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The US economy shrank at an annualized rate of 2.9 percent in Q1

washingtonpost.com

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Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#51

Post by itbeho »

executor14 wrote: post #47
cs702 wrote: post #43

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borr…

Actual TLDR: Spending was muted because of the harsh winter. Recent economic indicators have been very positive so expectations are for a significant rebound for Q2.

Looks to me like it's how the government is accounting for spending in healthcare that is the biggest contributor to these numbers. Next quarter they will report big gains, just in time for campaign season and the run up to the election.

http://www.businessinsider.com/why-health-care-spending-in-g...

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#52

Post by adsenseclient »

cs702 wrote: post #43

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borr…

The main thriving product of the 21st century American economy is Stock of publicly traded US companies. The stock market is largely decoupled from economic reality. As long as the total market cap of all US companies is going up (which was the case in Q1), there is a "recovery". The settlement between this recovery and the real economic decline will only occur around 2040, when US dollar is debased and finally ceases to serve as the world reserve currency. Feel free to downvote.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#53

Post by dclowd9901 »

cs702 wrote: post #43

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borr…

Part of this slowdown in consumer spending also has to do with the tightening of credit as well, making it more difficult for people without means to spend. In my opinion this is a great thing. When people are backed against a wall because they have no other way to pay for their livelihood than their salary, they're not going to be ok with stagnant wages and companies low balling them.

Bring on the pain, I say. Real growth comes from companies investing in their workforce, not people drowning themselves in debt.

Put another way: it used to be that you could buy a house for the equivalent of a year's salary. Now it seems most houses are about 5-6x the average salary of a given area. If that were still the case today, most Bay Area residents should be making near 1 mil/year or houses here should be closer to about $150-200k, more likely the latter since credit is primarily the reason for the inflated cost.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#54

Post by executor14 »

itbeho wrote: post #51
executor14 wrote: post #47

Earlier quoted context omitted.

Actual TLDR: Spending was muted because of the harsh winter. Recent economic indicators have been very positive so expectations are for a significant rebound for Q2.

Looks to me like it's how the government is accounting for spending in healthcare that is the biggest contributor to these numbers. Next quarter they will report big gains, just in time for campaign season and the run up to the election. http://www.businessinsider.com/why-health-care-spending-in-g...

Weather and botched implementation of the healthcare exchanges probably also played a part in that. But for whatever reason seems the increase in healthcare spending will be delayed for a quarter or two.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#55

Post by pessimizer »

cs702 wrote: post #43

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borr…

The funny thing is that consumption is actually historically very, very high:

http://www.tradingeconomics.com/united-states/personal-savin...

Savings rate, now: 4%

Pre stock-bubble average: 8%

edit: "Personal Savings in the United States increased to 4 percent in April of 2014 from 3.60 percent in March of 2014. Personal Savings in the United States averaged 6.82 Percent from 1959 until 2014, reaching an all time high of 14.60 Percent in May of 1975 and a record low of 0.80 Percent in April of 2005."

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#56

Post by jcampbell1 »

cs702 wrote: post #43

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borr…

The decline is seasonally adjusted vs Q4 2013. Since both periods are after the recession, your TL;DR make no sense, and is a misleading interpretation.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#57

Post by Zigurd »

rayiner wrote: post #20
memossy wrote: post #15

The most interesting component of this was the healthcare drag in the revisions taking it down from the initial ones. While a large element of this was the affordable care act, it is also notable that healthcare inflation went negative for the first time in 20 odd years last quarter (education did too, but thats another story). Given the US currently spends twice the amount of other countries on its health care as a…

The healthcare example is a very good illustration of why the GDP calculation is susceptible to the broken window fallacy: http://en.wikipedia.org/wiki/Parable_of_the_broken_window . The root of the problem is that GDP doesn't measure changes in capital stock. For example, after Fukushima, Japan's GDP ticked up slightly because of the expenditures from disaster recovery. Obviously it's absurd to conclude that Fukushi…

I think most people here would agree with that.

But getting a true measure of the ability of the US economy to create a comfortable life for as many people as possible also needs to take a very hard look at military spending and the share of the manufacturing economy that goes into actual and potential destruction of capital. Are those police rifles and APCs "economic output?"

When the Soviet Empire was stripped of an outsize military and internal security apparatus, what was left was a GDP the size of Italy.

So it cuts both ways: Health care deflation is probably good, and calls for a higher quality of life number. But that monstrous security state we are dragging around also should get moved to the negative column.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#58

Post by ctl »

cs702 wrote: post #43

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borr…

Your comment makes no sense. GDP is slightly down compared to 2013. Why are you talking about 2008?

The article implies that the main driver here is reduced consumer spending from a harsh winter.

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#59

Post by jonnathanson »

pessimizer wrote: post #55
cs702 wrote: post #43

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borr…

The funny thing is that consumption is actually historically very, very high: http://www.tradingeconomics.com/united-states/personal-savin... Savings rate, now: 4% Pre stock-bubble average: 8% edit: "Personal Savings in the United States increased to 4 percent in April of 2014 from 3.60 percent in March of 2014. Personal Savings in the United States averaged 6.82 Percent from 1959 until 2014, reaching an all time hig…

A lower Personal Savings Rate doesn't necessarily mean people are "consuming" more. At least not the sort of consumption (discretionary) that many businesses care about. It simply means that the proportion of income being saved is lower. There are any number of factors that could make that true, including rising costs of living or inflation vis-a-vis stagnant income.

In fact, while personal income has been increasing on a low nominal basis, income growth rate has been slowing.

Yes, PSR accounts for "disposable" income, but that term can be somewhat misleading. Disposable income is simply the net of income minus taxes. It's not necessarily available for discretionary purposes.

I would say that savings rates are quite low right now, and that accordingly, nominal consumption is high. But there's a deeper story there.

http://www.bea.gov/newsreleases/national/pi/pinewsrelease.ht...

Re: The US economy shrank at an annualized rate of 2.9 percent in Q1

#60

Post by mtdewcmu »

conistonwater wrote: post #26
clintonc wrote: post #16

Earlier quoted context omitted.

Math pedant to the rescue! Actually, rates combine in a multiplicative way -- losing 3% and then 4% does not lose 7%, (though it's close). What if the economy lost 1% each day for a year? It would not lose 365%. If we assume the annualized rate, the economy would be 97.1% of its current size in a year. The fourth root is 99.267%, so the economy shrank about 0.733% this quarter. If it does so for four consecutive quar…

Math pedants of the world: If you calculate 1-(1-x)^(1/4), the difference between the true answer and x/4 is approximately 3 * x^2/32. For a figure of y percent, this is a relative error of 0.375 * y percent. Ignore it when y is small. The GDP figure is only known to something like 1 or 2 decimal places.

If I'm not mistaken, if you keep following that thread, somehow or other you eventually get e. I hope that wasn't too much pedantry.
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