Consumer Spending is Back: 3-Year High in QI
One highlight of today's BEA report on GDP is that real personal consumption expenditures increased 3.6% in the first quarter, which is the largest quarterly growth in consumer spending since the 3.7% growth in the first quarter of 2007 (see chart above). It's also the first time since 2007 of three consecutive quarters of positive growth in consumer spending, and is above the 3.05% average growth rate since 1980. This rebound in consumer spending starting in the third quarter of 2009 provides further evidence that the recession ended last July, and we are now ten months into an economic expansion that is gaining strength and momentum with almost every new economic report.
27 Comments:
1st Quarter GDP Is Not A V-Shape
April 30, 2010
"Real final sales of domestic product — GDP less change in private inventories — increased 1.6 percent in the first quarter, compared with an increase of 1.7 percent in the fourth."
GDP growth is going to slow appreciably in the next couple of quarters.
Q1 was the last easy YOY comp.
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=1&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=2005&LastYear=2010&3Place=N&Update=Update&JavaBox=no#Mid
GDP is still at an absolute level somewhat below Q1 2006. in real terms, it's well below it.
% changes are all well and good, but we live in the absolute economy, and this recovery is very tepid after such a sharp drop.
the recovery in 2003 was hardly a barn burner, but it was better in % terms than this one and after a much smaller decline.
this recovery is weaker than 2003.
that's going to get really obvious in the next couple quarters as the YOY comps get harder.
q1 2009 was the bottom with -6.4% GDP. q2 was much better with -0.7%.
this makes the % comps much harder.
the fact that growth from q4 to q1 slowed despite an easier comp (-6.4 vs -5.4) is a very ominous sign.
Biden Predicts Job Growth — but Where's the Evidence?
28 April 2010
Vice President Joe Biden predicted job growth of 250,000 to 500,000 jobs a month in the next two months, according to CNBC on Monday.
Biden claimed that the new jobs will be “because of good planning.”
Moody’s Economy.com forecasted...new jobs to be created this year at an anemic fourth-tenths of one percent. With a workforce of about 135 million, Moody’s forecast translates to 540,000 new jobs for the year, or about 45,000 new jobs a month.
The National Federation for Business Economics reported that 73 precent of respondents to the April Survey said that “the fiscal stimulus enacted in February, 2009 has had no impact on employment to date.” And nearly seven out of 10 surveyed believe that “a jobs bill such as the one recently enacted into law will have no impact on payrolls.”
“There are now 22.5 million government employees in the U.S….one in every six jobs in the U.S. is a government job. But what the government workers produce, build or sell is nothing at all.
William Dunkelberg, NFIB's chief economist, was surprised by the unexpected decline, saying: “Usually we see the small businesses leading the way out [of the recession] since they’re the first ones to see the consumer come back, but what’s happened this time is the customer didn’t come back.”
“Since small firms produce half the private sector GDP, it is hard to envision a sustained recovery [and new hiring] without their participation. Once the gains from inventory rebuilding are exhausted, it is hard to see what will fuel growth. Small firm capital spending is at 35 year low levels and plans for future expenditures are equally low.”
David Stockman, President Reagan’s budget director, also argues that the job market is not going to recover any time soon. His careful and detailed analysis of the current state of the economy points out that the economy’s “core private sector income” dropped an amazing 6.2 per cent since the third quarter of 2008. He writes, “Quite simply, there’s never been a sustained drop in private sector money incomes of any magnitude — let alone 6 per cent — during modern economic history.”
Consequently, job gains from purely cyclical recalls are likely to be modest in scale, and generally not at all commensurate with the [administration’s] recovery scenario.
The problem is one of pure math. There’s simply little prospect of sufficient strength in final demand to trigger a rapid or extensive recall of the cyclically unemployed. It will be a slow slog.
"but Where's the Evidence?"...
Maybe we'll see an IRS jobs expansion?
I hope that consumption increases are based on increased income and not more consumer debt.
Income > Consumption
Exports > Imports
Job Growth > Job Destruction
U.S. Productivity > Competitors
Each recession is like having the flu...when you have it, it seems like you are going to die, and never get better.
Then sunny days come and it seems like you will never get sick again.
There is an old joke in certain social service circles, to the effect that "when you feel like killing yourself is a terrible time to commit suicide." In a recession is a terrible time to make long-term economic predictions.
Some people here still have recession-itis. Dudes, it's over. We are growing. People are resourceful, and want money. Worker productivity keeps rising. Crop yields go up every year, not down.
We still have our infrastructure, our factories, our R&D facilities etc.etc etc. MBA's are getting minted every year.
I will concede, declines in economic output, due to the invisible force called "credit" are befuddling, and the major challenge for policy-makers ahead.
Only severe droughts, material shortages, wars, earthquakes etc should result in declines in output.
Perhaps Dr. Perry will put his sabbatical to good use at AEI, and devise a unified field theory for preventing declines in economic output due to credit debacles.
Now, that would be a boon to mankind.
"Biden claimed that the new jobs will be “because of good planning.”
Yeah, you and your boss at the top of the pyramid feeding us, the Great Unwashed. Thanks, Joe!
>"Perhaps Dr. Perry will put his sabbatical to good use at AEI, and devise a unified field theory for preventing declines in economic output due to credit debacles."
Such theories already exist. See here and here.
>"Vice President Joe Biden predicted job growth of 250,000 to 500,000 jobs a month in the next two months, according to CNBC on Monday.
Biden claimed that the new jobs will be “because of good planning.”
Biden? LOL! I hope someone makes it a point to ask him about this in six months.
Of course, maybe he knows something about planned government hiring that we aren't yet privy to.
Ron H--
While I would like to see a Ron Paul candidacy (I especially like his sentiments towards farm subsidies and other rural give-aways), I am not sure about the much ballyhooed "gold standard"--in fact, such sentiments strike me as medieval.
Why gold? Not platinum? Silver? Diamonds? And what happens if man learns how to synthesize gold?
Strict adherence to a gold standard could lead to steady deflation in dollar denominations of everything else, such as property. People are people, and watching the nominal value of your labor or property or stock portfolio decline could be unnerving.
As is is, it is free country, and you can buy gold. You can then convert it into dollars and conduct transactions as you wish. Thus, you will put yourself on a mini-gold standard.
Beware--those who bought gold in the mid-late 1980s are still down on their investment, after 25 years. Over time, gold can be a rotten investment.
Right now, the Chinese and Indians are buying gold, with their new disposable income.
The Fed's M2 is up 2 percent in the last year.
Not sure there is anymore any connection between gold and the Fed.
The Chinese money supply is up 22 percent in the last year and that is likely what is driving gold prices. Their economy is red-hot, growing at more than 10 percent a year. Guess who are the world's largest buyers of gold and diamonds?
My guess is that investing in gold will become a self-fulfilling prophesy for a while--but it yields nothing, remember. At some point, it loses favor, and begins a long secular decline.
I am still waiting for Dr. Perry to use his time wisely, and develop a sound financial system that will not turn credit debacles into Main St. nightmares.
benny-
your gold argument is untrue.
"Beware--those who bought gold in the mid-late 1980s are still down on their investment, after 25 years. Over time, gold can be a rotten investment. "
the data says otherwise.
http://www.goldprice.org/spot-gold.html
i'm not a huge fan of shiny rock capitalism, but right now gold will only stop appreciating when the nations behind major western fiat currencies get their fiscal houses in order.
you wanna bet on the US balancing its budget?
also: while the recession may be over, growth is incredibly punk for this stage of a recovery. this is just a dead cat bounce from the freeze up last year. going from "dire" to just "bad" is not the same as returning to "good". US gdp is still at 2005 levels.
wanna bet that rate of GDP growth drops from q1 to q2? it will. watch and see. the fact that q1 was down from q4 DESPITE being a much easier yoy comp is very ominous.
Morganovich:
My memory fades...but here are the facts:
Well, gold hit a peak of $850 in 1980. Did crappy thereafter until recent history, and yes, in nominal terms it is at a new high. see http://en.wikipedia.org/wiki/File:Gold_Price_(1968-2008).gif
Obviously, adjusted for inflation gold still waaaaaaaaaaaaaaayyyyyyyyyyyyy off 1980 peak, or compared against any other investment one could makein 1980, be it the DJIA or property or much else. Dow is up eleven-fold from 1980.
