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