The Market Ticker
Commentary on The Capital Markets- Category [Macro Factors]
2015-04-29 07:44 by Karl Denninger
in Macro Factors , 149 references

Uh, oops.

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 0.2 percent in the first quarter of 2015, according to the "advance" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 percent.

The immediate claim is that this was "the weather."  Uh, sure it was.

Let's have a look inside.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, decreased 1.5 percent in the first quarter, compared with a decrease of 0.1 percent in the fourth. Excluding food and energy prices, the price index for gross domestic purchases increased 0.3 percent, compared with an increase of 0.7 percent.

That's low, even on core, but not negative.  The negative deflator is going to get goosed next quarter, and hard -- oil prices have rebounded smartly in the interim.  We'll see if people "disregard" the (quite) hot headline number here come the June release.

Real personal consumption expenditures increased 1.9 percent in the first quarter, compared with an increase of 4.4 percent in the fourth. Durable goods increased 1.1 percent, compared with an increase of 6.2 percent. Nondurable goods decreased 0.3 percent, in contrast to an increase of 4.1 percent. Services increased 2.8 percent, compared with an increase of 4.3 percent.

Now that's not good.  But..... it does say (at least in theory) that we'll see inventory depletion over the next month or two, which tends to blunt the potential for a recessionary environment.  Nonetheless, this is weak.

Real exports of goods and services decreased 7.2 percent in the first quarter, in contrast to an increase of 4.5 percent in the fourth. Real imports of goods and services increased 1.8 percent, compared with an increase of 10.4 percent.

Eat the economists; they're low-carb and most are high fat.  They continually claim that while a strong currency will depress exports it stimulates imports as your currency goes further.  Well?

The change in real private inventories added 0.74 percentage point to the first-quarter change in real GDP after subtracting 0.10 percentage point from the fourth-quarter change. Private businesses increased inventories $110.3 billion in the first quarter, following increases of $80.0 billion in the fourth quarter and of $82.2 billion in the third.

Oh oh.... but for inventory build the print was negative.

Current-dollar personal income increased $148.6 billion in the first quarter, compared with an increase of $146.9 billion in the fourth. The small acceleration in personal income primarily reflected an acceleration in government social benefits to persons that was partly offset by a downturn in proprietors’ income.

Welfare, welfare everywhere, but not a dollar earned from private industry.....

Finally, current-dollar GDP (adjusted for currency) was a statistical zero.

This is a crap report.

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Oh my....

New orders for manufactured durable goods in March increased $9.3 billion or 4.0 percent to $240.2 billion, the U.S. Census Bureau announced today. This increase, up two of the last three months, followed a 1.4 percent February decrease. Excluding transportation, new orders decreased 0.2 percent. Excluding defense, new orders increased 2.6 percent.

Transportation equipment, also up two of the last three months, drove the increase, $9.5 billion or 13.5 percent to $80.3 billion.

The entire increase was driven by transportation, including aircraft.

Pay very careful attention right here ladies and gentlemen because this is a quite-reliable leading recession indicator:

That's three months of negative new-order numbers sequentially in non-defense, non-aircraft.  Aircraft have to be excluded because their swings are utterly enormous; 30% swings (as with this month) or even 100%+ swings (as for defense aircraft and non-defense a couple of months ago) are quite common and trash any sort of comparisons that include them.

The only bright spot is a very material (10%) rise in computers and related products in both new orders and shipments this month.  That's a serious outlier but the three-month series of declining orders for both fabricated metals and machinery are extremely bad news.

In addition inventories are at the highest level since the initiation of this series in 1992; inventory builds add to GDP but if unsold wind up destroying corporate balance sheets when they have to be disposed of at fire sale prices or written off entirely.

In the context of the number of people calling for Nasdaq 10,000 (!) by 2016 this morning, a clean double from where it is today, I think it's quite safe to say that the macro and market environment looks disturbingly like late 1999 or the first few months of 2000.

The warning is a two-edged sword -- in 1999 it was evident that the economy was slowing and tech valuations were ridiculous.  Today those valuations are even more ridiculous (Amazon's stock is up $50, more than 10%, on deteriorating margins in their "cloud" business and the economy is slowing again) but in 1999 the Nasdaq doubled before it all blew up.

Be careful.

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Life marches on, and the American refusal to fact facts and math continues.

The Fed's latest Z1 was recently posted, and with it we can now get a look at the full year 2014 view of money, debt and personal income growth (or the lack thereof.)

Let's start with the macro-level view -- top-down:

As you can see after a period of time we are now increasing our debt-to-GDP ratio once again.  That is, the slope is once again diverging from so-called "economic growth."  This has been the case, in point of fact, since roughly 2010, but last year it reversed trend including financials which had been shrinking.

This is a problem because your income hasn't been going up.  In fact, here's the latest picture there:

Since roughly the start of 2012 you have seen income go back underwater compared against total monetary inflation; that is, the average person is losing ground.

You might think that the fall in house prices and stocks was bad for the ordinary person if you listened to the media but in fact exactly the opposite is true.  If you are one of those ordinary people you probably don't own much of either (in terms of actual ownership) and thus lower prices are to your benefit.

Ex-financials, with one short period of time, you've been in trouble since 2000.

Great if you're one of the rarified few at Goldman Sachs, ruinous if not.

Finally, in the economy as a whole, we are back to negative real GDP -- and have been since 2011.  The trend is in fact accelerating and with interest rates at effective zero (and real rates negative) there is little that the government or Fed can do to prop up the real economy in this regard.

The red light is on, in short.

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