Friday, July 28, 2006

Q2 GDP - Bernanke's Conundrum

GDP for Q2 came in at 2.5%, significantly lower than Q1 and consensus estimates. Core inflation up 2.3% YOY, an 11 year high, core PCE up 2.9%, a 12 year high.

From Bloomberg:

U.S. Second-Quarter Gross Domestic Product Grew at 2.5% Rate

The U.S. economy grew at a 2.5 percent annual pace from April through June, less than expected, as business investment in equipment fell for the first time in three years and consumers reined in spending.

The government's first estimate of the quarter's gross domestic product, the value of all goods and services produced in the U.S., compares with a 5.6 percent gain in the first three months of the year, the Commerce Department reported today in Washington. A measure of core inflation accelerated.
...
The government's personal consumption expenditures index, a measure of prices tied to consumer spending, rose 4.1 percent after a 2.0 percent rise in the first quarter. The index excluding food and energy, a measure favored by Fed policy makers, rose at a 2.9 percent annual rate after a 2.1 percent rise the previous quarter.

The GDP price index, a measure of prices tied to the report, held at a 3,3 percent annual rate in the second quarter.

From Marketwatch:

GDP slows to 2.5% in second quarter

Consumer spending weakened in the April through June period, residential investment fell further and business investment eased to the slowest growth in more than two years. Investments in business equipment and software declined for the first time in three years. Inventory accumulation and trade added to gross domestic product in the quarter.
...
Meanwhile, core consumer prices rose 2.9% annualized, the fastest pace in 12 years, keeping the pressure on the Federal Reserve to stay on top of inflation. Core consumer prices have risen 2.3% in the past year, the fastest growth since 1995.
The GDP price index, which covers all prices in the economy, increased 3.3% for the third straight quarter. Consumer prices including food and energy increased at a 4.1% pace.

56 Comments:

Blogger NJGal said...

So, economy slowing, inflation rising. Lovely. Do we think there will be another rate increase?

Anyone check out the articles on Realty Times today? They're particularly obnoxious and stupid for some reason.

7/28/2006 07:50:00 AM  
Blogger grim said...

From the AP:

Economy Slows Sharply, Inflation Heats Up

The economy's growth slowed sharply in the second quarter, logging just a 2.5 percent pace as consumers tightened their belts and spending on home building suffered its deepest cut in nearly six years. Inflation, however, shot up.
...
An inflation gauge closely watched by the Federal Reserve showed that core prices -- excluding food and energy -- jumped by 2.9 percent in the second quarter -- far outside the Fed's comfort zone. That was up from a 2.1 percent increase in the first quarter and marked the highest inflation reading since the third quarter of 1994, when core inflation rose by 3.2 percent.

7/28/2006 07:50:00 AM  
Anonymous Anonymous said...

http://flippersintrouble.blogspot.com/

Enjoy

Boooooooyaaaaaaaaa

Bob

7/28/2006 07:51:00 AM  
Anonymous Anonymous said...

THE OLD LINE "REAL ESTATE ONLY GOES UP" OR "REAL ESTATE HAS NEVER GONE DOWN POST WORLD WAR II" WILL BE PROVEN WRONG.


HEHEHEHEHE

Prepare for lean times.

BABABABABABA

BUST!

Bob

7/28/2006 07:55:00 AM  
Blogger grim said...

NJGal,

It's perfectly normal, all part of the Kubler-Ross cycle.

We seem to be finally passing through the intial stage of Denial ("There can't be a bubble").

The obnoxious attitude is all part of the second stage, anger. I look at the increase in snarky anonymous comments as further indication of the transition into the anger stage.

As we progress I believe we'll see an even greater increase in angry comments. We still really haven't had many finger pointers yet, I'm sure we're going to get a fair share of comments blaming us for the state of the market..

grim

7/28/2006 07:56:00 AM  
Anonymous Anonymous said...

Lean times are a coming Grubbers better sell fast and lower that ridiculous price.

How one can expect to get their ripoff price is amazing?

First, interest rates on these Suicide Crooked Option ARMs have increased big and even the 30 year mtg is up nearly 30% in rates.

Can't have it all johnny come lately grubbers.

Attention grubbing sellers, If you have to sell you better get very aggressive with your pirce reductions. In short time prices will just fall thru the floor when just one of your neighbors panics or gets foreclosed on. Comps are going to crash!

It's a sinking ship jump off now or go down with it!

Babababa

BOOOOOOOOOOOOYAAAAAAAAAAAA

Bob

7/28/2006 08:00:00 AM  
Blogger grim said...

From Marketwatch:

8:30 AM ET 7/28/06 U.S. Q2 EMPLOYMENT COSTS INDEX UP 3.0% YR-ON-YR, VS 2.8 Q18:30 AM ET 7/28/06 U.S. Q2 WAGES UP 0.9%, BIGGEST GAIN SINCE Q1 20038:30 AM ET 7/28/06 U.S. 2Q BUSINESS INVESTMENT UP 2.7%, LOWEST IN 2 YEARS8:30 AM ET 7/28/06 U.S. Q2 EMPLOYMENT COST INDEX UP 0.9% VS 0.8% EXPECTED8:30 AM ET 7/28/06 U.S. 2003-05 GDP REVISED LOWER TO 3.2% VS. 3.5%8:30 AM ET 7/28/06 U.S. 2Q FINAL SALES UP 2.1% VS. 5.6%8:30 AM ET 7/28/06 U.S. 2Q RESIDENTIAL INVESTMENT FALLS 6.3%8:30 AM ET 7/28/06 U.S. 2Q CONSUMER SPENDING UP 2.5% VS. 4.8%8:30 AM ET 7/28/06 U.S. CORE INFLATION UP 2.3% Y-O-Y, 11-YEAR HIGH8:30 AM ET 7/28/06 U.S. 2Q INVESTMENT IN SOFTWARE, EQUIPMENT FALLS 1%8:30 AM ET 7/28/06 U.S. 2Q CORE PCE PRICE INDEX UP 2.9%, MOST IN 12 YEARS8:30 AM ET 7/28/06 U.S. 2Q GDP SLOWS TO 2.5% FROM 5.6%, VS. 3.1% EXPECTED

7/28/2006 08:02:00 AM  
Anonymous Anonymous said...

http://www.nypost.com/business/come_clean__ben__business_john_crudele.htm

This Housing market needs to sink and to correct the excesses of this lopsided (Debt-laden) economy.

Bababababa

Housing BUST!

Bob

7/28/2006 08:11:00 AM  
Anonymous Anonymous said...

http://www.nypost.com/
business/come_clean__ben__
business_john_crudele.htm

7/28/2006 08:13:00 AM  
Anonymous Anonymous said...

THE OLD LINE "REAL ESTATE ONLY GOES UP" OR "REAL ESTATE HAS NEVER GONE DOWN POST WORLD WAR II" WILL BE PROVEN WRONG

Bob
7/28/2006 08:51:55 AM

Bob,
I agree 150% with everything you say. However, when you hear the line that real estate has never gone down post WW-II, we know that is a fallacy. The periods from 1980-1985 and 1990-1995 both had approx a 15% decrease in prices. This was when you put down 20% and had to meet the standard 28/36% income/expense ratio. One can only imagine how far we have to go after this fed created mania/bubble.

PATIENCE,PATIENCE,PATIENCE!!!!!

BC Bob

7/28/2006 08:13:00 AM  
Anonymous Anonymous said...

ATTENTION DESPERATE SELLERS:

IF YOU HAVE TO SELL THEN GET AGGRESSIVE WITH YOUR (LOWER FAST)PRICING TO SELL IT. THERE WILL BE FOOLS THAT JUMP IN EARLY TO BUY SO FIND THEM AND UNLOAD YOUR DEPRECIATING HOUSE FAST!

The word for today to Money grubbing sellers.

Bob

7/28/2006 08:15:00 AM  
Anonymous Anonymous said...

Attention Starving realtors:

ACCEPT the fact that real estate is going down and start working to change the psychology of sellers cuz you ain;'t going to sell much of anything at these insulting prices. Start pumping "real" price reductions. Like 25-35% cuz the party is over. Your choice starve or survive.

BOOOOOOOOOOYAAAAAAAAAAAA

Bob

7/28/2006 08:18:00 AM  
Anonymous Anonymous said...

20% DOWN??????

Don't be so old school BC.

MANAGE YOUR CREDIT!!!

DEBT MANAGEMENT THE NEW BUZZWORD IN FINANCIAL PROPAGANDA.

BUST!

Bob

7/28/2006 08:20:00 AM  
Blogger X-Underwriter said...

This comment has been removed by a blog administrator.

7/28/2006 08:33:00 AM  
Blogger X-Underwriter said...

Slightly out of the North Jersey area but an interesting read for DC

Housing prices at a standstill
http://www.washtimes.com/business/20060727-112200-9309r.htm

7/28/2006 09:33:51 AM

7/28/2006 08:41:00 AM  
Anonymous Anonymous said...

We all know the real state market is going to drop, but what is the percentage of drop are you expecting? How soon do you expect to see the market will reach that point? Where do you think the bottom will be? At what point do you expect to enter into the market, if at all?

7/28/2006 08:51:00 AM  
Blogger NJGal said...

"I look at the increase in snarky anonymous comments as further indication of the transition into the anger stage."

You know, I totally agree - I have noticed a lot more of these on other blogs. People are getting very nasty. Until I noticed that I believed that we were still in the denial stage and that it would be a pretty long one.

7/28/2006 08:58:00 AM  
Blogger Richie said...

Woohoo! EmigrantDirect bumped their rates up again to 5.15%..

My savings is appreciating faster then my house is!!

-Richie

7/28/2006 09:05:00 AM  
Anonymous Anonymous said...

Currently, there are 32,252 properties advertised for sale in NJ on our site. For Residential Properties that are Multiple Listed with Garden State

Gluts and Gluts and Gluts of inventory Piling UP!

Take a Number Grubbers!

COOOOOOOOOLLAPSE!

Bob

7/28/2006 09:05:00 AM  
Blogger grim said...

Yield curve looking pretty nasty this morning..

grim

7/28/2006 09:24:00 AM  
Anonymous Anonymous said...

Hey nobody mentioned that mortgage rates dropped this week.......

7/28/2006 09:25:00 AM  
Blogger RichInNorthNJ said...

Mortgage rates dropped slightly this week.

7/28/2006 09:28:00 AM  
Blogger chicagofinance said...

3-Month 5.07
2-Year 4.99
10-Year 4.98
stagflation anon.....?

gut check time for Benny Boy

I think he will let us down

7/28/2006 09:35:00 AM  
Anonymous Anonymous said...

bob's having an epileptic seizure again.

7/28/2006 09:37:00 AM  
Blogger chicagofinance said...

Booya:

I'm getting confused with two Bobs.

Maybe you can be "AD Bob" and the other guy "BC Bob"?

7/28/2006 09:38:00 AM  
Blogger RichInNorthNJ said...

Interesting article over at Pimco Bonds by Bill Gross

The End of History and the Last Bond Bull Market

7/28/2006 09:39:00 AM  
Anonymous Anonymous said...

A little education to the Grubbers.

You think if interest rates go down you will be bailed out think again.

From 1990-1993 rates went from 9% to 6% and real estate TANKED!

A consumer led recession is here. Just the johnny come lately media is late to catch on.

Hehehehehe

Bababababa

Housing BUST!

Bob

7/28/2006 09:45:00 AM  
Anonymous Anonymous said...

For those people who are cheering for a hard landing, I hope you know what you are hoping for. Let’s assume that you get what you are asking for, the housing market drops more than 50% in the next few years, you see foreclosures start popping up all around the neighborhood, the housing price got slashed into half and you managed to get a house dirt cheap, and you are happy.

Then what? You look around, holy Christ, the houses got so cheap, you see all kind of element that you don’t want to see in your neighborhood starting to moving in, rich people are moving out because the area is really starting to deteriorate, the city gets less money from property tax, and there for less money for school, and other public work, and everything is going downhill so, you ended up getting a cheap house in the ghetto.

Think of the scenario for a bit, if this what you want to see?

7/28/2006 09:51:00 AM  
Blogger chicagofinance said...

Don't paint us as the bad guys.

We are all in this together.

7/28/2006 09:59:00 AM  
Blogger RichInNorthNJ said...

...the houses got so cheap, you see all kind of element that you don’t want to see in your neighborhood starting to moving in, rich people are moving out because the area is really starting to deteriorate,...

You HAVE to be kidding, right?

If not, I think YOU need to think about this scenario a BIT more.

7/28/2006 10:16:00 AM  
Blogger grim said...

"you see all kind of element that you don’t want to see in your neighborhood"

"you ended up getting a cheap house in the ghetto"

You are heading down a very slippery slope with this argument, drop it, right now.

grim

7/28/2006 10:18:00 AM  
Anonymous Anonymous said...

Grumpy Grumpy grumpy.

Watch the Grumpy meter hitting record levels.

It is ONLY going to get worse Grubbers. Either accept it or go down with the ship.

Once they stop this insane MTG lending then things will get back to normal where putitng down 20% means something and when starter houses at $400k -$500K are a thing of the past. $250k -350K depending on area and condition.

Housing BUST!

Be prepared for lean times grubbers/straving realtors. You have been warned.

Babababa

Bob

7/28/2006 10:40:00 AM  
Anonymous Anonymous said...

Cheerleading on the WAY UP is just fine for these one way street grubbers.

Markets are a 2 way street Grubbers. sometimes in your favor and sometimes NOT!

Not is in now.

GET USED TO IT!

BUST!

BOOOOOOOOOOOOOOYAAAAAAAAAAAA

Bob

7/28/2006 10:42:00 AM  
Anonymous UnRealtor said...

"the houses got so cheap, you see all kind of element that you don't want to see in your neighborhood starting to moving in"


Wow this is just absurd. Did the "rich people" move out 5 years ago, when home prices cost half as much?

7/28/2006 10:48:00 AM  
Blogger skep-tic said...

anon,

you overestimate the importance of these inflated house values. people who have owned for many years and who haven't borrowed irresponsibly could care less if their house "value" drops 50% (actually, they'd probably prefer it because they could get their property tax assessment lowered).

the only people for whom this really matters are the morons who bought during the last couple of years who stretched themselves too far

7/28/2006 10:48:00 AM  
Anonymous Anonymous said...

While ANON 7/28/2006 10:51:45 AM's comments are a bit absurd and inflammatory. A hard landing is going to stink for everyone, home owner, renter, home buyer home seller. Whats been proping the economy up is the housing industry on its bubble rise on cheap rates. When that fades and people start paying back debt instead of borrowing more, or just defaulting altogether, it will affect all and not in a good way. Businesses will suffer, municipalities, markets etc etc etc. It will be painful. Those who have savings for a house and tout a 50% down payment and are waiting till 2007-8. Thats great, but if the hard landing comes, it may be difficult to finance even 50% of a now very cheap house, with no job.

We all want a nice protracted correction folks.

JMM

7/28/2006 11:00:00 AM  
Anonymous Anonymous said...

JMM-

Protracted correction means adding to the problem, with risk of backslides. Uncertainty for a longer period of time.

How protracted are you thinking?
More than three years?

Pat

7/28/2006 11:05:00 AM  
Anonymous Anonymous said...

While ANON 7/28/2006 10:51:45 AM's comments are a bit absurd and inflammatory. A hard landing is going to stink for everyone, home owner, renter, home buyer home seller.


SO who is to blame here, the folks who did not jump on this last housing bandwagon (like posters on this blog) or our fearless Fed leaders and bank presidents?

7/28/2006 11:10:00 AM  
Anonymous Anonymous said...

In early 1990's HOUSING TANKED BY 50% FOR CONDOS AND ABOUT 25% FOR HOUSES. IT'S WORSE NOW THAN 15 YEARS AGO. IT'S A MESS!

THE ECONOMY AND PEOPLE SURVIVED JUST FINE WHEN HOUSING TANKED. THIS TIME MAY BE A LITTLE WORSE WITH ALL THE FOOLS GETTING AND LEVERAGING UP WITH LOANS.

BRING ON THE BUST!

CORRECT THIS MESS!

BOOOOOOOOOOOOYAAAAAAAAAAAA

Bob

7/28/2006 11:12:00 AM  
Anonymous Anonymous said...

prepare for lean times bubbleheads.

It's a coming.

Bababababa

Bob

7/28/2006 11:14:00 AM  
Blogger skep-tic said...

all of the excess realtors can go back to working at the perfume counter or stripping, and most of the laborers will head back to latin america. mortgage brokers can sell steak knives or do repos. for most people, life will go on just fine

7/28/2006 11:15:00 AM  
Anonymous Anonymous said...

Sorry Grimster all pumped up. Won't post for a while.
Keep up the good work converting fools into thinkers.

Booooooooooooyaaaaaaaaaaa

Bob

7/28/2006 11:16:00 AM  
Anonymous Anonymous said...

----THIS TIME MAY BE A LITTLE WORSE WITH ALL THE FOOLS GETTING AND LEVERAGING UP WITH LOANS.

this time will be worse because all the fools getting and leveraging up with loans, so you can get better deal when fools messed up....

7/28/2006 11:26:00 AM  
Anonymous Anonymous said...

Who to blame?

Government, for encourageing lax lending by setting low rates

Banks, for encouraging risky and inappropriate lending standards

Consumers, for consuming beyond their means and financing a lifestyle living on borrowed time and money

Who knows, no matter who you blame, the enconomy can no longer sustain all of this irresponsible behavior.

7/28/2006 11:32:00 AM  
Anonymous Anonymous said...

Pat,

I left my protractor in my other suit. I have to get back to you.

Not an a macro enconomist, just my laymens comments. I get the "take your lumps" quick and now, but I just feel you don't want to shock the system into correction. There will be false rebounds as it trends down to normalcy, but how many years???

I thought you can't time the market?

JMM

7/28/2006 11:36:00 AM  
Anonymous dreamtheaterr said...

Here is Bill Gross (PIMCO fame) August 2006 outlook

http://www2.pimco.com/pdf/IO%20August%2006%20WEB.pdf

He mentions "We find that real house prices are pro-cyclical and tend to reach a maximum near business cycle peaks, often after a prolonged period of buoyant growth in activity has raised output above its potential level and inflation pressures have begun to emerge. Subsequently, real house prices fall for about five years and their previous run-up is largely reversed. Real GDP growth slows during the first year or so after house prices peak as do growth rates of private consumption and investment. House price booms are typically preceded by a period of easing monetary policy with FF rates bottoming out about three years before house prices peak. Rates then reverse quickly (after the peak) in response to falling GDP growth."

7/28/2006 11:37:00 AM  
Anonymous Anonymous said...

7/28/2006 11:48:39 AM
skep-tic said...
anon,

you overestimate the importance of these inflated house values. people who have owned for many years and who haven't borrowed irresponsibly could care less if their house "value" drops 50% (actually, they'd probably prefer it because they could get their property tax assessment lowered

BC Bob says,
Please, am I missing something here?? If someone owned their house outright and it was worth 1 mil., you think that they don't care if it drops 50% in value?? Did it ever occur to you that these people, who haven't borrowed irresponsibly are probably astute investors??? This is probably the single largest asset that they own and they don't care!!!!!!!! This commentary is so sad that is hilarious. They don't care about a 500K haircut because their propery tax may go down????????? Suppose you own a $100 stock that pays a 5% dividend.
That stock goes to 50 (the dividend stays the same), but you don't worry because your dividend is now paying 10%. This is the most hideous statement that I have read on this site.

PATIENCE,PATIENCE,PATIENCE

BC Bob

7/28/2006 11:39:00 AM  
Blogger skep-tic said...

BC Bob,

most people don't look at their home like a stock certificate. they look at it as a place to live.

case in point, my parents, who have their home paid off and plan to live there until they die, do not care what the paper "value" of their house is. the only way the recent runup in prices has affected them is by causing their property taxes to go up. there are many people like them and not every homeowner in America has been seduced by the wealth effects of this bubble

7/28/2006 11:58:00 AM  
Anonymous Anonymous said...

skep-tic,

I assumed you were making a general statement, not a specific statement. My fault!! In specific cases you are right. Generally, you are not. My parents are the same as yours. However, it wasn't your parents nor mine that caused this mania to turn into a bubble and now the beginning of a bust. True a house is not like a stock, I was just talking in investment terms. The general public can live with a big down-turn in the stock market. However, they are affected differently when they see their American dream go under. You will see massive consumer retrenchment that will lead to a severe recession and maybe a depression. This is the difference between a 50% drop in your house versus a 50% in your 401K. In conjunction with this, what would make you believe that property taxes would go down??? Do you think the municipal workers/unions will accept a 50% decrease in their salaries??? Maybe the municipality can negotiate a 50% decrease in their health premiums!! Unfortunately, our parents will not get the benefit of lower taxes. Gotta get back to work!!!!!!!

BC Bob

7/28/2006 12:27:00 PM  
Anonymous Anonymous said...

My $750k house purchase in 1996 increased in value to $1.5M by 2005. There is no way I was going to watch those gains vaporize, and I bailed out last year and now rent.

For me a house is a place to live AND an investment. And like any investment, you can't buy at the top of an irrational market and expect it to be a good long term investment.

7/28/2006 01:20:00 PM  
Anonymous Anonymous said...

that fool bought your $750k at $1500k was not reading the news...

7/28/2006 01:31:00 PM  
Anonymous Anonymous said...

Congrats on your great sale!!!! You are absolutely right, a house is a place to live and a investment. I also sold in the summer of 2005. When 5 buyers are bidding up the price of your house it would be foolish not to sell. I figured it is easy to find a place to live, it is not easy to create wealth in a lifetime like that. I would rather rent and earn 5.5% and watch it all unravel that sit in an overpriced asset while it losses 30-50% in value. However, there is one negative, I don't have granite counter-tops now. HA! HA!

Please, PATIENCE

BC Bob

7/28/2006 02:05:00 PM  
Anonymous Anonymous said...

"My $750k house purchase in 1996 increased in value to $1.5M by 2005. There is no way I was going to watch those gains vaporize, and I bailed out last year and now rent."


Nice move. Did you get a big capital gains hit on your taxes?

7/28/2006 02:17:00 PM  
Anonymous Anonymous said...

"that fool bought your $750k at $1500k was not reading the news..."

Actually they were downsizing and sold their $2Mil house for $4Mil, so they did fine...

7/28/2006 02:17:00 PM  
Anonymous Anonymous said...

"Nice move. Did you get a big capital gains hit on your taxes?"

No, because of the $500,000 homeowner deduction plus I had some losses from the 2000 stock market crash. Paid almost no taxes.

7/28/2006 02:20:00 PM  
Anonymous Anonymous said...

BC, you are absolutely right. It is very difficult to create wealth and even today, smart sellers will discount well below market to get out with some gains before it's all gone. Unless it's not an investment...

btw, I only had 3 bidders.

7/28/2006 02:29:00 PM  

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