I Hope the Fed Won’t See This: Red-Hot Consumer Spending Powers GDP Growth

Revisions show the slowdown expected this year hit last year, and now is the rebound. If there’s ever a time for the Fed to not cut already low interest rates, it’s now.

Economic growth in the US for the second quarter once again exceeded consensus expectations, after blowing past them in the first quarter. This morning, the Bureau of Economic Analysis reported that the economy, as measured by “real” (inflation-adjusted) GDP, grew at an annualized rate of 2.1%. It was powered by the hottest consumer spending growth since Q4 2017, and the fifth highest quarterly growth in the past 52 quarters (since Q1 2006).

But the GDP growth rates for 2018 were slashed, particularly for Q4. It is now apparent that the slowdown that was expected this year but didn’t arrive actually took place in Q4 last year, and what we’re seeing this year is a rebound:

Consumer spending, which accounts for nearly 70% of the economy, grew at an annualized rate of 4.3%, adjusted for inflation, blowing past expectations, after having been lethargic in Q4 last year and Q1 this year. It was the fastest growth rate since Q4 2017 and the fifth fastest since Q1 2006.

By category, consumer spending on durable goods soared at an annualized rate of 12.9%, adjusted for inflation; and for non-durable goods, it jumped 6.0%. This brought the growth rate for spending on all goods combined to 8.3%. Spending on services rose 2.5%.

A decided weakness in the data was business investment. Gross private domestic investment fell 5.5%, including at 10.6% drop in investment in structures. And it includes a big drop in private inventories. This confirms the phenomenon we have seen for months now in what I now call the “transportation recession,” where companies, sitting on bloated inventories they acquired to frontrun the tariffs, are cutting back orders to whittle those inventories down, and therefore shipments decline.

The inventory pileup we have been discussing since last year, and that boosted Q1 GDP growth, has started to reverse in Q2. An increase in inventories is considered an “investment” and is added to GDP growth. A decrease in inventories is subtracted from GDP growth. Everyone expected this would happen eventually – and now it happened. In Q2, “private inventories” fell by $44.3 billion, which knocked 0.9 percentage points off the GDP growth rate. Had inventories remained flat, the GDP growth rate would have been about 3%.

The tantalizing data in today’s release were the radical downward revisions of GDP growth in 2018, for Q2, Q3, and Q4. The growth rate in Q4 got slashed from 3.0% earlier this year to 1.1% today, the lowest growth rate since Q4 2015.

In other words, the slowdown that was supposed to hit this year hit in Q4 last year, and the economy already muddled through this episode and is now bouncing back, with GDP growth averaging 2.6% this year so far.

The revisions caused the annual growth rate of 2018 to be revised down to 2.9%, still the highest rate since 2015 (also 2.9%), but below the illusory 3% level that the US hasn’t reached since 2004. The chart shows the revised annual rates of growth adjusted for inflation, with 2019 (green) being the average of Q1 and Q2. This is not a chart of a rate-cut economy:

So far in 2019, US economic growth is back in the upper end of the range since the great recession. That range stretched from 1.6% growth at the low end in 2016 to 2.9% growth at the high end in 2018 and 2015.

The economy is still powered by very low interest rates, massive government spending growth, and consumers that are working and making money and spending money. Some business investment has taken a wait-and-see approach, but hiring is strong, companies complain about the difficulty of finding qualified workers, and unemployment claims hover at multi-decade lows. If there was ever a time for the Fed to not cut already low interest rates, it’s now. The economy is, as Powell has stated many times recently, “in a good place.”

Despite the trade wars, tariffs, and counter-tariffs, consumers and companies keep plugging, and the world has not come to an end. Read… World Trade in Face of Tariffmageddon, Trade Wars & Manufacturing Slowdown

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  97 comments for “I Hope the Fed Won’t See This: Red-Hot Consumer Spending Powers GDP Growth

  1. OutLookingIn
    Jul 26, 2019 at 12:31 pm

    Government spending climbed 5%, its biggest contribution to the GDP since 2009. Whereas GDP exports suffered its biggest drop since Q1 2009.

    The great economy story line, has been revised away by annual data corrections. Corporate profits after revision show that there has been no growth in operating profits for the past 5 years.
    Yet over the same time span the S&P 500 has grown by 50% fed from cheap money, tax breaks, stock buybacks and the unending search for yield.

    • Lemko
      Jul 26, 2019 at 12:53 pm

      No rebound, look into the main spending culprit that boosted consumer spending… They are gonna be revised down, and credit spending going through the roof. Recreational goods and Vehicles, 22 Billion ? Took a page or two from china on this one

      Nobody cares about PMI’s or GDP, Q2 2008 GDP grew 4.5 % only to be revised down a lot to fit the narrative later… It’s never the losses that kill you, it’s the lack of credit!

      • Pinto
        Jul 27, 2019 at 2:05 pm

        USA is sucking the worlds credit!

        10y Treasuries at 2.07% The champion takes it all !

        Take a glimpse at the wonders of MMT:
        1) Swiss 50y below 0%
        2) EUssr awash in NIRP
        3) Portugal 10y 0.4%
        4) Greece 10y this week for the first time ever below 2% even momentarily.
        4) Japan in NIRP for years

        I think that all that fuss between Trump and Powell is nothing more FREE prime time advertising of USD and treasuries, throught out the world Main Stream News.

        So people everywhere can acknowledge there is a country not defaulting on the debt!

        That’s what I call NIRP: A default on the debt!

    • Dale
      Jul 26, 2019 at 1:17 pm

      Actually, there had already been no growth in real profits for 7 years (pre and post tax). The revision makes that true also with CCadj and IVA.

      Meanwhile, real market capitalization is up 70%. 10-year interest rates about the same, 3-year up about 1.5%.

      Because bubble.

