Wednesday, January 30, 2013

HOT Did Obama Manipulate Q3 GDP to Create His Election Victory?

While much focus was put on the curious improvement in unemployment data in early October, which resulted in speculation that the BLS may have manipulated the data for the benefit of the President and his re-election campaign. Perhaps more focus should have centered on an even more curious data point released on October 26, 2012, the Gross Domestic Product: Third Quarter 2012 (advance estimate).

The release read:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.0 percent in the third quarter of 2012 (that is, from the second quarter to the third quarter), according to the "advance" estimate released by the Bureau of Economic Analysis.
This was a big swing upward from Q2.  In the second quarter, real GDP increased 1.3 percent. Thus the 2.0 number implied that the economy was on an upswing.

Where did the improvement come from. The report went on to inform (my highlight):
The acceleration in real GDP in the third quarter primarily reflected an upturn in federal government spending, a downturn in imports, an acceleration in PCE, a smaller decrease in private inventory investment, an acceleration in residential fixed investment, and a smaller decrease in state and local government spending that were partly offset by downturns in exports and in nonresidential fixed investment.[...] 
 Real federal government consumption expenditures and gross investment increased 9.6 percent in the third quarter, in contrast to a decrease of 0.2 percent in the second.  National defense increased 13.0 percent, in contrast to a decrease of 0.2 percent.  Nondefense increased 3.0 percent, in contrast to a decrease of 0.4 percent.
According to BEA data, federal government expenditures contributed 72 basis points of the total 2.0 percent gain in GDP for Q3. In comparison  Q2, government expenditures actually shrank GDP growth by -0.14.

Did the Obama Administration stuff federal government purchases into Q3 to show a growing economy for the benefit of the president? The data seem to indicate that's exactly what occurred. While, the underlying economy appears to be growing as a result of Bernanke's money printing, one sector of the economy collapsed, according to the Q4 numbers released today. From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- decreased at an annual rate of 0.1 percent in the fourth quarter of 2012 (that is, from the third quarter to the fourth quarter), according to the "advance" estimate released by the Bureau of Economic Analysis.
However, as many analysts noted, this was an odd decline:
Business investment in equipment and software rose 12.4 percent, among the larger increases in the current expansion. Residential investment (housing) posted a solid 15.3 percent increase. And consumer spending was up 2.2 percent, driven by strong purchases of durable goods. 
The strength in these three categories is generally more typical of the start of a recovery, not 3.5 years into it. 
What gives?

The BEA clues us in in their release (my highlight):

The decrease in real GDP in the fourth quarter primarily reflected negative contributions from private inventory investment, federal government spending, and exports that were partly offset by positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment.  Imports, which are a subtraction in the calculation of GDP, decreased.[...]  Real federal government consumption expenditures and gross investment decreased 15.0 percentin the fourth quarter, in contrast to an increase of 9.5 percent in the third.  National defense decreased 22.2 percent, in contrast to an increase of 12.9 percent.  Nondefense increased 1.4 percent, compared with an increase of 3.0 percent.

Holy Mitt Romney! According to the BEA, federal government spending had a negative 133 basis point impact on Q4 growth. If if wasn't for the decline in federal government spending, the Q4 growth number would have come in at a positive 1.32%, not the 0.1% decrease. So what was behind the decline in federal spending, did we win a war in Q4 and the military-industrial complex lobbyists decided to end schmoozing the Penatgon, which resulted in a non-neocon like 22% decline in defense spending?

Or was the spending stuffed into Q3 to help the President's election campaign?


14 comments:

  1. The zombies are not reading this site or any other. GDP, CPI, QE, OTC means nothing to them and Barry knows it. Free cellphones, free food, free government hand outs, that's the ticket for them both.

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    1. The assumption is most American's know what GDP is or even care. That's a big assumption.

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    2. Speak for yourself. I'm reading it and understand it well enough. I'll concede that a lot of people don't care or want to be bothered with defending our country but there are a lot of non-zombies out there as well.

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  2. no, Barry had that election in the bag because the republicans had nothing. Which is not to say the democrats weren't fooling with the numbers.

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  3. The spending absolutely was 'stuffed' into Q3. Q3 is the end of the federal government's fiscal year. Bureaucrats understand that any of their budget unspent by September 30 is lost to them and their next FY baseline is reduced accordingly. Bureaucrats don't like that to happen, no matter who is president.

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    1. The BEA numbers are seasonally adjusted for the September budget effect. From the BEA release:

      " Quarterly estimates are expressed at seasonally adjusted
      annual rates."

      So the stuffing was super heavy in 2012 to overcome even the seasonal adjustment.

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  4. If that's true, Stargazer, did the last quarters of FY11, 10 and 09 look the same way? Since these numbers are not GAAP audited, a brilliant if not cynical ploy by this administration. Shamelessly brilliant.

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    1. Defense spending from Q2 to Q3 was the biggest Qtr to Qtr increase in history. Defense spending from Q3 to Q4 was the biggest Qtr to Qtr drop in history. Those are the facts as published by the federal government. Spin them however you like.

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  5. The average voter couldn't spell GDP.

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    1. You are misunderstanding the situation. Obama-Romney was a very close race. Obama needed votes beyond the welfare queens. If just %5 of Americans heard about the GDP growth number, that could have resulted in many swing votes moving to Obama.

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  6. Impeachment time!

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    1. Isn't that synonymous with President Bidon time? Obama knew what he was doing when he picked Bidon as his running mate.

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  7. Any professional trader not only knows this, but predicted it. It's NOT the first time and it won't be the last. It's been going on for decades. They also manipulate Federal Government controlled "data" and then correct it after the election.... they have been doing that for decades! Clinton's regime was amazingly right in your face, they would correct all the numbers as soon as the next number was released!

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  8. So now we know that government spending is very influential on GDP, giving Congress every excuse to borrow and spend more because it’s so “good” for the economy. Wow, we are screwed!

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