U.S. Economy Slides during Trump’s First Quarter as President … GDP Growth Rate Falls to 0.7% … Weakest Since 2014

Captain Rick: U.S. economic growth fell to a snail’s pace during Trump’s first quarter as president. GDP grew at an annualized rate of 0.7% in the first quarter of 2017, down from 2.1% growth in the fourth quarter of 2016.

The deceleration in real GDP in the first quarter was mostly a result of weak personal consumption due to lower auto sales and home-heating bills and a downturn in private inventory investment and in state and local government spending. An upturn in oil drilling and exports and accelerations in both nonresidential and residential fixed investment helped limit the overall GDP deceleration.

GDP Growth Rate in the United States averaged 3.21 percent from 1947 until 2017, reaching an all time high of 16.90 percent in the first quarter of 1950 and a record low of -10 percent in the first quarter of 1958.

GDP…What is it?

‘GDP’ represents ‘Gross Domestic Product’…a market value of all officially recognized final goods and services produced within a country in a year. GDP performance (increases and decreases) present a broad-based picture of the health of a country’s economy. High GDP growth is typical of a healthy economy. Low GDP growth (below 3%) is typical of an unhealthy economy. Negative growth is typical of an economy in recession.

GDP Details for Q1 of 2017:

Personal consumption expenditure (PCE) contributed 0.23 percentage points to growth (2.40 percent in the previous quarter) and rose 0.3 percent (3.5 percent in the previous quarter). Spending fell for durable goods (-2.5 percent from 11.4 percent in Q4 2016) and slowed for both nondurable goods (1.5 percent from 3.3 percent) and services (0.4 percent from 2.4 percent).

Fixed investment added 0.69 percentage points to growth (1.47 percentage points in the previous quarter) and increased 4.3 percent, compared to a 9.4 percent expansion in the previous period. By contrast, private inventories subtracted 0.93 percentage points to growth, after contributing 1.01 percentage points in the previous period. Government spending and investment subtracted 0.30 percentage points to growth (0.03 percent in the previous period) and contracted 1.7 percent (0.2 percent in Q4).

Meanwhile, exports jumped 5.8 percent, reversing a 4.5 percent drop in the previous quarter and imports increased at a slower 4.1 percent (9 percent in Q4), bringing the impact from trade to 0.07 percent (-1.82 percent in the previous quarter).

Economy Update for second quarter of 2017: The US economy grew at an upgraded annual rate of 3.1 percent in the second quarter of 2017, the fastest pace in more than two years.

 

U.S. Economy tanks big time in 2014 Quarter 1 … Recession is taking a firm foothold

Captain Rick: The U.S. Economy officially tanked big time in the first quarter of 2014…the first slowdown since early 2011. It is a ‘wake-up call’ that America is heading into ‘Recession’ in spite of the ‘it was just a hard winter’ hype that many ‘blind’ economists have been pumping. 

Last month I posted a report showing the US government’s second estimate of GDP dropped to –1% in the first quarter of 2014…a drop from the first estimate in April of a gain of 0.1%. This third and usually final government GDP report shows that the US economy plummeted soundly into ‘recession’ territory during the first quarter of 2014.

The weather had an effect…but perhaps not as much as other factors like the curtailment of ‘Quantitative Easing’ … the pumping of tens of billions of U.S. debt dollars into the economy each month to make the economy look like its doing OK, when in reality, it is not.

This severe drop of GDP into negative territory (–2.9%) is a sign that another recession might be looming.  A recession is generally defined as two consecutive quarters of negative growth. Overall, the U.S. economy continues in limp along in anemic growth…and now negative growth, as shown in the chart below.

BLUE LINE: 3.0% GDP Growth is required to keep up with U.S. Population Growth. GDP above the blue line represents real growth that adds real jobs. GDP below the blue line indicates real economic decline that is loosing real jobs. GDP below the blue line, but above zero line (‘Recession’), is what Captain Rick calls the ‘Anemic Zone’.

RED LINE: 2.1% GDP Growth is the average of what the U.S. economy scored in the past 12 quarters (3 years). This demonstrates that the U.S. economy is stuck in the economic ‘Anemic Zone’…not mustering enough growth to keep up with population growth. 

GDP…What is it?

‘GDP’ represents ‘Gross Domestic Product’…a market value of all officially recognized final goods and services produced within a country in a year. GDP performance (increases and decreases) present a broad-based picture of the health of a country’s economy. High GDP growth is typical of a healthy economy. Low GDP growth (below 3%) is typical of an unhealthy economy. Negative growth is typical of an economy in recession. 

What does this GDP data mean concerning the future of America?

