Today we had several important economics releases that on their face point to a recovery. I think we are actually stagnating economically, and many of these positive factors will prove transitory.
Consumer Spending Report
Consumer spending increased slightly in March by 0.6% (MoM) although income only went up by 0.3% (MoM).
Spending was driven by a decrease in savings (2.7% vs. 3.0% in February) and a substantial increased in government unemployment and other welfare benefits. These government transfer payments were up $24.9 billion in March, compared with an increase of $7.3 billion in February.
In other words, government transfer payments are helping to encourage spending and discourage savings.
While you can argue that unemployment benefits aid consumption, that is not the case. The money has to come from somewhere and that somewhere is your current or future earnings (through taxation) which means you have or will eventually have less to spend. Transfer payments such as these never have any lasting benefit to the economy.
Here is a chart from Calculated Risk that shows exactly what I mean:
Thanks to Bill McBride of Calculated Risk for all of your excellent work that saves me a whole lot of time
This shows that income, excluding government payments, is flat and transfer payments have had a significant impact on spending.
What were consumers buying? It appears to be autos and appliances.
… Continue reading Spending, Industrial Output, and Recovery
When I make a mistake I will admit it.
In my analysis of consumer spending I asserted that the sources of increases in spending were (1) a draw-down of savings and (2) the redirection of defaulted mortgage payments to spending. I was half-right which another way of saying I was half-wrong.
I missed one the basic laws of economics, Bastiat’s “Broken Window Fallacy.” You know, the kid breaks the cobbler’s window, the cobbler pays for a new window and everyone thinks that the cobbler’s spending helped the economy because the glazier had work. The fallacy is that the cobbler was going to buy new clothes from the tailor and now can’t afford it. So the cobbler still has a window, is out the cost of the window repair and the new clothes. It’s a net loss to the economy.
The lesson is that you always need to look at the unseen as well as the seen. I missed that point entirely when I claimed that people spending their mortgage payments on consumer goods. Someone loses here and that is the lender. I forgot to ask what the lender was going to do with the money. Thanks to Caroline Baum, the very excellent writer for Bloomberg to point out the obvious. (See, “Honey, I Lost the House. Now It’s Time to Party.”)
Mea culpa and apologies. Unfortunately many, many people made the same mistake (Mark Zandi, David Rosenberg among others).
So, back to the numbers.
Analysis of Sales Report
March retail sales were up 1.6% over February, and +7.6% from a year earlier, not adjusted for inflation. The annual nominal rise was the largest since July 2005. Eleven of 13 major categories showed increases in sales.
Here are the major components of the Census Department report representing 77.4% of total sales:
| % Total Sales (Weighted) |
Category |
% Change |
| 19% |
Motor vehicles |
+6.7% |
| 13.5% |
Food and beverage |
+0.2% |
| 13.5% |
Department stores and big box retailers |
+0.6% |
| 10.8% |
Restaurants and bars |
+0.3% |
| 9.2% |
Gasoline |
-0.4% |
| 6.6% |
Building and garden |
+3.1% |
| 6.1% |
Health and personal care |
+0.2% |
| 4.8% |
Apparel |
+2.3% |
First, it is important to note that sales have trended upward since reaching bottom in December, 2008. … Continue reading Revisited: Where is the Money Coming From to Fund Spending?
By Jeff Harding.
[Updated October 1, 2009]
I try to balance my day by reading well known optimist and pessimist economists. My two favorites are Brian Wesbury of First Trust in Chicago as my “Mr. Sunshine” and Dave Rosenberg as my “Joe Btfsplk*” (the name “Dr. Doom” was already taken by Nouriel Roubini). I [...]
By Jeff Harding
If one just read the headlines from today’s Wall Street Journal or Bloomberg.com, one would assume that the Obama Administration’s stimulus package is a resounding success. But a close review of the numbers reveals exactly the opposite. I talked about this on Wednesday in my article on Why the Fed Didn’t [...]
