Spring Shoots Its Wad, And It's Shooting Blanks

Only a fucking moron could have believed the economy would do well in the 1^st quarter. Of course, it didn't, but that never stops the media cheerleaders and the think-tank prostitutes from lying to everyone about what's really happening in with the economy and believing a bear market rally represents a new bull? Why, even today I read an article about how the Chinese consumer is going to rescue us all! Nevermind the question of what they will buy from us, you know? Don't they already own enough of the only thing we really manufacture these days: debt?

From the Times:

The gross domestic product shrank at an annual rate of 6.1 percent from January through March, the Bureau of Economic Analysis reported. It was the third straight quarter of declines and capped the worst six months of economic activity since the late 1950’s.

Unless there is a dramatic acceleration to the downside we won't, mercifully, hit that -10%GDP number that represents a depression. And yet, we're still very hosed. And the solutions thus far proffered by Obama's economics team are woefully inadequate, which is even more worrisome. Americans want solutions now and are famously impatient. We might see slight Democratic gains in 2010 but if there isn't a decent turn around--or a stabilization at the very least--on the horizon re-election is not a lock for Obama and I do so fear what paleo-conservative dinosaur the Republicans will find under some rock somewhere to run against him.

And another thing: these numbers always seem to get revised:

Economists had predicted a drop of 4.7 percent, and the steep dip could dampen hopes that the pace of economic declines had begun to ebb. The decline was almost as sharp as in the previous quarter, when the economy shrank at a pace of 6.3 percent, its worst drop in a generation.

The idea that this month represents some kind of a stabilization is nonsense until the revisions come out.

As Barry notes, CAPEX got hammered and residential building fell the fastest it has in the entire cycle. Those two things alone lead me to believe there will be a serious revision of this number and not a pleasant one. It's ugly. Sure there was a small uptick in consumer activity, but what's the benchmark they compare this against? Anything is a uptick versus nothing. As I mentioned a while back, are you buying anything new? Are you feeling sanguine about the economy? How are your neighbors faring? Those are key questions as yet, unanswered. As for the effects of the stimulus, well, we'll see them in the numbers at some point, but I'm also convinced they will be muted and disappointing.

Sure, we'll also see an inventory bounce at some point and then there will be more talk of green shoots! Long live green shoots.

Sean Paul Kelley April 29, 2009 - 8:56am

Sean Paul Kelley's diary | printer friendly version |

( categories: Global Financial Crisis )

It's ugly all the way down

When the cheerleaders are reduced to "green shoots" crap to talk their book, you know we're totally FUBAR.

Tim April 29, 2009 - 9:17am

Economy

"Don't they already own enough of the only thing we really manufacture these days: debt?"

Kelley is far too pessimistic: the US economy stands on a strong tripod of manufacturing: Bombs, Fear AND Debt.

Bilejones April 29, 2009 - 3:13pm

I thought it was

Corn syrup, fashion magazines and porn.

Scotjen61 April 29, 2009 - 4:04pm

What's beautiful about that

Is that bombs create debt and fear but then they conveniently blow up stuff that creates even more debt and fear and bombs are in a moment gone, puff i.e., consumed; meaning we need more bombs causing even more debt and more fear. That's why the military calls the bombs "Force Multipliers" because they multiply debt and fear. Bombs a cycle of creation; who knew? Genius

Now if we could do a similar thing with houses we could really restart the housing bubble. Build a house causing debt and fear because we drop them on people, you know witches and such, but the house turns into kindling when you do that so you need more houses creating more debt and more fear. The housing cycle of creation!

The car companies need a cycle like this and with SUV's they could ...

Joaquin April 29, 2009 - 7:31pm

My personal definition of a depression ...

... is the piercing of the bubble that is the Research Triangle area in NC. That is where my employer's headquarter is located. I used to live there for a while. It is still all bubblelicious. Even real estate is holding up pretty well. Our sales numbers are OK and consulting business is brisk.

On the other hand my wife's from Dayton Ohio. An old industrial heartland area that was already bad before the crisis. Now the town is pretty much on death row.

quax April 29, 2009 - 10:34am

Hilarious Post

You can keep these up all year, I guess, and carp the market all the way to 12000 in 12 months.

Every leading indicator: retail tracking, technology tracking, transport indexes; as well as copper, lumber, and steel commodities, as well as freight rates are all up.

The volitility index (VIX) is almost back to normal levels.

