Rosenberg - Expect Big Time Revisions To The Houdini Q4 GDP

Tyler Durden's picture

Rosie already shared some insights on last week's blockbuster GDP number. Today, he refuses to leave the topic alone, and warns investors to "expect big-time [downward] revisions." Additionally, and more relevantly, the entire validity of the economic reporting segment of the administration is put into ever greater question, and with good reason: "if you believe that GDP result, then you de facto are of the view that all of a sudden, with no capital deepening or major technological change in the past half decade to speak of, the potential growth rate in the United States has reached an epic scale of 7%." And this key reading into the divergence between pumped-up and real revenue growth "When one weighs in a zero Fed funds rate, $862 billion in “stimulus”
(and counting) and $700 billion in bank and auto sector bailouts, sales
should be running at a 10% clip by now — not 1.7%."
With economic data increasingly unreliable (to keep it politically correct), and China having the ability to make or break the U.S., what is the point of continuing the charade that the U.S. is nothing more than an extension of the Chinese experiment across the Pacific.

The U.S. GDP data belied credibility but as we saw with the advanced third quarter data, expect to see significant revisions; that initial Q3 report of 3.5% was eventually cut back to 2.2%.

But consider that never before have we seen a 5.7% GDP growth rate in a quarter when the aggregate workweek was cut by 0.5%. There is no way that productivity is running as high as the data suggest. Either the hours worked and employment data are wonky (though the jobless claims data are still consistent with moderate job loss) or the GDP data are wonky, or maybe they both are.

Here is another way to assess the data: We saw history in the making — an eye-popping 5.7% GDP growth rate the exact same quarter that the unemployment rate rose 40 basis points, to 10%. It is like Houdini’s rabbit! This has never happened before. Normally, when we see a GDP number like this the unemployment rate declines 20 basis points during the quarter in question. The flip side is that in the past, when the unemployment rate rose as much as it did in the fourth quarter, believe it or not, in those quarters real GDP actually contracted fractionally (at a 0.5% annual rate).

We went all the way back to 1947 and so we can say with 100% confidence that at no time in the past 62 years has a 5.7% GDP advance coincided with such a rise in the jobless rate. It makes no sense. In fact, if you believe that GDP result, then you de facto are of the view that all of a sudden, with no capital deepening or major technological change in the past half decade to speak of, the potential growth rate in the United States has reached an epic scale of 7% (the growth rate in the economy that keeps the unemployment rate stable) using a classic Okun’s Law rule.That is really tough to swallow. As we said: expect big-time revisions.

Not only that, but the same holds true for that University of Michigan sentiment reading in January. At 74.4, it is right in line with recession averages but supposedly, the recession is over. If this was truly the end of recession, the UofM would be closer to 78; and if it were a true expansion, or at least how an expansion was defined in the post-WWII era, then the index would have already broken the 90 barrier. We couldn’t help but notice that even as the mainstream economists were waxing over the UofM data on Friday, and even as Mr. Market was heading to the hills, that both the homebuying and the auto buying intentions fell on the month.

As we said in our Friday note, the really big deal in the U.S. GDP report was the slowing in real domestic demand, to 1.7% annualized in Q4 from 2.3% in Q3. Consumer spending actually slowed to a 2.0% annual rate from 2.8%. Here we are, eight quarters after the recession began, and real GDP is still 1.8% below the level prevailing at the onset of the downturn back in the fall of 2007. Until now, it has never before, at least back to 1947, taken more than eight quarters to re-attain the prior GDP peak (it usually takes between four and five quarters). These did not make the headlines.

When one weighs in a zero Fed funds rate, $862 billion in “stimulus” (and counting) and $700 billion in bank and auto sector bailouts, sales should be running at a 10% clip by now — not 1.7%. Therein lies the rub. While the ballooning federal debt is providing an antidote, make no mistake — the future drain from surging interest payments is going to pose a dead-weight drag on the pace of economic activity for years, if not decades, to come. Today’s stimulus-led growth, in other words, is going to come at a cost — not today, but down the road to be sure.


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bugs_'s picture

"an antidote" ? LOL


Prof Gulliver's picture

Problem is, no one cares when the number is revised downward in a few weeks. By that time, everyone is rejoicing over the new green shoot du jour. And it just makes next year's YOY comparison even easier to hit. There's genius in this.

Rainman's picture

In this world there are just 3 types of lies : Lies, damn lies and statistics.

When you don't like the statistical response, quietly change the question by stinking it up with exceptions. No genius in any of it. An old game.

