Memorialized in Stephen Hawking’s book, A Brief History of
Time, Bertrand Russell was giving a public lecture on astronomy. At the end of the lecture, a little old lady
in the back stood up and said, “What you have told us is rubbish. The world is really supported on the back of
a giant tortoise.” Bertrand, being
astute, responded, “What is the tortoise standing on?” and the little old lady,
without missing a beat, said, “You’re very clever, but it’s turtles all the way
down”. If you replace turtles with
aggregates, that is exactly how I feel about Gross Domestic Product (GDP). It’s aggregates all the way down. GDP is the total market value of all the
finished goods and services produced in a country. It’s calculated on a quarterly basis in the
US and is usually big talk in financial news.
It was released this morning by the BEA. Now, I have several problems
with the GDP, for instance it’s a crowded mess of data, aggregates of
aggregates. Did the economy expand? Sure
by 1.6% quarter over quarter. Where did
it expand the most at? Was it government
spending that pushed it up so high? What private sector businesses were the
hottest? What does it mean to investors?
The other problem I have with GDP is that it is released on
a quarterly basis. You are looking too
far back in the rear view to be able to make estimates about future data. By the time the 2020 Q2 data was released,
everybody already knew that the economy contracted because of the
shutdowns. The market was already past
the lows.
Weekly employment data was released this morning showing a
small downtick in initial claims and continued claims.
Due to the continued federal government emergency
unemployment bonus, we are still about twice where we were prior to the
shutdowns in both categories. If you
remember from the alert
on 6/1, some states were ending the emergency unemployment benefits
early. So far, we’ve gotten through 12
of the 24 states with only one hiccup, Indiana.
In Indiana there are two lawsuits against the governor for ending the
benefits early. To his credit Indiana
governor Eric Holcomb hasn’t caved to the pressure. At the end of this week, 7 more states will
end the emergency unemployment (Arkansas, Florida, Georgia, Ohio, South
Carolina, South Dakota, and Texas). I
expect this will have a big effect on the employment data over the next two
weeks.
New orders for durable goods continue to look strong. Manufacturers are struggling to get workers
but not business. Even with the
bottlenecks and backorders in the economy, businesses are getting back to
business. Something to keep an eye out
for will be the next set of ISM reports to see if businesses are still
struggling with price increases and short supply issues. The manufacturing report comes out on July 1
and the services report July 6. This
will be a key indicator if inflation is still bubbling under the surface or if
it is truly transitory.
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