Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

U.S. Q1 2012 GDP Sends Mixed Message

Economics / US Economy Apr 28, 2012 - 11:36 AM GMT

By: Tony_Pallotta

Economics

Best Financial Markets Analysis ArticleThe US economy expanded 2.2% in Q1 2012 versus 3% in Q4 2011 based on the first of three GDP estimates. Forecasts were for 2.5% growth with "whisper" numbers in the 3% range. As always on the surface this appears OK although one can easily argue this far into a "recovery" the economy should be growing at a faster pace. In fact the economy is closer to "stall speed" versus "escape velocity."


The biggest surprise was the consumer component of GDP which contributed 2.04% offsetting the government which was a net drag of (0.60%). The other surprise comes from fixed investment at 0.77% down from 2.59% in Q4 2011.

So a surprise beat from the consumer offset a surprise drop in fixed investment. Which is a little odd because fixed investment would lead the consumer. The "things" that fuel consumer consumption must be built before they can be bought right? The data would actually say the consumer just finished their last big spending spree.

Consumer

The consumer contributed 2.04% of the 2.2% total economic growth or roughly 93% versus the historical average of 70%. Purely looking at the trend below one can argue this surprise strength is really no surprise. After all the consumer has been trending higher.

Consumer Goods

The real question becomes is this sustainable. After all we know real (inflation adjusted) wage growth is flat at best. So the consumer has less money to spend on "stuff." Which explains why the savings rate is at multi-month lows. But history has shown and I have discussed to the point of redundancy that a falling savings rate is unsustainable.

Then I came across the following chart which I found very timely and telling. Notice how consumer confidence seems to parabolically rise prior to recession. Similar to the rise right now. It's as if the consumer completely ignores the deteriorating environment and enters a euphoric stage. I mean why is the consumer so confident? Is it rising stock prices? It certainly can't be that they are saving less and certainly not because they are making less.

Sentiment Index

Inventory

Regardless of why the consumer is so happy the data below shows that this is in fact likely their last gasp. We speak through our wallets or shall I say credit cards. Confidence and spending do go hand in hand. If confidence is rising so is spending and vice versa. So the question becomes has confidence and therefore spending peaked?

Today's data would say yes. Why else would fixed investment have plunged. In fact it has been plunging so the question really becomes why did Q4 2011 fixed investment rise so much? Notice the chart below showing the quarterly change in GDP components.

What stands out the most is inventory. Notice how inventory was trending lower as the build cycle matured. Then Q4 2011 saw a huge spike. What drove this spike? Was it confidence that demand was picking up? Clearly the retail channel did not have this confidence as they have not invested in higher inventory levels which remain below pre-recession highs unlike manufacturing and wholesale.

Perhaps it was an inflation hedge as manufacturers wanted to build future demand at lower prices as they saw input costs rising. Regardless of why the subsequent plunge in Q1 2012 inventory would say that Q4 2011 simply pulled forward economic activity setting up future weakness.

Bottom Line

Q1 2012 GDP data does not look like that of an expanding economy. It looks like an economy headed for recession. If the "stuff" needed to bought by consumers to grow the economy is not being made then how will the economy grow? Why is the "stuff" not being made? Why has fixed investment been falling? Why did inventory put in a sharp reversal?

In fact I would argue we already are in recession yet the BEA through a reduced price deflator has "inflated" growth. The latest CPI showed inflation at 2.9% on a 12 month rolling basis. So why is the price deflator only 1.5%? One could easily argue if using the proper estimate of inflation that GDP expanded 0.8% which is in fact "stall speed."

By Tony Pallotta

http://macrostory.com/

Bio: A Boston native, I now live in Denver, Colorado with my wife and two little girls. I trade for a living and primarily focus on options. I love selling theta and vega and taking the other side of a trade. I have a solid technical analysis background but much prefer the macro trade. Being able to combine both skills and an understanding of my "emotional capital" has helped me in my career.

© 2012 Copyright  Tony Pallotta - Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules