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Is This The Reason For The Annual September Fake Economic Bounce?

Tyler Durden's picture





 

Something very curious caught our eye in today's Non-manufacturing ISM. It wasn't the "unexpected" drop in the data, which we reported on previously, but what one of the respondents said far in the back of the report. It was the following:

  • "The federal government's spending is increasing greatly as agencies execute their final budgets and utilize fiscal year 2013 appropriated funds prior to their expiration on September 30th. This has  caused a major increase in procurement activity for goods and services.  Budgets are uncertain for fiscal year 2014, so some items requiring funding in future years are not being purchased." (Public  Administration)

Which got us thinking: September 2013 saw a big bounce in various economic indicators leading many to speculate that this was yet another indication that the "sustainable recovery" has finally arrived. Of course, it was not just this year but also last year, and in prior years, that there has been a very distinct pick up in the late Summer economic indicators, only to promptly fade away into the fall and winter.This can be seen on the chart below.

This begs the question: is the only reason why the economy tends to pick up momentum dramatically as the summer ends just a function of a surge in government spending permeating the broader economy as agencies scramble to spend all the money they have before the end of the September 30 Fiscal Year End (just so they get allocated the same or greater budget in the coming fiscal year), which subsequently plunges or is outright halted as the case may be right now?

If so, it would explain so much, and certainly why year after year, the US economy seems to pick up in the mid-to-late Q3 period, only to dramatically fade away in the coming months, as government spending goes from a waterfall to a trickle.

It would also put the government's role in generating transitory periodic spikes in economic output under a microscope, especially since it is so clearly staggered to recur every September as one after another government agency spends like a drunken sailor. And if that is the case, how long until the BLS or some other agency (upon reopening of course) is taken to task to normalize not only for hedonic indicators and climate-related seasonal factors, but also for what is now clearly an annual aberration of economic output trends?

 


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Thu, 10/03/2013 - 11:44 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

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Thu, 10/03/2013 - 11:43 | Link to Comment LetThemEatRand
LetThemEatRand's picture

"Drones have always been part of our lives. First it was the surveillance drone, then the hellfire drone, but when it was time to buy a drone who were worried about many years of drone payments.   Now there's a drone loan that pays you, its all possible with a reverse drone mortgage."  -Robert Wagner

Thu, 10/03/2013 - 11:50 | Link to Comment PartysOver
PartysOver's picture

Does anyone have raised eyebrow besides me that the day after The Pres hosted the banking cartel the markets start tumbling.  Don't forget O's little comment about being surprised how the markets where holding up.

 

The Dictator Wins!!!!!!!!!!!!!

Thu, 10/03/2013 - 11:57 | Link to Comment NotApplicable
NotApplicable's picture

Same thing as last time.

Coordinate, execute, then blame the "obstructionist" Tea Party.

 

Thu, 10/03/2013 - 12:04 | Link to Comment Fukushima Sam
Fukushima Sam's picture

As someone who has done plenty of service work for both goverenment and corporations, I can say they definitely both have an uptick in spending at the end of their fiscal year to spend the buget that is left. I have been part of some pretty insane timelines to get projects installed by "the end of the year" so the customer can get money off their books and my employer can recognize the revenue.

Business as usual, though when .gov makes up a huge percentage of an economy I'm sure such year-end activities would create a large spike as the entire .gov has the same fiscal calendar.

Thu, 10/03/2013 - 12:07 | Link to Comment smlbizman
smlbizman's picture

my mother worked at a community coll.....every year throw the furn out comptrs. out, if it wasnt nailed down it got re=bought...cant lose any budget money.....

Thu, 10/03/2013 - 12:10 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Bureaucracy at its best, spending more than they needed to, at all cost, so the budget isn't threatened in future years.

Thu, 10/03/2013 - 12:18 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

The reason is the way budgeting money is allocated. If you don't spend it you don't get to carry it over and when the next fiscal year's budgets are set let's say minus increases for example your budget the previous year is 7 million and you only spend 5 million. Next year's budget will only be based starting at 5 million not 7 million. It is based on what you spend the previous year minus increases and/or funding allocated for projects and other stuff (that is were the politics and powerpoint presentation pros come in, no different than in any company really that has an executive level structure detached from reality like most corporations).

Thu, 10/03/2013 - 11:43 | Link to Comment buzzsaw99
buzzsaw99's picture

grants 4 dronez. BRILLIANT!

