Guest Post: Field Of Economic Dreams

Tyler Durden's picture

Submitted by Tony Pallotta from

Field Of Economic Dreams

"If you build it he will come." - Field Of Dreams

"We built it and he did not show." - US economic reality

The consumer driven recession has begun. Keeping it very simple of the four GDP components (consumer, fixed investment, government and net trade) the consumer has simply rolled over. In Q1 2011 the consumer contributed 1.46% to the 0.4% total GDP. In other words if it was not for consumer growth or even if .5% of that growth was removed the economy contracted in Q1 2011.

Fast forward to Q2 where the consumer component is now 0.3%. In other words the trend of the consumer is deteriorating. Representing roughly 70% of total GDP the consumer is the economy. Confidence drives the consumer, the consumer drives demand and demand drives the economy.
Well judging by the epic fall in University Of Michigan Sentiment, now at multi year lows the economy is in serious trouble. To get a sense of the economic reality facing the US look at the historic correlation between sentiment and real GDP.

As confidence falls so do sales. Who is going to spend money when they are concerned about their job or their ability to provide for their family? Beyond non-discretionary items like food and energy they will cut back on discretionary purchases.

As demand falls in the economy so do inventory levels. Rather than invest in expanding inventory, retailers will simply focus on lowering inventory by depleting shelves. Why have twenty of item A when ten will suffice. The result, the inventory build cycle ends as it is currently.

Companies looking to expand, add capacity, maybe add more retail locations, open a new restaurant whatever will be more risk averse and shelve plans for expansion. The result fixed investment falls.

The negative feedback loop begins. Companies facing falling sales will lay off staff, which in affect further lowers their sales. Faced with higher unemployment the consumer budget is restrained further. They begin to look for lower prices causing imports from China for example to rise while globally demand is falling so are US exports. The trade deficit grows.

To an economist I realize such an oversimplification of a complex $14 trillion economy may seem inaccurate but perhaps the complexity of their analysis is why forecasts are always off. Perhaps one wanting a more complex analysis could answer a rather simple question. If the economy weakened since Q1 2011 how can Q2 GDP at 1% be greater than Q1 of .4%?

Making matters worse as if the economy needs another headwind is the reality of rising non-discretionary inflation. More of the consumer budget is spent on basics like food and energy leaving less available for discretionary items like iPads or dinner out with friends. Combined with rising unemployment and rising inflation the consumer budget is contracting fast and so is demand.

Price Deflator

The deflator is used to adjust nominal (non inflation adjusted) GDP to real (inflation adjusted) GDP. This is a very easy way for the BEA to "tweak" GDP by estimating the amount of inflation that contributed to growth versus actual increases in unit sales. Proof of such "tweaking" is shown below by the divergence between CPI or reported consumer inflation versus the BEA "estimate" of inflation. Why they would differ is beyond me.

This raises an important question discussed earlier Is The Price Index Inflating Real GDP. Regardless of the divergence the second revision of Q2 11 GDP shows rising inflation as measured by the price index which was revised from 2.4% to 2.5%. Clearly this trend is not going to aid the economic "recovery."

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mauibrad's picture

Excellent graphs on this.

DoChenRollingBearing's picture

I have almost everything I need.  Why should I spend any money?  Money may become very tight soon, we may need it for necessities.

Similarly, why should I invest or become involved in building a real business here in the USA?  Too many leaches and regulations.  Too easy to get into trouble or fined.

Forget it.  Stop playing "their" game.  Buy gold.  Prepare.

yabyum's picture

Dochen, If I'am going to buy anything it will be a piece of land with water and a place for chickens goats and apple trees. Another layer between me and the flailing beast.

spiral_eyes's picture

here's the good news, bitchez!

jersey shore not destroyed! snooki not dead! EVERYTHING'S GONNA BE ALRIGHT! 

JW n FL's picture

Vote with Bullets!!


Nothing will change until YOU! Change!!


Protests, Marches, Sit Ins and / or any other.. have NOT Worked for the Last 40 Fucking Years!!


When will people have enough of wastiing thier time and make a real commitment to a lasting change?


How many more beatings by Police do you need to see that the only Terrorists Operating in the Untied States are the POLICE?


