With Wall Street expecting the US economy to grow 2.6% in the second quarter, there were many shocked faces moments ago when the Census Bureau reported that not only did the US economy grow a paltry 1.2% in the quarter, but Q1 GDP was slased from an already poor 1.1% to just 0.8%.
A breakdown of the underlying data via Bloomberg:
For the first quarter of 2016, real GDP is now estimated to have increased 0.8 percent; in the previously published estimates, first-quarter GDP was estimated to have increased 1.1 percent. The 0.3-percentage point downward revision to the percent change in first-quarter real GDP primarily reflected downward revisions to residential fixed investment, to private inventory investment, and to exports that were partly offset by upward revisions to nonresidential fixed investment, to PCE, to state and local government spending, to imports, and to federal government spending.
Just as bad, strong historical GDP reports such as the 3.9% alleged growth in Q2 2015 which served as the springboard for the Fed’s rate hike rhetoric in mid-2015, was slashed to a far lower 2.6%.
As of this moment, the economy has grown at less than a 2% pace for three straight quarters. Since the recession ended seven years ago, the expansion has failed to achieve the breakout seen in past recoveries. The average annual growth rate during the current business cycle remains the weakest of any expansion since at least 1949.
The reason for the dramatic cuts: historical revisions going back to Q1 2013. From the BEA:
Updated estimates of the national income and product accounts (NIPAs), which are usually made each July, incorporate newly available and more comprehensive source data, as well as improved estimation methodologies. This year, the notable revisions primarily reflect the incorporation of newly available and revised source data. The timespan of the revisions is the first quarter of 2013 through the first quarter of 2016. The reference year remains 2009.
It now appears that at a time when the US economy was said to be approaching escape velocity for a rate hike, it was in fact contracting. According to the latest data, in Q4 when Yellen announced the Fed’s first rate hike, the growth trend economy was in fact decelerating, growing by only 0.9%, the lowest since Q1 2014.
Some more details:
- Core PCE 1.7%, far below Q1’s downward revised 2.1%
- GDP deflator: 2.2%, Exp. 1.8%, and up from 0.5%
From the BEA:
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 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.
There was some good news in the report: In the second quarter, consumer spending rose strongly. Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 4.2% rate, the best gain since late 2014. Outlays on goods advanced 6.8%. Spending on services climbed 3%. As part of the revision, a major adjustment was the contribution from Housing and utilities, which in Q2 supposedly added $43 billion to Personal Consumption, while Healthcare, traditionally the best performing category, only added $28.4 bilion. We are confident this number will be revised shortly again.
However, nonresidential fixed investment, a measure of business spending, declined at a 2.2% pace, the third straight quarterly drop. Companies spent less on buildings and equipment.
It appears capex matters.
Weak business investment is confirmation that firms don’t have confidence in the global economy. Manufacturers especially have been challenged by a strong dollar, which makes U.S.-made goods more expensive overseas. The energy industry has also been constrained with relatively low oil and natural gas prices curtailing investments in mining and wells.
Firms also paired back inventories sharply. The change in private inventories subtracted 1.16 percentage points from overall growth. That was the category’s fifth-straight decline and the largest drag from inventories in two years.
We will breakdown the revised numbers shortly, but with this latest data in the Fed’s hands it looks like any rate hike hopes for September, or any time soon for that matter, were just crushed.
wait…..you mean it was all a lie?
US Admits It “Found A Problem” In Calculation Of GDP
by Tyler Durden
Jul 29, 2016 10:22 AM
For years we have complained against both the BLS’ and the BEA’s comical seasonal adjustments, which “serve” just one purpose: to goalseek the data to a desired, politically-mandated outcome, and which culminated last May when the Department of Commerce announced it would seasonally adjust last year’s woeful Q1 GDP data not once but twice in order to get a better result. Now, it appears that there indeed was a problem: government statisticians announced that they have found “evidence that efforts to adjust the country’s measure of economic growth for seasonal fluctuations have not been fully successful.”
The Bureau of Economic Analysis said this week that a component-by-component investigation found evidence in quarterly GDP data over different time spans, Reuters reports.
“We did find some evidence of residual seasonality both over the most recent 10-year period and over a 30-year period,” Brent Moulton, associate director for National Economic Accounts at the BEA, told reporters.
What Moulton meant is that in the new normal, where the business cycle itself no longer makes any sense due to central bank intervention, seasonal adjustments are worthless. Confirming this, the BEA said that seasonal effects have lingered in some cases even after the data was seasonally adjusted. Economists believe residual seasonality has been most prevalent in first-quarter GDP data, with growth underperforming in five of the last six years since the recovery started in mid-2009.
Lending credence to that theory, the government sharply revised up the 2015 first-quarter GDP growth estimate to a 2.0 percent annual rate from the previously reported 0.6 percent pace. But it also revised down the second-quarter GDP estimate for the same year to a 2.6 percent rate from 3.9 percent.