Thu, 10/03/2013 - 11:45 | Link to Comment McMolotov
McMolotov's picture

I saw this (spend-it-or-lose-it, not drones) during college when I had a part-time job with the university. As the end of the fiscal year approached, money would be spent on stuff like department calendars, keychains, and mugs with people's pictures on them. None of it was necessary, but they wanted an excuse to use up the budget in order to get the same amount (or more) next year.

And this was just the most visible waste. God knows how money was being spent behind the scenes.

Thu, 10/03/2013 - 12:00 | Link to Comment NotApplicable
NotApplicable's picture

When I was in the Marines, every September was "spend every last penny" month. Because, otherwise, you wouldn't get as much next year.

Thu, 10/03/2013 - 12:22 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Make'em count, marines!

Thu, 10/03/2013 - 13:17 | Link to Comment silverman
silverman's picture

Its the same everywhere. I live outside a small town (pop. 12,000 since the 10th century) in southwest France. Driving into town a couple of years ago I rounded a bend in the road and was confronted with armed to the teeth militaire manning a roadblock. Every road into the town was blocked. They weren't stopping anyone, just manning a checkpoint and airing out their formidable hardware. It somewhat alarmed me, so I asked a neighbor who was a long time resident. Apparently the commandant of the local garrison of the Armee de Terre had a surplus at fiscal year end and it would be continuous "exercises" until the last centieme was spent. They had already restocked the wine cellars.

Thu, 10/03/2013 - 12:14 | Link to Comment TBT or not TBT
TBT or not TBT's picture

All we needed to know was that the job was at most any given "education" establishment in the USA.

Thu, 10/03/2013 - 11:48 | Link to Comment Whatta
Whatta's picture

Hope that fvcker drone crashes through that guys roof...LOL. Jackboot "lawman".

Thu, 10/03/2013 - 12:12 | Link to Comment sgorem
sgorem's picture

wtf? Do some neighborhood drone plinking with a Barrett M107A1, semi auto .50bmg, 10 rd mag ($12950-13500), or for the drone plinker on a budget, the Barrett model 99, .50cal, bolt action 1 shot for a measley $3200-3999. Knocking one of these pos out of the air for a $5 buck round is priceless. Just like Gold, ya gotta have one in your future.

Thu, 10/03/2013 - 12:29 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Thankfully, those rifles are silent, so the cavalry won't come. Also those rounds are immune to regular ballistics calculations, and 1MOA at 2 or 3000 yards is still just the one inch.

Ie there is a good reason anti aircraft gunning involves either terminal guidance, explosive rounds with shrapnel, or a high rate of fire of smaller caliber rounds, tracked either with the eyes(tracers) or radar and automatic control.

Thu, 10/03/2013 - 12:46 | Link to Comment Uncle Remus
Uncle Remus's picture

Well crap. I wish I'd have known that. Here all this time I've been struggling with 7.62x51 (M118LR), MOA, mildot, BDC and old eyes out to 1000 yards.

@#$#^@#$%

Thu, 10/03/2013 - 13:35 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Sure, if the thing is pretty much hovering out that far. If it is winged, I dunno, load your mag with tracer rounds.

Thu, 10/03/2013 - 11:43 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Spend it by the end of the fiscal year or lose it....the mantra of any government "manager" worth his or her salt.

<Worse...if you don't spend all your budget this fiscal year you won't get the same (or moar) budget next fiscal year.>

A real (reel?) life version of Brewster's Millions.

Thu, 10/03/2013 - 11:44 | Link to Comment insanelysane
insanelysane's picture

Shouldn't the data be "seasonally" adjusted just like the employment numbers are massively adjusted at this time of year because of all the college students (that haven't worked a summer job ever) go back to school.

Thu, 10/03/2013 - 11:53 | Link to Comment NoDebt
NoDebt's picture

GDP is not seasonally adjusted in the way other numbers are.  GDP numbers are, to the best of my knowlege, adjusted based primarily on the number of days in any month/quarter, nowhere near the insanity they do with, say, employment stuff.

Thu, 10/03/2013 - 12:02 | Link to Comment NotApplicable
NotApplicable's picture

Given that GDP includes gov spending as a positive, rather than a negative (as it's nothing but consumption), I'd say it's adjusted waaaaaay more than the little gimmicks in employment.