America is stuck in a land of anemic growth…actually declining in real growth because its economy can not consistently rise above 3% growth … a level required to produce enough jobs and income to keep pace with population growth. In reality, this means that America is declining in economic strength. In the coming few years America faces an astronomical increase in expenditures due to entitlement programs like Social Security, Medicare and welfare programs like Medicaid and Obamacare. America’s relatively level revenue will not be able to cover the mushrooming expenditures. Congress will not be able to address this problem by simply ‘kicking the debt can down the road’ as it has in recent years. At some point soon, the fiscal mess that is brewing will explode as America plunges over the pending ‘real fiscal cliff’.  At the bottom lies America as a third world country.

What can be done to better America and other countries?

Lots can be done! Take notice of what our elected officials do. Vote them out…replace them if they do not perform to your expectations. You might even consider running for an office. The world is in extremely short supply of intelligent people who care about our lands and well being of our people. Go for it. Run for an elected office. Help our world from plunging over the pending ‘real fiscal cliff’…before its too late.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title at top)

Interesting ATRIDIM NEWS JOURNAL Links:

Previous GDP Report

GDP

U.S. Debt Crisis

Economy

Captain Rick’s Fiscal Cliff Course 101

U.S. Economy tanks … Is Recession Looming?

Captain Rick: The U.S. Economy took a nose dive in the first quarter of 2014…the first slowdown since early 2011. Some economists are blaming the sudden drop in GDP on the cold and snow in the northeast. The weather had an effect…but perhaps not as much as other factors like the curtailment of ‘Quantitative Easing’ … the pumping of tens of billions of U.S. debt dollars into the economy each month to make the economy look like its doing OK, when it is not. Another alarming factor is the stalling of house sales in America. The current real estate boom might be nearing its peak.

This drop of GDP into negative territory is a sign that another recession might be looming.  A recession is generally defined as two consecutive quarters of negative growth. There is still one more final tweak that will be made to the official GDP number at the end of June. The current –1.0% estimate, a significant drop from the first estimate of .1% last month, could be revised up or down. Overall, the U.S. economy continues in limp along in anemic growth…and now negative growth, as shown in the chart below.

BLUE LINE: 3.0% GDP Growth is required to keep up with U.S. Population Growth. GDP above the blue line represents real growth that adds real jobs. GDP below the blue line indicates real economic decline that is loosing real jobs. GDP below the blue line, but above zero line (‘Recession’), is what Captain Rick calls the ‘Anemic Zone’.

RED LINE: 2.2% GDP Growth is the average of what the U.S. economy scored in the past 12 quarters (3 years). This demonstrates that the U.S. economy is stuck in the economic ‘Anemic Zone’…not mustering enough growth to keep up with population growth. 

GDP…What is it?

‘GDP’ represents ‘Gross Domestic Product’…a market value of all officially recognized final goods and services produced within a country in a year. GDP performance (increases and decreases) present a broad-based picture of the health of a country’s economy. High GDP growth is typical of a healthy economy. Low GDP growth (below 3%) is typical of an unhealthy economy. Negative growth is typical of an economy in recession. 

What does this GDP data mean concerning the future of America?

America is stuck in a land of anemic growth…actually declining in real growth because its economy can not consistently rise above 3% growth … a level required to produce enough jobs and income to keep pace with population growth. In reality, this means that America is declining in economic strength. In the coming few years America faces an astronomical increase in expenditures due to entitlement programs like Social Security, Medicare and welfare programs like Medicaid and Obamacare. America’s relatively level revenue will not be able to cover the mushrooming expenditures. Congress will not be able to address this problem by simply ‘kicking the debt can down the road’ as it has in recent years. At some point soon, the fiscal mess that is brewing will explode as America plunges over the pending ‘real fiscal cliff’.  At the bottom lies America as a third world country.

What can be done to better America and other countries?

Lots can be done! Take notice of what our elected officials do. Vote them out and replace them if they do not perform to your expectations. You might even consider running for an office. The world is in extremely short supply of intelligent people who care about our lands and well being of our people. Go for it. Run for an elected office. Help our world from plunging over the pending ‘real fiscal cliff’…before its too late.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title at top)

Interesting ATRIDIM NEWS JOURNAL Links:

Previous GDP Report

GDP

U.S. Debt Crisis

Economy

Captain Rick’s Fiscal Cliff Course 101

Bond Giant PIMCO’s Bill Gross tells the Fed: ‘Quantitative Easing’ is not working … it’s like a “leukemia patient on New Age Chemo”

Captain Rick: PIMCO’s Bill Gross says that ultra low interest rate policies and ongoing bond buying programs like ‘Quantitative Easing’ around the world aren’t working. Bill refers to it as a global financial system that is "beginning to resemble a leukemia patient with New Age chemotherapy, desperately attempting to cure an economy that requires structural as opposed monetary solutions." He is challenging the Federal Reserve and other central banks to become part of the solution rather than part of the problem.

