Friday, January 30, 2009

GDP Deconstructed: Financial World Trade Center Occuring

Written in a bit of a rush, GDP a catastrophe.

While the broad index is down "only" 3.8% versus expectations of down 5.5%, the parts tat matter were every bit as bad as expectations and in the case of prices far worse than imagined.

Personal Consumption (PCE) part of GDP was down 3.5% as expected.

Core prices (so no energy which would make this far far worse) for PCE was .6% versus expectations of 1%. Inflation is nonexistent and has obviously gone deflationary.

The broad deflator was down .1% versus the expected .4%

The pics below do not have detail (haven't figured out how to cut and paste to a blog higher resolution) but they are form 1956 so in a way they are better as force you to see the pattern.

Keep in mind all the following depicted recessions prior to this one were monetary recessions, with almost all econs agreeing that the slowdown in consumption, deflator, and personal consumption deflator were all directly related to a period where the Fed was tightening in response to either currency and inflation in the 50s and 60s or inflation in 80s and 90s and 00.

Though post 9/11 had some bit of a fiscal shock, this time around the drop in GDP is substantial and, more importantly, is occurring with the Fed starting in a neutral or, if you follow John Taylor (Taylor Rule), in an overly easy status. This crisis is all consumption and fiscal - not monetary and is preceding the Fed - a runaway train.

The Personal Consumption Price Index (core) since 56 - 4th Q 08 +.6%:

The Personal Consumption component (again all prior dips were result of Federal reserve monetary policy, this isn't) -3.5% 4th Q 08:

And the broad deflator - tracking and confirming the PCE deflator above:

Note how this time the personal consumption engine is leading GDP, not following.

The data as per the nations capacity and ability to employ people and a precursor of what the savings rate may do (rise substantially) are a catastrophe.

One should be seeing this data in same gut visceral feel you had when the World Trade Center went down. In crass economic terms it is far worse, and in terms of the safety, security, and well being of the American people - this data set is far worse htan World Trade.

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