Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
SPX/Gold, 30yr Yields & Yield Curve – Amigos 1, 2 & 3 Updated - 21st Oct 18
Gold Stocks Sentiment Shifting - 21st Oct 18
Why Is the Weakness In GBP/USD Likely? - 21st Oct 18
Stock Market Bubbles, Balloons, Needles and Pins - 21st Oct 18
The Incredibly Bullish Set-Up for Gold - 20th Oct 18
Here Comes the Stock Market Retest - 20th Oct 18
Waterproof Camera - Olympus Tough TG-5 Setup and First Use - 20th Oct 18
Israel’s 50-Year Time Bomb, Pushing Palestinians to the Edge - 19th Oct 18
Bitcoin Trend Analysis 2018 - 19th Oct 18
History's Worst Stock Market Crash and the Greatest Investing Lesson! - 19th Oct 18
More Signs of a Stocks Bull Market Top and Start of a Bear Market in 2019 - 19th Oct 18
Stock Market Detailed Map Of Expected Price Movement Before The Breakout - 18th Oct 18
Determining the Outlook for Gold Mining Stock - 18th Oct 18
Investor Alert: Is the Trump Agenda in Peril? - 18th Oct 18
Stock Market is Making a Sharp Rally After a Sharp Drop. What’s Next? - 18th Oct 18
Global Warming (Assuming You Believe In It) Does Not Affect Gold - 18th Oct 18
Best Waterproof Compact Camera Olympus Tough TG-5 Review - Unboxing - 18th Oct 18
Silver's Time Is Coming - 17th Oct 18
Stock Market Volatility Breeds Contempt - 17th Oct 18
Gold 7-Year Bear Market Phase Is Over - 17th Oct 18
Gold - A Golden Escape - 17th Oct 18
Tec Stocks Sector Set For A Rebound? - 16th Oct 18
Real Estate Transactions are Becoming Seamless with Blockchain-Powered Data Sets - 16th Oct 18
Important Elements of a Viral Landing Page - 16th Oct 18
Stephen Leeb Predicts 3-Digit Silver and 5 Digit Gold?! - 16th Oct 18
BREXIT, Italy’s Deficit, The EU Summit And Fomcs Minutes In Focus - 16th Oct 18
Is this the Start of a Bear Market for Stocks? - 16th Oct 18
Chinese Economic Prospects Amid US Trade Wars - 16th Oct 18
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

It How America Grows Its Way Into Poverty

Politics / Social Issues May 01, 2014 - 04:45 PM GMT

By: Raul_I_Meijer

Politics

It was strange to see two Bloomberg articles side by side yesterday that didn’t look as if they were written in the same universe. Not Bloomberg’s fault, I think, they simply reported on an FOMC statement and incoming US economy numbers. But it was strange nonetheless. First, here’s the FOMC’s reasoning behind its decision to taper more:


Fed Says Economy Has Picked Up As It Trims Bond Buying Further

Growth “has picked up recently,” the Federal Open Market Committee said today in a statement in Washington, hours after a government report showed gross domestic product barely grew in the first quarter. “Household spending appears to be rising more quickly.”

But as we could see absolutely everywhere in the news, growth as it is normally defined has not ‘picked up’, and there’s something about that household spending too:

Growth Freezes Up As US Business Spending, Exports Slump

The U.S. economy barely grew in the first quarter as harsh winter weather chilled investment and exports dropped. The expansion stalled even as consumer spending on services rose by the most in 14 years. Gross domestic product grew at a 0.1% annualized rate from January through March …

So much for growth. There ain’t none. It’s a mere rounding error. And if anyone ever talks about the weather again, they risk corporal punishment. I liked the comment today, I forget by whom, sorry, that the polar vortex this year has apparently decided to skip Canada, because its economy shows no signs at all of having been hurt by the cold.

Household spending got some more ‘texture’ in that quote as ‘consumer spending on services’. Wonder what those services are?! Tyler Durden is among those who figured it out:

If It Wasn’t For Obamacare, Q1 GDP Would Be Negative

… if it wasn’t for the (government-mandated) spending surge resulting from Obamacare, which resulted in the biggest jump in Healthcare Services spending in the past quarter in history and added 1.1% to GDP … [..] … real Q1 GDP (in chained 2009 dollars), which rose only $4.3 billion sequentially to $15,947 billion, would have been a negative 1.0%!

And then just now, Bloomberg runs this story, which seems a tad less innocent on their part:

Consumer Spending in U.S. Jumps by Most in Five Years

Consumer spending surged in March by the most in almost five years as warmer weather brought shoppers back to auto-dealer lots and malls, a sign the U.S. economy gained momentum heading into the second quarter. Household purchases, which account for about 70% of the economy, climbed 0.9%, the most since August 2009, after a 0.5% gain in February that was larger than previously estimated …

Hey, what did I just say about talking about the weather? More importantly, did you guys at Bloomberg completely miss the Obamacare spending bit? Or did you decide to ignore it? I know, I know, Durden’s comment covers January through March, and this number is just March, but given the above, does anyone believe the numbers are entirely unrelated? Here’s Durden again, just in, on the rise in consumer spending.

US Savings Rate Drops To 2nd Lowest Since 2008 To Pay For March Spending Spree

Curiously the increase in goods spending was the single biggest monthly increase also since August 2009. As for services, the systematic increase on spending over the past several months is unmistakable as far more money is allocated toward healthcare, that one major spending category which rescued Q1 GDP.

It would appear there was no “harsh weather” effect in March, even though corporations, and not to mention the Q1 GDP, can’t complain fast enough about how horrible the month and the quarter both were. End result: since spending was so much higher than income for one more month, at least according to the bean counters, the savings rate tumbled once more, and at 3.8% (down from 4.2% in February), was the second lowest since before the Lehman failure with the only exception of January 2013 after the withholding tax rule changeover.

So for all those clueless sellside economists who are praying that the March spending spree, funded mostly from savings, will continue into Q2 (because remember March is in Q1, which as we already know had an abysmal 0.1% GDP growth rate), we have one question: where will the money come from to pay for this ongoing spending spree?

And sure, income went up a little, and a few more people did buy a few more fridges and cars, as they undoubtedly always do in March, but the rise in spending has a very solid link to healthcare services, and while that may boost GDP, so do traffic accidents. And those don’t raise the standard of living either. Which leaves me still wondering why Janet Yellen et al “defended” their taper decision with referring to growth and consumer spending, i.e. a recovering economy. I’m wholly in favor of removing the stimulus related distortions from the markets, even if that means applying shock therapy, but must you guys really lie about the reasons you do it? Isn’t people’s confidence worth anything to you? Or do you feel that confidence has been shot anyway?

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Raul Ilargi Meijer Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules