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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

#71

Post by rz2k »

mikeash wrote: post #17

Can anybody who understands this stuff better than I do comment on the winter weather factor? To me, the "winter sucked" excuse sounds like complete BS, a transparent lie along the lines of, "Well, I just didn't want to order the tide to stop right now." This is a massive change (down a total of 7% or so from two quarters prior) and surely the weather, while unusual, wasn't that strong. But maybe it really is a big f…

There are a few adjustments to the data for getting a better impression of the data. For example "real" data attempt to minimize the distortions that come from changes in prices, while the raw "nominal" data measure economic activity. Another adjustment is for the seasonality of data. Here's a graph of some a few retail data series, where not seasonally adjusted appear with the seasonally adjusted data. [1]

Here you can take a look at the most recent release of the Employment Situation.[2] It states that the survey of businesses indicated 217,000 more people working. Now, look at the table of the data.[3] You have

May: 139,192 thous Apr: 138,272 thous

=> Surveys of businesses therefore indicated that 920 thousand more people were working!

So, what's going on? It is that no one cares about reporting the seasonal cycles in employment, because it isn't news that helps you understand economic trends. So, people actually look at the seasonally adjusted data.

May: 138,463 million Apr: 138,246 million

=> 217 thousand more people

In order to come with the seasonal factors the Census (and BLS and BEA) use an autoregressive integrated moving average. Back to your original question, what does it mean to say that winter sucked? It means that people's prosperity was lowered by the winter, just like it always is, but while the seasonal factors usually remove that effect this time they are part of the seasonally adjusted data because the seasonal factors are derived from past data with less severe winters.

Really it comes down to the fact that a single score is inappropriate for an understanding of the economy. GDP measures GDP, and something else with a different methodology would measure something else. You can find the fallacy acted out online with sites that purport to improve the data with adjustments without explaining the tradeoffs that come with adjustments by definition.

[1] http://research.stlouisfed.org/fred2/graph/?id=RSCCAS,RSCCAS...,

[2] http://www.bls.gov/news.release/empsit.nr0.htm

[3] http://www.bls.gov/news.release/empsit.t17.htm

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

#72

Post by merpnderp »

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…

Similar outcomes? Maybe you should compare cancer and heart disease survival rates (the two biggest killers in the US).

The US does an incredible job with a fat, unhealthy, diverse population, even if we pay dearly for it.

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

#73

Post by snake_plissken »

Real interest rates are negative and credit is tight. Credit has been tight for some time, but there is some debate as to when the real interest rate went below zero. These two factors will cause the US economy to (eventually) shrink because ~65% of its component parts reflect economic activities based on consumption. The economy can not expand because dollars that have historically gone into consumption are being invested into Treasuries. This has the effect of keeping yields on treasury notes down, which causes real interest rates to go below zero. A negative real interest rate environment implies investors are willing to take a small loss if it means they can avoid bigger losses on other investments.

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

#74

Post by harryh »

rayiner wrote: post #50
bengali3 wrote: post #46

Earlier quoted context omitted.

Interesting point regarding the parable, thank you for sharing. If GDP does included anything stock, would that really be accurate? Not an expert, but isn't stock priced on the future value of something (ie dependent upon future sales forecasts). since GDP is backward looking, i don't think it should be counted? stock could be used as a predictor of future GDP since the stock is trying to put a value to future sales.…

In this context, "capital stock" just refers to the accumulated wealth of the country, not shares of a corporation. It's the value of existing bridges, oil reserves, factories, etc. In the sense I'm using it, I'd even include human health (i.e. human capital).

I seem to recall that in most estimates of the total capital of the US that human capital vastly exceeds all physical capital.

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

#75

Post by pessimizer »

nostrademons wrote: post #70
pessimizer wrote: post #61

Earlier quoted context omitted.

That one is the misleading one. We're interested in the magnitude of the change vs. the recovery, not the numbers 0 to 100. A graph of GDP plotted as a percentage of current GDP at that scale could make the recession seem like a tiny little 2% blip.

