Politics with Marc Ambinder

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Jul 31 2009, 11:45 am by Marc Ambinder

-1 Is The Loneliest Number....

The White House eagerly jumped on news this morning that the first estimate of aggregate demand in the 2nd quarter of 2009 came in higher than expected. Let's put the number -- a one percent decline -- in some political context. Clearly, the White House spin is prewritten: the stimulus package and other government interventions have acted like a superconductor, slowing the downward flow of demand. (They might even use the incredible popularity of the cash-for-clunkers program to suggest that Americans are eager to begin to spend, again.) The White House spin isn't angled too far away from the truth. The number of Americans who're relying on government assistance -- unemployment and extended benefits -- is at an all-time high. The direct government transfer part of the stimulus is working as intended, with consumption falling by only a little over 1.2% and with state and local governments recouping about half of their projected deficits. The fact that the final estimate of 1st quarter gross domestic product was revised downward by nearly a full percentage point is one reason why the second quarter projection isn't that high ... given the backstop of government spending and in the absence of a complete collapse of the financial markets, there's only so much the economy can contract. The White House's failure to manage economic expectations is one of the reasons why President Obama's approval ratings are twitchy, and one of the reasons why dissidents have some power in the health care reform debate. Today's number ... just a number ... finally gives the White House a hard datum to use. But I still think the White House would rather go into the August recess with a draft health care bill and not a (happy as it may seem) economic statistic.

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Comments (8)

Claudius

"given the backstop of government spending and in the absence of a complete collapse of the financial markets, there's only so much the economy can contract."

Think again. GDP only contracted 1%? Wrong. The BEA report shows that in 2005 dollars, the economy shrank by almost 4% in 2009 Q2 y/o/y. The decline is accelerating, not slowing. Didn't hear about that in the news? That's because no one in the financial media reads anything beyond the government's press release one-pager.

There's more pain to come from the mortgage and commercial real estate sectors. The banks are still sitting on top of huge amounts of bad debt, and consumers are still carrying more than $2 trillion in non-mortgage debt (i.e., credit cards).

Oh, and that government backstop you mentioned? The Fed, in order to provide that funding, had to sell an enormous amount of new debt this year. It has to sell even more debt between now and September 30, and the private market is choking on what's already out there. This week's auction was a flop. The primary dealers had to cover the Fed's ass by buying a bunch of bonds the private market didn't want. This can't continue for much longer, and the markets know it. The dollar is tanking, and gold is soaring.

We're not anywhere close to being out of this, because our financial system (private and public) is drowning in debt the economy can't service.

ottovbvs (Replying to: Claudius)

.......Do grow up

Claudius (Replying to: ottovbvs)

Dispute the figures, if you can. If not, keep the snark to yourself.

ottovbvs

"But I still think the White House would rather go into the August recess with a draft health care bill and not a (happy as it may seem) economic statistic."

........Marc, no doubt they would prefer to have gone with the final bill passed and Obama's appro at 75%......sometimes for a serious commentator you say the daftest things......there's no connection between the two!

yakubu

Claudius is statistically challenged--and dead wrong. As any moron knows, estimates of GDP changes for the U.S. are properly measured from one quarter to the following (consecutive) quarter. In constant (2005) dollars, GDP decreased by $182.7 billion from Q3 2008 to Q4 2008, by $216.5 billion from Q4 2008 to Q1 2009, and by $33 billion from Q1 2009 to Q2 2009. The corresponding seasonally adjusted, annualized rates of change were -5.4%, -6.4% and -1%. Even a fool can see that the rate of decline accelerated between Q3 2008 and Q1 2009 and then decelerated from Q3 2009 to Q4 2009.

yakubu

Claudius is statistically challenged--and dead wrong. As any moron knows, estimates of GDP changes for the U.S. are properly measured from one quarter to the following (consecutive) quarter. In constant (2005) dollars, GDP decreased by $182.7 billion from Q3 2008 to Q4 2008, by $216.5 billion from Q4 2008 to Q1 2009, and by $33 billion from Q1 2009 to Q2 2009. The corresponding seasonally adjusted, annualized rates of change were -5.4%, -6.4% and -1%. Even a fool can see that the rate of decline accelerated between Q3 2008 and Q1 2009 and then decelerated from Q1 2009 to Q2 2009.

Claudius

Whether you look at the data on a QoQ annualized basis, or a YoY basis, it's just looking at the same data in different ways. Yes, the QoQ method is the "approved" method, but so what? Given what's happened over the past year, I'll opt on the side of the more negative perspective. That's not, I think, a moronic or foolish thing to do. Especially when you consider that these advance GDP numbers will almost certainly be revised downward in the months ahead. After that, the QoQ annualized number will probably be around negative 2%.

Posting your response twice doesn't make it doubly compelling.

Tina1980

I like your comment Claudius, but I do believe yakubu posted twice in error, brainwave entrainment