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Archive for July, 2009

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Second Quarter 2009 GDP Falls 0.7 Percent [Revised 9/30/09], First Quarter 2009 GDP lowered to -6.4 Percent

Posted by rawfinance on July 31, 2009

The Bureau of Economic Analysis (BEA) of the U.S. Commerce Department has released advance estimates of second quarter 2009 gross domestic product, showing a decline of 0.7 percent [revised 9/30/09, an earlier estimate pegged the drop at 1.0 percent].  The BEA also lowered the first quarter 2009 decline to -6.4 percent, from -5.5 percent.  For additional information, please click on the “Economic Growth Statistics” page on the menu bar above.

The BEA’s news release is reproduced below, but note a couple of key points: (1) the improvement from a recession/depression to “just” a recession is due largely to government spending; and (2) “Real personal consumption expenditures decreased 1.2 percent in the second quarter, in contrast to an increase of 0.6 percent in the first.”  For an economy that is driven by consumer spending, this is not good news.  The recession is stabilizing, but there is no evidence of a strong recovery on the horizon.

Barry Ritholtz, on his blog, The Big Picture, fills in a few more notable details:

-Federal Spending up a huge 11%;

-Real personal consumption expenditures decreased 1.2%;

-Smaller decreases were seen in business investment, exports and inventories;

-This is the first time we have had 4 consecutive negative quarters of GDP since record keeping began in 1947;

-Real nonresidential fixed investment decreased 8.9%;

-Last Quarter’s GDP was revised down from negative 5.5% to negative 6.4%;

Bottomline: An improving, but weak report.

Peter Boockvar notes that GDP fell more than expected as the deflator rose just .2% (vs expectations of a gain of 1%). Had the deflator been in line, REAL GDP would have fallen 1.8%.

Here is the BEA release:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 1.0 percent in the second quarter of 2009, (that is, from the first quarter to the second), according to the “advance” estimate released by the Bureau of Economic Analysis.  In the first quarter, real GDP decreased 6.4 percent.

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3).  The “second” estimate for the second  quarter, based on more complete data, will be released on August 27, 2009.
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The estimates released today reflect the results of the comprehensive (or benchmark) revision of the national income and product accounts (NIPAs).  More information on the revision is available on BEA’s Web site at www.bea.gov/national/an1.htm, including links to an article in the March 2009 issue of the Survey of Current Business that discussed the changes in definitions and presentation that have been implemented in the revision and to an article in the May Survey that described the changes in statistical methods.  The September Survey will contain an article that describes the results of the revision in detail.  The Web site also contains FAQs and other information about the revision.
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FOOTNOTE.–Quarterly estimates are expressed at seasonally adjusted annual rates, unless otherwise specified.  Quarter-to-quarter dollar changes are differences between these published estimates.  Percent changes are calculated from unrounded data and are annualized.  “Real” estimates are in chained (2005)
dollars.  Price indexes are chain-type measures.

This news release is available on BEA’s Web site along with the Technical Note and Highlights related to this release.
______________

The decrease in real GDP in the second quarter primarily reflected negative contributions from nonresidential fixed investment, personal consumption expenditures (PCE), residential fixed investment, private inventory investment, and exports that were partly offset by positive contributions from federal government spending and state and local government spending.  Imports, which are a subtraction in the calculation of GDP, decreased.

The much smaller decrease in real GDP in the second quarter than in the first primarily reflected much smaller decreases in nonresidential fixed investment, in exports, and in private inventory investment, upturns in federal government spending and in state and local government spending, and a smaller decrease in residential fixed investment that were partly offset by a much smaller decrease in
imports and a downturn in PCE.

Motor vehicle output added 0.20 percentage point to the second-quarter change in real GDP after subtracting 1.69 percentage points from the first-quarter change.  Final sales of computers subtracted 0.04 percentage point from the second-quarter change in real GDP after adding 0.06 percentage point to the first-quarter change.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 0.7 percent in the second quarter, in contrast to a decrease of 1.4 percent in the first.

