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GDP Report 3rd Qtr: Truthful?

October 29, 2009

GDP Is….. Better Than Expected… Jobless Claims Lower?

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CNBC reported the U.S. economy grew in the third quarter for the first time in a year as consumer spending and investment in new home-building rebounded, data showed on Thursday, unofficially ending the worst recession in 70 years.

Good. Now that the recession is over, does that mean the next one is completely on Obama and the Democrats?

The Real News

I think the key word is “unoffically”. While we have heard that the recession had ended on about a dozen occasions during the last two and three months, CNBC now makes it “unofficial”. To add support to this claim…they note that we only lost 521,000 jobs in the latest job update. This is down by 10,000 from previous reports. This does not mean unemployment went down.

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 3.5 percent in the third quarter of 2009, (that is, from the second quarter to the third quarter) according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 0.7 percent. You can expect that GDP for the third quarter will “unexpectedly” be revised lower in about 30 days, and again 30 days later. We may be heading into a double dip, which is very dangerous.

Current-dollar personal income decreased $15.5 billion while personal current taxes increased $4.8 billion. Errr… those are both going the wrong way. Taxes up, income down. And, disposable personal income decreased in nominal terms quarter-over-quarter (q/o/q) by 5.9% while in real terms (inflation adjusted) it decreased q/o/q by 7.4%! That is an enormous swing in purchasing power and not in the right direction!

This report basically is dismal and on a drill-down appears to be full of outright lies. The “big change” in private domestic investment is all residential fixed – up 23.4%. An improvement over the ditch-diving of the last many quarters, yes, but a 23.4% increase?… that is a swing of fifty-percent from Q2-Q3? Oh hell no. It’s not in Home Depot’s or Lowe’s quarterly results, it’s not in the homebuilders, and it is not in the suppliers (lumber companies, etc) either. This sort of move would result in monstrous top-line revenue increases reported by firms in this sector and that simply has not happened.

Nor do the export and import numbers look right. Port of Long Beach and LA anyone? Those numbers also don’t add up – swings of 20-25% in one quarter? Not reflected in container volumes and freight loadings. Yet it has to be – how do you get something in or out of here without it going through a port?

It appears that this ‘uptick’ represents the peak of the “stimulus” spending….

Any supposed surge in consumer spending and residential investment was likely driven by government stimulus programs which may be reaching its ‘peaked’ stage; coupled with hefty car and home sales spurred by government support programs. The ‘cash for clunkers’ is the worst sort of “spending”. While U.S. new home sales reportedly fell 3.6% in September from August, this change was not statistically significant. Why not? Because the margin of error was +/- 10.6%. Only the apples-to-apples Y/Y numbers are truly useful. Perhaps there is too much ignorance about basic statistics in the media and among investors. And that’s why the markets keep reacting to changes in numbers that don’t mean anything.

Forward, the big problem is the deterioration in personal income. You can’t spend what you don’t have without credit creation, and that’s fallen off a cliff. The Fed’s credit reports continue to come in with huge contractions – this should not surprise, as demanding that banks lend to people who are seeing their income shrink is into the realm of pure idiocy. It is mathematically impossible to get out of a credit recession with more debt.

Hardly something to cheer about. You cannot have an economic recovery when on a q/o/q basis real disposable income is contracting at a 7.4% annual rate and worse, the spread between nominal and real income is widening, indicating that mandatory purchases such a food, energy and health care – are increasing.

At this point, all we can look forward to is hunkering down and waiting for the next shoe to drop. The holiday seasons will determine whether or not the economy is growing. The new claims in unemployment are looking more like they may be downwardly trending again, not the other way around. People just fall off the radar in the job market when they have looked for employment too long. Also noticeable is that because of the governments hand in the U.S. free enterprise system, other countries are beginning to recover much quicker than the U.S.

In Perspective

There are two forces at work on the economy. People and government. People are out there working, inventing, investing, buying, selling, trading. Looking for opportunities to grow, prosper and support themselves and their families. Then we have the government that does its best to thwart these activities. It uses force to regulate, steal and destroy.

