US economy shrinks 2.9%

June 26th, 2014 at 10:00 am by David Farrar

USA Today reports:

The U.S. economy turned in its worst quarter in five years during the first three months of 2014, shrinking more sharply than previously estimated.

The nation’s gross domestic product in the first quarter fell at a 2.9% annual rate vs. the 1% contraction previously believed, the Commerce Department said Wednesday. Economists surveyed by Bloomberg expected a 1.8% drop in output.

The decline was the sharpest since growth tumbled 5.4% in the first quarter of 2009 during the Great Recession. The last time the economy shrank was in the first quarter of 2011, slipping 1.3%.

The more dramatic drop was largely the result of weaker household consumption. Consumer spending increased just 1%, vs. the 3.1% gain previously estimated as health care spending dipped slightly. The government previously said that medical expenditures contributed substantially to growth as the Affordable Care Act began to cover more Americans.

Also, exports declined 8.9%, vs. the 6% drop previously estimated. And businesses replenished their stocks even more slowly than believed after aggressively adding to inventories late last year.

Quite a contrast to the NZ economy, as we have exports booming, and a strongly growing economy. Once upon a time the US economy contracting would seriously damage NZ’s also. But we’re less tied than we used to be.

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42 Responses to “US economy shrinks 2.9%”

  1. Floyd60 (90 comments) says:

    So why does Key want to sign up to a TPP with these turkeys?

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  2. martinh (1,164 comments) says:

    An 8.9% drop in exports is disasterous.
    I wonder where they export to that that demand has dropped off so bad.
    I do worry about our reliance on China.
    They do all sorts of creative accounting behind the scenes to keep economic growth (reported growth)happening as the ruling party will be toppled when it slows

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  3. Manolo (13,517 comments) says:

    It’s all happening under the watch of the incompetent Kenyan.

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  4. martinh (1,164 comments) says:

    Floyd
    As economies always go in cycles.

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  5. Gulag1917 (850 comments) says:

    NZ is still very vulnerable to the international economy.

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  6. burt (8,173 comments) says:

    It’s a socialist government – of course it is shrinking. List all socialist countries where this isn’t happening.

    </SustainableSocialistEconomies>

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  7. martinh (1,164 comments) says:

    Floyd
    I actually think this article may be a bit of election advertising as the article actually says this
    “They expect growth to exceed 3% in the current quarter and the rest of the year.”

    I cant be fucked with being given misinformation, this blog risking becoming seen as factual as Mr Liu

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  8. Redbaiter (8,234 comments) says:

    So much for the hope and change mantra the low information Obama supporters were sucked in by.

    A “fundamental transformation” of the US Constitutional Republic into a bankrupt socialist basket case.

    Of course in the usual lying socialist fashion, the Kenyan and his massive propaganda network will be blaming capitalism for the damage.

    And his stupid low information supporters will probably buy that too.

    Sure is a strange choice of president for John Key to be besties with.

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  9. tom hunter (4,652 comments) says:

    I guess “tapering” the monthly QE down a few more notches is no longer on the cards.

    Janet Yellen and company must be shitting bricks but when you’ve reengineered an economy to run on the fuel of central bank credit creation and then constrict that fuel supply what else would you expect? Magic? Animal spirits?

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  10. Simon (726 comments) says:

    It is a bad number but wouldnt write off the US economy just yet. Other economic indicators (real world ones) are positive.
    (As a result of prior central bank money printing.)

    What this GDP will number will mean is more money printing from the State. Expect US inflation to be heading north. It all ends when the Fed stops printing.

    As for NZ the economy has been driven by massive credit created by the banking system. (overseen by those clowns at the RBNZ) Also by pure central bank money printing in China.

    Enjoy the sugar high while it lasts but society cant absorb the constant shit weight forced upon it by the State whether by RBNZ money printing, regulation or tax.

    In NZ look forward to falling asset values & real incomes and high prices brought to you by the State.

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  11. mikenmild (11,246 comments) says:

    The Austrians will be out in force today.

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  12. Tarquin North (246 comments) says:

    Are the greens in over there?

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  13. NK (1,198 comments) says:

    Hey Barack, how’s the hopey, changey thing going? Or even that Quantitative Easing that Keynesians trumpet so much.

