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
If You Don’t Understand Bonds, You Don’t Understand Investing - 25th Aug 19
Gold's Next Move - 25th Aug 19
Fresh Water Crisis Unfolding - 25th Aug 19
Newbie Guide to Currency Pairs in Forex Trading – Review - 25th Aug 19
When A 16-Year-Old Earns $3 Million, You Know It's Not A 'Silly Fad' - 24th Aug 19
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
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

Market Oracle FREE Newsletter

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

The Pretty Girl and the US Economy

Economics / US Economy May 30, 2014 - 04:30 PM GMT

By: Raul_I_Meijer

Economics

There’s a persistent story that says (though I don’t think I can confirm it) that a pretty girl prefers to surround herself with less pretty girls – all in the eye of the beholder – in order to look prettier. After seeing yesterday’s -1% (-2% if you include Obamacare) US GDP ungrowth number, a fair segment of the financial press and punditry took a page out of the pretty girl playbook and ran with it. What should really be a deeply disturbing number in a 5 year old recovery (which is about 100 years in human terms) that has cost Americans trillions upon trillions in stimulus measures, is easily turned, without batting an eye, into a solid positive. The awful Q1 print, we are now told, serves to make Q2 look that much better.


I can tell you the problem with that notion with the same ease that these folk invent it. The chunk of the population that is increasingly moving towards becoming the Great American Unwashed has spent a lot of their money on winter heating and on health care costs. But the “experts” still see – since they were told to in school – huge amounts of pent-up demand – snow, don’t you know -, but it just ain’t so. The great unwashed have spent their money, and then some too. They’re not coming back for extra’s because they can’t afford any. The rosy stories about companies ‘slowing the pace of inventory accumulation’ in Q1, only to turn around and rebuilding inventories in Q2, are empty and void.

Companies didn’t leave their shelves empty because baby it was cold outside, but because they had no confidence inventory could be sold. And why would that change? US retail numbers are so bad they rival Japan’s. They missed expectations by the most in 13 years (so there hasn’t been any snow since 2001?). There’s no pent-up demand for housing either, and maybe that should be a wake-up call. In the 7th consecutive month of declining YoY sales, these are now down 9.4% YoY. Which won’t keep the industry from talking about more pent-up demand, mind you, but it’s still ugly for those who didn’t see it coming. Guys, on the ground, America is getting much poorer. That’s all there’s to it. Of course sales are still great for the 1%, but you can’t run a housing market or an economy on that.

One more number from yesterday’s GDP report that I think stands out – or should – is “Corporate profits fell at a 9.8% annual rate, the biggest decline since the 2007-09 recession”. Perhaps the pundits should try and justify that away instead of pretending they’re all such pretty girls. I mean, if you want to make the point that the US economy is in a recovery, and Q1 was just a black blimp, how do you explain that companies lost 10% of their profits since Q1 2013, the biggest loss in 5 years? Or try this on for size, hidden inside BusinessWeek’s cheerleading article: “Adding to growth was health-care spending, which, boosted by the Affordable Care Act, grew at a 9.1% pace.”

How is that growth? The average American spent 9.1% more on health care than they did last year, and that’s growth, that’s a positive? It could only be seen as that, and even then with a tome full of doubts, if those Americans had lots of cash on the side just waiting to be spent in pent-up demand, if after taking care of drugs and surgery they’d get into their newly bought vehicles, drive to the mall and see a real estate broker on the way there. Not even kids with a steadfast belief in the Easter bunny would buy it. And on top of that, heating costs went up significantly. Which is why people stayed home, and will continue to stay home, because their money’s all gone. I just, as I’m writing this, see a Bloomberg headline coming in that says “Consumer Spending in U.S. Unexpectedly Declines as Incomes Slow”. Given the above, how can that be unexpected? What do we call that, pent-up demand or job-related delusions? You got far more unemployed and underemployed Americans than official numbers tell you, you know they paid much more on healthcare and heating, and you’re surprised consumer spending is falling? Isn’t that a bit rich – or poor?

Here’s another reality checking sign, from CNBC of all places. Not something the financial press in general will be eager to confirm anytime soon, but no less timely:

Why The Days Of Booming World Trade May Be Over

The drivers that underpinned years of booming global trade, once the engine of the world’s economic growth, may be fading. In the past few decades, trade has played an increasingly important role in the growth of the global economy. But more than three years into one of the weakest recoveries in decades, slack demand from consumers in the U.S. and Europe is weighing on exports in the developing world. “Typically we would want to see trade growing at a few percentage points above growth in gross domestic product,” said Sara Johnson, an IHS Global Insight economist. “The fact that trade is so sluggish just reflects the weak nature of the global economic expansion.” But the days of rapid globalization—and the surge in trade flows it produced—are apparently gone.

Merchandise trade – the total import and exports of goods – rose steadily through the 2000s to make up nearly 53% of the world’s economy in 2008, before plunging the following year as the Great Recession went global, according to the World Bank. Massive government stimulus in the developed world helped revive growth, but as those programs wound down, global trade began declining again in 2011. With the European Union mired in a recession and the United States hit hard by a series of nasty winter storms, that slowdown picked up markedly in the first quarter of this year, according to data released this week by the OECD. On Thursday, a separate report showed that U.S. gross domestic product dropped by 1%, on an annual basis, much worse than economists expected. The U.S. economic reversal was led by a 6% drop in exports year over year, until recently hailed as a key driver of the U.S. recovery, and which had risen 9.5% in the last three months of 2013.

Deathknell, anyone? US corporate profits fell at a 9.8% annual rate, exports dropped at a 6% annual rate, and GDP is down -2%. But there’s nary an expert to be found who doesn’t claim the fundamentals are so strong that 2014 growth will be 3-3.5%. In other words, 5% or so for the rest of the year, just to make up for Q1. In sort of like the same vein, the IMF today stated that the Bank of Japan ‘may need to keep up its stimulus drive for an “extended period”‘. That’s not going to happen, though, because Abenomics has already run so far off track that consumer spending is down, consumer prices are way up, and industrial production is cratering. Not even the likes of Goldman and Barclays see the IMF’s wishes come true anytime soon. So, no, Japan doesn’t look that pretty either. That would make the US economy the ugly girl who fools herself into thinking she’s pretty because her ‘friends’ look even worse. But look into that mirror mirror on the wall, ask the question, and the answer won’t be anywhere near as rosy as the one provided by the punditry.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved 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.
Raul Ilargi Meijer 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