Bill Gross, founder and co-chief investment officer of bond giant PIMCO. He is often called the world’s ‘bond king’.

I recognize Bill as one of the worlds most intelligent minds concerning everything related to bonds. Bonds help make our world grow. Bonds are the life blood of our cities, states and countries of our world. 

Bill writes a monthly ‘Investment Outlook’ news letter. His June report is entitled “Wounded Heart”, a nod to Bonnie Raitt’s 2002 tune. It is one of his finest. I will do my best to sum up his eloquent words of wisdom for the U.S. and other countries including Japan, England and Europe who are practicing ‘Quantitative Easing’ fiscal programs that are not working.

Excerpts from Bills “Wounded Heart” report:

“While the global central banks’ policies have stabilized economies, they haven’t succeeded in returning them to old normal growth rates”

"There comes a point when no matter how much blood is being pumped through the system as it is now, with zero-based policy rates and global quantitative easing programs, that the blood itself may become anemic, oxygen-starved, or even leukemic, with white blood cells destroying more productive red cell counterparts"

And to Fed chief Ben Bernanke’s claims that once economic growth has been restored to normal levels, financial markets can also return to normal interest rates and returns, Gross has a few stern words:
"Well it’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5%"
"Perhaps, in addition to a fiscally confused Washington, it’s your policies that may be now part of the problem rather than the solution."

To investors, Gross advises to reduce risk as the Fed continues to try to mend a wounded heart with blood that lacks the necessary oxygen. "Investors should look for a pacemaker to follow a less risky, lower returning, but more life sustaining path."

Read the entire Investment Outlook: “Wounded Heart”  by William H. Gross:  http://www.pimco.com/EN/Insights/Pages/Wounded-Heart.aspx

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Associated ATRIDIM NEWS JOURNAL Report Categories:

Fed Financial Policy: https://atridim.wordpress.com/category/fed-financial-policy/

Investment 101: https://atridim.wordpress.com/category/investment-101/

Stock and Bond Market: https://atridim.wordpress.com/category/stock-bond-market/

Eurozone now in longest Recession —Unemployment and Debt at record levels — Is America next ?

Captain Rick: The 17-nation Eurozone economy contracted for a record sixth consecutive quarter, making this the longest period of recession in the Eurozone’s history. The recession has depressed business confidence, sent unemployment to record highs, inflation to record lows and blown attempts to cut government record debt.

Gross domestic product in the Eurozone fell by 0.2% in the first quarter. The GDP estimate was worse than economists were expecting, largely due to disappointing growth in Germany and could increase pressure on the ECB to take further action to try to stimulate activity.

Unemployment continues to hit new record highs. Unemployment broke through 12% for the first time in March, meaning 19.2 million people were without work in the Eurozone, 1.7 million more than a year ago.
Youth unemployment rose sharply, hitting 24% and leaving 3.6 million people under 25 looking for work.

Prices slumped and inflation has fallen way below the central bank’s target. Inflation posted its biggest monthly drop in four years in April. It fell to 1.2% and touched its lowest level since February 2010.

Eurozone debt hit 8.6 trillion euros, a record 90% of GDP, last year and is forecast to rise to 95% in 2013. As bad as this is … in contrast, U.S. debt to GDP ratio is 107%, trumping it as the worlds worst. One has to wonder if America is next in line to experience the hardships facing those in the Eurozone.

Future Concern: Economists are becoming increasingly concerned at the growing divergence between France and Germany, historically the twin motors of the EU economy and political integration.

France: French President Francois Hollande (shown above) who was elected a year ago after campaigning to put growth before austerity and introduce higher taxes on the rich, has seen his approval ratings fall sharply as unemployment continues to climb. In recent months he has begun to reform labor markets and pensions, and announced plans to cut capital gains tax. But he is moving too slowly for some, and his government continues to send mixed messages.

France, the Eurozone’s second-biggest economy, slipped back into recession. Its output fell by 0.2% for a second consecutive quarter as it suffered from weak exports and falling investment.  France faces a heavy financial burden from its labor unions and pension systems.

Italy: The pace of contraction eased. GDP shrank by 0.5% in the quarter.
Italy, the region’s third largest economy, nominated a new prime minister. Enrico Letta is a pro-European from Italy’s center-left. He wants Europe to ease up on austerity.

Spain: The recession deepened in the first quarter. The economy contracted by 2% compared with the same period a year ago, and by 0.5% compared with the final quarter of 2012. Spain has been stuck in recession for 21 months. It has been given two more years to bring its budget deficit to below 3% of gross domestic product. In contrast, the U.S. deficit ratio is 6.5% of GDP … more than twice as bad. One has to wonder if America is next in line to experience the hardships facing those in the Eurozone.

