The economy is weaker than it looks

The third-quarter GDP number continues a streak of misleading economic data.

By Anthony Mirhaydari Oct 26, 2012 2:04PM

CorbisAt first blush, Friday's first read on GDP growth in the third quarter was pleasantly strong. Growth re-accelerated to 2% from 1.3% in Q2 and seemed to fit with recent signs of hope, including a drop in the unemployment rate, rising consumer confidence and a rebound in housing. Even the drop in business spending seems to have reversed, with a good headline number from Thursday's durable goods report.


But once again, the devil is in the details. Stripping away the statistical oddities (like the way a huge surge in part-time jobs dropped the unemployment rate to 7.8% last month) reveals an economy still vulnerable to the fiscal cliff and unresolved issues in Europe. It's an economy that has CEOs and small-business owners, who tend to have a better feel for what what's happening down in the trenches, much more worried than average consumers.



Take Thursday's durable goods report. The overall number was boosted by a big jump in airline and defense orders. But after digging in, the team at Capital Economics noted that capital goods shipments outside of defense and aircraft declined, maintaining a recent trend of weakness as businesses cut back on investment spending. The three-month-on-three-month annualized growth rate in this core measure fell to minus 4.9% in September, as shown in the chart above.


Economists at JPMorgan are looking at the way durable goods orders have fallen below shipments in a big way for the first time since the early stages of the 2007-09 recession. Clearly not a good sign.



What about Friday's GDP numbers? Well, those were boosted by a huge jump in government spending, specifically on defense. With big cuts headed to the Pentagon as part of the fiscal cliff, such a spending rate isn't likely to continue.



Real, hard measures of the economy maintain their downward trend: real consumption, real business investment, real inventories, and personal income.


Until these measures reverse and move higher, I will remain skeptical.


For now, I continue to recommend that my clients focus on targeted short positions in energy and emerging markets as well as longs in haven assets. Holdings include a short in Hercules Offshore (HERO) and a long in the Direxion 3x Treasury Bull (TMF) and ProShares UltraShort Oil & Gas (DUG).


Disclosure: Anthony has recommended DUG, HERO short, and TMF to his clients.

I found all three positions with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)


Be sure to check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at anthony@edgeletter.c​om and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.


Oct 26, 2012 3:30PM

There's a reason Bernanke and Geithner are not wanting to serve after this year. They know what's coming!


Oct 26, 2012 3:34PM
Is anyone really shocked that our weak economy has been covered up and marginalized by this administration???   I mean..who buys their crap anymore?
Oct 26, 2012 3:01PM
And if obo gets re-hired it's all down hill.
Oct 26, 2012 3:46PM
Dude , It's all down hill no matter who gets elected ! Nobody has the guts to make the changes needed !
Oct 26, 2012 3:23PM
What happend to all the tax cuts from Bush and the congress that was to create jobs? What happened to all the stimulus that was to create jobs ? Wall street and the private sector has failed America in creating jobs !( The government does not create jobs, the private sector does) with all the free money from the FEDs on wall street < they have failed the biggest  ! Tax cuts for over a decade across this whole country ? The devaluation of our homes to the tune of 60-70% Across this nation ? Congress ?? POTUS ?? Well the US Congress is on a 5 week vacation , and there are two people running for POTUS. Now i have yet to see a single job created by Romney? Ryan has been in congress for yrs , and he like the whole place are the problem  < he said he has( Romney creating jobs)? WHERE ? I have yet to see the debt cut in half like Obama said , or the ending of the war ? < But then CONGRESS tax and spends and makes the laws !( Its in the US Constitution) ! The US Supreme Court ruled that money is free speech and corporations are people ? I have read the Constitution and never seen that ? We have Wars , debt,gridlock in Congress , Wall street and the private sector creating( NO JOBs at all) !! If America thinks Obama can fix it ? Or Romney can fix it ? LMFAO the jokes on you because only the US Congress can fix this and they are the best money can buy And as useless as they come .The clowns on the left (D) , or the jokers on the right (R). Any QUESTIONS ? lol What a mess.
Oct 26, 2012 3:23PM

