Posted originally on the conservative tree house on October 28, 2021 | Sundance | 214 Comments

The Bureau of Economic Analysis (BEA) has released the first estimate of Gross Domestic Product (GDP) for the third quarter (July, Aug, Sept). [DATA HERE]  The top line number of two percent GDP growth is significantly worse than most economists and financial pundits expected.

The second quarter GDP was 6.7%, so a slow down to 2% is very significant considering the economy should be rebounding and reopening after the COVID-19 impacts.  However, when we dig into the details [Table One] you will see how what is happening in your life is actually reflected in the data.   None of this should be a surprise, as the data is simply reflecting what is happening in your personal checkbook economics.

First, here’s the media jaw agape, with false explanations and justifications:

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The drop has nothing to do with the ‘delta variant’, and everything -EVERYTHING- to do with inflation and impacts from Joe Biden’s economic policies.

Let’s take a look at the details, and you will see how the national GDP is simply a reflection on what we are doing to survive the Biden economy.

GDP growth is the measure of what is happening inside the U.S. economy.  GDP reflects the value of goods and services produced in the U.S. minus the value of goods and services we import from outside the U.S.

Consumer spending represents two-thirds of our overall U.S. economy.  When Americans stop buying stuff, our GDP drops.

A few things to remember about the value of goods and services.  Inventories are an asset, increases in the inventories of goods we produce is a positive driver of GDP.  Those inventories become sales, and those sales are also calculated in the value of goods we build, like houses.  Considering how much housing values have increased; and considering how much more value that should add to the GDP overall; when the economy “decelerates”, as housing values increase, that tells you something is profoundly askew.

Consumer spending represents two-thirds of our overall GDP growth.  Now take a look at the data in Table-1

Notice what is highlighted?   Massive drops in consumer purchases of Goods (-9.2%), specifically in consumer spending for ‘Durable goods’ -26.2%

That statistic should not come as a surprise to those CTH readers who have followed along in the past few months.  That statistic is simply a reflection of what we are doing.  We are paying so much more for energy, gasoline, fuel, housing and food (all driven by inflation), that we are not spending on durable goods like cars, trucks, or long term appliances, electronics or other non-essential items.

-26.2% in one quarter is a massive contraction in the purchasing of durable goods.  However, it should not be a surprise.  Overall inflation increased 5.4% in the third quarter as measured within this first estimate analysis of GDP.   However, inflation on food and gasoline was more than four to eight times higher, respectively, than overall inflation.  As a result, disposable income has collapsed:

“Disposable personal income decreased $29.4 billion, or 0.7 percent, in the third quarter”, according to the top line first analysis.  However, again this is a preliminary estimation and reflects a very skewed data point.  With inflation on essential items running much higher than wage growth, the -0.7 percent first estimate for personal income is profoundly generous to  the Biden administration.  We can expect the second estimate in late November -with more complete details-  to be a significant downward revision because disposable incomes have dropped much more than -0.7%.

Purchases for durable goods do not drop by 26% with only 0.7% drops in income.   Look at your own checkbook economics.  All of us blue-collar and working class folks are hunkering down and prioritizing food, fuel and home heating costs.  We are not out buying new stuff.

Private residential sales are down 7.7% in the July, August, Sept, period according to the BEA data.   Remember when CTH said at a macro level housing prices peaked in the last two weeks of May and first two weeks of June?  There’s another supportive data-point.

Yes, there are regional impacts from relocation that are driving home values up in key regions like Florida and some suburban neighborhoods as people flee the crazy.  However, overall home values have peaked, and only institutional investors (not families) are purchasing them now.  Those institutional investors are buying property because they need tangible assets…. because their paper assets are extremely vulnerable.   Vanguard and Blackrock purchasing houses gives them a tangible asset they can then leverage for pennies on the dollar for more low interest loans from the fed.   Those houses are then turned into rental incomes feeding the mothership.

Lastly, exports should be a benefit to GDP, but as you can see in Table-1 exports are -2.5%, we are exporting less value in part because the value of our currency has dropped so dramatically.

The bottom line is this.  The first estimate of Q3 GDP growth is merely a reflection of what you know is happening in your life and around your neighborhood.  The next revision to this data (late November) will be lower than the first estimate because you can see the first estimate has not yet caught up to the current status as it existed in September.

Armstrong Economics Blog/Ethics Re-Posted Oct 28, 2021 by Martin Armstrong

Federal Reserve Chairman Jerome Powell was caught in a lie that may cost him re-election in 2022. The Federal Reserve Chairman, the man with the most insight into future US market policy, sold between $1 million and $5 million from his personal account on October 1, 2020. Not so coincidentally, the Dow decreased by around 6% that month before rebounding, and Wall Street saw its worst month since March 2020. Then, in September 2021, Powell ordered an ethics committee to investigate potential insider trading among central bank members, which he deemed necessary “because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission.”

However, when we look at these transactions, they do not appear to be inside trading. Had Powell sold ahead of the COVID Crash Jan-Feb 2020, then there would be a question of inside trading, but then again nobody bothers to investigate Bill Gates for his sales ahead of the COVID Crash he was cheering so much. After reviewing the trades, I would not raise any concerns.  BTW, I was asked to review the Cattle trades of Hillary Clinton which were, in my opinion, a pay-off by putting the losses in one account at the REVCO and the wins into hers all when she was in a meeting and never traded futures before.

Boston Fed President Eric Rosengren had traded real estate investment trusts that owned the same mortgage-backed bonds that the central bank was purchasing. Dallas Fed President Robert Kaplan earned over $1 million last year trading individual, COVID-sensitive equities such as Amazon, Chevron, and Delta Air Lines. Both men abruptly stepped down from their positions shortly after the information came to light. They declared innocence, with Rosengren citing an early retirement due to health reasons and Kaplan seeking to avoid conflict. “The Federal Reserve is approaching a critical point in our economic recovery as it deliberates the future path of monetary policy. Unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve’s execution of that vital work,” Kaplan stated at the end of September 2021.

Powell claimed he had no personal knowledge of any insider trader and suggested a revision to the Reserve Bank Code of Conduct. Meanwhile, records show that Powell called Treasury Secretary Steven Mnuchin multiple times on the same day he sold off his equities. Former President Trump met with Mnuchin that day and later tweeted: “Immediately after I win, we will pass a major stimulus bill.” The Dow, which was up 200 points in late-day trading, suddenly dropped 376 points after the tweet was published. Five days later, Powell was urging for additional stimulus and warned of “tragic” consequences. “The expansion is still far from complete … Too little support would lead to a weak recovery, creating unnecessary hardship,” Powell stated. Did he know what was to come in the following weeks?

Fed officials are not permitted to purchase or sell securities during “blackout periods,” which begin the second Saturday of the month before a Federal Open Market Committee (FOMC) meeting and end the following Thursday. Although Powell did not trade during this blackout period, his October 1 sell-off occurred before the Fed’s minutes report was released. “The problem is that the rules and the practices and the disclosure needs to be improved and that’s what we’re working on,” Chairman Powell stated. Are the rules the real problem here? Powell is allegedly worth between $20 million and $55 million. He and other Fed members have every motive to use their inside knowledge for profit. The people in charge of creating future monetary guidelines could alter policies to fit their trading strategies and line their pockets. Most were confident that Biden would reappoint Powell next year, but that option is off the table if he loses the “trust of the American people.”