    • Mike
      Jul 30, 2019 at 2:38 am

      Billionaire Bob Prince diplomatically talks about the key problem that has been created by the real, crony, government control groups from 1995 to now: in the next decade when the US has gigantic deficits and wants to roll over its trillions of debt no one may want to buy those treasuries, and many foreign entities would need to finance such an enormous national debt. He diplomatically does not say that basic economics dictates that the dollar’s value may then go into freefall as to its purchasing power since any debt not financed by treasuries will be monetized: bought by the Fed or its successor printing dollars. He called it 20 years of uglyness.

      I predict it will be like the Soviet’s collapse in terms of economic suffering: loss of financial security as pensions and savings become worthless and losses among many companies cause their bankruptcies. That is the position that the banksters and their fuhrer have put our country into by their corruption.

  2. IdahoPotato
    Jul 26, 2019 at 12:31 pm

    Every time I hear some Keynesian economist claim that consumption is the “engine” of the economy, it boggles my mind.

    The last three decades have been marked by an increase in consumption accompanied by a collapse in savings. But people are consuming like there is no tomorrow, so all is good.

    Our education system is designed to create wage slaves who get into debt, obediently toil for the overlords and consume as directed.

    The overlords also direct the Fed to cut interest rates because they (the billionaires) need to pay the millionaires to tell the middle class that the poor are responsible for their serfdom.

    • GP
      Jul 26, 2019 at 12:51 pm

      My take is that Fed will continue to ensure cheap govt financing. Annual interest of $21T debt is currently about $500B. Imagine that doubling.

      We have reached point of no return on interest rates and devaluation. I can only see rates slowly crawling back towards zero and then some over the next decade.

      It’s institutional attack on savers and fiscally responsible. Live within means? Ha, that’s so last century. Now it’s borrow as much as you can, as often as you can.

      • IdahoPotato
        Jul 26, 2019 at 1:10 pm

        The more I look at the trends, I think in the US at least, saving and spending are done by different groups.

        Also, though personal savings rates may be up in the very recent past, corporate savings are way down.

        It would be great to have Wolf’s insights on this.

    • Jul 26, 2019 at 1:29 pm

      IdahoPotato,

      The economy is measured as a flow of money. This flow can be measured in two ways: on the income side (Gross Domestic Income or GDI) and on the consumption side (GDP). Real GDI growth was 3.2% in Q1. The Q2 figure for GDI has not been released yet. Over the long term GDI and GDP growth rates should be the same. Over the short-term they rarely ever are.

      • IdahoPotato
        Jul 26, 2019 at 2:58 pm

        Thanks. These two charts tell you the entire story since 1940.

        Shares of gross domestic income: Compensation of employees, paid
        https://fred.stlouisfed.org/series/W270RE1A156NBEA

        Shares of gross domestic income: Corporate profits
        https://alfred.stlouisfed.org/series?seid=A449RE1A156NBEA

        1970 marked a turning point.

        • Jul 26, 2019 at 3:46 pm

          Yes, this shift is one of the biggest problems this economy and society overall has had for decades.

        • Wisdom Seeker
          Jul 27, 2019 at 4:42 pm

          When I first found those kinds of charts, back in 2006-2007, I was horrified. The imbalance today is as bad as in the 1920s and clearly massive rebalancing is overdue. I figured there would be a huge political realignment in the Great Recession, but the TeaParty on the right and Occupy Wall Street on the left were shut down and Obama and the MSM ensured the sheeple didn’t wake up, so it never happened. The numbers today are still as bad as a decade ago, although maybe wages hit bottom in 2014 and maybe it’s not quite so bad if healthcare benefits are not in the “wage and salary” numbers.

          As for the turnaround, maybe we’re finally seeing the first beginnings of it in the past few years, with the rise of populist politics and the destruction of corporatist media narratives? But until the corporatists are swept from power in the major economies, not much will change. And the transition will probably be wrenching for billions of people.

        • NBay
          Jul 29, 2019 at 1:10 am

          1970

          I still think many things were “turned around” then by Vietnam. Have heard it cost 2/3 of WW2 in adjusted dollars. Wouldn’t surprise me at all if true. Wish there was good data on it, but imagine it was all hidden in very creative gov’t accounting by all of DC gang. All that cap-ex was just blown to hell. BTW, I’m a vet (67-68), don’t feel a need to reflect on human and political aspects. In fact, that obligatory and therefore now kinda meaningless, “Thank you for your service” crap is actually beginning to tick me off. Maybe started when I found out priority registration at JC (2010) was only disabled or in since 2004, so even for a cheap perk, doesn’t count anymore. Am NOT whining at all, just stating my take. Sure wasn’t that way back then, but maybe the newer volunteer vets like it.

          Anyway, about the loss of MASSIVE Cap-Ex:

          Was in Detroit in 71 and saw lots of “Hungry? Eat your Toyota” bumper stickers. So I figure Econ effects were starting even way back then. Doubt if marketing run US car corps would have wised up to better engineering, just added more gadgets, sales campaigns, more searchlights for new models to roll out under. But it ALL would have to have gone somewhere, right?, and maybe helped build something else constructive, schools, better machine tools, high speed rail? Anyway, so we didn’t stop the dreaded communism, or whatever is there now, any more than Ronnie starting massive deficit spending “beat” the Russians. Cut their size, but (for now) that’s it. My guess is he was filling the budget hole left, as told to. And we had almost paid off WW2, when it all began getting real expensive. Then it’s like deficit spending became cool, as long as it was your pork.

  3. Prairies
    Jul 26, 2019 at 12:39 pm

    The slow down of Q4 rebounded without a rate cut. I don’t see them cutting rates unless they change their reasoning and measuring stick to something more in line with the investors crying for NIRP. Or we could just listen to wall street and front run rate cuts because they say so. Wall street is never wrong.

    • Lemko
      Jul 26, 2019 at 12:54 pm

      The Fed follows the markets, not the other way around…

      • Prairies
        Jul 26, 2019 at 1:52 pm

        Markets are at an all time high so…

  4. Unamused
    Jul 26, 2019 at 12:41 pm

    Und so.

