{"id":478,"date":"2010-08-27T09:45:00","date_gmt":"2010-08-27T13:45:00","guid":{"rendered":"http:\/\/www.intuitiveinvestor.com\/web\/?p=478"},"modified":"2018-08-17T15:41:46","modified_gmt":"2018-08-17T19:41:46","slug":"self-fulfilling-prophecies-gdp-revised-down-again","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/08\/27\/self-fulfilling-prophecies-gdp-revised-down-again\/","title":{"rendered":"Self-fulfilling prophecies – GDP revised down again"},"content":{"rendered":"

This morning the U.S. Commerce Department revised second quarter gross domestic product down to 1.6% growth from its previously reported 2.4% figure.<\/span><\/p>\n

Analysis:<\/strong> Normally I don’t address revised figures on the blog other than to point out that most data are thinly estimated at first and then revised for months, and in the case of GDP years, afterward.\u00a0 What is important typically is the trend, up or down, and the magnitude, strong or weak.\u00a0 There isn’t that much difference between up 2.4% and 2.6% in terms of the response from investors.\u00a0 However, this cycle of revision is interesting to me for several reasons.<\/span><\/p>\n

1.\u00a0 This is the second time that second quarter GDP has been revised downward.\u00a0 This is not a good thing.\u00a0 What it means is that the businesses, policy makers, and other decision makers that had assumed more robust economic growth have to adjust their expectations downward.\u00a0 Therefore, there is a bit of a self-fulfilling prophecy in a downward revision.\u00a0 Because actual economic growth was lower than expected, folks then plan for lower spending going forward, resulting in lower economic growth.<\/span><\/p>\n

2.\u00a0 The revision was not as low as was expected by economists.\u00a0 That group of prognosticators was expected GDP growth to have been revised downward to 1.3%.\u00a0 What this means to me is that people, even economics and financial professionals are forecasting greater gloom than actually is present.\u00a0 This also results in a self-fulfilling prophecy and for the same reasons described above.<\/span><\/p>\n

My point is that the economy, when all is said and done, is usually a reflection of the mood of the people.\u00a0 And the mood of the people usually results in self-fulfilling prophecies, taking advantage of the cycle I described above.<\/span><\/p>\n

Economists don’t like to talk about this sort of thing because they have fought hard to be taken seriously as scientists, not as artists.\u00a0 However, the reality is that when people’s finances are in order they typically feel wealthier.\u00a0 In our capitalist culture when folks feel wealthier they typically feel better about themselves.\u00a0 When they feel better about themselves they spend more money.\u00a0 This simple understanding serves as the basis for how I have been evaluating the economy for the past 18 months.<\/span><\/p>\n

So going forward what can be done to get people feeling better?\u00a0 And barring anything approaching that, what can we expect?<\/span><\/p>\n

For things to escape the vicious circle that we are in right now, there has to be something coming into the vortex from the outside.\u00a0 A shock of some sort.\u00a0 Shocks come in all different shapes and kinds.\u00a0 There are shocks like Hurricane Katrina or September 11, 2001.\u00a0 Those shocks cause great damage to the psyche and spending habits of citizens to a much greater degree than their actual financial impact.\u00a0 Other shocks, the kind I am waiting for, come in the form of brilliant inspiration on the part of policy makers.\u00a0 Here I am talking about politicians and their politics.\u00a0 Is there anything like this happening?<\/span><\/p>\n

Unfortunately, the sources of major positive economic shocks to the system seem to be bereft of either room to maneuver or inspiration.\u00a0 The Federal Reserve has interest rates at the lowest level that they possibly can have them.\u00a0 Furthermore, they seem unwilling to engage in other policies, like buying up bad mortgages on bank balance sheets, at this time.\u00a0 So the Federal Reserve cannot be expected to be a source of vortex escape at this point.\u00a0 The second source would be some sort of New Deal-type economic kick start program.\u00a0 Yet, the Obama Administration and Congress seem to have their heads up their butts.\u00a0 No one is talking about anything.\u00a0 And you know Congress can’t do anything if people aren’t talking about anything first.<\/span><\/p>\n

The net result of this situation is…is…is…that we are stuck.\u00a0 Sans positive forces to get us out of the vicious circle of the grumpy U.S. consumer, we are sitting around waiting for bad stuff to happen instead.\u00a0 That is not a good situation.<\/span><\/p>\n

One possible mitigating factor: because it is an election year and the Democrats look likely to loose big time to Republicans, the Democrats are likely to amp up the rhetoric of policy miracles to “buy” votes.\u00a0 So there might be some creative, and actually effective, ideas forthcoming.\u00a0 But don’t bet on it.\u00a0 In other words, my feeling about the economy right now is that we are entering a period of attrition.\u00a0 Not a good thing.<\/span><\/p>\n

Importance grade:<\/strong> 8.<\/span><\/p>\n

I hope that each of you has an excellent weekend!<\/span><\/p>\n

Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

This morning the U.S. Commerce Department revised second quarter gross domestic product down to 1.6% growth from its previously reported 2.4% figure. Analysis: Normally I don’t address revised figures on the blog other than to point out that most data are thinly estimated at first and then revised for months, and in the case of […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-478","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/478","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=478"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/478\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=478"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=478"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=478"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}