On Friday, the US government announced that GDP grew just 0.8% in H1. This, of course, was far below the US Federal Reserve’s confident estimate of 3.5-4% for 2011, given only 4 months ago in March.
We are indeed in a New Normal. But the consensus simply refuses to recognise the impact on demand of the ageing BabyBoomers (those born between 1946-70), as these stop spending and start saving.
The government also issued revised GDP data going back to 2003. As the chart shows, this produced the startling result that US GDP today is still lower than the peak of the cycle in Q2 2007. The last time this happened was in 1980-82, when the economy went back into recession.
With oil prices at current levels, today’s situation is very similar to those dark days – particularly given the dysfunctionality seen in politicians’ response to the US debt ceiling, the Eurozone crisis, China’s rail crash and Japan’s earthquake/tsunami.
The H1 GDP data thus confirms Prof Martin Feldstein’s fears that the US is now close to recession. Shipping markets are also very worrying. The main Asia-US shipping index has fallen 9% since April, as US retailers cut back on orders. Last year, it surged 56% in this key period.
The government also reported that US oil product demand in Jan-May was lower than in 2009. As Olivier Jakob of Petromatrix notes:
“Buying crude oil at $120/bbl is buying oil in the demand destruction zone, and if it can be a short term trading play, we do not consider buying demand destruction to be a sound investment strategy.”
Meanwhile, petchem markets were quiet, with many major players on holiday. Traders took the chance to create some volatility, but it remains to be seen whether this move will be sustained with real buying interest, as we move into August.
ICIS pricing commentary, and price changes since January, are below:
Brent crude oil, up 24%.
Naphtha Europe, up 15%. “The market is balanced to long”.
HDPE USA export, up 9%. “Trading appeared thin, with participants taking a wait and see approach.”
Benzene NWE up 8%. “Traders actively buying to cover short positions.”
PTA China down 5%. “Cargoes actively changing hands among traders”
S&P 500 Index, up 2%.