Gross Domestic Product

The American Petroleum Institute said last week the U.S. oil and natural gas sector was an engine driving job growth. Eight percent of the U.S. economy is supported by the energy sector, the industry's lobbying group said, up from the 7.7 percent recorded the last time the API examined the issue. The employment assessment came as the Energy Department said oil and gas production continued to make gains across the board. With the right energy policies in place, API said the economy could grow even more. But with oil and gas production already at record levels, the narrative over the jobs prospects may be failing on its own accord.

With the mean-reverting extrapolators all calling the bottom in Europe and scandal-plagued PM Rajoy desperate for distraction repeatedly arguing that the country's depressed economy is finally emerging from a two-tear slump, the FT reports that IMF has just popped that balloon of hope. "Spain has historically never generated net employment when the economy grew less that 1.5-2%,” the IMF notes, pointing out "yet growth is not projected to reach these rates even in the medium-term." In fact, echoing recent warnings from independent economists at exuberance over the most recent data (driven by seasonally-enhanced tourism) as the start of a new trend, the IMF warns, "the weak recovery will constrain employment gains, with unemployment remaining above 25 per cent in 2018." So, for Rajoy, its back to the grift.

Those who follow the mainstream media’s “all Federal Reserve, all the time” coverage of financial news naturally conclude that Senator Chuck Schumer neatly summarized reality last year when he declared that the Federal Reserve “is the only game in town.” This lemming-like belief in the power of the Federal Reserve generates its own psychological force field, of course; the actual power of the Fed is superseded by the belief in its power.  The widespread belief in the Fed’s omnipotence is the source of the Fed’s power to move markets. We can thus anticipate widespread disbelief at the discovery that the Fed is either irrelevant or an impediment to the non-asset-bubble parts of the economy. There is much we, as individuals, can do to ignore the Emperor's clothes (or lack thereof) and focus on how to pursue our own prosperity and happiness irrespective of the meddling of central planners. The real power is in our hands, should we choose to believe it.

In a few minutes, the BEA will revise US GDP figures going back nearly one century, for one simple reason: the economists in charge will do all they can to reconcile the observed drift between GDP and unemployment in stark refutation of Okun's Law, which we have previously disclosed, and which if left unattended will continue crushing the credibility of said economists. Since all it will take are some number additions to "generate" growth, the result is predictable. But what specifically are the upcoming changes to the various accounts and components? Bloomberg's Joseph Brusuelas explains.

While the market's eyes were fixed on the near record slide in Japanese Industrial Production (even as its ears glazed over the latest commentary rerun from Aso) which did however lead to a 1.53% jump in the PenNikkeiStock market on hope of more stimulus to get floundering Abenomics back on track, the most important news from the overnight session is that the PBOC's love affair with its own tapering may have come and gone after the central bank came, looked at the surge in 7 day market repo rates, and unwilling to risk another mid-June episode where SHIBOR exploded to the mid-25% range, for the first first time since February injected RMB17 billion through a 7-day reverse repo. The PBOC also announced it would cut the RRR in the earthquake-hit Lushan area. And with that the illusion of a firm and resolute PBOC is shattered, however it did result in a tiny 0.7% bounce in the SHCOMP.

Don't like how high debt-to-GDP figures are? Revise 'em. Unhappy at the post-'recovery' growth rates? Revise 'em. Disappointed at the pace of economic improvement in the last decade or two compared to the rest of the world? Revise 'em. This week "we are essentially rewriting economic history" as the BEA is set to revise GDP data from as far back as 1929. The 'adjustments' to account for intangibles (that best known of micro- accounting fudge factors) and as we noted previously in great detail, will increase GDP by around $500 billion. Of course, these changes are defended aggressively (just as the hedonic adjustments to inflation calculations 'make perfect sense') as GDP will now reflect spending on research, development, and copyrights as investment - and reflect pension deficits for the first time (think of all that potential future GDP from massive pension deficits now). With Q2 GDP growth estimates set for a dismal 1.1%, expectations are for the short-term economic data to be revised upwards (and with any luck the great recession never happened at all).

Hopes that Kuroda would say something substantial, material and beneficial to the "three arrow" wealth effect (about Japan's sales tax) last night were promptly dashed when the BOJ head came, spoke, and went, with the USDJPY sliding to a new monthly low, which in turn saw the Nikkei tumble another nearly 500 points. China didn't help either, where the Shanghai Composite also closed below 2000 wiping out a few weeks of gains on artificial hopes that the PBOC would step in with a bailout package, as attention turned to the reported announcement that an update of local government debt could double the size of China's non-performing loans, and what's worse, that the PBOC was ok with that. Asian negativity was offset by the European open, where fundamentals are irrelevant (especially on the one year anniversary of Draghi FX Advisors LLC "whatever it takes to buy the EURUSD" speech) and renewed M&A sentiment buoyed algos to generate enough buying momentum to send more momentum algos buying and so on. As for the US, futures are indicating weakness for the third day in a row but hardly anyone is fooled following two consecutive days of green closes on melt ups "from the lows": expect another rerun of the now traditional Friday ramp, where a 150 DJIA loss was wiped out during the day for a pre-programmed just green closing print.

