Comments on: Economic recovery and the perverse math of GDP reporting http://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html a finance news and opinion site Mon, 22 Mar 2010 06:53:58 +0000 hourly 1 By: Double dip recession and the perverse math of GDP reporting - Credit Writedownshttp://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html#comment-9587 Double dip recession and the perverse math of GDP reporting - Credit Writedowns Fri, 29 Jan 2010 15:18:42 +0000 http://www.creditwritedowns.com/?p=8468#comment-9587 [...] brings in a few statistical anomalies that are important.This was a point I made in May in “Economic recovery and the perverse math of GDP reporting” when everyone was convinced the bottom was falling out, but I was predicting a fake recovery. It [...] [...] brings in a few statistical anomalies that are important.This was a point I made in May in “Economic recovery and the perverse math of GDP reporting” when everyone was convinced the bottom was falling out, but I was predicting a fake recovery. It [...]

]]> By: DORHKhttp://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html#comment-8398 DORHK Thu, 06 Aug 2009 12:54:01 +0000 http://www.creditwritedowns.com/?p=8468#comment-8398 We are in one of those odd moments when quarter-to-quarter annualized and year-on-year (both real) reading conflict. The second quarter's Q-Q of -1% was a great improvement over Q-1, but the YoY -3.9% was worse than January-March. We are in one of those odd moments when quarter-to-quarter annualized and year-on-year (both real) reading conflict. The second quarter's Q-Q of -1% was a great improvement over Q-1, but the YoY -3.9% was worse than January-March.

]]> By: DORHKhttp://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html#comment-5967 DORHK Thu, 06 Aug 2009 06:54:01 +0000 http://www.creditwritedowns.com/?p=8468#comment-5967 We are in one of those odd moments when quarter-to-quarter annualized and year-on-year (both real) reading conflict. The second quarter's Q-Q of -1% was a great improvement over Q-1, but the YoY -3.9% was worse than January-March. We are in one of those odd moments when quarter-to-quarter annualized and year-on-year (both real) reading conflict. The second quarter's Q-Q of -1% was a great improvement over Q-1, but the YoY -3.9% was worse than January-March.

]]> By: More thoughts on the fake recovery - Credit Writedownshttp://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html#comment-5295 More thoughts on the fake recovery - Credit Writedowns Sat, 23 May 2009 09:23:20 +0000 http://www.creditwritedowns.com/?p=8468#comment-5295 [...] measures the change in output, income, sales and employment). Now, I tried to make this point in “Economic recovery and the perverse math of GDP reporting,” the point being a fall from 100 in year 0 to 90 in year 1 and jump back to 92 in year 2 would [...] [...] measures the change in output, income, sales and employment). Now, I tried to make this point in “Economic recovery and the perverse math of GDP reporting,” the point being a fall from 100 in year 0 to 90 in year 1 and jump back to 92 in year 2 would [...]

]]> By: Both initial claims and continuing claims now pointing to recovery - Credit Writedownshttp://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html#comment-5258 Both initial claims and continuing claims now pointing to recovery - Credit Writedowns Thu, 21 May 2009 18:01:30 +0000 http://www.creditwritedowns.com/?p=8468#comment-5258 [...] GDP, real income, employment, industrial production, and wholesale-retail sales.” (see my post “Economic recovery and the perverse math of GDP reporting”).  So a recession basically measures the first derivative.  That means a recession is over [...] [...] GDP, real income, employment, industrial production, and wholesale-retail sales.” (see my post “Economic recovery and the perverse math of GDP reporting”).  So a recession basically measures the first derivative.  That means a recession is over [...]

]]> By: Edward Harrisonhttp://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html#comment-5203 Edward Harrison Sun, 10 May 2009 03:32:10 +0000 http://www.creditwritedowns.com/?p=8468#comment-5203 I'm fairly optimistic (for me) on residential housing because we have already seen 30% down on residential fixed investment and it's back to 1998 levels. Perhaps, we go down another two-three quarters before we trough. CRE is another story though, with investment still at 2005 levels. I reckon we could see those numbers cut in half easy.<br><br>Some of this is going to depend on the shape of the real economy obviously.<br><br>As for the excess credit supplied by all of that stuff, there is a general consensus that the shadow banking system operating in those realms and has been decimated. Part of why the economy is flat on its back has nothing to do with commercial banks and more to do with the deleveraging in shadow banking. The fed has stepped in to fill that void, not to fill a void left by commercial banks.<br><br>So, I think you are dead on regarding the importance of credit supplied as a result of derivative markets. I'm fairly optimistic (for me) on residential housing because we have already seen 30% down on residential fixed investment and it's back to 1998 levels. Perhaps, we go down another two-three quarters before we trough. CRE is another story though, with investment still at 2005 levels. I reckon we could see those numbers cut in half easy.

Some of this is going to depend on the shape of the real economy obviously.

As for the excess credit supplied by all of that stuff, there is a general consensus that the shadow banking system operating in those realms and has been decimated. Part of why the economy is flat on its back has nothing to do with commercial banks and more to do with the deleveraging in shadow banking. The fed has stepped in to fill that void, not to fill a void left by commercial banks.

So, I think you are dead on regarding the importance of credit supplied as a result of derivative markets.