Thu, 10/03/2013 - 12:35 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Govt goons blocking off the WWII monument in DC, or some remote wilderness trailhead in the boonies, are services, and thus definitely GDP. Sorry.

Thu, 10/03/2013 - 15:25 | Link to Comment NoDebt
NoDebt's picture

NA- I'm not disagreeing at all.  I'm saying it makes late-fiscal-year surges in .gov spending MORE able to "goose the number".  If they "seasonally adjusted" out that .gov bump every Aug/Sept it would show as "smooth" unless that year's goosing was bigger than normal.  Since they don't, to my knowlege, the .gov bump drops straight to the bottom line every time they do it.

 

Thu, 10/03/2013 - 11:43 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

My dad is a doctor.  My first glimpse at the horrors of bureaucracy was heard years ago "we can't save part of our budget for next year, to buy a bigger piece of equipment (for a small hospital), the administration says we have to spend it this year on something."

Thu, 10/03/2013 - 11:44 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

 

Semi good call, Tyler, but please be aware this is not even remotely new.

Spending ramp ups in September have been the norm forever.  There is systemic incentive.

A manager who requests budget and doesn't spend it is marked down on his performance appraisal for being a bad budgeter/predictor of what he'll need.  So he damn sure gets it spent.

Further, a DoD manager who has money in September is told "get it spent or it will wind up at HHS spent on some bullshit midnight basketball program."  An HHS manager is told get it spent or the fascists at DoD will use it to buy nerve gas.

Thu, 10/03/2013 - 12:11 | Link to Comment pickupthatcan
pickupthatcan's picture

I'm sure the congresscritters portfolio managers get a heads up beforehand on where to allocate their $.

Afterall, insider trading is no longer a crime for members of congress.

Thu, 10/03/2013 - 12:53 | Link to Comment TBT or not TBT
TBT or not TBT's picture

It is about not losing any budget next year. It is a ratchet mechanism, preventing backward progress in the true goal, growth of power and influence.

Thu, 10/03/2013 - 11:42 | Link to Comment Toolshed
Toolshed's picture

In the '80s I worked at an equipment supplier in Pearl City, HI and this happened there every year like clockwork. There was a huge surge in buying by the military as they all raced to empty any remaining funds from their budgets so they could argue for an increase in the next fiscal year and prevent a dreasded decrease that may result if they had any left over funds from the prior fiscal year. Efficient government in action.

Thu, 10/03/2013 - 11:44 | Link to Comment insanelysane
insanelysane's picture

The California Parks department found a better way to get rid of those pesky surplus dollars.

http://www.sacbee.com/2013/02/15/5192590/california-state-parks-had-hidden.html

Thu, 10/03/2013 - 11:45 | Link to Comment Dr. Engali
Dr. Engali's picture

The Obama Care hot line:

1-800-FUCK-YO

1-800-318-2596

1-800-3(F) 8(U) 2(C) 5(K) 9(Y) 6(O).

 

http://dailycaller.com/2013/10/03/need-health-care-coverage-just-dial-1-...

 

 

Thu, 10/03/2013 - 11:43 | Link to Comment ebworthen
ebworthen's picture

This was always "buying shit you don't need" time at the University I used to work at.

People buying cameras, monitors, laptops, desktops - a lot of which wound up in their homes.

If the Department didn't blow the money on stuff they didn't need, it would be "taken away" and next year's budget would be reduced by the amount not used.

Therefore, there was an incentive to spend more each year, regardless of if it was needed or taken home under an "off-site utilization waiver" meaning faculty got a new big-screen T.V. for their living room or laptop for the kids.

Thu, 10/03/2013 - 11:44 | Link to Comment JR
JR's picture

The entire government operates as a lie. An example is the debt limit.

Because the politicians and the bankers want to keep spending more money they put the debt limit at end of the spending and not at the beginning.

The average person starts with his budget. But not Congress; they spend the money and then argue over whether the government should pay its bills or default.

The initial budget is just propaganda.

Thu, 10/03/2013 - 11:46 | Link to Comment insanelysane
insanelysane's picture

The real funny thing is that they keep saying how the debt is falling but that is only because you are reaching the debt limit.  The minute they push it higher, the data will show that the debt is rising, but that won't be reported.

Thu, 10/03/2013 - 11:45 | Link to Comment Whatta
Whatta's picture

so they get allocated the same or greater budget in the coming fiscal year

So...this begs the question as well, about the FED and the "no inflation" that we are all paying through the teeth for.