The recession is a tiny little 2% blip, if you're one of the ~85% of people who were not laid off and didn't have any trouble finding a job. And it's a very large 2% blip if you're one of the people who are. My point is that perspective matters - a lot. By the numbers, this recession is worse than any since the Great Depression. By the numbers, this recession is only a small percentage of the total U.S. economy. Whic…

Agreed. My point is that the data that we're examining are the changes in employment to population surrounding the housing bubble. Measuring on a 0% to 100% scale whether we've begun a recovery from a recent drop in the rate of employment is like measuring the tides from the sea floor.

Personally, my salary has tripled since the recession, and my wealth increased by a factor of five or six. The adult, established upper-middle class is doing fine. My pre-tax savings rate is over 50% though, so I'm not doing a consumption-driven economy any favors.

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

#76

Post by pessimizer »

nostrademons wrote: post #69
pessimizer wrote: post #48

Earlier quoted context omitted.

Are you really accusing the Bureau of Labor Statistics of cherry-picking the scale, or do you mean to use a different word?

The scale is cherry-picked to fit the change in the graph - you can see that just by looking at the Y-axis. It makes sense for what I assume the BLS assumed the purpose of the graph is, visualizing the direction of the trend over time. However, you can't draw conclusions on the magnitude when the magnitude is arbitrarily chosen. So yes, I am really accusing the Bureau of Labor Statistics of cherry-picking the scale.…

You honestly think that the scale was hand picked, rather than being determined by the software being used to generate every graph on the site? The scale looks to be determined by the floor of the lowest value, and the ceiling of the highest.

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

#77

Post by rayiner »

harryh wrote: post #74
rayiner wrote: post #50

Earlier quoted context omitted.

In this context, "capital stock" just refers to the accumulated wealth of the country, not shares of a corporation. It's the value of existing bridges, oil reserves, factories, etc. In the sense I'm using it, I'd even include human health (i.e. human capital).

I seem to recall that in most estimates of the total capital of the US that human capital vastly exceeds all physical capital.

Interesting, I didn't know that. I guess it makes sense though. This report puts the value at $738 trillion: https://bea.gov/scb/pdf/2010/06%20June/0610_christian.pdf.

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

#78

Post by malandrew »

dclowd9901 wrote: post #53
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…

Interesting observation. It's really hard to shake off the shackles of presentism and imagine what the US would look like on an alternative timeline where the US government had not aggressively promoted home ownership and easy credit. The economy and legislation are now so thoroughly distorted in favor of home ownership that it's difficult to imagine how things could have been different.

Specifically, I'm wondering if there was a time when we were having the same debate about housing that we are now having about college tuition, but that it has been long enough (and there have been economic gains for homeowners) that we conveniently forget how much our longstanding policies drive up housing prices. The idea of buying a home on a full year's salary sounds crazy, but then again there was a time when 4 years of college could be paid off fully via part time work while at school, something that is distant pipe dream these days for the majority of jobs within the reach of most college students.

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

#79

Post by malandrew »

pessimizer wrote: post #63
jonnathanson wrote: post #59

Earlier quoted context omitted.

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…

I'm having trouble understanding what you're saying here. What's left after saving and spending?

For example, let's say I made 50k in 2008 after taxes and saved 10% (5k), and in 2013 I made 55k, but saved only 5% (2.5k). My PSR went down by 50%. The first conclusion one might make is that I decided to spend more and save less. i.e. I've become more consumptive. However an alternate explanation is that inflation growth has outpaced my income growth, and that I am in fact consuming the same amount (in terms of measurable benefits), but that it costs me more do consume that same amount. So using the example above where my income grew 10%, it is also possible that inflation over the same period increased by 16.67%, outpacing my income growth enough to reduce my savings rate without me making any qualitative increases in my consumption.

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

#80

Post by imaginenore »

jiggy2011 wrote: post #23
maerF0x0 wrote: post #22

Seems to me the idea of declaring a shrinking economy in terms of $ doesnt make sense. What if the average price of things is dropping (eg Healthcare)? To me it seems the goal should just be how much stuff did we make? If that number went up, then good (except corn).

How would you define "stuff" and "make"? Especially with regards to financial services etc.

When it comes to the financial services, we can simply measure the cocaine consumption.
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