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Maybe we should think about stimulating the economy rather than strangling it?
Consumer spending is usually a sign consumer confidence. But that’s not the case in today’s fraught economy.
Data out this week shows that consumer spending increased by 0.2 percent in March. That was slower than the 0.7 percent advance in February, but still more than economists had expected. Unfortunately, much of the higher spending in March was on utilities to heat homes in what turned out to be an unusually cold month. Spending actually fell on goods – which are better measures of underlying demand.
So rather than a sign of strength, spending figures for March show that money is tight, causing households to cut back on other spending in the face of higher spending on necessities. Against that backdrop, it should come as no surprise that consumer confidence fell in April to a nine-month low, as measured by the Thomson Reuters/University of Michigan consumer-sentiment index.
For an economy in which consumer spending accounts for 70 percent of all activity, that is not good news.
It is also cause to think twice about claims that consumer spending will be buoyed by the wealth effect from rising home values and rising stock prices. House prices have risen as the number of foreclosures and other distressed sales has declined. Prices are not likely to keep rising at the current pace, however, without more jobs and higher pay so that potential homeowners can afford to buy.
As for the impact of rising stock prices, only a minority of Americans own stock and most of them own it in their retirement accounts. People undoubtedly feel better when their accounts are up, but those gains are partly, or largely, attributable to intervention from the Federal Reserve rather than underlying business strength. Is anyone convinced that those gains are here to stay?
In the real world, there is no substitute for growth in employment and income. But where will that come from? The economy is slowing – from an already tepid 2.5 percent annual growth rate in the first quarter, economists forecast growth of 1 percent to 1.5 percent in the second quarter. Meanwhile, policymakers are blindly pursuing austerity. Neither job growth nor pay raises are in the cards, and until they are, confidence will be hard to find and impossible to sustain.
http://takingnote.blogs.nytimes.com/2013/04/30/consumer-spending-without-consumer-confidence/
The economy needs aggregate demand and wage growth.
Instead, it's receiving self-inflicted wounds.
Consumer spending is usually a sign consumer confidence. But that’s not the case in today’s fraught economy.
Data out this week shows that consumer spending increased by 0.2 percent in March. That was slower than the 0.7 percent advance in February, but still more than economists had expected. Unfortunately, much of the higher spending in March was on utilities to heat homes in what turned out to be an unusually cold month. Spending actually fell on goods – which are better measures of underlying demand.
So rather than a sign of strength, spending figures for March show that money is tight, causing households to cut back on other spending in the face of higher spending on necessities. Against that backdrop, it should come as no surprise that consumer confidence fell in April to a nine-month low, as measured by the Thomson Reuters/University of Michigan consumer-sentiment index.
For an economy in which consumer spending accounts for 70 percent of all activity, that is not good news.
It is also cause to think twice about claims that consumer spending will be buoyed by the wealth effect from rising home values and rising stock prices. House prices have risen as the number of foreclosures and other distressed sales has declined. Prices are not likely to keep rising at the current pace, however, without more jobs and higher pay so that potential homeowners can afford to buy.
As for the impact of rising stock prices, only a minority of Americans own stock and most of them own it in their retirement accounts. People undoubtedly feel better when their accounts are up, but those gains are partly, or largely, attributable to intervention from the Federal Reserve rather than underlying business strength. Is anyone convinced that those gains are here to stay?
In the real world, there is no substitute for growth in employment and income. But where will that come from? The economy is slowing – from an already tepid 2.5 percent annual growth rate in the first quarter, economists forecast growth of 1 percent to 1.5 percent in the second quarter. Meanwhile, policymakers are blindly pursuing austerity. Neither job growth nor pay raises are in the cards, and until they are, confidence will be hard to find and impossible to sustain.
http://takingnote.blogs.nytimes.com/2013/04/30/consumer-spending-without-consumer-confidence/
The economy needs aggregate demand and wage growth.
Instead, it's receiving self-inflicted wounds.