China is preparing to admit that the level of problem Local Government Financing Vehicle debt is double the 10.7 trillion yuan first reported just two years ago, something many suspected but few dared to voice in the open. But not only that: since the likely level of Non-Performing Loans (i.e., bad debt) within the LGFV universe has long been suspected to be in 30% range, a doubling of the official figure will also mean a doubling of the bad debt notional up to a stunning and nosebleeding-inducing $1 trillion, or roughly 15% of China's goal-seeked GDP! We wish the local banks the best of luck as they scramble to find the hundreds of billions in capital to fill what is about to emerge as the biggest non-Lehman solvency hole in financial history (without the benefit of a Federal Reserve bailout that is).

The optimism over the housing recovery has gotten well ahead of the underlying fundamentals.  While the belief was that the Government, and Fed's, interventions would ignite the housing market creating an self-perpetuating recovery in the economy - it did not turn out that way.  Instead it led to a speculative rush into buying rental properties creating a temporary, and artificial, inventory suppression.  The risks to the housing story remains high due to the impact of higher taxes, stagnant wage growth, re-defaults of the 6-million modifications and workouts and a slowdown of speculative investment due to reduced profit margins.  While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2013 and beyond - the data suggests that it might be quite a bit of wishful thinking.

When French President François Hollande (aka Mr. Flabby in the French press) announced just a few months ago while on a state visit to Japan that the EU recession was well and truly over

Spain's slow-motion implosion into an insolvent singularity has been one of the most amusing sideshows for over a year. The chief reason for this is the sheer schizophrenic and absurdist polarity between the sad reality, visible to everyone, and the unprecedented propaganda by the government desperate to paint a rosy picture. While on one hand the economic data shows very clearly the painfully obvious sad ending for this chapter of European integration, it continues to be punctuated almost daily by such amusing confidence games as Spain's Economy Minister de Guindos telling anyone who cares to listen that the labor market is improving "beyond the seasonal pick up" and that Q2 GDP would be close to zero (because 0% GDP is the new killing it). That's the good news.  The bad news is that as Reuters reports, and contrary to fairy tales of unicorns and soaring 0% GDP, Spain's government is so insolvent, it was just forced to "borrow" from its social security reserve to fund pension payments.

A society of the increasingly overworked and involuntarily idle is not a stable or happy one. Yes, there are pockets of state fiefdoms and private sectors where workers are well-compensated for low-stress work, but these are exceptions, not the norm. No wonder those who can do so are quitting and filing for Social Security or tapping their 401K retirement plans to get by, or otherwise opting out of the labor force. Pressure is building along multiple fault lines beneath the supposedly expanding American economy. What's really expanding are stress, ill health, chronic depression, financial insecurity and the frustrations of the powerless.

It looks as if China’s days of double-digit economic growth are well and truly over (at least, for the moment). Data that will be released next week (second quarter figures) will show a quarter-on-quarter slowdown that is setting in now for China’s gross domestic product. The figures will be issued on Monda

The U.S. economy weakened appreciably in the first quarter of 2013. But what if this weakness persists into the second quarter just completed, and worsens still in the second half of this year? Q1 GDP, as reported on June 26th, was revised lower to just 1.8%. And various indications suggest that Q2 could come in slightly lower still, at 1.6%. Might the U.S. economy be guiding to a long-term GDP of 1.5%? That’s the rate identified by such observers as Jeremy Grantham – the rate at which we combine aging demographics, lower fertility rates, high resource costs, and the burdensome legacy of debt. After a four-year reflationary rally in just about everything, and now with an emerging interest rate shock, the second half of 2013 appears to have more downside risk than upside. Have global stock markets started to discount this possibility?

• Greece's Economic Future 'Uncertain,' Creditors Say (WSJ)
• Secret Court's Redefinition of 'Relevant' Empowered Vast NSA Data-Gathering (WSJ)
• Thomson Reuters Halts Early Peeks At Consumer Data (WSJ)
• Larry Summers Circles as Fed Opening Looms (WSJ)
• S&P to Argue Puffery Defense in First Courtroom Test (BBG)
• Geithner joins top table of public speakers with lucrative appearances (FT)
• Losing $317 Billion Makes U.S. Debt Safer for Mizuho to HSBC (BBG)
• Pilot Error Eyed in San Francisco Plane Crash  (WSJ)
• Investment group sues U.S. over Fannie, Freddie bailout terms (Reuters)
• Egypt officials 'order closure of Islamist party HQ' (AFP)
• Heinz Kerry Transferred to Boston Hospital for Treatment (BBG) - a boating accident?