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Another Revision Of The Q2 GDP Number By JPM: Firm Now Estimates That The Real Economic Performance Was 1.3% (From 2.4%)

Tyler Durden's picture




 

Last week we noted that JPM's Michael Feroli estimated that due to a major downward revision of inventory build of non-durable goods, which the BEA had overaccounted for, the GDP print of 2.4% released two Fridays ago was actually 1.7%. Today, the stripping of the GDP print from upward biased data continues, and Feroli once again whacks the GDP number, which he now sees at 1.3%, or essentially 50% of the actual released number. This is again due to BEA's overoptimism, as today's data on wholesale inventory buildout was also far lower than the unrealistic BEA assumption (will the BEA ever underestimate a number? any number?). JPMorgan's conclusion: "The June data released so far suggests Q2 GDP is tracking closer to a 1.3% annual rate of increase, well below the 2.4% in the initial release." By the time all the overoptimistic assumption are eliminated, Q2 GDP will end up negative, and Goldman's 1.5% estimate of GDP growth in H2 will prove to be, as we expected, overoptimistic. Of course, this number is not revised for all the governmental Keynesian transferism, without which GDP would would be double digit negative. We leave it up to you to figure out what this means for Q3 growth now that there is no fiscal stimulus, and if the Fed does not launch QE2, there will be no monetary stimulus until late September 21 at the earliest.

From Michael Feroli:

When the Bureau of Economic Analysis (BEA) prepares their initial estimate for GDP, they need to make assumptions for some of the source data for the last month of the quarter, which is not available at the time of the initial release. Over the ensuing weeks that data becomes available and is incorporated in the revised estimate. When the BEA released their initial estimate of Q2 GDP on July 30th, they made some assumptions about June inventory and international trade data that seemed fairly extreme, with a very large contribution from inventory building, and a very large drag from foreign trade.
 
So far, BEA's assumption on June inventories have indeed looked too strong relative to the data. Today's June data on wholesale inventory building was substantially weaker than what the BEA had assumed, implying a subtraction of 0.4%-point from the initial print of GDP. This follows last week's June nondurable inventory data, which was also weaker than what BEA had assumed. Altogether, the June data released so far suggests Q2 GDP is tracking closer to a 1.3% annual rate of increase, well below the 2.4% in the initial release. That said, we would be hesitant to say Q2 is looking like 1.3% growth, full stop, because tomorrow's international trade data for June could lead to yet another change in views on what really happened last quarter, and quite possibly add back some of the GDP that is being taken out by the June inventory data.

Please no jokes about how high David Bianco will upgrade his S&P EPS on this latest piece of what Bank of America considers "non-news."

 

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Tue, 08/10/2010 - 12:37 | 512825 Gully Foyle
Gully Foyle's picture
First Jive Dude: Shiiiiit, maaaaan. That honky muf' be messin' mah old lady... got to be runnin' cold upside down his head, you know? Second Jive Dude: Hey home', I can dig it. Know ain't gonna lay no mo' big rap up on you, man!
First Jive Dude: I say hey, sky... subba say I wan' see...
Second Jive Dude: Uh-huh.
First Jive Dude: ...pray to J I did the same ol' same ol'!
Second Jive Dude: Hey... knock a self a pro, Slick! That gray matter backlot perform us DOWN, I take TCB-in', man!
First Jive Dude: Hey, you know what they say: see a broad to get dat booty yak 'em...
First Jive Dude, Second Jive Dude: ...leg 'er down a smack 'em yak 'em!
First Jive Dude: COL' got to be! Y'know? Shiiiiit.
Tue, 08/10/2010 - 12:43 | 512844 hedgeless_horseman
hedgeless_horseman's picture

Jive Horeseman: Oh Tyler! I speak jive.
Tyler: Oh, good.
Jive Horeseman: He said that the economy is in great pain and they want to know if you can help.
Tyler: All right. Would you tell them to just relax and I'll be back as soon as I can with some austerity?
Jive Horeseman: Jus' hang loose, blood.  He gonna catch ya up on da' rebound on da' down side.
Second Jive Dude: What it is, Big Hawse? My mama no raise no dummies. I dug his rap!
Jive Horeseman: Cut me some slack, Jack! Chump don' want no help, chump don't GET da' help!
First Jive Dude: Say 'e can't hang, say seven up!
Jive Horeseman: Jive ass dude don't got no brains anyhow! Hmmph!

Tue, 08/10/2010 - 13:06 | 512892 Cognitive Dissonance
Cognitive Dissonance's picture

LOL

Very nice. For those who missed the pop culture connection I bring you the "Airplane" Talking Jive clip.

http://www.youtube.com/watch?v=fhJDvI3gUO8

 

Tue, 08/10/2010 - 13:10 | 512900 docj
docj's picture

Damn, man.  Thanks for making me feel ancient (I just assume everyone is old enoughto know precisely where this comes from).

Tue, 08/10/2010 - 13:49 | 512962 Cognitive Dissonance
Cognitive Dissonance's picture

Just look at the lapels on those jackets. It takes me back to the 60's and 70's, with it's long hair, bell bottom jeans and good (bad) acid trips.

Wed, 08/11/2010 - 10:18 | 515079 PD Quig
PD Quig's picture

Last time I watched that, the current crop of college freshmen hadn't popped out of the oven yet, but I still knew the reference instantly...so I guess I'm not senile yet.

Good call!

Tue, 08/10/2010 - 12:37 | 512829 Mitchman
Mitchman's picture

Well, this can only mean one thing:  S&P to 1250.

Tue, 08/10/2010 - 12:37 | 512832 Mongo
Mongo's picture

Dow 100000

Tue, 08/10/2010 - 12:38 | 512833 jtmo3
jtmo3's picture

That news alone should be enough to bring the market back towards par for the day. At least until the fed makes it's bs statement. Then we're back to even or better today.

Tue, 08/10/2010 - 12:54 | 512865 EscapeKey
EscapeKey's picture

On the contrary - a revision to 0.2% is already priced into the market.

Did I say 0.2%? I meant to say -16.1%.

 

Tue, 08/10/2010 - 12:38 | 512834 101 years and c...
101 years and counting's picture

JPM and GS coming hard after that QE2.   Not sure what BAC is doing.  Apparently they didn't get the memo that the worse the economy is doing, the more casino money they get for their worthless MBS.

Tue, 08/10/2010 - 12:39 | 512836 IBelieveInMagic
IBelieveInMagic's picture

Tyler, why do you say there is no fiscal stimulus -- isn't the proposed bailout of states that is being rushed thru today considered a stimulus? Or is it that it is not in the trillions that you do not consider it worthy of being recognized?

Tue, 08/10/2010 - 12:46 | 512854 Tyler Durden
Tyler Durden's picture

Some perspective: $25 billion state stimulus... in 15 minutes UST will auction off $34 billion in 3 Year notes.

Tue, 08/10/2010 - 12:56 | 512869 SheepDog-One
SheepDog-One's picture

Yep Tyler, and the FED will be right there to prop the bid!

Tue, 08/10/2010 - 12:48 | 512858 101 years and c...
101 years and counting's picture

It's not really stimulus.  Its maintaining the status quo.  Just like the $36 billion in additional UE benefits handed out in July.

At this point, the gov't is issuing an addition $30 billion in debt per month just to buy votes.

Tue, 08/10/2010 - 12:53 | 512863 midtowng
midtowng's picture

The original stimulus package that was passed in early 2009 is still being spent. It's just that it is mostly spent.

Tue, 08/10/2010 - 12:57 | 512872 HEHEHE
HEHEHE's picture

It's called securing Teacher's Unions votes

Tue, 08/10/2010 - 14:00 | 512985 oklaboy
oklaboy's picture

fer sure, what's worse, giving an unemployed person 400 a week, or a flunky teacher who produces nothing 1,00 a week, how absurd. 

Tue, 08/10/2010 - 16:50 | 513554 Problem Is
Problem Is's picture

Unemployed, foreclosed on and underwater voters do not like incumbents...

