Underneath the GDP report

posted at 8:00 am on July 31, 2010 by King Banaian

There are at least three sub-stories underneath the reported GDP growth rate of 2.4% for the second quarter of 2010 that we should pay attention to.  (There’s also the revision to GDP for the past three years, but that’s a different story.)

  1. The inventory buildout appears to be ending.  After contributing 2.8% and 2.6% to growth the last two quarters, the rate of increase in inventories — which has buoyed manufacturers — slowed to a contribution of 1.1% this time.  The number I follow more closely on final sales of GDP actually rose a bit, from 1.1% last quarter to 1.3% this quarter.  The contribution of investment in GDP in the 2nd quarter was more from equipment purchases and a surprising gain in housing off of the homebuyer’s tax credit.  But that may have ended already:

    Ryland says that the big question from last quarter’s conference call was what impact the expiration of the tax credit will have on the new home market. Says they found out the answer to that question in Q2, as sales slowed significantly. … Says they knew there would be a slowdown in May once the event passed, but they didn’t expect it to be as severe or prolonged as it’s been…

  2. There was a large surge in imports that dragged on the GDP estimate, along with a subsiding of the impulse from exports.  This may be due to petroleum products being drawn more foreign producers, but the data is not split out well enough for us to know this yet.  What worries me more is the decline in exports: That source of growth is beginning to slide now and create a potential negative impulse for a second downturn in the economy.  At any rate, absorption of goods and services in the US was up quite a bit, but many of those were bought from overseas.
  3. I was more surprised by the reported savings rate of 6.2% than any other number. An economy that is showing vigorous growth and high optimism would have a rate moving lower.  But of course sentiment is down to pre-2010 levels, and consumers appear to have decided to continue the repair of their balance sheets instead.  This makes business investment all the more important to growth, if you can get that without the small businessman who has checked out on the recovery.  Even larger firms are turning sour in July.

All of this will turn up the heat on Congress, which is now hearing in a new report that letting the Bush tax cuts expire would cause GDP to fall 1.1% in 2011.  (If you are going to say the Obama stimulus added to GDP, you sorta need to say as well that a tax increase cuts GDP, don’t you?)  There appears to be no impulse left on the demand side that would lead the next leg of the recovery; uncertainty seems also to be holding back supply.  Ed calls this “a political disaster for Democrats,” but one major way out of the problem — use monetary policy — seems on hold despite one Fed president’s call for more leniency.  A different one is asking the Congress and Obama Administration for less “random refereeing“, but that is the source of its power.

You will be able to hear more about the report on the King Banaian Show, starting at 9am CT Saturday on KYCR, AM 1570 in the Twin Cities.

(Crossposted at SCSU Scholars.)

This post was promoted from GreenRoom to HotAir.com.
To see the comments on the original post, look here.

Update (Ed): I fixed the typo in the first paragraph; the GDP rate was 2.4%, not 3.4%.


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Comments

That should be 2.4% instead of 3.4%.

SoulGlo on July 31, 2010 at 5:47 AM

There are only sub-stories to this bargain basement recovery. No building above-ground that I can see.
Randy

williars on July 31, 2010 at 6:59 AM

Until the powers that be understand that this is a demand led recession and the problem is that too many of the population is out of the market due to too high of prices and too low of wages as well as not enough purchasing power this recession will continue to cling.

we need massive defaltion of all basic goods. food, fuel, housing and transportation prices all must fall while wages rise.

We can not grow our economy on credit cards and loans any longer

unseen on July 31, 2010 at 7:07 AM

the economy is crying for a market forced redistrubution of wealth. not a government led one. corp profits are too high as a factor of GDP. Wages are not keeping up with prices on goods and services due to massive outsourcing, high taxes and high interest charges.

TARP destroyed the market redistrubtion of wealth from the idiots in control of the money markets.

what the Great recession is is a function of outsourcing coming home to roostplus the out of control federal/state/local governments spending/taxing

unseen on July 31, 2010 at 7:22 AM

In other words its bad, bad and more bad.

JimK on July 31, 2010 at 7:35 AM

I would like to know if the one area of the economy outside of the public sector, that they said was growing in 2008 and 2009, i.e. healthcare, is still growing, or has it taken a hit due to ObamaCare?

txmomof6 on July 31, 2010 at 8:04 AM

King B–it should be 2.4 instead of 3.4.

A different one is asking the Congress and Obama Administration for less “random refereeing“,

But the O team is so good at refereeing! They’re objective, unbiased, and never try to fix a game.///

If they let the Bush tax cuts expire–and they will because Democrats never met a tax cut they didn’t despise–then I can hardly wait for Obama’s explanation. He pledged NO TAX INCREASES ON ANYONE MAKING LESS THAN 250k (or 200k or 180k). What will their excuse be next tax season when many people will pay more taxes?

conservative pilgrim on July 31, 2010 at 8:10 AM

Because higher taxes effect businesses (esp small), which effect production and output. Taxed fatigued consumers will hold onto their money instead of purchasing those goods and services. The govt can prop up the economy for so long until it collapses. Then what???

conservative pilgrim on July 31, 2010 at 8:22 AM

6.2% savings rate should be cheered not lamented. A negative savings rate is what got us into the mess to begin with.

