Q3 GDP Misses Expectations, Tumbles To 1.5% On Sliding Inventories

Tyler Durden's picture

The long awaited inventory correction is finally arriving.

Moments ago the BEA reported preliminary Q3 GDP, which at 1.49%, missed both sellside consensus expectations of 1.6%, and tumbled from the 3.9% reported in the second quarter as the quarterly volatility continues at an unprecedented pace. This was the second lowest quarterly GDP print since Q1 2014 excluding the "double seasonal adjustment" meant to cover up the collapse in Q1 2015 GDP.

 

The component breakdown reveals that virtually every component of GDP was weaker, starting with Personal Consumption expenditures which dropped from 3.6% to 3.2%, missing expectations of 3.3% as a result PCE contributed 2.19% to the bottom line GDP number, down from 2.42% last quarter. Once again the biggest contributor to spending growth was healthcare expenses.

Fixed investment - something the Fed was bullishly touting in its statement yesterday, also tumbled and added just 0.47% to GDP down from 0.83%.

Net trade also detracted modestly from growth after a small contribution in Q2, and even government spending dropped, adding 0.3% to GDP, down from 0.46%.

 

But the biggest factor for the drop in GDP was what we had been warning for a while, namely inventories, which tumbled from a boost of 0.02% in Q2 to a negative 1.44% in Q3 - the biggest drop since Q4 2012, as the nominal contribution from inventories slid from $127.5 billion to just $62.2 billion. While this may seem like an inventory normalization, it was still an addition to GDP - recall that during the financial crisis, Inventories subtracted a whopping $718 billion from GDP over 8 consecutive quarters. At some point, that same liquidation cycle which can only be delayed so long, will take place once again.

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XAU XAG's picture

GDP fall

 

Who would have thought!

NoDebt's picture

It's the "Weekend At Bernie's" economy.  It only looks like it's still alive because it's important to some people that it appears that way.

StackShinyStuff's picture

Just what the algos needed.  BUY ALL THE THINGS!

One Day Only's picture

Wait, so now decreasing inventories are a bad thing? Weren't increasing inventories or "channel stuffing" a bad thing last week?

Help me out....I can't keep up with the relativism any more.

Cognitive Dissonance's picture

Why do we 'believe' some government economic numbers and not others? Does that mean some government liars don't lie all the time?

NoDebt's picture

It's more a question of whether they lie CONSISTENTLY.  In the same direction and at the same magnitude or if they lie in different directions and changing magnitudes from one report to the next.

 

JD59's picture

The communist democrats lie 24X7X365.

ShorTed's picture

do you really believe the red team is/would be any different?

herkomilchen's picture

Because any manipulation would be done in favor of the manipulator, not against.  I.e., any slanting is done to make the economiy look better than it is.  So a bad number is more believable to be not any worse than reality, or they just would have reported reality.

Admittedly, fudging methodologically may skew the other way at times, which is why the best figures are independent or at least independently built up of basic components more difficult to manipulate.

ShorTed's picture

Is the correct answer, Cognitive Dissonance?

onewayticket2's picture

Beware the Setup...the headline that can be created a year from today with a "strong" GDP Print (immediately before the Election.)

NoPension's picture

This is good for the market, right?

I'm learning.

Grandad Grumps's picture

Everything can be spun to be good for the market or bad for the market. They decide what they are going to do then spin the news to fit the plan.

There is no hanging on the word of the Fed or economic numbers. It is all preplanned.

Philo Beddoe's picture

All news = sell gold and silver

That is my algo that I personally created. It is in the public domain so feel free to use. 

NoDebt's picture

 

 

"CLEAR!"  <whump!>

"Still no pulse, doctor."

"Charge it up again.  CLEAR!" <whump!>

"Still nothing, doctor, no pulse."

"OK, let's call it.  Time of death: Q3 2015."

 

Quinvarius's picture

Create a press release that he is doing fine, never been better, and he has been murdered by the Republicans.

ejmoosa's picture

And since they are still underreporting inflation, we know the reported number is much lower.

My Blue Cross premium rose more than 88%...for the same benefits.  Just for starters...

 

 

 

 

Everybodys All American's picture

Without inflation the gdp would have been negative for at least the last seven out of the last eight quarters.

lunaticfringe's picture

Fuck insurance. The term "insurance" implies that I am buying something to protect myself against some sort of catastrophic loss. Insurance stops being insurance when in fact- it becomes the certain catastrophic loss that I sought to protect myself from in the first place.

ejmoosa's picture

Keep repeating that, because it is the truth.  Orwell himself would be surprised at how fast and how well the language has been pirated.

ejmoosa's picture

2015 premium 273.31 per month

2016 premium 491.01 per month

$5500 deductible

The joke will be on them as I change to a medical cost sharing plan dropping my contribution below 200 AND having only a 500 deductible.

 

buzzsaw99's picture

there will be MOAR (for the 0.1%)

JD59's picture

What do you expect? When you put a bunch of COMMUNIST DUMB DEMOCRATS in charge of a country. We are lucky we had this pumped up number reported.

overmedicatedundersexed's picture

jd you left out the jew in charge..40 yrs of jewish fed chairmen.

"What do you expect? When you put a bunch of COMMUNIST DUMB DEMOCRATS in charge of a country."

2% of the population maybe less, run fed, msm, wall st banks..might be something to cogitate on, or not it's all just chance they are jewish owned or run.

Mark Mywords's picture
Mark Mywords (not verified) JD59 Oct 29, 2015 8:42 AM

And with one single sentence you display fully your ignorance of everything.

Communist. How adorable.

overmedicatedundersexed's picture

as mr yellen says: " well nobody's perfect." ...remember they still think most of the west's ave folks live too well.

E.F. Mutton's picture

So, now the market will explode upward on the news, because BAD = MOAR QE, right?  I'm starting to get the hang of this - just shitcan everything I learned in college economics/finance and be a cynical prick. 

Mark Mywords's picture
Mark Mywords (not verified) E.F. Mutton Oct 29, 2015 8:44 AM

Mmm...mutton.

On point - yeah, just be a cynical prick. The pay is great.

wizteknet's picture

Forgot the full benefits, paid vacations & holiday pay!

The Carbonator's picture

It must have been all that snow and polar vortex bull shit.

FreeNewEnergy's picture

First nail in the December rate hike coffin.

Yellen: Nailed it!

(discliamer: Yellen uses a nailgun made in China)

_ConanTheLibertarian_'s picture

Next, she should use it on herself.

MFL8240's picture

This is the financial data that Yellen and company suguests is the foundation for raising rates.  This gets funnier by the day!

khakuda's picture

This is what happens when your stated monetary policy is to increase the cost of living instead of increasing wages/income/take home pay.

It's going to get worse as they do more to "help".

taopraxis's picture
taopraxis (not verified) Oct 29, 2015 8:34 AM

Doubled back up on my trading long in paper gold at the opening. Gold is at support near $1150. If it breaks and gold gets hammered, I'll add more. Then, wait..

teutonicate's picture
teutonicate (not verified) Oct 29, 2015 8:44 AM

If you want another example of peak insanity, check out AMZN, currently trading at 894X earnings, and UP on the day.

Frankly, when this thing blows, a lot of people will get exactly what they deserve.

doctor10's picture

AMZN will be around a LONG time. The MegaREIT's all own any commercial real estate of any percieved value all over the country. Between extorionate triple net nonsense leases, local licensing, insurance and business taxes and regulation-only "vapor merchandising" works for the most part.

Anyone owning anything anywhere has a bullseye on them for the professional parasitic class.

teutonicate's picture
teutonicate (not verified) doctor10 Oct 29, 2015 9:33 AM

No one is debating whether AMZN is going to be around for a long time.

The issue is what are they worth, when their failure to convert revenue (in a shrinking economy) to earnings reflects the fact that this is a very low margin business, with no guarantees that barriers to entry will remain high.

The question is not whether AMZN will still be around, but who else will be as well?

There was a time when Walmart was king too, but I don't remember it ever trading at this multiple, at least once it was AMZN's size.

In order for AMZN to justify that multiple, given its market cap, it doesn't need to be around for a LONG time, it needs to be around FOREVER, and that never happens.

ejmoosa's picture

Amazon is an interesting case study, isn't it?

Since they have no brick and mortar retail locations, they can go wherever the lowest operationg expenses will be for themselves.  They are automating as much and as fast as possible, so their labor costs are below any of their competitors.

With that advantage, they have forgone bottom line profits to expand into anything and everything as fast as they can.

Keeping that in mind, if they need to, they can slow all of those activities down to survive  far longer than their competition, as it exists today.

Just think of the cost savings per billion in sales that Amazon has over Wal Mart in property taxes alone.  Wal-mart can only shutter their stores(plumbing problems I heard) while Amazon can up and move a whole distribution center to a new county that will give it tax inducements just for being there.

The key, I feel, is if they will continue to be able to spot changes that affect its business model, and adopt quickly, leaving its competitiors sitting and waiting for the next economic leg up.

 

 

teutonicate's picture
teutonicate (not verified) ejmoosa Oct 30, 2015 10:06 AM

While some of what you say is true, you miss my point completely.

I am not contending that Walmart will beat out Amazon, that isn't the point - and using Walmart's plight as a defense of AMZN's valuation is a spurious argument.  I am not advocating that anyone buy Walmart either, I am advocating that they don't buy AMZN at 894x earnings, which is a completely different argument.

The point is, that none of the so called AMZN advantages that you identify over Walmart currently are particularly unique to AMZN.  They are in the short run, because it takes competitors time to react.  Do you really think that Google, eBay, Alibaba and god forbid even Walmart will sit by and watch AMZN steal the entire retail market if it turns out that retail displaces advertising as the primary monetization engine for "clicks".  Dream on.

Meanwhile, AMZN still has some heavy lifting to do, in a contracting economy, to demonstrate that it can justify a 894x multiple by making 2% on every sale and "making up for it on volume".

Not if_ But When's picture

Like so many others, I'm just struggling to stay above water.  Discretionary spending approaching zero.

Soon to be cut back is the annual guilt trip conspiracy known as Christmas shopping.  I wonder if they'll compare 4th quarter consumer spending with last year's or with the third quarter?  Also if they'll make another adjustment to any seasonal adjustment that they may use to address the seasonality aspect of Christmas spending?  Things must be continuously adjusted to achieve the desired result.

ajkreider's picture

It's a beat, if you go by the Atlanta Fed.  That had it at 1.1%