When will enough people wake up to effect change in the Untied States?


and by "Change" I mean the Constitution of the Untied States being adhered too. Procedural Law is for Judges with little dicks and GIANT EGOS!


When will people starting using the same amount of FORCE to Protect thier Rights as is used to take thier Rights Away?


When is Enough? Enough??


When is Enough for You??


Never? just live thru and suffer?? let your kids deal with it? When or What does it take for YOU! to Stand Up! and Fight?

cossack55's picture

I find the Articles of Confederation much more attractive.

JW n FL's picture

I am willing to open talks with all Fight Club Brethern on different articles that may be suitable for "We the People" to be Free again!

smlbizman's picture

i am betting that tptb will use the spending that took place these last couple of days on emergency items, to show the consumer is back. it will not be mentioned that it was weather related, that only counts when the numbers are bad. i am also betting that the return lines tommorrow will be just as long as the lines to purchase were days keep an eye out for the revised number...but can;t you here liesman screaming the good news that the recovery is in the fast lane and his father was right it was just transitory.....  

Ahmeexnal's picture

If you do, then you'll be forced to feed the looters and moochers.

You'll be their beeyotch!

trav7777's picture

I'm on the next leg of my "Economic Collapse Tour" - Iceland.  People here in the city seem to not be starving or rioting.  In fact, everything looks pretty ok.  I've noticed having been to 3 or 4 countries in a row now with a lot of zeroes on the banknotes that all of this apocalypse fantasizing people have with their bugout ranches is just mostly idiotic.

DCFusor's picture

Unless like I, you find that living in a world of friend helping friend beats living in a dog-eat-dog reality.  Even an alpha-dog who mostly does the eating can grow tired of the crap, you know?

Thinking of it as a bug-out might be missing the main point (and there are people on both sides of that who don't "get it"). I just call it "home".  A nice one, too.  I have feedoms most city dwellers can only dream of, every day here as well.  I can shoot in my backyard - no one to hear or care.  I have many miles of nice twisty mountain roads to drive my hot rods on -- no traffic, no cops, you just have to watch for the wildlife.

And I dont' worry about moochers or looters where I live.  It'll never come up -- the 25 or so neighbors I have in a few mile radius will pick a few off for me anyway.  Rotten roads and percieved low value of any targets here will keep most away anyway -- trav for instance might never think about this as a place to go stealing from, since he thinks the standard of living is so low (obviously, it isn't).  That worry is for surburbia, not truly rural.

Moochers (think, the homeless) just aren't here.  They collect in cities, not where there's no place to sit and mooch (no one much to mooch off), and no one tolerates it anyway.  This is a big country, your perceptions based on what you've seen in the few places you've been might be way the hell off -- most only go to places that attract the masses, after all.

I'd prefer there be no apocolypse myself, but frankly, I don't have to care very much.  That's the payoff of living on my "bug out" ranch.


delacroix's picture

what kind of internet service do you have, if I might ask?

Jason_1sandal's picture

Same here mostly.... we do, or I should say did, have a family of rowdy drunken hillbillies close by, but they got "runned" off. The dad got blasted by a shotgun by someone that got tired of their BS (it was self defense). Then somebody burned their house down (wasn't me). Now it's nice and peaceful. Good land, year round creek, plenty of game, great community. We may see some "riff raff" since we are still 25 miles or so from a large town. As you can tell we will make short work of them and not even feel bad about it....

eureka's picture

What a shame we can't all go back country living all 300 million of us.

Are you kidding's picture

Actually...all we need to do is put the women and niggers back in their place.  If we men had the balls again to do that...we could fix all the other problems too.

Oh...and kill all the lawyers...

theMAXILOPEZpsycho's picture

thats because Iceland is a damn fine country

come to the ghettos of london, or go to spain and see if you can get a job as a dishwasher

Are you kidding's picture

White people...Iceland is all white people.  Wake up son!

disabledvet's picture

the fool is the one who doesn't default. i agree. now let us laugh at all those who pay taxes, have jobs, serve their country and otherwise do useful things.

Are you kidding's picture

The trouble is...they're working for the wrong boss!  Those tax dollars go to perpetuate the wrongs...

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Hi trav!  Iceland is not a good bellwhether.  They did not fall for the banksters bailout scheme and kicked them out.  I am not sure about the other countries but Iceland is atypical.  Good day.