People are pushing up and the government is pushing down.

The point is that what Obama and his mindless thugs are doing has been destructive and maybe our economic society has, at least for now, managed to overcome governments down force. Without government interference and downward drag we would have been much better off. What the government has done in past year will be felt for some time. Unfortunately people’s efforts to prosper will perhaps overcome government’s negative effect making it look as though Obama saved us all.

One has to be concerned that we will see a steeper GDP decline by second quarter, and perhaps third of next year and it will be a real doozy. This is all taking a human toll on our fellow unemployed patriots across the country as we head straight toward a jobless recovery. Many people have seasonal jobs and file yearly. Many have been unemployed so long; they don’t qualify for a claim after their first claims expires and thus aren’t counted in any of the unemployment figures.

Any reported improvement is IN SPITE of Obama. But these are cooked numbers. Yet, it demonstrates the strength of the underlying economy that we haven’t just spiraled south. In the Great Depression, the economy was not as varied as it is now (so much of it was centered in large manufacturing) and when a downturn occurred, there was no alternative for the workers.

They couldn’t go back to agriculture because agriculture had also undergone an industrial and mechanical revolution…plus agriculture was also undergoing a downturn in that there wasn’t enough money around to buy agricultural products. Also, during the 1930’s and 1940’s, there was a severe drought (the Great Dust Bowl) which significant exacerbated things.

In today’s economy, things are much more varied and entrepreneurial and I hope that, despite the efforts of Obama to make things worse, America will escape a depression. There’s one difference between the Great Depression and the modern economy. In the beginning of the Great Depression, they were not starting with a significant percentage of the population conditioned to being ‘entitled’ to dependence on the Government…

As far as I can see, those ‘entitled’ ones make no contribution to the economy and if they suffer a downturn, so be it. Entitlement is part of the government and plays no real net demand role (and a negative one in the final analysis in that payments to them have a negative multiplier effect…they cost more than they return to the economy, just like Obama’s stimulus plan). If the government cannot meet its obligations, too bad…cut costs like everyone else. If however they try to suck more cash out of economy, which is the more likely scenario, the country will scream bloody murder.

Ultimately, the government cannot pull more cash out of the economy because any effort to do so by raising tax rates or levying new forms of taxes will drive the economy downward and reduce tax revenues in the process. History shows lower taxes equals more revenue. In simple terms, this is because you keep more money in the economy which circulates quicker, and is thus subject to more taxation at those lower rates.

Conclusion

Remember, the MSM is in the tank for Obozo and Team Obama has been cooking the books in its jobless reports. You can’t expect the cheerleaders on CNBC to read beyond the headline numbers, and they (once again) did not disappoint in this regard. The first 20 minutes of “analysis” brought not one mention of the decease in personal income or disposable personal income, yet on a forward basis this is, in fact, the most important piece of information in the report. Looks like the amateurs; all these Team Obozo Marxists are currently getting a crash course in socialist economics. Painful and Ironic isn’t it?

Given the propensity for not telling the truth in their economic reports, don’t expect to hear actual facts from Team Obozo. It’s funny how all of the economic news in the last 3 to 4 months has been “unexpectedly” bad. Due to a lack of good-quality hard data, the “advance” GDP report is little more than a guesstimate.

Government has “bought” this GDP growth using our tax dollars by the heavy subsidization of the housing industry (tax credits for 1st time buyers) and their idiotic clunker program. The Clunker program is now over, car sales are AGAIN in the tank and when the $8000 give away to home buyers ends, well, “pop” goes the housing ‘recovery’.

Bottom Line: This Empty Suit peddling Keynesian nonsense is conducting a full-scale war against the free enterprise system. Obama and his congressional handmaidens then appear ‘astonished’ at the disasters that subsequently ensue. No rational person would hire anyone with the all regulations and tax increases ahead. There is so much caution in the anticipated air that the only thing that employers and markets smell is fear. It’s BS to say the recession can be declared “over.” The only good that comes out of that statement is Obama can’t blame Bush. But he will.

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