The GDP Joke (Michael Pento)

Friday, January 28, 2011



By: Michael Pento


The Main Street Media is running around today applauding our 4th quarter GDP report, which increased at a 3.2% annual rate. However, the current dollar or nominal GDP growth rate was 3.4%. That’s correct; the BEA is suggesting that inflation grew at just over a .2% annual growth rate in Q4 2010! Does anybody that’s not a politician or central banker really believe that the rate of inflation for goods produced domestically was growing at a .2% annual rate?

To make matters worse, personal consumption expenditures were up 4.4% and final sales surged 7.1%. I say worse because the savings rate is dropping as consumers and business ramp back up their borrowing. Household purchases, which account for about 70 % of the economy, rose at a 4.4% pace last quarter, the most since the first three months of 2006. The increase added 3 percentage points to GDP.

To be able to consume one must first have produced. If you consume without having produced, you are spending either borrowed or printed money. And the money that is being spent isn’t used to purchase capital goods, which can expand the productive output of the economy. Consumer credit is up two months in a row and we are spending borrowed and printed money, not money earned from growing real incomes.

The Fed’s preferred inflation metric, which is tied to consumer spending and strips out food and energy costs, climbed at a 0.4% annual pace, the smallest gain in data going back to 1959. So we should expect more borrowing and more Fed printing, as Mr. Bernanke feels inflation is perilously low.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

No Income, No Problem...Just Go Shopping (Michael Pento)

Not to worry. QEII will fix everything

Monday, November 1, 2010
By: Michael Pento

Personal Income fell in September as spending increased nevertheless. Purchases increased .2%, while incomes fell 0.1%, the first drop since July 2009. Real Disposable income—which removes inflation and includes changes in taxes—dropped .3%. And of course, forget about all that talk about consumers finally learning how to save. The savings rate decreased to 5.3 percent from 5.6 percent.

The most egregious data point released from the BEA today was on inflation. Somehow, they managed to claim that The Federal Reserve’s preferred price measure, which excludes food and fuel, was unchanged from the prior month and was up just 1.2% from a year earlier, the smallest gain since September 2001. That should come as a shock to anyone who has witnessed soaring prices from nearly every commodity produced on the planet.

But the Fed and Administration will not worry as much about falling incomes as they will about less spending and low inflation. Their answer to every problem is print more money.

We also had the release of the October ISM-Manufacturing Survey today. The index came in at 56.9 up from 54.4 in September. The most interesting part of the survey came from what respondents are saying:

• "The dollar is weakening again, which is resulting in higher costs for our materials we purchase overseas. It is hurting our profit margins." (Transportation Equipment)
• "Business slowing down but still double digit over last year." (Chemical Products)
• "Currency continues to wreak havoc with commodity pricing." (Food, Beverage & Tobacco Products)
• "Customers remain cautious, placing orders at the last minute, making supply planning a challenge." (Machinery)

Not to worry. QEII will fix everything.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Inflation Everywhere but in the Mind of the Fed (Michael Pento)

Friday, October 1, 2010
By: Michael Pento

The BEA released some amazing data on Personal Income and Outlays this morning. No, it wasn’t the fact that Personal Spending was up .4% and Income was up .5% for the month of August. It was the data on inflation that caught my eye and, more importantly, the Fed’s reaction to it.

Core PCE increased 1.4% YOY, while the overall inflation rate jumped 1.5% from August 2009. That’s correct--all you deflation propaganda pundits out there listen up--price levels are rising even when using the Fed’s own preferred inflation metric.

But our central bank’s reaction to this data is shocking. Fed policy makers on Sept. 21 moved closer to another round of unconventional monetary easing and said for the first time that inflation is too low. According to the Federal Open Market Committee statement, “Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.”

This morning Fed Bank of New York President William Dudley said the outlook for U.S. job growth and inflation is “unacceptable” and that the central bank has options to add stimulus without any serious repercussions. “We have tools that can provide additional stimulus at costs that do not appear to be prohibitive,” Dudley, who serves as vice chairman of the Fed’s policy setting Open Market Committee, also said in a speech to business journalists in New York today, “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.” Dudley even went as far as talking about the effects of another $500 billion increase in the Fed’s balance sheet.

So inflation that has risen 1.5% YOY as measured by the Bureau of Economic Analysis isn’t enough for our Federal Reserve. Our dollar, which is plummeting on the FX exchange, apparently isn’t falling fast enough for Mr. Dudley. Oil, gold and most other commodities are soaring this AM, but that doesn’t allay the Fed’s deflation fears.

The Institute of Supply Management Survey of Manufacturing for the month of September fell to 54.4 from 56.3 and the prices paid component soared from 61.5 to 70.5. Evidence of escalating inflation can be found everywhere except in the minds of those who are charged with the protection of our currency’s purchasing power.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

Michael Pento shares his thoughts on today's revised GDP report

Friday, August 27, 2010
By: Michael Pento

According to today’s release from the BEA, “the second estimate of the second-quarter increase in real GDP is 0.8 percentage point, or $25.0 billion, lower than the advance estimate issued last month, primarily reflecting an upward revision to imports and downward revisions to private inventory investment and to exports that were partly offset by an upward revision to personal consumption expenditures.” So we are consuming more and producing less and GDP was just barely positive because the BEA managed to once again under estimate the genuine rate of inflation.

They claim inflation is increasing at a 2% annual rate. But anyone who pays; taxes, insurance, healthcare, education, food and energy costs will tell you that is a woefully inaccurate measurement—even if one is just considering domestically produced goods and services.

I suppose as Americans we should be proud that our National defense expenditures increased 7.3%, compared with an increase of 0.4% in the prior quarter. But basing a recovery on military spending is dubious at best.

All told, today’s GDP revision for Q2 was reported to be 1.6% and since July and August data was extremely weak in comparison, Q3 GDP will be even worse. Chairman Bernanke reiterated today at Jackson Hole that the Fed will do whatever it takes to foment inflation. And as a consequence, my next prediction is that the economy will suffer to an even greater extent, marked by a worsening of the stagflationary environment. Euro Pacific Site

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.