"So our GDP is over stated by about 35 percent our real GDP is about $10 trillion which is right in line with what main street is feeling right now. This is why things are falling apart and our debt is now like 160 percent of GDP and we are going to crash and burn soon"

You don't think it's because the globe is $1 quadrillion in the hole including fake debt notes on falsely printed fiat currency and the sheer overhead for this folly isn't taking it's toll? 40 MILLION Americans alone are blockaded from the workforce. Other nations have unemployment rates about 20%. Who's working? Lawyers, Financiers, Bankers, Politicians and Administrators... in other words, no one important or that contributes to the economy, only takes from it. Anyone can put three letters together to make an acronym. Acronyms don't lead economies, actual functional economy does.

Oct 26, 2012 3:23PM

To right our economy America is going to have to change its economic thinking. Congress is brought and pay for by vested interest groups, congress is Americas greatest enemy. The fed is doing America no good with its printing money policy. There is no federal debt management. The decisions that will have to be made to turn our economy around are going to be tough and I don't think the American people have the guts to make those decisions. Until we make these tough decisions and changes our economy is going no where!!!

Oct 26, 2012 4:06PM
Congress needs to stop playing games and get something done. Do not vote for any incumbents!
Oct 26, 2012 4:00PM
Spot on.  Let's see, the 1st quarter GDP was estimated to be a 2.2% increase later revised to 1.9%, the 2nd quarter estimate was 1.7% then downgraded to a dismal 1.3%, now the OMG comes out with a 2.0% increase for the third quarter to make Barry look a bit better on the surface (i.e. I guess 2.0 sounds better than 1.something......); guessing it will be revised downward to less than 1.5% but that will be after the election (how convenient).

As a small business owner I am in the trenches and the economy sucks; every small business owner I speak with shares the same sentiment.   Facts are facts you dimwits:  1.9%, 1.3% and I'm guessing 1.5% growth after this latest falsified number is downgraded.  Get it?  My gawd, guessing most of you MENSA candidates were educated by our wonderful Public system.....

I agree take out government deficit spending ($1.2 trillion) in the GDP and it's multiplier effect GDP is down about 10 percent . then take out the $4 trillion dollars in GDP because we all live somewhere other then our homes for free and rent out our homes and that reantal income is included in GDP so we are down like 25 percent in GDP plus the home reantal mulitpier effect and we are down about 35 percent plus the 10 percent deficit spending bump.


So our GDP is over stated by about 35 percent our real GDP is about $10 trillion which is right in line with what main street is feeling right now.


This is why things are falling apart and our debt is now like 160 percent of GDP and we are going to crash and burn soon.

Oct 26, 2012 3:46PM
You need to quit reading numbers and just look out the window!!!!
Oct 26, 2012 3:41PM
I've said it a few times now,....INVEST IN GUNS and AMMO! it always gets worse before it gets better. I don't see any pheonix rising from the ashes of this government disaster.
Oct 26, 2012 4:50PM
I am actually to the point as a small business owner that whatever money I can put back I am.. In silver.... I actually prefer at this time to have my credit unpaid ... used to always pay off credit cards but I am saving what I can in what will remain of value. Congress has buried this country and honestly I think a real " hurricane " is getting ready to hit. Big investors are money savy... put up confidence to get all of us small minions to invest. They will " pull out suddenly " and the rest of us will wonder what happened to our investment. Does everyone realize how quick these " big boys " can transfer their stock to GOLD or SILVER as a cashout. I have this " gut feeling " that Americans are getting close to a royal crash... These CEO's have all been maintaining the companies thru " cost cutting " which in reality is job losses. I think most Americans do realize how many people have taken one or two part time jobs at lower pay for the one full time job you lost. I am not at this point ready to take whatever money I have put away and use it to pay off the " VISA'S" of this world. I think no matter who takes office you'll realize you took what few dollars you had left to pay off bills to the rich banks/creditors and then how will you get bye ?  Just my simple minded opinion but for now I am letting my bills " build up " while I stockpile what little I have for what may happen. We all need to be afraid. POINT.... Take 16,000,000,000,000 ( 16 trillion ) and divide by 350,000,000 ( 350 million people ) . Remove 6 zero's from each number which tallies 16,000,000 to 350. That means that every person in the US is $ 45,714.28 in debt by our government. If you are a family of four the government has your family $ 182,857.14 in debt. As a mortgage this would cost you over $1200.00 a week for 30 YEARS to pay off. Face it folks we are getting ready for the funny money to fold up. I am NOT a dealer in Gold or Silver.... The Roman in it's last 60 years did the same thing by producing coins not made of gold... CRASH .... Under president Johnson we did the same thing....48 years ago .... history does repeat itself and the funny money is getting ready to explode. 
Oct 26, 2012 5:00PM
Four more years of d'O isn't going to help the American economy any, that's for sure.  That would be four more long years of stagnation, high unemployment and mediocrity.