    Not so flash aye?

    Well, you were warned.

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  14. KiwiGreg (3,246 comments) says:

    Don’t forget it’s the annualisation of the quarterly change (so the economy did NOT shrink by 2.9%). It’s largely weather-related, January and February were shockers for snow, plant closures and consumers staying at home.

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  15. EAD (917 comments) says:

    Is it real growth or is it a debt fueled bubble? Is the explosion in government spending and household debt “growth” in the same as capital investment is growth? Have we had the largest explosion of debt in our countries history to expand government and current era spending to give the illusion of growth on the back of an unfathomably sized Chinese Credit bubble that is waiting to pop?

    http://www.zerohedge.com/news/2014-06-25/chairman-chinas-largest-copper-producer-commits-suicide-jumping-hotel

    Are we as Dylan Grice from Societe Generale described “a credit bubble built on a commodity market built on an even bigger Chinese credit bubble, New Zealand looks like
    leveraged leverage, a CDO squared.”

    Any idiot can give the appearance of growth when they borrow money to live a lifestyle they can’t afford and count the spending as GDP growth under the formula y = c + i + g. Eventually though the piper must be paid and the illusion of wealth will be a distant memory.

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  16. Dom Knots (155 comments) says:

    The U.S economy suffers when it backs international crimes against humanity by israel. The u.s public is waking up. On Friday, a group representing the USA branch of the Presbyterian Church (PCUSA) voted 310-303 to divest from American companies who do business in Israel, joining the growing BDS movement against the country. In doing so, the 1.8 million-member church became the largest and most recognized religious group in America to join the movement against Israel by rejecting its occupation of Palestinian territories.

    [DPF: Off topic 20 demerits]

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  17. Rick Rowling (825 comments) says:

    Step 1: Outsource increasing proportions of your manufacturing to China, year after year after year.

    Step 2: Believe your can get rich by just having designers, entrepreneurs, retailers and consumers in your own economy.

    Step 3. Wonder why your economy is f*cked.

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  18. EAD (917 comments) says:

    “There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.”

    – Ludwig von Mises

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  19. martinh (1,164 comments) says:

    The real article actually says this

    “They expect growth to exceed 3% in the current quarter and the rest of the year.”

    So all of you are given only half the story.

    I cant eat this bullshit any longer

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  20. Kimbo (836 comments) says:

    @Gulag1917

    NZ is still very vulnerable to the international economy.

    Always has been, always will be, whether as a free-reading nation, or as a fortress economy.

    Which raises the question what is the best option for a small nation with a limited capacity to produce all the high-tech goods required for an efficient modern nation? The free market, despite temporary pain for some, wins every time for flexibility, diversification, and overall GDP.

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  21. igm (1,413 comments) says:

    The result one would expect from self-entitled socialists. Bet US voters boot these left-wing Muslim-loving arseholes out of power.

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  22. Odakyu-sen (555 comments) says:

    This term “annual rate” or “annualized rate” can easily mislead the economically illiterate.

    It’s a good thing that high school students are taught the basic principles of economic report analysis, financial planning, and compounding debt…

    //

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  23. tom hunter (4,652 comments) says:

    January and February were shockers for snow, plant closures and consumers staying at home.

    Like the unemployment numbers these GDP figures are not raw stats but are products of a process – one that tries to take into account seasonal factors like snow and cold.

    The real article actually says this

    “They expect growth to exceed 3% in the current quarter and the rest of the year.”

    So all of you are given only half the story.

    And last year “They” predicted 2.6 percent growth for the first quarter.

    I cant eat this bullshit any longer

    It would be more accurate to say that you can continue to eat Obama’s yummy, sweet-smelling ordure – as opposed to that nasty stuff that Bush used to produce.

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  24. Jack5 (5,001 comments) says:

    NZ the rock star economy? It’s far, far too soon to crow.

    Without milk powder exports to China we are in trouble, and with the exception of last fortnight’s auction, milk-powder prices have been falling.

    At the peak of the dairy boom (or bubble) we haven’t broken our 40 years of balance of payments deficits.

