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Sunday, August 3, 2014

Economy under constant revisions, but at least this one was positive

Tony Paradiso

The government ignored my advice. It revised estimates of first-quarter gross domestic product yet again.

We’re four months removed from Q1, and the Commerce Department has revised the GDP number, well, four times. It brings new meaning to the old adage “If at first you don’t succeed.” ...

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The government ignored my advice. It revised estimates of first-quarter gross domestic product yet again.

We’re four months removed from Q1, and the Commerce Department has revised the GDP number, well, four times. It brings new meaning to the old adage “If at first you don’t succeed.”

The bureaucracy may not be skilled, but they’re persistent. It reminds me of Kevin Costner in the movie “Tin Cup.” How many balls did he hit into the water before his final shot? Yes, he lost the tournament. That sums up Washington.

But as usual, I digress.

At least this revision was positive. Previously, we were told the economy contracted by 2.9 percent in Q1. Now they say the decline was only 2.1 percent.

I suspect they’re using psychology on us. A 2.1 percent drop feels pretty good compared with 2.9 percent. I really do underestimate the guile of government officials.

The better news is that the second quarter was stellar. The economy grew 4.0 percent. That was good enough to put the first half of the year into positive territory with a whopping 1.0 percent growth. I won’t even bother to mention that economists got it wrong.

The rebound was a byproduct of consumers spending more and businesses building more inventory. Increased state and local government spending also added to growth. Yeah.

On the negative side, an increase in imports created a drag on domestic growth.

In case anyone cares: The government continues to revise the growth data back to 2011. I won’t bore you with the details, but it’s notable that in the second half of 2013, the economy expanded at a 4.0 percent rate. That was the best six-month period in 10 years.

The positive news was greeted like positive economic news is often greeted on Wall Street. The Dow plummeted 317 points the next day. I think stock traders were jealous that Ma and Pa Main Street might be sharing in the prosperity pie that has been exclusive to them up to now.

Seriously, you get a 4.0 percent growth estimate and the markets tank? Have you ever read the inane daily summaries of why stocks rise and fall? It’s the equivalent of having chimpanzees throw darts at a “reason du jour” dartboard.

As for the drop last Thursday, the Wall Street Journal wrote, “Traders said there was no single catalyst.”

One of the myriad reasons included disappointing earnings on the day. Note that the earnings season hasn’t been universally poor. According to the recap, Thursday’s poor earnings “disrupted what has been a strong season for corporate profits.”

So let me get this straight: Profit reports have been generally good, but on this particular day, they weren’t so hot and that caused equities to drop 2.0 percent in a single session? Those must have been some really important companies.

Let’s review these bellwethers of the U.S. economy that signaled it was time to sell stocks.

ExxonMobil’s stock fell after announcing a paltry 28 percent increase in profits. The fly in the ointment was that production declined. Quick, grab the gas cans – there’s going to be an oil shortage!

Whole Foods cut its full-year sales projections. Oh, my lord – are people eating less overpriced produce? Wait – I have to get my broker on the phone. Sell everything.

What’s that? Whole Foods has lowered its projections four times in the last nine months. I didn’t realize that a former Commerce Department employee was head of sales forecasting at Whole Foods.

Akamai Technologies’ second-quarter results fell short of some high-end estimates. I hate when that happens. And we know how important Akamai is to the overall economy. Without them – and Al Gore – there would be no Internet.

Yum Brands, the owner of KFC and Pizza Hut, experienced disappointing same-store sales in China. Clearly, it’s only a matter of time before we follow the trendsetters in Beijing. Funny, though, China didn’t seem to mind, because the Shanghai index rose almost 1.0 percent.

Does anyone at the Wall Street Journal proofread these articles before they’re published to gauge the “How dopey does this sound?” factor?

Could it be that the markets really dropped because of that darn Federal Reserve? A little bit of inflation and a pickup of growth, and you can begin to imagine the free money train running out of steam. When that happens, the ability to make money by using other people’s money becomes less attractive.

Last, but not least, was the jobs report. Nonfarm payrolls rose by a seasonally adjusted 209,000 last month. The June number was revised up 10,000 and May was revised up 5,000. That makes six straight months of adding more than 200,000 jobs, and that isn’t bad.

The unemployment rate ticked up slightly, but that was caused in part by more people looking for work. The labor-force participation rate finally improved slightly in July, and I mean slightly: from 62.8 percent to 62.9 percent. But baby steps are better than no steps.

Unfortunately, wages remain depressed. Average hourly wages only rose 1 cent from June. And wages need to rise more substantially before we can declare victory on the employment front.

Tony Paradiso, an author, professor, entrepreneur, and radio and TV commentator, can be reached at