Ripped Chunk's picture

"no one cares when the number is revised downward in a few weeks. By that time, everyone is rejoicing over the new green shoot du jour"

And the master liars know this oh so very, very well. The revisions never get the "massive media launch" that the "fresh as bullshit" numbers do.

tom a taxpayer's picture


Yes, Prof Gulliver, Yes, Rainman, and Yes, Ripped Chunk.

Diabolical when you think about it. The government announces a 5.7% GDP, a big lie, and gets positive press. Then, a few moths later the government "revises" the 5.7% downward, in other words, retracts the lie. 

The lie has served its purpose. Then government gets to claim it is honest, simply correcting an earlier estimate. But the government has created the perfect propaganda machine: spewing lies whenever it is serves its purpose, and then a few months later changing the lie into less of a lie. Diabolical clever.


TraderMark's picture

Yep yep

Bloomberg has interesting data showing what happens the quarter after massive "inventory adjustment" related GDP "growth"

  • Since 1970, there have been nine quarters, like the last one, when GDP grew by at least 3 percent and inventories accounted for at least half of that growth. The history of those quarters is hardly a favorable sign of what is in store.   Inventory spikes make for blowout quarters. In the nine quarters with such spikes, the average growth rate was 6.6 percent and the average inventory contribution was 4.4 percent, even higher than what was observed for last quarter.
  • Spikes also produce hangovers. The average growth rate in the quarter after a spike was 0.9 percent, a whopping 5.7 percent lower. In the second quarter following a spike, the average growth rate is just 1.6 percent.
  • Dr Horace Manure's picture

    A whopping 5.7 "points" lower, not percent.  But we get the point.

    TraderMark's picture

    Yep, those Bloomberg journalists ;)

    Anonymous's picture

    Rosenberg gets crazier and crazier and he is more and more wrong.

    Remember this guy said, "be a seller", "double dip" back in May/June 2009. That, and his unwillingness to change now, should end his time in the business.

    Its over.


    Dr Horace Manure's picture
    1. BBH? - Ben Bernanke Hologram?
    johngaltfla's picture

    BBH? Ben Bernanke Hore.


    My bad, that would be BBW.

    Anonymous's picture

    no it is bbh - he be a man ho....

    deadhead's picture

    Rosenberg also clearly said on several occasions during that time period (as late as July or so that I recall) that the bear market rally could print spx 1200.

    let's get all the facts on the table.

    Don Mattingly's picture

    Lets also not forget that no one can forsee what games Big brother may come up with to kick this can down the road just a bit longer. Their bag of tricks is running low at this point and most of the investing world seems to be catching on. Look at all the green shoots printed in the last couple of weeks with the market dismissing all of them. Rosenburg's predictions may come to fruition sooner than many think...


    AN0NYM0US's picture

    Rosenberg crica June 2009

    "Rally can continue based on technicals. In late summer/early fall we will rollover"


    For reference you may also wish to read his June 2 Breakfast with Dave note where he references 1200 as a technical possibility (not a forecast)


    "With regard to the technicals, they are uber-bullish. Not only has the A-D line broken out to the high side, but the S&P 500 yesterday broke above the intra-day high of 943 set back on January 6, not to mention taking out the 200-day moving average. The ultimate retest will have to wait another day. This market is at risk now of melting up; and, as I said before when I was keeping an open mind regarding the longevity of this rally, notwithstanding my skepticism, if credit spreads, Libor, the Ted spread and commodity prices could all go back to pre-Lehman levels, why couldn’t the S&P 500 too? That would mean a possible test to the high side of 1,200, believe it or not. That is an observation, not a forecast, by the way."


    (sign in required)


    bottom line is that Rosie has been on the wrong side of the equity rally for almost one year.

    Anonymous's picture

    it's over when the fat lady sings and she
    ain't sung yet....

    q4 was an outlier...

    rosenberg is fundamentally correct about the
    state of the usa economy...his only error was vastly
    underestimating the fanaticism
    with which congress, the president, the fed, and
    fasb would prevent the necessary economic corrections
    accumulated from decades of malinvestment and

    curbyourrisk's picture

    Why does anyone give anything someone named Anonymous any credit.  Let the troll move along and maybe he will stop clogging up the boards with drivel.

    10044's picture

    The ONLY way the msg of 'stop lying' could be sent to DC is by dumping all the stocks and sending the DOW to 4000 which is its true value. They will wake up then and listen to Rosie and others.

    MarketTruth's picture

    Agreed. And with that said:

    Are you there yet?


    Are you ready to finally pull out all your funds from banks and Wall Street?


    Sell off all stocks/trades?


    Perhaps even go on a labor strike with your co-workers and picket your State government?


    Or are you just sitting there like a good sheeple?


    "I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."  --  Thomas Jefferson, 1791

    "When the people fear their government, there is tyranny; when the government fears the people, there is liberty." - Thomas Jefferson

    Anonymous's picture

    1) I generally agree with your point

    2)For Crist's sake, TJ didn't say that. The quote is a myth. The linguistic history of the word "deflation" shows its first uses at only around 1920, long after Jefferson. He did however, say lots of other things about the banks. Use the Library of Congress to find an accurate TJ quote: I swear that one has just been widly circulated to make people figuring things out sound dumb.

    MarketTruth's picture

    Fair enough, and yes i took time to verify and you are right in a pure sense, yet there are some truths to the Jefferson quote. Please see

    sharonsj's picture

    I've moved my accounts to a credit union.  I also own no stocks.  I refuse to take part in the gambling casino they call Wall Street.

    And I'm ready to get on a bus to D.C.  Or help lob torches at Wall Street--whatever comes first.

    Ripped Chunk's picture

    Dump all the stocks, empty all deposit accounts in TBTF then take to the streets all across the US 

    Andrei Vyshinsky's picture

    Don't be surprized if, someday, references to Rosenberg are missing from all records, and pictures of him together with, say, Bob Farrell, have been airbrushed out.

    When the coming collapse takes place in earnest as it must, and unemployment soars from its already unconscionable levels to, perhaps, 13% as Rosenberg has earlier predicted, the opportunity for a powerful peoples' response will grow exponentially. The danger always persists, however, that as now, it may be syphoned off into some faux, Tea Partyish fascism, where a quasi-religious faith in "natural forces" only deepens and prolongs the peoples' agony. Keep in mind who your adversary is: Its a corrupt ruling class, not government per se. In his fabulous piece at Counterpunch today, Michael Hudson, among other things, touches on this danger. It's decidedly worth reading:

    el Gallinazo's picture

    Yeah, sounds like a job for Winston Smith.

    dondonsurvelo's picture

    How is the Tea Party fascist?  Are you calling Christianity a quasi-religious faith?  Your words sound like they have meaning.  The problem is you don't know what the words mean.

    Andrei Vyshinsky's picture

    Trust me, the comment has nothing whatsoever to do with Christianity, but rather more with something resembling its obverse.

    Ask yourself who today most prominently speaks for the Tea Party "movement". Is it not the filth that populates Nazi radio? Who is it that claims Brown's Tea Party Senate victory for itself, is it not the fascist RNC? The Tea Party "movement", having quite willingly allowed itself to be captured by such vermin, has become nothing more than a tool of the interests. It is indistinguishable from them. It now exists solely to elect warmongers and torturers under the banner of "free market economics". Is the meaning of those words clear enough for you, chief?

    Anonymous's picture

    and to add to that, if you read that nauseating
    filth at nr online, they were touting the brown
    victory as a mandate for more war aginst
    terrorism and escalation in the middle east...i
    think it was davdi victor hansen who made that remarkable

    national review was a built by cia agent bill
    buckley as a cia mouthpiece...his father was
    allied with us intelligence in the early 20th c.

    the entire outfit is creepy...reading their drivel
    is's amazing how warped those people
    over there are....they play that rah rah liberal
    vs conservative and dem vs rep....if i didn't
    know that they know it's a charade i would
    barf all over the computer screen....

    what is hilarious is that they have readers who
    actually believe the crap they print....

    Andrei Vyshinsky's picture

    National Review On-Line is the present day equivalent of Der Sturmer, and its editor, Julius Streicher. There will be a peoples' moment for such bacteria.

    ElvisDog's picture

    Andrei, you are one interesting dude. I would characterize you as an expat from Russia who longs for the wonderful days of the USSR. Do you even know what the definition of nazism is? And no, it doesn't mean "socially conservative". Calling the Tea Party movement "nazis" is a classic example of the powers-that-be marginalizing what originated as a spontaneous outpouring of dissatisfaction with the path our country was on. Why don't you stop the ad-honinem (sp?) name-calling and open your eyes.

    Andrei Vyshinsky's picture

    "Andrei, you are one interesting dude."

    Now you forgot the handsome part, friend Elvis. It should read, "Andrei, you are one handsome, interesting dude." :-)

    Never once have felt there to be an equivalence of social conservatism and fascism. Much of social conservatism is based on valid religious instincts, instincts sadly missing in social interchange today.