We need to start saving more and spending less. And yes this will (and is) cause the economy to stall for a while. But for the long run it is a good thing.

One of the worst aspects of the tax code is punishing savers by taxing interest as ordinary income while taxing dividends at a lower rate. And the worst of it, incentivizing spending on houses people can’t afford by allowing the interest deduction for mortgages.

If any policy maker wanted to help the economy he would eliminate taxes on interest, keep dividend tax as it is now (at the Bush tax cut levels) and eliminate the interest mortgage deduction. I have a better chance of being the next president than those 3 things happening, but one can hope nonetheless.

angryed on July 31, 2010 at 8:34 AM

would like to know if the one area of the economy outside of the public sector, that they said was growing in 2008 and 2009, i.e. healthcare, is still growing, or has it taken a hit due to ObamaCare?

txmomof6 on July 31, 2010 at 8:04 AM

hospitals in NC are laying off nurses

unseen on July 31, 2010 at 8:43 AM

If they let the Bush tax cuts expire–and they will because Democrats never met a tax cut they didn’t despise–then I can hardly wait for Obama’s explanation.
-conservative pilgrim on July 31, 2010 at 8:10 AM

Not to worry, Steny Hoyer says the expiration of the Bush tax cuts is hereby deemed to be the “Republican Tax Increase on Working Americans“.

“We have no intention of allowing the Republican tax increase — that their policies would lead to — to go into effect for working Americans. Period,”

These guys are beyond self parody.

forest on July 31, 2010 at 8:43 AM

one major way out of the problem — use monetary policy — seems on hold despite one Fed president’s call for more leniency.

With the enormous increase in the money supply, wouldn’t easier lending trigger hyper inflation?

Rebar on July 31, 2010 at 8:50 AM

would like to know if the one area of the economy outside of the public sector, that they said was growing in 2008 and 2009, i.e. healthcare, is still growing, or has it taken a hit due to ObamaCare?

txmomof6 on July 31, 2010 at 8:04 AM

hospitals in NC are laying off nurses

unseen on July 31, 2010 at 8:43 AM

Hospitals here in ND have stopped hiring, but I guess they aren’t laying off yet.
Nursing homes, however, are in desperate need for all kinds of people.
Obamacare will destroy some health care jobs & perhaps create new ones.
I see doctors dropping Medicare patients.
That is until the govt forces them to treat these people.
Then watch the Dr shortage get even worse.
These are bad times that try good people.

Badger40 on July 31, 2010 at 8:52 AM

These guys are beyond self parody.

forest on July 31, 2010 at 8:43 AM

And they get away with it bcs the sheeple are watching TV & playing with their iPods & iPads.
Majority conservative America needs to get busy & start participating instead of letting all the city folks on the E & W coasts decide for them like they have been.

Badger40 on July 31, 2010 at 8:54 AM

forest on July 31, 2010 at 8:43 AM

The Dems have the advantage of controlling the message. If only the Republicans would fight back well.

conservative pilgrim on July 31, 2010 at 8:58 AM

That is until the govt forces them to treat these people.

Badger40 on July 31, 2010 at 8:52 AM

Massachusetts is planning on revoking the medical licenses of doctors who refuse to accept the ridiculously low reimbursement rates:

S.2170 would require physicians and all other health care providers to accept 110% of Medicare rates for health insurance for small businesses. For physicians, acceptance of set rates would be as a condition of licensure! Moreover, physicians would have to accept all such patients – and such rates – if they participate in any other plan offered by that insurer.</blockquote>

Rebar on July 31, 2010 at 8:59 AM

I will say this yet again:

There will be no real economic recovery in America until Barack Hussein Obama has been removed from power, and his hideous policies not just repealed, but reversed IN THEIR ENTIRETY.

The sad fact that so many supposedly “intelligent” Americans (and that includes a hell of a lot of conservatives) still appear to believe a recovery is possible under this communist administration is proof positive that economic illiteracy has permeated this country to the point of being epidemic.

Dave R. on July 31, 2010 at 9:18 AM

GDP = C +I + G, consumer spending + investment + government spending.

It seems to be that government spending should only be that spending that did not occur though borrowing. So the revised formula would be GDP = C +I +( G – Gborrowing)

There is no way that taking on government debt is plus for the economy. It only determines how soon the chickens come home to roost. (To borrow a phrase.)

Dasher on July 31, 2010 at 9:21 AM

The problem always comes down to two things… regulation and taxation. Today, we have problems with both areas. The current levels are too high and the expectations for the future are too uncertain.

The recently shoved-down-out-throats health care system is a very good example of both. Fear of Cap ‘n Tax is another. Deepwell Horizon was an excellent example of regulation. Government regulations served to keep responses operating at a slow, bureaucratic pace when an agile, rapid response was required to minimize the impact.

