At the beginning of the year, most forecasts looked for household spending to grow in the 3% to 3.5% range for 2016. With such spending accounting for about two-thirds of total GDP, this was an essential element of presuming decent overall growth in GDP, despite headwinds from abroad, business capital spending, financial market turmoil, and inventory accumulation.
The data below, taken from a recent analysis by Daiwa Capital Markets America, are worth studying for a few moments:
Recognizing that the mild winter may be playing havoc with the seasonal adjustment factors, and that the monthly data are notoriously volatile, its nonetheless relatively clear that household spending growth is around 2% to 2.5%, well below the performance in 2015!
Because so much turns on consumer spending, there will be lots of dissecting and spinning of these numbers as well as new ones in coming months; at a minimum, they will be a key driver of continuing market volatility.
As Blanchard and Company predicted, the U.S. economy slowed more than expected in the first quarter: Gross-domestic-product growth was just 0.5%, slipping from 1.4% growth in the fourth quarter of 2015, the Commerce Department reported Thursday the weakest pace in two years and lower than economists expectation for 0.7%. Growth slowed to a crawl thanks to weaker personal spending (1.9%, down from 2.4% in 4Q 2015) as well as business spending (-5.9%, down from -2.1% in 4Q 2015). The dip in personal spending, which occurred despite cheaper gasoline prices, resulted in the slowest clip since the first quarter of 2015.
As we now await the inevitable revisions to forecasts for the second quarter and beyond, here is a sobering factoid: Despite having the best staff in Washington, in five of the past seven recessions, the Federal Reserve did not know we were in a recession in the quarter the recession began!