    Not so, however, fascist neo-conservatism and its all-too-willing tools, the TeaParty "movement", currently allowing itself to serve as a kind of RNC Sturmabteilung. There's the fascism, good Elvis, in the Nazi radio leadership and the comfortable associations. I must ask how is it that a valid peoples' movement finds comfort with a warmongering Kristol or Glenn Beck? Truth be known, no valid peoples' movement ever could.

    Anonymous's picture

    I hear they are building a clone army, too.

    Anonymous's picture

    AV: "Is it not the filth that populates Nazi radio?"
    Can't be.
    I read that Air America went out of business last week.
    So, relax on that one.

    Ripped Chunk's picture

    Unemployment is already over 13%

    Andrei Vyshinsky's picture

    By one measure, yes. Rosenberg's predictions had the present method of calculating unemployment in mind, however.

    Masked Man's picture

    "Unpleasant, perhaps, as American democracy slips into oligarchy."

    The government of the U.S. has always been controlled by an elite class. It never has been a true democracy even going back to the founding fathers when only landowning white males were allowed to participate in the "democracy".

    The government has never truly represented the little people, so the bailout of wall st. and all the corruption is no surprise.

    Andrei Vyshinsky's picture

    "The government has never truly represented the little people, so the bailout of wall st. and all the corruption is no surprise."

    Indeed, Masked Man, no surprize, but no less unacceptable, eh?

    Anonymous's picture

    yes but it is egregiously more corrupt than ever...

    Gold...Bitches's picture

    The government of the U.S. has always been controlled by an elite class. It never has been a true democracy even going back to the founding fathers when only landowning white males were allowed to participate in the "democracy".


    That's because the founding fathers never meant democracy to include the little people.

    Anonymous's picture

    michael hudson is always worth reading and i
    say that as someone who does not always see eye
    to eye with him.....thanks for the link....

    i wholly agree with him that tax and regulatory
    policy need to realign with stronger preference
    given to labor and a strong tilting away from
    preferring rentier activity....the dominance
    of the fire economy must end....

    and yes, our ruling elite are internationalist
    fascist traitors who should be burned at the

    PierreLegrand's picture

    Yea goddammit we should TRUST the government...they are here to help.

    Its a corrupt ruling class, not government per se

    Wow...what an incredibly stupid thing to say. Exactly who do you think runs the Government? "Progressives" like you are always believing the next lie. Always waiting for that which will never ever happen, a non corruptible Government. For years and years clowns like you stand around waiting for Socialism to work and it never does...cause you always always run out of other peoples money. The sheer ridiculous naiveté of your bunch is absolutely stunning. Y'all should be kept away from reproducing and heavy machinery.

    Anonymous's picture

    uhhhh....i think you have had your fucktard
    allocation for today....

    i am not waiting for socialism to work as it
    never has and never will....yet i also know that
    the usa government is solely and fully run by
    a plutocratic cabal of fascists who are entirely
    independent of the electorate....

    the real power in this country is owned lock
    stock and barrel by the i have
    mentioned here before, read catherine austin
    fitt's real life encounter with the oligarchy when
    she was hud undersecretary....

    you are naive beyond words.....not only should
    you be kept away from reproduction but your life
    should be terminated for lack of probable iq
    to sustain intelligent life....

    PierreLegrand's picture

    Dumbass pills being given away free today?  Where did I say that the Government was NOT run by oligarchs? Where did I say that one should trust the government? I was responding to

    by Andrei Vyshinsky Who does say that IF ONLY the RIGHT people ran the government then everything would be ok. The solution is to have the Government run as little as possible...since they are so corrupt and incompetent. Who seems to have cornered the market on idiocy though you may be catching up.
    Hammer59's picture

    No amount of dumbass pills could lower us to your level of stupidity, neo-con imbecile.

    Andrei Vyshinsky's picture

    Ah, yes, like a resurgence of bowel cancer after a period of remission, the return of Oberstgruppenfuehrer PierreLegrand. Last time you showed up, we'd suggested your drawing a tub of hot water and going off in search of a razor blade, if I recall. A bit too unpleasant for you, was it? Try self-defenestration.

    PierreLegrand's picture

    Project much?

    The government is incompetent, it has always been so and will always remain so. Expecting ANY government to run well is so fucking stupid that only a Progressive could believe it.

    Bear's picture

    The danger is the 'goverment per se' ... the government has been run by the 'corrupt ruling class' since U S Grant. 'Tea Partyish fascism'? Where's the threat?

    Anonymous's picture

    But ... interest rates do not surge when you simply create the buying power to purchase the Treasuries. They only surge when a real market tells us we can no longer do that.