Rate Watch #694 GDP
October 30, 2009
by Dick Lepre
[email protected]
www.loanmine.com
IV) Analysis
The better than expected GDP data will give a brief psychological lift to things. The jobs data points out what we already knew: namely that jobs lag GDP and we are going to have another jobless recovery. This is hardly new. This may create a problem for the administration which unrealistically pitched the stimulus as being something which would create jobs but that is a political issue not an economic one. I believe that the average person is capable of comprehending the fact that the economy is complex and that jobs recover after GDP.
I would like to squeeze one word in here about the health care debate. I have heard a lot of comments that insurance companies are the problem. Read this from Fortune magazine. It shows that Health Care: Insurance and Managed Care was the 35th most profitable (profit/revenue) industry in 2008. Health Care: Insurance and Managed Care has an industry profit of 2.2%. The pharmaceutical industry had a (profit/revenue) of 19.3%. In 2007 Health Care: Insurance and Managed Care was the 24th most profitable industry. In 2007 Health Care: Insurance and Managed Care was 34th.
V) The GDP Report
I rarely devote a newsletter to a single release of data especially one which will have been discussed so much by the time you read this but this one merits discussion.
Everyone would be well-served to read the synopsis of the data from the Bureau of Economic Analysis (part of the Commerce Department).
Overall, we have a 3.5% gain in GDP. That sounds excellent compared to recent GDP reports but 1.66% of that 3.5% was from motor vehicle output which was driven by cash-for-clunkers. The problem here is that the a significant part of the gain in 3rd Q is at the expense of future auto sales.
GDP = C+G+I+(X-M).
C= Consumer Spending
G = Government Spending
I = Investments (This is complicated because this is not "investments" in the sense that we use the word in personal finance. This does not mean stock purchases or even IPOs. I = capital deployed: new plants and equipment, for example.)
X= Exports
M= Imports
C (Consumer Spending) was +3.5% in 3rdQ2009 contrasted with -0.9% in the previous quarter. Even taking the subsidized pop in auto sales out this is still good news even if not as good as the headline 3.5%.
G (Government Consumption) was +7.9% in 3rdQ2009 compared with +11.4% in 2ndQ2009. Let's clarify: Federal Government Spending was +7.9%. State and local spending was -1.1% in 3rdQ2009 contrasted with +3.9% in 2ndQ2009. State and local governments do not have the ability to create money that the Federal government has and their ability to borrow is impaired.
I (Nonresidential fixed investments) was -2.5% in 3rdQ2009 as contrasted with -9.6% in 2ndQ2009. The good news is the move in the right direction. The bad news is that the which will drive sustainable economic growth are not happening. To some extent this is a consequence of the destruction of wealth from the mortgage mess. A lot of folks who were "rich" 2 years ago are no longer as wealthy as they once were. These are the folks who provide the seeds of the investments which would create jobs.
The export and import numbers were striking. Exports were +14.7% in 3rdQ2009 contrasted with -4.1% in 2ndQ2009. Some of this might be do to the declining value of the dollar. Imports were +16.4% in 3rdQ2009 contrasted with -14.7% in 2ndQ2009.
The good news is that we are on the road to recovery. The bad news is that this level of recovery may, in the short run, not be sustainable.
Some of this will be about public opinion. The stimulus was sold as a jobs creating package not as a GDP enhancing package. It would make more sense to me for politicians to explain that jobs lag GDP at the start of the process. Now we see silly reports from the Administration explaining that the Stimulus Bill may not have created jobs but prevented jobs from being destroyed.
This period of crappy economic times is going to last a while longer. We will not have real stimulus without investments.
If you have something to add to this discussion please post a comment on the blog.
Dick Lepre
RPM - SF
580 Pacific Avenue
San Francisco, CA 94133
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