Thursday, October 18 , 2018, 8:12 am | Fair 50º

 
 
 

The Daily Capitalist: The Truth About Consumer Spending Reports

Media cheerleading notwithstanding, the Obama stimulus package amounts to empty promises

If one just read the headlines from Friday’s Wall Street Journal or Bloomberg.com, one would assume the Obama administration’s stimulus package is a resounding success. But a close review of the numbers reveals exactly the opposite. I talked about this Wednesday in my article, “Why the Fed Didn’t (and won’t) Raise Interest Rates,” saying that Friday’s consumer spending report would be interesting. It was.

First, the savings rate, at 6.9 percent was the largest increase since 1993, and the biggest dollar amount since 1959 when they first started tracking this number. It means people are repairing their personal balance sheets in the face of an uncertain future. This is a good thing for the economy because it will provide the capital for future growth.

Second, real personal consumption expenditures (consumer spending adjusted for inflation) increased 0.3 percent over April when it decreased by 0.1 percent. According to the Bureau of Economic Analysis, the expenditures were largely related to auto sales as dealers struggle to cut inventory. People like deals.

Third, personal income increased 1.4 percent and disposable personal income (after tax) increased 1.6 percet. The BEA reported that the increases were due to tax cuts and Social Security payments:

The lion’s share (94.3 percent) of the increase in income came from one-time increases of $250 per eligible recipient of Social Security, supplemental security, veterans benefits and railroad retirement benefits. The $13.1 billion of these transfers boosted May income by about $158 billion (annualized). These transfers are not recurring so incomes will fall by a like amount in June. Spending from this actual $13.1 billion is likely to be spread out over several months, or even years if recipients use the proceeds to increase saving or reduce debt. (Source: Nomura Global Economics)

Fourth, private wages and salaries cratered in May:

Private wage and salary disbursements decreased $12.4 billion in May, compared with a decrease of $0.7 billion in April. Goods-producing industries’ payrolls decreased $12.9 billion, compared with a decrease of $12.2 billion a month earlier; manufacturing payrolls decreased $9.8 billion, compared with a decrease of $4.9 billion in April. Services-producing industries’ payrolls increased $0.5 billion, compared with an increase of $11.5 billion a month earlier. Government wage and salary disbursements increased $3.9 billion, compared with April’s increase of $5.7 billion (JH: Here’s a growth industry).

The implication of these numbers is that they are big:

... Yesterday’s revised GDP data show that during the first quarter, aggregate wage and salary disbursements fell on a year-over-year basis. While this may not seem much of a surprise, this is the first over-the-year decline in wage and salary disbursements since the second quarter of 1958. While the rate of job losses appears to have moderated, employment is nonetheless still declining, as are aggregate hours and aggregate labor earnings. (Source: Richard F. Moody, Forward Capital)

Yet, Bloomberg reads the same data and reports:

Consumer spending rose in May as benefits from the Obama administration’s stimulus plan spurred a jump in American incomes, a sign that efforts to revive the economy are starting to pay off.

The Wall Street Journal story leads off with:

The income of Americans soared in May because of the government’s economic stimulus, leading them to increase spending modestly and boost the saving rate to the highest in 15 years.

Ladies and gentlemen, they have absolutely no basis for these statements. It’s just cheerleading. These one-time stimuli are just that: one time and not lasting.

— Jeff Harding is a principal of Montecito Realty Investors LLC. A student of economics, he has a strong affinity for free-market economics. This commentary originally appeared on his blog, The Daily Capitalist.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made using a credit card, Apple Pay or Google Pay, or click here for information on recurring credit-card payments and a mailing address for checks.

Thank you for your vital support.

Become a Noozhawk Supporter

First name
Last name
Email
Select your monthly membership
Or choose an annual membership
×

Payment Information

Membership Subscription

You are enrolling in . Thank you for joining the Hawks Club.

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover
One click only, please!

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.
You may cancel your membership at any time by sending an email to .(JavaScript must be enabled to view this email address).

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.