Morning Report: Q2 GDP disappoints, Q1 GDP revised upward 7/30/15

Markets are lower this morning after 2Q GDP disappoints. Bonds and MBS are flat

The advance estimate for second quarter GDP came in at 2.3%, missing the 2.5% street estimate. However, that may have been due to the fact that the first quarter number was revised upward from -0.2% to 0.6%. In essence, people were expecting a big bounceback from the weak first quarter, however some of that bounceback was pulled back into Q1. The consumption number was better than expected at 2.9%, and the core PCE (personal consumption expenditure – the Fed’s preferred measure of inflation) was 1.8%, just below the Fed’s target. Government spending was flattish as was private investment. This pretty much says that consumption is getting better with the labor market, however business investment is still depressed, which is probably more due to overseas concerns than domestic ones. The next big economic “tell” will be the back-to-school shopping season, which is right around the corner.

The FOMC statement was a non-event yesterday. They noted continued improvement in the labor market, although they want to see further improvement before they raise rates. Given the GDP report (especially the inflation data), it is looking more probable that the Fed moves in September.

Initial Jobless Claims rose to 267k after hitting a multi-decade low last week. The big question for the Fed is when wage growth begins to happen. That will be a function of whether some of the people who have exited the labor force want to (and are able to) return to the labor market. If not, then we should start seeing wage inflation sooner. FWIW, hearing anecdotally that the job market for recent college grads is strong this year.

Michael Feroli, Chief US Economist at J.P. Morgan draws parallels between the current economy and that of 1966, with regards to inflation. The Fed got behind the curve and ended up chasing inflation throughout the 1970s. IMO, there are big differences between 1966 and today, most notably the lack of international competition back then. Europe and Asia really didn’t rebound from WWII until the 1970s, so the US had no competitive forces pushing prices down. That simply isn’t the case today. If anything, the strength in the U.S. dollar is keeping commodity and import prices low, which is keeping a lid on inflation. Wage growth will be key. No wage growth, no wage-price spiral.

19 Responses

  1. Showing my age here, not getting why women find tattooing themselves is attractive.

    Also don’t understand the whole “Huge Hole in My Earlobe” of either sex.

    Even an idiot see’s the reconstructive surgery on ears coming down the road. Is that a feature of the craze?


  2. I have always thought DWS was an idiot…


  3. Don’t know… it isn’t like she is well connected to money or anything.. Maybe it is just a lack of shame that makes her perfect for the role…


    • Politico thinks it knows why DSW was made DNC Chair.

      “But there was nervousness about the optics of Obama dropping a woman from the party leadership. Plus, the sense internally was that they had originally picked her largely to help win the women’s vote and avert problems with Jewish donors, and both had indeed happened, whatever the other problems.”

      Read more:

      In any case, she does not impress in any positive way and my guess is that she is also a product of BHO’s attempt to be the alpha and the omega of Democratic Party politics at the national level. DWS has done nothing to help turnout for Ds, or to encourage a youth movement in the leadership. The very notion that the Ds candidates for POTUS are all about as old as I am or older – and I retired yesterday – is in part due to DWS’s total failure as a leader of a major political party.

      Or so I think.


  4. @McWing: “Showing my age here, not getting why women find tattooing themselves is attractive.”

    It’s all self-expression. Idenitfying your uniqueness and expressing yourself by advertising your casual membership in a particular tribe. It identifies you as a member of that particular loose knit tribe and is attractive . . . to other members of that tribe. What drives it, I don’t know. I just know some of those folks are going to wish they weren’t all tatted up one day.

    I don’t know how tattooed my daughters will get in the long run. My oldest is desperate for a tattoo, and if she can get her A1C at target levels her mother is going to let her get one before she turns 18 (a diabetic ribbon on her wrist, which serves a purpose, I suppose). After she turns 18 I expect she’s going to want to do more but then comes the discussion of how she plans on moving out and paying all her own bills. 😉


  5. @McWing: “Schultz, however, was able to tell the difference between a Democrat and a Republican.

    “The difference between a Democrat and Republican is that Democrats fight to make sure everybody has an opportunity to succeed and the Republicans are strangled by their right-wing extremists,” she said.”