    How does one resolve the discrepancy between the claimed increase in consumer spending with the pile-up in inventories and the transportation recession?

    What am I missing here? Or do I resort to my exhaustively-researched default position that the statistics are, shall we say, ‘in error’?

    They wouldn’t do that, would they? Why, that would be wrong. Not that there isn’t plenty of precedent and documentation to support such a conclusion.

    companies complain about the difficulty of finding qualified workers

    Companies always complain about the difficulty of finding qualified workers, even when there’s a glut. What they really mean is that they have difficulty finding qualified workers who can be weaseled into working for cheap. There’s always a shortage of unpaid interns, for example.

    The US IT industry managed to replace millions of US workers with millions of persons from the Asian subcontinent with faked credentials. The statistics on major US software failures did something ugly ugly ugly when they did that. And they’re still doing it.

    This issue is related to the known oversupply of scientists, particularly in the US, which contradicts the constant complaint that there aren’t enough of them and the extremely dubious demand for more college STEM graduates.

    http://www.theatlantic.com/education/archive/2014/03/the-myth-of-the-science-and-engineering-shortage/284359/

    http://www.washingtonpost.com/national/health-science/us-pushes-for-more-scientists-but-the-jobs-arent-there/2012/07/07/gJQAZJpQUW_story.html?utm_term=.a9084f0d0e7c

    • Jul 26, 2019 at 1:20 pm

      To answer your question, “What am I missing here?”

      One, the inventory pileup is NOT in retail inventories. They’re OK. It’s wholesale and industrial.

      Two, the inventory pile-up was caused by excessive ordering with the purpose of increasing inventories before tariffs make those goods more expensive. This was an inventory pile-up caused by purposefully exaggerated orders, and not by slow sales of those products.

    • Kerry
      Jul 27, 2019 at 11:22 am

      Why would the government be honest when reporting financial information when they are dishonest about so many other things? The ignorance of the general public is mind boggling…

    • NBay
      Jul 29, 2019 at 9:39 pm

      “Default position on statistics”
      That settles it, very possibly “Second Coming” of Twain.
      That aside, he never had massive number of followers. Suggest you learn to speak with burning bushes, etc etc. Just don’t get caught practicing, till you learn their lingo. Liberty Univ offer that class?

  5. Unamused
    Jul 26, 2019 at 12:49 pm

    How much is the ‘increase’ in GDP exceeded by the increase in debt?

    Inquiring minds want to know, and I’d like to compare my data with the official statistics.

    GDP data is fundamentally flawed and misleading. One might surmise it’s by design. Debt is not accounted for. It’s perfectly possible, for example, for the US government to simply ship billions in currency to Iraq on pallets, never to be seen again, and call that a contribution to US GDP.

    It’s believed this sort of thing has already happened. And more than a few times.

    • Winston
      Jul 27, 2019 at 8:59 am

      “How much is the ‘increase’ in GDP exceeded by the increase in debt?… GDP data is fundamentally flawed and misleading. One might surmise it’s by design.”

      Do Come On: Negative Growth, Negative Effect
      21 Jul 2019

      Excerpts:

      Sigh…..

      How do you fail middle-school math and wind up on TV, in academia or arguing for a policy that is demonstrably economically bankrupt?

      When debt accumulation begins in an economy you get more than one dollar of economic activity for each dollar of debt taken on. This is one of those intuitive things; you have a dollar of debt, you buy a dollar of product, but in order to make it a bunch of people have to touch it from raw material forward, and all the activity involved in making the “thing” means that for one dollar of borrowing you get more than a dollar of economic activity. Thus, at the beginning, more debt means faster economic growth.

      But once you cross that zero intercept new debt harms you.

      That is, if you take on a new dollar of debt you don’t get a dollar of economic activity out of it; you get less than a dollar and yet you still owe the dollar, plus interest.

      That’s a trap and once in it you’re in a lot of trouble. It is akin to digging a hole while standing in the center. Not long after you start, assuming you have a means to get the dirt out, you find you’re in over your head and then over the reach of your arms. At this point you’re screwed; absent outside help you can’t get out!

      We crossed the negative influence point approximately coincident with the tech crash in 2000 and since that time we have not only refused to stop the deficit spending every incident has brought forward more of it.

      Yet it is a fact that we’re now getting less than a dollar of new economic activity for a dollar of new debt and this has been, almost without exception, true since 2000.

      The trend is in fact accelerating; if we did not spend that new federal borrowing last year the nominal GDP print would have been negative.

      https://market-ticker.org/akcs-www?get_gallerynr=6757

      • Winston
        Jul 27, 2019 at 9:00 am

        Forgot to include the link to that article:

        https://market-ticker.org/akcs-www?singlepost=3483232

        • Unamused
          Jul 28, 2019 at 8:20 am

          Thank you Winston. Well done.

          The data presented supports the view that there has been almost no real growth in the US economy for nearly twenty years, which altogether has actually been shrinking.

          With related data, it further supports the view that this is the predicted result of the failure to tax the rich and the failure to control tax evasion, both of which seriously bleed the US economy. In particular, these support my argument that the US economy is actually being liquidated, and deliberately for political purposes.

          Contrary to commentary in the article, it does not support the view that either Keynesian economics or US federal social programs are failures. But that is another story and shall be told another time.

          It’s complicated. I believe this merits further discussion.

        • NBay
          Jul 29, 2019 at 9:00 pm

          It also merits a subversive organization, funded by (I’ll be damned if I know who) that makes the jets and yachts of people worth over $50M strangely vanish with them on board. They are simply not scared at all about their agenda.