Excluding food and energy prices, the price index for gross domestic purchases increased 1.1 percent in the second quarter, compared with an increase of 0.2 percent in the first.

Real personal consumption expenditures decreased 1.2 percent in the second quarter, in contrast to an increase of 0.6 percent in the first.  Durable goods decreased 7.1 percent, in contrast to an increase of 3.9 percent.  Nondurable goods decreased 2.5 percent, in contrast to an increase of 1.9 percent.  Services increased 0.1 percent, in contrast to a decrease of 0.3 percent.

Real nonresidential fixed investment decreased 8.9 percent in the second quarter, compared with a decrease of 39.2 percent in the first.  Nonresidential structures decreased 8.9 percent, compared with a decrease of 43.6 percent.  Equipment and software decreased 9.0 percent, compared with a decrease of 36.4 percent.  Real residential fixed investment decreased 29.3 percent, compared with a decrease of
38.2 percent.

Real exports of goods and services decreased 7.0 percent in the second quarter, compared with a decrease of 29.9 percent in the first.  Real imports of goods and services decreased 15.1 percent, compared with a decrease of 36.4 percent.

Real federal government consumption expenditures and gross investment increased 10.9 percent in the second quarter, in contrast to a decrease of 4.3 percent in the first.  National defense increased 13.3 percent, in contrast to a decrease of 5.1 percent.  Nondefense increased 6.0 percent, in contrast to a decrease of 2.5 percent.  Real state and local government consumption expenditures and gross investment increased 2.4 percent, in contrast to a decrease of 1.5 percent.

The change in real private inventories subtracted 0.83 percentage point from the second-quarter change in real GDP after subtracting 2.36 percentage points from the first-quarter change.  Private businesses decreased inventories $141.1 billion in the second quarter, following decreases of $113.9 billion in the first quarter and of $37.4 billion in the fourth.

Real final sales of domestic product — GDP less change in private inventories — decreased 0.2 percent in the second quarter, compared with a decrease of 4.1 percent in the first.

Gross domestic purchases

Real gross domestic purchases — purchases by U.S. residents of goods and services wherever produced — decreased 2.3 percent in the second quarter, compared with a decrease of 8.6 percent in the first.

Disposition of personal income

Current-dollar personal income increased $8.0 billion (0.3 percent) in the second quarter, in contrast to a decrease of $251.7 billion (8.0 percent) in the first.

Personal current taxes decreased $113.1 billion in the second quarter, compared with a decrease of $241.7 billion in the first.

Disposable personal income increased $121.1 billion (4.6 percent) in the second quarter, in contrast to a decrease of $9.9 billion (0.4 percent) in the first.  Real disposable personal income increased 3.2 percent, compared with an increase of 1.1 percent.

Personal outlays decreased $18.1 billion (0.7 percent) in the second quarter, compared with a decrease of $27.6 billion (1.1 percent) in the first.  Personal saving — disposable personal income less personal outlays — was $566.0 billion in the second quarter, compared with $426.9 billion in the first.

The personal saving rate—saving as a percentage of disposable personal income—was 5.2 percent in the second quarter, compared with 4.0 percent in the first.  For a comparison of personal saving in BEA’s national income and product accounts with personal saving in the Federal Reserve Board’s flow of funds accounts and data on changes in net worth, go to http://www.bea.gov/national/nipaweb/Nipa-
Frb.asp.

Current-dollar GDP

Current-dollar GDP—the market value of the nation’s output of goods and services—decreased 0.8 percent, or $28.2 billion, in the second quarter to a level of $14,149.8 billion.  In the first quarter, current-dollar GDP decreased 4.6 percent, or $169.3 billion.

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Information on the assumptions used for unavailable source data is provided in a technical note that is posted with the news release on BEA’s Web site.  Within a few days after the release, a detailed “Key Source Data and Assumptions” file is posted on the Web site.  In the middle of each month, an analysis of the current quarterly estimate of GDP and related series is made available on the Web site; click on Survey of Current Business, “GDP and the Economy.”

