Rosenberg On A Flat Normalized GDP Number

Tyler Durden's picture

Yesterday, the market moved on what was the double whammy of the government's own rather fluid favorable interpretation of what was essentially the government's very own stimulus. Yet others can play, and unwind, the number fudging game too. According to David Rosenberg, absent the now declining impact of the massive governmental stimulus, GDP would have been flat if not negative. So much for bickering over whether GDP was 2.7% or 3.5%: at the end of the day, on a normalized, non-stimulus inflated basis, GDP was flat, and if the equity market cared about isolating non-recurring items such as excess government spending driving a collapsing economy, the stock market reaction would have been quite the opposite.

From Rosenberg:

Never before did a gap between a 3.2% consensus GDP forecast and an actual print of 3.5% manage to elicit so much excitement in the equity market. It just goes to show how speculative the stock market has become. The question is why it is that the economy couldn’t do even better?

Historically, the auto sector adds 0.1 percentage point or 0.2 percentage point to any given GDP report. In the third quarter, courtesy of cash-for-clunkers, the sector added 1.7 percentage points to the headline figure, which is less a than 1-in-10 event in terms of probabilities. Tack on the rebound in housing and government spending and the areas of GDP that received the most medication from public sector stimulus contributed almost all of the growth in the economy. You read this right. If not for all the government incursion into the economy in Q3, real GDP basically would have stagnated.

Because of the housing and auto subsidies, the personal savings rate plunged to 3.3% in Q3 from 4.9% in Q2 — in the past quarter-century, there have been only four other times that the savings rate went down so much in one quarter. If not for that plunge in savings, real GDP actually would have contracted fractionally last quarter. The entire GDP growth was funded by a rundown in the savings rate that occurs less than 5% of the time.

Moreover, what is normal in that first positive post-recession GDP release is a 5% annual rate of growth. That puts 3.5% in Q3 into a certain perspective, especially when you consider the massive amount of stimulus that underpinned the latest batch of data.

What is normal in this first positive post-recession GDP release is a 5% annual rate of growth, not 3.5%

The parts of the economy that did not receive government support didn’t fare too well in the third quarter. For example, total business spending (on structures, equipment and machinery) actually contracted at a 2.1% annual rate — the fifth decline in a row. State and local government spending also fell at a 1.1% annual rate. Since there was no cash-for-clothing program, spending on apparel slipped at a 1.5% annual rate. The economists had all been talking about an inventory cycle taking hold and yet there was an additional $130 billion of de-stocking in the third quarter.

a critical question that nobody seems to be asking: how are companies reacting to this presumed economic rebound? If CapEx, inventories and lending, corporations are the only ones who seem to be willing to think about the facts behind the hype:

The question has to be asked, if companies, both non-financial and financial, are big believers in this new post-recession V-shaped recovery that seems to have the hedge funds and most strategists excited, why are companies still cutting back in capital expenditures and inventories and why are banks still cutting back on lending at an unprecedented 15% annual rate.

David concludes with a point that he tried to highlight on Fast Money yesterday, if only he wasn't caught up in futile debates over trivial data points:

While it seems very flashy, 3.5% growth is far from a trend-setter. Let’s go back to Japan. Since 1990, it has enjoyed no fewer than 19 of these 3.5%-or-better GDP growth quarters. That is almost 25% of the time, by the way. And we know with hindsight that this was noise around the fundamental downtrend because the Japanese economy has experienced four recessions and the equity market is down more than 70% from the peak. What is important for the future is whether the U.S. economy can manage to sustain that 3.5% growth performance in the absence of ongoing massive government stimulus. In other words, it may be a little early to uncork the champagne.

From our lens, the big risk going into Q4 is a renewed contraction in real final sales. That is not priced into the various asset classes right now.

For more relevant economic observations, Rosie's morning piece is a captivating read.


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Cognitive Dissonance's picture

Tack on the rebound in housing and government spending and the areas of GDP that received the most medication from public sector stimulus contributed almost all of the growth in the economy. You read this right. If not for all the government incursion into the economy in Q3, real GDP basically would have stagnated.

