Morning Report – Q4 GDP disappoints 1/30/15

Stocks are lower after Q4 GDP disappoints. Bonds and MBS are up.

Fourth Quarter GDP came in at 2.6%, lower than the 3% estimate from the Street. Consumption came in better than expected, which is a bright spot. Inflation remains nowhere to be found, as the core PCE Index (the inflation measure preferred by the Fed) came up zero.

The Employment Cost Index fell to 0.6% in Q4, matching expectations.

Overseas, rates are lower again. The Great Bund / JGB convergence trade continues, with the spread under 5.5 basis points. On the other side of the coin, Greek yields continue to rise, with the Greek 10 year now yielding 10.8%.

Household formation grew 4x to 1.7 million in Q4 from a year ago. Granted, the vast majority of these are renters, but they probably will buy houses at some point. Think of what 1.7 million housing starts would do for the economy. That is just an indication of how much pent-up demand there is in the housing sector.

The homeownership rate fell to 64% in the fourth quarter, however the lowest since the mid 1990s, when we began this huge experiment in social engineering via housing policy.

So far, we are not seeing much of a slowdown in the energy patch states as a result of lower oil prices. This was echoed by builders Horton and Pulte. Of course it is still early in the game.

29 Responses

  1. “but they probably will buy houses at some point. ”

    Do you think they will? Or do we have a generation of renters. Looking at my sister-in-law and her fiance, i don’t see how they ever buy without help from family.

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  2. Scott brought this the other day.

    There is a lot unpack in this answer and a lot of implications about Closed Shop laws and licensing.

    Will any media pursue it?

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  3. Looks like Palestine has some balls.

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  4. The goal of progressivism is not to make the world rational; it’s to make the world Portland.

    Have you ever been to Portland? Nothing wrong with that! 🙂

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  5. I visited Portland while in the Navy… Fun place.

    On the way home, we picked up our new CO (who was just observing until he actually assumed command). While navigating the Columbia River, we had a false loss of steering alarm. I was OOD at the time. Navigating a river is tough enough, without emergencies. What a way to get introduced to your new CO.

    Thank God it was just an alarm malfunction – if you lose steering in a river, all you can do is drop the hook pronto and pray you don’t run aground.

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  6. Anyone figured out if Obama’s overseas tax proposal is an actual tax holiday for repatriations or just a surtax on overseas income that would then be taxed twice if brought back? Accounts are conflicting:

    “The administration is proposing to pay for the ambitious program in part with revenue from a one-time mandatory 14 percent tax on about $2 trillion in profits that corporations have been keeping overseas in order to avoid corporate income taxes here. The tax would be a sizable hit on multinationals and a way of discouraging them from parking money in foreign countries.”

    http://www.washingtonpost.com/business/economy/obama-budget-targets-public-works-corporate-tax-revisions-pay-raises/2015/02/01/0f734e90-aa4f-11e4-ad71-7b9eba0f87d6_story.html?hpid=z1

    “Mr. Obama’s budget will kick off that debate with particular tax proposals. Among those proposals will be a 19 percent minimum tax rate on American corporate profits that are kept overseas.

    The president will also propose a one-time 14 percent tax rate for companies that bring profits home from overseas, with much of the proceeds going to fund infrastructure, like roads, bridges and airports. But that “repatriation holiday” would have to be part of a broader overhaul of the business tax code, the budget will stress. The president will reiterate his call for a business income tax overhaul that lowers the corporate tax rate from 35 percent to 28 percent, and 25 percent for manufacturers.

    Mr. Ryan, the House’s lead tax policy writer, embraced that idea as long as it was part of “properly constructed tax reform.” He pointed to the proposal as one of several areas where bipartisan agreement is possible.”

    http://www.nytimes.com/2015/02/02/us/obama-budget-to-seek-to-stabilize-deficit-and-address-income-inequality.html?ref=politics&_r=0

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  7. Which Portland? Mind you, I’m fond of both of them.

    BB

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  8. Like

  9. Like

  10. JNC: The Obama administration’s fiscal 2016 budget will also propose a transitional 14 percent tax on an estimated $2 trillion in past corporate foreign profits, according to a White House official and other sources briefed on the plan. The $238 billion raised by the mandatory, one-time tax would be used to close a funding gap in a $478 billion, six-year transportation reauthorization.

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  11. I’m still bitter. Dang Patriots!