BTW, in yen, the value of gold is still down from 1980, even nominally.
It could be gold will go back to its 1980 high, even after adjusting for inflation. Big whoop. You would have tread water for 30 years. Gold will have to hit $2,170 just to get people even to the 1980 price.
Hey, buy gold--but it is timing only. Gold is worth what the next guy will pay for it.
Gold is a very iffy investment, yields nothing, costs something to store.
Gold fever belongs in your wife's jewelry box, not your portfolio.
Why gold? Not platinum? Silver? Diamonds? And what happens if man learns how to synthesize gold?
Platinum, silver and diamonds have too many other uses. Gold is considered valuable, but its quantity isn't depleted through consumption. If man learned to make gold, then the balance would change -- but he hasn't.
Strict adherence to a gold standard could lead to steady deflation in dollar denominations of everything else, such as property. People are people, and watching the nominal value of your labor or property or stock portfolio decline could be unnerving.
The purchasing power of the currency would be increasing. It's purchasing power that we care about in our money. Yes, it would be a paradigm shift from what we've become used to, but we could adapt just as people have learned to adapt to inflation.
Benny, I'm not a proponent of the gold standard, but the point would be to reduce the need to "adjust for inflation". Conceptually it is the "treading water" in real terms that makes it a desirable basis for money. Holding onto currency whatever the basis shouldn't be a good investment.
People expect high returns on their assets now, but they've also grown up with continuous inflation. As we've seen the last year, with deflation or low inflation, people are in fact willing to accept zero interest.
There was even a period during the day last year, when yields on one of the short term Treasuries actually went negative.
On a practical basis, there's not enough gold ever mined to underly the US dollar at current prices. So it can't happen. Similarly, the other things you've mentioned are too rare.
Also as a base element, the only way to synthesize gold, is to add or subtract protons and electrons to another element. That's actually been done before, but is so expensive it's cheaper to go the traditional route to get gold.
benny-
from 2001 on, virtually nothing has kept up with gold (apart from a few other commodities). during this same period, there has been massive monetary expansion in the west. you can call it a coincidence if you like, but i don't think so.
don't get me wrong, i'm not a gold bug and i agree that it's just an arbitrary store of value, but so are dollars. lots of fiat currencies have become worthless. it's what happens to currencies run by nations with bad fiscal policy. gold has been a currency for Millennia while no fiat currency has lasted more that a couple hundred years. there's never been a crisis where gold went to zero. the dollar's day is ending. as gold is denominated in dollars, this will drive its price up.
fiscal policy in the g-10 is appalling. deficits are out of control, as are obligation levels for debt and entitlements.
this will cause a synchronized debasement of fiat currency. thus far, gold has been an excellent hedge. it will likely continue to be so. it's not my hedge of choice (i prefer borrowing money and using it to buy more useful scarce assets that will appreciate and then paying it back in cheaper dollars given the current negative real interest rates) but it will work.
gold has 2 advantages over dollars: you can't print it and no one nation controls it or sets its price.
failed fiat currencies have general been minor ones in the past and therefore not a systemic threat. but when the dollar and the euro go, it's going to take them all down. devaluing the dollar is not like devaluing the lira.
it's going to make a mess. the US has only 2 options: debase the dollar or follow a serious austerity program. there is simply no political appetite for the latter.
i notice you don't want to take the bet about next q showing lower growth. why not if you believe in the v? no money, just a gentleman's bet. how about it?
Benjamin,
You raise some interesting questions. I will try to answer as best I can, but more complete, in depth information can be found in the books I recommended, as well as here.
>"Why gold? Not platinum? Silver? Diamonds? And what happens if man learns how to synthesize gold?"
Gold has been used as money since before recorded history, by cultures in all parts of the world, and has always been the most universally recognized form of money in the world. It meets all the requirements of an ideal money. It is fairly rare, very durable, easily recognized, and easily divided into uniform units of weight. It also has few other uses except as ornamentation, and in recent times in dental work, and electronics.