Government uses tons of gasoline and every other thing you can imagine. Is not FED policy causing Government to NEED MORE funding just to tread water....like the rest of us?

Thu, 10/03/2013 - 12:26 | Link to Comment Cursive
Cursive's picture

@Whatta

Baseline budgeting rules, FTW!

Thu, 10/03/2013 - 11:50 | Link to Comment infinity8
infinity8's picture

Been going on forever. Hell I've had many a purchasing agent flat out tell me they were cutting a p.o. for exactly this reason. Even "you gotta bill my by 9/30 but hold off on delivery until _______ ". Every year it would start in August guaranteed.

Thu, 10/03/2013 - 12:07 | Link to Comment NotApplicable
NotApplicable's picture

On the flipside of that, we recently ordered ONE new laptop, and lo and behold, two weeks ago, we started getting box after box of them, forty-one total.

At least they picked a plausible number for a "fat-finger" order size.

Thu, 10/03/2013 - 11:50 | Link to Comment Cursive
Cursive's picture

Short answer: Hell yes. Longer answer: The USG is the only game in town these days. It is Hobbes's Leviathon that dominates daily life in America, not a single industry is untouched by it's greedy grapple.

Thu, 10/03/2013 - 11:50 | Link to Comment q99x2
q99x2's picture

The elusive green shoots are to be found in classifying the works of unknown artists as quality banking collateral.

Long live modernity. Prosecute the Oligarchs. Peace on earth and angels sing. Buy my green shoots and I'll buy a golden ring.

Thu, 10/03/2013 - 11:52 | Link to Comment ChaosEquilibrium
ChaosEquilibrium's picture

I would say this well reasoned premise is TRUE!  Yes, a high correlation of the cause!

Thu, 10/03/2013 - 11:57 | Link to Comment JR
JR's picture

In 1890, total spending by the US government as a percentage of GDP was less that 7% of GDP. In 2010 it reached more than 42%. The percentage of GDP takeover by the government has been growing like a cancer since the date the Fed opened it doors for business on November 16, 1914. In celebration of this banker coup d’etat, chief planner of the coup, Paul Warburg of the German banking house Kuhn, Loeb & Company, proclaimed:

 “This day may be considered as the Fourth of July in the economic history of the United States.”

 

US Government Spending GDP link

http://www.usgovernmentspending.com/spending_chart_1890_2012USp_14s1li011lcn_F0t

Thu, 10/03/2013 - 11:59 | Link to Comment Oscar
Oscar's picture

My family business is a manufacturer of aircraft parts and assemblies for both commercial and defense customers.  I can tell you from personal experience that this article is dead on.  Government FY 2013 was even more dramatic than years past.  We received more purchase orders in August and September from the government than I can ever remember during these two months.  There has always been a "use it or lose it" surge in orders in late summer, but 2013 takes the cake.  I think it was pent up demand from all of the sequester procurement delays along with year-end money.  There's also a healthy dose of government incompentence throughout the year that seems to delay procurements until the last possible minute

Thu, 10/03/2013 - 12:00 | Link to Comment Mike in GA
Mike in GA's picture

So, just as the Federal Reserve has broken any semblance of efficient markets theory, the federal gov has grown so large it distorts real economic activity.

 

This is the definition of too big to exist. 

Thu, 10/03/2013 - 12:01 | Link to Comment NEOSERF
NEOSERF's picture

Use it or lose it bitchez!

Thu, 10/03/2013 - 12:14 | Link to Comment Keegan11
Keegan11's picture

Good work ZH

Thu, 10/03/2013 - 12:17 | Link to Comment dizzyfingers
dizzyfingers's picture

Same thing in our local public "school", and a big swindle (THE CHILDREN DESERVE MOAR!!!!!!!!!!!) on property taxes every year.

Thu, 10/03/2013 - 12:20 | Link to Comment polo007
polo007's picture

http://www.safehaven.com/article/31295/ready-for-qe-five-its-already-here

Ready for QE Five? - It's Already Here

The sad truth is that the primary function of the Fed and Treasury has now become the sustention and expansion of disastrous asset bubbles. In fact, while Mr. Bernanke officially acknowledges QEs one through three, the truth is he has embarked on QE V. What's QE five all about? Putting a lid on U.S. Treasury yields.

