July 30, 2014

2Q14 Gross Domestic Product (1st Take) and Comprehensive Revision: An Annualized 4.0%; 1Q14 Revised to a 2.1% Contraction

Filed under: Economy,Taxes & Government — Tom @ 8:50 am

Moved to the top after original post time of about 7:30 this morning. See Updates below.


Predictions: There weren’t any at two of the major wires as of midnight, but now there are —

  • Associated Press — in a triumphal writeup, Martin Crutsinger is confident that the “US ECONOMY LIKELY SHOWED BIG REBOUND LAST QUARTER.” Specifically, “The consensus forecast is that the economy expanded at an annual rate of 2.9 percent, according to a survey of economists by data firm FactSet.” Several readers and commenters during past month have pointed out that this result would not bring us to breakeven for the year; the reading needs to be a bit above 3.0 percent before rounding to do that. Crutsinger is still beating the snot of the “bad weather” excuse for the first quarter.
  • Bloomberg News — “GDP probably rose at a 3 percent annual rate in the second quarter following a 2.9 percent slump in the first …”

Reuters, as noted last night, carried a prediction of 3.0 percent.

UPDATE: Business Insider has this paragraph:

The Bureau of Economic Analysis will release GDP data at 8:30 a.m. Consensus is for a reading of 2.9% annualized. Deutsche Bank’s Joe LaVorgna, who is predicting 4.2%, has explained why he thinks it could be even higher: “Current data imply that Q1 productivity fell at an astounding -5.8% annualized rate, which would be the largest decline since Q3 1947 when productivity plunged by an all-time record amount of -11.2% in the quarter. Productivity then rebounded an even more remarkable +17.8% in the following quarter. In the context of a sharp downward revision to Q1 productivity, our estimate of just a +0.4% rebound in Q2 is extremely modest. If anything, the payback should be much larger, thereby implying even more economic output than what we project.”

Making a call here is especially tough because the prior-year revisions, up to and including the first quarter of this year, mean that this quarter’s reported starting point is different. So I’m going to go with an estimate for the first half of 2014.

I think that the sum of the first and second quarters reported today will be an annualized -1.0 percent, which is one percentage point below the consensus implied in today’s quarterly prediction that we’re just barely short of breakeven.

One thing to note about today’s result: Based on how the first quarter’s figure went from +0.1 to -1.0 to -2.9 in successive releases, it’s certainly won’t be the last word. Not that it will stop anyone in the press from doing so, but there should be no premature celebrating if the news is good.

The report will be here at 8:30 a.m. My analysis will be somewhat delayed, because I’ll be sitting in on ADP’s conference call from 8:30-9. That report’s chief economist has been a jobs-GDP booster for several quarters, so I certainly want his immediate reax to whatever news comes out.

HERE IT IS (permanent full text link) Well, as noted, it’s only Round 1, but we sure missed on the prediction (we’ll see what it looks like two months from now) —

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 4.0 percent in the second quarter of 2014, according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter,
real GDP decreased 2.1 percent (revised).

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3 and “Comparisons of Revisions to GDP” on page 10). The “second” estimate for the second quarter, based on more complete data, will be released on August 28, 2014.

The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

More later, after I sit in on the ADP converence call.


UPDATE: I’m going to concentrate on the first half of this year for now, and look at the comprehensive revision in a separate post.

First, let’s look at what happened to the first quarter:


The reduced contraction came from smaller declines in inventories and increased fixed investment in structures.

Now let’s look at 2nd quarter vs. the revised first:


So the bounceback in personal consumption expenditures was indeed pretty weak, given the “weather-driven” weak first quarter. My guess is that it’s going to come in a bit weaker overall in subsequent revisions, with goods coming down, and services coming up, but not by as much.

On the investment side, the “other” category in nonresidential fixed has the highest contribution to GDP (0.30 points) in all of the quarters listed in the report (going back to Q410). What’s in there? Well, I don’t know, because it’s not detailed at the “expanded” Table 1.5.2, which at least shows that it’s been 5 years since we’ve seen a contribution that great. The fixed residential turnaround is probably positive, but it doesn’t seem like it should be as positive as 0.23 points, given the awful June new-home sales and pending sales reports released during the past week.

