by Addison Wiggin & Ian Mathias
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U.S. GDP skyrockets… how our struggling nation managed to double economic growth
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But government includes a quiet revision… economy contracted last year for first time since the tech bust
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Ahead of tomorrow’s jobs report, one employment indicator that’s tellin’ it like it is!
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Stock market stages solid rally, famous stock picker calls for the bottom
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Finally, someone musters the stones to sue the ratings agencies
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Plus, The 5’s hit a nerve… the population control debate flares up in our 5 Min inbox
U.S. economic growth doubled in the second quarter of 2008, says the government today. Doubled… as in twice as much.
That’s what the bean counters claim this morning… the latest GDP report shows the U.S. economy grew at a 1.9% annual rate in the second quarter, more than double the anemic 0.9% growth rate in the first quarter. Word on the street is that stimulus checks and a better-than-usual trade deficit were behind the sudden boost. How the printing of $150 billion in free money and our $400 billion annual trade deficit cause economic growth… well… this editor doesn’t get it.
You’d think Wall Street would rejoice on the news, but economists were expecting an even higher GDP reading. Just two weeks ago, the consensus forecast for today’s report came in around 1.8%. Somehow, expectations grew to 2.3% by this morning (what country do these people live in?), and thus, the Street is in a sour mood today. More on that in a minute.
But there was one believable nugget in today’s GDP report. The Commerce Department quietly “unannounced” GDP growth in the last quarter of 2007. The government revised previous reports of 0.6% fourth-quarter growth down to a 0.2% contraction.
That’s the first quarter of “negative growth” since the third quarter of 2001, when the economy was in recession.
“The story now will go along the lines,” speculates John Williams , “that the economy dipped a little in the fourth quarter — not enough to be called a recession — and has been in recovery ever since. Despite sharp quarterly contractions in employment, industrial production, new orders, real retail sales and residential construction, among other series, the second-quarter 2008 GDP was reported as booming. (Net of inventory reductions, the inflation-adjusted economy expanded at an above-average annualized 3.9% rate.)
“Such is an absurdity, given the reporting of better-quality surveys and extremely strong anecdotal evidence to the contrary. But the reporting will enable the pushing off of any recession recognition until after the election.”
While economic growth in the U.S. is reported to be strengthening, the U.S. employment scene, as John mentioned, is still lousy. A healthier GDP report this morning may have overshadowed the exceptionally bad weekly jobless claims report. Initial jobless claims over the last week alone skyrocketed by 44,000, to 448,000, claims. That’s the worst such report since 2003. For what it’s worth, the four-week moving average is a monthly gain of around 393,00 claims.
We’ll get the "official" jobs report from the Labor Department on Friday. Today’s jobless claims stand in stark contrast to yesterday’s positive ADP report… we’ll see where the government draws the line tomorrow.
And check out this chart from today’s New York Times:
Call us crazy, but that looks like a damn good indicator of economic recession.
The paper reports that over 3.7 million Americans have had their full-time jobs converted to part time because of weak business conditions. That’s the biggest involuntary part-time population of that kind since the Fed started keeping track in 1955. The total number of those forced into part time — for any reason — has now swelled to 3.7% of the work force, up from 3% last year.
The market, for once, appears to be seeing the forest for the trees. As we write, major market indexes are down… mostly due to the GDP missing forecasts and the gloomy jobless claims report. Exxon Mobil occupies the spotlight today, as the company once again announced record-setting revenues. Naturally, the stock is being sold off… the Street wanted more than a 40% increase in annual revenue.
“Falling production: That’s the real story,” says our bloggin’ brother Dave Gonigam at the Desidooru Saloon . While most of the media is racing to figure out some cute anecdote to mock Exxon’s enormous earnings (like $1,485 profits a second), Dave’s found a snippet from the earnings release worth noting.
“Production is down 7.8%, thanks to Hugo Chavez’s oil field grab in Venezuela, strikes in Nigeria and contracts with foreign governments that give them a bigger cut of output as oil prices rise.” That poses some serious questions as to the future of “big oil’s” production growth.
“But only the record profits will get any play today,” says Dave. “Falling production? Shrinking margins? Those are off limits for discussion.”
It’s also worth noting that some of the selling pressure in the U.S. market today is due to the remarkable rallies we’ve enjoyed lately. For the week, the S&P is up 2.5%… not bad for a bear market.
Thus, "I’m sticking my neck out and calling the bottom," declared Jim Cramer on his show last night. We normally don’t pay much attention to Cramer, but it’s worth noting… the country’s most “popular” financial adviser says the worst is over.
No one told the ladies and gents at Deutsche Bank the worst was behind us… the German mega-bank announced a 64% crash in profits and a $3.6 billion write-down today.
"Looking forward, we remain cautious for the remainder of 2008,” said CEO Josef Ackermann. “We will continue to strictly manage cost, risk and capital, and to reduce our exposures in key areas.”