          “Man is not moved by prayers or petitions” -Marcus Garvey

  6. TooGoodToBeTrue
    Jul 26, 2019 at 12:57 pm

    Wolf – Something smells fishy in this report in regards to consumer spending. I have been reading articles all week about the collapse in RV sales, Elkhart Indiana RV plants shutting down for the month of July, layoff at RV plants, etc. Yet the largest gain for consumer spending was Recreational Goods and Vehicles?!?

    Seems to me like there was an extra large dose of messaging in the numbers this quarter. Is the consumer spending boom too good to be true? What am I missing? Are people getting kicked out of their houses and buying RVs to live in instead?

    • Jul 26, 2019 at 1:13 pm

      Retail sales have been good, services sales have been good. RV sales are too small a sub-segment to be indicative of overall consumer spending. They went through a red-hot growth spurt over the past few years, after collapsing during the Financial Crisis, which created that pent-up demand that is now sated.

      • TooGoodToBeTrue
        Jul 26, 2019 at 1:39 pm

        “Domestic shipments of RVs to dealers plummeted 22% in the first five months of this year, compared to the same period last year, after dropping 4% in 2018, according to the Recreational Vehicle Industry Association”

        Without the gigantic surge in Recreational Vehicles, GDP print would have been around 1.8% from one article I read. Could be a creative accounting trick from the China GDP playbook. Guess we will see over the next 6 to 18 months. This feels like the 2012 and 2015/2016 “slumps”, yet more broad in nature. Flip of the coin if easy money can “save us” by averting a business cycle for the third time in 10 years.

    • Paulo
      Jul 26, 2019 at 1:50 pm

      People are living in RVs these days, but old second hand ones. Just my opinion so discount if you like, but the recent sales of RVs were units built awhile ago, thus the current slowdown. People don’t by RVs, boats, and MCs this time of year, they buy them in the spring before good weather. I gave my nephew an awesome MC to sell this spring, hoping it would spark a bit of hustle in his attitude. (He’s 21). He pissed around and pissed around through February, and I told him if he didn’t get the lead out and start advertising it was game over by the end of March. Guess what happened? I just gave him notice that I will pick it up early September. I guess I’ll still be riding next year. :-)

    • Senecas Cliff
      Jul 26, 2019 at 1:51 pm

      My guess is that RV sales include both the big motor coaches and trailers made in Elkhart and elsewhere and the smaller add-on stuff popular with the millennials. The big stuff was purchased by the boomers and as they age out it is destined to decline, but the Millennials love to camp but don’t have the money or storage room for a big RV. Around here (Portland) the big thing is a Jeep or Toyota PU with a roof rack and a fold-out rooftop tent or customer camper shell that folds out in to a tent. Not sure if these things are classified as RV’s but they are what are selling now. The only people I see in Winnebagos are homeless folk camping in run-down ones on dead end streets.

    • Jul 31, 2019 at 6:18 pm

      Would you say wholesale and industrial relate to retail inventory in any sort of general trend? Or is that too big a question for the comments section?

  7. Blake
    Jul 26, 2019 at 1:10 pm

    On consumer spending, people have to consume more because the products they buy are cheaper quality and break down sooner. Durable goods are no longer durable. More waste is created by this model. That is not an economy, it is an anti-economy.

    • medial axis
      Jul 27, 2019 at 12:56 am

      Yes, only a rich man can afford a bargain.

  8. J.M.Keynes
    Jul 26, 2019 at 1:44 pm

    – The 3 month T-bill rate remains lower than at the beginning of the year and therefore I still expect the FED to cut rates.

    • djrichard
      Jul 28, 2019 at 9:45 am

      Bingo

    • djrichard
      Jul 28, 2019 at 9:48 am

      It will be fascinating to see what narrative they concoct to explain their move. Because it would be giving up the mystique if they said they merely followed the 3 month treasury

  9. Stephen
    Jul 26, 2019 at 1:50 pm

    Rate Cuts? It makes little sense to needlessly shoot ammo that you may later need. America may well go into recession in the early 2020’s, but I think it is premature to cut now. If we were at 7-8% rates, ok maybe, but from where are now, we don’t have a lot of real room until ZIRP. Call in the artillery only when you really need it. I think the FED is thinking along these lines (but who am I to second guess the FED!).

    • Paulo
      Jul 26, 2019 at 1:54 pm

      Stephen, you are beyond right….but the Fed seems to listen to an orange headed drummer these days and are afraid to show independent due diligence.

      Talk about short sighted.

  10. timbers
    Jul 26, 2019 at 1:57 pm

    The Fed doesn’t care about the economy or reports like these unless Mr Market does, because it’s job is to make corporate earning and the stock market go up.

    Everybody knows that. Even Trump says so.

    If Trump can see and understand this, why can more intelligent folks?

  11. SocalJim
    Jul 26, 2019 at 2:03 pm

    Nothing like a rate cut to insure a strong Republican showing in 2020. The Democrats know this and are beating the drums for no rate cut. In the end, it is all about politics.

    • GP
      Jul 26, 2019 at 5:23 pm

      Fed has been assigned impossible mandates by the congress and whatever it does will be seen as political. Why don’t we do it a favor and put it out of its misery?

      [Link to an old, but very relevant article in the username].

  12. RD Blakeslee
    Jul 26, 2019 at 2:09 pm

    “If there was ever a time for the Fed to not cut already low interest rates, it’s now.”

    But if it raises them anyway, what are we to conclude?

    • Mr. Knoss
      Jul 26, 2019 at 5:20 pm

      That they are truly independent, data independent.

  13. akiddy111
    Jul 26, 2019 at 2:42 pm

    Watch for signs of a slowdown from Costco, Starbucks, Home Depot, Nike, etc,

    If business is good for these leaders, then how can there be a recession ?

  14. akiddy111
    Jul 26, 2019 at 2:48 pm

    Services ISM numbers are fine, retail sales numbers are fine, just released earnings numbers are better than i expected.

    People who were fearful last Christmas were wasting their time… as usual.