The number of unemployed in Spain broke the 6 million barrier during the first quarter, a new record. The unemployment rate rose to 27.2%, tied with Greece for the Eurozone’s highest. For Spaniards aged 16 to 24, the unemployment rate is 57.2%.

Greece: The jobless rate was 27.2% for January, tied with Spain for the Eurozone’s highest. In Greece, 34.2% individuals aged 25 to 34 are unemployed. It’s even worse for younger workers — 59.3% of Greeks aged 15 to 24 are out of work.

Portugal: Portugal was able to slow the pace of contraction to 0.3% from 1.8% in the fourth quarter.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

European Debt Crisis: https://atridim.wordpress.com/category/european-debt-crisis/

Europe: https://atridim.wordpress.com/category/europe/

France: https://atridim.wordpress.com/category/france/

Germany: https://atridim.wordpress.com/category/germany/

Greece: https://atridim.wordpress.com/category/greece/

Italy: https://atridim.wordpress.com/category/italy/

Portugal: https://atridim.wordpress.com/category/portugal/

Spain: https://atridim.wordpress.com/category/spain/

Home page (all reports): https://atridim.wordpress.com/

U.S. Tax Revenue + Spending at record high … How to balance America’s budget using the common sense rule of 20% of GDP

Captain Rick: The U.S. Legislature has failed to balance America’s budget almost forever. If it compromised by using the economic common sense rule of 20% of GDP for both revenue and spending, its budget crisis would end and a much brighter future would await the children of our world.

Record Tax Revenue: I am glad to see we have hit a new record of $2.7T in revenues, just a tick above the previous record of $2.6T in 2007. As population grows, we better hope our tax revenue keeps going up every year. Things went far astray during the ‘Bush War and Tax Cut’ era, the Great Recession that followed and ‘Obamas Record Spending Spree’ to try to fix it, including a reckless 2 point payroll tax cut. Thankfully, it and some other irresponsible tax cuts vanished on Jan 1 as a result of the Fiscal Cliff and helped bring us closer to sanity. Unfortunately this new revenue record leaves America with a very anemic tax revenue of only 16.9% of GDP. The 40 year average is 18%. A healthy economy achieves revenue equal to 20% of GDP…so America is still far short of needed revenue…and part of the reason why America’s finances are in such terrible shape.

Record Spending: The other part of the reason America’s finances are in such terrible shape is because America’s spending is too high. America is currently spending $3.55T or 22.2% of GDP. That percentage is higher than almost every year since 1986. A healthy economy limits  spending equal to 20% of GDP…so America is still far over the limit for spending…the other part of the reason why America’s finances are in such terrible shape.

Republicans, Democrats, Conservatives and Liberals debate: Republicans and conservatives argue that taxes are too high and do not agree to any further increases. They say the entire answer lies in cutting spending. Democrats and liberals argue that spending levels should be held. They say the entire answer lies in tax increases. Its easy for me to see why our legislature is in gridlock. Both sides are stubborn and illogical. Neither side possesses the the solution. The solution resides in compromise. 

Captain Rick’s proposal of compromise: I propose that the U.S. Legislature uses the economical common sense guideline of 20% of GDP as a target for revenue and spending to achieve a balanced budget. 20% has proven to be workable figure for successful governments in the past. The figure can be argued…19 v 21…but 20% is a good starting point. Diminishing America’s national debt is a story for another day. It would require the balance to shift to more revenue and less spending…perhaps 21% of GDP revenue and 19% of GDP spending. Real compromise needs to begin soon … in order to protect the future of our children.  

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

GDP: https://atridim.wordpress.com/category/gdp/

China: World’s 2nd largest Economy in decline … as GDP and industrial production drop + a real estate bubble ready to explode

Captain Rick: Gross domestic product in China grew 7.7% over the previous year during the first quarter. That is great by U.S. standards, which are hovering near 0%, but a significant loss from the 10% annual GDP that China has averaged during the past three decades, which propelled it to become the the world’s second largest economy. Reports on industrial production and retail sales disappointed. Economists are worried about a rapid expansion in credit and a red-hot housing market.

Fitch ratings agency warned China of excessive debt levels and issued rare local currency downgrade
The ratings agency said it issued the rare downgrade because of three factors: Structural weaknesses in China’s economy, an expansion of easy credit and the rise of an opaque shadow banking system.
Credit in China has expanded quickly in the wake of the global financial crisis, with much of it issued to local governments and used to finance infrastructure projects.
Fitch believes local government debt levels are now so high that Beijing will, at some point, be forced to assume some of the burden.

