Remember, I'm the chap who said +2% H1 2006, flat H2 2006, recession thereafter, a month back.

Looking closer at the data there were some special factors in both directions but mainly skewing it down. It may well be revised up to +2% approx in a month's time, we will see.

The most important thing I took from the data was consumer slowdown - the evidence for that riddled the data, and I don't think that is likely to recover much soon, I'm feeling comfortable with my overall 1% official GDP growth over 2006. I would be feeling very uncomfortable with the mainstream 3.5% 2006 estimate.

It is interesting comparing these comments immediately prior to the release:
http://www.marketwatch.com/news/story.asp?guid=%7BFDE7B999%2D1142%2D43B0%2D824C%2DD560F56E50E2%7D&am p;siteid=mktw&dist
with those after it:
http://www.marketwatch.com/news/story.asp?guid=%7B5869FC75%2D4B54%2D4C08%2D900A%2D5DF170530E18%7D&am p;siteid=mktw&dist
http://www.marketwatch.com/news/story.asp?guid=%7B465AC54A%2DED6D%2D486B%2DBDF2%2D06C065C9B1BD%7D&am p;siteid=mktw&dist=

Now, I am a sceptic on certain US economic stats, and GDP is an important one of those. My personal take is that GDP is overstated by between 1.5% and 2.5% compared with how it was reported in US 10+ years ago and how it's reported in Europe. Some others I respect think it is overstated by 3 to 4%!

By those measures the US could be entering recession now. I don't think that is true, even though it is what I predicted a year ago. I expect Q4 2005 GDP to be revised up to a little over 2% and Q1 2006 to come in (after revisions) at about 2.7%. Recession will be with the US economy within a year but I don't think it is here yet.

Economists React
January 27, 2006 11:17 a.m.
After the economy navigated a brutal hurricane season to post robust growth in the third quarter of 2005, growth cooled considerably in the fourth quarter. Gross domestic product, the broadest measure of U.S. economic output, increased at just a 1.1% seasonally adjusted annual rate as free-spending consumers became more cautious and the gaping trade deficit continued to provide a drag on the expansion. For all of 2005, GDP growth averaged a 3.5% annual rate. What does the slowdown in the fourth quarter mean for the economy in the months ahead? Economists weigh in with their reactions:

* * *

In both its overall appearance and underlying detail, the 1.1% fourth quarter growth in real GDP ranks as the most perplexing report in memory. At face value, such weakness would seem to make it more difficult for the Fed to tighten monetary policy again. But the underlying details reinforce -- if not increase -- perceptions that much faster growth lies ahead. Nonetheless, the confusing and conflicting contradictions with other data make it difficult to be confident in any inferences about the outlook.
-- David Resler and Gerald Zukowski, Nomura Securities International

Consumer spending was actually a little better than expected, rising by 1.1% in the quarter vs. our forecast of +0.3%. I think more of the decline in auto sales was apportioned to the business sector (fleet sales) and less to the retail side than we expected. Housing posted a reasonable gain of 3.5%, but this was less than half of our assumed rise. The monthly source data pointed to a bigger gain, so this is a bit puzzling.
-- Stephen Stanley, RBS Greenwich Capital

The consensus was a bit optimistic but this is a big surprise. The softness against our 2.6% forecast is explained by two components, fixed investment and government consumption. The former rose only 3.0%, with equipment and software up only 3.5%. This is baffling, given the 19.5% annualized leap in the value of capital goods production and the 14.9% rise in shipments of core nondefense capital goods. We expect big upward revisions.
-- Ian Shepherdson, High Frequency Economics

While this was a disappointing report, there are signs of a very sharp rebound in GDP growth in the current quarter. First, much of the miss in fourth-quarter inventories is likely to spill over to the first quarter. Second, at least a partial rebound in defense appears likely. Finally, the ramp for consumption spending is even more favorable in the aftermath of the fourth quarter data. The bottom line is that we now see a very good possibility of 5%+ GDP growth in Q1 -- versus our prior estimate of +4.2%.
-- David Greenlaw and Ted Wieseman, Morgan Stanley