    • SocalJim
      Jul 26, 2019 at 3:03 pm

      A lot of the fear last Christmas originated in the 2018 midterms. A lot of negative propaganda undercutting the Republicans impacted the psychic of the masses and the market. Look for a replay in 2020. Count on that.

      Remember 2008? You could not turn on CNN or MSNBC without being bombarded with “your house value is headed to zero” nonsense. A lot of homeowners drank the kool-aid and walked away which drastically worsened the situation. Did you know the overwhelming number of foreclosures were on standard conventional mortgage products? The sub-prime mortgage products were a small number of foreclosures … Nothing like swaying an election by telling the masses their biggest asset is garbage. A lot of people even acted on that and walked away from their home.

      Welcome to 21st century politics.

      • Lance Manly
        Jul 26, 2019 at 4:52 pm

        Yeah, Lehman Bros and the whole CDO/CDS debacle was nothing https://www.youtube.com/watch?v=anSPG0TPf84

        • SocalJim
          Jul 27, 2019 at 7:16 am

          The CDO crackup was caused by the way tranches were structured … and by investors who bought the tranches who got scammed. Where I worked, we had very good software which ran simulations on each tranche before we bought them. If we saw scenarios where the tranches blew up. we stayed away. Some so called sophisticated investors bought these tranches after running a simple yield shift analysis on Bloomberg and got screwed. There was a problem here … the only people wronged were retail investors who should have never been allowed to buy these …

  15. Unamused
    Jul 26, 2019 at 3:45 pm

    Remember 2008? You could not turn on CNN or MSNBC without being bombarded with “your house value is headed to zero” nonsense.

    And yet, in 2008, the report by First American CoreLogic indicated that almost 10.7 million, or 23 percent, of all residential properties were “underwater” meaning they have negative equity. In Nevada, 65 percent.

    Looks like they were right.

    The sub-prime mortgage products were a small number of foreclosures

    860,000 foreclosures in 2008. There goes the tattered remains of your credibility.

    Remember 2008?

    Better than you, evidently.

    • SocalJim
      Jul 26, 2019 at 4:02 pm

      More than 2/3rds of homes lost had conventional mortgages on them … not subprime. Wharton school established this years ago. I know this does not fit the Democratic propaganda fed to us by MSM, but it is established.

      Furthermore, a normal real estate down cycle was turned into a financial panic due to the propaganda … most people stood back and watched. Smart people realized this was just a financial panic greased by propaganda, so they stepped in and bought … prices shot straight back up. Feel sorry for so many that walked away from conventional mortgages …

      Classic survival of the fittest.

      • IdahoPotato
        Jul 26, 2019 at 4:37 pm

        “Classic survival of the fittest.”

        If by “fittest” you mean Steve Mnuchin’s OneWest who foreclosed on a 90-year old widow over a $0.27 discrepancy while pocketing her tax dollars through bailouts, you are correct.

        • JMiller
          Jul 26, 2019 at 5:56 pm

          IP, not sure if you aware of some of the following facts, one of which is that OneWest withdrew the foreclosure filing. She never lost her home. Here is two links that give the details of what really happened.

          https://skeptics.stackexchange.com/questions/36854/did-steve-mnuchins-onewest-bank-foreclose-on-a-90-year-old-womans-house-after

          https://www.overlawyered.com/2017/01/mnuchins-bank-foreclosed-widow-27-cents-tale/

        • alex in San Jose AKA Digital Detroit
          Jul 27, 2019 at 6:20 am

          Exactly. In the crash, people lost their jobs and could not find new ones. They walked away from their houses because they had to, 99% of the time.

        • NBay
          Jul 29, 2019 at 10:47 pm

          Love his pasted on smile and talk through your teeth speech. Also dug selfie he did with super duper trophy wife, of them holding fresh printed sheet of money. Some of these guys are so far gone they are actually funny.
          Speaking of funny (in retrospect as I still thought I was learning something watching CNBC at the time) they were all scared s-less, you could see it on their faces. I bailed on recommended “diversified portfolio” and luckily was also in Vanguard Treasury T-bill fund, IIRC, as brokerage accnt, before it was locked up, but still lost a lot. Who would have ever guessed bailouts and QE? Not me, anyway.

      • QQQBall
        Jul 26, 2019 at 8:12 pm

        I hate to get in the middle of a food fight, but the FED stepped in and went crazy to stop the slide. They bailed out banks, backstopped forced marriages, cut real rates deep into negative territory and nominal rates to the bone. And to really muddy the waters, go back a bit and see what Greenspan did prior to 2008.

        To say that people “walked away from their homes” b/c they thought the value would drop? Huh? People lived for free in homes for years after they stopped making payments

        • SocalJim
          Jul 27, 2019 at 10:04 am

          Fed did a great job. Even though I am a Republican, I have to admit Obama also made some good moves. You do what you have to do to stop the damage from a financial panic.

        • cd
          Jul 27, 2019 at 11:08 am

          the fed, treasury and govt. rescued speculators and doomed the public, then sold foreclosed homes to the bad actors who started the whole meltdown in bulk at pennies on the dollar…

          all to recreate pottersvilles…

          I look forward to the coming housing meltdown, it will be well earned….sacrificing savers for idiot specs was a bad decision that will echo for decades…

      • MarkinSF
        Jul 27, 2019 at 2:38 pm

        You’re joking right? The financial panic was the result of news reporting? And little to do with the complete shut down of the credit assembly line? And if what you’re implying was true; that the psyche of the populace is so fragile that they would react so violently to what they were reading on the internet, then one would have to conclude that valuations are a mere figment of the imagination. Which they kind of are I guess. Wouldn’t it be a better world if wealth were equivalent to the actual value of what is produced? Just a thought.

