The U.S. Economy: “Escape Velocity” To The Downside

by Dave Kranzler, Investment Research Dynamics

Well, now we know why the new Wall Street brain trust consensus for an interest rate hike has been pushed out to September.   Kick that can down the road some more.   These Wall Street idiots really like to move around in herds.  They’re like cattle, or sheep.  Perhaps they even get treated like sheep by their male overlords, or herdsman if you will…

The Bureau of Economic Analysis reported that Q1 GDP came in at a .2% annualized rate of growth.  The underlying numbers are far worse, however.  But first, here’s an example of what downside “escape velocity” looks like (source Zerohedge, edits are mine) – click to enlarge:

GDP

The economy is tanking just like I’ve been suggesting in several previous posts.  The change in real private inventories added .74% to Q1 GDP.  This means that manufactures piled up inventory.   BUT, real final sales of domestic product dropped .5% in Q1 (vs. a 2.3% gain, supposedly in Q4 2014).   This means that the .2% GDP number was boosted .74% by manufacturers producing inventory that didn’t sell.  If manufacturers produced goods at the rate those goods were selling, GDP would have been negative.

This is why we get graphs that look like this one, which shows business inventories to sales:

BusinessSalesInventories

That graph shows a big part of the reason for “downside escape velocity.”   If big manufactures had been applying “just in time” inventory management, GDP would have been negative because real final sales were negative.

Update:  Zerohedge is identifying the inventory build that I just described as “the biggest inventory build in history” (LINK).  What’s going to happen to manufacturing output when retail spending does not recover, despite the good weather?  Let’s call what will happen, “escape velocity to the downside.”

And why are real final sales negative?  This graph goes a long way toward answering that question:

wages

That graph shows the direction of wages for 80% of the population that actually have jobs. 80% of all workers have less money to spend, especially after netting out non-discretionary spending plus the increased cost of Obamacare.  That graph shows real “downside escape velocity” in wages.

Real nonresidential fixed investment dropped 3.4%.  What happened to this boom in commercial real estate?  I know for a fact that the commercial real estate vacancy rate in Denver is soaring.   I’m hearing the same thing from readers all over the country.   QE has done nothing except keep the big banks from collapsing and has created hundreds of billions of dollars of malinvestment, leading to massive overcapacity of commercial buildings and production facilities.

The reason propaganda, manipulated economic statistics and market intervention/rigging always ultimately fails is because eventually the truth about the underlying reality eventually emerges.   This is why I believe that we are on the cusp of a massive systemic collapse.

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