In response to the global financial crisis in 2008, China moved to stimulate its economy by increasing the amount of available credit.
Banks and other lenders responded, with credit in China growing since 2009 at a quicker pace than gross domestic product. Only one country — Qatar — was issuing credit at a faster rate.
By the end of 2012, credit issued by Chinese banks to the private sector reached 136% of GDP, the third-highest level of any emerging market country rated by Fitch.
Much of the credit was issued to local governments, and used to finance infrastructure projects that helped China sustain rapid economic growth in the wake of the financial crisis.

Beijing has tried to get a handle on credit issuance in recent years, moving to cool the housing market and cut back on local government debt.
But when combined with low wages, Fitch said the persistent nature of the trends has created growing risks for China’s financial stability.

Real Estate Bubble heating up and ripe for explosion

The housing market is heating up, leading some analysts to worry about the development — and possible deflation — of a housing bubble.
China’s central government is already stepping up efforts to cool prices, and Beijing has directed local governments to institute control measures of their own.
Several cities, including Beijing and Shanghai, have responded by announcing higher taxes and fresh restrictions on property purchases.
20% capitol gains tax has been added on home sales as well as higher interest rates and down payments for anyone buying a second home in cities where real estate prices are sharply on the rise.

China is the second largest holder of U.S. debt (Japan is the largest)
China held about $1.15 trillion in U.S. bonds through August, the most recent reading available from the Treasury Department.
China had been buying U.S. Treasuries as a way to keep its currency, the yuan, pegged to the U.S. dollar. That helped lower the value of the yuan and made China’s exports more competitive in markets such as the United States.

Captain Rick’s Words of Caution: Notice I said China ‘had been buying U.S. Treasuries.’ Latest indication is that that has stopped. This could have grave consequences on Americas gigantic thirst for deficit spending. Japan remains the only major purchaser of American debt and those days could be numbered as well due to economic conditions in Japan not being anything to ‘write home about’. Our world is skating on very thin ‘fiscal ice’. Countries of our world, including China, depend on America to be a leader of fiscal responsibility. America has not been setting a very good example with its legislative gridlock on solving its monumental thirst for deficit spending. The world can only hope that America will wake up from its deep sleep and do what is necessary, before its speeding train goes over the ultimate ‘fiscal cliff’ and takes the world with it.

I welcome your comments, likes, shares and following of my blog! (If not visible, click the red title above)

Info from previous reports:

China: https://atridim.wordpress.com/category/china/

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

GDP: https://atridim.wordpress.com/category/gdp/

U.S. GDP crawls out of ‘recession zone’ to post 2nd worst % since end of Great Recession

Captain Rick: The U.S. managed to crawl out of the GDP recession zone in its ‘final’ report for Q4 2012 to post a dismal 0.4% GDP, second worst since the end of the Great Recession in 2009. The first estimate in January reported –0.1% GDP, in the recession zone. 

GDP (Gross National Product) is the broadest means of quantifying the health of an economy.

In my previous GDP report, I stated: “If Congress gets tough and addresses the debt crisis head on, I suspect it will present a deeper, temporary plunge into negative growth territory. If Congress continues to ‘kick the can down the road’, I suspect we will see less of a dive in GDP early on…but will set the stage for a much deeper dive in a year or two…possibly as deep or deeper than the ‘Great Recession’ of 2008-2009”.

The U.S. Congress passed and President Obama signed legislation to “kick the debt can down the road” AGAIN as reported in my previous post. While these actions have no effect on GDP for Q4 2012, they will effect GDP for Q1 2013 and beyond.

The red line in the chart above indicates the 3% level that the U.S. GDP must maintain to keep up with population growth. GDP has been far short of that for many years. In spite of the positive hype we are hearing in the mainstream news media, America is traversing extremely dangerous economic waters. Hype does not fix problems… credible action does. Unfortunately the world is seeing ‘zero’ credible action out of the politicians who represent the citizens of the United States of America.

Prognosis for the future…where are we headed?

I see several troubling economic factors that parallel the times leading up to the ‘Great Recession’. The world stock markets have reached a new high, passing those reached just prior to the stock market crash of 2008. Like then, I see no justifiable reason for the market rise. Today’s market reminds me of a bunch of gamblers in Vegas looking for a place to throw all of their dollars to bet it all. The market is again inflating into a balloon ripe for explosion. Real estate prices have been climbing at a fast pace, as is real estate speculation…similar to that witnessed prior to the bursting of the real estate bubble, prior to the Great Recession. I can not predict how much farther things can go before a repeat of 2008 occurs…or perhaps worse, but I feel that a down slide is coming soon. Much will have to do with congress’s handling of the debt crisis (very dismal at this point). It will be further complicated by the multi-trillion dollar cost of Obamacare (the worlds greatest socialized, welfare medical program). In addition, we must remember that multi millions of baby boomers are beginning to collect Social Security from a trust fund that has been totally robbed of funds to finance the U.S. Government and its politician’s thirst for deficit spending. It will all play out in a very ugly scene before the world’s eyes during the next few years.

