguration, he was informed (by a Cuomo communique) of the TRUE budget deficit of the state. At first he thought they said “$4 million” to which he replied, “We can handle that.” When he was then informed that it was “$400 million”, his eyes bugged and you could hear him go “GULP!”
7 posted on 04/28/2012 8:46:45 AM PDT by Roccus
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To: Kaslin
Government spending also goes into the GDP at cost no profit added. So as the Federal government spends it artificially raises the GDP.

Look at China. They have built about a dozen cities where nobody lives. All that spending goes to GDP but adds no real wealth.

8 posted on 04/28/2012 9:11:35 AM PDT by Mikey_1962 (Obama: The Affirmative Action President.)
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To: mnehring; 1rudeboy

ping


9 posted on 04/28/2012 9:45:48 AM PDT by dirtboy
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To: Dick Vomer
... I don't believe ANYTHING our government releases as far as labor and economic statistics is concerned and very little of anything else while the quisling marxists run the asylum.

It's important to remember that the 'fudging' of employment and inflation numbers is the cumulative result of 'enhancements' that occurred under both D's and R's. The CPI has morphed from measuring the cost of maintaining a set standard of living to maintaining a declining standard of living.

De-fudged numbers:




10 posted on 04/28/2012 10:08:17 AM PDT by khelus
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To: Dick Vomer
If everybody won't mind spreading this FACT. The numbers are being fudged.. BIG TIME. Inflation and Unemployment. When and if the Republicans take over look for a huge spike in those numbers.

If the economy was gaining traction, the unemployment rate would go higher as people are encouraged to reenter the workforce.

11 posted on 04/28/2012 11:01:02 AM PDT by EVO X
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To: Kaslin
Real GDP is 0% Using More Reasonable Deflator

Not bad for a government created 5 trillion dollar recovery.

12 posted on 04/28/2012 12:45:38 PM PDT by EGPWS (Trust in God, question everyone else)
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To: khelus

note how the spread between the official stats and the SGS has been increasing since 2009???

Or am I a RASSISS! for noting it?


13 posted on 04/28/2012 1:35:02 PM PDT by tcrlaf (Election 2012: THE RAPTURE OF THE DEMOCRATS)
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To: tcrlaf

Zero and his minions are just taking advantage of and expanding upon tools put in place by prior administrations, particularly the three prior ones {Bush I, Clinton, Bush II}.


14 posted on 04/28/2012 1:40:13 PM PDT by khelus
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To: Mikey_1962

government spending is a net negative to the economy, it sucks out investment in the real economy. Government is so inefficient that it couldn’t do anything else.


15 posted on 04/28/2012 3:17:50 PM PDT by GeronL (The Right to Life came before the Right to Pursue Happiness)
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To: Kaslin
the fewer number of cars i see on the way home from work is now quite noticeable
16 posted on 04/28/2012 4:04:01 PM PDT by Chode (American Hedonist - *DTOM* -ww- NO Pity for the LAZY)
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To: Mikey_1962
So as the Federal government spends it artificially raises the GDP.

GDP is another invention of the Keynesians. It measures consumer and, as you said, government spending. It completely ignores business-to-business spending which is larger than consumer spending.

That 70% of the US economy is dependent on consumer spending is a complete falsehood -- it's more like 30% or 35%.

Why? Because the Keynesians claim that economic growth consists in more spending -- not investment. Dumb and wrong.

17 posted on 04/28/2012 4:23:35 PM PDT by BfloGuy (The final outcome of the credit expansion is general impoverishment.)
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To: BfloGuy

GDP mismeaures the economy by pretending that all government spending is beneficial. It doesn’t account for the crowding out of private investment or the misallocation of capital. It’s really a very poor measurement of any economy.


18 posted on 04/28/2012 6:54:44 PM PDT by 1010RD (First, Do No Harm)
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To: BfloGuy

And Corporate spending on assets has dropped 3 months in a row.

Either they are adjusting to a 2% growth rate or hunkering down. I think they are hunkering down.

Clearly the more the government spends the less acurate the GDP


19 posted on 04/28/2012 7:28:39 PM PDT by Mikey_1962 (Obama: The Affirmative Action President.)
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To: BfloGuy

Your 30-35% number might be true if you are counting total transactions rather than final value. If a farmer sells grain to a baker for $100 who sells bread to a store for $200 which the sells it to consumers for $300, there have been a total of $600 of transactions for only $300 of production. If the grocery owned the farm and bakery the first two transactions would never be counted, but the total production in loaves of bread and final sales would be the same final $300.


20 posted on 04/29/2012 7:34:23 AM PDT by KarlInOhio (You only have three billion heartbeats in a lifetime.How many does the government claim as its own?)
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To: KarlInOhio
Your 30-35% number might be true if you are counting total transactions rather than final value.

I am.

If a farmer sells grain to a baker for $100 who sells bread to a store for $200 which the sells it to consumers for $300, there have been a total of $600 of transactions for only $300 of production.

That's correct -- and it is the classic example.

If the grocery owned the farm and bakery the first two transactions would never be counted, but the total production in loaves of bread and final sales would be the same final $300.

Yes and that is a plausible scenario. Nonetheless, the grocery company would still pay for utilities, fertilizer, energy, seed, milling equipment, etc.. Those expenditures are not counted in the current GDP equation.

My point is that 70% of the U.S. economy does not consist in and is not dependent on consumer spending. That shibboleth has led to the misconception that the U.S. has a consumption economy.

It most certainly doesn't. It is a production and consumption economy. In fact production expenditures are usually slightly higher than consumption expenditures (a concept the Keynesians claim is impossible.)

If GDP merely represents the wealth created (final value) in the U.S. then it cannot at the same time be said to accurately reflect the composition of spending in the country. This exaggerated emphasis on consumer spending justifies all sorts of political mischief and makes it much more difficult to understand what sectors of the economy are in trouble.

As we are seeing, consumer spending now exceeds pre-recession levels but obviously all is not well. Another concept the Keynesians don't understand. They developed the GDP equation and the system of national accounts by the way.

21 posted on 04/29/2012 1:36:56 PM PDT by BfloGuy (The final outcome of the credit expansion is general impoverishment.)
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To: Kaslin

The chart can be analyzed very simple. America is on a downward slide and in a few years we will be in Greek Territory.


22 posted on 04/30/2012 3:33:48 AM PDT by tobyhill (Fight Fire With Fire)
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