Silver has also commonly been used for the same reasons. I suspect that platinum has historically been too rare to be considered as money, and diamonds are too variable in quality. They are also hard to divide uniformly.
Man isn't likely to synthesize gold. As a unique atomic element, all the gold we know of, was formed in supernovas. It might be possible to create gold by atomic fission or fusion, but I suspect the cost of the process would far outweigh the value of the gold produced.
If you're worried about counterfeiting
and inflating the money supply, consider what we have now; the dollar is based on nothing, and has whatever value the Federal Reserve says it has. Through the banks, the Feds counterfeit money all the time with little more than a few keystrokes and the click of a mouse.
>"Strict adherence to a gold standard could lead to steady deflation in dollar denominations of everything else, such as property. People are people, and watching the nominal value of your labor or property or stock portfolio decline could be unnerving."
No, the dollar would be set at a fixed weight of gold, as it once was, therefore you would think of other commodities in terms of ounces of gold, for example. You could think of the value of your labor or property in terms of the amount of gold it would buy, not dollars. Here's What has happened to the dollar since the Federal Reserve was established in 1913.
>"As is is, it is free country, and you can buy gold. You can then convert it into dollars and conduct transactions as you wish. Thus, you will put yourself on a mini-gold standard."
Unless gold IS the money, that makes no sense. I might as well buy wheat, or steel, or gravel and say that I'm on a wheat or steel or perhaps a gravel standard.
>"Beware--those who bought gold in the mid-late 1980s are still down on their investment, after 25 years. Over time, gold can be a rotten investment."
This fluctuation is a result of speculation, and money having only the value the Federal Reserve says it has. As money, gold wouldn't change value like that.
>"Right now, the Chinese and Indians are buying gold, with their new disposable income."
Smart people! Maybe they know something we don't. Maybe they anticipate a much steeper drop in the value of the US Dollar.
>"Not sure there is anymore any connection between gold and the Fed."
Not since 1971. Tricky Dick cast us loose.
>"I am still waiting for Dr. Perry to use his time wisely, and develop a sound financial system that will not turn credit debacles into Main St. nightmares."
That's a tall order. Good luck with that, Dr. Perry!
>"On a practical basis, there's not enough gold ever mined to underly the US dollar at current prices. So it can't happen."
What do you mean by that? The value of a dollar has changed drastically over time, not the value of gold.
Historically the gold standard lead to periods of inflation when big discoveries or confiscations brought more supply (First the Spanish in Latin America) then 1849 and following, and in a big way 1899. In between these periods you had deflation as the supply of gold did not keep up with the demand for money. (One big period was about 1820-1850, another 1870 to 1900).
So gold is no more and no less a means to create a stable value currency, as its supply demand curve does then affect the value of money.
>"Historically the gold standard lead to periods of inflation when big discoveries or confiscations brought more supply.
Lyle, I'm interested in learning more on this subject, but I can't seem to find any satisfactory sources. Can you point me somewhere?
Thanks
Do you think the level of changes in money supply due to changes in gold supply have been anywhere near the magnitude of changes in money supply with a fiat currency as manipulated by a central bank?
ron-
benny actually has a point about the deflationary risk of a gold standard,
the problem with gold as a currency is that its supply does not grow as fast as a modern economy. in the days of <1% growth, this was less noticeable, but at 3% it becomes a real issue.
if gold supply goes up less that the economy grows, gold appreciates. this is inherently deflationary as less gold buys more goods, which is to say that the same goods can be purchased for less gold.
such a situation reduces economic growth, even on a real basis as people wait for future periods to spend when their money is worth more. it also puts a great deal of upward pressure on real lending rates choking off liquidity.
a little bit of inflation is actually quite good for growth. (though too much is disastrous).
the gold standard does not provide that well.
lyle-
you are absolutely correct that huge discoveries of gold drove a couple of inflationary periods, but such discoveries seem unlikely to re-occur. they were due to exploration and conquest. the world is not pretty well explored. there are no new americas and california left to find.
the likelihood of another such episode seems quite low to me.
a greater risk to the price of gold would seem to be the behavior of central banks who are still very large holders of gold. faced with fiscal crisis, some may choose to liquidate gold stocks which could glut the market in the short term in the same way that decommissioned nuclear warheads have glutted the uranium market.
that should read "now pretty well explored" not "not"
Ron H. said...