    This from from the Reserve Bank:

    … the current account deficit has reflected the amounts of other countries’ savings that New Zealand has had to borrow, in order to finance spending. The last time that New Zealand was a net saver — that is, had a current account surplus — was 1973.

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  25. kiwi in america (2,495 comments) says:

    The Obama Administration has the smallest percentage of appointees who have come from the business world than any other previous administration (15% versus the next lowest being that other Administration that presided over economic misery – the Carter Administration at 40%). This is the economy you get when those who hold power come out of academia with a leftist world view.

    Dom Knotts
    US economic performance has zero to do with support for Israel. The Presbyterian Church’s vote merely demonstrates how progressive and left wing they have become as they are parroting the left’s talking points on Israel.

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  26. dime (9,788 comments) says:

    OMG hope & change people!

    I feel for the people there.

    The Greens waffle on about poverty in NZ, we have nothing on these poor bastards.

    Its sad to see this great nation on its knees. It should bounce back but there will be more pain before it does.

    The problem they have is each generation that comes through is more smug & entitled than the last. The majority brain washed about climate change and suffering white guilt. No wonder china is gonna eat their lunch.

    They still have all the guns though, that will help.

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  27. Jack5 (5,001 comments) says:

    Before anyone points to the latest quarterly trade figures (March quarter), note that the it was the unadjusted current account balance that was in surplus. From the Stats Department:

    Before removing seasonal effects, the current account balance was a surplus of $1.4 billion – the largest actual current account surplus ever recorded. This represents a $1.3 billion increase from the March 2013 quarter surplus, mainly driven by increased dairy product exports.

    “New Zealand is most likely to record a current account surplus in March quarters, when we have more overseas visitors coming to New Zealand,” Mr Attewell said.

    Thank goodness for dairy exports, and if the kiwi dollar bubble pops, that will be a big help for all exporters and tourist operators.

    In the meantime, in an election year, the PR machine is running flat out on the economy. Also our MSM is owned mainly by foreigners and our State. If you are foreign owned in a declining industry you don’t want your foreign owners to think things are anything less than buoyant in NZ.

    As for the United States: is this great country paying for the massive bailouts of Wall Street by pumping out dollars?

    If America, and the rest of the West, had suffered the pain and shock of financial failure and its ramifications, would it now be back on its feet and flying?

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  28. Redbaiter (8,234 comments) says:

    “They still have all the guns though, that will help.”

    Actually, the liberals/ progs don’t have that many guns. (except for their thug mugger drug dealer criminal faction) They hate them.

    Its the Conservatives who have the guns.

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  29. All_on_Red (1,546 comments) says:

    “It’s largely weather-related, January and February were shockers for snow”
    I thought snow was supposed to be a thing of the past? Does Barrack Obama know about this?

    I like Glenn Reynolds quote” they told me if I voted for Mitt Romney, that the economy would tank- and they were right!”

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  30. dime (9,788 comments) says:

    “Actually, the liberals/ progs don’t have that many guns. (except for their thug mugger drug dealer criminal faction) They hate them.

    Its the Conservatives who have the guns.”

    was thinking the military

    Other country “hi US, can we have all that money we loaned you back?”
    US “go fuck yourself”
    Other country “ok :(“

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  31. JC (942 comments) says:

    One of the useful take home messages is that after years of weakening the US exchange rate their exports dropped 8%.

    The message for us is don’t think that a drop in the NZ dollar is going to create an even better exporting situation. It may for a while but the overseas markets who finally determine our exchange rate will simply price our products so we don’t get some magical lift over the longer term. And of course, everyone pays more for vehicles, plant, running costs, holidays and luxuries when the exchange rate goes down.

    JC

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  32. All_on_Red (1,546 comments) says:

    Jack5
    I do wonder at this fascination for wanting a low dollar. Surely the best thing for NZ is have both a high dollar and have high export volume?
    That way the cost of our imports is low and it means that our goods are in such high demand that markets will pay the premium for them. Both signs of an efficient economy. Which we seem to be developing. Although I note that our dollar is probably higher than it should be because of the values of both the US dollar and Renminbi. The former we are strong against because of their economic weakness and the latter being kept down by the Chinese govt.