Personally, my 2nd largest annual outlay is for federal tax. My 4th largest is property tax. My “$200 a month “all-I-can eat” cell phone bill for two phones is actually over $280 after taxes and other government fees. When I look at all the taxes I pay at every level, the true rate is way too much.

The “Green Movement” is nothing more than a thinly veiled scheme to destroy the infrastructure and industrial base of our country. A snail darter keeps a dam from being built or irrigation from being used to make more land productive for food. A spotted owl keeps forests from being harvested, even though they were grown specifically for that purpose. We are unable to build a sufficient quantity of nuclear power plants. We cannot drill our own oil from our own vast reserves or mine our coal.

Everyone clearly knows the problems but no one is willing to fix them. Why? The only severe damage done to properly fix them would be to the size and scope of government.

CC

CapedConservative on July 31, 2010 at 9:24 AM

Dave R. on July 31, 2010 at 9:18 AM

Calm down Dave, all that yelling is making my eyes hurt. That said I agree with you. We Americans have been asleep at the wheel far too long. It’s about time we woke up and put the yoke back on our elected servants.

Oldnuke on July 31, 2010 at 9:53 AM

“We have no intention of allowing the Republican tax increase — that their policies would lead to — to go into effect for working Americans. Period,”
These guys are beyond self parody.

forest on July 31, 2010 at 8:43 AM

We the all knowing, all benevolent and all powerful Demrats are going to increase your taxes now, before those evil, stupid, racist Rethuglicans can do it later!

Every thing these court jesters have ever accused Republicans of wanting to do they are doing. Cutting Social Security, Medicare and medicaid. Rationing Healthcare and raising taxes. Not to mention an outright takeover of companies and hancuffing of entire industries!

These Rump Rangers are just askin for a Revolution!

Not buyin it A$$face! See ya in NOVEMBER!

dhunter on July 31, 2010 at 10:21 AM

The problem always comes down to two things… regulation and taxation. Today, we have problems with both areas. The current levels are too high and the expectations for the future are too uncertain.

There’s no uncertainty about either one, in my opinion: both regulations and tax rates will continue to go up as long as our government remains captured by statists. We can start fixing this in November and adminster the coup de grace to the current occupant of the White House in 2012. Sooner or later mongrels turn on their abusive masters.

ya2daup on July 31, 2010 at 10:29 AM

“We have no intention of allowing the Republican tax increase — that their policies would lead to — to go into effect for working Americans. Period,”
These guys are beyond self parody.

forest on July 31, 2010 at 8:43 AM

“We, the all knowing, all caring, all powerful Demrats will raise your taxes now, before those evil, wicked, Rethuglicans can do it later!”

These corrupt clowns are doing everything they ever accused Republicans of ever wanting to do. They cut Social Secuity after taxing it under Clintoon, they cut medicare, eliminated Medicare Advantage the only part that worked, they cut Medicaid payments to docs, they took over entire Companies and handcuffed entire industries!

I’m not buying it clown face and I plan on seein ya in Nov. and bringin at least three previous Demrat or non-voters with me.
Your day is comin clown!
REMEMBER TOGETHER IN NOVEMBER!
DON”T GO TO THE POLLS ALONE!

dhunter on July 31, 2010 at 10:30 AM

President George W. Bush has only been gone a year-and-a-half? Doesn’t it seem like five? Yet he can still increase our taxes? Who knew he was so powerful?

slickwillie2001 on July 31, 2010 at 10:31 AM

Nursing homes, however, are in desperate need for all kinds of people.
Badger40 on July 31, 2010 at 8:52 AM

Indeed, the need for workers is there. But nursing homes aren’t businesses that produce any wealth. The wages to the workers come from reimbursement from the government. It’s a sector propped up by an entitlement.

keebs on July 31, 2010 at 10:42 AM

Nursing homes, however, are in desperate need for all kinds of people.
Badger40 on July 31, 2010 at 8:52 AM

Make sure to get grandma and grandpa an absentee ballot do not let the nursing home help them fill it out!
We need all voters even disinterested and previously non engaged.

dhunter on July 31, 2010 at 10:52 AM

We are so forked…

lovingmyUSA on July 31, 2010 at 12:23 PM

And I expect soon, very soon, to be castigated by Democrats for actually saving: that will become hording wealth.

Which they will then want to seize because I don’t know how to spend it and they do.

They will do that by going after small banks as part of Franken Dodd. All your wealth will soon belong to federal bureaucrats.

ajacksonian on July 31, 2010 at 1:18 PM

the economy is crying for a market forced redistrubution of wealth. not a government led one. corp profits are too high as a factor of GDP. Wages are not keeping up with prices on goods and services due to massive outsourcing, high taxes and high interest charges.

unseen on July 31, 2010 at 7:22 AM

I agree. The bad thing is, we can’t seem to do much to increase wages nor cut taxes for very long. Even giving a tiny raise to those on min-wage jobs to compensate for inflation has everyone howling from the rooftops.

Dark-Star on July 31, 2010 at 8:52 PM