June 26, 2014

Consumer Spending Disappoints: +0.2% vs. +0.4% Expectations, While Shrinking After Inflation

Filed under: Economy,Taxes & Government — Tom @ 8:57 am

Those 3.5 – 4.0 percent predictions for second-quarter GDP growth look a bit more tenuous.

Consumer spending, predicted to come in at +0.4 percent at Business Insider and Bloomberg, got only halfway there, and shrunk in real terms (official release is here):

Personal spending, reflecting what Americans pay for everything from groceries to doctor visits, rose a seasonally adjusted 0.2% in May from a month earlier, the Commerce Department said Thursday. The rise was linked entirely to higher prices and came after a flat reading of spending in April. Adjusted for inflation, spending dipped.

Personal income—a measure of Americans’ income from wages, investment and government aid—grew 0.4% in May. Incomes have grown for five consecutive months, but Americans are putting a greater share into savings.

Economists surveyed by The Wall Street Journal had predicted both personal spending and income would rise a 0.4% pace in May.

The report offered the latest clues the recovery got back on track in the spring after a big contraction in economic output during the first quarter. Stronger job gains in recent months appear to be lifting household incomes, boosting overall economic growth.

But the weakness in consumer spending, if sustained, could restrain economic growth in the coming months. Consumer spending is the biggest piece of economic output in the U.S.

Uh, weakness in consumer spending also restrains reported economic growth right now, guys.



  1. Between that and the durable goods orders that are still behind March, I don’t think we’re going to get to Goldman’s +4.0% 2Q GDP growth, at least if the accounting is honest.

    Comment by steveegg — June 26, 2014 @ 9:37 am

  2. #1, hard to disagree. We’re probably not in a normally defined recession, i.e., 2Q growth is probably positive, but it’s hardly impressive. The wild card is whether health care spending continues to drop.

    Comment by Tom — June 26, 2014 @ 11:18 am

  3. Regarding health care spending, since 1st and 2nd revisions are based solely on PlaceboCare/Medicaid, expect those numbers to be cooked upwards with massive 3rd-revision drops once actual private-sector spending is factored in for as long as the eye can see.

    Comment by steveegg — June 26, 2014 @ 11:37 am

  4. #3, If it is as you say, that will be the pattern. How do you know that it is as you say? Are there links?

    Comment by Tom — June 26, 2014 @ 11:57 am

  5. I don’t see how Q2 is going to be in expansion at all with these numbers. PCE is in contraction in 2/3 months of the quarter. Or am I misreading this?

    Comment by Scott — June 26, 2014 @ 2:06 pm

  6. You are correct, and thanks for that (that’s an NB post in the making, I think), esp when you see what helped to produce the weak PCE last quarter (in real terms, Jan-Feb-Mar): -0.3, +0.3, +0.6.

    This quarter it’s -0.2, -0.1 and ???, i.e., it’s on track to be significantly worse — as in, barring a miracle, it will be significantly worse.

    I’m deferring to the people predicting a positive number for now because inventories appear to be turning around and (if mfg. isn’t smoke and mirrors) the trade situation might (emphasis might) have stabilized. But I don’t think the number is going to be very positive, and to me it will be almost a shock if it offsets the 1st quarter (which will require a +3.0% reading).

    The way things are going, it might be September until we know how weak this quarter really was, just as it took until June to start to see how truly awful 1Q was.

    Comment by Tom — June 26, 2014 @ 2:29 pm

  7. Philip Klein quoted from the technical notes of the 3rd estimate:

    “The revision to health care services reflected the incorporation of newly available Census Bureau quarterly services survey (QSS) data for the first quarter. The QSS data reflect the revenues of for-profit and nonprofit hospitals, physician offices, nursing homes, and other health care providers and the expenses of nonprofit hospitals and other nonprofit health care providers. Prior to receiving the Census QSS data, BEA used information on Medicaid benefits and on Affordable Care Act insurance exchange enrollments to prepare the previously published estimates of health services.”

    The question now is whether they will continue the new method of estimation for the advance/2nd estimates or go back to the prior method of estimation using wage and employment data. Something tells me that they won’t return to the more-reliable old methods.

    Comment by steveegg — June 26, 2014 @ 3:21 pm

  8. Thanks so much for that. I hope to be monitoring this.

    Comment by Tom — June 26, 2014 @ 3:34 pm

  9. [...] “… consumer spending has cratered, declining in real terms in both April and May.” [...]

    Pingback by BizzyBlog — July 3, 2014 @ 8:20 am

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