Perfect Timing! GDP Rises 3.5% Just Prior To Midterm Elections (Personal Consumption Declined, Government Spending Grows)

With the US midterm elections rapidly approaching, the Bureau of Economic Analysis provided a treat for Democrats: an increase in real GDP in Q3 of 3.5%! Is this the October Surprise Democrat Strategist Bob Beckel was talking about?

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While 3.5% sounds like a sold number, it has the distinct whiff of … China.

You see kids (as Clark Griswold used to say), the usual primary driver of GDP growth is personal consumption expenditures. Unfortunately, PCE fell to 1.8% after rising 2.5% in Q2.

Since PCE is usually about 70% of GDP, what drove up GDP growth to 3.5%?

It was PCE which only contributed 1.22% to GDP in Q3, nor was it Services which contributed only 0.52% to GDP. Nor was it Gross Private Domestic Investment which slumped to 0.17% in Q3.

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Nor was it Residential Investment which slumped to almost zero contribution. Nor anything else.

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So what grew? Federal spending which rose 0.67% in Q3, THE HIGHEST CONTRIBUTION SINCE 2011! National defense had the largest contribution since 2011 as well.

So, it was defense spending, not personal consumption expenditures, that grew the economy in Q3.

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Saudis Fight Back Against US Shale Patch Production (Lower Oil And Gasoline Prices Result)

The Saudis are doing what Actor Matt Damon couldn’t do with his anti-fracking hysteria film “The Promised Land.” The film, which died a painful death at the box office, was funded by the United Arab Emirates.

EXCLUSIVE – Privately, Saudis tell oil market: get used to lower prices
By Ron Bousso and Joshua Schneyer
LONDON/NEW YORK Mon Oct 13, 2014 4:30am IST
LONDON/NEW YORK Oct 12 (Reuters) – Saudi Arabia is quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch.

Some OPEC members including Venezuela are clamoring for urgent production cuts to push global oil prices back up above $100 a barrel. But Saudi officials have telegraphed a different message in private meetings with oil market investors and analysts recently: the kingdom, OPEC’s largest producer, is ready to accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.

The discussions, some of which took place in New York over the past week, offer the clearest sign yet that the kingdom is setting aside its longstanding de facto strategy of holding prices at around $100 a barrel for Brent crude in favor of retaining market share in years to come.

The Saudis now appear to be betting that a period of lower prices – which could strain the finances of some members of the Organization of the Petroleum Exporting Countries – will be necessary to pave the way for higher revenue in the medium term, by curbing new investment and further increases in supply from places like the U.S. shale patch or ultra-deepwater, according to the sources, who declined to be identified due to the private nature of the discussions.

The resulting decline in Brent crude futures prices has resulted in a similar decline in US regular gasoline prices.

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Here is Matt Damon bloviating about the horrors of fracking. On the other hand, here is an alternative view of fracking.

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Suffice it to say, the Saudis are achieving anti-fracking agenda by using the global marketplace and increasing oil production to lower prices, both in the North Sea (Brent) and the USA.

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Some Recovery: 50% of Americans Made Less Than $28,000 In 2013 (U6 Unemployment Still Above 11% Over 5 Years After Recession Ended)

The Federal Reserve utters platitudes about moderate growth in the economy while media pundits talk about the improving labor market.

Really?

According to the Social Security Administration, 50% of Americans made less than $28,000 in 2013.

The “raw” average wage, computed as net compensation divided by the number of wage earners, is $6,704,657,596,370.41 divided by 155,772,341, or $43,041.39. Based on data in the table below, about 66.9 percent of wage earners had net compensation less than or equal to the $43,041.39 raw average wage. By definition, 50 percent of wage earners had net compensation less than or equal to the median wage, which is estimated to be $28,031.02 for 2013.

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As you can see, the U3 (full-time) and U6 unemployment (full-time and marginally attached workers) does NOT reflect a “back to normal” labor market. In addition, mortgage purchase applications and M2 Money Velocity continue to fall/stagnate.