This report is the worst case scenario for the Fed and Mr. Bernanke and the new Fed Chair will be tested right off the bat. The economy is slowing, though clearly not as rapidly as the headline number would have you think. But growth rates in the 2.5% to 3% range should be expected. At the same time, inflation is slowly accelerating. The fourth quarter rate was above the FOMC's previously projected pace. With energy costs up, the Fed has to be concerned about inflation. I cannot see the term tame being used in the next statement.
-- Joel L. Naroff, Naroff Economic Advisors

The only thing that kept GDP growth positive at all was a massive build-up in inventories -- the largest increase in inventories since early 2002. Apparently businesses were caught off guard by the slowdown in demand, and have not yet slowed their production accordingly. Presumably, they will. All in all, this is an extremely worrying report. I've been bearish about economic growth in 2006 for a little while now, and this has just confirmed my worst fears.
-- Kash Mansori, Colby College

With vehicle sales now recovering, consumer and capital spending, as well as GDP activity, will be stronger in Q1. With inventories still very low compared to sales, inventory rebuilding could significantly strengthen Q1 growth. The underlying economy remained solid at year end, despite high energy prices, rising interest rates, and slumping vehicle sales. The Federal Reserve will still tighten next week and probably again in March.
-- Steven Wood, Insight Economics

Wall Street pundits will again try to spin the GDP numbers into a positive, but I believe that this is the beginning of an inevitable recession. ... In the future, those that can afford to pay the additional amount on their higher mortgage will have to "tighten their belt" and not spend as much money in the economy. Consequently, they will hold on to their car a couple of years longer, not frequent their local restaurant as often, and cut back on their overall spending.
-- Emanuel Balarie, Wisdom Financial

Growth will rebound in the first quarter. Car sales are expected to bounce back. Most companies will see little need to liquidate inventories. Defense spending will probably grow again. Also, because the fundamentals for capital spending and export growth are strong, we predict acceleration of growth for both categories of spending in this quarter.
-- Nariman Behravesh, Global Insight

Yesterday's durable goods orders data suggested a lumpy capital spending environment, but one that has improved more than the 4Q GDP data today suggest. Unit auto sales might never eclipse their Summer 2005 level for a very long time to come. However, unit sales in early 2006 appear to be above the 4Q 2005 level, and will make a positive contribution to consumption in 1Q. Most assuredly, government outlays are unlikely to shrink in the coming quarter. While we don't expect an reacceleration in trend demand in 2006, today's GDP data really seem to undercount current growth, and a 1Q 2006 rebound in measured GDP is quite likely.
-- Steven Wieting, Citigroup

With the housing market topping off, if not actually declining, growth is likely to be substantially lower in 2006 than most economists have projected. While the economy is currently experiencing healthy job and wage growth, the falloff in borrowing against home equity will depress consumption growth. Furthermore, wage growth is likely to spur the market's fears of inflation (especially in a context of slowing productivity growth). This would push mortgage interest rates higher, further depressing housing prices and residential construction. It is still too early to say that the housing bubble is deflating, but the evidence is certainly growing that the process may have begun.
-- Dean Baker, Center for Economic and Policy Research

This retrenchment in spending was generally foreseen, though economists weren't sure on the timing and magnitude. American shoppers have been the main engine of growth for the US and the international economy the last few years. But in the process, they have been spending far more than what they earned. All told, household debt has been increasing at an annual pace of nearly 12% in the latest quarter, the fastest pace in 18 years.
-- Bernard Baumohl, The Economic Outlook Group

We view the fourth quarter slowdown as a temporary development, one that reflected (1) influences of the August-September hurricanes and (2) ahuge swing in vehicle sales between 3Q and 4Q due to incentives. Indeed,vehicle sales were a big drag not only on consumption, but also on equipment investment. We do not believe this report will have a measurable bearing on Fed policy, especially with high frequency indicators from 1Q pointing to strong growth. The expectation is for the funds rate to rise to 5.0% by the May meeting.
-- Haseeb Ahmed, J.P. Morgan Chase

From Calculated Risk. Priceds (this is of new homes) peaked in September: they dropped in October, again in November, and again in December. The average price actually has dropped 10% in three months! That rather has the look of a trend, doesn't it? If we're hitting peak oil and the tipping point at the end of the housing bubble at the same time, does that mean inflation, or deflation?