        • SocalJim
          Jul 28, 2019 at 1:33 pm

          MarkinSF, sad to say that a large chunk of the price is dependent on the psyche of the polulace. This “psyche chunk” is getting larger because of leverage in the corporate, government, and household balance sheets. If you hold assets, you must have substantial cash or cash equivalents to protect those assets because my guess is another financial panic will occur in our lifetimes. So, make sure you can protect your assets so you do not land up dumping in the next panic or deep recession. A lot of damage to the wealthy happened to those that were “fully invested” and did not have the cash/cash equivalents to protect their holdings, so they sold. Now, the wealthy typically hold some amount of cash. Hopefully, middle class America heeds the warning.

      • NBay
        Jul 29, 2019 at 11:03 pm

        Have real problems with cherry picked/misinterpreted scientific works, and even with cherry picked “Wealth of Nations”, especially by those who never read either. But how else can one tie a big name to a nasty agenda? Just my problem, not yours, no ad homin’ intended, you didn’t do it.

  16. Unamused
    Jul 26, 2019 at 4:15 pm

    More than 2/3rds of homes lost had conventional mortgages on them … not subprime.

    One-third of 860,000 is 287,000. Still not a small number.

    Furthermore, a normal real estate down cycle was turned into a financial panic due to the propaganda …

    Baloney. There was nothing normal about it.

    You need to go through the archives here to see how Mr. Richter explained it.

    The financial crisis was primarily caused by deregulation in the financial industry. That permitted banks to engage in hedge fund trading with derivatives. Banks then demanded more mortgages to support the profitable sale of these derivatives. And they got them by committing fraud by the millions.

    • SocalJim
      Jul 26, 2019 at 4:32 pm

      70% conventional mortgage is the majority …

      Many of those conventional mortgage holders selectively walked away from their home because they bought the “your home is going to zero and will never recover” … brought to you by the MSM.

      This behavior caused home price drops to feed on themselves …

      What should have been a normal real estate trade-off turned into a disaster fueled by propaganda.

      Kudo to those who were smart enough to see through the smoke and not walk away.

      • Unamused
        Jul 26, 2019 at 4:50 pm

        What should have been a normal real estate trade-off turned into a disaster fueled by propaganda.

        Your opinion. Based on your so-called ‘facts’, which, as we have seen, are seriously in error.

        Kudo to those who were smart enough to see through the smoke and not walk away.

        For 860,000 homeowners in 2008, it wasn’t voluntary. Those who did voluntarily walk away did so because their mortgages were underwater, and that was the financially-rational thing to do.

        You can’t win this because the facts are against you.

        Where is your evidence that the meltdown was due to ‘propaganda’? Take your time. I’ll wait.

        • SocalJim
          Jul 28, 2019 at 10:44 am

          I did not say the meltdown was entirely due to propaganda. What we had was a run of the mill housing downturn which usually occurs during a recession. However, what should have been a normal housing downturn turned into a near disaster because of a financial panic that originated via MSM propaganda.

      • Senecas Cliff
        Jul 26, 2019 at 4:56 pm

        No one I know walked away from a reasonable house with a reasonable mortgage because of press from the MSM. The people who walked away were the real estate flim-flammers, grifter-flippers, money for nothing charlatans and others who expected real estate to be an easy ticket to riches and when their free and easy ride to wealth hiccuped they bailed out like rats leaving a sinking ship. If the fed had not stepped in and decimated the savers to save the banks and the real estate bottom feeders then the walkers would have been right.

        • cd
          Jul 27, 2019 at 11:13 am

          Exactly, the Bernanke Put, then Geithner, then changing the rules on bulk purchases, then allowing foreign buyers to purchase more than 1 home and dropping the tax……

          Obama was elected as a distraction while the bankers and scum of the financial industry reeked havoc with savers and the prudent……

          Thanks to Clinton and Glass Steagall revoked, poof, gone, it delivered us to hell

          side note, I was one of first buyers at New Century and in 99 it all started, it was just hidden underneath the dot bomb collapse….

      • Paulo
        Jul 26, 2019 at 6:18 pm

        Underwater is underwater, regardless of the mortgage type. Who would want to pay off an asset worth less money every day they hold on to it? Plus, if your work hours or pay has been reduced….. Furthermore, if you have little equity and rents drop lower than your mortgage payment, bye bye. I read many accounts where people just stopped paying and waited to get the boot.

        • SocalJim
          Jul 26, 2019 at 9:04 pm

          Paulo, Who would pay when underwater? Anyone who realizes there is a high probability the home price valuation temporary overshot to the downside because of a financial panic sweeping the markets. That is what happened in 2008. Took a handful of years for the price to return, but in many locations, just hanging on was the money move, especially if you were blessed with a floating rate mortgage not tied to libor.

        • Unamused
          Jul 26, 2019 at 11:48 pm

          SocalJim,

          If you want to float this sort of twaddle you’re going to have to seriously up your game, because many of Mr. Richter’s audience are rather more knowledgeable and critical thinkers than you’re giving them credit for. People come here to sharpen up on solid facts. They’re not going to sway on impassioned handwaving smokescreened with pseudo-upscale jargon. This isn’t the dumbed-down sheep population you’re dealing with.

          Sheesh.

      • TownNorth
        Jul 26, 2019 at 6:40 pm

        But for the negligence of the lenders, who had a fiduciary duty to their shareholders, depositors and the FDIC to act responsibly, the 2008-2010 downtown would not have happened. They were the gatekeepers of the money, not the borrowers.

        Washington Mutual: “The Power of Yes.” No mere advertising pitch, this was also the mantra inside the bank, underwriters said….We joked about it a lot. A file would get marked problematic and then somehow get approved. “We’d say: ‘O.K.! The power of yes.’ ”
        https://www.nytimes.com/2008/12/28/business/28wamu.html

        Once the tide turned, home values could not be propped up. Phoenix prices dropped 55%, for example, per Case Shiller. No MSM fantasy there.