]]> By: gaius mariushttp://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html#comment-5154 gaius marius Fri, 08 May 2009 14:37:32 +0000 http://www.creditwritedowns.com/?p=8468#comment-5154 great analysis as usual, mr harrison.<br><br>did you happen to see anything of the standard chartered note on inventories the other day? <a href="http://ftalphaville.ft.com/blog/2009/05/07/55615/inventory-correction-has-further-to-go-say-standard-chartered/" rel="nofollow">ft alphaville covered it a bit</a>. expecting worse than q1 in q2 -- and i have to say this corroborates well with the gathering decline in consumption, which david rosenberg noted has deepened from january to april, as well as accelerating reductions in loans and leases -- but more upbeat about h2.<br><br>there's been a few anecdotes about order quality as well -- that "real" cash orders aren't really coming in, lots of highly predicated sales and therefore lots of cancellations, making the orders picture (glum as may be) look better than it is. that of course means inventory reductions could surprise negatively. can you provide color on this? is that typical of the turns? <br><br>again -- really fine blogging. thanks. great analysis as usual, mr harrison.

did you happen to see anything of the standard chartered note on inventories the other day? ft alphaville covered it a bit. expecting worse than q1 in q2 — and i have to say this corroborates well with the gathering decline in consumption, which david rosenberg noted has deepened from january to april, as well as accelerating reductions in loans and leases — but more upbeat about h2.

there's been a few anecdotes about order quality as well — that “real” cash orders aren't really coming in, lots of highly predicated sales and therefore lots of cancellations, making the orders picture (glum as may be) look better than it is. that of course means inventory reductions could surprise negatively. can you provide color on this? is that typical of the turns?

again — really fine blogging. thanks.

]]> By: rfreudhttp://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html#comment-5148 rfreud Thu, 07 May 2009 22:52:25 +0000 http://www.creditwritedowns.com/?p=8468#comment-5148 Hi Edward,<br><br>Thanks for this and for many informative and thoughtful posts. I want to take this opportunity to ask for your thoughts on a question or two that have been bothering me. <br><br>Speaking of inventories, we have today a huge overhang in housing inventory. Also, in the past, housing construction jobs have been a key element in a recovery and a target of government stimulus and contra-cyclical monetary policy. I would be interested in your thoughts as to how these sectors nuance your guardedly optimistic view of the GDP statistics. Housing inventory is not, if I am not mistaken, included in the inventory statistics you discuss. <br><br>Secondly, and forgive me for going off topic here although it is a question about economic statistics, I would be interested in any insight you might be able the share about how the secondary market in mortgage backed securities, synthetics, derivatives and swaps impact the money supply and how this is or is not measured. One of my pet theories is that expansion of the money supply through these instruments was not included in the statistics which are used to guide the economy. <br><br>You will get that my theme is how well our economic statistics describe our reality. <br><br>Thanks very much. Hi Edward,

Thanks for this and for many informative and thoughtful posts. I want to take this opportunity to ask for your thoughts on a question or two that have been bothering me.

Speaking of inventories, we have today a huge overhang in housing inventory. Also, in the past, housing construction jobs have been a key element in a recovery and a target of government stimulus and contra-cyclical monetary policy. I would be interested in your thoughts as to how these sectors nuance your guardedly optimistic view of the GDP statistics. Housing inventory is not, if I am not mistaken, included in the inventory statistics you discuss.

Secondly, and forgive me for going off topic here although it is a question about economic statistics, I would be interested in any insight you might be able the share about how the secondary market in mortgage backed securities, synthetics, derivatives and swaps impact the money supply and how this is or is not measured. One of my pet theories is that expansion of the money supply through these instruments was not included in the statistics which are used to guide the economy.

You will get that my theme is how well our economic statistics describe our reality.

Thanks very much.

]]> By: Tim Joneshttp://www.creditwritedowns.com/2009/05/economic-recovery-and-the-perverse-math-of-gdp-reporting.html#comment-5144 Tim Jones Thu, 07 May 2009 20:59:16 +0000 http://www.creditwritedowns.com/?p=8468#comment-5144 One definitive lesson we learned in the Great Depression (GD) was that when reality set in, the mainstream just started to ignore the problem even existed. I think the lesson this time will be similar in that the most likely scenario will be that we are "recovered" even as the economy will continue to give up >= 400K jobs per month.... <br><br>Focusing on financial recovery and GDP data I think obscures the real issue which is that we most likely are back to is the same question we asked in the 1960's... Which is... How does a post industrial nation continue to grow when it is too expensive to create anything, and produces limited enhanced productivity gains?? Originally the answer was that globalized consumption / asset based pyramiding approach would work until its industrial peers caught up, but this approach appears to have run its course now. Meaning, private and public debts are already higher than they were in the GD so additional sustainable growth thru debt enhancement is unlikely. <br><br>The only current option left right now is to do mass currency devaluation to allow further expansion by debt devaluing which is a logical short term approach. I think that even the FED would agree, however, that this is a temporary measure only meant to just buy more time... The long term risks of this approach are no doubt many... One definitive lesson we learned in the Great Depression (GD) was that when reality set in, the mainstream just started to ignore the problem even existed. I think the lesson this time will be similar in that the most likely scenario will be that we are “recovered” even as the economy will continue to give up >= 400K jobs per month….

Focusing on financial recovery and GDP data I think obscures the real issue which is that we most likely are back to is the same question we asked in the 1960's… Which is… How does a post industrial nation continue to grow when it is too expensive to create anything, and produces limited enhanced productivity gains?? Originally the answer was that globalized consumption / asset based pyramiding approach would work until its industrial peers caught up, but this approach appears to have run its course now. Meaning, private and public debts are already higher than they were in the GD so additional sustainable growth thru debt enhancement is unlikely.

The only current option left right now is to do mass currency devaluation to allow further expansion by debt devaluing which is a logical short term approach. I think that even the FED would agree, however, that this is a temporary measure only meant to just buy more time… The long term risks of this approach are no doubt many…

]]>