The big positive inventory change, combined with the big negative in imports (the higher imports are, the worse it is for reported GDP growth), might lead one to believe that U.S. manufacturers produced a whole lot of stuff which consumers chose to instead buy from other countries. If so .. uh-oh.

The 0.30-point contribution of increased spending at state governments is not exactly desirable, given that it’s likely an increase in bureaucratic bloat and not substantive economic improvement.

So overall, the 4.0% annualized number is nice if it holds, but I don’t think it will (let’s not forget what happened to health care spending as the first quarter’s revisions came out). Depstie the nice overall number, it was still a pretty soft result for what was supposed to be a great “rebound from bad weather” quarter.

With the left’s darling economy driver of consumption coming in at a pretty low contribution level, you might think they’ll mute their celebrating a bit. You can bet they won’t.


July ADP Report: 218K Private-Sector Jobs Added (See Conference Call Notes)

Filed under: Economy — Tom @ 7:53 am

Prediction: Business Insider — 230,000 private-sector payroll jobs added.

The topside number will be released here at 8:15.

I will sit in and take notes on the report’s conference call, which will start at 8:30, coinciding with when the GDP report comes out.

8:19 a.m.: Well, ADP’s home page isn’t loading, at least for me … Zero Hedge says the magic number is 218,000.

OK, finally:

Private-sector employment increased by 218,000 from June to July, on a seasonally adjusted basis.

- Small businesses (1-49 employees) +84,000
- Medium businesses (50-499 employees) +92,000
- Large businesses (500 or more employees) +41,000

From the press release:

Goods-producing employment rose by 16,000 jobs in July, down from 43,000 jobs gained in June. The construction industry added 12,000 jobs over the month, less than half last month’s
gain. Meanwhile, manufacturing added 3,000 jobs in July, less than one-third the number of jobs added in June.

Service-providing employment rose by 202,000 jobs in July, down from 238,000 in June. The ADP National Employment Report indicates that professional/ business services contributed 61,000 jobs in July, down from 79,000 in June. Expansion in trade/transportation/utilities grew by 52,000, down slightly from June’s 56,000. The 9,000 new jobs added in financial activities was down 25% from last month’s number.

… Mark Zandi, chief economist of Moody’s Analytics, said, “The July employment gain was softer than June, but remains consistent with a steadily improving job market. At the current pace of job growth unemployment will quickly decline. Layoffs are still receding and hiring and job openings are picking up. If current trends continue, the economy will return to full employment by late 2016.”


Zandi: “Feels like the job market is humming … good by any historical standard.”

Current pace of job growth (200K+/mo.) labor market slack of all kinds will decline by 0.6% to 0.7% or so every year (those who have withdrawn, PTers who want to be FT, and others, roughly 1.5% of the workforce right now). So it will take 2-1/2 to 3 years to get to full employment (7 years after end of recession — Ed.) Zandi acknowledges that it was a very long road back, indicating the hit the econ took during the recession (and the sucky policies which made the “recovery” so painful — Ed.).

As to quality of jobs, job growth started to expand out from low-paying jobs. Now it’s across all pay scales, even “middle-paying” jobs due to resumption of activity in the housing market (though slower than had been hoped for). Job growth also returning in government.

Job creation quality has steadily improved and is “pretty much across the board.”

As to pace of wage growth — are people getting pay increases greater than inflation — “so far that hasn’t happened.” Basically, it’s been zero. But the absorption of slack will lead to more definitive signs of accelerating wage growth a year or so from now. Already happening in certain parts of the country in certain industries, but not really visible overall. THEN, perceptions and attitiudes will change, and there is some movement now (e.g., Conference Board consumer confidence yesterday).

“It feels pretty good. Everything looks very positive.”