Mission accomplished. Tin can successfully kicked down the road for another quarter. Now, for my next act..............

Daedal's picture

Indeed... until that can falls off a cliff. This 3.5% GDP growth is a debt-financed fiasco. The detriment is not only that this GDP growth is unnatural and likely temporary, but that future (natural) growth in GDP will be gutted by the Gov/Fed so that they can service the outstanding debt responsible for this current 'growth'.

MinnesotaNice's picture

I think for his next act he needs to work on:

The parts of the economy that did not receive government support didn’t fare too well in the third quarter. For example, total business spending (on structures, equipment and machinery) actually contracted at a 2.1% annual rate — the fifth decline in a row.

It is simply the Whack-A-Mole game being played on a massive scale... and as we all know... you can never win that game... because you will become exhausted long before the mole.

Assetman's picture

Hey... but isn't flat GDP growth the new 4%?

mdtrader's picture

Banking index and semis rolling over. The red flags are stacking up.

Screwball's picture

Wow!  Point & Figure chart.  I didn't think anyone used them.  I look at them, but don't really understand them.

I would be curious how much you use them, and if you find them useful.  Thanks in advance.

chindit13's picture

If we can believe this recently released Q3 GDP figures---and why would a rational person ever question an official government statistic---then Ben Bernanke is dead right:


Those pundits on the tube can talk all they want about China’s miracle growth or how industrious Asia will lead the world out of this economic mess, but according to the numbers---and numbers don’t lie---the US is the one leading the Chuck Prince “I’m Still Dancing” Two Step, and the rest of the world is just along for the ride.

How, you may ask...and ask you may. Given the relative sizes of the world’s economies, just this third quarter surge in the US brought to you by C4C, residential short sales, iPhones, Kindles, pawn shop and bankruptcy lawyer receipts represents more of an addition to World GDP than all the growth of all Asian economies combined, including the glorious Middle Kingdom and its 8.8888888%, M3 driven, comrade-can-you-spare-me-a-loan, Cha-shu balls-to-the-wall supergrowth. So much for the Pacific Century eh? Pikers, they are.

Who would have thought, oh ye of little faith and even less credit, with all that unemployment, all the boarded up storefronts, empty shopping malls, and Goldman Sachs partners purposely refraining from ostentatious displays of their spending ability, we could have kicked the butts of copper-hoarding Chinese pig farmers nine ways from Tiananmen Square.

Somehow, in spite of the constant stream of gloom and doom permeating from every sociopathic blogger this side of Sofia, the Great Machine of American Consumption ( the new GMAC) found a way to churn out 5.5 Goldman Sachs Bonus Pools (a new international unit of measurement on course to replace the metric system) worth of brand spanking new growth that wasn’t there before, or at least wasn’t there in Q2 (and may not be there when revision time comes).

Yes, those 306 million plucky Americans generated almost as much new growth in a quarter as five guys in AIG Financial Products Division lost in Q3 last year. THAT’s getting it done! Slackjawed I am, and I hereby apologize to my least favorite deli counter trio BLT (Ben, Larry and Timmy) for being a wag and calling this the Growthless Recovery. Instead I’m calling it as I see it: the Potemkin Recovery.

Anonymous's picture

I'm gonna frame that.

jesus_quintana's picture

Nice catch from Denninger today on the personal income number today being wholly supported by personal current transfer receipts (that's retirement, disability, medicare etc.).

I think accountants call that a balancing item.

It's gonna be a sweeeeet Christmas.

Anonymous's picture

Used to be that the wealthy in this country were steel magnates, owners of mining concerns, hoteliers, railroad tycoons, industrialists.

It has become the 2/20 hedge fund managers that have taken their place. Running a warehouse full of quants with a dollop of industrial espionage to play buy/sell with paper and electronic IOUs.

All the while that is funded by pension funds, 401K, trust funds, little sums set aside which must be "invested" to stay ahead of the time deterioration thanks to the Fed's inability to preserve the storage value of the currency.