Lending and spreads continue to provide recapitalization to banks, and mortgage rates at 4.75% have sent refinance activity to new record highs.

Inside your abysmal first quarter, was a 2.2% consumer spending increase, and record low inventories which will need to be replenished in the second quarter. The 2.2% gain was even accomplished without a spring time Easter, which occurred in April.

Home prices have risen three months in a row. Consumer sentiment is rising again, as is the manufacturers index.

Stocks are up 25% from bottom, inflation is neutral, gas costs are under $2 gallon, and household affordability indexes are back down to long term averages even with higher unemployment meaning that money available for spending is again at pre-recession levels (hence the rise in real consumer spending).

NASDAQ has been gaining at a faster pace than the DOW which is a recovery signal.

I got time. We get to see who's right in March 2010.

Scotjen61 April 29, 2009 - 11:23am

Denninger

Takes a closer look at those numbers

Don April 29, 2009 - 5:50pm

Sorry

The links is dead. All the growth in the GDP first quarter categories were leading indicators. All the decline was in lagging indicators. Jobs follow six months after market bottom.

The really interesting thing about this recession is that there never has been a slowdown in job creation. The pace has been running along quite well. But job destruction has been rising sharply higher at the same time. We are in a period of creative destruction and regional job movement. Job losses about 50k to 100k higher than job creation per week on average.

Scotjen61 April 29, 2009 - 9:38pm

The link

http://market-ticker.denninger.net/archives/997-GDP-What-GDP.html

I did inhale.

Don April 30, 2009 - 7:18am

Denniger really doesn demolish the idea that there

was any positive news in the GDP numbers, doesn't he?

^{Fuck it man, I'd wade through a river of shit ten times to see this place. ~ On Istanbul, April 2009}

Sean Paul Kelley April 30, 2009 - 7:51am

That's what the

freakin stimulus is supposed to do. So net there was more money in peoples pockets and they spent it. It takes the edge off.

Scotjen61 April 30, 2009 - 8:59am

Ah, yes, Scotjen61, there is the rub

isn't it? You think the stimulus' purpose is to, in your words, 'take the edge off.' I was hoping something for a little more substantial. That is the fundamental place where we disagree.

^{Fuck it man, I'd wade through a river of shit ten times to see this place. ~ On Istanbul, April 2009}

Sean Paul Kelley April 30, 2009 - 10:37am

what else can it do?

Wouldn't it will take major reforms to create a substantial difference? Do you see anything that looks like a major reform anywhere? I'm serious, not being being snarky.

alba

tross

dk April 30, 2009 - 10:52am

And that is what Scotjen61 and I differ on the most: the

fact that I believe the engine of our economy needs to be rebuilt and he thinks it needs a tune up. That's exactly why we've been so critical of Obama's economic plan and team here (we of course have been very positive about his foreign policy). We need major reforms, as you say, to create a substantial difference. This isn't your father's recession.

^{Fuck it man, I'd wade through a river of shit ten times to see this place. ~ On Istanbul, April 2009}

Sean Paul Kelley April 30, 2009 - 11:00am

actually, I think it is a continuation of my father's recession

Detroit in the late 70's/ early 80's. the workers all made concessions, they closed the plants anyways. Now, they're coming after the pensions and healthcare, if you were lucky enough to still any. It seems as if all they've done since, is to just blow bubbles into the global economy.

dk April 30, 2009 - 11:09am

True that, DK, true that. eom

^{Fuck it man, I'd wade through a river of shit ten times to see this place. ~ On Istanbul, April 2009}

Sean Paul Kelley April 30, 2009 - 11:31am

Legacy Bubble Wealth

I like those old bubbles; they were comfortable. I think re-blowing those old bubbles would be like wearing old denim. Tech bubble, that's for me and a housing bubble; its past time for me to trade up. It sounds like Obama wants to blow some green bubbles. I'm not sure how green bubbles will help me keep my legacy bubble wealth inflated.

The bankers got themselves a nice legacy bubble going but what about the rest of us? I could see that the Texas oil folks tried to get their old bubble going with Bush, you know Iraq oil ==> Texas oil but it kind of blew up in their face what with neither Iraq, Venezuela, nor Iran wanting to donate their oil; but I know how those Texas oil millionaires/billionaires must feel. Who does that Chavez fella think he is anyway? I mean what with the tech bubble and all us geeks could actually earn a retirement.

