Editore"s Note
Tilting at Windmills

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November 2, 2007
By: Kevin Drum

RE-EXAMINING GDP....Sure, consumer spending is down a bit, but GDP rose 3.9% last quarter and the Fed cut interest rates yesterday. So why is Wall Street apparently in such a panic?

Part of the reason is that credit markets are still in turmoil and earnings reports have been weak. But it might also be because no one really believes that GDP increased 3.9%. Barry Ritholtz says it's a mirage, caused by a huge decrease in the inflation component of the GDP calculation that's more a technical artifact than a real number. Plug in a more reasonable estimate and real GDP grew by only about 2%. Rex Nutting of MarketWatch explains what happened here.

I'm sort of agnostic about this. There are always little gotchas deep in the bowels of the national accounts numbers, and it's never clear just how meaningful they are. But this one seems more interesting than usual, and it's certainly unsustainable. If the inflation number makes up its lost ground next quarter, economic growth could look grim indeed.

Kevin Drum 1:25 AM Permalink | Trackbacks | Comments (19)

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Well, when all the GDP is going to the top .0000001%, you gotta throw a bone to the top .0001%.

Posted by: scarshapedstar on November 2, 2007 at 2:09 AM | PERMALINK

It would be nice to know that the unemployment numbers, GDP and CPI measures weren't being manipulated, but given this administration's willingness to meddle with everything and every government office for political gain I have my doubts.

I've also got my doubts about the Fed as they seem more keen to rebound the market than maintain a sound economy and currency.

Riddle me this.

September 2005: post Katrina, oil price $54 per barrel, gas in MN $3.10-3.30 per gallon, our oil comes from Canada and the refinery is right here. They said it was supply and demand, Gulf refinery capacity loss, etc. Anybody go short of gas? Any gas lines? MN state investigation said "no price gouging found."

November 2007: oil price $95 per barrel, no tax changes here, gas price $2.95-3.10 per gallon. September US gas inventory very low. October US oil stocks unseasonally low. Are the oil companies trying to keep gas prices steady for the sake of the Republican party?

I don't trust these bastards when I can't see their hands. And I can't see their hands.

Posted by: notthere on November 2, 2007 at 2:27 AM | PERMALINK

Yeah, but shouldn't we be enjoying that we got nearly 2% free GDP growth this quarter rather than bemoaning that we only managed 2%?

Posted by: Crissa on November 2, 2007 at 2:47 AM | PERMALINK

All assets are still in bubble. There has been no significant correction.

Even home prices declining 4% is NOT a correction.

And, even with really enormous reduction in the value of the dollar, exports from value-adding activity that occurs in the US are not rebounding.

The monthly trade deficit is still in the $50 billion dollar range.

The claimed resiliency of the US economy is true and not-true in ways.

We have high fixed costs, of governance, of infrastructure, of debt service, of education, of minimum necessities.

Posted by: Richard Witty on November 2, 2007 at 4:55 AM | PERMALINK

Just ask yourself: Was this the best economic quarter in nearly a year and a half?

That's what a 3.9% GDP would represent . . . And given the huge Housing slowdown, the problems associated with the credit crunch, oh, and $95 oil, that sort of economic growth would be very very unlikely.

Posted by: Barry Ritholtz on November 2, 2007 at 6:30 AM | PERMALINK

One thing any fascist regime does is to manipulate economic statistics, so that the general populace can't distinguish truth from fiction. That way, someone who is working three jobs at minimum wage and can barely make enough to cover their housing costs, thinks it is their fault when they read about the economy growing at such robust rates. Mussolini did it. Bush does it. Count on it.

Posted by: The Conservative Deflator on November 2, 2007 at 7:37 AM | PERMALINK

Yes, well I guess Walmart will have another under productive Christmas, especially if big oil fails to cut prices by Thanksgiving.

It seems the gas prices really are affecting the public afterall (according to the link Kevin gave us the other day on focus groups), but despite that fact, the Murdock news centers tells us that people are still planning on taking their vacactions and that high gas doesn't affect anyone?

Bush doesn't really care about Walmart, they never give as much in contributions as ExxonMobil does. It just the way the American economy works under Bushism.

Posted by: Me_again on November 2, 2007 at 7:56 AM | PERMALINK

If you follow Barry Ritholtz at the Big Picture regularly, or other economists, there's a very clear and disturbing picture of how the Bush administration has manipulated all sorts of numbers, from the unemployment rate (using absurd birth/death estimates on new jobs being created) to the inflation rate to the GDP.

