Friday, October 27. 2006
GDP anomaly
Growth of real GDP per civilian, noninstitutional population, 1986-2006
Above year-over-year and annualized quarter-over-quarter growth in GDP (XLS) per civilian, noninstitutional population with the twenty-year average and two-standard deviation bands. Mediocre though 06Q3 results are, below-average for both series, I had "half expected even worse numbers." It turns out that my intuition was right about production, but wrong about its origins. It wasn't the deflator, it was auto production.
An unexpected increase in auto production last quarter was a statistical fluke that will be reversed, making current U.S. economic growth even weaker, according to a former Commerce Department economist.
Last quarter's annualized 26 percent increase in auto production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported today.
The increase in output came despite cutbacks announced by General Motors Corp., Ford Motor Co. and others. A drop in the wholesale price of SUVs and light trucks as the automakers cleared leftover 2006 models made production look stronger than it actually was, said Carson. The economic fallout from the auto-industry cutbacks will instead come this quarter, he said.
Carlos Torres
U.S. Statistical Fluke Exaggerated Growth, Will Be Reversed
bloomberg.com, 27. Oct. 2006
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Well, no offence Joe Carson, but I'd be looking for a new director of economic research at AllianceBernstein LP in New York. You want to examine the entire entry for autos in that BEA release to see the import of 25.7. Ok, maybe just 2005 q3-q4 if you have that heavy lunch date.
Same for Carlos at Bloomberg.
Same for Carlos at Bloomberg.
Was he wrong about the price drop, or that like 2005 you're going to see the opposite effect next quarter?
I noticed a few days ago The Big Three CEOs had lunch with w and the photo op was because...they didn't need any hand-out from the government (not like Chrysler, not like those companies who have foreign branch plants who only need to pay 5% tax on those earnings,...) and that the Japanese currency (for the first time in fx issues in years) was doing the damage (not just health care and legacy costs as previously reported).
A day later GM announced that it would reinstate $2000 incentives to clear out 2006 stock in time for the shopping season (incentive period closing Jan). I'm hoping there was no cause and effect here.
Do I expect a repeat of 2005? yes,(-20) if not worse. Like Carson apparently as the piece I read only contained the information that he thought GDP was over-stated by this outlier auto figure.
I assumed he did not read the 25.7 stat in the context of the last few years. It reflected stress in the domestic auto industry when they started serious incentives in 2005.
Not only are sales brought forward, but the size of subsequent incentive needs to be increased to get the same results, yes? Not only are vehicles sold that the customer doesn't really want (and will buy only if these incentives are in place) but vehicle he prefered is left behind waiting for its incentives to move it off the lot.
Was Carson wrong about the price drop?
Where do we draw the line between a package deal that costs less than a summation of those options and, a free option, and a free 100 gal gas, and a chance to win a trip to Hawaii, and a cash rebate?
No question that the incentives constitute de facto deflation in the auto industry and that the mere existence of incentives mean sales have been artificially goosed.
So the sales register misleads in 2 ways: first that it is transitory (these numbers no longer reflect 1 month or 1 quarter sales, but those that were going to buy next month, quarter) and secondly, that the value of the item sold, written on the sales receipt, is higher because it cost you more to get that "fully loaded" and incentivized car.
The auto industry is murdering us in so many ways...
A day later GM announced that it would reinstate $2000 incentives to clear out 2006 stock in time for the shopping season (incentive period closing Jan). I'm hoping there was no cause and effect here.
Do I expect a repeat of 2005? yes,(-20) if not worse. Like Carson apparently as the piece I read only contained the information that he thought GDP was over-stated by this outlier auto figure.
I assumed he did not read the 25.7 stat in the context of the last few years. It reflected stress in the domestic auto industry when they started serious incentives in 2005.
Not only are sales brought forward, but the size of subsequent incentive needs to be increased to get the same results, yes? Not only are vehicles sold that the customer doesn't really want (and will buy only if these incentives are in place) but vehicle he prefered is left behind waiting for its incentives to move it off the lot.
Was Carson wrong about the price drop?
Where do we draw the line between a package deal that costs less than a summation of those options and, a free option, and a free 100 gal gas, and a chance to win a trip to Hawaii, and a cash rebate?
No question that the incentives constitute de facto deflation in the auto industry and that the mere existence of incentives mean sales have been artificially goosed.
So the sales register misleads in 2 ways: first that it is transitory (these numbers no longer reflect 1 month or 1 quarter sales, but those that were going to buy next month, quarter) and secondly, that the value of the item sold, written on the sales receipt, is higher because it cost you more to get that "fully loaded" and incentivized car.
The auto industry is murdering us in so many ways...
Was there a big summer-incentive season in '03 as well?
Deflation in the US-headquartered auto industry, certainly. I don't think Toyota is having as much trouble moving its product, which along with currency helps explain their more-stable margins. That 50% non-US content helps in a low-yen environment, but even if Yen/$ moves up 10%, I doubt US automakers see a huge sales or margin boost.
FD: long Yen/$ via options (still), one of my worst-timed trades in the second half
Deflation in the US-headquartered auto industry, certainly. I don't think Toyota is having as much trouble moving its product, which along with currency helps explain their more-stable margins. That 50% non-US content helps in a low-yen environment, but even if Yen/$ moves up 10%, I doubt US automakers see a huge sales or margin boost.
FD: long Yen/$ via options (still), one of my worst-timed trades in the second half
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