Tweet Peeks at 3Q2014 GDP for W/E 09-19-2014

@KeithEOuellette: After another light week of key economic data, the news was more positive than negative (4 to 2) and our overall rating is leaning towards positive so far in 3Q2014. This week, the Final Estimate of 2Q2014 GDP is announced, so we plan to update our Mind Map. The key is to align the economic news items with the weighted average to determine their impact on GDP. We have done just that in estimating GDP growth, utilizing our simple rating model.
For an explanation of the ratings, please refer to the post describing the Rating System.

As of September 19, 2014

  • Has the ECRI’s Index lost its credibility? The Feds monetary policy has moved the recession out years, but will end!
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  • August’2014 Industrial Production (IP) Contracts 0.1%
    RATING = <2>
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  • Sept Michigan Consumer Sentiment beats expectations & hits 84.6, well above 80pt level indicative of recession point.
    RATING = 2
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  • Real Median Household Income has only increased 0.46% annually since 1967. Check out D. Short’s Deflator analysis.
    RATING = <2>
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  • August 2014 US Producer Price Index came in unchanged after only increasing only 0.1% in July; no demand in sight!
    RATING = 1
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  • August CPI (or derivative) inflation is no problem! Only food prices are a concern especially for Mainstream America.
    RATING = 2
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  • New unemployment claims come in at 280,000, well below expectations. Expect another downward tick for UE Rate.
    RATING = 2
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  • The US Dollar’s rise against other foreign currencies since May’2014 has made its move. Will it be short-lived?
    RATING = 2
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The Continuing Saga – Depressed Household Incomes

image7 300x275 The Continuing Saga   Depressed Household Incomes

Median Household Income by State

We all know that Real Household Income has dropped since the mid-1990s in some states. But, here is a look at changes in real household income by state from their peak income years. It’s A Sobering Look at the Data as illustrated by Doug Short at Advisor Perspectives.

Where do you fit in your resident state? If you earn enough income to be in the Top 10%, then I am sure you have experienced more positive results than what is depicted in the charts. However, the fact of the matter is that the GAP between the rich and poor continues to widen.

Should Congress increase the minimum wage for all Part-time and Full-time employees? I would expect a real increase in consumption within 6-12 months after its effective date. It needs to be large enough to affect spending, but small enough not to destroy small businesses. Right now, Small Business has been experiencing record-setting profits, so why not make an investment back into the economy by paying employees more wages? Politically, it would be a death wish for some politicians and tough to pass at least a $2 increase, but I believe that is what we need to grow the economy.

The impact on the US Economy would be multiplied by an X-Factor, including a rise in inflationary pressures. I would also expect some companies to rethink their employment strategy, and surmise that the larger companies would make a decision to hire more full-time, rather than part-time employees.

At the federal level, the minimum wage was last increased on July 24, 2009, when it rose from $6.55 to $7.25 per hour, the last step of a three-step increase approved by Congress in 2007. However, before 2007, the minimum wage had been stuck at $5.15 per hour for ten years. Did it help 5-years ago? Yes,of course, it did, but we were already buried in the trough of the recession with minimal impact on consumption.

The bottom line is that we need to do something to stimulate more growth in the economy, inflationary or not! Why not do it while the economy is still in recovery mode?

GDPNow Projection for 3Q2014 Moves Down to 3.2% Growth

image15 GDPNow Projection for 3Q2014 Moves Down to 3.2% Growth

US Economy Exposed – Debt Crisis

GDPNow comes in at 3.2% real-time as of Thursday, Sept 18, 2014 per the Atlanta Feds’ new economic growth model.

The downward adjustment was the result of “inventory investment’s contribution to real GDP growth (which) fell from 0.0 percentage point to -0.2 percentage point following the September 15 industrial production release by the Federal Reserve.”Industrial Production (IP) actually contracted slightly and hit a 4th plateau over the last year.

If historical trends continue for the IP economic indicator, it should make move towards positive growth in the last month of the current quarter.

What is your take on the last 2 weeks downward 0.2% adjustments (2) from 3.6%, now only 3-weeks ago?

August’2014 Industrial Production (IP) Contracts 0.1%

image6 300x235 August2014 Industrial Production (IP) Contracts 0.1%

August 2014 Industrial Production Index Contracts 0.1%

With a spurt in growth last month, US Industrial Production sputters in August and contracts 0.1%. “Econintersect‘s analysis is marginally worse and showing a pause in growth acceleration – with the rolling averages declining slightly.” Over the last year, Industrial Production, one of the Big 4 Economic Indicators, contracted or reached a plateau 4 times over the past year. This means Industrial Production achieved positive growth over 2/3 of the year. Not bad when you look at on a rolling average or year over year basis.

Steven Hansen’s post today goes on to say that “IP headline index has three parts – manufacturing, mining and utilities – manufacturing was down 0.4% this month (up 3.6% year-over-year), mining up 0.5% (up 8.7% year-over-year), and utilities were up 1.0% (up 0.0% year-over-year). Note that utilities are 9.8% of the industrial production index, whilst mining is 15.9%.” The manufacturing part of this IP Index is watched very closely on a year to year basis since it signals a recession when contracting.

This Sector of the economy is in fairly good shape, but not accelerating wildly, and the US appears not to be in danger of falling in recession over the next 6-months.

Mid-Quarter 3.6% Estimate of 3Q2014 GDP Growth

image5 300x175 Mid Quarter 3.6% Estimate of 3Q2014 GDP Growth

Our Simple Rating System Projects 3Q2014 GDP Growth at 3.6%

Based on July’s broad economic indicators by major component of the GDP calculation, estimated 3Q2014 growth came in at 3.6% as calculated by our Simple Model Rating System. Although not depicted here, the estimate fell to 3.4% based on available August data, which has not all been published yet.

GDPNow’s estimate for 3Q2014 was calculated to be 3.6% about 2 weeks ago and came in at 3.4% in Friday’s estimate. I was surprised with the comparative results coming in exactly the same. Our Simple Model is more subjective than objective, as their model is compiled with raw data as it is published.

Since GDPNow’s data is more “live” than our data, we plan to just report about the Atlanta Feds model and estimates in the future since it is more current for our readers. This is the same reason that we stopped publishing the GDP Fact Book quarterly as it is old data when it hits the bookshelf. We are working on publishing a more comprehensive analysis of the major components of GDP, the first of which will be published over the Holiday Season.

Obviously, if GDPNow Forecasts start to come in significantly different than actual, we will start our Simple Rating Model back up. We will definitely continue to run our model to keep the Feds honest. We will also continue to publish Tweet Peeks of current Quarter economic indicators, as well as analyses of current numbers being depicted positively or negatively by industry in the evaluation of economic trends. The hard economic data is in our Simple Model (29 monthly indicators), but to date, we have logged in 52 Tweet Peeks of 3Q2014 Estimated GDP growth through September 12, 2014.

For now, GDPNow will replace our Simple Model Rating system and will be maintained in our Economic Tool Box, along with the new tool, Gross Output by Industry, which was published yesterday.


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