Yesterday morning the BEA released the third estimate of Q4 GDP. The BEA reported that Real gross domestic product "increased at an annual rate of 3.0 percent in the fourth quarter of 2011", the same as the previous estimate. Also in the release, the BEA reported the real gross domestic income (GDI) increased at a 4.4% annualized rate in Q4.
There are really two measures of GDP: 1) real GDP, and 2) real Gross Domestic Income. Some economists believe that that GDI is often more accurate than GDP.
During the worst period of the last recession, GDI fell more than GDP. In subsequent revisions, GDP was revised down showing the economy contracted more than originally reported - and closer to the original GDI reports, which may mean the GDI could be a more accurate measure of economic growth.
The opposite has happened over the last two quarters - GDI is showing stronger growth than GDP - and this suggests that 2nd half 2011 GDP might be revised up with the next annual revision that will be released on July 27th (Revised Estimates will be provided for years 2009 through 2011).
With its third revision of fourth-quarter GDP, issued Thursday, the agency also released its GDI estimates. Here’s what they show:
GDP Q4 2011 up 3.0%
GDI Q4 2011 up 4.4%
GDP Q3 2011 up 1.8%
GDI Q3 2011 up 2.6%
FULL 2011 GDP: up 1.7%
FULL 2011 GDI: up 2.1%
Hopefully this means that actual GDP growth moving forward could be higher than actual numbers reported assuming of course that GDI continues to grow at a faster pace. We hope this trend can continue through the balance of 2012.
Friday, March 30, 2012
Friday, March 23, 2012
Pulse of Commerce Index
While there are a number of economic indicators used to gauge the economy, one of the more interesting is the Pulse of Commerce Index. The index seeks to measure real time economic activity by tracking diesel fuel purchases across the country.
The Ceridian-UCLA Pulse of Commerce Index derived by UCLA Anderson School of Management is based on real-time fuel consumption data for over the road trucking and serves as an indicator of the current state and possible future direction of the U.S. economy. By tracking the volume and location of diesel fuel being purchased, the index closely monitors the over the road movement of produce, raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers. Working with economists at UCLA Anderson School of Management and Charles River Associates, Ceridian publicly releases the Index monthly and also offers companies access to customized reports and data. The index has been relatively flat since the middle of 2010, which confirms the slow level of US economic growth. The link to the index is below.
http://www.ceridianindex.com/
The Ceridian-UCLA Pulse of Commerce Index derived by UCLA Anderson School of Management is based on real-time fuel consumption data for over the road trucking and serves as an indicator of the current state and possible future direction of the U.S. economy. By tracking the volume and location of diesel fuel being purchased, the index closely monitors the over the road movement of produce, raw materials, goods-in-process and finished goods to U.S. factories, retailers and consumers. Working with economists at UCLA Anderson School of Management and Charles River Associates, Ceridian publicly releases the Index monthly and also offers companies access to customized reports and data. The index has been relatively flat since the middle of 2010, which confirms the slow level of US economic growth. The link to the index is below.
http://www.ceridianindex.com/
Friday, March 16, 2012
Quantitative Easing Revisited
We thought it would be great to revisit the US monetary base to see how QE has impacted the stock markets.
The chart below is a chart of the US monetary base. In simple terms, it illustrates how much money the Fed has pumped into the financial system. So it’s a kind of visual of what the Federal Reserve is doing. Given the events of the past several years, we can assume when the monetary base explodes higher, the Fed is concerned about stability in the system and therefore pumps liquidity into circulation.
On the chart, you can observe that during the financial crisis the Fed didn't do much until the autumn of 2008 when it pumped nearly $1 trillion into the system - the first vertical spike. In the middle of 2010, the monetary base declined which corresponded to a decline in the stock market. In response, the Federal Reserve injected more liquidity into the system via QE2 at the end of 2010 into the first half of 2011 - the second vertical spike. The stock market followed suit rising sharply in December of 2010 and through the first several months of 2011. The monetary base then declined in the into the fall of 2011 at the same time the stock market declined. Since the beginning of 2012 (the last little spike up on the chart), the Fed has increased liquidity in the system that has, no doubt, been responsible for the stock market's 10% increase so far this year.
What's concerning is that it now takes huge spikes in liquidity to have the desired affect. Any slowdown in liquidity injections seems to negatively impact economic growth, which in turn causes the stock market to decline. At what point will the Fed stop injecting liquidity into the system? Will they ever be able to stop? Nobody really knows.
That being said, as long as the money is flowing freely, we can expect the cash will find its way into the stock market, especially with interest rates at zero. We expect this process can't continue forever, but we can't completely rule out the possibility. Unfortunately, if the Fed continues on this path it will have unforeseen consequences.
The chart below is a chart of the US monetary base. In simple terms, it illustrates how much money the Fed has pumped into the financial system. So it’s a kind of visual of what the Federal Reserve is doing. Given the events of the past several years, we can assume when the monetary base explodes higher, the Fed is concerned about stability in the system and therefore pumps liquidity into circulation.
On the chart, you can observe that during the financial crisis the Fed didn't do much until the autumn of 2008 when it pumped nearly $1 trillion into the system - the first vertical spike. In the middle of 2010, the monetary base declined which corresponded to a decline in the stock market. In response, the Federal Reserve injected more liquidity into the system via QE2 at the end of 2010 into the first half of 2011 - the second vertical spike. The stock market followed suit rising sharply in December of 2010 and through the first several months of 2011. The monetary base then declined in the into the fall of 2011 at the same time the stock market declined. Since the beginning of 2012 (the last little spike up on the chart), the Fed has increased liquidity in the system that has, no doubt, been responsible for the stock market's 10% increase so far this year.
What's concerning is that it now takes huge spikes in liquidity to have the desired affect. Any slowdown in liquidity injections seems to negatively impact economic growth, which in turn causes the stock market to decline. At what point will the Fed stop injecting liquidity into the system? Will they ever be able to stop? Nobody really knows.
That being said, as long as the money is flowing freely, we can expect the cash will find its way into the stock market, especially with interest rates at zero. We expect this process can't continue forever, but we can't completely rule out the possibility. Unfortunately, if the Fed continues on this path it will have unforeseen consequences.
Friday, March 2, 2012
Market Milestones
There has been an abundance of talk regarding specific market "milestones" throughout recent weeks. We have listened to analysts discuss the Dow reaching the 13,000 level again......and again, as well as the Nasdaq, which happens to be closing in on the 3000 level, (a mark not seen since the tech bubble from over a decade ago). We have also heard some well deserved chatter about Apple, (ticker AAPL). With it's recent run-up in share price, it's current market cap is roughly $500 billion. Investors are discussing the possibility of it one day becoming the first trillion dollar company in existence. Although these "milestones" are fun to talk about amongst fellow investors and market gurus, we really don't believe that they represent anything more than psychological hurdles.....or numbers to be completely blunt. With all that being said, we thought that posting this article from SmartMoney.com would be a fun way to point out some of the various market milestones from the mid 1990's till now.
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