>"On a practical basis, there's not enough gold ever mined to underly the US dollar at current prices. So it can't happen."
What do you mean by that? The value of a dollar has changed drastically over time, not the value of gold.
It's not a statement on value, but a quantity thing.
This website estimates all the gold ever mined through the end of 2009 is 165,000 tonnes (metric). That works out to be $6.3 trillion worth of gold at $1,179/troy oz.
http://www.gold.org/faq/answer/76/how_much_gold_has_been_mined/
M2 is $8.5 trillion. So assuming the US Treasury could manage to get all the processed gold in the world, it would be tough to make it work at the current price of gold.
If the $1 were set to, and could be exchanged for 1/1,179 of a troy ounce, the Treasury could cover currency and bank deposits. It wouldn't cover most of the $3 trillion in money market funds, but those are a continuous roll over of short term paper so I think have to be replaced to keep the same liquidity. If not, then it seems theoretically possible to underpin the dollar now.
The last time I did the calculation I ended up with a bit over $5 trillion in gold. That must have been closer to $1,000/troy which wasn't all that long ago.
Practically, much of the gold in the world isn't for sale. King Tut's mask, UK crown jewels, wedding rings, things buried with the dead, amounts used in electronics, etc. And it'll take an increasing value in exchange to entice holders of gold to give it up as the Treasury accumulated it. There's just not enough gold floating around.
Hey OA, now that was a very englightening comment...
Thanks for the links also...
Morganovich-
You and Benny are correct as to the deflationary effect of a limited gold supply, but I question whether it could be a serious problem.
I am unable to easily find the information I want on long term GDP growth and long term gold supply growth, so I will have to speak in generalities. I was hoping to compare the historical growth of GDP to the historical growth of gold supply. My feeling is that the difference isn't great, or at least not nearly as great as the inflation rates we suffer now.
I question whether the deflationary effects you describe would cause serious problems, or stated differently, would we be worse off than we are now, with inflation? I think the rate would be low, probably fairly constant,and predictable. All pluses.
One of the biggest advantages in my opinion, would be that government couldn't inflate the money supply as a cruel hidden tax as it does now. One of the links I gave Benny is to a chart showing the decline in value of our dollars since 1913. The dollar now buys what 5 cents would buy in 1913. That 95 cents has been spent by government.
You Said: >"such a situation reduces economic growth, even on a real basis as people wait for future periods to spend when their money is worth more. it also puts a great deal of upward pressure on real lending rates choking off liquidity."
Does that mean people save more? That sounds like a GOOD thing to me. We have recently fallen out of an unsustainable economic boom that was driven in part by artificially low interest rates, that encouraged high levels of borrowing, and an artificially high level of growth. Maybe a slower but steadier rate of growth would be good.
As for interest rates, there would also be upper pressure on savings rates. The two rates would in effect regulate each other, causing correct interest rates as determined by markets, not government bureaucrats. yes, liquidity would be less, as perhaps it should be. I'm not sure I would use the phrase "choke off".
>"a little bit of inflation is actually quite good for growth."
Why would it be? Other than as an attempt to "stabilize prices", I don't see any benefit. Actually we should expect most prices to drop over time as improved technology and productivity, as well as competition, allow goods to be made and sold more cheaply. We see that today in only a few categories such as electronics and computers where prices are actually dropping faster than the rate of inflation.
In any case, I enjoyed reading the Rothbard book. It was a great reminder of what money really is, when I start thinking those little green papers in my wallet are actual money.
>"It's not a statement on value, but a quantity thing."
OA
Thank you for the explanation. I hadn't considered some of that, especially that there is gold that won't likely be circulated.
However it can still be a statement on value, but of the dollar, not gold. Perhaps the dollar is seriously undervalued.
