July Consumer Spending - Reports of Its Health Greatly Exaggerated

 

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

The U.S. stock market reacted jubilantly to July's consumer spending numbers. Apparently, it didn't see the bad news the BLS report contained. Some of this was understandable since the AP (Associated Press) article -- carried by hundreds of news outlets -- seems to have reported more favorable numbers than the ones the government released.

The important take-away from the report was that disposable personal income adjusted for inflation (or more accurately adjusted to reflect some of the inflation that actually exists) was down 0.1%. So if there was any increase in consumer spending, it was taking place on money being borrowed by already tapped out consumers. U.S. consumer debt, including mortgages, is already more than the $15 trillion GDP. Federal government debt is approaching that amount.

Both the BLS and AP reported that consumer spending increased by 0.8% in June. This number is unadjusted for the official inflation rate. The rise was concentrated in the durable goods component of the report. The BLS reported this as being up 2.0% and AP had it up 1.9%. Apparently, U.S. consumers ran out and bought more automobiles and automobile parts in July. According to the government, they then spent less on non-durable goods (items that last less than a year). According to AP, they spent more.

The BLS report had non-durable goods spending down 0.3% in July. AP reported it up 0.7%. Both reports had spending on services being up, the government by 0.5% and AP by 0.7%.  The story reported by AP was far more favorable that the one told by the U.S. government, which was in turn much more favorable than would be the case if some realistic inflation rate was used. The discrepancy for the non-durable and services numbers in the two versions is probably a consequence of AP using numbers not adjusted for inflation. These numbers will always make things look as favorable as possible. This is not news; it's public relations that favors Wall Street and makes the government look like it's doing a better job with the economy than is actually the case. Traditionally, this would be referred to as propaganda.

While the spending on durable goods was concentrated in transportation, increases for services took place because Americans were using more electricity to run their air conditioners during the record hot weather in July. This does not indicate the economy is getting better, nor that it is even flat. It indicates that it was hot in July. Yet, the AP couldn't wait to quote economists that claimed the consumer income and spending numbers that it reported indicated a U.S. economy with rosy prospects. Perhaps they should try including comments on the actual numbers next time.

The BLS report can be found at: http://www.bea.gov/newsreleases/national/pi/2011/pi0711.htm

One of the hundreds of places the AP report can be found is:
http://finance.yahoo.com/news/Consumers-spending-rebounds-apf-1701587266.html?x=0&sec=topStories&pos=4&asset=&ccode=

Disclosure: None

Daryl Montgomery
Organizer, New York Investing meetup
http://investing.meetup.com/21

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.