Mike (Mish) Shedlock | Feb 01, 2015 03:09AM ET
Yellen Yap
On Thursday, Fed Chair Janet Yellen met with Senate Democrats at a private luncheon. She told the Democrats that the Bloomberg reported:
"The advance estimate for fourth quarter GDP growth disappointed with a 2.6 percent figure versus analysts' estimate of 3.2 percent and following 5.0 percent for the third quarter. Final sales of domestic product slowed to 1.8 percent, following a 5.0 percent jump in the third quarter. Final sales to domestic purchasers eased to 2.8 percent from 4.1 percent in the third quarter."
Diving Into the GDP Report
With that backdrop, lets dive into the BEA Economists Upbeat Despite 4th Consecutive Decline in Factory Orders; Auto Orders vs. Expectations .
Autos are slowing and so will auto-related jobs. Yet economists believe "Auto sales are expected to reach their highest level in a decade this year, bolstered by strong job gains and cheap gas."
My take: Autos will soon subtract from GDP.
Change in Real GDP - Gross Private Investment, Exports
Growth in fixed investment is falling rapidly. Equipment, industrial equipment, and transportation equipment are already in contraction.
Inventories added 0.82 percentage points to fourth quarter GDP. Over time, this series trends to zero, so expect a pull back next quarter.
Rising imports subtract from GDP. Imports actually took 1.39 percentage points from GDP. If oil prices head back up, even modestly, this number could get worse.
Exports added 0.37 percentage points to fourth quarter GDP. But note the trend.
Because of the rising US dollar, export growth is dwindling. Will exports add or subtract to GDP next quarter?
All things considered, this GDP report is far more than a simple snapback from the rapid expansion last quarter.
Canada in Recession, US Will Follow in 2015
Earlier today inCanada in Recession, US Will Follow in 2015, I stated "A Canadian recession is underway. US will follow."
Decoupling or Not?
I remain amused by all the pundits who think the US has "decoupled" from the global economy and will grow stronger in 2015.
Let's return to a question I asked above: Will exports add or subtract to GDP next quarter?
I suggest the answer is subtract. Not only are US exports getting more expensive relative to Europe and Japan, the entire rest of the global economy is slowing rapidly. Our biggest trading partner is Canada and Canada is in recession, with a rapidly sinking loonie on top of it.
US Recession
The US won't decouple, just as China did not decouple from the global economy in 2008-2009 (a widely-held thesis I also knocked at the time).
Indeed, now that virtually no economist expects a US recession, I believe we are finally on the cusp of one, just as the Fed seems committed to hike.
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