The Obama Economic Recovery Is Even Worse Than Previously Thought

Yesterday morning, the U.S. government released its initial report on the economy in the second quarter of 2015; and as measured by Gross Domestic Product (total consumer and government spending+business inventories+the net of imports and exports).  But, also with this reporting, the Bureau of Economic Analysis -- the group that develops the GDP numbers -- will apply the new formulation for how the GDP is calculated and will apply those changes back to 2012.  Many economists predicted that recalculations would smooth out the erratic swings and actually result in higher GDP growth. Boy, were they wrong.

Prior to the revised calculations, 2012 through 2014 had dismal growth rates that averaged only 2.4%.  Now, with the new revisions; the average growth for those years is just 2.1%; which puts it at almost half of the average 3.97% growth rate following all previous recoveries from recessions since 1960. It also puts growth below the previously calculated average of 2.24% since the recovery started in the third quarter of 2009.  Worse than that, the growth rate for the first six months sits at just 1.45% -- when averaged against just 6-tenths of a percent in the first quarter and 2.3% in the second.  This is a slowing of 31% from Obama's previous 3-year average of 2.1%.

Simply, each successive year under President Obama's watch is getting weaker.  Not a good trend, and it reflects on how government imposition in the economy, such as ObamaCare, is affecting economic growth.

References:

US government revises earlier GDPs to fix anomalies in reporting: http://www.cnbc.com/2015/07/30/us-government-revises-earlier-gdps-to-fix-anomalies-in-reporting.html

Our dismal GDP numbers: Under Obama US stuck in slow growth rut: http://www.foxnews.com/opinion/2015/04/29/our-dismal-gdp-numbers-under-obama-us-stuck-in-slow-growth-rut.html

Here are the revisions made to GDP growth over the last three years: http://www.businessinsider.com/q2-2015-gdp-revisions-2015-7

How Bad Was The Economy In the 2nd Quarter?

On July 27th, the federal government will release the initial data that reflects the economic activity of this country for the second quarter of this year.  That data, the growth in Gross Domestic Product or GDP, was originally expected to be about 2% in growth.  But, in each of the 3 months that comprise the 2nd quarter, retails sales activity  fell consecutively and, unexpectedly.   A fact that hasn't happened since 2008; at the height of the so-called Great Recession.  Now, economists have lowered their estimates; with economic growth slowing to between 1 and 1-1/2 percent.  But, I think they're still wrong; and, it all has to do with high gasoline prices.

In two of the three months that made up the second quarter, April and May,  oil prices were rising rapidly; with many cities seeing $4+ gasoline.  The reason that this is important to note is because gasoline prices are part of the overall retail sales numbers.  For that reason, higher gas prices have always helped to push up the retail sales data.  But, instead, retail sales fell in both April and May.  So, this means that those high gasoline prices were actually making those negative retail sales numbers look a lot better than they really were, and, I don't think economists are taking this into consideration when estimating the growth in GDP.  For that reason, it is highly possible that 2nd quarter GDP growth will be lower than 1%.  If so, this would be a really horrible number at near-recession levels.   Of course, the numbers could wind up being better than expected since the group putting the numbers out, the Bureau of Labor Statistics (BLS), reports to Obama.  After all, the BLS will have two more monthly attempts to get the numbers right.

Friday's GDP Report Proved Me Wrong. Or, Did It?

Thursday, I posted a blog entry which suggested that the GDP report might, for political reasons, come in better than expected; and, then, adjust downwards later in the year.  But, I was wrong.  The report was actually a lot worse than expected with growth at only 2.2%.  On the other hand, its possible that I just might have been right. There is a possibility that the true number was even worse the 2.2% and, for political reasons, the number was posted higher to soften the political impact. We'll have to wait and see.

The real question, now, is what the rest of this year's GDP growth will be like. Will 2012 follow the pattern of 2010 where the First Quarter was the best quarter for that year?  Or, will it be like 2011 where the First Quarter GDP number was the lowest in growth for the year?  Certainly, the Obama Administration is hoping for a repeat of 2011; because, if the GDP reporting follows 2010, Obama is sure to be a one-term President.