Too bad:

1. A Congressional Whore only worries about it 3 months every 2 years...
2. A Senatorial Douche only worries about it 3 months every 6 years...
3. A Presidential Puppet only worries about it 3 months every 4 years...

Tue, 08/10/2010 - 12:45 | 512848 Catullus
Catullus's picture

If this were china, I'd say look at C&I electricity sales and adjust for weather to determine whether manufacturing is continuing an inventory rebuild this summer. The consumer is obviously deleveraging to flat spending. The $80 oil price should be a big negative on net imports. Increase in GDP can only come from business investment or govt spending. The spending numbers are known, so it really only comes down to b investment. C&I electricity sales adjusted for weather should give it away.

Tue, 08/10/2010 - 13:01 | 512878 Perseus son of Zeus
Perseus son of Zeus's picture

Rule of thumb: if it's BEA divide by 2.

Tue, 08/10/2010 - 14:02 | 512987 oklaboy
oklaboy's picture

+1

Tue, 08/10/2010 - 12:46 | 512851 Paul Bogdanich
Paul Bogdanich's picture

It's the same propaganda technique they used in the Central American conflicts under Reagan.  Someone would charge that an American installed leader was massacring peasants and we would say no he's not.  Then three months later we would admit he was massacring peasants and then replace with another strong man likely to continue the killings and when asked say no he won't do that then three months later repeat the process.  Only this time it's GDP at issue and we are the ones likely to be massacred.   

Tue, 08/10/2010 - 12:49 | 512859 Gimp
Gimp's picture

Propaganda worked. Use false numbers to pump up market then make revision six-months later when no one is paying attention. Page one of " Dummies guide to using Propaganda to achieve ones goals".

Tue, 08/10/2010 - 12:51 | 512861 midtowng
midtowng's picture

Forget H2 recession. That's already a done deal. The question is: Will the double-dip be revised all the way back to June?

Tue, 08/10/2010 - 12:55 | 512866 SheepDog-One
SheepDog-One's picture

So then 'better n expected' and DOW +500 by close? Hmm I better consult the squiggly lines.

Tue, 08/10/2010 - 12:55 | 512867 HEHEHE
HEHEHE's picture

Notice the timing of all the GS, JPM etc beating down the economy - please Ben please give us another hit, just one man, come on Ben, we'll wash your car for you man, shine your shoes, one more hit

Tue, 08/10/2010 - 12:58 | 512871 SheepDog-One
SheepDog-One's picture

Will they draw the line at tossing Bens salad?

Tue, 08/10/2010 - 13:13 | 512905 Commander Cody
Commander Cody's picture

They have told Ben what to do.  Now they are helping to provide the validation.  Only thing, government agencies are aligned to the political need for votes and therefore the happy thoughts have come out indicating otherwise.  The banksters want more free money because their balance sheets (as warped as they are) are starting to deteriorate such that bonus time is in jeopardy.  So, QE2 we do.

Tue, 08/10/2010 - 13:26 | 512924 HEHEHE
HEHEHE's picture

At this point nothing that happens today will surprise me.  I have to lean towards your Ben will do everything they ask position as that's all he has done since he's taken office.

Tue, 08/10/2010 - 12:57 | 512870 Cognitive Dissonance
Cognitive Dissonance's picture

This is the financial equivalent of 300 people on a dance floor all deciding at once to exit stage right after someone fires a gun in the crowd. You just can't get out of there fast enough.

What I always find amusing is that "suddenly" the numbers are being revised. Only those in a coma couldn't see the deterioration starting at least 4 or 5 months ago, and I would argue it never really stopped. But just like CNBC, Bloomberg, FOX business news etc all have a corporate agenda to spin the financial news, so do the Wall Street houses have an agenda to spin the forecasts to reflect what they tell their clients and what their clients want to hear.

Once you decide something MUST work, such as the economic recovery, confirmation bias forces you to find info that confirms your bias and reject info that contradicts it. Wall Street is only too happy to oblige, both in creating the myth and in perpetuating it.

