GDP measures domestic spending on output, and when it falls for any reason there is that much less reason to employ, unless productivity is falling fast enough, which generally isn’t the case.

When govt ‘gets out of the way’ with sequesters, income and jobs vanish, as does spending that depended on that income and employment. Likewise, tax increases remove funds that were supporting spending, output, and employment. Of note I just read that consumer spending is now forecast to decelerate further to something under 3% for Q2.

What ‘remains’ is an economy with that much less ‘external funding’, which is then relying on ‘internal’ increased deficit spending to fund its ongoing demand leakages. Not to forget the ‘automatic fiscal stabilizers’ which means to grow the ‘forces of growth’ have to be strong enough (enough credit expansion) to accommodate govt incrementally removing funding via higher tax payments and reduced transfer payments associated with growth.

Meanwhile, markets are supported by confidence that QE is the ‘Bernanke put’/safety net that can reverse any decline by simply increasing it as needed, when in fact we are flying without a net.

And the trajectory, to me, at the moment, continues to look downward- the stuff of bursting bubbles.

Today’s industrial production releases, attached, support the same continuing modest deceleration theme.

So let’s hope mtg apps are up sharply tomorrow, and claims down sharply Thursday!

Real GDP QOQ SA vs Non Farm Payrolls MOM

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Industrial Production Monthly and YOY

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