Long-John-Silver's picture

You can't hide land from the government and looters.

Creepy Lurker's picture

While that's true, you still have to live somewhere. And I'd prefer something similar to Yabyum's "bug out ranch" than an apartment in New York.

kito's picture

@yabyum---triple thumbs up

janus's picture

wow, kito, i see what you mean...i was tryin to reply to yabyum as well and got kicked all the way down here.

but, seein your comment, my thoughts apply to you as well -- so i suppose gettin kicked all the way down here worked out just fine.

janus's picture

funny, i've got all you listed (well, pear trees rather than apples...and no goats -- but i do have a few cocks and more hens than you can shake a stick at), and i'm makin plans to move to chicago or ny next year.  i want first stab at the beast...bruise his horned head and seize all his fineries (the devil has a taste for the rare and resplendent).  may leave the wife and kids here if it feels unsafe.

spring fed crick in the back; koi ponds; and something significant in bloom year round.  i'll miss it; but that's sort of the nature of war.

ps. don't forget a couple of savage dogs -- you're gonna need the dogs before you can add anything to that one night you'll lose all your chickens and half your goats -- here in alabama the woods are crawlin with every sort of predator that can't wait for a dog to let his guard down for one second.  i kid you not, i lost my dog last year, and in the short time it took to replace her (one week) i'd lost all but four hens and one cock (something like 80 dead birds).  no matter how carefully you lock that henhouse; no matter what measures you take, a fox will always out-fox you when it comes to gettin chicken. adutl goats should be fine (not pygmies).

alabama is a good place for you...just look at how the region's fresh water channels into our state.  the land is incredibly productive.  the land is impossibly cheap and the property taxes are absurdly low (mine was like 250 last year on 5.75 acres -- the whole year).  your neighbors will look out for you (as long as you're not some sort of hippie -- you can be one, just don't look like you are).  and your neighbors are all very well armed.  hell, when i read these comments about "preparing" i chuckle a bit.  we've been fuckin preparing since reconstruction, bitchez!  on this very road, there are four complete shops with cnc machines, every kind of metal working device you can imagine, in home gun mod shops, arsenals that would make saddam blush, food stores that fill basements, pyramids of bullets, seeds and canned beans lining shelf after shelf.  i think nothing of it -- i've been seein basements loaded down with paranoia since i was a very young child.  hell, even i know how to make gun poweder from scratch -- just get me to a cave with guano.  so, yeah, i'd love to see some governmental department try and put the clamps down on dixie. 

and you fucking retards have been sold a bill of goods: the second amendment to the constitution is the most progressive stand ever taken by any government on behalf of their people.  and yet, you yankees believe that it's in some way reactionary?  are you people daft?  who has so seduced you?

...outta my cold, dead hand, bitchez!

Prometheus418's picture

Right there with ya, DoChen.

After basic necessities, the only things I spend currency on are physical silver and ammunition.  (I consider food hoarding part and parcel of "basic necessities.")  Going to call city hall on Monday to see if local ordinances will allow me to keep chickens in my backyard, too- a couple of other local towns have already allowed it, and I am in a town that is not big on regulation to begin with.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

Recent events have shown that being up front with these tyrants is not the path to success.  Stealth is always best against tyrants!

Snidley Whipsnae's picture

Prom... We are encouraged by state/local govs to 'be prepared for hurricanes'... and that requires a vast amount of items to be held on hand.  

About 1/3 of the US should probably be prepared for a hurricane.

Preparedness is not hoarding.

11b40's picture

You MUST get with the program, DoChen.  Why should I buy, you ask?  Because there is supply, of course.  Where have you been?  We got that new "supply-side economics" thingy now.  As long as we have supply, all is good.  It's just when anti-god people like you turn off the water that things go bad.  You & your ilk are the cause of all these problems.

sarc/off ;-)



Lets all say this together

"Who is John Galt"

I am buying PM's and preparing for a different world. Business collectively has decided to withhold their talents and money and will wait out the economy until 2012

If the leechs and moochers aren't defeated, this country will be toast.

