More evidence for the "Black September" consumer fear thesis

Here's how the NY Times described the "surprse" not-so-bad Fourth Quarter GDP yesterday:

The actual decline in the gross domestic product — at a 3.8 percent annual rate — fell short of the 5 to 6 percent that most economists had expected for the fourth quarter. But that was because consumption collapsed so quickly that goods piled up in inventory, unsold but counted as part of the nation’s output.

“The drop in spending was so fast, so rapid, that production could not be cut fast enough,” said Nigel Gault, chief domestic economist at IHS Global Insight. “That is happening now, and the contraction in the current quarter, as a result, will probably exceed 5 percent.”

(hat tip Ksho1)

Notice what happened? The consumer, who had been chugging along decently, suddenly shut down -- so quickly in fact that producers were totally unprepared -- setting off a vicious spiral of layoffs, bankruptices, and steep discounts (i.e., deflation) on merchandise.

This is potent evidence for my "Black September" thesis -- that the banking crisis spread suddenly to Main Street because Paulson, Bernanke and Bush terrified consumers with economic Armageddon in mid to late September; followed immediately by hedge fund redemptions in early October crushiing their 401K's.

Mainstream economists are catching on [the link goes to a forum entitled "(Almost) nothing to fear but fear itself", a roundtable of economists weighing in, in response to a Financial Times article, highlighted on Mark Thoma's blog, "Economist's View"].

But you read it here, first.



GDP/credit/I told ya sos

posted yesterday, BEA GDP stats in Instapopulist, entire press release.

What kind of piece is that FT article though? Take anti-anxiety drugs and go shopping and all will be well? I don't think so!

What is missing from the -3.8% GDP instead of -5.5% that was the estimate is inventory build up. without it the offset is -5.1% GDP, Q4 2008. The consumer spending is about in line with GDP contraction until one hits durable goods.

That said.....

Couldn't one consider the possibility here of a credit squeeze assisted in this 7+ drop in durable goods from Q3 to Q4? Autos alone contributed 2% of GDP contraction.

It would be interesting to see precisely the ratio of loan application denials/approvals on potential durable good orders during Q4. I read numerous reports on denial of credit to consumers, small business, no aggregate stats.

Another interesting thing would be interesting to see exactly how correlated "confidence" is when the unemployment rate goes up.

When it comes to fear, the origin is not the mind, it's in the pocketbook. That is my hypothesis.

We have numerous "you read it here first" posts at this point on EP, which is super cool juju, implies we're writing more from 1st principles/analysis in a lot of ways.
(yes I have some!).