I welcome your comments, likes and shares!

Info from previous reports:

Fiscal Cliff: https://atridim.wordpress.com/category/fiscal-cliff-course-101/

U.S. Debt Crisis: https://atridim.wordpress.com/category/u-s-debt-crisis/

GDP: https://atridim.wordpress.com/category/gdp/

France drags Eurozone into 4th quarter of Recession … A ‘crystal ball’ for America?

Captain Rick: France enters fourth quarter of recession as business activity slumps in Eurozone’s second largest economy. The French economy stagnated through the course of 2012. France’s performance in the first quarter of 2013 is shaping up to be the worst since the same period in 2009. Readings point to a contraction of 0.2% to 0.3% in Eurozone gross domestic product for the first quarter of 2013, after a 0.6% drop in the final quarter of last year.

America is not alone when it comes to difficult economic times. European countries have been experiencing similar economic problems to those in America…perhaps worse. The world, including America needs to pay attention to what our friends in Europe are experiencing. We all should see events unfolding in Europe as a ‘crystal ball’ to vision into the future for what is coming our way…especially for America, if it does not correct its current suicidal course of spending far beyond its means. 

Follow my reports of the European Debt Crisis: https://atridim.wordpress.com/category/european-debt-crisis/

Eurozone Recession Deepens + EU Leaders hope for U.S. Trade Pact to boost Economy

Captain Rick: The Eurozone suffered its third consecutive quarter of decline at the end of 2012 as exports from leading economies Germany and France sank, deepening a regional recession that has driven unemployment to record highs.

Gross domestic product in the 17-nation Eurozone fell by 0.6% in the fourth quarter, leaving its economy 0.5% smaller than it was at the start of the year. The region saw a contraction of 0.1% in the third quarter.
Performances in all four of the region’s biggest economies — Germany, France, Italy and Spain — deteriorated compared to the third quarter of 2012. Output is likely to shrink in 2013 for a second year running, according to the latest forecast from the International Monetary Fund.

17 Member Eurozone

Germany, the Eurozone’s biggest economy, which accounts for about 30% of Eurozone GDP, suffered a contraction of 0.6%. The decline in GDP was was mainly due to the comparably weak German foreign trade. Exports of goods went down much more than imports of goods.

France, the second biggest economy, suffered a 0.3% contraction. France also suffered a sharp fall in exports in the fourth quarter, down 0.6% after growth of 0.7% in the third.

Weaker growth will make it harder for Eurozone governments to meet their debt-cutting targets and intensify the debate about the impact of a strong euro on the region’s recovery prospects.

With fiscal policy tightening, and the ECB in a holding pattern, exports offer one of the few opportunities for the recession-ravaged region to return to growth.

A stronger euro threatens to cancel out some of the hard-won gains in competitiveness brought about by wage cuts in indebted European states.
 
Many of the 17 Eurozone countries are in the middle of austerity programs that are reducing demand, and prompting households and businesses to defer spending and investment.

While policymakers have signaled a willingness to give states more time to bring their budget deficits into line with European Union targets, if the economy continues to deteriorate, there is no sign of a major change in approach.

Wider 27 Member European Union

The economy of the of 27 states of the EU went into reverse in the fourth quarter, shrinking by 0.5%.

The U.K. contracted by 0.3% in the fourth quarter of 2012, bringing it to the brink of a third recession in five years. The Bank of England trimmed its forecasts for U.K. growth in 2013 Wednesday while raising them for inflation.

EU Leaders hope for U.S. Trade Pact to boost Economy

EU leaders are hoping efforts to remove trade barriers with the U.S. could provide a shot in the arm for growth. President Obama promoted this trade pact in his State of the Union Address on Tuesday evening.
Both sides said this week they wanted to move quickly to start formal talks on a trans-Atlantic free trade agreement. 

Captain Rick’s Vision

There are many benefits that could be gained by both economies with such an agreement, especially in the area of regulation…like agricultural, medical and automotive safety standards. Considering the complexities involved, it will require a multi-year approval process…perhaps a decade or more. After all, genetically modified crops, which are commonplace in the U.S., are known as ‘Frankenfoods’ by many in the EU.

A trans-Atlantic free trade agreement will not solve either the EU’s or U.S.’s monumental debt and financial problems. While it could be a tool to help both economies, the EU and the U.S. need to face the realism that their economies are in need of much larger repair…that continual deficit spending of money that does not exist must end. The course that both nations are currently on will not achieve success…more probably, eventual failure. Both nations will need a significant influx of politicians with some ‘serious spine’ to ‘right our ships’. That kind of courage is so rare that I fear for both of our nation’s ‘ships’. Both ‘ships’ are leaning heavily on the port ‘left-welfare’ side. The question that remains is whether our ships are leaning too heavily to prevent the inevitable ‘titanic’ maneuver.