(Chris Rugaber of AP on GDP) — Are GDP numbers supportive of job growth? (Zandi was surprised at 4% figure.) Numbers now feel more consistent with jobs numbers. Very encouraging, very positive. Thinks Q1 will eventually get revised to a lower decline.

(Rugaber on job quality specific) — Financial services had been shedding jobs until 6-9 months ago, but now it’s adding to payrolls. But we’re getting job growth everywhere. Media is still shedding jobs. Hard-pressed to come up with other industry sectors not adding payrolls.

Expects 6-12 months down the road a significant pickup in monthly job growth.

(Richard Neal, GDP) 1.7% of 2Q increase was in inventories. Zandi says Fed will downplay 2Q’s inflation pickup, b/c rate is still below target. Inflation will start to pick up in a substantive way by this time next year. Housing market is tight, vacancy rates are coming down, rent growth is accelerating and tends to be persistent once it starts to accelerate. That will contribute more to inflationary pressures, and will be patently evident a year from now, at which time according to their script they’ll start raising interest rates.


Wednesday Off-Topic (Moderated) Open Thread (073014)

Filed under: Lucid Links — Tom @ 6:05 am

This open thread is meant for commenters to post on items either briefly noted below (if any) or otherwise not covered at this blog. Rules are here.


Positivity: Ring of Fire, A Capella

Filed under: Marvels,Positivity — Tom @ 6:00 am

The musicianship here is special (HT The Blaze):

But I like the passion (restrained, but there) in the Johnny Cash version a bit more:

July 29, 2014

GDP: An Eerie Quiet

Filed under: Economy,Taxes & Government — Tom @ 11:59 pm

I could not find predictions for second-quarter GDP growth, which gets reported tomorrow, at either the Associated Press or Bloomberg News. That will obviously change within about 6 hours or sooner, but it’s very odd for those two outfits not to have a current story on the first GDP measurement in a quarter.

Reuters does have a prediction, and also expects upward revisions to GDP for the past five years — make that 15 years! — when that information is published in tomorrow’s report:

Consumer spending, inventories seen lifting U.S. second-quarter GDP

U.S. economic growth likely rebounded in the second-quarter from a winter-induced slump at the start of the year and will probably continue to gather momentum through the rest of 2014.

Gross domestic product likely grew at a 3.0 percent annual rate, according to a Reuters survey of economists, lifted by an acceleration in both consumer spending and stock accumulation by businesses.

“Pretty much across the board, components will look better. I do think we can sustain a 3 percent growth number for the next couple of quarters,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

Earlier in the second quarter, growth estimates were as high as 4 percent, but they were lowered as consumer spending and business investment rebounded less than expected.

As I’ve noted in several posts during the quarter, it’s hard to see where the hard-dollar improvements are going to come from. The “good news” has tended to come from sentiment indices. The less stellar news has come from reports attempting to actually measure what’s happening.

Now, as to that comprehensive prior-year revision:

Economists expect upward revisions to output for the last three years, noting that an alternative growth measure, gross domestic income, is running above GDP. The government tends to revise GDP towards GDI.

“Upward revisions to GDP would also be consistent with the performance in the labor market, which has been unusually strong relative to recent growth patterns,” said Eric Green, chief economist at TD Securities in New York.

The GDP data will be released only hours before U.S. Federal Reserve officials conclude a two-day policy meeting. It is not expected to have a material impact on the future course of monetary policy, with Fed Chair Janet Yellen focused on labor market developments and inflation.

Call me cynical, but … I think the Fed has been meeting with full knowledge of what tomorrow’s report is going to say, that the information has leaked, and that the reason for the eerie quiet is that the news isn’t very good.

We’ll see tomorrow.


Unreal: Language in Offensive AP Tweet on Israel-Gaza-Congress Led Its Actual Story Early Tuesday

Earlier today, I gave the Associated Press an unwarranted benefit of the doubt. I figured that there was no way the language contained in an offensive AP tweet on the Israel-Gaza situation would appear in an actual story by an alleged professional journalist. Boy, was I wrong.

