GDP Number

Seems everyone is satisfied with the second release of GDP today. Down 1% in Q2. However, when you read the details, it's not so rosy. Federal government was up over 10% and government overall was up 6%! That's not sustainable, especially as tax receipts continue to fall. Bottom line is take that piece out of the equation and you're looking at down over 2.5%. Then, another savior is the declining trade balance, slipping on account of more timid personal consumption and much less private investment. That shifting trade balance has limited the damage significantly. But when things start to head the other direction, the imbalance will again widen and act as an anchor (presuming the dollar doesn't take an enormous beating).

I like reducing the GDP to what really creates wealth for people, by looking at income side. Starting with disposable personal income, I net out interest and transfers (fair to net these since they are included as income and are excluded from GDP), I add undistributed corporate profits and wage accruals less disbursements, since these are essentially someone's yet realized income, and finish it off by netting off government lending/borrowing, since that ultimately belongs to everyone. Finally, I deduct out the money made by Americans overseas, and add in that made by foreigners here, to make this an index of 'domestic' income, as opposed to 'national' income. All of this ends up being similar to net national factor income with some adjustments-mainly government borrowing and direct taxes. At any rate, that number on a per capita basis is now lower than at any point since Q3 of 2003. That's pretty bad. Additionally, this number was -3.8% annualized in Q2, that decrease similar to the trailing 4 quarters of -4.0%, and it's now been negative seven straight quarters. In nominal dollars the past 2 years has been the worst for this index since BEA started quarterly data, but not in real terms (that happened during the 1973-1974 crash, thanks to double digit inflation).