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  33. JC (942 comments) says:

    ” they told me if I voted for Mitt Romney, that the economy would tank- and they were right!”

    “They told me if I voted for Mitt Romney that the Muslim world would hate us more, and they were right!”

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  34. All_on_Red (1,546 comments) says:

    Dime
    I think the US is already saying ” go fuck yourself” by continuing to print money and thereby devalue existing debt and keep returns low. Of course the debt holders are saying, ” ok, we’ll just buy your countries assets then and you can all work for us”

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  35. Fentex (912 comments) says:

    List all socialist countries where this isn’t happening

    Compared to the U.S, How about New Zealand?

    The U.S’s situation is clearly not due to greater social spending as it is in no way exceptional for it.

    I personally am not sanguine about our situation. I think there is a large shoe yet to drop regarding many nations economies as the core issues that created problems have not been addressed or removed.

    NZ is benefiting from trade, as we should, as we turned our policies towards thirty years ago and it is a good thing. And recent years efforts at diversifying among markets is more of a good thing.

    But it does mean if nations wealth and their trade slumps our markets will shrink. But what of it? We are never going to become wealthy off trading within our islands. That the markets we sell to are volatile is something we cannot change, we can only do our best to be the preferred choice of those with wealth to share.

    This is why NZ should support free and open trade. As a small nation it’s our only path to prosperity. Which is why we shouldn’t be involved in the TPP as it is the very opposite of a free trade agreement.

    We have opened our markets, we have no need to bind them again to bargain for others to open theirs.

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  36. kowtow (8,103 comments) says:

    I see the particularly harsh winter they had is being blamed for people not spending as much as usual………

    ……so much for global warming.

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  37. adaman (41 comments) says:

    Man, ipredict just went berserk. US recession in 2014 up to 26% from 3% today. But it was only relatively few shares but still…..

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  38. Dom Knots (155 comments) says:

    it seems as if you’re saying that had israel not been in direct contravention of international law and as a result those nearly 1.8 million people had gone ahead and each purchased a nice new caterpillar bulldozer, kiwi – it wouldn’t have made a scrap of positive difference to the u.s economy.

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  39. Jack5 (5,001 comments) says:

    All-on-Red posted at 11.27:

    Surely the best thing for NZ is have both a high dollar and have high export volume?

    Of course that would be ideal, but that’s a goal we’re a long way off. The way you get there is by having a low currency for long development years, as Germany, Japan, Taiwan, and China have shown.

    Our floating dollar is supposed to be a mechanism that balances the economy, but it ain’t working if we haven’t had a balance of payments surplus year since 1973.

    Take out milk powder, and except for a few battling pioneers we are doing poorly in international trade. The PR machine highlights good manufacturing figures, but take out processing of agriculture products and see how these stack up. Industrial exporters hanging in there are heroes.

    In technology exports, which was going to be our passport to riches, comparing NZ to Israel, which started from about the same base, is like comparing a go-kart (NZ) with a Formula 1 car.

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  40. Jack5 (5,001 comments) says:

    Fentex posted at 11.37 :

    This is why NZ should support free and open trade. As a small nation it’s our only path to prosperity…

    Or perhaps purport to support it then manage your economy to take advantage of others’ commitment to free and open trade. As proved by Germany, Japan, Taiwan, China.

    You manage your currency low and use other measures to hinder imports. As in Japan towards many of our primary products, from dairy to processed Pinus radiata timber, as in China to manufacturer infant formula.

    Ruthless pragmatism is the road to trade wealth. Leave the theory for the universities and the coffee chat.

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  41. Fentex (912 comments) says:

    Or perhaps purport to support it then manage your economy to take advantage of others’ commitment to free and open trade. As proved by Germany, Japan, Taiwan, China.

    I suspect we’d find more resistance if we tried to game other nations rules than those nations do, not to mention that Japan and China may not be as advantaged as suggested on the whole for having potentially mismanaged the implied advantages.

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  42. All_on_Red (1,546 comments) says:

    Jack5
    We do however have managed to produce a trade surplus for the first time since 2003 . If we can keep that up, it will all be good
    http://www.kiwiblog.co.nz/2010/05/a_trade_surplus.html

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