Back in December, I warned you about happy recovery talk in The Coming Economic Propaganda Blitzkrieg. When the 4th quarter GDP number was released, I followed-up with The Propaganda Blitzkreig Begins. With all the stimulus applied—the Fed's QE 2 and the extension of tax cuts for everybody, including the rich—it was just about guaranteed that the statistical recovery would continue throughout 2011. Until now, that is.
Calculated Risk (CR) got the ball rolling in Here come the downgrades for Q1 GDP Growth.
Before the February Personal Income and Outlays report, most analysts were expecting real GDP growth of over 3% in Q1. As an example, Paul Kasriel at Northern Trust was forecasting 3.1% real GDP growth with 2.2% real Personal Consumption Expenditure (PCE) growth, and Goldman Sachs was forecasting 3.5% real GDP growth with 3.0% real PCE growth.
Both of those forecast now look too high.
CR followed up after the miserable trade deficit report in his posts Here come the downgrades for Q1 GDP Growth: Part II and Here come the downgrades for Q1 GDP Growth: Part III. This quote is from part III.
From MarketWatch: Q1 GDP estimates slashed post-trade dataMorgan Stanley slashed their estimate to 1.5% from 1.9% after what they called "a very weak report." RBS Securities cut their estimates to 1.7% from 2% ...
And from Catherine Rampell at Economix: G.D.P. Forecast for First Quarter SlidesToday, after an especially weak report on February’s trade deficit, the [Macroeconomic Advisers'] economists lowered their first quarter G.D.P. estimate to a sorry 1.5 percent annualized.
So Macroeconomic Advisers' forecast has gone from a "paltry" 2.3% to a "sorry" 1.5%!
The advance GDP report will be released on Thursday April 28th. Still time for more downgrades. What comes after "paltry" and "sorry"? Putrid?
Good question! I like the word putrid, but how about sucks wind or reeks.
So what happened? One thing that happened was that the oil price got over a hundred dollars a barrel in mid-February and has dipped below that level only twice since then. Ever since February, we have been bombarded with messages telling us that high oil prices will not affect the recovery, or if they do, the effect will only be temporary. CR tells us that the "official" retail sales excluding gasoline were up only 0.1% in March, which reflects the high cost of gasoline.
Regular readers know I don't put much stock in the GDP number, but it is significant that those who do are now downgrading their forecasts. I'll wager that the BEA will not let the advance estimate (April 28) for GDP fall below 2% (on an annual basis) and then they'll revise it down later. But if you haven't got even a statistical recovery, what have you got?
It appears that the economic propaganda blitzkrieg I anticipated has already been cut off at the knees. The economic mirable we were supposed to witness in 2011 is fizzling out. Mish says "The overall global economy is much weaker than most think and the global macro picture is awful." If things continue to deteriorate, he believes we may soon start hearing the "R" word.
Catherine Rampell at the New York Times blog Economix is discouraged.
And the year started out so very hopeful.
When 2011 began, Macroeconomic Advisers, a forecasting company, expected that America’s economic output would shape up to rise at a 4.1 percent annual rate in the first quarter, the highest pace in over a year.
But economic reports coming in over the last few months have been increasingly disappointing.
There's a valuable lesson for all of us, including me, in all this. We have now entered the era where—
If it's not one thing, it's another.