My take is a housing crash could do enough economic harm that oil prices might actually drop as demand drops faster than supply.

Tax havens (see Setser on Dark Matter a.k.a. "transfer pricing")

http://www.rgemonitor.com/blog/setser/113810#readcomments

Labor arbitrage: Cheap labor in China and developing countries.  Roach is one of the few economists that dares to use the term "labor arbitrage," even though everyone knows it is happening.  See

http://www.morganstanley.com/GEFdata/digests/20060109-mon.html#anchor0

Environmental arbitrage: China is fast becoming a massive polluter.  A clean environment costs money.  Lax standards attract FDI, much as NAFTA in Mexico did and still does.

Tax arbitrage: China has offered very handsome tax breaks for FDI firms, so much so that indigenous firms are complaining loudly.

Put all this together with U.S. credit being extended to the max , low interest rates, and savings down and you have a recipe for disaster when energy costs seriously begin to rise.

In short, the world economy may be functioning well in the short-term, but its serious imbalances do not need much to push it over the edge.  If we are at or near peak oil, well...no more be said.  The first half of this year will be very bumpy.  Then the fun begins.

http://odograph.com/?p=451

Gas can be a pretty big bite, depending on what cars you set yourself up with.  I could see this as the whole reason for the consumer slowdown.

The other aspect nopboody sems to
have mentioned is the completely
idiotic nature of GDP anyway. An
increasing GDP figure is a measure
of how quicly a nation is destroying
its own environment and the planet
in general. GPI, Geniune Progress
Index indicates that western
societies have been going backwards
since about 1975!!

I still think this chart suggest we are very near a recession/high unemployment. Each of the last 4 price spikes in oil have been followed by high unemployment.

http://www.dailykos.com/story/2006/1/28/122315/558

No mention of the Iranian oil bourse, but he does think the U.S economy is headed for big, big trouble.

This is similar to the last vertical line on your "stability" plots.

Then try extrapolating K vs. Time.  Maybe this will give a good estimate of the "ultimate" K value.

Same thing with recoverable reserves.

Reason is simple: we don't produce almost anything material in this country. The source of growth for the last couple of decades has been the services sector. As long as services, intelectual property etc. do not require (or require minimal) natural resources their "growth" is constrained just by the internal demand which is set to also grow. We simply import (largely on credit) everything we really need, circle growing amounts of paper inside and call that "economy".

If they are predictive then that's a big step forward and you could get rich off it. The Chicago Mercantile Exchange, cme.com, runs a betting market the morning before the GDP is announced. This last week, the market predicted that GDP growth would be announced as 2.7%. That is closer than the economic consensus (which was 3 point something) but of course far higher than the actual value of 1.1%. If your miles-traveled model gave you a reliable indication that the conventional wisdom were wrong, you could play this market and make a real killing.

If the miles-traveled relation is merely proportional rather than predictive, then it is not so helpful because in general you will not know the miles traveled in the 4th quarter any sooner than you would know the GDP figure. So it would give you no advantage.

In this case, you had miles-traveled in the 3rd quarter being flat or down from the previous year, while GDP was way up. Then in the 4th quarter, GDP was nearly flat. So that does look predictive, at least in the sense that GDP could be forced to revert back to its miles-traveled proportionality, once it moves slightly away from the usual relationship.

It would be interesting to go back and look at quarterly GDP announcements, comparing them with the most recently available (at the time) miles-traveled figures, and see how close you could come to predicting GDP. Then, ideally you would compare that with consensus expectations of what GDP would be and see if your model were better; but unfortunately it will probably be hard to go back and find out what those expectations were. The CME GDP betting market data would be one source of expectations, but unfortunately that only goes back a year or so.

The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.

The savings rate has been negative for an entire year only twice before _ in 1932 and 1933 _ two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs."

More:
http://www.washingtonpost.com/wp-dyn/content/article/2006/01/30/AR2006013000262.html