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  12. i like the Pete Carroll and “worst play call in history” is now a thing.

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    • Two years ago, in the midst of trying to convince skeptical ATiMers that progressive income taxation was discriminatory in a way that would not be tolerated if applied on any basis other than income level, I introduced an analogy and asked what defenders of the progressive income tax would say if the progressive rate was determined not by income level but instead by religion. That is, what if you had to pay a higher or lower income tax rate depending upon one’s religion? I figured this was outrageous enough that I could be certain that even the most progressive of the defenders of the progressive income tax would find it difficult to defend, and thus my point would be made.

      I should know by now that even the craziest thing is not too outrageous for this twilight zone of a world we live in. From the Telegraph today, Compulsory income tax on Christians drives Germans away from Protestant and Catholic churches:

      Church members in Germany are required by law to pay tax to fund church activities, which is collected by the government.

      Under German law, anyone who was baptised as a child is automatically a member of the church and obliged to pay the tax, charged as a percentage of their income, regardless of their beliefs or whether they attend church services.

      Until recently, many Christians have been prepared to pay the extra tax for the benefits it brings them, including access to church schools and day care facilities that are funded by the state.

      Like

  13. Can we at least *try* mindless austerity first?

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  14. “Until recently, many Christians have been prepared to pay the extra tax for the benefits it brings them, including access to church schools and day care facilities that are funded by the state.”

    well that’s weird.

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  15. What isn’t forbidden is mandatory.

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  16. Is it just me, or is Ezra Klein totally overlooking that one of the primary reasons that Obamacare may not be costing as much as expected is due to the number of states that didn’t expand Medicaid?

    http://www.vox.com/2015/2/2/7965911/obamacare-cost

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  17. “Obamacare spends a lot of money on its tax credits and Medicaid expansion.”

    He gets close but can’t acknowledge it.

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  18. CBO also has this little nugget:

    Medicaid expansion and ACA subsidies “will both stimulate greater demand for health care and allow lower-income households that gain subsidized coverage to increase
    their spending on other goods and services, slightly boosting GDP growth.

    If it’s free or low cost to the consumer and they were not seeking care before (as we were told) how does it follow they’d start spending. from my view, it’s a wash from their perspective, especially the Medicaid population

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  19. @ScottC: “That is, what if you had to pay a higher or lower income tax rate depending upon one’s religion?”

    I don’t think that’s a good analogy . . . unless your going to argue the religion is somehow correlated with income. Thus we assume someone who is a Baptist is wealthier than a Seventh Day Adventists, and Episcopalians are obviously wealthier than all other denominations. Jews would be hardest hit under such a system, one would guess.

    “Compulsory income tax on Christians drives Germans away from Protestant and Catholic churches:
    Church members in Germany are required by law to pay tax to fund church activities, which is collected by the government.
    Under German law, anyone who was baptised as a child is automatically a member of the church and obliged to pay the tax, charged as a percentage of their income, regardless of their beliefs or whether they attend church services.
    Until recently, many Christians have been prepared to pay the extra tax for the benefits it brings them, including access to church schools and day care facilities that are funded by the state.”

    Holy crap. Sounds like a little anti-religious social engineering by the German state, if you ask me.

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    • KW:

      I don’t think that’s a good analogy . . . unless your going to argue the religion is somehow correlated with income.

      I think it is the perfect analogy precisely because it doesn’t make any such assumption. My point was that discriminating against people because of their income is, in principle, no different than discriminating against them for other mutable characteristics like their religion.

      Consider a flat rate income tax. Everyone pays 15% of their income. There is no discrimination. Then a law is passed saying that anyone with characteristic X will pay an extra 5%. Does one need to know what X is in order to know whether those with X are being discriminated against? I don’t think so. Doesn’t matter whether X is a certain income level, or a religious affiliation. Either way, the law is clearly discriminating against people with characteristic X, and punishing them for displaying characteristic X.

      If you would object to the law if X was a certain religion, then consistency would have you also object to the law if X is a certain income level.

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  20. @McWing: “”I want to work w/ Congress to replace mindless austerity w/ smart investment.””

    What’s wrong with smart austerity? Sounds better than mindless investment, which is what we usually get.

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  21. Kevin, scalpel like cuts are politically impossible. It’s the cleaver or nothing. I’m tired of nothing.

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  22. @McWing: Cleavers can be smart.

    Like

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