"Welcome To The Contraction": Q1 GDP Drops By 0.7%, Corporate Profits Crash

Tyler Durden's picture

And you thought the preliminary 0.2% Q1 GDP print from last month was bad. Moments ago, just as we warned, the BEA released its latest, first, revision of Q1 GDP (pre second-seasonal adjustments of course), and we just got confirmation that for the third time in the past four years, the US economy suffered a quarterly contraction, with the Q1 GDP revised drastically from a 0.2% growth to a drop of -0.7%: the worst print since snow struck, so very unexpectedly, last winter.

Incidentally, there has not been a US "expansion" with three negative quarters in it in the past 60 years.

Worse, the breakdown shows that far from being a non-core slowdown, consumption rose just 1.8%, below the 2.0% expected, and contributed just 1.23% of the bottom line GDP number. This was the worst Personal Spending contribution since Q1 of last year, when revised GDP dropped by -2.11%.

What is disturbing is that as noted before, inventories contributed the biggest component of Q1 GDP growth, adding $106 billion in nominal "growth." Without that contribution, annualized GDP would have been worse than -3%!

And worst of all, was the plunge in corporate profits. According to the report:

Profits from current production (corporate profits with inventory valuation adjustment (IVA) and
capital consumption adjustment (CCAdj)) decreased $125.5 billion in the first quarter, compared with a
decrease of $30.4 billion in the fourth.

 

Profits of domestic financial corporations decreased $2.6 billion in the first quarter, compared with a decrease of $12.5 billion in the fourth. Profits of domestic nonfinancial corporations decreased $100.4 billion, in contrast to an increase of $18.1 billion. The rest-of-the-world component of profits decreased $22.4 billion, compared with a decrease of $36.1 billion. This measure is calculated as the difference between receipts from the rest of the world and payments to the rest of the world. In the first quarter, receipts decreased $28.9 billion, and payments decreased $6.5 billion

Or visually, here was the third largest corporate profit crash since the financial crisis:

In short: welcome to the recession, which however will soon be double seasonally adjusted into another flourishing, of only stiatistically, "recovery."

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S Spade's picture

gee, who woulda thought the tax and regulation stimulus wouldn't work...

Headbanger's picture

What's this "profits" thing?

Dubaibanker's picture

Just BTFD!

If anyone survives the coming disaster, it will be the corporations. People have just become a number...people come and go...but the corporations remain!

With so much cash, there is almost no way that the corporations can collapse, because the Govt, the tax man, the SEC, the judiciary, the police, the FIFA....even the movie stars and sports stars.....everyone supports and obeys the corporation!

Corrupt eilte rule the world!

Headbanger's picture

Just STFU!

Oh yeah corporations... duh duh duh...

Shocker's picture

No one could see that coming.... How many times have we heard that

Layoff List: http://www.dailyjobcuts.com

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lordylord's picture

But there was no contraction w.r.t. government programs, budgets, etc.  In fact, wasn't there record tax collection and record spending?  That's all that matters in the eyes of .gov. 

Silver Bul's picture
Silver Bul (not verified) lordylord May 29, 2015 8:06 AM

If the BLS doubles their winter seasonal correction up, won’t they also doubly correct the summer down? No guesses please, only answer if you know for sure.

eclectic syncretist's picture

The correct answer is that they will come up with any number that supports whatever counterfeiting policy they want to parasitize us with. Please refer to the fact that they've narrowed the data used to compute inflation recently too.  

http://www.bls.gov/cpi/cpinewest.htm

They are protecting the value of the dollar and propping up the stock market, which are the last legs holding it all together.  If the stock market falls they really can't pump it back up (short of causing hyperinflation, which they do not want to do).

https://www.youtube.com/watch?v=mYajHZ4QUVM

Soul Glow's picture

I am Jack's raging bile duct....

No gas or food in the CPI, and it's chained.  No long term unemployment measure to U-3.  The wars in Iraq and Af/Pak rage on (military spending has increased under Obama).  The POMO desk rolls on buying toxic US debt with future tax payments.  Old people think their pensions will save them and young people can't pull their heads out of their cell phones.

Yeah, everything is awesome.

motorollin's picture

But what if I'm reading ZH on my phone?

Temporalist's picture

Joe Lavagina says that GDP is understated.  Yes this is a joke but it's also true.

MillionDollarBonus_'s picture

It's been a tough quarter with the rise of ISIS and ongoing aggression by Russia. Economists had no way of seeing these international conflicts in advance, which may have resulted in some uninformed economic policy. I expect Q2 GDP to resume its positive upward trend as our government and Federal Reserve adopt more apropriate fiscal and monetary policies, and green shoots continue to emerge. 

Soul Glow's picture

You'll have to extrapolate; just how has ISIS and Russia affected GDP?

If you want to troll, troll hard.

nope-1004's picture

"Green shoots"... lmao.  Atta boy MDB.  Or is it green chutes?

And BTW, the sign on the wall as you enter the FED building says "interest rates will rise tomorrow".  So yes, I'm with ya and not a fool either.

 

 

Creepy A. Cracker's picture

Heading into the Recovery Summer number... six? 

<sigh...>

Welcome to government economy strangulation.  If we only had more regulations (costs forced on businesses) and higher pay (price increases on U.S. made products)...

At least government employees and government connected are still doing incredibly well - at the expense of everyone else.

Gobbler's picture

It's important to remember that Satan enjoys anal sex, so please try to avoid it.  Thank you.

Nick Jihad's picture

MDB doesn't troll hard, he trolls with effortless panache.

BandGap's picture

You left out China building sand runways in the Spratlys.

greenskeeper carl's picture

You guys gotta read this. We are officially turning the corner according to market watch

http://www.marketwatch.com/story/the-economy-actually-is-not-in-a-recess...