Its on life support now

Not For Reuse's picture

Why spend money? Maybe because it's fun to get out, travel, meet people, eat great food, drink great wine, etc..? Smoke em if you got em, there's no better time than now. If money does become very tight, the opportunity to do exotic shit certainly isn't going to get any cheaper, it will just get extremely exclusive and reprice itself to the point where only the wealthiest 0.01% can still afford the same sort of experiences that are available right now to a much much wider clientele

SumSUN's picture

Hunger strike, sex strike, or buying strike...

Money talks.

JW n FL's picture

Vote with Bullets!!


Nothing will change until YOU! Change!!


Protests, Marches, Sit Ins and / or any other.. have NOT Worked for the Last 40 Fucking Years!!


When will people have enough of wastiing thier time and make a real commitment to a lasting change?


How many more beatings by Police do you need to see that the only Terrorists Operating in the Untied States are the POLICE?


When will enough people wake up to effect change in the Untied States?


and by "Change" I mean the Constitution of the Untied States being adhered too. Procedural Law is for Judges with little dicks and GIANT EGOS!


When will people starting using the same amount of FORCE to Protect thier Rights as is used to take thier Rights Away?


When is Enough? Enough??


When is Enough for You??


Never? just live thru and suffer?? let your kids deal with it? When or What does it take for YOU! to Stand Up! and Fight?

11b40's picture

When enought people get hungry.....that used to be a pretty good metric for revolution.

In our current entitled society, it may happen if enough people discover they can't pay the smart phone bill.  Then things get ugly!

TradingJoe's picture

Paying down debt has become a priority of late! The "need" vs the "want" has won, for now!

Happy Monday :)))! (sarc)

Eireann go Brach's picture

Let's hope all these consumers who are not confident don't vote for hope and change next time around! Fool me once shame on you, fool me twice shame on me!

Snidley Whipsnae's picture

If you still think that 'who you vote for' matters then you need to get up to speed. Do you really think that a vote for McCain, and his election to pres, would have made a difference?

Do you know that the scum bankers are calling the shots in America?

Do you know that almost all pols are bought and paid for by scum bankers?



DoChenRollingBearing's picture

Got a great point there Snidley!  McCain would have been bad too.

Kayman's picture

If you still think that 'who you vote for' matters then you need to get up to speed

Snid- you're a cynic, but you are right.

Even Mr. Change-ya-can-beleeb-in had his tiny little soul caught in Hank Paulson's tobacco can once the checks were written.

eureka's picture

Death to the consumer - long live the individual self-reliant independent creator.

Bobbyrib's picture

Death to multi-national corporations is more like it.

eureka's picture

Exact same thing - they're co-dependent entities.

Tuco Benedicto Pacifico Juan Maria Ramirez's picture

You have just pronounced yourself as an "enemy of the state".  Welcome to the burgeoning club!

captain_menace's picture

Errr... not to nit-pick, but doesn't a self-reliant independent creator consume something during the course of creating something?  Are these mystical beings able to create something out of nothing?  Has the law of conservation of energy been proven incorrect?

I'm fairly positive that a few products and services were consumed just by you posting your comment.

I'm not convinced that consumption is a bad thing all by itself, and I'm definitely not ready to stop consuming what I want and/or need.  I was kind of under the impression that free markets were based on this basic premise.

Consumer -> "I do not think it means what you think it means"

toady's picture

You are correct at the most basic level. Humans do consume calories, water, and a few other essentials that keep their bodies alive.

Its only when they develop a culture of mass consumption, way beyond sustainability, that cunsumption becomes a problem.

Todays society uses too much and does not renew. Its economic systems are based on continuous growth, not sustainability.

When something cannot continue, it won't.

And I hate being called a consumer!

StychoKiller's picture

Until the following wordz are deleted from Marketing's vocabulary, we aren't there:

a. Disposable

b. Planned Obsolescence

c. Consumable

chistletoe's picture

I'm just an amateur and a little trader,

but basic common sense tells me

that the statisticians must adjust the raw GDP numbers to factor out inflation,

and no doubt the number they use for inflation is like the CPI, artificially manipulated

for the sake of understatement.

If this is true, then the GDP must benefit ffrom the same manipulation

and it must come out to be artificially high by whatever amount inflation has been understated.

Am I correct in this?


If so, the overall economy is really tanking.  Like you keep saying.


DCFusor's picture

That's my take.  Seems to me any realistic measure of production, and particularly a per capita one, must be fairly negative at the moment.  They even got the sign of the number wrong.