Posted in Economy | Tagged: , | Leave a Comment »

European Economic Recovery Will Lag U.S., Norway in Best Position, Says RGE Monitor

Posted by rawfinance on July 30, 2009

With European equities hitting an 8-month high today, this would seem to be an opportune time to review the economic outlook for the region.  Thankfully, RGE Monitor, an economic think-tank, has just released a preview of its outlook for Europe, broken down by zones.  According to RGE Monitor, Norway, due mainly to its healthy banking system and net savings, is seated in the best position to take advantage of a global economic stabilization/recovery.

European equities staged a broad-based rally today, hitting a fresh eight month high as a string of mostly well-received corporate earnings convinced investors the recent run should continue.

The pan-European FTSE Eurofirst 300 gained 1.1 per cent to 920.84. The French CAC 40 added 1 per cent to 3,400.44, while the German Xetra Dax rose 0.6 per cent to 5,302.79.

As with all other equity markets around the world, Europe has enjoyed a rally based on the perception that global economic fortunes are turning around.  But the outlook is not all that cheerful, while at the same time being not as bad as expectations were eight months ago.  Investors may be best served to wait and watch the data unfold before making any firm commitments.

A preview of the European economic outlook from RGE Monitor is reproduced below:

European Monetary Union

RGE Monitor expects the cyclical recovery in the eurozone–led by Germanyand France–to lag recovery in the U.S., the BRICs and non-Central and Eastern Europe (CEE) emerging markets. Among the main factors muting Europe’s recovery in 2010 are a permanent decline in potential output; unwinding pressures of large internal imbalances leading to deflationary pressures; a more restricted monetary and fiscal policy response compared to the U.S. and especially to China; a leveraged financial sector with too-big-to-fail institutions and too-big-to-save features; and a strong reliance on bank funding by the corporate sector subject to a larger financing gap than that seen in the U.S.

In order not to impair the banking sector’s lending ability permanently, a quick disposal of bad assets is warranted. Lending to the private sectoris slowing quickly, and for small and medium sized enterprises with no access to capital markets, bank credit lines represent the only recourse for liquidity. Based on IMF and ECB estimates, total bank losses in the eurozone will amount to between $650 billion and $900 billion, implying substantial additional recapitalization costs.

Germany’s specialization in cyclical industrial goods, and its export-led growth model, have been particularly damaging to growth. Going forward, RGE cautions that given the likely reticence of the U.S. consumer in the medium term future, an exclusive reliance on export-led growth is not advisable. France’s more balanced domestic demand-led growth model has served it relatively better. Italy is grappling with a structural and long-term decline in its relative living standard–a situation that requires a radical overhaul of structural impediments in product and labor markets. Spain’s challenge lies in an expected 20% unemployment rate and deflationary pressures to restore relative price competitiveness. Ireland is among the developed countries hit hardest by the crisis and its large banking sector (relative to GDP) represents a contingent liability despite the country’s commendable ‘bad bank’ scheme.

United Kingdom

The UK’s mainstay is its financial sector, which has accordingly received substantial government support. The country’s strained fiscal position puts more radical solutions for unviable banking institutions on the table for regulators, who are openly discussing options like splitting banks that are too-big-to-fail. The lending environment is equally important for the housing market, which is fundamental to the British economy.

Central and Eastern Europe

Among emerging market regions, CEE economiesare experiencing the steepest roller-coaster ride in terms of growth. After exceeding global growth averages for the last decade, regional growth is plummeting in 2009 and is expected to underperform both emerging Asia and Latin America. All EU newcomers in the region are either in or headed for recession. A dangerous combination of falling exports and slowing capital inflows is behind the bleak growth picture. The hardest-hit economies have tended to be very open, with wide current account deficits in recent years and high levels of foreign currency borrowing.