Will We Get An Unadulterated GDP Report Tomorrow?

Tomorrow, the Bureau of Labor Statistics (BLS) will, for the first time this year, report on the nation's economic health for the first three months of 2012 in what is called the Gross Domestic Product (GDP) report. The consensus is that it will show the economy slowing from 3% growth in the Fourth Quarter of last year to just 2.5% in this latest quarter.  At the same time, the BLS will report, for the fourth and last time, their take on the GDP growth for last quarter of 2011.

Now, anyone who has consistently read this blog knows that I'm skeptical of any "first time" report of economic numbers coming out of the Obama Administration.  I say this because week after week in reporting the jobless claims and month after month in reporting the GDP growth, there's been a consistent habit of reporting better than expected numbers that are ultimately revised to actually show worse than expected performance.  For that reason, I'm betting that this first pass on First Quarter GDP will exceed the consensus estimate; maybe even coming in at 3%.   But, then, over the next 3 months, expect that number to be revised downward until finally it is worse than the current consensus estimate of 2.5%.  That's also why I wouldn't be surprised to see the last quarter of 2011 revised well down from the previously reported 3%.

Of course, I could be all wet in my skepticism.  We'll just have to see.

Only Four-Tenths Of A Percent GDP Growth In The First Quarter?

Sometimes, you'll see numbers from the Obama Administration that just make your head wanna explode; and, this morning was no exception.

What I am talking about is the latest Gross Domestic Product (GDP) report as being released by Obama's Bureau of Economic Analysis (BEA). For four months now, the First Quarter GDP growth number, month-by-month, has gone through several iterations. Initially, its was reported by the BEA to be 1.8%. Then, the following month, the First Quarter growth was again reported to be 1.8%. In the 3rd attempt to nail down the number, the growth for the First Quarter was actually bumped upwards to 1.9%; making the general population think there was an actual improvement over the previous reports. Now, just a month after bumping the growth from 1.8% to 1.9%, this mornings revision came in at just 0.4%!

My God, where the hell did that number come from? Going from 1.9% to .4% isn't just a tweaking of the previous three numbers, it's a complete blow up of those earlier reports. This kind of thing just makes one wonder about what is going on and how much politics is playing a part in the reporting of our economic activity. Obviously, if that meager .4% growth was reported at the beginning of this First Quarter reporting exercise, Obama's economic policies would have been under serious attack. However, by reporting it now. with all the focus being on the "new" Second Quarter GDP number, the Obama Administration is somewhat able to sneak this horrible number in under the radar of the general, voting public.

Given this kind of shenanigans, can anyone really trust this morning's initial Second Quarter GDP report? Is it possible that we really had negative GDP growth last quarter and, like the reporting of the First Quarter's data, we won't find this fact out until the initial Third Quarter report is released? I guess we'll just have to wait another three months to really find out! As I have said may times before: "So much for the most transparent Administration in the history of the United States!"

Workers Puttering Around....AGAIN!

It seems as if we never learn from the past. During the Great Depression, FDR, his economic team, and the then-Congress thought that "road building" and "public works projects" would get the economy back on its feet. So, they implemented the WPA (Work Progress Administration) to employ the unemployed in things like building roads and bridges and other public works activities. But, after years of failing to provide tangible economic recovery, the term WPA, instead, became jokingly known as Workers (just) Puttering Around.

When Obama and his Democratic majority pushed through the Stimulus Package, they, too, advertised that "shovel-ready" road-building and other public works activities would bring America back to it's feet with jobs-a-plenty. Now, a year later, we have an unemployment rate in double digits at 25 percent higher than what Obama had promised; and, that rate could possibly increase further. Also, there is no significant indication that any"shovel-ready" public works activities have made a single dent in the continued loss of jobs (Click to See the Full AP/CNBC Story: "What Stimulus? Road Projects Aren't Boosting Jobs Much").

The stupidity of the so called "shovel-ready" stimulus plan was that it ignored all that had been written about how ineffective the WPA was during the Great Depression. Almost every job created by the WPA turned out to be short-lived, temporary employment. As a result, there was no ripple effect throughout the rest of the economy.

