Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.8 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.
This is down a fair bit — and was unexpected (expectations were for no change.)
The downward revisions were in consumer purchases, business investment and exports.
On the former, the answer is “duh!”
The other problem:
Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) decreased $28.0 billion in the first quarter, in contrast to an increase of $45.4 billion in the fourth quarter.
Oops. That ought to disabuse those who claim that the market projects forward corporate profits. Looks like that’s not quite reality, eh?
On the back of this yields spiked downward a bit and the pre-market futures bounced slightly.
CNBS is now talking about admitting that a sub-3% economy is “the new normal.” Well, if that’s the case then how do you explain the market’s price?
Simple: Excess liquidity — that is, leverage, is what has levitated the market — not profits and not economic growth. And that leverage multiplies both profits and losses, which means that you get instability out of it.
Is this “good”?
I suppose that depends on your point of view — is the only thing that matters the number of DOW points you gain in a day? I argue that not only is this not the only thing that matters it is almost irrelevant in real terms — although it certainly makes for good “headlines.”
It is far more important to the economic outcome for the nation as a whole that our economic environment encourages entrepreneurship, whether a given individual engages in that activity or not, because it is specifically that activity that leads to growth in both employment and innovation.
Don’t expect policy to focus in that area any time soon.