The language in question was posted at 6 a.m. ET and is still present at the wire service’s official Twitter account. It reads: “As much of world watches Gaza war in horror, members of Congress fall over each other to support Israel.” I wrote this afternoon that “The tweet … links to a brief dispatch by Bradley Klapper, whose coverage, to be fair (but only if he’s not the tweeter), doesn’t reflect the sentiments expressed in the tweet.” Well, it didn’t then, because the underlying story had been revised. Here’s are the first five paragraphs of Klapper’s story as they appeared before comprehensive cleanup efforts ensued:



WaPo’s Sargent Cites ‘Bombshell’ ACA Legislative History Which Really Helps Halbig Plaintiffs

At the Washington Post’s Plum Line blog this afternoon, Greg Sargent argued that the legislative history of Obamacare supports the argument that Congress intended that participants in federal exchanges be entitled to premium subsidies (alternatively referred to in some quarters as “tax credits”), and that the history should doom the Halbig suit, which contends that tax subsidies cannot be disbursed to Obamacare participants who purchased their coverage through the federal exchange.

Unfortunately for Sargent, the history really makes the opposite legal argument, significantly strengthening the Halbig side’s hand. First we’ll look at what Sargent wrote. Then we’ll see how a RedState diarist nuked his argument within two hours.



This Is Just Creepy

Filed under: Health Care,Taxes & Government — Tom @ 4:33 pm

Now deleted at HealthCare.gov’s Twitter account:


They want us all to be Big Daddy Government’s kids.


NewsBusted (072914)

Filed under: NewsBusted — Tom @ 3:52 pm

Here we go:

– V.A. Scandal
– Bill Maher
– Obama Motorcade
– Obama Traffic Jams
– John Kerry
– Snoop Dogg
– Michael Moore
– Darth Vader
– Hillary Clinton

Best Lines (among many):

  • “Network news programs continue to mostly ignore the VA scandal. In fact, the average waiting period for network coverage of the scandal is now as long as the waiting period for a vet to get seen by a doctor.”
  • “Secretary of State John Kerry had to go through a metal detector before meeting the president of Egypt. But that’s only because the guards had a bet on whether Kerry was actually made of tin.”
  • “Rapper Snoop Dog told Jimmy Kimmel that he once got high at the White House. Snoop claims he was so high at the time the President’s explanation of Obamacare actually made sense.”
  • “Michael Moore has been found to own nine homes. And we at NewsBusted now expect him to make a documentary exposing his greedy capitalist tendencies. Right, Michael?”

AP Reporter: Get Used to the ‘New Normal’

 ”Newfound strengths”? Hardly.


This column went up at PJ Media on Sunday morning and was teased here at BizzyBlog yesterday.


One of the luckiest people on earth this week was the person at the Associated Press who began a Thursday report by telling readers: “Out of a seemingly hollow recovery from the Great Recession, a more durable if still slow-growing U.S. economy has emerged.”

Translation: “This ‘new normal’ economy President Barack Obama and the left have created is as good as it’s going to get. So learn to like it.”

Ordinarily, the perpetrator of such nonsense would have been known and subjected to the relentless personal ridicule he or she deserves. But this is the week the AP’s union, the News Media Guild, upset that its members have been working without a contract for almost eight months after a year of negotiating, began a series of childish “multiple protests” they think will cause the news co-op “to start bargaining in good faith.” (The News Media Guild’s militance largely explains why the AP’s coverage of labor-related matters is so routinely biased.)

One of those “protests” was “a four-day byline and credit boycott” by reporters and photographers who refused to put their names on dispatches and photos submitted from Tuesday through Friday. The tortured statement which opened this column came out smack dab in the middle of that boycott, which the union hilariously described as “a sacrifice.”

Even the AP reporter’s admissions concerning how weak the economy’s performance has been under President Barack Obama were watered down.

