This post originally appeared at 1:41 a.m. Updated and carried to the top.
Bottom Line: The economy has slowed considerably in the past year. Additionally, thanks to so much of what little reported growth there has been residing in health care spending, it feels even worse to the average person than the numbers indicate.
If the Obama administration considers this economy acceptable, it’s in a very small minority. Hillary Clinton’s presidential effort will not benefit if she claims that her presidency will “build on” the pathetic economic performance of the Obama administration.
The key forecasters have pulled in their horns. After forecasting second-quarter annualized gross domestic product growth at well above 2 percent for weeks, the Atlanta Fed has reduced its estimate to 1.8 percent, and Moody’s to 2.1 percent.
Moody’s change didn’t go live until fairly late on Thursday, likely in the interest of keeping bearish news quiet while attention was focused on Hillary Clinton, 2015 recipient of the maximum allowable campaign contribution from Moody’s bigwig Mark Zandi, and the final evening of the 2016 Democratic National Convention:
Late Thursday morning, Bloomberg reported that “The consensus estimate among economists surveyed by Bloomberg is for annualized quarter-over-quarter growth of 2.6 percent.”
Yahoo’s Economic Calendar is carrying predictions of 2.4 percent to 2.6 percent.
Last-minute update: AP, in a story which will get revised away shortly but yours truly has saved in case it’s relevant, is predicting 2.6 percent, based on a FactSet consensus which likely also ignores the last couple of days of data.
Comprehensive revision to back to 2013:
The government’s Bureau of Economic Analysis is revising previously released data back to the first quarter of 2013 — despite the fact that it has the data available at the state level to go back to 2008 if it so wishes.
Ironman at Political Calculations thinks the BEA’s move is odd, especially because there is strong reason to believe that 2008 to 2012 would be revised downward.
I think the move is more than odd. Though I obviously can’t prove it, I believe it’s a political decision by the Obama administration to soften the size of the downward revision. Based on his comparison of state data to previously published national data, PoliCalc’s latest estimate is that GDP as of 1Q16 will be 1.1 percent lower than reported a month ago, or about $170 billion expressed in 2009 dollars ($226 billion for the full period minus $55 billion from 2008-2012 which will not be included).
Zero Hedge reported a reason why that downward revision may be even greater back in May, noting that the “the Department of Commerce decided to quietly revise all the core (manufacturing orders and shipments) data going back all the way back to 2014. In doing so it stripped away about 4% from the nominal dollar amount in Durable Goods ex-transports …” The impact is over $100 billion, or about 0.7 percent of GDP.
Of course, other factors of which we are not aware may either minimize, offset, or more than offset the factors just noted — or they may make things even worse.
We’ll find out here at 8:30.
HERE IT IS (full text release): Wow, pending a look at the three-year revision, this is really, really weak —
Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 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 “Source Data for the Advance Estimate” on page 2). The “second” estimate for the second quarter, based on more complete data, will be released on August 26, 2016.
The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE) and exports that were partly offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
… The acceleration in real GDP growth in the second quarter reflected an acceleration in PCE, an upturn in exports, and smaller decreases in nonresidential fixed investment and in federal government spending. These were partly offset by a larger decrease in private inventory investment, and downturns in residential fixed investment and in state and local government spending.
Current-dollar GDP increased 3.5 percent (table 1), or $155.9 billion, in the second quarter to a level of $18,437.6 billion (table 3A). In the first quarter, current dollar GDP increased 1.3 percent (revised), or $58.9 billion.
The price index for gross domestic purchases increased 2.0 percent in the second quarter, compared with an increase of 0.2 percent in the first (revised) (table 4). The PCE price index increased 1.9 percent, compared with an increase of 0.3 percent. Excluding food and energy prices, the PCE price index increased 1.7 percent, compared with an increase of 2.1 percent (Appendix table A).
… The percent change in real GDP was revised up 0.2 percentage point for 2013, was the same as previously published for 2014, and was revised up 0.2 percentage point for 2015.
Even the upward revisions to previous years (which are hard to swallow, given issues raised, but pending further review) can’t remove the stain of the awful first two quarters of this year as they currently stand.
More later after the spreadsheet gets updated for the backward revisions.
UPDATE: Here’s the chart for the past 8 quarters —
The past four quarters, as seen above have been dismal. Quibblers will note that the growth during the past four quarters has actually been 1.23 percent (oh boy).
Additionally, it’s significant that “Health Care” has contributed half (2.46 points of the reported total of 4.91 reported points) of all growth during the past four quarters. Much of this likely represents Obamacare-driven personal and household spending that was once absorbed in the “Other Services” category (or in a separate “Financial Services and Insurance” line item) and is, in my view, doing nothing to improve living standards.
UPDATE 2: Now let’s look at all quarter-by-quarter and annual changes —
So the revisions to the past three years added $52 billion to current GDP and $60 billion to inflation-adjusted GDP. Based on the aforementioned work at Political Calculations, there is probably a much larger amount of downward revision still present in 2008-2012 which was not reported, and will be saved for the next presidential administration (assuming there is a next presidential administration) to explain away.
UPDATE 3: Zero Hedge — “With this latest shock, we can now calculate that the US has to growth at a rate of over 4% in the second half to match last year’s 2.6% GDP growth.” Good luck with that.
And, again at ZH: “The average annual growth rate during the current business cycle remains the weakest of any expansion since at least 1949.“ By miles.
UPDATE 4: As carried at CNBC — As a result of Friday’s news, Paul Ashworth, chief U.S. economist at Capital Economics, “sliced its full-year GDP expectation from 2 percent to 1.5 percent.”
UPDATE 5: Hillary cheerleader and max 2015 contributor Mark Zandi is unfazed:
“It is amazing how resilient the U.S. economy has been in the face of all these uncertainties and shocks,” said Mark Zandi, chief economist at Moody’s Analytics. “The job market is just incredible, and those gains will boost incomes and support stronger consumer spending in the second half of the year.”