Fourth Quarter 2008 GDP Report: Where We Learn Just How Poor the POR Economy Is (Update: Bad Enough at an Annual -3.8%; Hinting Recovery?)
Overview (added in June 2008): Welcome to the POR (Pelosi-Obama-Reid) Recession as normal people define it.
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Well, that long-awaited day is here — the day where we get the first major indication just how bad the damage has been from the POR (Pelosi-Obama-Reid) Economy we’ve been living with since June 2008.
The third quarter of 2008 came in at an annualized -0.5%.
That’s bad enough, but as you might expect, predictions for the fourth quarter are coming in much worse:
(Link)
Economists polled by Reuters offered a median estimate of a 5.4 percent decline in U.S. gross domestic product on an annualized basis in the fourth quarter, the worst since the first quarter of 1982.
The estimates of 81 economists ranged from a decline of 3.0 percent to a drop of 7.0 percent.
(Link — Don’t let the Obama Administration see this; they want us to assume we’re all gonna die unless his “Porkulus” package passes)
Strange as it may sound, there is a way an ugly fourth-quarter gross-domestic-product report could be a sign good news is afoot.
The Bureau of Economic Analysis on Friday takes its first crack at estimating GDP in the last quarter of 2008. Economists think inflation-adjusted GDP fell at a 5.5% annualized rate, the worst since 1982, as the economy was suffocated by the disappearance of credit.
Often such sharp declines in GDP are followed by significant snapbacks. The quarter following a GDP decline of 5% or more is positive 69% of the time in the past 48 such episodes in the U.S., U.K. and Germany, according to Merrill Lynch international economist Alex Patelis. He calls it a “heart attack” pattern because GDP’s course mimics the jagged line on an electrocardiogram.
(Link — These guys got the Obamemo)
Many economists think the decline will be a whopping 5 percent or more – which would make it the worst quarter for the U.S. economy since 1982.
“When we see fourth-quarter GDP … it will be bad,” said Nigel Gault, chief U.S. economist at IHSGlobal Insight, an economic forecasting firm in Lexington, Mass. “What today’s numbers tell us is that first-quarter 2009 will be just as bad.”
(link)
Ben Herzon, senior economist of Macroeconomic Advisers, who said the GDP growth rate will likely be negative 5.5 percent, told USA Today, “It’s going to confirm what we already know, and that is we’re in a severe recession.”
Gloom has grown with the spreading realization of the refusal by Nancy Pelosi and Harry Reid to back down from their insistence on starving the economy of energy in the name of what might be the greatest fraud in human history, Barack Obama’s campaign promises of huge tax increases on the most productive (deferred but not deleted), and, more recently, the dogged determination on the part of all three players to ram a comically misnamed “stimulus” down the economy’s throat.
What to watch for: How many media outlets “forget” to include the word “annualized” or “annual rate” in their coverage, giving many viewers the impression that the economy shrunk by the amount reported all in one quarter (See Update below — The prediction came true twice in 20 minutes.)
The report will be here at 8:30. Here it is –
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.
Initial reax: Well, that wasn’t as bad as just about everyone thought. In fact, I’d characterize this as a huge miss by the prognosticators. It won’t be seen as that obvious, but it’s really no different than guessing -1.0% and having it turn out a bit less than +1.0%, which would most certainly raise eyebrows.
Initial theory: Factors cited in this post (lower gas prices, lower mortgage rates) began taking hold in December. This means that Obama’s race against the economy recovering on its own may indeed be on, and his lead may not be as great as he thought (better pass the Porkulus package quick, before those January and February reports start coming out).
I’ll have more to say later after reviewing the report and gauging media reaction.
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UPDATE: The prediction that the media would make this look like a one-quarter drop came true very quickly — as in twice in the first 20 minutes after the release.
No reference to an annualized rate is present in either e-mail.
No one other than the economically astute or close followers of the news reading either of these e-mails would think that the economy really only contracted by 0.94% in the fourth quarter, which is what an annualized 3.8% is.
