Sometimes things turn up which are something of a surprise. In many ways we have become used to that in the credit crunch and now Covid era. But overnight one has popped up which is a slightly different type of surprise.
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2021 is 8.2 percent on November 1, up from 6.6 percent on October 29. After this morning’s Manufacturing ISM Report On Business from the Institute for Supply Management and the construction spending report from the US Census Bureau, the nowcasts of fourth-quarter real personal consumption expenditures growth and fourth-quarter real gross private domestic investment growth increased from 7.1 percent and 8.7 percent, respectively, to 8.9 percent and 10.5 percent, respectively. ( Atlanta Fed)
So we are apparently in a situation that the Black-Eyed Peas would describe as “Boom Boom Pow!”. That is a little awkward as it was only last week that we were told that the third quarter did this.
Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the third quarter of 2021 (table 1), according to the “advance” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 6.7 percent. ( Bureau of Economic Analysis )
So we have accelerated to four times that rate of growth? My scepticism increases when I note why US growth slowed in the third quarter.
From the second quarter to the third quarter, spending for goods turned down (led by motor vehicles and parts) and services decelerated (led by food services and accommodations).
The issue over motor vehicles and parts has got no better as far as I know. There are also other supply shortages issues and if we go to the ISM Report quoted by the Atlanta Fed they still seem to be there.
Fiore continues, “Business Survey Committee panelists reported that their companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand. All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products. Global pandemic-related issues — worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems — continue to limit manufacturing growth potential.
The Atlanta Fed seems to be confusing the headline number ( 60.8 shows strong growth) with reality because the issues above are taking away the ability to grow. Also I would be rather nervous about suggesting quite a growth acceleration when this is being reported.
The New Orders Index registered 59.8 percent, down 6.9 percentage points compared to the September reading of 66.7 percent.
This is something of a generic issue when I look at the business surveys at the moment where it is easy to be misled and think that growth is higher than it is. This is especially true of the manufacturing sector where the lengthening of supplier delivery times is considered a sign of improvement when right now it is a sign of exactly the opposite.
Inflation
If we look back to the GDP release we see another sign that it is hanging around.
The PCE price index increased 5.3 percent, compared with an increase of 6.5 percent.
So a decline but for perspective still well above the level that we were assured was not going to happen and of course well above the new 3% or so aim of the US Federal Reserve. Indeed we can look at the developments through the eyes of US Treasury Secretary Janet Yellen.
Janet Yellen on inflation…
February: nothing to worry about.
March: small and manageable.
May: temporary.
June: could reach 3% but transitory.
October 5: higher for next several months.
Today: trillions more in spending will drive it down. ( @charliebilello )
The issue of a central banker taking a political role is one that troubles me in a similar manner to when the direction of travel is reversed as it has been in Europe. Although in this instance the current central bankers have done no better.
The next inflation cab off the rank is this.
New York (CNN Business)Americans are already dealing with sticker shock at the grocery store and when filling up at the pump. Next up: Home heating bills.
US households that rely on natural gas for heating will spend an average of $746 to heat their homes this winter, up 30% from last winter, according to the Energy Information Administration. Retail natural gas prices are expected to hit the highest levels since the winter of 2005-2006.
With Bloomberg adding this today.
New Yorkers are in for a 24% increase in their heating bills this winter as a global natural gas shortage is sending prices for the fuel surging.
The irony here is that the US has no shortage of natural gas and could supply itself but has chosen instead to restrict the supply.
TESLA
I have not mentioned this in a while but there is an increasing financial exhuberence issue here.
The stock picked up steam during regular trading, closing up 8.5% at $1,208.59 per share for a market value of $1.2 trillion. Tesla shares notched a new all-time intraday high of $1,209.75 apiece during the session.
Tesla has soared in recent weeks after beginning the month of October trading below $800 per share. Based on Friday’s finish, the stock was up 28.67% since its close of $865.80 on Oct. 20, when the electric vehicle maker reported record quarterly revenue and profit after the closing bell that day.
In some ways it is a little disturbing to agree with Jim Cramer.
CNBC’s Jim Cramer expressed wonderment Monday at the continued strength in Tesla’s stock — up about 50% in the past month and roughly 200% in the past 12 months.
“Tesla is actually a phenomenon we have to talk about,” Cramer said on “Squawk on the Street,” before the opening bell on Wall Street. “I’ve actually never seen a stock go up endlessly on nothing.”
There are consequences here as we are seeing a financial move but what is behind it. As Tesla rises then option market makers have to buy and then behind that index trackers have to buy more because it is a larger part of the index. There are all sorts of rumours that Elon Musk is borrowing against his own ever rising position to give things another push. But what happens when the music stops?
There is a risk of those in tracker funds being hurt because there is so little behind this.
Comment
In ordinary times this would be one of the easiest decisions ever for a central bank as tomorrow the Federal Reserve would raise interest-rates and stop all QE bond buying. The catch comes from the fact that if it was going to it would have done so some time ago. Indeed we appear to be left with a measly little taper that seems in some ways hardly worth doing. They have hinted at US $15 billion per month, so if they start this month it will be June next year before they have finished. Let;s face it Tesla is growing faster than that per month!
But back to the monetary policy issue if this is to deal with inflation and the risk of overheating it is not only too small it is too late. On the other side of the coin we know that in a decline they would cut interest-rates and rush back to QE bond buying in an instant. Also whilst markets are certain of the move we have to note the possibility that they do nothing, what then?
Notayesmanseconomics's Blog 
Hello Shaun,
Its been a long standing position of mine that the US and other western economies have been CTD for some time now , decades that is. The fact that GDP figures are out of kilter with the actual economy should not be a suprise considering they geryymander the economic figures so much these days.
I am still amazed that the plates are apparently still spinning although I suspect they may have fallen off but no one noticed as the FED and TBTF Banks just get twiddling the sticks ….
Still if we go full blast on the Eco doom front following Her Majesty then I think we’ll see the chickens come home to roost , sorry the tofu molder on the plate ?
Forbin
“following Her Majesty”
Since the only efficient retrofit insulation is external I wonder how she is planning to insulate Windsor, Sandringham, Buckingham Palace and Balmoral? Not forgetting that she will not be allowed to change the windows.
I like to look at QE purchased bonds as Schroedinger bonds I mean they exist but they aren’t really there. The Fed or BoE can purchase as many of their own bonds as they like because the sum of fiat currency available is infinity minus one penny. Nobody has yet explained to me the point of saving in a currency that you can produce at will.
Bonds held by central banks aren’t there, they have no existence in the real economy therefore they don’t exist. QE can only be unwound by letting those bonds expire and retire. A lot of people talk about bond markets as if there is one and make dire predictions of a bond buyers strike to punish countries straying from the ‘true path’.
I have a better idea, how about a government strike on issuing bonds? Let’s see who cracks first.
Hi bill40
I have 2 thoughts for you. Firstly there are organisations that need long-term bonds with interest or carry such as pension funds and some insurance funds. So there is an issue for longer-term saving.
Next comes the issue of Germany which has been paid to borrow if we take the ten-year yield as a measure since March 2019. Why would the German Treasury want to give that up?
Shaun,
With logjams at US ports & transport hubs I think it s difficult to judge economic performance. Wolf St blog comments indicate higher prices, & even awkward customer culling by smaller businesses in response to shortages. Transport costs at a premium with some cost gouging it seems while theses problems persist.
Hi Chris
Surely though the logjams must mean that there are issues. Indeed how can you predict 2% growth as we in the UK would measure it in such a situation? Inflation looks much more likely to me.
Great blog as usual, Shaun.
You noted that the inflation rate for the US Fed’s target inflation measure, the PCEPI is down if you look at the 2021Q3 growth rate as compared to 2021Q2. However, it is up if you look at the annual growth rate for the monthly series, rising from 4.21% in August to 4.38% in September. This is the highest inflation rate since January 1991 (4.48%). If one looks at the US Fed’s preferred core measure, PCEPILFE, the story is similar. The annual inflation rate rose from 3.57% in August to 3.64% in September, the highest inflation rate since May 1995 (3.65%).
There are no general inflation measures for the US that include housing prices, but these are still on a tear, or at least were a few months ago. The Case-Shiller national HPI showed an annual inflation rate of 19.8% in August, unchanged from July. Nevertheless, Zillow Real Estate Research has projected an annual inflation rate of 20.2% for September. In no month during the housing boom that preceded the bust that led to the Great Recession in the US did this index ever show an inflation rate as high as 15%.
In August, the top two cities for inflation were Phoenix (+33%) and San Diego (26.2%), with Tampa (25.9%) replacing Seattle in third place from the month before. These four cities are, of course, among the top cities for housing inflation during the housing boom that preceded the Great Recession.
From January 2001 to August 2020 the annualized PCEPI inflation rate of the US was 1.62%, while from August 2020 to September 2021 it is 3.49%, i.e. more than twice as high. So average-inflation targeting, announced in August 2020, already looks like a failure, delivering much higher inflation in the recovery from the pandemic recession than even its critics thought it was going to. Jerome Powell, to paraphrase Canadian Conservative Industry critic Pierre Poilievre, seems to have turned the US Fed into Joe Biden’s ATM.
Hi Andrew and thank you
Yes the monthly figures are more bad news for the transitory crew who keep having to grab at straws which then break. The next cab off the rank in inflation terms should be the housing inflation feeding more into the rental numbers both actual and imputed although that is a bigger influence on CPI than PCE.
There is also this on its way.
“Oreo cookies, Ritz crackers and Sour Patch Kids will be more expensive in 2022, Mondelez CEO Dirk Van de Put told CNBC Tuesday.
“We, at the moment, are looking at starting off 2022 with a 7% price increase in the U.S.,” he said on CNBC’s “Closing Bell.””