Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UKGC Set to Make Online Gambling Industry More Risk-Free - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

The Pretty Girl and the US Economy

Economics / US Economy May 30, 2014 - 04:30 PM GMT

By: Raul_I_Meijer

Economics

There’s a persistent story that says (though I don’t think I can confirm it) that a pretty girl prefers to surround herself with less pretty girls – all in the eye of the beholder – in order to look prettier. After seeing yesterday’s -1% (-2% if you include Obamacare) US GDP ungrowth number, a fair segment of the financial press and punditry took a page out of the pretty girl playbook and ran with it. What should really be a deeply disturbing number in a 5 year old recovery (which is about 100 years in human terms) that has cost Americans trillions upon trillions in stimulus measures, is easily turned, without batting an eye, into a solid positive. The awful Q1 print, we are now told, serves to make Q2 look that much better.


I can tell you the problem with that notion with the same ease that these folk invent it. The chunk of the population that is increasingly moving towards becoming the Great American Unwashed has spent a lot of their money on winter heating and on health care costs. But the “experts” still see – since they were told to in school – huge amounts of pent-up demand – snow, don’t you know -, but it just ain’t so. The great unwashed have spent their money, and then some too. They’re not coming back for extra’s because they can’t afford any. The rosy stories about companies ‘slowing the pace of inventory accumulation’ in Q1, only to turn around and rebuilding inventories in Q2, are empty and void.

Companies didn’t leave their shelves empty because baby it was cold outside, but because they had no confidence inventory could be sold. And why would that change? US retail numbers are so bad they rival Japan’s. They missed expectations by the most in 13 years (so there hasn’t been any snow since 2001?). There’s no pent-up demand for housing either, and maybe that should be a wake-up call. In the 7th consecutive month of declining YoY sales, these are now down 9.4% YoY. Which won’t keep the industry from talking about more pent-up demand, mind you, but it’s still ugly for those who didn’t see it coming. Guys, on the ground, America is getting much poorer. That’s all there’s to it. Of course sales are still great for the 1%, but you can’t run a housing market or an economy on that.

One more number from yesterday’s GDP report that I think stands out – or should – is “Corporate profits fell at a 9.8% annual rate, the biggest decline since the 2007-09 recession”. Perhaps the pundits should try and justify that away instead of pretending they’re all such pretty girls. I mean, if you want to make the point that the US economy is in a recovery, and Q1 was just a black blimp, how do you explain that companies lost 10% of their profits since Q1 2013, the biggest loss in 5 years? Or try this on for size, hidden inside BusinessWeek’s cheerleading article: “Adding to growth was health-care spending, which, boosted by the Affordable Care Act, grew at a 9.1% pace.”

How is that growth? The average American spent 9.1% more on health care than they did last year, and that’s growth, that’s a positive? It could only be seen as that, and even then with a tome full of doubts, if those Americans had lots of cash on the side just waiting to be spent in pent-up demand, if after taking care of drugs and surgery they’d get into their newly bought vehicles, drive to the mall and see a real estate broker on the way there. Not even kids with a steadfast belief in the Easter bunny would buy it. And on top of that, heating costs went up significantly. Which is why people stayed home, and will continue to stay home, because their money’s all gone. I just, as I’m writing this, see a Bloomberg headline coming in that says “Consumer Spending in U.S. Unexpectedly Declines as Incomes Slow”. Given the above, how can that be unexpected? What do we call that, pent-up demand or job-related delusions? You got far more unemployed and underemployed Americans than official numbers tell you, you know they paid much more on healthcare and heating, and you’re surprised consumer spending is falling? Isn’t that a bit rich – or poor?

Here’s another reality checking sign, from CNBC of all places. Not something the financial press in general will be eager to confirm anytime soon, but no less timely:

Why The Days Of Booming World Trade May Be Over

The drivers that underpinned years of booming global trade, once the engine of the world’s economic growth, may be fading. In the past few decades, trade has played an increasingly important role in the growth of the global economy. But more than three years into one of the weakest recoveries in decades, slack demand from consumers in the U.S. and Europe is weighing on exports in the developing world. “Typically we would want to see trade growing at a few percentage points above growth in gross domestic product,” said Sara Johnson, an IHS Global Insight economist. “The fact that trade is so sluggish just reflects the weak nature of the global economic expansion.” But the days of rapid globalization—and the surge in trade flows it produced—are apparently gone.

Merchandise trade – the total import and exports of goods – rose steadily through the 2000s to make up nearly 53% of the world’s economy in 2008, before plunging the following year as the Great Recession went global, according to the World Bank. Massive government stimulus in the developed world helped revive growth, but as those programs wound down, global trade began declining again in 2011. With the European Union mired in a recession and the United States hit hard by a series of nasty winter storms, that slowdown picked up markedly in the first quarter of this year, according to data released this week by the OECD. On Thursday, a separate report showed that U.S. gross domestic product dropped by 1%, on an annual basis, much worse than economists expected. The U.S. economic reversal was led by a 6% drop in exports year over year, until recently hailed as a key driver of the U.S. recovery, and which had risen 9.5% in the last three months of 2013.

Deathknell, anyone? US corporate profits fell at a 9.8% annual rate, exports dropped at a 6% annual rate, and GDP is down -2%. But there’s nary an expert to be found who doesn’t claim the fundamentals are so strong that 2014 growth will be 3-3.5%. In other words, 5% or so for the rest of the year, just to make up for Q1. In sort of like the same vein, the IMF today stated that the Bank of Japan ‘may need to keep up its stimulus drive for an “extended period”‘. That’s not going to happen, though, because Abenomics has already run so far off track that consumer spending is down, consumer prices are way up, and industrial production is cratering. Not even the likes of Goldman and Barclays see the IMF’s wishes come true anytime soon. So, no, Japan doesn’t look that pretty either. That would make the US economy the ugly girl who fools herself into thinking she’s pretty because her ‘friends’ look even worse. But look into that mirror mirror on the wall, ask the question, and the answer won’t be anywhere near as rosy as the one provided by the punditry.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Raul Ilargi Meijer Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules