
U.S. GDP Shrank in Q1 2015 - mitchll
http://blogs.wsj.com/briefly/2015/05/29/why-u-s-gdp-shrank-at-a-glance/
======
cryoshon
I'm not an economist, but here's my view from the ground:

1\. High unemployment, preventing consumption

2\. High debt load (student, home, credit card) for prime age consumers,
preventing consumption

3\. Low wages and stagnant wage growth for prime age consumers, preventing
consumption

4\. Low job stability, leading to cash-in-mattress, preventing consumption

5\. Low worker actualization and agency, leading to more time and energy spent
at work, preventing consumption

6\. Long term poor access to wealth-building financial instruments for most
people, reducing accumulated wealth over time, reducing consumption

So as you can see, my opinion is that consumption is weak because people don't
have enough money. The WSJ article has a small paragraph about tepid consumer
spending, so I guess we agree there.

Aside from these core issues, I'd also speculate that a tremendous quantity of
money is trapped in financial instruments. If it's in a financial instrument,
it isn't exactly employing people or building goods or creating demand for
goods. The same could be said about the billions of dollars held close to the
chest by the oligarchy.

There's a huge opportunity here to have a government public works program or
some other major initiative to mobilize the underclasses, but it won't be
taken.

None of these issues are specific to Q1 2015, and they won't be fixed in Q2,
Q3, or Q4.

~~~
randomname2
An interesting analysis at [http://charleshughsmith.blogspot.com/2015/05/us-
households-u...](http://charleshughsmith.blogspot.com/2015/05/us-households-
under-pressure-stagnant.html) echoes these observations, concluding "How do
you support a consumer economy with stagnant incomes for the bottom 90%,
rising basic expenses and crashing employment for males ages 25-54? Answer:
you don't."

~~~
humanrebar
Why can't hiring people be cheaper?

1\. Get rid of the minimum wage. It makes as much sense as rent control...
none.

2\. Help out the needy by introducing a minimum income and/or an aggressive
earned income tax credit.

3\. Everyone knows kids are expensive. They shouldn't be. Scale 2 according to
household size.

4\. Set the levels of 2 high enough that citizens can pay their own taxes
(both halves of the pension tax) and buy their own benefits (disability,
health, life, 401k 'matching', etc.).

...watch the number of entry-level jobs explode and the demand for robotic
work tank (like McD's filling sodas with robotics).

Side benefits:

A. Small companies will be better able to compete with big companies with
employment lawyers and HR departments.

B. Bootstrapping and entrepreneurship becomes more viable.

C. Corporations lose some of their relative power due to A and B.

~~~
ahallock
> watch the number of entry-level jobs explode and the demand for robotic work
> tank (like McD's filling sodas with robotics).

People have better things to do than repetitive, unfulfilling tasks (unless
they enjoy it, of course). We need to get to the Star Trek utopia... what
you're talking about sounds like halting progress.

~~~
PopsiclePete
Automation is coming. We can't stop it. Together with Globalization and
various "free" trade agreements, the US worker is ..effed. We are going to
have the well-paying STEM jobs, the lawyers, bankers, doctors, therapists, the
super low wage unskilled laborers in a race to the bottom, trying to compete
with machines, and a huge, empty nothing in the middle between those groups.

And that's going to happen sadly before we reach Star Trek utopia, and there
_will_ be large-scale civil unrest, even in the US, within the next 30 years,
I'm betting on it.

And let's not even talk about impoverished countries with exploding
populations that are already struggling to provide jobs - an endless cycle of
regional warfare, an endless Arab Spring.

~~~
ryoshu
Doctors, bankers and lawyers are screwed as well. ML will make sure of that.
We will still need some people to perform those functions, but not nearly as
many as we have now.

~~~
adebtlawyer
Show me an AI that can do these jobs, and I'll show you one that can do any
job.

~~~
oberstein
Show me an AI that can beat the best human at Chess, and I'll show you one
that can beat the best human at any game?

Your mistake is assuming that a sizable portion of the work these jobs involve
can't be replaced by "dumb AI", which is what ML is all about, and that they
require a fully general AGI.

~~~
adebtlawyer
I should have said, do these jobs more efficiently. Maybe I'm naive, but I
don't see how a machine that does a "sizable portion" of the work would ever
be good enough to be worth using. A human expert would always be needed to
check the work.

If the proposition is that this would lead to fewer humans being needed for
these jobs, I suppose that could be the case. In my own field, my criticism of
automating, say, legal research and writing, is that the time it would take
for me to check the work would be nearly the same as doing it myself. I don't
see much efficiency gain, which is why I think the only thing that would truly
be better than a human would be an AGI.

~~~
jules
There won't be a sudden replacement that can do everything. It will be like
gathering food. The majority of the population used to be involved with
gathering food. Then people started to farm. Then instead of human powered
ploughs they started to use horse powered ploughs. Then came the engine
powered ploughs. Then came automatic seeding machines. Machines that can
separate corn from the plants. Etc. Nowadays only a tiny fraction of the
population is involved with food production. There are still farmers, but just
a couple. We are now in the horse powered plough stage. We have full text
search that can go through tons of documents that doctors and lawyers would
previously have to search by hand. An assistant to do legal research is
essentially just a really good full text search engine, it's a continuum from
dumb search engine to smart search engine. We have email. We have electronic
systems to keep track of patients and clients. Soon we will have systems that
can suggest a diagnosis based on symptoms, and systems that can suggest
medical tests to narrow down a list of diagnoses. Systems that can assist
clients to write their own standard legal documents. It won't be that suddenly
all doctors and lawyers are out of a job, it will be like farming. We still
have farmers, but only a couple because they are so efficient.

------
adventured
US households are refusing to increase their spending. Here's what they're
doing with their money:

[http://i.imgur.com/AOKooQg.png](http://i.imgur.com/AOKooQg.png)

Paying down hundreds of billions in debt. Finally a good call by US households
on debt. Most major economies are seeing household debt rapidly increase.

It was expected that the gasoline cost savings would bolster the US economy
via consumer spending, as an off-set against industry job losses and loss of
capital investment. That hasn't happened, instead consumers are saving that
money (quarterly net savings jumped significantly). What you get from that
combination is an economic contraction.

~~~
CalRobert
I often read how household spending being down is bad, but why is that? Do we
need so much stuff? If my wife and I have a one bedroom apartment, ride a
bicycle and a scooter to get around, and generally lead a relatively simple
life does that make the world a worse place? We do spend money, but it usually
goes towards plane tickets to interesting places and going out for a pint or
two - things we both enjoy.

I just don't see what's wrong with not buying more crap. Our parents have
giant houses, multiple cars, hot tubs, and all sorts of stuff, and that's
great for them, but it gets old hearing that our lifestyle is bad for America.

~~~
BenoitEssiambre
That is not what this is about. More spending doesn't necessarily mean more
consumer spending and less saving.

Yes you can increase aggregate spending through consumer goods spending, but
you can also increase spending and aggregate demand by having people buy more
investments. You can spend and save at the same time. There are many ways to
spend and save at the same time. You can buy something you are only going to
need later, you can buy stocks in a business that will use the money to buy
equipment and employ people, you can lend to a business that will buy
equipment and employ people. This is all the economic equivalent of investing,
the I in the GDP equation C+I+G+(X-M)

The only thing you need to prevent is people and organisations sitting on idle
cash or cash like investments. That's what destroys the economy. Anyways fiat
is a fictitious form of saving on the aggregate. It doesn't produce anything
and people accumulating it doesn't increase the amount of stuff they will be
able to buy in the future on the whole.

The point is to move the economy away from idle fiat and into consumption or
investment.

~~~
brc
>The only thing you need to prevent is people and organisations sitting on
idle cash or cash like investments. That's what destroys the economy.

Not true. Cash kept in banks is reinvested in the economy. If companies like
Apple keep billions in the bank, it has the effect of lowering interest rates
and therefore encouraging investment.

Clarity in economic thought comes when this incorrect bit of Keynesian relic
thinking is discarded.

~~~
BenoitEssiambre
Banks are organisations, I include them in this, you need to prevent banks
from not lending.

>"it has the effect of lowering interest rates"

Not when we are already at the zero lower bound.

At the ZLB you need higher inflation targets for things to function properly.

------
thewarrior
Even after all of this quantitative easing ? Makes me wonder what will happen
once it's stopped.

EDIT: I'm also talkin about the extremely low interest rates or basically
ZIRP. There's really not much more the FED can do. But if this means that the
era of zero interest rates is here to stay for longer then the party in
Silicon valley is about to get even wilder.

I'd like the opinion of some people more knowledgeable about economics as to
why recovery is taking so long. It's already 7 years since the crash. How long
could it potentially take ?

It's not like this state of affairs can last forever can it?

~~~
littletimmy
Secular stagnation. Basically, what happened to Japan in the previous decades
is now going to happen to much of the developed world. A prolonged period of
no growth with no monetary policy tools to help solve the problem, and no
political will to implement a more active fiscal policy.

~~~
fweespeech
Pretty much. Its not possible to recover from in the near term because the
only reason it hasn't been worse is the fact we've been having the FED use
every policy tool it could think of.

[http://www.economist.com/blogs/buttonwood/2014/11/secular-
st...](http://www.economist.com/blogs/buttonwood/2014/11/secular-stagnation)

[http://www.independent.co.uk/news/business/news/imf-fears-
gl...](http://www.independent.co.uk/news/business/news/imf-fears-global-
economy-is-suffering-secular-stagnation-10161154.html)

~~~
toomuchtodo
Perhaps its time we admit that growth isn't a requirement to an ever-incrasing
quality of life? And investigate the transition to steady state economies?

Who am I kidding, that'll never happen.

~~~
randomname2
Well, just saying, but "no growth" hasn't really been working out for Greece
lately.

~~~
toomuchtodo
Ahh, forgive me. I had thought it was their crushing debt payments that are
impossible to service thats causing their economic hardships.

Greece will be in a much better position as soon as it exits the Euro.

~~~
seanflyon
> crushing debt payments

Growth helps a lot with that problem.

~~~
toomuchtodo
What industry would you suggest Greece grow its way out of debt with besides
possibly tourism?

~~~
seanflyon
I'm assuming that Greece has a fair share of intelligent adults capable of
being productive.

------
randomname2
Corporate profits plunged by $125B, how can the WSJ spin that as "U.S.
corporate profits rebounded in the first quarter of the year."? From the
actual press release:

"Profits from current production (corporate profits with inventory valuation
adjustment (IVA) and capital consumption adjustment (CCAdj)) decreased $125.5
billion in the first quarter, compared with a decrease of $30.4 billion in the
fourth.

Profits of domestic financial corporations decreased $2.6 billion in the first
quarter, compared with a decrease of $12.5 billion in the fourth. Profits of
domestic nonfinancial corporations decreased $100.4 billion, in contrast to an
increase of $18.1 billion. The rest-of-the-world component of profits
decreased $22.4 billion, compared with a decrease of $36.1 billion. This
measure is calculated as the difference between receipts from the rest of the
world and payments to the rest of the world. In the first quarter, receipts
decreased $28.9 billion, and payments decreased $6.5 billion."

Or, in an actual graph:

[http://i.imgur.com/YidRIWh.jpg](http://i.imgur.com/YidRIWh.jpg)

~~~
jofer
I agree that the WSJ statement is very misleading, but I believe they meant it
in comparison to Q1 2014, not in comparison to Q4 2014.

From the WSJ article: "Profits [...] advanced 3.1% in the first quarter of
2015 from the fourth quarter of 2014, after falling 3% in the prior period. "

~~~
randomname2
In Q1 2014 they they were absolutely horrific and we had one of the worst
plunges ever if you look at the graph. It's not really a fair comparison.

~~~
sgnelson
It's quite fair, year over year is a very normal and usual way of measuring
growth. (it helps in that it gets rid of seasonal variations for one, but this
is a very minor reason to use it.)

------
pesenti
It's funny to see everybody overreacting and coming up with a bunch of
theories. As a reminder, it happened much much worse last year (-2.9%
[http://www.forbes.com/sites/samanthasharf/2014/06/25/u-s-
gdp...](http://www.forbes.com/sites/samanthasharf/2014/06/25/u-s-gdp-
dropped-2-9-in-the-first-quarter-2014-sharply-lower-from-second-estimate/))
and was immediately corrected the quarter after (+4.5%). It's called harsh
winters...

~~~
aburan28
Nonsense every business knows winter occurs annually and businesses need to
stop making excuses

------
jamespitts
While it is a good exercise, much of the commentary on this thread is
conjecture. Attempting to explain why the GDP shrank last quarter is similar
to explaining why the weather in your city was cooler over the last few weeks.

Still, I would much rather read conjecture here than in a business news
article :)

~~~
jamespitts
Rather than put forth any definitive theories, usually what I try do is
understand some of the top drivers of a change, and then, with those in mind,
think about what the secondary effects might be.

------
randomname2
This GDP report also confirms global trade is crashing, as net trade (exports
less imports) subtracted -1.9% from the final GDP print, likely due to the
strong dollar:

[http://i.imgur.com/hB90v62.png](http://i.imgur.com/hB90v62.png)

And as well noted by this lady, we probably haven't seen the worst yet:
[https://twitter.com/auaurelija/status/604271796267937792/pho...](https://twitter.com/auaurelija/status/604271796267937792/photo/1)

All the indicators point to NIRP coming to the US soon, as lately bad economic
data (such as global trade) correlates almost perfectly with bond yields.

And as noted on ZH, the lower bond yields drop, the larger the secular decline
in aggregate demand ("deflation"), the more businesses focus on investing in
short-term capital gains instead of long-term growth projects (i.e. capex),
the worse global trade will get, leading to even more debt monetization, even
lower yields and even lower trade...

------
oldpond
No surprise here. @cryoshon has it right in that the debt load is freezing the
system. The banks failed in 2008 because we reached the limit of how much debt
the world can support (not counting all the fake debt those crooks sold in the
form of derivatives). The US gave the banks a ton of money to stay afloat, but
it didn't solve the debt problem ie. the debt didn't get forgiven. What's
interesting about this year is that criminal proceeding are finally moving
against the leaders of the banks that survived the 2008 crash. These things
take awhile to work their way along. This will not do anything to help the
economy, in fact it will only get worse as the banks circle their wagons and
stop lending.

------
wmoxam
Winter: [http://www.greaterfool.ca/wp-
content/uploads/2015/05/Winter-...](http://www.greaterfool.ca/wp-
content/uploads/2015/05/Winter-modified.png)

------
istvan__
Maybe the trickle down economics does not work, and we should tax the
corporations more (like it used to be) and lift the tax on the lower wage
workers? Maybe. The problem is that both parties are in the pocket of the big
corporations and the average voter has less influence what is going down than
ever. Related study:

[http://talkingpointsmemo.com/livewire/princeton-experts-
say-...](http://talkingpointsmemo.com/livewire/princeton-experts-say-us-no-
longer-democracy)

------
aburan28
Another huge problem that has occured for the past 6+ years is the low
interest rates which has led to the lowest saving rates in decades. With talk
of negative interests the savings problem becomes even more dire. Whats the
point in keeping any cash on you when its losing purchasing power every second
it's in your wallet? Consumption is not problem. We need real wages to rise
and we need investment in things like infrastructure.

------
trhway
DJIA is at all times, Nasdaq is like it is 2000 again, a Republican is to be
elected (giving how we like franchises it will be Bush 3 winning,
unfortunately, over Clinton 2),... lets call it a "correction" that we're just
due in for.

------
aburan28
Another problem, the financial sector is hooked on low interests rates. The
Fed was planning to raise interest rates this September but with these
terrible numbers there is no way that is going to happen this year.

------
tim333
Global deflation - aggregate spending's too low, too much austerity.

~~~
randomname2
Well just to clarify, the first part of that statement is fact but the second
is actually opinion.

~~~
tim333
You could probably argue the first part is opinion too. Just my take.

------
sp332
Why is state and local government spending counted as negative for GDP?

~~~
fiatmoney
It's not. They're saying that that spending decreased, contributing to a
decline in GDP.

------
shit_parade2
When will we acknowledge that central bank market intervention has failed for
everyone besides the richest?

