While we don't know whether monetary policies, fiscal stimulus, or the natural business cycle are the main cause of the rebound in GDP growth, we do know it is probably not consumer spending which has stayed relatively flat. The changing of spending habits and lack of job market improvement are keeping consumer spending growth at early recession levels. See the following post from The Capital Spectator.
The December update on personal income and spending isn’t terribly informative. Disposable personal income rose 0.4% in December, modestly above the monthly average rise during 2009 (0.3%). Meanwhile, personal consumption expenditures increased 0.2% in December, or slightly below average based on the monthly average for last year (0.3%). It all rounds out to a yawn in terms of what one month's numbers tell us. Par for the course.
Still, it’s a bit unnerving to learn that the pace of consumer spending growth in December is down substantially from the 0.6% and 0.7% levels for October and November, respectively. But that’s not terribly surprising, given the ongoing contraction in the labor market. Meantime, there's the general recognition that Joe Sixpack needs to save more than he has been doing over the past generation. That's not exactly an encouraging prescription for what ails the economy at the moment. But it is what it is. Balancing long-term needs with short-term fixes, it seems, is the general dilemma that await, and no one really has a persuasive solution.
As for the statistic du jour, if we step back and look at the 12-month rolling change in personal income and spending, it appears that we’ve reached a critical point. As our chart below shows, the annual pace of change for income and spending has nearly returned to the levels that prevailed just before the onset of the recession in December 2007. There’s some debate as to how much of this rebound is due the liquidity injections of monetary policy vs. stimuluative fiscal policy vs. the natural recovery process endemic in the business cycle. Meantime, the pressing issue is whether the bounce in spending and income will continue to climb or at least remain stable at current levels.
Ultimately, the answer resides with the labor market. The next installment of insight on the jobs front arrives this Friday, when the update on nonfarm payrolls is released. From our vantage, the stakes look unusually high (even by recent standards) on the news of whether the labor market is growing or not. If nonfarm payrolls can’t at least show a small net increase at this point, well, let’s not even go there...yet. Suffice to repeat what we said about the trend in nonfarm payrolls: the hour is late.
This post has been republished from James Picerno's blog, The Capital Spectator.