Tue, 08/10/2010 - 13:00 | 512874 hedgeless_horseman
hedgeless_horseman's picture

The market is a self-fulfilling prophesy perpetuated by false prophets.

Tue, 08/10/2010 - 12:59 | 512875 SheepDog-One
SheepDog-One's picture

No one is ante-ing up this hand, casino needs to sweep the table and deal new cards, flash crash, anyone?

Tue, 08/10/2010 - 13:00 | 512873 plocequ1
plocequ1's picture

Well, QE 2 looks like a possibility. This will lay to rest all those theroys that it can't be done. Not only can't it be done, It will be done. So stop your crying and assume the Doggie position. I think I will watch Deliverance tonight. SQUEEEEEEEEEEEEL. I got my Ky all ready.

Tue, 08/10/2010 - 13:02 | 512879 SheepDog-One
SheepDog-One's picture

Well contrary to that, Im 99% certain FOMC does nothing. 

Tue, 08/10/2010 - 13:17 | 512909 plocequ1
plocequ1's picture

I hope you are right.

Tue, 08/10/2010 - 13:20 | 512913 redarrow
redarrow's picture

second that. No QE in 2 hours, there will be the usual Fed BS statements on exceptionally low interest rates for credit (which no one wants to borrow), roll over of some bond principal into more treasuries and finally removal of the 25 bps interest rates for banks that keep capital with them (what a dud, it will do nothing, they have shown that they will purchase treasuries with them). You cannot force the banks to lend when no one is willing to borrow. The key problem the Fed does not understand is that this is a solvency crisis not a credit crisis.

Tue, 08/10/2010 - 13:24 | 512918 -1Delta
-1Delta's picture

if they do or do not we are still left with a cheap vix...

Tue, 08/10/2010 - 13:02 | 512876 John McCloy
John McCloy's picture

  They have every intention of doing the complete opposite of what is expected. The markets will head down and not up into elections since they do not want the Democrats in power likely because they do not trust the President and are all too aware he will revert with most of his party too desperate populist moves directed at Wall Street and big business.  It also keeps the balance of power of kilt while masking those who is actually in power.

      They also are looking for a war. They are laying the groundwork with the Time Magazine cover depicting the disfigured Afgan girl and keep in mind the amount of attention paid to the aid workers, who are a rainbow coalition of international workers, including a German and a Briton, and how the spin directly labeled this "The Afghan Massacre" committed by Taliban members angered over their belief that "The aid workers were masquerading and were actually Christian missionaries".

    This is all being arranged including the Japan tanker incident. For years Afghanistan and the Taliban were on the back burner and suddenly they are capable of various organized land and sea assualts that the media cannot help but splash on every outlet. They are attempting to ferment sentiment and only they will escalate the incidents and spin until the American public bites.

Never has the United States needed a war as direly as they do today in order to distract from corporate anger, spur spending and centralize the political parties.

Tue, 08/10/2010 - 13:03 | 512885 SheepDog-One
SheepDog-One's picture

Pretty astute theorizing John, I believe youre correct these people arent pushing for continuing the status quo and conforming to what the moron-orc's believe they'll do, instead its Ordo ab Chao.

Tue, 08/10/2010 - 13:11 | 512895 John McCloy
John McCloy's picture

    And please remember this. For the first time Americans are questioning the motive behind staunch defense of Israel. Americans want the Iraq war ended and they now want the Afghanistan war ended. Israel has no intentions of allowing the United States to leave the region. They need the United States military there and in droves knowing full well if they leave because of political and public pressure back home, since we cannot afford the 2 billion it costs us per day to fight the war, that it would take a mountain to return American forces to the region at this kind of level. We are already beginning to withdraw from Iraq..If we cannot be kept in Afghanistan then what for Israel?

   Israel will attack Iran because if they do so prior to us claiming we do not support a preemptive attack and are returning home then we are stuck.