Although it might be desirable for various reasons, it isn't actually necessary that the treasury hold all gold. As at other times in our history, gold could be spent directly in the form of nuggets, bars, or dust.
Those who didn't wish to carry actual gold, could exchange their gold for certificates at the treasury.
Anyone would be welcome to hold treasures they valued more than the purchasing power of the gold.
ron-
the problem with saving via gold is that gold doesn't do anything, nor does it produce anything. it just sits and appreciates as it's supply does not expand anything like the rate of economic growth.
vast profitless savings create a sclerotic situation akin to japan in recent decades. in japan, the majority of savings is in postal accounts that yield essentially zero, but because of the deflationary pressures, are OK because yen just becomes more valuable (or goods cheaper) over time anyhow.
if money appreciates all by itself, then lending rates go way up too. if gold will be worth 2% more next year, then that 2% gets added to lending rates. this CRUSHES growth, especially relative to an economy with 2% inflation as you get a 4 point spread in rates.
worse, taking out a loan in an appreciating asset and using it to buy a depreciating real asset like a house or a factory makes it much harder to break even even before the higher rates and diminished banking system.
if you have high savings rates in useless items, you get japan, not a dynamic economy.
even a whiff of deflation is enough to strangle an economy. if we all save and don't purchase, what drives growth.
the size of the increases in the economic pie caused by low rates of inflation are highly beneficial. of course, this is true only up to a point. inflation does have costs, and they magnify dramatically as the rate goes up, but deflation is much worse. it stops an entire economy dead and is a ruthlessly difficult cycle to break once it takes hold.
inflation spurs growth through investment in productive assets: you need to create something to keep up. deflation retards it by encouraging the holding of non productive assets (like gold) and penalizing the purchase of real assets. who would buy a home if home prices went down every year? who would lend against one?
morganovich-
I think you are visualizing gold as a commodity, which of course it is, but denominated in dollars. probably everyone alive today, tends to do so as it's been so long since gold has been money.
I have been trying to visualize gold as THE money, in terms of grains of gold, or grams of gold, or ounces of gold instead of dollars. In other words how much gold can I buy with a bushel of wheat, or a ton of steel, or an acre of land, or an hour of labor, or vice-versa. No dollar values assigned.
Allow me to paraphrase parts of your comment and make a few quick comments, of my own:
You: >"the problem with saving via gold is that gold doesn't do anything, nor does it produce anything."
Me: the problem with saving via dollars is that dollars don't do anything, nor do they produce anything.
In your previous response to Benny you actually made a pretty good case for a gold standard.
here:
>"from 2001 on, virtually nothing has kept up with gold (apart from a few other commodities). during this same period, there has been massive monetary expansion in the west. you can call it a coincidence if you like, but i don't think so."
and here:
>"gold has 2 advantages over dollars: you can't print it and no one nation controls it or sets its price."
This sounds like an argument for gold as an international currency.
It would certainly make international trade much easier.
>"if money appreciates all by itself, then lending rates go way up too. if gold will be worth 2% more next year, then that 2% gets added to lending rates"
2% more in terms of what, dollars?
I think this is backwards. If money is becoming more valuable, a lower interest rate is needed to provide a profit. It's inflation that requires higher interest rates. Remember the high inflation of the 1980s and the sky high mortgage rates?
>"it stops an entire economy dead and is a ruthlessly difficult cycle to break once it takes hold."
Where has this happened?
>"if we all save and don't purchase, what drives growth."
We have to purchase at some level, we all need some things, and want others.
A savings rate above the current one wouldn't be a bad thing.
>"who would buy a home if home prices went down every year? who would lend against one?"
Who? Well, those who have always bought or built houses as a place to live in. People haven't always bought or built houses as an investment, only in these times of constant inflation.
And, lenders already lend on depreciating "assets", like your car.
As I said, I have been unable to find the information I was looking for on US economic growth, especially per capita growth, since about 1800, and the growth of the world wide supply of gold during that period. If you could point me to something related to those I would be forever grateful.
I believe that one of the greatest periods of growth in US history, was in the late 19th and early 20th century, when gold was money, but I can no longer find that info.
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