Soft Patch Might Ground the Fed's Liftoff [Not just China]

Real Clear Markets ^ | August 13, 2015 | Robert Samuelson

[expat_panama]

For many months, economy watchers have been obsessed with "liftoff": the moment the Federal Reserve raises short-term interest rates, which have been held close to zero since late 2008.

Fed Chairwoman Janet Yellen has indicated that, if the economy grows as it has, that moment would come "at some point this year" - generally taken to mean either the September or December meeting of the Federal Open Market Committee (FOMC), the Fed's key decision-making body.

Frankly, I've assumed that it's a done deal. The economy seems to be growing solidly, if not spectacularly.

After a rough winter, gross domestic product increased at a 2.3% rate in the second quarter; this may be revised upward. The unemployment rate is 5.3%, and payroll jobs have risen at a monthly average of 243,000 for a year.

Now, I'm having second thoughts. What prompts my doubts is a recent report from Economic Analysis Associates.

You've probably never heard of EAA, which is a two-person shop run by Susan Sterne and her husband, Lawrence. They specialize in consumer spending, which accounts for slightly more than two-thirds of U.S. GDP. As the consumer goes, so goes the economy. Their latest report is downbeat - a surprise to them.

They regularly dissect consumer spending on dozens of categories of goods and services, ranging from air fares to day care to used vehicles.

They compare spending in the most recent month with the previous month. The result for June was stunning: Spending was down in 87 of 122 categories.

"I have never seen anything quite like this" - nothing so one sided, says Lawrence Sterne, who has overseen two decades of these comparisons.

Typically, he says, spending on durables (long-lasting items like cars, appliances and furniture) fluctuates, because big purchases can be delayed, while spending on nondurables (food, gasoline, clothing) and services (restaurant meals, cable TV, electricity) is more stable.

Now, all categories seem to be softening. Either "the consumer is much weaker than generally thought," he writes, "or the data is very, very bad." (The data come monthly from the U.S. Bureau of Economic Analysis.)

If the consumer weakness is real, its causes are unclear, says Susan Sterne. She doubts that Americans are reacting to foreign economic crises.

"It's not China or Greece," she says. "The average American on the street isn't dwelling on China or Greece." What's especially worrisome, she says, is "housing areas of spending are weakening - furniture, small appliances, building materials."

That could signal that home sales and construction will provide less support for the recovery.

Of course, all this could be a statistical mirage. It's only one month's data, and the figures on weakening sales that I've cited need to be qualified.

First, the data reflect unit volumes of sales (say, the number of cars sold) and not dollar amounts; when prices are included, the data are less lopsided. And second, the data are also a 12-month moving average that includes the 11 previous months. This makes interpreting any one month's results harder.

What should the Fed do?

There are other signs of flagging economic growth: weak international trade and commodity prices; China's recent currency devaluation.

Still, if a broader consumer slowdown materialized, it would overshadow these and threaten the Fed's "liftoff." The Fed needs to be on the watch for further harbingers of a slowdown.

[expat_panama]

Wow, economy's not doing great? Whodathunk?

[expat_panama]

A lovely morning everyone!  Stocks staged an upside reversal closing ahead a fraction of a % in very heavy trade (still below 50-day moving averages) while metals enjoy a mixed surge --gold holding at $1,118.05 and silver soaring to $15.43!   The econ announcement sched looks more like show'n'tell day at Bean-counter School:

8:30 AM Initial Claims
8:30 AM Continuing Claims
8:30 AM Retail Sales
8:30 AM Retail Sales ex-auto
8:30 AM Export Prices ex-ag.
8:30 AM Import Prices ex-oil
10:00 AM Business Inventories
10:30 AM Natural Gas Inventories

Other headlines:

• Misperceiving Inequality
• Is More Information Making Us Worse Investors?
• Voting High Wages With Money of Others - Don Boudreaux, Pittsburgh Trib
• Will the Fed Delay Rate Hike After China Shock?
• U.S. Retirees Unwittingly Do Putin's Dirty Work - Andrea Chalupa, TDB
• Prepare For Overwhelming 'Waves Of Deflation' To Suck Us Into Recession

 

[silverleaf]

Samuelson regurgitates the govt figure of a 5.3% unemployment rate

Just skimmed the rest of his article after that

[arthurus]

The Fed will not raise interest rates. Ever. The longer the Fed keeps rates low, the worse the economy becomes and the harder it is for the Fed to raise rates. In fact, when things go radically south the rates will probably go well below zero until the system is totally in tatters and the people are doing what they can with barter and bullets.

[1010RD]

One of the problems we face is that income inequality is a lie in itself. Gini coefficients, the entire equation and graph were invented to promote fascism. They’re a propaganda tool not a serious economic theory.

Human beings have different preferences. People have different abilities. That’s going to be reflected in many ways. Those that prefer leisure to work will have lower incomes. That’s it.

We shouldn’t take this seriously, but mock it at every step.

[1010RD]

ZIRP doesn’t work and its practitioners are charlatans who practice single entry accounting. Low interest rates punish the prudent and reward the profligate.

[arthurus]

Chocolate cake is fattening.

[Diana in Wisconsin]

"IF the consumer weakness is real, its causes are UNCLEAR, says Susan Sterne."

Really? I'll bet we can list a DOZEN reasons we consumers have our purses clamped shut.

[abb]

That. The Grasshopper and the Ant, The Little Red Hen, Something for Nothing, etc. Some things never change.

[1010RD]

If it were slimming, this would be Heaven.

[1010RD]

AKA trigger stories not taught in school.

[citizen]

The unemployment rate is 5.3%....

That right there tells me this man is a fool. Or at a best a mindless regurgitator parroting the faux headline UE stat.

[1010RD]

Thanks for sticking with this.

Finding the occasional straw of truth awash in a great ocean of confusion and bamboozle requires intelligence, vigilance, dedication and courage. But if we don’t practice these tough habits of thought, we cannot hope to solve the truly serious problems that face us — and we risk becoming a nation of suckers, up for grabs by the next charlatan who comes along. — Carl Sagan, “The Fine Art of Baloney Detection,” Parade, February 1, 1987

[Georgia Girl 2]

LOL! In what parallel universe is the economy doing better? What building? We are in metro Atlanta. Finding a newly constructed home is like Juan Valdes finding that coffee bean.

The stores are empty. Nobody is buying anything they don’t absolutely need.

92 million people out of work and the economy is back on track. Right.