I welcome your comments.

U. S. Economy contracts: GDP dives 3% … Back in ‘Recession Zone’… First time since 2009 What’s ahead?

Captain Rick: Many economists were shocked by the magnitude of this drop in economic growth. I was surprised, but not shocked. Those following my reports know I have been forecasting a coming recession for some time. I caution that this is only the first of three GDP reports for the 4th quarter of 2012.  It won’t be until the end of March until the third and final GDP figure for the fourth quarter of 2012 is released. The final figure could be slightly higher or lower. Regardless of the final figure, the economic trend is not favorable. How Congress handles the very serious looming U.S. debt crisis, especially the portion of the Fiscal Cliff that was ‘kicked like a can down the road’ will play a roll in future economic growth. If Congress gets tough and addresses the debt crisis head on, I suspect it will present a deeper, temporary plunge into negative growth territory. If Congress continues to ‘kick the can down the road’, I suspect we will see less of a dive in GDP early on…but will set the stage for a much deeper dive in a year or two…possibly as deep or deeper than the ‘Great Recession’ of 2008-2009.

I see several troubling economic factors that parallel the times leading up to the ‘Great Recession’. The world stock markets are within 2% of the all time highs reached just prior to the stock market crash of 2008. Like then, I see no justifiable reason for the recent market rise. It looks to me like a bunch of gamblers in Vegas betting it all. The market is again inflating into a balloon ripe for explosion. Real estate prices have been climbing at a fast pace, as is real estate speculation…similar to that witnessed prior to the bursting of the real estate bubble, prior to the Great Recession. I can not predict how much farther things can go before a repeat of 2008 occurs…but I feel that a down slide is coming at some point soon. Much will have to do with congress’s handling of the debt crisis. The best thing they can do is ‘bite the bullet’ and suffer the consequences of balancing the budget early on. While that will most likely allow our GDP figures to become even worse than they are now, action soon might stave off an economic catastrophe a few years from now. I wish I could offer a more wholesome outlook for the American economy, but the fact remains…America is facing the most serious financial crisis in its history, one which has the potential to reduce America to a third world nation if not handled properly and soon.

U.S. Economy: GDP Stalled at ‘break-even’

Captain Rick: Gross domestic product (GDP), the broadest measure of the nation’s economic health, grew at an annual rate of 3.1% from July to September (Q3). That’s more than double the sluggish 1.3% rate in the second quarter, however it only measures even with the break-even line. 3% economic growth, represented by the red line in the chart below, is necessary to provide enough jobs and wages to keep pace with U.S. population growth. America has fallen short of the line in all but three quarters during the past four years. A GDP growth rate of 5% for 4 quarters is required to reduce the unemployment rate by 1%.

Consumer spending, which typically accounts for more than two-thirds of the U.S. economy, was the single largest driver of economic growth between July and September. U.S. households bought more motor vehicles and health care services, leading consumer spending to rise at a 1.6% annual rate in the quarter.

Government defense spending was another large driver, rising 12.9% in the third quarter. And home sales picked up, also contributing to economic growth.

Meanwhile, businesses built up their stockpile of goods and were hesitant to make new investments. Business spending contracted at a 1.8% annual rate in the quarter, dragging on overall economic growth. The largest cuts in business spending were on equipment and software.

Economists point to uncertainty about 2013 taxes and government spending cuts as the culprit that’s weighing on business investment decisions. The uncertainty generated by fiscal ineptitude has basically shut down investment spending. 

Economic Outlook: Overall, economic recovery remains sluggish. On average, the U.S. economy has grown about 2% a year for the last three years. Essentially this means the economy has actually going backwards at a rate of about 1%. Major portions of the fiscal cliff remain unresolved. The fiscal cliff and the pending debt ceiling will have to be addressed by about March 1 to prevent government default. The manner in which they are addressed will play a role in whether America dips into another recession next year.

Japan nears “Recession” as economy contracts: GDP dives to negative 3.5%

Captain Rick: Japan, the world’s third largest economy, saw its economic growth sharply contract 3.5% in the third quarter of 2012. If its GDP (Gross National Product) growth rate remains in negative territory during the fourth quarter, Japan will officially fall into recession. Some economists have warned that looks likely. Some believe Japan is in recession already. Many fear that in light of China’s economic contraction, this is wake up call that the entire region might be headed for recession. I will help clear it up in my closing thoughts below.

