Great Recession was Worse than Thought

I detailed that Q1 GDP was revised up one full point... great news right?

Not when past quarters have been revised down. Per Calculated Risk:

The recession was worse in 2008 than originally estimated.Q1 2010 was revised up, but Q3 and Q4 2009 were revised down. So the recovery is a little weaker than originally estimated.

On a cumulative basis over this time frame, the current level of GDP is 0.8% smaller than previously estimated.



Source: Calculated Risk

Q1 GDP Revised Up One Full Point

Changes to Q1 were extremely broad since the numbers went "final" a month back, GDP jumped a full point from 3.7% to 2.7% due to a large jump in non-residential investment and a huge spike in inventory build (the question is who will be buying) offset by a rather large drop in service consumption.

Click for larger image

Source: BEA

GDP Growth Slows... Spike in Business Investment

Bloomberg details:

Growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter, less than forecast, reflecting a larger trade deficit and cooler consumer spending.

The increase in gross domestic product compared with a median forecast of 2.6 percent of economists surveyed by Bloomberg News and follows an upwardly revised 3.7 percent pace in the first quarter that showed a jump in inventories, according to figures from the Commerce Department today in Washington. Business investment climbed at the fastest rate since 1997.

Click for Larger Image

Source: BEA

End of the World Trade Unwind

High beta trades have done extraordinarily well in July as apparently the world wasn't ending.



What happens now will be interesting... that toe that I dipped in last month is getting ready to dry off for a bit.

Source: Yahoo

Earnings Season has Been Strong

Bespoke Investment Group (hat tip Abnormal Returns):

S&P 500 stocks have been beating earnings estimates at a much higher rate. Through yesterday, 78.8% of S&P 500 companies had beaten expectations. Interestingly, the high beat rate for the S&P 500 hasn't translated into better stock performance.

Source: S&P

Durable Goods Off

ABC News details:

New orders for long-lasting U.S. manufactured goods unexpectedly fell for a second straight month in June, posting their largest decline since August, according to a government report on Wednesday that was further evidence economic growth cooled in the second quarter.

The Commerce Department said durable goods orders fell 1.0 percent after a revised 0.8 percent drop in May.

Analysts polled by Reuters had forecast orders increasing 1.0 percent in June from May's previously reported 0.6 percent fall. But non-defense aircraft orders tumbled 25.6 percent in June after falling 30.2 percent the prior month. Overall orders were also pulled down by bookings for computers and electronic products, which saw their largest decline since October.

While not good news, to me this is just noise. Looking at the chart below, which shows the month over month change and three month change by durable good type, we can see that most sectors that fell, fell from sectors that have rebounded over the past three months (transportation equipment, capital goods, machinery, and the overall index).



My take? Things were never really as strong as market participants hoped and they aren't as weak as some may now think...

Source: Census

Consumers Getting Realistic

The Conference Board details:

Says Lynn Franco, Director of The Conference Board Consumer Research Center: “Consumer confidence faded further in July as consumers continue to grow increasingly more pessimistic about the short-term outlook. Concerns about business conditions and the labor market are casting a dark cloud over consumers that is not likely to lift until the job market improves. Given consumers’ heightened level of anxiety, along with their pessimistic income outlook and lackluster job growth, retailers are very likely to face a challenging back-to-school season.”

Source: Conference Board

Home Prices Jumped in May... Test Comes Next Month

Reuters details the jump in May, but the test comes in June post-tax credit:

U.S. single-family home prices rose more than expected in May, still reflecting robust spring sales spurred by homebuyer tax credits, Standard & Poor's/Case Shiller home price indexes showed on Tuesday.

The 20-city composite price index rose 0.5 percent on a seasonally adjusted basis in May after an upwardly revised 0.6 percent gain in April, topping the 0.2 percent rise forecast in a Reuters poll.

This was the second straight monthly rise after declines in the prior two months.

Month over Month


Six Month Change


Source: S&P

Update per reader Mike Hardy:

Case-Shiller is a 3-month average, posted with a 2-month delay.

So this should read "home prices in March April and May showed some gains", and that should be placed in the context of the tax credits, and any more current data available which shows what is happening now, as it will easily predict what the C-S index looks like in October, when the C-S release includes June/July/August - post-tax-credit collapse...

See you in August?

Got Yield?

A month back I detailed that the aggregate bond index (i.e. the Barclays Capital Aggregate made up mainly of Treasuries, Corporates, and Agency MBS) hit an all-time low yield of 2.94%. One month later that looks lofty as the yield to worst hit 2.71%.

Aggregate Bond Index YTW by Sub-Sector



Source: Barclays Capital

Chicago Fed Details a Slowing Economy

Chicago Fed details:

The index’s three-month moving average, CFNAI-MA3, decreased to –0.05 in June from +0.31 in May. The CFNAI-MA3 suggests that growth in national economic activity returned veryclose to its historical trend in June after reaching its highest level since March 2006 in May. With regard to inflation, it indicates subdued inflationary pressure from economic activityover the coming year.

Production-related indicators made a contribution of –0.11 to the index in June, down from +0.61 in May. Industrial production edged up 0.1 percent in June after increasing 1.3 percent in May; manufacturing production declined 0.4 percent in June after increasing 1.0 percent in the previous month.

Source: Chicago Fed

Japanese Exports Halfway There

Bloomberg details:

Japan’s exports rose faster than economists estimated, sustaining a boost to the economic recovery that may diminish as the yen strengthens.

Shipments abroad advanced 27.7 percent in June from a year earlier, the Finance Ministry said today in Tokyo. The median estimate of 19 economists surveyed by Bloomberg was for 23.5 percent. From a month earlier, exports fell 1.8 percent.

An increase shows that the global economy continues to recover, but (as always) the increase needs to be put in perspective. Current export levels are still only about halfway back to the level seen prior to the global economic crisis.



The question is what happens going forward? Bloomberg details that following a strong rally in the yen in recent months, officials are concerned:

Japan’s currency climbed to a seven-month high against the dollar this month, prompting officials including Trade Minister Masayuki Naoshima to warn that its appreciation may hurt the recovery. The higher local currency threatens to erode the value of earnings of exporters such as Toyota Motor Corp.

“The yen has appreciated too much,” Koji Miyahara, chairman of shipping company Nippon Yusen K.K., said last week. “I’m hoping the yen will depreciate to a range of 95 to 100 to the dollar as soon as possible.”

Currency can do wonders on a relative basis, but not when every nation intends to follow the same path. And this points to what I view as a huge problem... China, broader Europe, Japan, and the U.S. (to name a few) view exports as the key for future growth and a weaker relative currency as a huge driver of those exports.

But one nations increase in net exports (by simple math) is another nations net import. So... which nation will take all of these exports? I personally don't see many takers.

Source: Customs.GO