Not all CEE economies are in the same boat. The Czech Republic and Poland, for example, are considered relatively healthy and are expected to experience relatively mild contractions in 2009. Those in more dire straits–Estonia, Latvia, Lithuania–are facing double-digit contractions. Hungary, Latvia, Romania and Serbia have already turned to the IMF for financial assistance, and more are likely to face severe downturns.

RGE Monitor points to the following as possible downside risks to regional growth:

Risk of regional financial contagion (e.g. the possibility of spillover effects in the event of a Latvian devaluation)
Potential for a cross-border banking crisis
Rising political instability
Repeat of January gas crisis

Given the strong financial and trade linkages with Western Europe, a recovery in Eastern Europewill not come until its western neighbors’ economies improve. That means the region’s recovery will lag behind that of Western Europe. Meanwhile, the downside risks described above could further delay recovery. And even when recovery comes, RGE expects sluggish positive growth in the medium-term, rather than a return to the soaring growth rates seen earlier this decade.

Nordics

After strong growth earlier this decade, all five Nordic economies are now in the midst of recessions. These are small, open economies that have been hit hard by slumping external demand for their exports. Given their strong public finances, Nordic economies, with the exception of Iceland, have resources available to cushion their contractions. Ultimately, however, economic recovery in the region hinges on a global recovery.

Norway’s economy will experience the mildest GDP contraction in the region in 2009, while Iceland will see the sharpest contraction. Norwayis the best placed for a quick rebound to positive growth given its sizeable buildup of oil revenues and its large maneuver room on fiscal and monetary policy. Recovery in Finland and Sweden is tied to a revival in demand for their export products. The global production slump has been particularly bad news for Finland and Sweden given the large share of capital goods in the makeup of their exports. Not surprisingly, these economies are facing the region’s sharpest contractions in 2009 behind Iceland. Stress in the Swedish banking sector could result in a more protracted recovery there.

Posted in Economy, Europe, Norway | Tagged: , , , | 1 Comment »

Analysis of the June 2009 Housing Statistics

Posted by rawfinance on July 29, 2009

The incredibly cheerful (cheerleading?) media reports on the latest housing numbers are disconcerting.  [CNBC of course: "Sales of new homes jumped 11 percent in June, the biggest monthly gain in eight years, the Commerce Department said on Monday, in another sign that worst housing market since the Great Depression may be gaining some footing," but even the Wall Street Journal sadly participated as well: "Standard & Poor's Case-Shiller index, which tracks home prices in 20 metropolitan areas, rose 0.5% for the three-month period ending in May, compared with the three months ending in April. It marked the index's first increase after 34 straight months of decline, and came after a variety of housing indicators has shown glimmers of hope for the past several months."]  My concern lies in the fact that the articles do not analyze the numbers in any proper perspective but focus only on the monthly change.

As regular readers of this blog know, this author is neither a financial industry cheerleader nor an eternal pessimist.  The goal here, as always, is to rationally analyze data so that readers may make informed investment decisions.  The problem with the media coverage focusing on the monthly change is that it ignores long-term trends in favor of short-term satisfaction.

As market analyst Barry Ritholtz notes on his blog, The Big Picture, new home sales are the slowest they have been since 1982 (see chart below).  The market may be stablizing, but recovering? The facts are not present to draw that conclusion.

new-home-sales-1979-2009

From The Big Picture:

“As Floyd Norris noted, ‘This was the second-worst June since they began counting new-home sales in 1963. It was not quite as bad as June 1982, when the country was mired in a deep recession and interest rates were sky high. Then 34,000 new homes were sold.  There are twice as many households in America today as there were then, so relative to population this was the worst June ever, by far.’”

Given that durable goods orders for June were reported this morning falling 2.5 percent, the stock market may have reached its high on the “hope” rally.  Be very careful here, as expectations for a quick and strong economic recovery have seemingly sprung out of nowhere and now place the market in jeopardy of another drop when those expectations are broken by the facts.

For more information on the state of the housing market, please click on the “Housing Statistics” page on the menu bar above.

Posted in Economy, Housing, Investing, Market Commentary | Tagged: , , | Leave a Comment »

India Holds Interest Rates Steady, Sees Inflation

Posted by rawfinance on July 28, 2009

The Reserve Bank of India (RBI), the country’s central bank, has announced that it is holding its key lending rate, the repo rate, at 4.75 percent.  The rate has been held at that level since October 2008, following a series of rate cuts that has brought the repo rate to its lowest level in 9 years.  As the credit crisis swept around the world last fall, India, like many other countries, cut its key lending rate in order to combat the growing threat of deflation.

In fact, after a bout of inflation, which saw India’s Wholesale Price Index rise to a 16-year high in August 2008 of 13 percent, India’s economy fell into disinflation.  This month, the Wholesale Price Index was measured at -1.25 percent.  The rapid decline in commodity prices from the highs of last summer had much to do with the dramatic change from rapid inflation to near deflation.

Now, however, the RBI forecasts that inflation would pick up in the second half of this fiscal year to reach 5 per cent by the end of March 2010.

In a statement, Duvvuri Subbarao, the central bank governor, said a rebound of commodity prices ahead of a global recovery would help the economy emerge from a deflationary spell by October.

“Pressures from global commodity prices, which had been abating markedly since August 2008 on account of the slump in global demand seem to have bottomed out in early 2009,” he said in the the policy review.

The RBI said it wanted to contain perceptions of inflation in the range of 4 to 4.5 per cent in the months ahead.

The Reserve Bank also issued a conservative growth forecast for the Indian economy, warning about continued uncertainty about the global outlook. It predicted GDP growth of 6 percent, lower than last year’s growth of 6.7 percent and below a government forecast of about 7 percent for 2009/10.  Economic analysts at RGE Monitor have forecast that India’s GDP in 2009 may fall to as low as 5 percent (click here for previous post).

“Notwithstanding the temporary hiccups of the crisis period, India is not a demand constrained economy; it is a supply constrained economy. The critical requirement for accelerated growth is to raise the level of investment, particularly in infrastructure,” Mr Subbarao said.

Posted in Central Banks, Economy, India, Reserve Bank of India | Tagged: , | Leave a Comment »

Mass Layoffs Ease Somewhat in June 2009

Posted by rawfinance on July 27, 2009

 Employers took 2,763 mass layoff actions in June that resulted in the separation of 279,231 workers, seasonally adjusted, as measured by new filings for unemployment insurance benefits during the month, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Each action involved at least 50 persons from a single employer. The number of mass layoff events decreased by 170 and associated initial claims decreased by 33,649. Both measures had been at record high levels in May. Over the year, the number of mass layoff events increased by 1,046, and associated initial claims increased by 104,483. In June, 1,235 mass layoff events were reported in the manufacturing sector, seasonally adjusted, resulting in 159,310 initial claims. Over the year, the number of manufacturing events increased by 680, and associated initial claims increased by 79,566.

The manufacturing sector accounted for 27 percent of all mass lay-off events and 33 percent of initial claims filed in June 2009; a year earlier, manufacturing made up 19 percent of events and 25 percent of initial claims.  This June, the number of manufacturing claimants was greatest in transportation equipment (24,865) and machinery (14,644).  The transportation and warehousing sector accounted for 7 percent of mass layoff events and 9 percent of the associated initial claims during the month.

Of the 10 detailed industries with the largest number of mass layoff initial claims, 4 reached a series high for June:  construction machinery manufacturing; aircraft manufacturing; professional employer organizations; and elementary and secondary schools.  The industry with the largest number of initial claims was elementary and secondary schools (28,751), which includes both publicly- and privately-owned entities.

For the full report from BLS with data tables click here.

Posted in Economy, Employment Report, Indicators | Tagged: , , | Leave a Comment »

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