The reason for this is our anemic economic recovery has been predicated upon artificially boosting consumption, which is 70% of US GDP. That consumption is, in turn, predicated on borrowing; because we don't have any real income growth on the part of the consumer. The borrowing has been predicated on government's ability to build upon the asset bubbles in stocks, bonds and real estate. And the creator of all these bubbles is our central bank, which is the progenitor of this deadly-addictive cycle. The Fed does this by providing ultra-low interest rates and through the massive monetization of government debt.

To prove we have learned nothing from the previous Great Recession; we now have a situation where the FHA will most likely need a $1 billion bailout for the first time in its 79 year history. But why do taxpayers have to bail out the FHA, which provides insurance to lenders such as banks and other financial institutions? The reason is because our government has once again compelled lenders to make loans with next to nothing for a down payment, to individuals who can not afford to purchase a home--doesn't this all sound chillingly familiar? Therefore, we have subjected ourselves to yet another bubble in housing, where home prices are once again rising at double-digit rates and marginal home owners are just a few points higher in interest rates from foreclosure.

It's not just house prices which are in back in a bubble. Stock prices are also growing at double-digit annual rates. These double-digit gains in stocks are taking place in an environment of little earnings and revenue growth. Meanwhile, Treasury bonds offer only half of their average yields going back over 40 years. So, for the first time in our lives we have three bubbles that exist together -- equities, bonds and real estate. But the real catastrophe this time is that these bubbles will become exponentially larger than previous episodes. Therefore, when they burst the devastation will be many times worse.

Thu, 10/03/2013 - 12:21 | Link to Comment Greenskeeper_Carl
Greenskeeper_Carl's picture

Is this the only reason the economy picks up towards the end of september? Yes, I can say from much personnal experience that this article is spot on. Govt agencies and military units get what is called "fallout funds". This is money that was kept in hold until the end of the fiscal year, so that said agency doesnt run out of money. Due to the way our beauracracy works, rather than return that money to the US taxpayer, since clearly said agency was able to manage without it, the money is dumped on individual units and departments to spend on shit that they were unable to buy. This typically turns into a spending binge, with most of the money being wasted on stuff that was claerly unnecceassary, but dumps millions of dollars into the economy each and every year. The reason this money is spent in this manner, rather than returned to the treasury, and maybe reducing our monstrous deficit, is that if the money is unused, said military branch or govt agency losses that money out of the budget the next year, and the higher ups cant go before congress hat in hand begging for money becuase their budget is not enough. FYI, much of this money is spent on things like new TVs and shit like that, basically anything that can be used to show they need more money. Unit inspections are also set up like this. Inspections are designed to cause units to spend tons of money replacing shit that is still servicable, and still only have mediocre results, giving those in charge reson to go before congress and say their budget isnt enough to maintain operational readiness. No telling how many billions are wasted in this manner

Thu, 10/03/2013 - 12:22 | Link to Comment dizzyfingers
dizzyfingers's picture

What a very, very interesting comment, pickupthatcan!!!  "I'm sure the congresscritters portfolio managers get a heads up beforehand on where to allocate their $. Afterall, insider trading is no longer a crime for members of congress."

Has anyone done any sleuthing regarding this possibility in congressional offices?

 

Thu, 10/03/2013 - 12:27 | Link to Comment dizzyfingers
dizzyfingers's picture

Carter was hated for his zero-based budgeting idea...

Thu, 10/03/2013 - 13:14 | Link to Comment TBT or not TBT
TBT or not TBT's picture

And the CRA, and ditching the Shah, being OK with the communists, telling us to wear a sweater, being a whiny little bitch loser, and so on.

Thu, 10/03/2013 - 12:43 | Link to Comment KidHorn
KidHorn's picture

We had a bunch of Indians writing code here for the past month or so to burn that gov't money. Just let them go. They know syntactically how to program, but can't follow directions at all.

Thu, 10/03/2013 - 13:14 | Link to Comment TBT or not TBT
TBT or not TBT's picture

Must have worked on the Obamacare exchanges that just opened, sort of.

Thu, 10/03/2013 - 13:01 | Link to Comment mpodval
mpodval's picture

I was just informed that Barclays has shut of access to ZH for its US based employees. Can someone confirm?

Thu, 10/03/2013 - 14:59 | Link to Comment Cryogenic
Cryogenic's picture

Just wondering, do you blame engineers for building these fun toys or bankers/gov for financing them?

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