…all things considered. Gallup Consumer spending is running at $83 per day. Just eyeballing this graph, I’d say that is nearly $16-$18 per day higher than the last few years. And Consumer Confidence is very high.
This number is very high, especially considering exactly how badly the recent news is for the average consumer.
- The recent disposable income numbers are horrible. Consumer spending is down because of the massive payroll tax hike on the average consumer.
- Gasoline prices have jumped and stayed high.
These are two huge hits to the average consumer which should be slowing down the economy. The hike in gasoline prices is especially huge, because it comes at what I consider to be the “mercy” point of the U.S. consumer. A $.50 per gallon increase when prices are at $2.50 a gallon is not as big of a deal as a similar sized increase at $3.25 a gallon.
Well we have had 4$ gasoline before. I think people are not that spooked by it. Many have already adjusted their lives to potentially higher gas prices. Almost no one believes we will have cheap gas in perpetuity anymore……. and thats a good thing I think.
Seems to me Mike that a $0.50 increase at $2.50 (20%) is a higher increase than $0.50 increase at $3.25 (15%). It depends on how used you got to the price in question I think. Personally Im nonplussed by the gas prices now( been there done that 4-5 yrs ago) Im just hoping this all results in a stronger alternative energy push………….we’ll see.
I asume that Gallup consumer spending includes gas purchases? So one would expect higher gas prices to increase consumer spending, no? (Though probably not 1:1.) Presumably — given that that increase is being negatively offset by lower income — compensated by declining net worth/increased borrowing. ??
Yes, these numbers are a real surprise. I have my doubts they can be sustained as consumers absorb the payroll tax hike, but we’ll see.
Note the jump since October. It must be Obama-optimism.
From Gallop’s statement: “The higher-than-usual spending in January and February coincides with Gallup’s decision to include more cellphone-only respondents beginning Jan. 1. It is unclear whether that change could have affected the January and February spending estimates.”
Based on my experience with telephone-based opinion surveys, I’d say this is probably a significant factor, except the surge in spending precedes the change in methodology. It’s possible the change is actually disguising an upward trend, since cellphone-only respondents tend to be younger and lower income. Maybe Gallop has controlled for this, but considering some of their boneheaded methodological mistakes in recent years, who can say.
I hate it when researchers change methodologies but fail to test and report whether the change produced significantly different results than the prior methodology would have.
Or the difference is because this polling sample is more likely to have cell phone bills.
)
Come to think of it…
Is the gasoline price driven by the futures market believing that a pick up in economic activity means that a price hike will be taken on board rather than simply resulting in less consumption? I wonder whether we have moved from a system where interest rate increases “took away the punch bowl” to one where commodity price spikes now play that role. I guess once interest rates are low enough such that all assets have minimal yield, harvesting volatility becomes the way to gather money with money. Buy stocks until they are over priced, then buy commodities until the economy stalls, then sell up as the slump bites, then rinse and repeat.
Something in the neighborhood 65% of all trades are now executed via the algorithm-driven automated systems that caused not just the Flash Crash of May 2010 but also the commonplace volatility of the market today. Only fools buy and hold equities today. The money is in rapid trading on volatility–yet another nail in the coffin in the old-fashioned ethos of increasing shareholder value.
Could QE be feeding commodity price volatility and so be actually hampering economic recovery? The fed buys treasuries or MBS from primary dealers in exchange for bank reserves but on behalf of non-bank financial institutions such as hedgefunds. As a result the banks get mountains of bank reserves that just sit there doing nothing but the hedgefunds get mountains of bank deposits that they are itching to do anything with. They use those bank deposits to make mischief in the commodity markets, flinging commodity prices to and fro such that real economy producers and consumers end up having to buy high and sell low and the speculators get the winning side of those real economy losses. QE might even have a deflationary aspect if it sucks money out of the real economy and into concentrated financial holdings in that way.
That’s sort of what Michael Masters argued, isn’t it?
Paul Davidson ( Post Keynesian economist / oil industry veteran) has suggested Uncle Sam go into the counter-speculation business. The Strategic Petroleum Reserve holds 700 million barrels (equivalent to 36 days of US consumption). I imagine if one fine day Tsy puts in a sell at market order for, say, 700 million barrels that would have some impact on world oil prices
Davidson’s proposal was about a tenth that dramatic but I say we take off and nuke the entire site from orbit (Its the only way to be sure).
I’ll check out that Michael Masters, thanks for telling me about that.
The other part could be that for many consumers, they have successfully deleveraged, and can now devote more money to spending. That is quite possible, and something that would be suggested by most MMT economists, as well the the folks here
Cullen had some posts at his prag cap site about this exact point, consumer deleveraging is happening and maybe a year or two from complete.
One thing that needs to be pointed out though is that today most of those people have less cushion, lower incomes and probably are wary of MORE debt. Seeing a real takeoff in bank credit at the consumer level is unlikely I think but businesses might start borrowing more. There is that sticky little issue though of businesses not wanting to borrow til consumers show they are ready to consume…… kind of a catch 22
Yeah, that Keynesian Catch 22.
NY Fed numbers support your hypothesis. Until 4Q 2012, consumers reduced total household debt for 6 quarters running and for 14 of the past 15 quarters. Then in 4Q12, total debt increased, especially non-housing components: auto loans up by $15 billion; student loans up by $10 billion, and credit card balances up by $5 billion. Mortgage debt was essentially flat.
So it looks like consumer spending is increasing based on consumers’ willingness to take on more debt after a long period of deleveraging.
I have serious doubts this will continue as consumers digest the effects of the payroll tax increase and as the sequester cuts gradually ripple through the economy.
http://www.newyorkfed.org/research/national_economy/householdcredit/DistrictReport_Q42012.pdf
It’s times like these (Dow high, low interest rates, low VIX, and increasing taxes on consumers) that make me say: buy puts. or sell calls. Either way odds are in your favor.