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 8:30PM
We HAVE to keep printing money or everyone won't be able to buy iPhones made in China to talk & play bird games & text & take/send pictures of ourselves & drive distracted & talk & listen to Justin Beiber & check email & did I mention talk more???  Can't we get Ben an app to print more $$$$$
Oct 26, 2012 8:25PM
We HAVE to keep printing money or people won't be able to continue to buy Apple products made in China to text & talk & play bird games & check email & talk & send dirty pictures & drive distracted & listen to Katy Perry & did I did mention talk more???  Can't we just get Ben an app to print more $$$$$$$$$$$$$$$$$$$$$$$$$
Oct 26, 2012 8:19PM
Everybody should know that you can or should post impressive gains when you're going against nothing. Our recovery as a whole has been absolutely poor----nowhere near what a normal recovery should look like. GDP growth, slow and low. Employment, too little, too long. Housing, be years before it returns to anywhere near normal. All the money the fed has poured into the economy---does everyone see huge inflation coming. If you want to hold the course, this is it. Just not good enough. Most folks want more and better for their kids than what they had. Do you see it coming or are we passing massive debt to the next generations? I don't like this administration or it's policies. They're interfering far too much in our free market system. BO, to me, has been lost since day one. This Benghazi business just exemplifies the buck passing. Hillary did it. No, Panetta did it. Everbody but the guy who should have done it----BO.
Oct 26, 2012 7:57PM
BO ,  Ben, and Tim did not have a clue on how to run the economy to do better. They tried many QE's and zero progress. It is time to give somebody new the opportunity, such as Mitt Romney. US Economy  was QE3 stimulated  and  no results to show. We need no more QE's from this old administration.
Oct 26, 2012 7:53PM

see how your response is it means nothing to me because I will make I can grow my food and kill

deer, moose, and ducks and fish what about you all when there is no more farmers to feed your stupid dumb as-, wait you all will more pain when OBAMA goes in remember this you sow what you vote for

Oct 26, 2012 7:46PM
yes I am sorta upset because is this there is no factors in this remember when they took prayer out of school what happened - is this the kids are carrying guns to school and bullies are there - but I don't blame the kids and our system its the so call parent I remember the BOARD of education when I got paddled it made me study harder than ever and when I got the belt on my bottom it made me RESPECT my family and pay attention to VALUES that my parents taught me...they don't care today both parents working and still having a spending problem...what about the way people look at each other here some are as they are and others want to be a wanta be, and have no way what they are wanting in life specially when you vote for a president thats believes in crap and has to ask his so call people about the ecomony and name call others when there is truth in the other mans mouth, its up to you make your own bed and sleep in it.
Oct 26, 2012 7:35PM

You know when a person lives and works on the road of construction like I have and seen

greedly CEOs shut down projects and our so call government don't care about us individuals that builds America where locals can have jobs why should we really care about this stupid president we got we screwed us accept it if you are retired individual I wish you would waste your time words of crap somewhere else the young the people screwed us workers and they going to do it again

Oct 26, 2012 7:26PM
I hate this author.  He consistently ignores factors when making broad judgments.  Please drop him MSN.
Oct 26, 2012 7:08PM
It can't be Obummer told me everything is just fine and we are improving.   Oh, no he wouldn't lie!
Oct 26, 2012 7:02PM
Oct 26, 2012 6:49PM

When we have to refer to 2% growth in GDP as "pleasantly strong" you know the economic policies of the last 4 years have been a failure. 

Through the first 3 quarters of 2012 GDP has grown ( perhaps groan?) by an embarassing 1.7%.  Another indicator that the policies of the last 4 years have failed is that the president and his supporters continue to compare their recovery to Bush's recession, completely ignoring the 8 million jobs created from mid-2003 through 2007 and the 40% increase in income tax revenue that occurred after the tax cuts which, btw is how you pay for tax cuts.

Oct 26, 2012 6:46PM

Okay, USB/UBS is getting rid of 10,000, the Private selector companies is down siding where they

give there employees less insurance coverage and no type of retirement, the BIG companies are using staffing companies to hire employees on a temp to hire deal- go on monster,careerbuilder your proof is there you need just look at the staffing companies, companies at present are hiring but about 0.02 percent daily where these companies watching what will happen in Congress about the one trillion dollar budget cut folks look back in the past when a same party president during the Korean Conflict did a budget cut we lost alot at that time also now lets think about the reality here when that goes in and 746 billion of that one trillion goes to the Department of Defense spending all those projects at Hampton Roads, Gales Ferry, and also Pasgoula there will be more than 200,000 people out of work lets think about the small company that aids the DoD what happens to them, but when we put Obama back in we will be in more trouble - why I say that is because is when someone has ran a business and knows how the lower/middle class feels and had to peeny pinch to get where he is now running but when you have someone that has not had a blister on there hand except writers cramp and butt blister will corrupt the system just seen on Public Boardcasting network a farmer in USA said Obama put over 200 regulations on the America Farmer and he said thats why the American Farmer will be no more when Obama goes back in but the young that has no idea what they are voting in should sleep with gult because there are companies going out of business, farmers is not growing for America, more foreigners taking our jobs because they will work for low wage and send it back home and double there money that we give them, this is my idea and hope it comes true Obama goes in we loose over 10,000 companies in each year he serves and the unemployment goes up nationally to round number 13% and we will be a country like Spain and Greece and Marshal Law is inaffect.........people look around you now we are heading backwards and they covering it up with lies from the mouth. 

Oct 26, 2012 6:12PM
Probability of Reaching 270
Neither (Tie)< 1%
Oct 26, 2012 6:11PM
I knew that my portfolio was taking a beating these last couple of weeks but checking tonight after 5:00 it looks like the gain for the year will be wiped out by Monday!!!
Oct 26, 2012 6:00PM

In only 11 days we at least get passed all this election crap so the politicians can focus on the fiscal cliff and see if they can delay or solve it before we start four more years of bickering and deadlock. The economy is never strong enough for Wall Street bears. We've only come back a 100% but if only and could off's want 100% more. Not going to happen in  the world we live in.

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 !

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 5:29PM

"The banks ARE getting money from the Fed, they don't lend it, they buy stock. This is what is supporting the market."


The market is not being "supported" by banks. Prices are determined by earnings, not "Fed money" or Ben Bernanke. Price to earnings ratios today are no different today than they were 130 years ago. The only way a collapse could happen is if: 1) PE values were ridiculously high, which they aren't, or if 2) earnings collapsed. Earnings aren't collapsing and even if the economy went into another recession, the sheer volume of consumers on the planet guarantees that earnings will always bounce back in proportion to inflation.


All the garbage nonsense about how "fiat money" is going to cause a market collapse is sheer lunacy. You doom and gloom, conspiracy minded, tin-foil hat wearing loony birds have no idea what you are talking about.  Inflation erodes the buying power of the dollar, and hurts savers, not investors.  If anything, inflation also pushes stock prices up.  



The time to worry about the stock market is when INTEREST RATES go up.   

Oct 26, 2012 5:29PM
It really does not matter who is President, you losers will always fail. Stop whining.
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.
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