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Rosenberg Estimates Consumer Spending Could Have Declined 10% Annualized Without Stimulus
From David Rosenberg: The details in today's report left something to be desired. Consumer spending came in at -1.2% annualized, twice the decline expected by the consensus. This occurred in the face of gargantuan fiscal stimulus and leaves wondering how this critical 70% chunk of the economy is going to perform as the cash-flow boost from Uncle Sam's generosity recedes in the second half of the year. Imagine, government transfers to the household sector exploded at a 33% annual rate, while tax payments imploded at a 33% annual rate and the best we can do is a -1.2% annualized decline in consumer spending in real terms and flat in nominal terms? What do we do for an encore? In the absence of the fiscal largesse, it is quite conceivable that consumer spending would have shrunk at a 10% annual rate last quarter! Nonresidential construction action sagged at an 8.9% annual rate and this was on top of a 44.0% detonation in the first quarter. Ditto for equipment & software 'capex' spending, also down at a 9.0% annual rate and this too followed a 36.0% collapse in the first quarter. Residential construction slumped sharply yet again, this time at a 29.0% annual rate. These are the guts of private sector spending and collectively, they contracted at a 3.3% annual rate -- the sixth decline in a row. So while there are many calls out there for the recession's end, it remains a forecast as opposed to a present-day reality.
The implications are very interesting. We have basically seen the US economy turn into a footrace between the appetite for the US govt to continue to pump stimulus while ballooning the deficit versus a stagnant US consumer with no hope in sight. The current Obama plan seems to focus on outlasting the dismal outlook for US consumers - we hope it works but don't see much to confirm that view right now.
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WTF is wrong with this market. From looking to crash below 200dma to suddenly going up at 60 degree angle
I strongly recommend people look at the Gross Private Domestic Investment segment of GDP.
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&FirstYear=2008&LastYear=2009&Freq=Qtr
During the Great D that line item was the ultimate leading indicator for economic collapse. At the trough it had dried up to a trickle.
I read a LOT of earnings reports across every sector of the economy, and NOBODY is now or planning in any forseeable future to raise capex. All else aside, on this metric, we are tracking right in line with the Depressoin.
Bullseye. SMBs everywhere are hanging on by their fingernails, and many will soon be in receivership
Why would you invest, when you know that the U.S. government is undergoing a regime change? No thanks. Come to me with the government contract--I'm not putting a toe into the water in order to have the government alligator bite it off. See ya later, alligator!
@Steak in #26019
I had to change to annual frequency to get data back to 1929. Link:
http://tinyurl.com/GDPdata
Thanks for the source
Holy cow.
Rounded liberally this suggests a 25% decline. I hope this is wrong, but it mirrors many other measures coming in at -20 to -30%. Autos, container / rail traffic, global trade.
Steak, is there any way you can go into more detail?
From what I can see, from 29-32, it went down more than 78% (decline from 16.5 to 1.3)
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&ViewSe...
And from 2006 to now it went down 67% (decline from 2336.5 to 1585.5)
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&ViewSe...
Based on that, it seems we could be at or near the trough.
Check my math, maybe I'm missing something.
I noticed the trough was set when those numbers started to increase year over year. I wonder if this metric was/is an accurate leading indicator of all recessions since the great Depression.
Thanks for the link.
Q3 & Q4 2009 will be telling.
Lack of CapX hurts bad.
Bullion time! Gotta rent a truck!
I think Karl's idea of not spending anything is coming to fruition!
Anyone want to predict that 3q gdp will be negative?
Seems conceivable, even with the 2q downward revision I am forecasting.
I think it's highly likely. We'll start to get gloomy forecasts about the holiday season, the market will falter or fall substantially, and businesses will retrench further.
you guys (like your leader TD) have your heads buried in the sand
You "one line no content" pumpers are proving great contrary indicators.
The Untold Story: as long as me and mine continue to be held hostage by the obamunists and a corrupt Congress...and freedoms guranteed by our Constitution fall ultimately to the tyranny of the finance mob...I ain't spending a dime more than necessary on ANYTHING.
Hugh Axton, is that you?
#26093 that's the address for the slaughterhouse isn't it?
And strangely, there is a long line outside it.
Very unusual.
The efforts to reflate and pump consumer confidence are slipping. With the evaporation of this years grants, clunkers excepted it is quite possible that the final revised Q3 figures will be weak by around .5 +/-.
No chance. The auto companies are increasing production and the government still has money to waste. 1Q10 is where my money is for a negative GDP quarter.
Once the unemployment number comes in on Friday, that will be the end of talk about "green shoots." Economic activity is declining, period. What do you do to stop it now? Stopping it a year from now, six months from now--that's all ridiculous. How do you stop it NOW?
The problem with this "largesse" analysis is just that: it's viewing what the Federal Govt is doing as "largesse." Not really. It's a movement on the part of homeowners towards maintenance of important facts, such as income, employment and housing.
But let's not pay any attention to the idea that those are moving into the category of individually enforceable rights, even though they are. Let's stay at the caveman analysis level, continuing to use terms which don't describe the facts: largesse, moral hazard, individual responsibility--take your pick of all the useless 20th century terms which have lost credibility because they don't describe what's happening.