The article’s assertion that “in the five years since the recession officially ended, Americans’ pay has basically stagnated” is rubbish. The Census Bureau alumni who run Sentier Research tell us that inflation-adjusted median household income, a far more comprehensive indicator of financial well-being, is still about 3 percent below where it was in June 2009 when the recession officially ended, and has basically gone nowhere since late 2011.

The reporter further claimed that “Economic growth is merely plodding along.” Wrong. To be “plodding along,” you have to be moving forward. The government’s last official reading on economic growth told us that it contracted by an annualized 2.9 percent in the first quarter. The economy’s growth performance has been barely better than that seen during the awful post-Depression 1930s. Very few economists believe that any second-quarter growth will offset the first quarter’s dive, meaning that we’ve gone nowhere so far this year.

The incredibly lucky anonymous AP reporter cited five “newfound strengths” the economy has developed. I will show that each either is a weakness, or masks one.

“Fewer people are piling up credit card debt or taking on risky mortgages.”

The reporter cited a $1,618 reduction in “typical household” credit card debt. Unfortunately, that decline has been far more than offset by an average increase in per-household student loan debt of roughly $3,000. Meanwhile, student-loan delinquencies are going through the roof.

Thursday’s awful new-home sales report and a level of existing-home sales which is still far from where it should be show that fewer people are taking on any kind of mortgage, “risky” or not.

“Banks are more profitable and holding additional cash …”

Banks are holding that cash because they can’t find borrowers. Despite low interest rates, demand for loans, especially to businesses, is lagging. That’s because the opportunity-constraining, growth-choking POR (Pelosi-Obama-Reid) economy of the past six years has led to fewer new business startups, fewer employed by those startups in comparison to previous periods, and an intimidating Dodd Frank-driven regulatory environment.

“More workers hold advanced degrees.”

The AP reporter claimed that this is supposedly good, because “Education typically leads to higher wages and greater job security,” and celebrated the fact that “During the recovery, the number of Americans with a college degree surpassed the number with only a high school diploma for the first time.”

Sadly, we don’t live in typical times, and there’s little cause for celebration. The following graph from a just-published Federal Reserve Bank of San Francisco study shows what may be a permanent break in that education-wage relationship (“full-time” label added by me for emphasis):


For five long years, the starting salaries of college graduates landing full-time jobs have gone nowhere (the figures presented above are not inflation-adjusted). The study’s authors further note, with a supporting table, that “With few exceptions, wage growth has been limited in all occupational groups for recent graduates.”

Especially after considering the explosion in student-loan debt, it’s long past time to question the still ironclad assumption that a college education pays off, and that going to college should be the default goal of every high school student.

“Inflation is under control.”

This triumphal statement is supposed to be a rebuttal to the Rick Santellis of the world who have worried and continue to be concerned about inflation because of the over $4 trillion in money out of thin air Ben Bernanke and Janet Yellen have created.

As I wrote earlier this month:

… [L]ook at what was “accomplished” to cause that (low inflation): real hits to household income, which is stuck far below where it was in 2007, and millions of Americans withdrawing from the workforce. Both of these have dampened demand for goods and services and lessened price pressures. Meanwhile, the government during Obama’s presidency has run up over $5.7 trillion in deficits (through June) while adding just under $7 trillion to the national debt (through July 14), immorally pushing the obligation to pay for our profligacy onto generations yet unborn.

Does inflation being “under control” now merely mean that any coming hyperinflation will be that much worse? The AP reporter has no historical basis for his or her “under control” overconfidence.

“Millions who have reached retirement age are staying on the job.”

Seriously, this is a good thing? What this really means is that many Americans who thought they had their financial situations under control so they could spend their retirements as they had planned have found themselves unable to do so.

This trend has also worked to keep many young people with unproven or non-existent work records from gaining employment.

Imagine the reaction if an AP reporter tried to portray this development as a positive during a Republican or conservative administration.

This anonymous reporter and his or her colleagues at the AP and elsewhere in the establishment press can apply as much lipstick as they’d like to this economy. It won’t change the fact that it remains ugly for the average American, and promises to remain that way as long as Barack Obama occupies the White House.


