Quelle Surprise! Growth Revised to Negative in 4Q, Jobless Claims Rise

This is far from the first time that initially positive GDP readings were later revised into negative territory. Fourth quarter growth, initially posted at 0.6% of GDP, was revised down to -0.25 today and first quarter to 0.9% from 1.0%.

But what appears to have gotten the market’s attention was that the rebate checks had such little impact on the quarter just ended. Second quarter came in at 1.9% (frankly, even than appears better than it feels). Yet critics said the rebates were likely to be ineffective, since they put money in the hands of consumers less likely to spend. Indeed, by Gary Shilling’s calculus, consumers lived up to their plans to save 80%of the rebate.

From the Wall Street Journal:

The soft U.S. economy sped up in the spring but still rose less than expected despite tax rebates handed out to spur growth, a report said Thursday.

The Commerce Department reported gross domestic product climbed 1.9% in the second quarter. Wall Street expected 2.3% growth. First-quarter GDP grew 0.9% and the fourth quarter fell 0.2%….

A Labor Department report Thursday showed the number of U.S. workers filing new claims for unemployment benefits jumped to a five-year high last week. Initial claims for unemployment benefits rose 44,000 to 448,000 after seasonal adjustments in the week ended July 26.

The soft labor market is restraining labor costs, which rose 0.7% during the second quarter, another Labor Department report Thursday said. Wages and salaries grew 0.7%. Benefit costs advanced 0.6%. The mild increases are unfortunate for the average worker — but helpful for central bankers.

“For the Fed’s part, the lackluster wage growth greatly enhances their ability to control inflation without further damage to near-term growth,” said Global Insight analyst Kenneth Beauchemin.

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  1. JP

    … consumers lived up to their plans to save 80%of the rebate…

    thus providing banks with some much-needed cash deposits.

  2. Anonymous

    Part-time employment hits record

    The unemployment rate is a relatively modest 5.5%. But that’s because companies have figured out how to convert full-time employees who have benefits like health care into part-time ones who lack benefits and whose hours can be cut back at will. This is a great deal for companies and a lousy one for workers. And it is ultimately bad for investors.

  3. Vox Sanus

    I wouldn’t put any stock into the GDP numbers. They used a 1.1% deflator, which is beyond fantasy.

    Just keep cooking the books…

  4. Anonymous

    This should help things:

    With California’s cash dwindling and legislators still debating a new budget, Gov. Arnold Schwarzenegger eliminated 22,000 part-time and temporary state positions Thursday and ordered that 200,000 state workers receive the federal minimum wage.

  5. TM Milie

    The $6.55 per hour federal minimum wage is below California’s $8 minimum. But the California Supreme Court, in a 2003 decision, allowed the state to reduce its employees wages to the federal minimum if the budget was not passed.

    California needs $2.5 billion cash on hand to pay its operational expenses, including the payroll. But by the end of September it is projected to have only $1.8 billion left on its coffers.

    State controller John Chiang said he would continue to pay California employees their full pay even if the governor signs the executive order. Chiang insisted California has sufficient money to meet its payroll until September. “Cutting workers’ salaries will do nothing meaningful to improve our cash position… It is nothing more than a poorly devised strategy to put pressure on the Legislature to enact a budget,” Chiang said in a statement.

  6. Anonymous


    WHEREAS the constitutional deadline for enacting a state budget for Fiscal Year 2008-09 has passed without the enactment of a budget; and

    WHEREAS in the absence of a budget, State government is constitutionally prohibited from making payments that are not compelled by either the State Constitution or federal law; and…


  7. dh

    Why the State Controller Will Pay Full Paychecks

    The Governor errs in relying on the Supreme Court’s decision in the White v. Davis case to support his proposed reduction of State employee paychecks to the federal minimum wage in the absence of a state budget. Here is why.

    In non-binding remarks, the Supreme Court cast some doubt on the Controller’s “impracticability” argument; however, it remains a live issue that current Controller John Chiang can pursue, given that the State payroll system has not changed and will not have the capacity to timely adjust and segregate the employees who must be paid full salary from those who could legally be paid minimum wage.

  8. Anonymous

    Did anyone see this reference today??

    “some are calling a misrepresentation due to tinkering going on with the added unemployment extensions WSJ)”
    Re: Furthermore, President Bush signed a bill last month that extends unemployment benefits to as much as 13 weeks for some. In an effort to notify hundreds of thousands of Americans about the extension, the Labor Department discovered many were eligible for initial unemployment claims – not just an extension of benefits.

    The Labor Department said some of these people had intervening wages such as a temporary summer job that qualified them to reapply for jobless insurance benefits. As a result, the government said many valid claimants who did not previously know they were eligible applied for new benefits.

    http://money.cnn.com/2008/07/31/ …sion=2008073110

  9. Richard Kline

    So Vox Sanus, I am in full agreement with you: I have no confidence whatsoever in the validity of that GDP number. Our headline government statistics on economics are cubed spheres mined from some Bizarro planet, but they always manage to look _better_ than the realities we face. Methodologically, there is no excuse for them. But then, the US got out of the reality business not long after I was old enough to vote . . . .

    On that income tax rebate, awww I only managed to save 66% of mine . . . but it’s not in the bank. It’s part of a safely stashed fund in case the equity in my banking institution plays kissy face with a financial neutron bomb over the next 18 months. Cash flow matters, and especially at my level of the economy. And no, it’s not in a mattress, either.

    John Chiang = Kyle Reese. Look, the Gubernator is and always has been totally financially irresponsible in office. During the good times, he refused to take in even adequate revenue to fund existing committments _including those he personally pledged to support_. Instead, the State of California at his initiative took on tens of billions of dollars of debt during our nominal expansion. Now, their budget constrainsts are severe. So what is the brave, manly Gubernator doing?: Holding a sharpened pen to the throats of the state employees since the Legislature refuses to fire them en masse at Arnie’s wiggy whim. Could it be that the facts that those unions are the major contributors to Democratic legislative candiates and this is an election year have any influence upon the Gubernator’s present performance as a public menace? Arnie hopes to ‘drown tens of thousands of union members in the deficit bath tub,’ I don’t doubt, a wish clearly always near to his fondest. My advice: A shotgun, Mr. Chiang, speaking metaphorically, loaded with a 200k dust shot charge of cheques, and stay light on your feet.

    [Full disclosure: One of my relatives _is_ a California state employee. But the Gubernator can’t touch his salary, which is set under a court order that resulted from the Golden State shirking its ethical, statutory, and human rights obligations for years _as a matter of policy_. And in the end, that is where future California fiscal policy will be decided, in my view: the courts will have to set things right because too much of the citizenry puts fantasy above sense or the law.]

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