It’s about time… the state of Connecticut is suing Moody’s, S&P and Fitch. Connecticut Attorney General Richard Blumenthal said the ratings agencies “systematically and intentionally" gave certain corporations (read: financials) unreasonably high credit ratings while giving the shaft to more stable public entities, like the state of Connecticut. We’re certainly not advocates of frivolous lawsuits, but these guys have it coming.
The ratings industry was “not concerned about what it knew to be more accurate and fair ratings,” said Blumenthal. “It was concerned about whether use of those fair and accurate ratings would be good for its bottom line… We are holding the credit rating agencies accountable for a secret Wall Street tax on Main Street: millions of dollars illegally exacted from Connecticut taxpayers.”
Oil jumped $4 yesterday. Light sweet crude rose to $126 after the Energy Dept. announced a surprise decline in gasoline supplies… temporarily defying the idea that demand in the U.S. is waning. Overnight, we learned that Iran is refusing to give up its nuclear aspirations, and, thus, crude is holding steady as we write.
Gasoline continued to fall, however. The national average is now $3.90 a gallon, well off its $4.11 high set on July 17.
No huge news on the dollar front. The dollar index is holding around 73.3, as it has since Tuesday.
As such, the gold trade is pretty thin, as well. The spot price has bounced from its $895 low yesterday to about $915 today.
"I bought my first gold last week, and I hate gold,” confessed GMO’s perpetually bearish investment guru Jeremy Grantham. “It doesn’t pay a dividend. I would only do it if I was desperate." You might recall Grantham’s forecast last year of a “global bubble” about to pop. While that still might be a bit of a dramatic prediction, we’d say he’s closer to being right than wrong.
“Global overpopulation is a great topic!” exclaims a reader, responding to yesterday’s reader mail. “Most people understand the world is a finite place and cannot infinitely support an infinite number of people. Population control is THE KEY to turning around the fight for resources that we are already beginning to see terrible results from. How much more poverty, famine and war do we need to see? Positive long-term results for all of mankind will begin to occur only once this issue is universally dealt with. But organized religions with their ancient, man-made, shortsighted, stubborn, outdated and often flawed beliefs are retarding serious progress with this issue. Ironically, organized religions are at least partially to blame for nearly all the differences that cause conflict among people, in the name of morality. It truly is insane when you step back and look at it.
“Until there is a logical argument showing the positive long-term benefits of uncontrolled reproduction, it seems we ought to be working on this issue more than we are.”
“So someone finally broached the real reason for the worldwide calamity of soaring prices for commodities, water and food etc.,” claims another. “Indiscriminate overbreeding has lead to gross overpopulation of the planet by at least a billion and a half. And the best comment you come out with is ‘Now you have.’
“You, obviously, want to remain politically correct. This is not a subject that should be hidden. People having more than one or two kids for self-perpetuation are greedy thieves stealing the valuable resources of Mother Earth and destroying our habitat. In the old days of depopulating diseases and wars, overbreeding was needed to keep the human race going. That thought should have been quelled years ago when studies showed the largest population the Earth could still comfortably support to be around 5 billion.
“That fact has now been shown to be dramatically understated! Too many people encourage companies to strip away resources full tilt without any thought of replacing, or at least recycling, them in a sensible manner without polluting the world. Waste is rampant and unnecessary. Adding more and more “I WANTS” to this problem is criminal and should start being treated as such. If we want a planet to live on, we need to be proactive and get the population down! (If it’s not already too late.)”
The 5: Eh… if you’re familiar with The 5, being consistently politically correct is not one of our virtues. We held our tongue yesterday because this is a whole lot to tackle in 5 Min., and we wanted to see how you’d respond. Plus, we share the sympathies of this reader:
“Hard to argue with that one, except that there are at least two problems,” says our last reader. “Most people enjoy having children, and will (selfishly?) reproduce, no matter what. And even a static population would translate into zero or negative growth for the economic system that we all know and love. In other words, it wouldn’t work (not that it really works all that well now). Does anyone know of an economic system not reliant on (unsustainable) growth? It’s hard to even think that one is possible, human nature being what it is. No wonder no one talks about it.”
The 5: This editor can’t see the overpopulation issue gaining any political traction until it’s much, much too late… if at all. Most people wouldn’t even vote for Ron Paul’s sobering campaign. How bad would it have to be for a “stop having babies” ticket make it to Pennsylvania Avenue?
“There are just too many of us!” shouts our last reader. “But since no politician in his right mind will ever go about doing anything in terms of enacting birth control (with doubtful results even in nondemocratic China), and since we do not run into the sea as the lemmings do every once in a while, we cannot but hope that sooner, rather than later a catastrophic natural disaster (meteor impact, earthquake) will strike us and wipe out a good billion of us (I don’t care where) and allow for a fresh start.”
You must be a popular dinner party guest.
Ian Mathias
The 5 Min. Forecast
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