June 27, 2014

Disappearing Growth Watch: AP Knocks Down Expected 2Q14 Growth to an Annualized 2.5 Percent

Slowly but surely, the confident assurances of a fantabulous second quarter for the U.S. economy — one which is supposed to make the serious first-quarter contraction reported on Wednesday a distant memory — are crumbling.

Yesterday at the Associated Press, Martin Crutsinger, who just a couple of weeks ago had been relaying confident second-quarter predictions of annualized 3.5 percent and even 4 percent growth, quoted a still-optimistic economist who, in Crutsinger’s words, “said strength in other areas (besides yesterday’s weak consumer spending report — Ed.) should still lift economic growth to around a 3 percent annual rate in the current quarter.” Today, in covering the University of Michigan’s consumer confidence report, Christopher Rugaber, Crutsinger’s dynamic duo buddy at the AP, brought the growth figure down to a level which won’t even offset the dreadful first quarter:

CrutsingerAndRugaberTwitters

STEADY JOB GROWTH BOOSTS US CONSUMER CONFIDENCE

Strong job growth lifted U.S. consumer confidence this month, as Americans looked past the economy’s dismal first quarter performance. [*]

The University of Michigan said Friday that its index of consumer sentiment rose slightly to 82.5 in June from 81.9 in May. That is still below April’s reading of 84.1, which had been the highest in almost a year.

Still, the survey was mostly conducted when the government had estimated that the economy contracted at a 1 percent annual rate in the first quarter. [*] On Wednesday, that estimate was revised much lower, to show a contraction of 2.9 percent.

And so far, steady confidence hasn’t yet translated into more spending. Consumer spending rose just 0.2 percent in May after a flat reading in April. Weaker spending suggests growth won’t rebound as strongly as many economists had hoped. Some marked down their forecasts for growth in the second quarter, to roughly 2.5 percent from 3 percent.

[*] — It’s a mystery how “Americans looked past the economy’s dismal first quarter performance” when most (my guess is close to all) of them had no idea how bad it really was. The vast majority of the press reports in the wake of May’s annualized contraction estimate of 1 percent said that it was all a one-off due to bad winter weather. After Wednesday’s disastrous 2.9 percent contraction reading, it became obvious that the economy’s problems in the first quarter were not primarily (if at all) weather-related.

I suspect that the only reason “some” economists marked growth down to 2.5 percent is that the rest were either on vacation, or marked it down to something even lower.

Vahan Janjigian is a CFA, a Chartered Financial Analyst, one of the toughest financial credentials to achieve. His headline at a Seeking Alpha post asks a question everyone in the press would be asking right now if a Republican or conservative was in the White House (we know that because the press thought a recession might be just around the corner during virtually the entire Bush 43 administration):

Is The Next Recession Already Here?

… I wish I could be more optimistic about the economy’s near-term prospects. We will learn more when the BEA releases its advance estimate for second-quarter GDP on July 30. Like most economists, I too am expecting to see growth. I seriously doubt, however, that growth will be strong enough to make up for the first quarter’s contraction. In any case, given the BEA’s recent track record, I won’t be putting much weight on that first estimate. Chances are it will be revised significantly.

As I wrote yesterday after May’s consumer spending report came in with the second consecutive month of decline in real (i.e., inflation-adjusted) spending:

It’s way too soon to predict a second consecutive quarter of contraction, which would, according to the definition normal people use, constitute the existence of a recession. But I suspect that a lot of throats are quietly beginning to tighten around the land.

Don’t expect to hear much about those tightening throats from the establishment press during the next month. But rest assured, they’re out there, they’re very nervous, and they should be.

Cross-posted at NewsBusters.org.

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7 Comments

  1. 2.5% annualized growth is an absurd prediction for the 2nd Qtr. They might as well have said you’re going to save $2500 annually on your new ObamaCare policy, both are equally specious. IF you have an annualized 2.9% contraction in the first quarter, what you are really saying is the economy would have to take a massive growth spurt not seen since before Obama took office 6 years ago. We are talking about 5.4% REVERSAL (from -2.9 to +2.5) in the annual trend of the GDP over a period of 6 months.

    Not to mention the claim of a 2.5% “annualized” expansion infers to the average person that the GDP growth was so robust that the average of both quarters is 2.5%, in other words the 2nd Qtr grew 5.4% to cumulatively negate the -2.9% 1st Qtr contraction. Most people don’t realize the caveat that “annualized” means IF, IF, IF, all things are equal (which they rarely are) and the economy kept pace for the whole 12 months the GDP would expand at that rate. It’s totally deceptive, but that doesn’t surprise me anymore from these people.

    Comment by dscott — June 27, 2014 @ 5:25 pm

  2. [...] May durable goods report released at the same time. Mean­while, Tom Blumer noted two dif­fer­ent AP sto­ries where some econ­o­mists knocked down their expec­ta­tions to as low as +2.5%. Of note, [...]

    Pingback by Da Tech Guy On DaRadio Blog » Blog Archive » The final* 1st-quarter GDP report is really bad news, especially for PlaceboCare — June 28, 2014 @ 11:09 pm

  3. I was wondering when you were going to take a stab at estimating the impact of the health care costs on the second quarter GDP. I was shocked that most of the first quarter decline was attributed to lower than expected health care spending. When I look at the economic fundamentals I am having a problem getting my head around the thought that increased health care spending was expected to such a big part of the economic growth. Isn’t health care spending a zero sum game in which for every winner there is a loser? How does the economy grow in a zero sum game environment and don’t we have the same health care spending estimating risk for the second quarter?

    Comment by Bill Huber — June 29, 2014 @ 10:48 am

  4. “How does the economy grow in a zero sum game environment and don’t we have the same health care spending estimating risk for the second quarter?”

    Good question. No good answer — at least no answer anyone who wants to see a growing economy would like.

    Comment by Tom — June 29, 2014 @ 4:48 pm

  5. #3, it called fun with numbers (liberal math) which points out the falsity of the GDP calculation by the current Regime. The health care spending tallied for the GDP probably includes “premiums”.

    As I pointed out in a previous bizzyblog article comment, the millions of people who were dropped/lost their individual insurance policies are in all probability prudently saving that money in a rainy day fund for anticipated medical expenses. Those expenses will mount over time so we should see a “recovery” (sarcasm) in GDP by the end of the year when all things being equal would dictate people will be having health problems to resolve. Not to mention, a natural response by people without health insurance is NOT to go to the doctor for anything other than when they are actually sick. No annual check ups or preventative care which is ironically the opposite of what was publicized the effect of ObamaCare would be. Alas, this isn’t the land of unicorns, lollipops and rainbows after all… reality is such an ugly thing which is why liberals shun it.

    Comment by dscott — June 30, 2014 @ 9:31 am

  6. Exactly a point I made in my current PJM column under review. This is a complete betrayal of what Ocare promoters promised.

    Comment by Tom — June 30, 2014 @ 9:47 am

  7. BTW- this drop in GDP was actually forecasted by the Baltic Index:

    http://www.bloomberg.com/quote/BDIY:IND/chart

    Click the one year time line, all is apparent with the chart, given the Baltic Index is a indicator of future economic activity, well let’s just say the last 3 months of the Index pretty much sums up that rosey GDP recovery forecast is a total farcical dream by liberals of their failed policies. Unicorns, lollipops and rainbows notwithstanding…

    Comment by dscott — June 30, 2014 @ 11:55 am

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