Three Little Numbers

August 2nd, 2011 at 2:27 pm

I try to avoid making a big story out of one month’s numbers, but when those numbers are indicative of a clear, underlying trend, it’s legit to take a closer look.

Such is the case with the release this morning of income and spending numbers for June. 

The figure below shows the monthly change in three numbers.  The first number is -0.2%.  That’s the decline in consumer spending in June, the first such decline in two years, i.e., since the official recession.

Source: BEA

The second number is zero.  That’s the change in spending once you factor in inflation. 

Now, you will notice that usually, adjusting for inflation makes growth numbers smaller, as nominal growth minus price growth equals real growth.

But what if inflation is negative, which as you see in the third bar, it was in June?

So, in June we enjoyed declines in both consumer spending and consumer prices.  Again, it’s just one month’s data, but it’s consistent with the extremely weak demand story we’ve seen in many other reports.  It also helps explain June’s lousy jobs report.  

And remember, we just learned the other day that real consumer spending was flat in the second quarter, so June wasn’t a quarterly outlier. 

Prices are not, however, in decline on a year-over-year basis, which is a better way to look at them.  The spending price deflator is up 2.6% over the past year, but take out food and energy, as you should to get a more accurate measure of price pressures, and it’s 1.3%.  Not deflation, for sure, but indicative of the underlying weakness we see in June’s data.

This is an economy in serious need of help, and the debt deal doesn’t help.  That is, unless in clears the decks for some actual policy-making to give this economy a nudge forward before it topples over.

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6 comments in reply to "Three Little Numbers"

  1. perplexed says:

    Why do we continue to leave unchallenged the assumption that “the economy will be better a few years down the road” when there is absolutely no evidence that the economy actually will be better “a few years down the road”? What is it that is being done now that “the science of economics” as opposed to “the theology of hopium” will result in it being better a few years from now? What is it that the science of economics says pulls an economy out of a liquidity trap, with government acting as an additional drag instead of a stimulus, and, if its pay down of debt to rentiers, what level of debt do we need to get to and how long will this take at current rates? Are their examples of economies that recovered from deep liquidity traps with no, or negative, help from their governments? How long did it take them? What would have ended the great depression sans the stimulus implemented by Roosevelt followed be the stimulus that resulted from WWII? Could it be that we’d still be in it? What is the “natural” end of a liquidity trap sans stimulus spending?

  2. jo6pac says:

    Help is on the way with 0 signing off on the new improved austerity bill for Amerika, things couldn’t be better. I read were he going to work on new jobs by signing another NAFTA bill with a few more countries and we all know how well that worked the first time, it should be a real barn burner this time. Then how about that part of the bill were there are no more fed extensions for UI just 26 weeks then go die but then NO New Revenue wouldn’t want hedgies paying taxes like the rest of us serfs. Then the new and improved secret congress that will make decisions in secret for the little people because we all know we don’t have brain like ws and congress. I was wondering if he ever attend any class on the constitution because step on just hard if not harder than g-the-lesser. I love it, he’s out tea partied the tea baggers, ronnie-ray-gunne and uncle milton friedman would so proud.

    I’ll vote Peace and Freedom in Calif. for 2012 and as long as I live, it’s no longer the lesser of 2 evils it just plain evil.

  3. Geoffrey Freedman says:

    There was an article written by William Gale entiteled ‘What if the Right and Left are Both Wrong About Why the Economic Recovery is so Slow’

    The argument was advanced by Amir Sufi, a finance professor at the University of Chicago’s Booth School of Business, and suggests that the household balance sheet was wrecked during the downturn, because of the all the debt run up. Consider that the home was the major household asset, and was used as a borrowing piggy bank until the housing market collapsed. The article suggest we can either wait another 4-5 years to deleverage or encourage the lenders to take principal loses and remove them from their books.

    This does feel intuitively correct and this is where we need to concentrate our efforts to get out of this mess.

  4. grayslady says:

    but take out food and energy, as you should to get a more accurate measure of price pressures, and it’s 1.3%

    Why do economists insist on leaving out the two most important economic factors for most individuals? Energy costs are once again driving up food prices, and the inflation is substantial. The price of milk, for example–a fairly common staple in most households–is up over 15% in the past 3 months. Is it any wonder that between $4 per gallon gas and $2.69 (on sale!) for a gallon of milk, consumers don’t have extra money to spend on clothes, appliances, a can of paint, or anything else? Forget everything else you’ve been taught. Consumers are gasping from artificially high real estate taxes (higher rentals for the renting sector), unrelenting increases in utility costs, outrageous increases in healthcare costs, and, now, higher costs for food and fuel. Bottom line: fixed and semi-fixed costs are up while wages are flat or down. You don’t need a degree in economics to understand why consumers aren’t spending and won’t be spending for the forseeable future unless some of those variables change.

  5. Anthony Miller says:

    How can you get CNBC talk about this indepth when their goal is to make it look like it is President Obama’s policies or its the regulations or government?

    I have not heard one host of CNBC come out in support of spending to stimulate the economy except for Mark Haines.

    Anybody that comes on and try to speak the truth, the hosts shuts them down or ensure the person supporting Right Wing talking points either gets the last word or somehow his/her message is highlighted.

    Have you ever watch how they highlight the talking points of Democrats and Republicans?