    So she is no better at identifying the differences between Democrats and Republicans than she is between Democrats and Socialists. Of course, the difference between both groups is easy to indicate. The difference between Democrats in Republicans is about 100° to the right. The difference between Democrats and Socialists is about 15° to the left.


  6. I would be curious toe hear Reince Preibus describe the differenc between a a republican and a Libertarian.


  7. Also don’t understand the whole “Huge Hole in My Earlobe” of either sex.

    If that’s showing your age, you must predate homo sapiens.



  8. @Mark – I think you attribute way too much power to the DNC chair. Neither Howard Dean nor Michael Steele had much to do with the success of their respective parties in subsequent elections. Democrats had plenty of plausible contenders coming into 2016. That they chose not to run comes down to two factors. It is an uphill race to try to succeed a two term president. The last one to do so who wasn’t a sitting Veep would have been Hoover. The other matter being that there is overwhelming favorite for the Democratic nomination. Why run when you’re nearly certain to lose the nomination and the general?



    • BB –

      Why run when you’re nearly certain to lose the nomination and the general?

      Perhaps for three reasons that make sense.

      1] You think you are a worthy candidate in your own right and have enough seed money or early exposure available to raise your profile.

      2] 1 + you believe HRC is a seriously flawed candidate.

      3] 1 + you want to raise awareness of your existence for a later run.

      What doesn’t make sense is ceding the field to HRC and an old socialist with a Brooklyn accent.

      I think that if Dean were DNC chair the DNC would have encouraged Globuchar and Warner and perhaps two or three others who are not yet 60 to enter the field.

      And he would have easily explained the difference between Debs style American socialism and the D platform. He could have used Bernie’s own words against him. Bernie lamented that poor children did not have shoes even though we have 17 shoe brands for children. Dean could have said a socialist wnats one shoe brand approved or owned by the government but a Democrat thinks more shoe brands competing make for better products at lower prices. Both a socialist and a Democrat might want poor children to have shoes that fit, but a Democrat wouldn’t suggest that the solution was government shoes, and might even applaud WalMart for making more inexpensive shoes available than were ever possible anywhere at any time before.

      Then if he wanted to slam Rs, he could have said something inflammatory like Rs don’t care if poor children are barefoot.


  9. Who are the viable D’s that did not enter the race?


  10. @Mark – It’s an interesting take, but profile raising doesn’t seem to have worked as well for Democrats as for Republicans. Biden got the veep pick for his run and Hillary is in pole position. Otherwise, it didn’t really help any of the others who ran in 2008. Plus, many of those who might be plausibly considered as a candidate already endorsed Hillary.

    The best parallel might be to 1992. Potential candidates such as Cuomo took a pass on the race, presuming that Bush would easily win re-election. Democrats wound up with a deeply flawed and highly talented candidate who did in fact upset Bush. There’s still a lot of myths about that race, the biggest of which being Perot handed the election to Clinton. One would have needed 2/3 of Perot votes to break to Bush (and none to just sit out the election) for Bush to win. Follow-up questions to voters don’t substantiate those numbers. NB: I voted for Perot, but would have voted for Clinton. As hard as it is for Scott to get it through his head, I’m fiscally conservative.

    Warner took a pass on 2004 (I would have been a supporter) and doesn’t seem inclined to make a national run. I think he’d be an ideal Veep candidate and don’t really understand why Kaine has gotten more attention (runner up evidently for Obama and serious consideration from Hillary). Don’t get me wrong. I voted for Kaine for both governor and senator. Happy to have him in office, but I find Warner to be much more interesting.



    • FB:

      As hard as it is for Scott to get it through his head, I’m fiscally conservative.

      I’m not at all sure what prompted that gratuitous shot. The only time we discussed the topic in the past, all I did was challenge the notion that “fiscal conservative” could be sensibly used to describe someone who was a “big government” liberal as long as he was willing to raise taxes high enough on other people to pay for all the stuff he wanted government to do. Such a person is not a “fiscal conservative” in any normal understanding of the term. Whether or not you personally are a “fiscal conservative” is not something I’ve ever commented on.


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