Economic Reports 03/29/07

Summary: Yesterday, $18 Billion 2 year note auction, waning foreign interest in US Bonds, indirect bidders 29.3%, down from 52.2% in February.

Later today a 5 year note auction... Initial Claims a mixed bag with long term unemployment still pernicious.

GDP, an unmitigated disaster in the works, as the effect of the housing collapse, globalization and its attendant misallocation of investment capital...

all combine for a TRIPLE whammy on the emasculated and weakening US economy.

Initial Claims 03/24 -10K
Full Report

Inside the number: 308K vs prior revised up 2K to 318K. 4 week MA -7.25K to 316.75K. Continuing claims +32K to 2.52M, 4 week MA -24.25K to 2.53M.

About 31% of the 6.9 M "officially" unemployed people had been out of work longer than 15 weeks, while 18%, or 1.2 M, had been out of work longer than 27 weeks.

GDP Final Q4 +2.5% vs prior est. +2.2%
Full Report

Inside the number: the 3rd straight quarter below 3%. GDP 2004 3.9%; 2005 3.2%; 2006 3.3%; Q1 5.6; Q2 2.6; Q3 2.0; Q4 2.5.

The effect of a collapsing housing sector? Residential investment subtracted 1.2% points from growth, the biggest drag from housing since 1981.

Investments in housing fell 19.8% in Q4, the largest decline since 1991.

Investments in equipment and software fell 4.8% as business investments dropped 3.1%, the largest decline in 4 years.

In the last 4 quarters, investment has flipped over twice, struck a tree and burst into flames.... in particular residential investment: Q1 -0.3%; Q2 -11.1%; Q3 -18.7%; Q4 -19.8%.

But, its not just residential, investment in non residential structures: Q1 +8.7%; Q2 +20.3%; Q3 +15.7%; Q4 +0.8%.

And gross private domestic investment: Q1 +7.8; Q2 +1.0; Q3 -0.8%; Q4 -15.2%. And fixed investment Q1 +8.2%; Q2 -1.6%; Q3 -1.2%; Q4 -9.1%.

And inventories: Q4 saw a $33 Billion decline in quarterly inventory investment, which seems to correlate with a decline in Wholesale Trade -$31.4 B.

Since Q405

As the Nattering One has said many a time... the globalization (outsourcing to labor at the margin) of our durable economic activities (manufacturing, automotive) has led to a non sustainable service based Mc Jobs economy.

A clear economic misallocation of investment capital (chasing yield in money shuffling, rather than sustainable domestic economic activity) is about to become a glaring problem:

Sequential declines in Gross Domestic Purchases... Q1 +8.2%; Q2 +6.1%; Q3 +4.2%; Q4 +1%; and Final Sales to Domestic Purchasers Q1 +8.2%; Q2 +5.7%; Q3 +4.2%; Q4 +2.1%.

The shift from durable economic activity to money shuffling can be seen in Table 12: Non financial -$62.6 B; minus Financial +$20.5 B; equals Domestic industries -$42.1 B; Manufacturing -$7.4 B.


Also in Appendix A % Change: Motor Vehicle Output Q4 -32%, Structures Q3 -7.4%; Q4 -9.9%. Corporate profits declined for the 1st time in 5 quarters -$4.9 B.

Services are now the 2nd largest single % contributor to GDP at +2.32%. Structures subtracting -1.11%, Motor Vehicles subtracting -1.18%.

The single largest contributor is PCE spending at +2.93%, the PCE has been fueled not by organic domestic growth, but by energy based STAGFLATION in the supply chain.

What happens when organic spending continues to contract? Services will contract as well... you get the point?? There's no legs left to fall back on... game over.

The Chain Deflator is a bad joke being played on a gullible public... just add a 1 to the front for the true number 12.2%.

Chain Deflator-Final Q4 +1.8% vs est. +1.7% The Yoy increase in core PCE prices was unrevised at 2.2%.

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