Official AP Tweet: Despite Gaza ‘Horror,’ U.S. Lawmakers ‘Fall Over Each Other to Support Israel’

It would appear that the Associated Press is branching out into new avenues of bias and submission.

Since President Barack Obama took office in January 2009, its journalists have worked feverishly to earn the wire service its U.S.-based nickname as the Administration’s Press. Now a still-present tweet early this morning (HT Twitchy) from AP’s official Twitter account seen after the jump demonstrates a desire to be seen as Hamas’s Press:



Tuesday Off-Topic (Moderated) Open Thread (072914)

Filed under: Lucid Links — Tom @ 6:05 am

This open thread is meant for commenters to post on items either briefly noted below (if any) or otherwise not covered at this blog. Rules are here.


Positivity: Rio favela continues to reap fruits from World Youth Day

Filed under: Positivity — Tom @ 6:01 am

From Rio de Janeiro:

Jul 28, 2014 / 04:02 am (CNA/EWTN News).- After nearly two years of preparation, Father José Almy Gomes, 40, almost wasn’t ready for Pope Francis’ World Youth Day pilgrimage to Rio de Janeiro.

A student at Rome’s Patristic Institute Augustinianum from 2003 to 2007, Fr. Almy was the pastor of St. Dominic’s in Perdizes – a rural neighborhood of São Paulo. He worked from June 2011 to August 2012 organizing a group of over 100 international pilgrims, including 20 Americans, for a three-week Catholic dream experience: seven days of tourism and cultural immersion in São Paulo, a week of mission work in Rio’s favelas, and seven days of WYD celebration on Copacabana Beach.

His only hope, for the sake of the project’s success, was not to be transferred before then.

But in February 2013, fewer than five months before WYD, Rio’s Archdiocese of St. Sebastian came calling. Fr. Almy was directed to Our Lady of the Rosary parish – just two blocks from where Pope Francis would stand on Copacabana Beach.

Shaken by his transfer, Fr. Almy faced the immediate challenge of building his new parish’s volunteer efforts almost completely from scratch.

“We had just one volunteer signed up when I arrived,” he said in Portuguese, his native language. “World Youth Day just didn’t seem very important here.” …

Go here for the rest of the story.

July 28, 2014

WSJ Journalists Delete Tweets About Gaza Hospital Hit by Errant Hamas Rocket

As yours truly noted a week ago, journalists who have ventured into Gaza operate under coverage restrictions imposed by Hamas, the terrorist group which controls it. Based on the tenor of their coverage, the New York Times and other organizations are complying with Hamas’s constraints, usually without telling their readers, listeners, and viewers. This of course begs the question of why those reporters and photographers stay there — unless they’d like to leave and are being prevented from doing so.

A little onsite reality leaked out of Gaza today, in the form of two tweets from Wall Street Journal reporters based there, before they were quickly withdrawn. Twitter user Yair_Rosenberg caught them before they disappeared. They provide evidence that a rocket strike at a Gaza hospital which killed many Palestinians was the result of an errant Hamas rocket, not an Israeli strike:



AP’s Matt Lee ‘Jokes’ in a Tweet That U.S. Strategy Is to ‘P*ss Off Everyone’ in Mideast (See Update)

Of all the Associated Press reporters out there, Matt Lee, whose beat is the State Department, appears to have the least patience with the pablum (and worse) he is expected to swallow from the Obama administration.

In September of last year, as the situation in Syria escalated, Obama administration Secretary of State John Kerry proposed a non-mandatory request for a Congressional vote on U.S. military involvement in Syria. After hearing State Department spokesperson Jen Psaki defend that proposal as “courageous,” Lee, after getting a non-response to a question as why it was courageous, famously asked: “Was there some kind of, like, group spine-removal op procedure at the White House over the weekend?” Though he may not have exercised the best judgment this morning in posting the tweet which follows the jump, at least we can say that Lee hasn’t taken up permanent residence in the wire service’s otherwise very crowded water-carrier wing: