The official GDP growth numbers in the United States are calculated by the Department of Commerce, and they are progressively re-adjusted as more data is collected. For the first quarter of 2014, the first estimate was at +0.1% (annualised), which was already indicating a stalled economy in comparison to previous quarters. This estimate has been revised a first time at -1%. There only remained the third and last revision, the definitive number. The analysts’ consensus was predicting -1.8%, but the real numbers came out much worse, at -2.9%! A real recession, the worst result in five years, since the first quarter of 2009, when the American economy was hit by both the subprime crisis and the Lehman Brothers’ bankruptcy. In January of 2014, economists were predicting a 2.6% growth, and we get a result of -2.9%, which says a lot about the magnitude of the collapse.
Let’s take notice of the infinite discretion of the mainstream media and the government leaders in the United States and Europe as well. There have been very few articles on this catastrophic number and the leaders keep on selling us this recovery that is just around the corner... The last revision came out last week, thus at the end of the second quarter. We are being told this is already old news, just a little bump on the road that will be smoothed out by the next three quarters... But this scenario is unlikely, as we do not see any major rebound on the many conjectural indicators for the months of April, May and June.
For the first quarter, all of the economic engines of the American economy have stalled: consumption is up by less than 1%, businesses have not been investing, people have not been buying houses, while goods and exports both contribute in equal parts to the GDP decline. Surely the replenishing of inventories will drive the next quarter into positive territory, but there are no signs of all the engines re-starting at the same time, and no signs that at least one of them could perform. Therefore once again, we can say bye, bye, “recovery”.
The roots of this dire situation are deep: Productivity, which is at the heart of the growth mechanism, has decreased by about 30% in the first quarter... Job creation is inferior to the annual 1980s average rates, investment is stalling, as we’ve seen. Less new businesses and less investment lead, at the end, to less innovation, less new products, and this is what explains this decline in productivity. Even though credit has never been this cheap, business people aren’t taking advantage of it. This is what the Fed was counting on, and they lost their bet, i.e. to maintain interest rates as low as possible as an incentive for businesses to invest and for households to take on more debt, in order to stimulate growth. But the American central bank is really off track by considering a mean (a loan) as an end in itself. If there is no real growth, why invest, low rates or not?
This catastrophic number has been totally ignored by the markets and talked down by the Fed, of course, but this will make the return to reality that much more painful.
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Philippe Herlin Finance Researcher / Member of the Goldbroker Editorial Team
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.