To revisit the WPA again, during this recession, shows how absolutely ignorant Obama and his economic team are of history. Even this lone blogger predicted failure when I wrote the entry "The Lessons of the WPA and the Great Depression" in October of 2008 -- three months before Obama got into office and four months before the Stimulus Plan was enacted. I will say it once again: The only purpose of the Stimulus Package was to pay back the labor unions (teachers, police, fire fighters, SEIU, AFL-CIO, etc) for supporting an Obama run for the White House and to gain a Democratic control of Congress in the last election. Getting the economy back to work was the last thing on Obama's mind when he signed the Stimulus Plan into law. And, every day that goes by just proves me right!

GDP Up 3.5%! Good News?

This morning, the Gross Domestic Product (GDP) measure was up 3.5% (Click to See Full Story: "U.S. GDP rises 3.5% as stimulus kicks in"). For a country in recession, this is good news because it shows that the economy is growing again. But, before the champagne is uncorked, you have to put some things into perspective.

First, you have to understand that an economy isn't really considered to be out of recession unless there are two consecutive quarters of growth. Two quarters is important because, quite often, an economy might sputter again after having had one good quarter. Some of that has to do with the seasonality of business, the extent of business inventories, and some has to do with what the government is doing.

That brings me to the second issue: Government spending. In this last quarter, the government artificially pushed the economy with two major programs (1) Cash for Clunkers and (2) The First-Time Home Buyers Tax Rebate. As a consequence, there might be as much as 2.5% in that 3.5% number that has been artificially spawned by these two programs. But, what's worse, those two programs may actually hurt the upcoming 4th Quarter GDP because they may have stolen sales that would have naturally occurred in that 4th Quarter. For example, in the Cash for Clunkers program, there was a $3 billion spurt that has since created a substantial slack period for auto sales. Consequently, auto sales in the 4th quarter may actually be lower than they were in the 2nd Quarter; before the "clunkers" program. On the Tax Rebate for first-time home buyers, there was, again, a substantial spurt of sales before mid-September in order to effectively take advantage of that rebate and be able to close on a house before the program was set to expire at the end of October. Even though Congress has just passed legislation to extend the program through April of 2010, the impact on the home sales might have peaked as people scrambled to take advantage of the original program. Again, hurting sales going forward.

Lastly, GDP is a relative number. It is a measurement of business activity from the prior quarter. But, you need to really put that into perspective. Business activity in America is down 50 to 60 percent or more from where it was in 2008. So, to have 3.5% growth still leaves us a very long way from getting back to where we were in 2008. Think of it in terms of being in an elevator that had once made it to the 100th floor. Last quarter it finally stopped going down and made it to the ground floor. This quarter we went back up 3-1/2 floors. But, we still have 96-1/2 floors to go before we get back to where we were in 2008 at the 100th floor.

I personally think that this 3.5% rise in GDP is extremely overstated and my guess is that we might only see a meager 1% growth for the next quarter. Anyone who really takes the time to take a hard look at details of this GDP Report would have seen that business investment was still negative. And, that fact, to me, shows that the economy is still faltering.

On the political side of things, you can expect the Obama Administration to hype this "recovery (?)" to the max; especially with two critical gubernatorial elections pending in Virginia and New Jersey. In fact, this good number on the economy might actually help Corzine to retain his Governor's job in New Jersey; seeing that he was already so close in the polls.

I still think we could possibly see a double-dip recession in 2010 if foreclosures and unemployment continue to rise and if inflation kicks in. Right now, foreclosures are still on the rise and we just had 7 more banks this last week that went belly-up and had to be taken over by the FDIC. Jobs are still being lost and that leads to further reductions in consumer activity. The true home building activity is for apartments -- to house all those people who have been foreclosed on -- and for condos and starter-homes being built for those people who want to take advantage of the first-time home buyer tax credit. But, down the road, we are going to have a glut of condos, apartments, and cheap starter-homes as people start to move back into the homes that were once foreclosed on.

Remember: Everything in economics has a short-term upside and an ultimate and even bigger downside when the government tries to jury rig the economy.