I suppose I should just trust Obama to find us a nice bubble; after all he's only been in office 100 days. Bush took longer than that to F$@k everything up. We can't expect Obama to find us a new bubble faster than that.

Joaquin April 30, 2009 - 1:05pm

Jobs and wages

Scott,

Where are the jobs and wages? We exported a lot of our good paying manufacturing jobs and what is left? The rebound from the stock market crash of 2000 was fueled wholly by easy money which fueled a real estate/building boom. Now what? Whats the next trick? We have a consumer economy but busted bankrupt consumers with poor job prospects. Whats the rosy side of that situation?

Zman1527 April 29, 2009 - 7:57pm

United States

is the largest manufacturer of any country in the world by a factor of three or more. No one else even close. Anyone proffering the absence of manufacturing jobs does not know what is out there. As a percentage it is small in relation to everything else because the economy is so large. And the manufacture here is so efficient. Every US worker is equal to three workers in China, and to at least eight workers in India. No comparison.

Scotjen61 April 29, 2009 - 9:41pm

The US also happens to be a very large country

Comparing the manufacturing sectors of the entire EU and the fairly integrated NAFTA region would be more appropriate in order to have a comparison of two areas of similar developmental maturity and size.

Other than that only percentage comparisons make any sense.

quax April 29, 2009 - 10:58pm

Wikipedia has the numbers

Very nice compilation.

The EU highly protects its agricultural sectors explaining the difference is that regard - on the other hand I think the overblown financial sector probably accounts for the difference in the service sector numbers (not to forget it is/was very overinflated in the EU especially the UK as well).

Don't have such a nice source for productivity but I found this paper.

It seems to make the case that low capital cost may have had something to do with better US TFP growth in the recent past. So the rest of the economy may have gotten something out of the bubble after all as long as the party was on.

quax April 29, 2009 - 11:30pm

And US

is larger.

Scotjen61 April 30, 2009 - 8:59am

Larger in what respect?

$13,620,000 B EU GDP
$13,220,000 B US GDP

You are not making a whole lot of sense.

quax April 30, 2009 - 10:08am

Would be nice

but those leading indicators you're pointing to may have no predictive value with the evaporation of the biggest bubble evah. They're all psychological, and may vanish instantly when confronted with the coming CRE implosion or even a mild swine flu pandemic.

Tim April 30, 2009 - 7:43am

Impatience

And the solutions thus far proffered by Obama's economics team are woefully inadequate, which is even more worrisome. Americans want solutions now and are famously impatient.

Well, we can't put ourselves into frozen sleep and wait out the problems without anything else happening. The yo-yo society means that bad times potentially have the following effects:
- stress from unemployment and/or serious economic problems has long-term health effects. It's not true that what doesn't kill you makes you stronger; what doesn't kill you now makes you die earlier in the long run anyway.
- accumulation of assets is interrupted, and may be reversed. This isn't about modest earners wanting to get rich -- it's about access to education for children, access to health care for self and family, and eventually access to a decent old age. So the savings you don't make or you have to spend now does very bad things to your future.
- you lose flexibility. Life, after all, is not about accumulation of things, but you do need to meet necessities. If you have to be a docile worker to remain a worker, you have to stay in unhappy work situations and even in potentially abusive and illegal work situations (if you got fired for protesting your big-box-store employer locking you in at night, it's your fault), you can't move geographically to be near other family members to give or receive needed support in times of trouble, and just generally, your inalienable right to pursuit of happiness is heavily curtailed. That's a personal tragedy in a finite life span.

The tyranny of an oppressive economic situation is as bad as political tyranny. I don't see Americans' famous impatience as problem. We should be more impatient.

nihil obstet April 29, 2009 - 12:10pm

The Quiet Coup

by Simon Johnson

Simon Johnson, a professor at MIT’s Sloan School of Management, was the chief economist at the International Monetary Fund during 2007 and 2008.

Read it at the link.

The Atlantic

I did inhale.

Don April 29, 2009 - 5:40pm

Very good find

Thanks for the link. I think the two scenarios that he puts forward at the end are indeed very plausible. Currently it looks like we are on the trajectory for scenario (1) - muddle through stagnation. I hope we will get away with it. Scenario (2) would be very painful (should boost the gold price though).

quax April 30, 2009 - 10:09am

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Spring Shoots Its Wad, And It's Shooting Blanks

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