Ironically, in revising the data by shifting contributions from one quarter to another, the government economists merely perpetuated the error by using judgment to attribute “growth” to times during the year when they saw these as appropriate, a subjective assessment. Certainly, it does not explain why the Fed proceeded to launch a rate hike in a quarter, Q4 of 2015, that grew at the slowest pace in nearly two years.
More from the BEA:
Moulton said the treatment of monthly data in the derivation of quarterly national income and growth estimates was a pervasive problem. “There are two things that can happen here. One is a series may be tested for seasonality at monthly frequency and may not show any signs of seasonality,” he said.
“What we found in our review is that in some cases those series did at quarterly frequency show significant seasonality, suggesting there is some seasonal factor that needs to be adjusted to at least a quarterly frequency.”
Moulton said even if a series is adjusted at monthly frequency, which is the case with most of the source data for GDP, there may still be residual seasonality in some cases once the figures are combined to produce quarterly data.
The solution, he said, was to test all monthly GDP source data series at both monthly and quarterly frequencies.
The Department of Commerce promised it would work with other agencies to ensure that residual seasonality was removed from historical data by 2018. This is another way of saying that growth that had previously been reported as taking place previously, will be slashed, and reapplied in future times as appropriate, once again depending on the bureau’s political narrative.
Most importantly, the BEA said it would also start publishing nonseasonally adjusted GDP and gross domestic income estimates in 2018. “These estimates will allow users to isolate data revisions more distinctly from revisions to seasonal factors.”
Yes they will, but one wonders why the BEA will wait two years before this critical data is released?
One also wonders even with the underlying data “what difference will it make” – when “fringe websites” such as this one deconstruct the data and show that it is fundamentally wrong or outright manipulated, they get heckled by the same cadre of economists none of whom had any inkling of today’s abysmal data.
Finally, one thing that remains no matter how the seasonal adjustments are allocated: on a year over year basis, the US economy continues to slow dramatically, and as the following chart shows the 2.4% GDP annual growth compared to last year was the lowest since 2010.
There’s only one thing the gooberment is good at growing…the Federal Dick they stick up the taxpayers ass .
Everything from the years spanning the Obama presidency – domestically and internationally, socially and economically – will be “revised down” in any history book worth its weight in salt. Let’s pray a turnaround is coming under President Trump. The downward revision of a Clinton presidency would be unbearable.
Well, this morning on NPR radio I was informed that most economists would disclose that the good old US of A had a GDP coming out at – wait for it – 2.6%. Can you fucking believe this ?
Same old same old – a night or so ago I sat in my car in the driveway and continued to listen to the utter bullshit on NPR’s coverage of the DNC where none other than Joe Biden said, and I quote – “president Obama is the finest president that this nation has EVER had” – to which there was a HUGE roar of acknowledgement from the dimwitted audience. Couldn’t fucking believe what I heard ! Most people are so fucking STUPID – SHEEP ! I turned the radio off and walked into my sisters house (where I’m now living rent free after the Marcellus Shale fracking boom has turned to BUST) shaking my head in utter dismay trying to make sense of what the fuck has happened to the general American population at large.
BY THE WAY – I REALLY REALLY FUCKING DIG THE ‘BURNING PLATFORM’S NEW PICTURE’ of THE BURNING PLATFORM !!!!!!!!!!!!!!!!!!!
“president Obama is the finest president that this nation has EVER had”
By the way, for anyone that gives a shit – Lots of very expensive spec houses for sale in Chatham, Cape Cod, Massachusetts. Last time I saw this was just before the housing bubble blew up (just saying). Also, many many houses for sale out in western Mass.
I have a friend that has a summer house in Tenant’s Harbor, Maine 9 He has a winter home on the water in Naples, FL.). I visited him in the fall of 2011. Back then I noticed an insane amount of houses for sale there. He recently told me most of what I saw back then is still up for sale. Tenant’s Harbor – Winter Haven & North Haven are desirable (?) ‘down east Maine’ islands – John Travolta has / had a summer house (mansion) there. SO – why is the real estate not moving there ? The offered prices on the few properties that get an offer are WAY below asking price. WTF ?
And if today you drove down RT 28 or “Shore Road” in Chatham on the Cape you just would not believe your eyes as you drove past house after house so large as to tax your imagination, several with super large additions being built – most by POLHEMIUS, SAVORY & DESILVIA. I feel sometimes as if I am living in the GREAT GATSBY era!
Just finished working on a 180K audio / video install at Paul Julian’s second Chatham waterfront home. It is very apparent that this ‘second house’ was built & furnished for ‘entailment only’ purposes. There is a two lane BALDWIN commercial bowling ally in the basement ! Gotta be a 10 million dollar shack.
Paul Julian is 5th down on the executive food chain at McKesson Corp. His salary is 21 million per year. How does ANY corporation make so much profit that the 5th executive down the food chain can make 21 million a year and have 180 million in a retirement package? He has a fucking Bachelor of Science degree from Bridgewater collage. (I’m not envious – just saying).
No people – All is NOT well.