Tue, 08/10/2010 - 13:19 | 512914 aheady
aheady's picture

Absolutely, John. I happened to catch a small sliver of that "Afghan Massacre" bullshit while flipping channels during dinner last night. Katie Couric was in hysterics and all I could do was shake my head. Seriously, who are they kidding?

Tue, 08/10/2010 - 15:12 | 513279 jakoye
jakoye's picture

What's so bullshit about it? It is pretty tragic that these aid workers, who were only helping the Afghan people, were gunned down in cold blood.

Sure, the media sensationalizes it, but they do that with everything (the better to attract viewers).

Caveats, of course, apply in this situation, such that we should remember that these aid workers knowingly went to a dangerous area unguarded with all the naivety that only the truly religious can muster. But it was still a pretty brutal act by a bunch of fanatical thugs who probably piss their pants and run every time they have to face people who actually shoot back.

Tue, 08/10/2010 - 15:36 | 513362 aheady
aheady's picture

The bullshit was aimed toward the sensationalistic title, J... and the way the story was screeched like an Entertainment Tonight segment.

Tue, 08/10/2010 - 15:42 | 513377 aheady
aheady's picture

And spare me the melodramatic description of what "aid" workers do.

Tue, 08/10/2010 - 17:00 | 513593 jakoye
jakoye's picture

Was it melodramatic to say that they help the Afghan people?

What is it that you think they do?

Tue, 08/10/2010 - 13:24 | 512919 docj
docj's picture

Well said as always, JMcC.

Tue, 08/10/2010 - 13:34 | 512936 redarrow
redarrow's picture

Very likely. To me it never made sense to show a individual case and then use it as a basis for action against a nation but that is how they built the case for invading before. The people are gullible and fall for that and this is our bane.

Somehow the MSM thinks that they are vastly superior to everyone else on the planet and that people in the third world do not know how to live. Hello...is it not assuming too much? Other nations have cultural histories going back several thousands of years and it is plain wrong to tell them how to live. It seems to me that we will make more friends if we just mind our business and not advise others...but hell what do I know I am just a stupid legal immigrant.

Tue, 08/10/2010 - 15:17 | 513297 jakoye
jakoye's picture

I would submit that the Afghans have proven that they do *not* know how to live, as theirs is one of the poorest countries in the world and recognized by all as a basket case.

The entire idea that we should "not interfere in the internal affairs of other nations" is all well and good until other nations start doing some real bad shit to their own people. Where exactly do you draw the line? Massacres? Genocide?

Every people/place has "thousands of years of history". That doesn't mean they're doing things right or doing things that are best for their people. If the US didn't have the power to intervene, then your non-interference rule is obviously the best course (which was our default position early in our history). However, to possess the power to prevent evil and to do nothing... well, that is unacceptable.

 

Tue, 08/10/2010 - 13:09 | 512898 Borat
Borat's picture

I wonder if PPT will pull the melt up magic trick after the announcement... there is so much bearishness in the air... I am starting to feel I litle bullish for the short term...

Tue, 08/10/2010 - 13:20 | 512915 VWbug
VWbug's picture

 agree. i've covered some of my short pos, but would not go long.

hope to re establish the short later this pm.

Tue, 08/10/2010 - 13:23 | 512916 Young
Young's picture

"Balls of steel me mateees, balls of fuckin' steel!" Wait, who said that... Damn it, it was Leeson!

Tue, 08/10/2010 - 13:27 | 512923 -1Delta
-1Delta's picture

agree... good news that i can spread the vix nearby with the fix futures... i will make a easy buck, but i dont have those balls

Tue, 08/10/2010 - 13:23 | 512917 Caviar Emptor
Caviar Emptor's picture

Agree with those who think the Fed does something, but no big box of sugar smack. They've taken note of the inflationary consequences of their work so far (Bullard) and are getting religion that there's a Double Whammy going down. Too much QE would send oil back to $100 sooner than you think. And that even has political consequences. They fear deflation but they're aware that they're pushing on a string and fighting it is more an issue for Congress and Treasury to decide what new "rescue programs" to unveil. 