Presently, people have emotional ties to d'O, but years from now when his presidency is looked back on and graded objectively without the emotional bias his supporters have, d'O's presidency will be viewed as a time when a black Homer Simpson occupied the White House.

It may be fun to watch the white Homer Simpson bungle his way through life, but who would ever have thought the American people would be foolish enough to elect a black Homer Simpson president?!  It's easy to picture the white Homer Simpson saying "We need to fix it."  Then months pass and nothing is done.  All anyone hears is another "We (still) need to fix it."

Would d'O ever have won if he were white and had the same (lack) of credentials?  Maybe, but I wouldn't bet money on it.  There's plenty of racism in America, and the people who voted for d'O because it was "a historic opportunity to elect a black person" have sure proven that.
Oct 26, 2012 3:58PM
No shyt sherlock! Anthony has been looking at the economy (like many people) through money colored glasses and finally he sees the real deal! Bout time! We are in a permanent phase of extreme downward compressive contraction and all the toilet paper Benny Bucks money printing in the universe is not going to stop it.
Oct 26, 2012 3:19PM
One of the major problems with the economy is occurring right now at this very minute. Instead of recovering jobs, Wall Street and Banks have gone to the Federal Reserve, cashed in some crappy credit for fiat money and are pumping the Dow. UP some 40 points at this minute, it should occur to all those in ivory towers that America is ready to unplug the financial sector completely. Can't be so or can't be done you say? I don't think ancient Mayans pulled some dumb date out of thin air, I think the air is fine, the heirs are not.
Oct 26, 2012 4:13PM
Hey Sherlock, ya figured this one out on your own did ya? Everyone knows the economy sucks and has since 2008. Things are going to get ALOT worse. 2013 government spending will face draconian cuts. Real GDP will turn negative after the first of the year (regardless of who wins the election) and there is a 50/50 chance that the whole system will collapse in the spring or early summer. The Feds QE policy will fail once people realize its a Ponzi scheme. A loss in currency confidence (if it happens) will lead to complete collapse.
Oct 26, 2012 4:10PM
Oct 26, 2012 5:44PM

WOW .... and I keep asking myself ... who could be so dumb, so stupid, such a knucklehead that they would vote for Obama after the mess he's made in just 4 years???  The economy is a total mess. Debt is unpayable and the US is bancrupt. That's not a joke? It is for real?? There is no more money for any stimulus ..... so Obama is out of luck. It takes someone that has knowledge of economics to solve this mess Obama has put us in .... and Romney is the guy.

Please ..... get a grip on your idiotic self and vote for R+R. Boneheads!

Oct 26, 2012 5:53PM

The economy looks weaker !  No "S" Sherlock ! Housing is in the TOILET and getting flushed ! Consumer Confidence just got flushed as unemployment numbers climb! But the SPIN MASTERS keep on cooking the books and rigging the numbers ! All is well America all is well !

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