        • brent
          Jul 27, 2019 at 4:34 pm

          It’s painful when morally questionable behavior doesn’t get punished. In fact, it seems those actors and architectures have been rewarded and enhanced in recent years, while solid people taught to live within their means, people who aid society’s stability, have been punished. Will there ever be a moral re-balancing? Is the system too far gone?

        • SocalJim
          Jul 28, 2019 at 1:38 pm

          brent, I agree. Some bad actors got away with a big payday. Fixed income went from historical cost marks to mark to market marks in 07. The bad actors were sweating. Fortunately, for the bad actors, in March 09, regulators backed away from mark to market marks, and the bad actors got away. Ask any bond market experts about this one … this also provided fuel for the financial panic.

  17. Michael Engel
    Jul 26, 2019 at 4:32 pm

    – SPX is doing great, strong economy relative to the rest, so why cut rates.
    – If the Fed will cut, TLT jump over resistance line, to a new all time high.
    – Consumers are spending , but Visa in Bearish Divergence.
    – Same SPX, while moving to a new all time high.
    – SPX x3 tops forming a resistance line from Jan 2018 to Sep
    2018 highs, while volume is falling.
    – Our “brightest ” law makers cont to “rub” themselves in public, humiliating themselves in front of the whole world, because they cannot stop. When the DOW will fall, they will reach CLIMAX, but suburban soccer moms will stay away from them.

  18. Jul 26, 2019 at 5:08 pm

    I don’t buy the interpretation of the fake data here. All time record debt, all time lows in savings, retail apocalypse ongoing, restaurants and jewelers shutting down at record pace, RV sales dead… Everything’s fine?

  19. tom
    Jul 26, 2019 at 6:11 pm

    Wolf, I follow very few economic sites.
    Old school, small business owner.

    My questions: With congress & white house agreeing to lift debt ceiling,
    does that take the pressure off the Feds for rate cuts? Does this reduce the tantrum on wall street if rates hold?

    Assuming from the white house side they want a weaker dollar in regards to China & EU being able to manipulate their currencies.
    Congress gets to keep spending.

    2008 we saw it coming. At this time, don’t see a slow down..other than a burned out workforce.

    • Jul 26, 2019 at 11:43 pm

      tom,

      I don’t think the debt ceiling charade impacts the Fed’s decision. This debt ceiling charade is something the US has to endure every couple of years, for eons. It’s used in Congress to extort concessions from the other party, or a group within the same party. And in the end, it always gets lifted.

      The actual debt outstanding might someday be an issue for the Fed, but for now, there is huge demand for this stuff, so that’s not on the Fed’s worry list at the moment.

  20. ooe
    Jul 26, 2019 at 7:46 pm

    The economy is headed for recession. Look for downward revisions to growth next year. There is no more stimulus. As a far as the job creation, it has slowed down. the economy has created one million jobs through June 2019. That is down from 1.4 Million as of June of last year. Also, look for downward revisions for next to match the low job creation if you compare it to the household survey. Expect a recession by the fall.
    P.S. the stock market is not the economy. The S & P was at a record nominal high one month before the Dec 2007 recession.

    • Andy F
      Jul 26, 2019 at 10:14 pm

      Remember 2008—-it felt like a recession, and it was confirmed in 2009. Waiting on GDP reports and revisions is a huge waste of time. Retail sales and housing permits come out monthly and great for watching the economy. Employment is usually a lagging indicator.

    • cd
      Jul 27, 2019 at 11:18 am

      It has begun but recessions don’t jolt the market like many think…..
      I’m hearing from my clients of slowdown…..stress showing up on trying to deliver respectable P&L statements….

      one guy just cut 100K a month in expenses….so it will ripple slowly thru…..
      not a big recession as bankers will not allow a democrat to win the election, they are promising to much free stuff to the benefit loving entitlement sheeple of America

  21. Bet
    Jul 26, 2019 at 8:25 pm

    It’s easy to beat the earnings when the guidance is lowered every quarter There is something out there swimming in the financial markets that has the elephants distributing , looking for those willing bag holders. The markets keep crawling to new all time highs but on longer term negative divergences. The markets lead the economy by 6 to 12 months. Also I am reading Mr 50 cents is back buying those VIX calls. He was a few months early last time. But his payday was 200 million
    When the markets did break back in 2018
    Just a tell to keep sharp

  22. Brant Lee
    Jul 26, 2019 at 8:59 pm

    In any case, it’s all about the stock market for the FED and Trump. Promised accommodation must come now or reprise December 24, 2018.

  23. Jul 26, 2019 at 9:15 pm

    So if they were lying then why aren’t they lying now? Maybe real GDP is zero so lets cut!

  24. Andy F
    Jul 26, 2019 at 10:10 pm

    The construction machinery industry ( think CAT, Deere etc ) used to need for 3% for growth. The last 9 years have been in the 2’s and construction machinery growth has been good. I like to look at the National Retail Sales unadjusted numbers. 2018 was a great year–up 5% and if not for a weaker Q4 would have been 6%. First six months of 2019 are 3% ahead of 2018—a good number, but not as great a rate as 2018.
    Housing permits are a great lead indicator for the construction business—have been down 9 of last 10 months with June down 10% over June 2018. Home sales in decline, new cars in decline, future home building in decline—extra money being spent on Starbucks, McDonald’s, Walmart and TJMaxx etc. Industrial production might be 1% gain this year and likely 0 next year. United Rentals cut guidance and CAT and Deere have.
    too much inventory.
    Not heading for a recession—but I can see GDP in the 1s and consumer spending in the 2s coming next year.

  25. KPL
    Jul 27, 2019 at 1:05 am

    SocalJim,

    “Took a handful of years for the price to return, but in many locations, just hanging on was the money move, especially if you were blessed with a floating rate mortgage not tied to libor.”

    True. But then it is in hindsight which is rather easy. Yes, price may have risen and many fold with the lurking fear that it is a bubble.

