Some of the latest headlines seem to tell a gloomy story about the state of the economy. On My 31 the Dept. of Commerce released the latest data on consumer spending, and it told of the first decrease in the last 12 months. To quote an article posted at www.nbcnews.com, “Consumer spending fell in April for the first time in almost a year and inflation pressures were subdued, pointing to a slowdown in economic activity, which should allow the Federal Reserve to maintain its monetary stimulus for a while.”
Certainly the economy could be facing a slowdown, but the main reason concerns federal spending and the sequestration, not consumer spending. A tiny, one-month change in direction in consumer spending is nothing to get excited about.
Looking at the big picture, it’s clear that consumer spending has been helpful to economic growth over the last few years. Since the economy was at its lowest point, 2009Q2, GDP has grown 8.23 percent. Personal consumption expenditures have grown 8.29 percent since then, slightly ahead of GDP. Of course expenditures on durable goods was a much bigger help, growing more than 30 percent over this timeframe.
Likewise trends elsewhere appear to be troubling, but a closer look reveals some reasons for optimism. The manufacturing-related PMI was at 50.7 in April, meaning manufacturing was just barely growing. Looking back over the previous five months, the trend was slower growth from one month to the next. However, the PMI’s new orders index was 52.3, the fourth monthly increase. Several other indices—production, supplier deliveries, inventories, and order backlog—were favorable.
The automotive industry, which is a bellwether for the economy, is doing well. According to www.wardsauto.com. U.S. auto manufacturers turned out 998,818 cars and trucks in April, a 16-percent increase from a year earlier.
The construction is looking up too. Permits for privately-owned homes hit 1,017,000 in April (seasonally adjusted at annual rates), up 14 percent from the previous month and 36 percent from the same month in the previous year. Permit issuance was close to a half million homes in 2009.
Getting back to the drop in consumer spending, digging into the reasons for it really puts this story into context. The biggest drop in consumer spending was in energy. I’d say this is a big benefit to the economy, because paying less for energy frees up money for other expenditures. It’s hard to look ahead one month, but summer is right around the corner, so it’s just possible that this money might get spent on durable goods. Maybe a new grill, a tennis racquet, a baseball bat, an outdoor furniture set—the possibilities are nearly endless.