Those little nickle/dime returns helped to salve the fear that the ponzi investors really weren't that deeply into "risk". Until the bottom fell out, gov't reared its ineffective and complicit head, and the private central bank showed extreme partiality in dispensing economic injustice upon the peon classes.

The great wake up occurred. The push is for people to divest from the paper trade, to take greater steering power over their retirement portfolios, and to step back from risk taking (now seen as pure loss making).

The capital markets have lost all legitimacy. The money flows will continue to be out especially as we witness Fed machination on one hand, and gov't arbitrary stimulus on the other.

With the excess being squeezed from the system, peon withdrawals, and leverage multiples being pulled down, the finance sector (though on a dope high at present) faces a bleak future.

Do they think they can create another quick generation to con into the parlour games?

Game over. Lights out.

Bam_Man's picture

Did you cut & paste that from Alan Abelson (Barrons) or James Grant (Grant's IRO)?

Anonymous's picture

i said it before and i'll say it again - there is no statistically insignificant data point is not a trend...

Paper or plastic's picture

ZH- Thank you for the quality of content, and Mr Rosenberg's thoughts. Something that I have noticed here in the Midwest, we have been in a "Yard Sale Economy" for at least a year. Obviously, the season has changed that, but earlier this year, there weren't even any professionals, ie antique dealers, bidding against you at estate sales. Personally, I can't wait for people to get serious about emptying their storage buildings. I figure that will happen this spring. V shaped recovery? It's liable to be a Craigslist shaped recovery. This last month I have bought 3 clarinets, 2 saxophones, a trombone and a piccolo for $340. I don't even play any of them. That's beside the point, but there is commerce going on. I'm so thankful I didn't buy a larger boat in 2007. In 2008, people were trying to sneak back some equity in their homes, putting larger items on the market. But, overpriced man. My house went down in value also. 2010/2011 willl be the time to by lightly used toys. So, what's with this Paper or plastic crap? We don't stand a chance of turning this economy around if retailers insist on pushing those stupid cloth "green" shopping bags. They don't hold enough stuff to sustain the lifestyle we have come accustomed to.

Takingbets's picture

Are you addicted to shopping? I'm puzzled by your post. Why in the world would you want to buy a bunch of crap you don't use or need?

There is so much Chinese crap in America from the debt binge that if you are planning on reselling these items chances are no one will want them.

Keep your powder dry for edible items, ammo or energy purchases, stuff you will need if the SHTF.

Paper or plastic's picture

They were all vintage instruments, need pads. Something to work on. I'm an FFL holder, have the other toys ;)

Paper or plastic's picture

Takingbets: Hope you come back to this, because my point obviously was obscured. I don't hear people talking about the consumer de-leveraging that much anymore. I guess the focus now is on defaulting consumer debt, but at the end of a credit driven consumer bubble, where is all this pent up demand going to come from. I just don't buy this V shaped recovery talk. Never did. I saw this mess coming, and my wife and I spent the last 5 years getting out of debt, building as much equity in our home as possible. Well, the SHTF. Weak dollar so that foreign demand stays high for our businesses, and have "inflation" in all the dollar denominated things we need to live on, while there continues to be "deflationary " forces on our wants. Oh well. While the rebate trading robots flatline the charts across my screens, I've learned to play the theme song to "My Three Son's" on the sax. Almost knocked out a monitor with the trombone. I'm fried.

Takingbets's picture

I see, its your hobby, thanks for the clarity of your post. That I can agree with as I am a rock and fossil collector and have paid to get rare pieces before to add to my collection.

Anonymous's picture

what is the performance ytd of Rosenberg's recommendations?

bonddude's picture

I wonder if that little baby T Seymour would care to argue about it some more?

bonddude's picture

"you've really got to wonder if flat in October would be the new up?" -CBNC lacky just a minute ago.

Nice to see they are now taking their cues from ZH !

Flankseven's picture

Hessians still a no-show.  Awaiting cash-for-muskets program.