So they'll take the bonehead path in the middle: QE lite. They'll jawbone the non-retirement of debt. They'll jawbone ZIRP. They'll threaten that they "stand at the ready" with big guns. But the middle ground will frustrate both sides and reward nobody. It won't stimulate the economy nearly enough to keep deflation at bay and a Japan-style vortex will continue. But some QE with the threat of more to come will keep commodities high despite economic contraction. Hence THe Double Whammy effect will be alive and well. And the entire economy will remain on course as a Zombie Economy (not just for banks anymore), totally living and dying according to every Fed decision with little organic growth. 

Tue, 08/10/2010 - 13:28 | 512925 docj
docj's picture

This absolutely has to be what is keeping-up Benron at night.  He at his core knows (incorrectly, in my mind) that Deflation is an evil to be avoided at any and all costs.  But can we include “the death of the only product he has – the Federal Reserve Note” among the costs he’s willing to impose in order to stop Deflation – which even he has to see is inevitable by that point?


I honestly don’t know.

 

Benron is a committed monetarist – that much we all know.  And he has completely surrounded himself with likeminded people.  But he’s not a stupid man by any stretch of the imagination.

 

So the battle is between “everything he’s ever believed about monetary policy” and “that which he can see with his own two eyes”.


Who wins?

 

That, my friends, is the $640T question.

 

Tue, 08/10/2010 - 13:36 | 512939 Caviar Emptor
Caviar Emptor's picture

He can't stand the thought of "The death of monetarism" as he's professed and practiced it since the 1970s. He still believes. Despite the data and the unfolding story. He can't believe that his attempt at "Reflation", executed just like in 2001-2 and 1991-5 has not only failed to reverse deflation but has also brought on inflation in key commodities, intermediate goods and key financial services. 

Tue, 08/10/2010 - 14:21 | 513035 MachoMan
MachoMan's picture

Greenspan's problem was that, despite being fucking retarded, he eventually saw the light of what loose monetary policy causes...  he understands that...  the difference with Bennie is that Ben didn't lose his religion.  He was one of the few people that could pick up the torch and step in and be sincere about the FED's efforts to reflate without the slightest flinch. 

Unfortunately, even Ben has lost his religion now or, at the very least, it's waning.  He may just end up being the black sheep/holding the bag for the fiasco because of his blinding devotion to the faith.  Better late than never I say.

Tue, 08/10/2010 - 13:33 | 512933 Jason T
Jason T's picture

I've had since January, +2% first half and -2% second half. +/-1%

Tue, 08/10/2010 - 13:39 | 512944 carbonmutant
carbonmutant's picture

They still don't have the votes for QE2...

And I think Ben's backing away from the WH agenda.

Tue, 08/10/2010 - 13:42 | 512951 Caviar Emptor
Caviar Emptor's picture

Don't ignore the political question "Who benefits"? Avoiding deflation is being sold to the sheeple as something that helps them. The truth is that deflation hurts creditors more because massive no-recourse defaults become the norm as in the Great Depression. The Fed's "Reflation" policy was an attempt to keep creditors and bondholders from taking a bath, but it hurt those in debt (majority of Americans as they needed to take on debt due to 3 decades of deflating incomes) since their debt levels are still at boom time levels while their income and employment opportunities are not. Also, "Reflation" kept energy and raw material prices at boom time levels despite a depressed economy. 

Tue, 08/10/2010 - 14:26 | 513066 MachoMan
MachoMan's picture

Bingo.  As a result, a controlled demolition (with the aid of additional stimulus, albeit smaller and smaller) is the only way to save their hides.  Too quick of a decent and they go belly up.  The stimulus and backstops at this point have allowed many of the liferafts to become manned...  There are still quite a few left on the boat with reserved seats though...

At any rate, even if the banks fail, their principal actors and/or other creditors/entities with reserves are going to utilize the wealth gap to get the most bang for the buck.  Picking up the pieces on the cheap.  That's the glory of limited liability organizations...  they're just vehicles for pillage and plunder...  when their use has been exhausted, boot em and find another vehicle.

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