Personal Spending Update

Tim Duy:

It has long been our underlying thesis that the huge amount of household debt accumulated during the housing boom would inhibit consumer spending and economic growth for some time to come, and this is what has been happening over the last few years. The errors recently found in the famous Rogoff-Reinhart (RR) book do not change this view.

By James Picerno: Personal disposable income growth has been slowing, a trend that threatens to derail the economic recovery--if it rolls on. Deciding if this hazard has reached the point of no return is still an open debate, which is why Friday's update on income and spending for February will be closely analyzed for clues about the next phase for the business cycle.

ADDING to today's could-be-worse news is an advance estimate of third-quarter output growth in America. Despite some very dicey moments during August and September, the American economy grew at a 2.5% annual pace in the third quarter (+/- forthcoming revisions). In normal times, that would be a fairly typical quarter. Given the present output gap, it's an extremely disappointing result. Given what seemed possible a month ago, it's a relief.

YESTERDAY, the Federal Reserve released its first policy statement of the new year, and observers learned a few things. First, the Federal Open Market Committee remains wary about the weakness of the American economy:

(WASHINGTON) — Sales at U.S. retailers fell in March from February, indicating that higher taxes and weak hiring may have made some consumers more cautious about spending. Retail sales declined a seasonally adjusted 0.4 percent last month, the Commerce Department said Friday. That followed a 1 percent gain in February and a 0.1 percent decline in January. Both February and January figures were revised lower. Consumers cut back across a wide range of categories last month. Sales at auto dealers dropped 0.6 percent. Gas station sales dropped 2.2 percent, partly reflecting lower prices.

TORONTO — Canadian employers expect the hiring climate to hold steady in the second quarter, dipping slightly from the previous quarter, according to an employment survey by Manpower Inc. The poll of 1,900 employers from various sectors found that 20% plan to hire workers in the three-month period from April to June. Five percent said they anticipate cutbacks to hiring, while 75% said they will keep existing staffing levels.

Berlin halved its 2012 German economic forecast for 2012 to one percent. What does that say for the rest of Europe? Will Germany even grow at all?