Tag Archives: United States Department of Commerce

"The Houdini Recovery"

Gross domestic product grew at a 5.7 percent annual rate from October through December, more than anticipated and the strongest performance since the third quarter of 2003, figures from the Commerce Department Friday showed. But the amazing recovery in the U.S economic activity might also be the greatest illusion ever, and makes David Copperfield look like an amateur.

“It is hard to believe that productivity at this time is growing at a pace that is four times the historical norm.”

David Rosenberg

Consumer spending rose at a 2 percent pace after increasing 2.8 percent the previous three months, reflecting a slowdown in auto sales, Bloomberg News reports. Excluding autos, consumer spending increased at a 3 percent rate last quarter, the most in three years, indicating the biggest part of the economy was gaining speed.

“The increase is being fueled by growing incomes rather than a decrease in savings, signaling household purchases can keep expanding in coming months.”

Obviously, there are several ways to look av the GDP numbers. Here’s what chief economist David Rosenberg at Gluskin Sheff sees:

“First, the report was dominated by a huge inventory adjustment — not the onset of a new inventory cycle, but a transitory realignment of stocks to sales. Excluding the inventory contribution, GDP would have advanced at a much more tepid 2.2% QoQ annual rate, not really that much better than the soft 1.5% reading in the third quarter.”

“Second, it was a tad strange to have had inventories contribute half to the GDP tally, and at the same time see import growth cut in half last quarter. Normally, inventory adds are at least partly fuelled by purchases of foreign-made inputs. Not this time. Strip out inventories and the foreign trade sector, we see that domestic demand growth in the fourth quarter actually slowed to a paltry 1.7% annual rate from 2.3% in the third quarter.”

Recovery? What recovery?

Based on the economic simulations, demand growth with all the massive doses of fiscal and monetary stimulus should already be running in excess of a 10% annual rate.

So, the really interesting question is why it is that underlying demand conditions are still so benign more than two years after the greatest stimulus of all time.

“The answer is that this epic credit collapse is a pervasive drain on spending and very likely has another five years to play out”, David Rosenberg at Gluskin Sheff writes in a note to his clients.

“If you believe the GDP data — remember, there are more revisions to come — then you de facto must be of the view that productivity growth is soaring at over a 6% annual rate. No doubt productivity is rising — just look at the never-ending slate of layoff announcements. But we came off a cycle with no technological advance and no capital deepening, so it is hard to believe that productivity at this time is growing at a pace that is four times the historical norm. Sorry, but we’re not buyers of that view.”

“No matter how you slice it, the GDP numbers represented not just a rare but an unprecedented event, and as such, we are willing to treat the report with an entire saltshaker — a few grains won’t do.”

Here’s the full commentary from Mr. Rosenberg.

And here’s the other side of the coin – presented by Bloomberg News.

If you want to study the numbers for yourself, here’s the release from the U.S. authorities.

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U.S. GDP Grows Faster Than Expected

The U.S. economy grew at 5.7 percent annual rate in the fourth quarter, the highest rate of gross domestic product growth since 2003 and up from 2.2 percent in third quarter. The rise, which beats expectations, was driven by business inventories.

Gross domestic product, the broadest measure of economic activity, rose at a 5.7 percent annual rate in the fourth quarter, the Commerce Department said Friday. That is the highest pace of growth since 2003, and it constitutes strong proof that the recession reached its end earlier in 2009. It was also a surprisingly positive result, well above the 4.6 percent rate of GDP growth forecasters had expected.

But there remained reason to doubt how strong the economic recovery will be in 2010. The biggest component of the GDP growth was a steep drop in the pace at which businesses were cutting back on their inventories. Firms reduced their inventories by $33.5 billion in the fourth quarter, compared with $139 billion in the third. In the math of GDP, which attempts to capture the value of goods and services produced within U.S. borders, that added 3.4 percentage points to overall growth.

The down side is that inventories are unlikely to provide a similar boost to growth in future quarters. Now that companies are not cutting back on the goods on their warehouses and store shelves in large numbers, the way they were during the depths of the recession, inventories will not add much to growth in the coming quarters unless businesses decide they cut back too far during the downturn and decide to actively rebuild their inventories.

There was also a significant boost to growth from businesses investing again in equipment and software. They cut back dramatically on capital spending during the depths of the recession, and now such spending seems to be clawing back, rising at a 13.3 percent annual rate in the fourth quarter. That contributed 0.8 percentage points to overall growth.

American consumers also continued to increase their spending, at a 2 percent annual rate. Because personal consumption is the largest piece of overall economic activity, that was enough to add 1.4 percentage points to total GDP.

The Washington Post

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May Never See A Recovery

Sales of newly built U.S. single-family homes fell unexpectedly in December, data from the Commerce Department showed Wednesday. Sales fell 7.6 percent to a 342,000 unit annual rate from an upwardly revised 370,000 units in November. It was the second straight month that new home sales declined.

“It could take up to a decade for many homeowners to regain equity in their homes, while some people in the hardest-hit regions of the country may not see a recovery during their lifetime.”

Brent T. White

(Article in English, link to press release)

Analysts polled by Reuters had expected new home sales to increase to a 370,000 unit annual pace from November’s previously reported 355,000 units.

New home sales for the whole of 2009 fell 22.9 percent to a record low 374,000 units, the department said.

The latest indication that the government-led housing recovery might be losing some steam.

The housing market recovery is showing some signs of fatigue after a surge in sales as first-time buyers rushed to take advantage of a popular tax credit, which had been scheduled to expire in November.

It has since been expanded and extended until June this year and while analysts expect home sales to pick up as a result, they reckon the pace will not be as strong as witnessed with the initial tax credit.

The housing market was the main catalyst of the most painful downturn in 70 years and renewed weakness could hobble the economic recovery.

The number of new homes on the market last month dropped 1.7 percent to 231,000 units, the lowest level since April 1971. However, December’s weak sales pace left the supply of homes available for sale at 8.1 months’ worth, the highest since June 2009, from 7.6 months in November.

May Never See a Recovery

Even as the housing market shows signs of improvement, including in new data released Tuesday, economists warn that it could take up to a decade for many homeowners to regain equity in their homes, while some people in the hardest-hit regions of the country may not see a recovery during their lifetime.

“What are we going to do down the road when people who should have been saving for retirement, or college funds, are spending that money instead staying current on their underwater home?” says Brent T. White, a University of Arizona law school professor who has studied underwater borrowers.

“We’re just not convinced that the housing market can stand on its own two feet without the fiscal support of the tax credit,” says Paul Dales, an economist for Capital Economics, a research firm.

“There is no clear sign of a sustained, broad-based recovery,” says David Blitzer, chairman of S&P’s index committee.

Even after the housing market stabilizes, it will take years for some owners to see the value of their homes appreciate. About 25 percent of homeowners owe more than their home is worth, according to data from First American CoreLogic, a research firm.

While it has historically taken five to 10 years for home prices to regain losses after a major downturn, analysts says, it is likely to take much longer this time, particularly in parts of the country that have seen the steepest declines.

“In California, Florida, in the ground-zero zones, it could take 15 years to fully recover,” says Lawrence Yun, chief economist for the National Association of Realtors.

Press Release.


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