"On the surface, the figure looks solid, increasing 4.4%. The problem, however, is that it reflects a gain of just 3.6% in nominal spending because the personal consumption deflator fell 0.8%, its first decrease since 1961 and the largest decline since 1954, according to Market News.
This means that if the inflation rate for the quarter were at a normal level, say, up 2.0%, personal spending would have seen a very small gain of just 1.6% for the quarter. (I get this by subtracting 2.0% from 3.6%.)
The low level of nominal spending, which was the weakest in four years, reflects strain on the consumer. This figure represents the total amount of money that consumers spent during the quarter, a tally that looked good only because they caught a break with the decline in energy costs. Had energy costs increased, it would have produced a much different result. For context, nominal spending in the overall economy has increased at a pace of 5.6%; it increased at a pace of 5.0% in the fourth quarter."
This is a very solid observation. Considering consumer spending was responsible for 3.05 of the 3.5% increase, it's a very important observation.
I have been concerned about the US consumer for some time. First, consumer spending has now increased for a ton of quarters without a contraction. That's huge. In addition, there's a ton household debt (mortgage debt plus credit card debt) in the economy. At some point we're going to hit debt saturation. Where that line is I have no idea. But when HH debt is over 90% of overall GDP and 120% of national disposable income and debt payments as a percentage of income are at an all-time high, you have to wonder when people will start to reign in their spending.
As usual, the devil of the numbers is in the details.
4 comments:
You have to wonder where the next tank of gas in the consumer's tank is going to come from?
Not the Fed.
Why?
Because the Fed's hands are tied by the Chinese. They hold a trillion dollars of our debt, and they don't want to see it go up in low interest smoke.
I saw Cramer on the Scaroboro Report the other night - he surprised the heck out of me. He called for significantly increased taxes on gasoline - to improve security in this country by lessening dependence on the ME. Said it would hurt the economy in the short term - but was necessary.
Obviously it would hurt the middle class. But then maybe they would change their driving habits and adjust.
Our structural problem is not that we waste gas when its cheap, but that we have a vehicle fleet that requires massive amounts of gas to do things like getting to work. Its the economic dependency on low to medium price fuel (and remember that fuel at the peak of the second OPEC oil price crisis was around $100/barrel in US$ purchasing power, so $50-$60 / barrel is still "medium priced").
An excise tax on newly produced vehicles based on their fuel inefficiency ... say, so many percent of the purchase price per gallon per hundred miles ... would go a long way to getting our vehicle fleet to start changing before the next spike in the price of gas.
On the main point raised in this post ... this raises the importance of the point I noted wrt an earlier entry on these number ... the impact from the unseasonally warm December.
If the uptick in "real" GDP is basically entirely due to a downtick in the price index, and that downtick is mostly due to falling crude oil price, that gain is almost certainly going to be taken back again by summer at the latest ... and we would have to have a sustainable growth driver in place by then to take up the slack left by the popping of the housing bubble.
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