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
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
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Hidden Good News Buried in Bad U.S. GDP Economic Data

Economics / US Economy Feb 06, 2013 - 02:59 PM GMT

By: Money_Morning

Economics

Martin Hutchinson writes: The markets were hit with an unexpected twist last week. On Wednesday the Bureau of Economic Analysis shocked markets by announcing that U.S. Gross Domestic Product had declined by 0.1% in the fourth quarter.

That marked the first time economic output had fallen since the end of the Great Recession.


But the report wasn't all doom and gloom by any stretch of the imagination.

In fact, when you look at the report more closely there was a silver lining buried in the numbers: the decline was entirely caused by weakness in government spending and inventories.

Those are areas where bad is really good.

A Drop in Government Spending
The good news for those who value free markets and limited government is that government spending peaked three years ago, in the fourth quarter of 2009. Since then government outlays have declined 6.1%.

Of course, that's not nearly as exciting news as it sounds, because the BEA nets out "transfer payments" such as social security, unemployment insurance disability payments and food stamps, on the grounds that they are just payments from one entity to another, and affect GDP only when the money is finally spent. Needless to say, those payments have risen sharply in the last few years.

Still, a 6.1% decline in government spending on goods and services is worth celebrating as progress. About two thirds of the decline was in state and local governments with the remaining third in defense spending. Federal nondefense spending has risen slightly.

In the fourth quarter itself, a $10 billion decline in defense spending, was converted by the magic of annualization in the figures, to a 22% annual rate of decline, and a 1.3% decline in GDP growth.

However, here the GDP accounts get funny; that decline in government spending (good) is reflected as a decline in GDP (presumably bad).

If IBM hires another researcher for $100,000, who doesn't produce anything useful, there's no effect on GDP, because nothing is produced.

But if the Federal government hires one, GDP increases, even if he's useless. As you can see, GDP accounting was designed by a Keynesian big government-lover, Simon Kuznets (1901-1985).

Inventory accounting is equally fishy. In the fourth quarter, inventories increased by $20 billion at an annual rate ($5 billion in real money). However, in the third quarter inventories had increased by an annualized $60 billion (really $15 billion.) Thus since the rate of inventory pile-up had declined, inventory pile-up contributed minus 1.3% to GDP growth in the fourth quarter.

In the real world, we don't want too much inventory; it's a pure cost, and if it piles up too much, we know we will have to reduce it in the next quarter, reducing both GDP and actual hours worked in the factories producing goods.

Hence it makes more sense to take government and inventory out of the equation altogether. If we do that, the growth rate of private output, excluding inventory effects was 2.84% in the fourth quarter, compared to 2.25% in the previous quarter.

GDP is Picking Up Where it Counts
In other words, the recovery was far from stalling in the fourth quarter, with GDP actually accelerating.

There. Doesn't that make you feel more cheerful!

But it actually reflects better what was going on. In the summer, the recovery still felt tentative, but after Ben Bernanke's "stimulus" announced in September, it seemed to accelerate, in spite of problems with Sandy and the Fiscal Cliff.

To normal people, the fourth quarter felt better than the third quarter. That's what pushed the stock market up towards record levels and, let's face it,that may very well have been what re-elected President Obama - the Republican message of doom and gloom didn't feel credible by November.

There seems no reason why the fourth quarter's momentum in the "real" economy won't continue.

Weekly employment figures have continued to improve and the Chicago PMI climbed in January to its highest level in nine months. The markets have opened the year strong, and corporate earnings have come in above expectations as well.

As for the "special" factors, inventory growth is likely to continue in the first quarter, so that factor won't zap the reported GDP number.

As for the government, its main danger is the "sequester" due to kick in March 1, which removes $1 trillion in government spending over the next 10 years.

If that happened, it would indeed zap reported GDP, though more in the second quarter than the first, since only a month of sequester would be in the first quarter's figures.

However, wouldn't that in reality be a good thing??

It would reduce the budget deficit and free up more resources for the private sector. In the long run it would almost certainly be good for growth.

Now that we know how rigged the "official" GDP figures are, why do we care that it would zap reported GDP?

Sometimes, the government hides the bad stuff from the people. On this occasion, because of the way it calculates GDP, the government hid the good stuff.

Source :http://moneymorning.com/2013/02/06/the-silver-lining-buried-in-the-bad-gdp-number/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 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