    But then one should have been prescient about all the QE, buying up MBS, ZIRP and NIRP that the central bankers would undertake for a decade (in a relay race manner) and will keep it there for ever. Who could have anticipated the shenanigans of the central bankers over the past decade, that has now left even The Fed scared (Williams comes out and says something, immediately followed by clarification – does this inspire confidence)

    What if central banker had not done QE, MBS? What if The Fed had stopped with QE1?

    Now after a decade what have we got? We are still staring at ZIRP, NIRP and QE at the first sign of a market drop of 20%. A holy mess!

    • cd
      Jul 27, 2019 at 11:21 am

      we would have been better off and price discovery would have happened in housing, along with specs being sent to soup line where they belong…..

      The Bernanke put will be read about for decades…..it saved the zombie specs while saddling the next generation……

      add a Goldman sachs treasury leader for years and here we are watching lapdogs like socaljim think he is smart or something…..

      I look forward to a reset, 25% down move in home prices is coming

    • Tededfred
      Jul 27, 2019 at 1:45 pm

      Don’t feed the troll…. Re: SocalJim – This guy trolls multiple blogs and disseminates the same lame info about housing. Notice that this article is not housing related, but here is SocalJim going on about housing. Maybe if we were all like him and bought multiple beach front homes in SoCal in 50’s, 60’s, 70’s, 80’s and 90’s, like he claims to have done on multiple housing bubble blogs, we wouldn’t have to waste our time reading prescient articles by Wolf. Again, don’t feed the troll.

      • SocalJim
        Jul 28, 2019 at 1:39 pm

        Ignored.

  26. Augusto
    Jul 27, 2019 at 10:00 am

    Economy is built on easy credit and happy talk (I.e. great stock market). Lots of confidence, but…if we have a downturn, stock market decline, people pull back on spending…it’s “look out below”….just like a balloon loosing its hot air…right now heaters able to compensate for the few leaks….but balloons don’t stay up for ever….

  27. NY Geezer
    Jul 27, 2019 at 10:29 am

    “The economy is still powered by very low interest rates, massive government spending growth, and consumers that are working and making money and spending money.”

    I assume you are not suggesting that we can borrow and consume our way to economic prosperity.

    • Jul 27, 2019 at 3:12 pm

      NY Geezer,

      Not at all. Economic measures like GDP are quarter-to-quarter and year-to-year measuring devices — think of the water meter at your house — that quantify the flow of money in the economy. By increasing debt (the money is for consumption or investment), this flow can be increased. There is not a scintilla of suggestion about “economic prosperity” in GDP itself or in this article.

      That’s an entirely different question that is followed up with “economic prosperity for whom?” Because, as you can tell, there is a lot of economic prosperity already, but it’s all piled up on one side.

  28. tommy runner
    Jul 27, 2019 at 5:59 pm

    with regards to the ’18 gdp revisions (if we believe them) would that not vindicate the, ” People who were fearful last Christmas were wasting their time… as usual”. and if true I wonder how much the ‘real inflation adjustment’ might have had on it.

    omit food/energy but get into the weeds w/ ‘quality adjustments’ like cphones/gear.
    hardy har har
    (ok, yes im having a little trbl letting go of it)

  29. Kasadour
    Jul 28, 2019 at 5:22 am

    Even in the face of decent economic growth data (remains to be seen whether this data will be revised), central banks can’t raise rates without sending the commercial banking system into collapse, on the other hand, if they cut rates they risk setting off an uncontrollable hyper-deflationary currency crisis. What to do, what to do. The days of central bank rate tag-you’re-it games are coming to an end.

  30. Bogwood
    Jul 28, 2019 at 6:28 am

    There is the not so hidden primary Fed mandate: financing wars. They have to keep Boeing alive. It’s the purpose of all central banks.

  31. historicus
    Jul 28, 2019 at 6:39 am

    And what of the PCE, the alleged true measure of inflation the Fed watches?
    Up 2.7%…as the Fed contemplates a 2% Fed Funds rate…
    how do you say, “negative real rates”?

  32. Copernicus
    Jul 28, 2019 at 9:11 am

    It’s approaching comic levels where the issuer fears default and the recipient fears payment.

  33. SocalJim
    Jul 28, 2019 at 9:16 am

    Trump is working on the theory that enough easy money coupled with reduced regulation, tax cuts, and higher paying low end jobs ( from trade policy changes ) would generate enough GDP and tax receipts to keep the country’s debts in check. But, the country’s debts still seem to be spiraling. This has to be worrying. Without astronomical productivity increases, there is no solution. The next recession will be painful. Trump is keeping his fingers crossed that the next recession does not begin until after Nov 2020.

  34. sierra7
    Jul 28, 2019 at 8:43 pm

    For those who have commented that the previous GFC was a media phenomenon you are smoking some kind of weed that is destructive.
    Having been around at the time (and continues with several even today) family wholesale/retail mortgage money brokers I watched the dramatic escalation of euphoria before, during and the horrible aftermath of that economic “recession”. Also attended private group meetings in Central Valley (CA) post crash to listen and document consumer stories about how they lost their homes. No, this was not a media hoax. It was/is a story of extreme greed, lax or no industry oversight/regulation, the belief that “markets will solve everything”, the incredibly destructive packaging of the “shit” (quotes from congressional hearing) that was sold to unsuspecting traders, banks, etc around the world. This was/is a criminal enterprise, not a media propaganda exercise. And, those that were deeply involved in promoting and leading these criminal enterprises should have gone to jail; they did not. (Someone else mentioned the ash-caning of the Mark to Market rules in early 2009…right on! You can look at the stock market indexes and see that when that happened the Dow took off and never looked back. Media propaganda exercise? BullSh%$! It was too real for millions who were sucked into the charade by trusting their banks, brokers, etc., and the “sideways” politicians that allowed for the continued destruction of regulatory laws such as “Glass Steagal”. “Trust” was destroyed in that GFC.

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