Will Obama continue to engage in his ridiculous Indiana-style happy talk after Friday? Such a hood this boy is!!
I wouldn't be so sure. The unemployment numbers will come in better than expected. With a revision with worse numbers to come later, but, by that time the market would have run up towards 10K, looking forward to 11K.
But what if they will report minus 250k and then revised to minus 450k in a few months time. Basically it all hangs on the number they dream up for the birth/death model. I wonder if 85 Broad knows what the number is?
Agreed. The big losses have been made, all new losses will be under-employement / furloughs.
Also, remember that people have started to roll off of extended benefits. Expect companies to pick these people up at 3rd world salaries.
They will extend benefits again. Back-to-school and such.
How is a 10% consumer spending decline going to result in the end of the financial world? Can someone help? WOuld that small a drop kill that many companies and jobs? If it will, the very structural make up of the US economy is simply stupid.
In a fractional reserve system like we have, all spending is the result of debt. Unless you can keep issuing debt, your economy tanks.
Yes it is a huge ponzi scheme.
Yes indeed. Without the "enhanced velocity" from the consumer sector fractional banking will continue to see super sized loses. And with these loses there will be continued efforts at propping up the member institutions with public funding.
Maybe an analogy, of sorts, to over leverage and MBS as Karl Denninger has described applies.
A very small drop - say 4% - causes a detonation.
So, I suspect that 10% would cause multiple detonations and take out much more as collateral damage.
Pete
The plan of the current and previous administrations has indeed been focused upon outlasting and outdistancing a collapse in credit worthiness, expansion and securitization through the usual methods. I share your view that there is scant evidence of any significant or lasting enhancement in the economy from this course of action.
After the initial efforts in 2008 we witnessed the results of the collapse in credit & debt demand while about 30% of these efforts found their way in measurable velocity . This year we are seeing only 20% of these efforts making their presence felt in measures of velocity. Meanwhile demand for credit products continues to wane as does wage growth, tax receipts and many other metrics, spreads excepted as the efforts in the debt and FX markets gains better traction.
I am wondering what the effect this year will be to the fizzling out of these enhancements to the velocity issues.
I don't have any data, but it feels like a diminishing marginal utility of debt downward spiral.
Intelligent people with money are afraid to borrow or spend much of what they have.
The majority of the indebted are frozen out of new borrowing.
Government borrowing is nothing more than transfusion of vital juice to keep the country afloat for the short term.
The recent vitality of the markets is driven by the Fed / Treasury cash for trash innovations.
I don't know what impact hemorrhaging negative cash flow has on measures like velocity, but at this rate will run out of other peoples money long before corrective action is achieved.
yup. the banks don't want to take on new risk by lending so they are going to get everyone else all risked up again while they pay the banks interest on their reserves.
next comes the back to reality asset reset followed by a nice tax to pay for the bailout and stimulus.
what a solution...
I'm all for stimulus that helps the little cats out there. It's the bailouts to the banks, and failed businesses that induce rage.
Without transparency in the markets (no more dark pools thank you) and a real effort to encourage good paying jobs in the US there is no hope that the US consumer will return to consume anything.
Once the unemployed exhaust their benefits and get bumped off the dole things will get much scarier.
Yes they will be able to say how good things are now the long term unemployment numbers are falling rapidly
Hehe, true the official numbers will look better. The long term un-employed will just fall between the cracks into serfdom.
In America the serfs are heavily armed.
The probability that unemployment benefits will be extended is over 99% in my view. Hell, you even have Geithner/Romer and Jim DeMint (R-SC) agreeing on that one. It'll be a supplemental in Sept/Oct. Seriously, it is pretty much a done deal.
This idiot should have some shame and quit
Four words: THAT WAS THE POINT.
Vice President Biden: ‘We Have to Go Spend Money to Keep From Going Bankrupt’
over on MW
"- The Securities and Exchange Commission on Wednesday took its first enforcement action for violations of the agency's rules seeking to prevent naked short selling, an abuse considered a key contributor to the financial crisis."
Oh please!
And nothing to do with the ratings agencies peddling toxic junk as gold bars eh?
Georgian Bank Says Bad Loans Surged 10-Fold in Six Months
http://www.bloomberg.com/apps/news?pid=20601087&sid=ajWWbg7hfUX4
Is there a deflation trade? Short... what? Long... what?
I'm about 25% gold, 50% market neutral (liquid) funds and 25% FLTRX (short term muni fund) right now. Don't like missing the dash to trash rally but I think I still like the portfolio...
if you want to make money, stop reading rosenberg.
if and you want to KEEP that money you've made, continue reading him.
real money is focused on capital preservation while plebes like you throw money at one get-rich-quick scheme after another. you always come out behind in the end.
There is no economy.. there is only our holy spirit, the almighty dollar. Whatever our God, Goldman, says, we must do. Wherever his holy spirit goes, we must follow. He gave us his only begotten son, Obama, to take away our capitalist sins.
Did we ever really emerge from the dark ages?
My two cents. I sold off my blocks of SSO, I bought in March, yesterday and today. I don't want to be in the market when the job numbers come out on Friday
Little late on the draw here guy. It's more than old news anyway as GS upped its second half GDP estimate from plus 1% to plus 3%, or so I heard. Maybe if we can get FNM back to 60. Who knows?