Remember the one absolute rule of the Bush Republicans. No matter how bad you imagine it is, it really is much worse. We find more evidence of this every single day, but our imaginations still reel at the perversity and radicalism of these scoundrels.

Posted by: Forsythia on November 2, 2007 at 8:01 AM | PERMALINK

Using government stats to size up the economy is like trying to gauge the results of your diet by standing on a rigged scale in front of a funhouse mirror.' - Eric Janszen (iTulip)

"No country in the history of the world has ever allowed its industrial base to be so ruthlessly decimated (offshoring, outsourcing, factory closures) just to feed the insatiable avarice of its criminal elites." - Mike Whitney

Posted by: MsNThrope on November 2, 2007 at 9:43 AM | PERMALINK

If you applied real accounting practices and outside auditing to the federal government's finances and economic data, everybody in Washington would go to jail.

Of course, if the government does it, it's not illegal.

Posted by: Speed on November 2, 2007 at 10:05 AM | PERMALINK

I think it grew at an *annualized* rate of 3.9%.

Posted by: gfw on November 2, 2007 at 10:34 AM | PERMALINK

It's time to break out that old Ford-era word: "Stagflation." Because you're going to start seeing more of it.

Posted by: SocraticGadfly on November 2, 2007 at 10:48 AM | PERMALINK

Ah Kevin

Why do you and your pinko effete liberal chums hate Amerika so much? 3% growth in the GDP - something to celebrate with acclamations from the rooftops, rather than the gloating at Amerika's percieved decline and ruin. Any other country in the west would glory in such a magnificent rate of economic growth, the product of freedom, democracy, liberty and true patriotism. But you libs, sneer, search for evidence that the figure 3% is bogus, that Mr Bush's government - the finest leadership this land has had since Mr Reagan - is fiddling the figures like some squalid banana republic dictator, and ally yourselves with Our Land's enemies by gathering in a crowing chorus of derision and despair. Shame on you.

Posted by: Egfroth on November 2, 2007 at 11:32 AM | PERMALINK

Like unemployment numbers, GDP is a rather squishy statistic. While the former alway under reports by 1-2%, the latter is usually inflated.

Posted by: JeffII on November 2, 2007 at 11:34 AM | PERMALINK

They must have thought there was an election this month. Or maybe they're practicing for next October when the economy will be reported to have been the very best ever!

Posted by: tomeck on November 2, 2007 at 11:34 AM | PERMALINK

Here's all you need to know about these alleged 166,000 new jobs, courtesy of the NY Times:

"Adding to the uncertainty about the report, most of the job gain — 103,000 of the 166,000 net new jobs — came from an estimate that the Labor Department makes each month about how many jobs were added by new businesses. The Labor Department did not actually find evidence of these jobs; it assumed they were created based on historical patterns.

In October, for instance, it assumed that new businesses in the construction sector added 14,000 jobs and new financial services businesses added 25,000. Given the weakness in these sectors right now, it is possible that these numbers will be revised down later."


I think you can bet your rapidly-increasing adjustable-rate mortgage that these numbers will be quietly revised down next month.

Posted by: bluestatedon on November 2, 2007 at 11:59 AM | PERMALINK

From the BEA report you linked to yesterday:
"The Bureau emphasized that the third-quarter “advance” estimates are based on source data that
are incomplete or subject to further revision by the source agency (see the box on page 3). The thirdquarter “preliminary” estimates, based on more comprehensive data, will be released on November 29,

They always revise these numbers, and sometimes the "final" numbers can be quite a bit different. So, we could be in a recession right now, but we wouldn't know for SURE until well after the fact. We will be into 1Q2008 before we know for SURE what the 3Q2007 numbers really are. That's probably what has Wall Street spooked. The next thing to look for are the sales figures for the weekend after Thanksgiving.

Posted by: Doc at the Radar Station on November 2, 2007 at 12:35 PM | PERMALINK

Expect things to look good until it's clear a Democrat is going to be our next president. Then things will take a dive.

In 2000 the economy turned sour the second it looked like Bush was going to be president. He'll certainly want some revenge.

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Posted by: Rosabel on February 12, 2010 at 1:49 PM | PERMALINK
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