UPDATE 2: The smaller-than-expected decrease is mostly due to an inventory buildup, per Bloomberg — “Without the jump in inventories, the contraction would have been 5.1 percent ….”
This is where the alarming irresponsibility of Team Obama comes into to play. They’ve been playing the “worst economy since the Great Depression” tune for months. The fact is, we don’t know that, and the numbers, even including today’s GDP, objectively don’t support that claim. But if THEY say it enough and keep consumer confidence at its alltime low, it could happen.
Businesses aren’t stupid. They tend to build up inventories when they either have orders or reasonably expect orders. If Obama and his peeps keep on talking down the economy and their gloom continues to have impact, those expected orders won’t materialize and other existing orders will be cancelled. This will leave businesses sitting on inventories they can’t move. This will cause the contraction to be worse than it could have or should have been.
Like I said, this is alarming irresponsibility, and the press is playing right along.
I can’t help but wondering if this is what they (Obama and the press) really want, given their determination to pass — and quickly (hurry, hurry!) a mis-advertised spending bill containing a trillion dollars (including interest) of their party’s fondest spendaholic dreams.
If we’re supposed to believe that Team Obama doesn’t want to take down the economy, the question becomes: What would they be doing differently if they did want to take it down?
UPDATE 3: Following up on the points in Update 2 –
President Barack Obama says the economic slump is a “continuing disaster” for America’s families and says the country’s leaders can’t “drag our feet” on finding solutions for the ailing economy.”
Pictured at the left is the Master of Disaster. At his right, based on his performance thus far, just as the POR Economy has “achieved” a recession as traditionally defined, is a True Disaster:
Here’s an interesting thought regarding Iceland as being the canary:
If you look at the history of Iceland’s troubles recently it’s always a bit ahead of the U.S. and other European countries on many points: The banks failed and got nationalized earlier; the stock market crashed earlier and harder, and now unemployment and inflation numbers are rising fast. They even protested before anyone else did, which resulted in a whole new government.
http://www.foxnews.com/story/0,2933,485544,00.html
I never thought of Iceland as anything other than a Socialist country with Capitalist overtones. But the speculation here is that their high unemployment and inflation now rising is what the rest of us can expect shortly. Question: What did Iceland do in response to the whole banking debacle which interestingly they fell for the same misguided social justice thinking as the rest of Western Europe and the US?
Comment by dscott — January 30, 2009 @ 11:20 am
Answer: “a financial stability plan” (i.e. stimulus package)
Comment by Joe C. — January 30, 2009 @ 1:10 pm
what were the details of this “financial stablity plan”?
Comment by dscott — January 30, 2009 @ 2:16 pm
#3, It’s from Reuters in Oct. 2008, so take with grains of salt:
http://www.reuters.com/article/newsOne/idUSTRE4942WD20081005?sp=true
Comment by TBlumer — January 30, 2009 @ 2:20 pm
In other words the same failed ideas here.
Crucially, the IMF is not insisting on the privatisation of Iceland’s huge Housing Financing Fund, a state-backed mortgage lender. The IMF will ask the government to compile a credible plan for fiscal tightening in response to government debt levels, which are expected to rise to well over 100 per cent of gross domestic product. The Icelandic krona will be floated again as soon as practical.
http://www.ft.com/cms/s/0/7b83b114-9e9f-11dd-98bd-000077b07658,s01=1.html?nclick_check=1
Like the US, Spain and Germany, they tried to get people into home ownership who really didn’t have any business taking on such responsibility. Unlike the belt tightening asked of Iceland, the US is just going to spend money like a banana republic. I think we all know how this ends.
Comment by dscott — January 30, 2009 @ 2:33 pm
#5, and a smaller country has much less margin for error.
Comment by TBlumer — January 30, 2009 @ 2:38 pm
#6, which is probably why Iceland is a good indicator of things to come if we are saddled with this so called financial stimulus plan.
Comment by dscott — January 30, 2009 @ 3:01 pm
The notion that today’s -3.8% GDP print is the result of anything Democrats did or did not do is, frankly, delusional.
Comment by Invictus — January 30, 2009 @ 7:36 pm
#8, yeah, it’s only supported by a specific timeline with specific events traced to specific causes.
Comment by TBlumer — January 30, 2009 @ 10:35 pm
Good one, TB.
Comment by Joe C. — January 31, 2009 @ 8:45 am
#9, You are correct. And Alan Blinder laid out the six biggest mis-steps recently. Let’s see who was running the country while they were made:
1)WILD DERIVATIVES In 1998, when Brooksley E. Born, then chairwoman of the Commodity Futures Trading Commission, sought to extend its regulatory reach into the derivatives world, top officials of the Treasury Department, the Federal Reserve and the Securities and Exchange Commission squelched the idea. (Clinton)
2)SKY-HIGH LEVERAGE The second error came in 2004, when the S.E.C. let securities firms raise their leverage sharply. (Bush)
3)A SUBPRIME SURGE The next error came in stages, from 2004 to 2007, as subprime lending grew from a small corner of the mortgage market into a large, dangerous one. (Bush)
4)FIDDLING ON FORECLOSURES The government’s continuing failure to do anything large and serious to limit foreclosures is tragic. (Bush)
5)LETTING LEHMAN GO The next whopper came in September, when Lehman Brothers, unlike Bear Stearns before it, was allowed to fail. (Bush)
6)TARP’S DETOUR The final major error is mismanagement of the Troubled Asset Relief Program, the $700 billion bailout fund. (Bush)
Comment by Invictus — January 31, 2009 @ 8:50 am
#11, too bad that doesn’t tie into the timeline, and doesn’t tie to specifics of the downturn in GDP. Nice try though.
Besides:
- 1 is a FUBAR across the board, and Clinton, Bush, SEC, Fed et al should have done something. I would argue that Bush himself had higher priorities during at least some of that time, but that doesn’t excuse him or the SEC or the Fed, which would include Greenspan up to mid-2005. If God Alan didn’t think this was a problem (and I don’t think believe he did), if anyone did try to make a case to the president that it was, they would have had a heckuva fight. I think part of why Greenspan did his heavy speechifying is that he came to see this as a problem after he left, and was furiously trying to deflect.
- your 2 is the Fed;
- 3 was Fan-Fred, which became protected entities of CRA-driven race-baiters despite documented Bush-GOP attempts to rein in and bring accountability;
- 4 is debatable, or have you ever heard of “moral hazard”? And besides, #3 which is Fan-Fred caused it;
- 5 appears to have been more the Fed and maybe Geithner than anyone else, but one bankruptcy doesn’t drive things as heavily as the brutal and unprecedented confidence-crush POR engaged in;
- 6 TARP’s detour may be the Fed and Geithner too. But that wasn’t a detour as much as a deception, and Bush wasn’t the one doing the deceiving. It was Bernanke, Geithner, and/or Paulson.
While I’m at it, Paulson couldn’t have done his gun to the head thing forcing the banks to take federal equity investments without the Fed’s support. That’s Geithner and/or Bernanke.
Glad to clear things up. You don’t get to rewrite history or to pretend that the accountabiliy isn’t where it belongs.
Comment by TBlumer — January 31, 2009 @ 10:18 am
It may not tie into Tom Blumer’s timeline, but that’s another story. If you’d like to refute Mr. Blinder’s assessment of how we got here, please have at it.
Comment by Invictus — January 31, 2009 @ 10:25 am
#13, “all in good time, my pretty.” :–>
The quick explanation is that we would more than likely have muddled through every one of those issues had the systematic POR confidence-crush not occurred. That was the tipping point, and that’s the main point, and the main historical timeline explaining why we are where we are and why it’s as bad as it is.
Added: Actually the CRA-fed Fan-Fred crackup alone might have pushed us into recession, but it would have happened later and wouldn’t have been as severe. The combo of energy-starve, high-tax promises, and Fan-Fred was the perfect POR- and Dem-driven storm.
That’s the history.
Comment by TBlumer — January 31, 2009 @ 10:56 am
[...] Economy (now officially “The POR Recession” as normal people define “recession” since the 4th quarter GDP report came out a few weeks ago) kicked [...]
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