Bill of Rights's picture

And when the " positive upward trend " doesn't resume in Q2 will you remind us? or will you just bring happy meaningless paragraphs that have zero substance? IE ISIS aggression...

mrdenis's picture

We do need more confetti for New years 

KnightTakesKing's picture

The real reason for this is the bad weather. This winter was cold and snowy. Now we are seeing a lot hot weather this spring.

The Merovingian's picture

Just remember, who puts the BS in BLS!  There is nothing to see here ... they still have one more month to 'fix' this ... a pinch of seasonal adjusting here, a dash of channel stuffing there, then throw in some bad weather and presto! ... that number will be back in the green for the 'final' reporting next month ...  

Nick Jihad's picture

This is all part of BLS's long-term plan to groom their seasonal adjustments, such that come  October 2016, they'll be able to juice the numbers to boost Hillary's chances.

max2205's picture

We need a blizzard hurricane earthquake and a super  volcano. ...

Or just Moar Cowbell! 

Shock and Awe's picture
Shock and Awe (not verified) KnightTakesKing May 29, 2015 10:53 AM

I agree but the one outstanding question is, where will ZH have it's victory party when the whole thing crashes to 0?

The 4 Seasons?

knukles's picture

Well, not really unexpected since it's hot in India and rained in the Amazon. 
Hedonistic Adjustments, Bitchez

             pass the Treacle

    kicking stone, hands in pocket humming Against the Wind

Dizzy Malscience's picture

The good news is that although every productive person in the US is being taxed, fee'd and utilitied into complete serfdom, that SSRI drugs which cost almost nothing to produce by big pharma are almost free to the Obamacare masses.

SOMA, anyone?

 

lordylord's picture

Pharmaceutical products are relatively cheap to produce, but expensive to research and bring to market.  Only 5% of products make the money back that was spent researching it.  Get a clue buddy.

The rest of your post may be accurate.

Dizzy Malscience's picture

yeah, ok..  so it takes $400M to make a drug that  produces hundreds of billions in .gov taxed and subsidized misdistribution, and is authorized by our wonderful FDA..

http://www.bad-drug.net/bad-drug-list

lordylord's picture

It does take hundreds of millions to research and bring a drug to market.  Some drugs (very few) are "blockbusters" and make billions, but like I said, 95% don't even make their money back.  Also, try a little harder to get that clue.  Your link wasn't even relevant.

chunga's picture

Poor, poor pharma giants. Doxy has been around for decades and now it's through the $$$ roof. The profits are obscene.

When a drug costs 30 times what it once did

http://articles.latimes.com/2013/mar/07/business/la-fi-lazarus-20130308

 

TheFourthStooge-ing's picture

.

Incidentally, there has not been a US "expansion" with three negative quarters in it in the past 60 years.

Why, then, this qualifies as an economic miracle! The US economy simply refuses to stop expanding!

Look outside, everybody, it's snowing green shoots, and all the bowls of porridge are Juuuuust Right®!

Glory to Krugman! To the printers glory!

chunga's picture

The economy is so great I'm starting my Christmas shopping right now!

GeezerGeek's picture

Your comment made me wonder: just how many of today's youth can identify the reference to bowls of porridge? I remember a few years back (20 or so, actually) I was working with a group of Hispanic immigrants (legal, nice people, no disrespect intended here) and made a comment including "in for a penny, in for a pound". The cluelessness on their faces indicated a serious cultural gap. Speaking with 20-somethings today - mostly my son's friends - makes me often feel the same way.

NoDebt's picture

No, it's the debt that will outlive us all.

When the human race is gone from the planet there will still be banks and computers shuffling our debt back and forth for hundreds of years, desperately trying to preserve liquidity in a system long dead.

XAU XAG's picture

 

 

 

 

@NoDebt

That is very very funny

Those banks and computers ..... made bye who Apple? Microsoft?

or China?

 

LOL

NoDebt's picture

Skynet.  That's why we won't be around any more.

NoVa's picture

There is classic Sci Fi book you may want to read.  A Canticle for Liebowitz by Walter MIller.  

I've read a few times, starting with a college assignment last century.  It is a great story of the folly of man versus God/Nature, and how Mankind continues to think we are supreme but we continue to repeat our behavior and lead ourselves to self-destruct.  

RE:  In this case your comment on debt.  Debt will outlive us.  

 

NoVa

 

BandGap's picture

I'm somewhat of a math whiz so I think a drop from 0.2% to -0.7% is equal to a -0.9% drop. Just sayin'.

Don't mean to pile on, obviously this country has some work to do.

disabledvet's picture

An inventory build is bullish actually.

The product has been paid for so that does represent actual payment in cash. Since anything that's sitting on the shelf or in the tank is pretty much worth zero that's a powerful incentive to start moving product going forward.

The most powerful actually.

And of course the best way to do that is to start hiring..."putting people back to work" as it were.

Hard to see these big price moves holding that we've had this Spring but we'll see.

Sears Holdings has had a huge run...

GeezerGeek's picture

So you're saying that all that debt being accumulated now won't fall on the shoulders of our progeny but rather on some robots/automatons? In that case, let's cut taxes and let the government borrow everything it wants to spend.

cheech_wizard's picture

Corrupt elite ruin the world! (There, fixed it for you...)

Grimaldus's picture

Only the coprorations that obamatron assclown progressives like will survive like big medical (obamacare anyone?) or the secret corporations in obamas secret trade deal and of course the super favorite darling of the the criminal progressive elite, finance and banking corporations, where execs can do no wrong and taxpayer money will bail them out.

Embrace the progressive suck dude, there is not a constitutional conservative anywhere directing this crime show.

Grimaldus

 

XAU XAG's picture

 

 

 

 

Government

 

Data

 

Propaganda