Consumer Metrics Institute Previews 3rd Quarter GDP

Long time EPJ readers know I have featured in the past the work of Richard Davis at Consumer Metrics Institute. His real time analytical work is among the best for attempting to track that massive aggregate, "the economy". He is starting to build quite a track record in being roughly 125 plus days ahead of BEA measurements. In an email today, Richard writes to me:

On May 27th the BEA released its first revision to its 1st Quarter 2010 GDP growth rate measurement, lowering the number from a 3.2% annualized growth rate to 3.0% annualized growth. One day later the Consumer Metrics Institute's 'Daily Growth Index' was signalling what we should expect the BEA's measurement of the 3rd Quarter 2010 GDP growth rate to be: contracting at about a 2.0% rate.

The ...BEA estimate of 1st Quarter 2010 GDP growth trailed our 'Daily Growth Index' by 127 days... The 3rd Quarter of 2010 ends 125 days after May 28th, [at 5-28] our 'Daily Growth Index' was recording a 'growth' rate of -1.99%. If the BEA estimates continue to trail our 'Daily Growth Index' in a consistent manner we should expect that the 3rd Quarter's GDP 'growth' rate will be in the -2.0% neighborhood.

Several things were interesting about the BEA announcement, which seems to have been largely ignored by the equity markets on a day when the Dow Industrials were up over 280 points. Not only was the total growth rate revised downward by .2%, but the impact of inventory building was adjusted upward from 1.57% to 1.64%, meaning that the end growth rate of consumer demand (net of inventory build-ups) was dropped from about 1.63% to something closer to 1.36% -- a 17% reduction that was hardly worthy of a 280 point rally in the markets.

The Manipulated Anti-MIddle Class 'Recovery'

The latest GDP numbers are out. They show a 3.2% growth in Q1. Examine the numbers in detail and you have to reach the conclusion that this "recovery" is a very manipulated and distorted recovery.

A sizable part of the gains came from strength in economic performance by the Wall Street elite and the health industry, which of course is where the government has been playing and funneling money to its favored groups.

Much of the rest came from inventory adjustments, which as Peter Morici has pointed out, "...in the arcane world of GDP accounting, ending depletion of inventories adds to growth...Adjustments to inventories accounted for 1.6 percentage points of growth."

Other small pockets of growth included appliance sales where government rebate programs have stimulated sales. But the rebate money allows others to buy new washing machines using money coming from your taxes money (Or Fed money inflation). Home sales were up because of the $8,000 first time home buyers tax credit--more short-term manipulation. The program ends at the end of this month.

Some "recovery."

Morici is spot on when he writes, "This recovery is decidedly anti middle class...Backing out the inventory adjustments, real GDP increased about $162 billion since the second quarter of 2009, when the economy bottomed out. Wall Street for 2009 paid out bonuses of nearly $150 billion on profits twice that amount."

Is it any wonder that the other economic news out today is that the top 1% of Americans increased their share of all national wealth to 35.6% in 2009, up from 34.6% in 2007?

U.S. Sees Biggest GDP Gain out of Major Seven OECD Countries

The GDP number, being an aggregation of a bunch of other aggregations, is not the kind of number you want to bet your life on for accuracy. Further,it fails to take into account that some goods may be produced at cross purposes--whch will ultimately result in losses for some. So take ths OECD decimal point accuracy of this report with a grain of salt. The report gives a rough, rough sense of what is going on, and that is all:

The Organisation for Economic Co-operation and Development area saw its gross domestic product rise by 0.2% in the second quarter –- down from 0.5% in the previous quarter, according to initial estimates.The U.S. saw the biggest GDP gain out of the Major Seven countries in the OECD with a 0.5% increase. Japan’s GDP dropped 0.6%, the biggest decline out of the Major Seven and the largest quarterly decrease seen since the third quarter of 2001. The 15-country euro area’s GDP declined by 0.2%.

The U.S. contributed 0.6 of a percentage point to the total OECD growth of 1.9% between the second quarter of 2007 and the second quarter of 2008. Japan contributed 0.1 of a percentage point, while the euro area contributed 0.4 and the remaining countries 0.8.

Q2 GDP Up 1.9%

GDP is not one of our favorite pieces of data. It's too much of an aggregation, with lots of points where the acquiring of data is subject to the potential for significant errors, that said, the Commerce Department reported today that GDP increased at an annual rate of 1.9 percent in the April-to-June period.

Do with this number what you will, but the number certainly doesn't indicate any recession in the economy.