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Posts Tagged ‘GDP report’

GDP Review: How’s Our Economy ‘Really’ Doing?

Posted by Larry Doyle on July 30th, 2014 9:45 AM |

Most pundits and analysts will understandably try to hype the better than expected 4% growth rate of 2nd quarter GDP reported this morning.

I get it.

Some might temper the hype by highlighting that growth in inventories accounted for approximately 1.7% of the growth. Others might choose to direct attention to the fact that the disappointing 1st quarter GDP was actually revised to a -2.1% level from the -2.9% posting previously reported. Still others will point toward the positive developments within the consumer spending data.

Yes, most of this information has a positive bent to it but is this to say that we have a meaningfully positive trending economy that will drive growth in full-time, high paying jobs?  (more…)

GDP Revisions Make 2nd Quarter Report Suspect

Posted by Larry Doyle on July 30th, 2010 9:14 AM |

2nd quarter 2010 GDP was just released and registered growth of +2.4% versus consensus expectations of +2.6%. Slightly weaker than expected, and we can all move on perhaps? Not so fast.

1st quarter GDP was revised from its supposed final reading of +2.7% to a newly revised 3.7%!! So the economy was that much stronger in the 1st quarter than previously thought that the 2.4% 2nd quarter reading is actually not all that bad. Again, not so fast. Let’s continue to peel the onion a little further.   (more…)

April 2009 Market Review: Brave New World

Posted by Larry Doyle on May 1st, 2009 5:00 AM |

Does the economic activity in April 2009 represent a turning point in the recession which started in December 2007? Does the continuing rebound in the equity markets represent a bright light at the end of the tunnel or merely a rebound from a very oversold market? Have global risks abated or are they being masked by massive government intervention? Let’s get after it.


In my opinion, we are in the early stages of transition to a new global economic dynamic. That process includes:

1. Strict discipline in underwriting. Banks are forced to underwrite to own as opposed to underwrite to sell. The shadow banking system (loans originated to be securitized and sold) is dead as we knew it. Banks have certain assets marked way too cheaply while also carrying plenty of fraudulently underwritten loans worth far less than their mark. Growth potential for the economy as a whole will remain constricted by a lessened flow of credit. There will be a clear distinction in companies which are winners and losers in this process.  

2. Lessened consumer demand on a going forward basis.   

3. Challenges for companies relying on debt financing and opportunities for companies generating free cash flow. The model based on leveraged finance is dead and not soon to return. Automotive companies need a 13 million rate of unit sales to break even. Without a shadow banking system, I don’t see this happening.

4. Opportunities for consumers buying homes. Don’t expect a rebound in home price appreciation as foreclosures, which were forestalled by banks and Freddie and Fannie, will add supply to the housing market. Housing may stabilize, but I do not think it will improve given the glut of unsold homes. 

5. Continued increase in unemployment will keep consumers cautious.

6. Many analysts focused on inventory drawdown in the latest GDP report as being a positive for future growth. Why didn’t analysts highlight the fact that consumer spending was actually a positive 2.2%?  Does that statistic represent a return of the consumer? In my opinion, NO. The positive consumer spending was primarily focused on massive price discounts offered in January and February to move product after anemic holiday sales. Personal spending for March was released yesterday morning and came in at -.2%. March retail sales were a surprisingly weak -1.1%.

7. Government intervention in markets may be viewed as necessary in the short term, but a persistent government presence in markets and industries comes with unknown, and in my opinion, very high costs. We are seeing heightened challenges in banking, insurance, automotive, and soon health care, energy, and education. Companies, consumers, and investors will be forced to adapt to a regular presence of Uncle Sam. He is not a good business partner. 

8. There is a very distinct shift in economic power towards China and with it a shift in political power, as well. I believe it is a question of when – not if – in terms of a major European country defaulting on its debt and requiring a rescue from the EU and/or  IMF.

9.  I still see a steady dose of analysts and economists forecasting future economic activity based on past models. I think they are missing the big picture.  I believe we need to forecast economic activity based upon traditional bank lending. If the government persists in trying to fill a void which naturally is not there, the risk involved in that undertaking is hyperinflation. 

Again, I am happy the markets have rebounded from the lows of early March but in looking forward I see a dramatically different economic landscape than our recent past. People who are able to adjust to that will do fine. People who are trying to maintain a lifestyle predicated on the economy of 2003-2007 will be very frustrated.

As far as my market call, I remain very concerned about the prevailing level of interest rates. I think the market will test the resolve of the Fed to continue to effectively overpay for mortgage and government securities.

In regard to the equity market, we are only 3-7% away from the S&P and DJIA being unchanged on the year. If we do get there, I think it would be a good opportunity to sell positions. I believe the next 10% move will be to lower prices.

In short, I think the delevering process has been given a significant breather due to Uncle Sam’s checkbook but that it is not yet over.

What do you think? There is plenty here for everybody. Please share your thoughts.


Review of Economy, Fed Reserve Statement, and Market

Posted by Larry Doyle on April 29th, 2009 2:57 PM |

The Federal Reserve released its regular statement on the economy at 2:15pm. The statement includes:

1. no change in the Fed’s interest rate policy with the Fed Funds rate remaining between 0-.25%.

2. no change in the Fed’s asset purchase program of government and mortgage-backed securities. 

3. overall economic activity remains weak but the pace of decline is slowing.

4. inflation remains below the Fed’s long term target.

5. the Fed will employ all available tools at its disposal to help the economy recover.

The equity markets are having a strong upward move today based not on the Fed’s statement but reaction to the DRAMATIC decline in inventories reflected in this morning’s VERY weak GDP report. If an equity market rallying after a VERY weak GDP report seems counterintuitive it is due to the fact that if and when consumer demand picks up it will drive production.

In my opinion, banking on a pickup in consumer demand is a big if. With credit tight and likely to remain tight, I believe our economy needs to and will adjust to lessened demand. 

The WSJ comments on this economic activity, U.S. Economy Shrank At 6.1% In First Quarter:

Weaker investment in housing combined with the enormous inventory adjustment to pull the economy downward. But the aggressive drawdown of stockpiles of goods, while hurting the economy in the short run, is beneficial because it is an important step toward bringing inventories under control and ending a production freefall. U.S. industrial production retreated a fifth straight month in March, recent data show. Over the past 12 months, output was down nearly 13%. Capacity use by industries receded to 69.3%, a historical low since records began in 1967.

One area of concern for me is the uptick in prices. Although economists and analysts are panning the near term inflation risks, in my opinion, this risk should not be underestimated. The increase in prices in today’s GDP report has received little coverage, but 

Price indicators within Wednesday’s report suggested inflationary pressures rose in first-quarter 2009, easing fears of deflation. For instance, the price index for personal consumption expenditures fell by 1.0%, a decline much smaller than the fall of 4.9% in the fourth-quarter 2008. The PCE price gauge excluding food and energy rose 1.5%, after increasing 0.9% in the fourth quarter.

Free money in the form of a 0-.25% Fed Funds rate will continue to help banks recover but government deficits as far as the eye can see must be addressed. If the economy stabilizes, look for interest rates to ratchet higher. 

In fact, in today’s trading government bonds are down and rates are back to the highs seen last November. 


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