Japan’s economy, especially exports, has been battered by the 2011 disasters caused by the earthquake, tsunami and subsequent meltdown of several nuclear reactors. China is Japan’s largest trading partner, but its diplomatic spat with China over disputed islands has made Chinese consumers reluctant to buy Japan-made products, especially automobiles.

Last year nearly 20% of Japanese exports were sold to China, compared to 15.3% to the U.S.

Captain Rick’s closing thoughts on Asia, Europe and the USA:

Japan has been busy gobbling up U.S. debt over the past year. Its current holdings of $1.12 Trillion might soon pass the current top holder of U.S. debt … China at $1.15 Trillion. I find this very interesting and hope to focus on it in an upcoming report as America nears the “Fiscal Cliff”.

To help clear up the controversy of whether or not Southeast Asia is headed for recession, we should consider the problems that our friends in Europe face. Several countries in Europe are already in recession and more on the brink. Europe is facing a very serious financial challenge.

The most serious of all world financial problems lies in the United States of America. Its called the “Fiscal Cliff”. If this financial “nightmare” is not addressed head on with real and meaningful cuts in spending, coupled with increases in taxes, I assure that the negative financial echo effect will have the potential to thrust all countries of our world into recession. Watch for more of my reports on this matter of major global importance.

U.S. October 2012 Jobs Report: . . . . . . . . . . . Hiring and Unemployment up slightly + Captain Rick’s Mathematical Jobs Analysis

Captain Rick: Hiring ticked up to 171,000 new jobs in October … along with the unemployment rate, up .1% to 7.9%. The biggest job sector gainers were business services at 51,000 positions. Health care added 31,000, construction 17,000. Caution…many of the jobs added were low-paying service jobs.

Captain Rick’s REAL Mathematical Jobs Analysis:

At least 150,000 jobs need to be created each month (1,800,000 per year) to keep pace with the growing population, as represented by my red line in the chart above.

In the past 12 months, beginning November 2011, America has added 1,950,000 new jobs. Subtracting the needed addition of 1,800,000 to keep pace with population growth, America added just 125,000 REAL jobs in the last year. That represents a move in the positive direction, but is far short of what is needed to regain the nearly 9 million jobs lost during the Great U.S. Recession in 2008-2009. At the pace American jobs have been restored during the past year, America will not experience a return to pre-recession job conditions for decades, if ever. Many economists share my feeling that what we are seeing now is the new job norm. The great job conditions of the mid 2000s will not be returning … possibly ever.

The U.S. Fiscal Cliff: This is the most important fiscal challenge facing America … perhaps the most monumental in U.S. history. How our legislators manage this crisis will determine America’s Jobs outlook and fiscal status for years to come. If not handled properly, our legislators are in position to reduce America to a third world country during the coming years. This is very serious ‘stuff’. I will do my best to keep you informed. Read my report on the Fiscal Cliff: https://atridim.wordpress.com/2012/09/26/fiscal-cliff-what-the-heck-is-it-how-will-it-affect-us/

U.S. 3Q GDP estimate rises to 2% … still far short of growth needed to keep pace with population growth

Captain Rick: The U.S. economy grew a bit faster in the third quarter than the sluggish 1.3% of the second quarter, according to the first of three estimates for the third quarter. First estimates are notoriously optimistic, especially when they come before a presidential election. The first estimate for the second quarter was 1.5%, raised to 1.7% on the second estimate and then sank to the ‘final’ 1.3% figure. We will have to wait until December for the more realistic third estimate.

Gross domestic product (GDP) is the broadest measure of the nation’s economic health. 3% economic growth, represented by the red line in the chart below, is necessary to provide enough new jobs to keep pace with U.S. population growth. America has fallen short in all but two quarters of the past four years. This means that the percentage of eligible workers who are working continues to drop almost every month. Real unemployment is continuing to increase, in spite of the bogus and meaningless unemployment percentages the U.S. government publishes each month that show a slow decline. America’s unemployment rate is currently published to be 7.8%, but the real number is actually about twice that…and rising, not falling.

I do not see anything on the horizon that is going to raise America continuously up above that red line, where we need to be to enjoy a healthy and growing economy … at least for the next several years, perhaps 2017 or beyond. Even the Fed, the IMF and other global financial authorities forecast similar sluggish growth through 2015. Europe appears to in recession or close to it. U.S. growth of 1.3% in the second quarter is knocking on recessions door. China’s economy is slowing quickly as a result of economic sluggishness in the West. This paints an anemic image of America’s economic health, with a global ripple effect. If the U.S. legislature attacks the “Fiscal Cliff” with vengeance when they return to work in January, we might see a boost in GDP in coming quarters. I am referring to major spending cuts and yes…tax increases. Anything short of that means “kicking the can down the road”, as has been done for many years, and will give us continued economic stagnation and possible recession.