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Bear in mind that it has been more than 5 years since the NBER declared that the recession ended.

Is it any wonder that the fastest growing credit in the US is student and auto loans?

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Particularly “subprime” auto loans.

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But at least Federal Reserve policies are helping to push asset prices up again … for those who actually own assets like stocks, housing, commercial real estate, etc. Just not wages and real income.

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walkingdeadus2 From Jesse’s Cafe Americain.

Bloody Mary Morning: Dow Down 434 Points, US Treasury 10 Yield Down 17 BPS (Goldman Downgrades Q3/Q4 GDP Forecast)

As Willie Nelson used to sing “It’s a Bloody May Morning.”

The economic news this morning was not good. Retail sales were weaker than expected, as was the Empire Manufacturing index.

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And Goldman Sachs downgraded Q3/Q4 GDP in this report:

BOTTOM LINE: Business inventories rose less than expected in August. In light of the disappointing September retail sales report and slower-than-expected inventory growth in August, we reduced our Q3 GDP tracking estimate by three-tenths to +3.2%. We also moved our Q4 GDP forecast down a quarter point to +3.0%.

MAIN POINTS:

1. Business inventories rose 0.2% in August (vs. consensus +0.4%). Retail inventories—the only component of the report not already known for the month—declined 0.3%. Auto and auto parts inventories declined 0.7%, while ex-autos inventories were flat.

2. In light of the disappointing September retail sales report and slower-than-expected inventory growth in August, we reduced our Q3 GDP tracking estimate by three-tenths to +3.2%. We also moved our Q4 GDP forecast down a quarter point to +3.0%, due to weaker momentum in consumer spending heading into the quarter.

Markets did not react well.

The Dow is down 434 points as of 1:42pm EST.

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US Treasury 10 year yields are down 18 basis points to near 2.0%.

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Across the bond, Greek 10 year yields are UP 77 basis points, Portugal’s UP 22 basis points and Italy’s UP 12.5 basis points.

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And the US Dollar against The Gyro? I mean Euro

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Opa! opa2

And to quote The Bard from King Lear …

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Orkin: Chicago “Rattiest” City in USA, Followed By Los Angeles and Washington DC

Orkin, the pest extermination company, has released its ranking of the most rat-infested cities in the USA.

Leading the list is Chicago, followed by Los Angeles and Washington DC. And then by New York City and San Francisco.

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It is a shame that the some of the nation’s most expensive cities have the worst rat problems.

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At least the lack of recovery of house prices in Chicago and New York City can help explain the “rattiness” of Chitown and The Big Apple.

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But San Francisco, Los Angeles and Washington DC have little excuse for their rattiness.

Perhaps Tony Bennett can sing “I left my cheese in San Francisco.”

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Oddly, this is exactly what our pizza delivery person looks like too!

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Labor Participation Rate Drops To 36 Year Low, Wage Growth Zero, Bernanke Turned Down For Mortgage Refi

Today’s jobs report is ugly, yet if I turn on Fox Business and CNBC I will hear only joyous headlines: unemployment rate drops to 5.9!

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What’s NOT to like about the employment report?

First, U6 unemployment (full-time and marginally attached) still remains higher than at anytime prior to September 2008 at 11.8%.

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Second, civilian labor force participation dropped to 36 year lows. Back when Jimmy Carter was President.

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Third, people not in the labor force rose to a new record high, increasing by 315,000 to 92.6 million!

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Fourth, average hourly earnings (MoM) fell to zero while average hourly earnings (YoY) fell to 2.0%.

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Finally, former Federal Reserve Chair Ben Bernanke was turned down for mortgage refinancing.

The former Federal Reserve chairman, speaking at a conference in Chicago yesterday, told moderator Mark Zandi of Moody’s Analytics Inc. — “just between the two of us” — that “I recently tried to refinance my mortgage and I was unsuccessful in doing so.”

Just between the two of us? Now the entire world knows that even the former Federal Reserve Chair can’t get a mortgage refi approval.

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Bernanke suffered from not being with the same employer for two years.