After investing so much emotional energy in the idea that the weather-impaired contracting U.S. economy of the first quarter is going to give way to a super-duper awesome second quarter and strong rest of the year, it was foolish to think that Martin Crutsinger at the Associated Press, aka the Administration's Press, would backtrack after just one contradictory report on consumer spending, which "unexpectedly" fell 0.1 percent in April, confounding expectations of a 0.2 percent pickup.
And of course he didn't. What's remarkable is that Crutsinger's Friday report seemed to get even more aggressive with his second-quarter prediction, citing "some analysts" who believe that it will come in at an annualized 4 percent — quite the reversal from the first quarter's 1.0 percent annualized contraction. Meanwhile, the AP reporter missed a less buoyant report from his colleague Christopher Rugaber which punctured a bit of Crutsinger's premise. Excerpts from both items follow the jump.
Note that the time stamp on Crutsinger's report is 12:15 p.m., well over an hour after Rugaber's 10:58 a.m. dispatch.
Key paragraphs from Crutsinger's were as follows:
US CONSUMER SPENDING DOWN 0.1 PERCENT IN APRIL
U.S. consumers cut back on spending in April for the first time in a year, taking an unexpected pause after a big jump during the previous month. The results, however, are unlikely to derail an expected spring rebound in the economy.
Consumer spending, which accounts for 70 percent of overall economic activity, fell 0.1 percent in April, the Commerce Department said Friday. The drop was the first in 12 months. But it followed a 1 percent surge in spending in March, which marked the biggest increase in more than four years.
... The latest figure reflects reductions in durable goods purchases such as autos and in services such as heating bills. While disappointed, analysts say the results don't change the broader upward trajectory of the economy and predict consumer demand to bounce back in May.
... Consumer spending remained strong through the first quarter, rising at an annual rate of 3.1 percent. But much of that strength came from increased health care spending, reflecting new enrollments through the Affordable Care Act.
Let's pause for a moment. Hard-dollar measurements are nice, but every once in a while horse sense comes into play. If medical spending is on the rise with no meaningful added value involved (because the number of uninsured Americans isn't meaningfully coming down), and other consumer spending is flat or declining, that means Americans' standard of living is eroding, no matter what the hard-dollar figures and percentages tell us.
Back to Crutsinger's final paragraph:
Economists estimate that further gains in hiring will boost consumer confidence and spending in the coming months, driving overall economic growth as measured by the gross domestic product. Some analysts say GDP growth could hit an annual rate of 4 percent in the second quarter and top 3 percent in the second half of this year.
I really don't want to say "In your dreams, buddy," because economies are unpredictable. But if we're going to see that kind of expansion, it's going to have to involve more consumer spending when household incomes still aren't rising — confirmed yesterday through April by the former Census employees who now toil at the consulting firm Sentier Research. It's also going to require confident consumers. This takes us to Rugaber's report yesterday, which noted a very unhelpful drop in consumer confidence which Crutsinger was either unaware of or chose to ignore:
US CONSUMER SENTIMENT FALLS ON GLOOMY WAGE OUTLOOK
U.S. consumer confidence fell in May as Americans grew more pessimistic about future pay increases, though they remained optimistic about the broader economy.
The University of Michigan says that its index of consumer sentiment dropped to 81.9 this month from 84.1 in April. Still, Richard Curtin, director of the survey, says that confidence in the first five months of this year has been at the highest level since 2007, before the Great Recession began.
Nearly half of all households expect their inflation-adjusted income to decline over the next 12 months, the survey found.
Though Rugaber's report was very brief, it would have helped if it had noticed two items the contrarians at Zero Hedge detected, namely that "the current conditions sub-index tumbled to its lowest since Nov 2013," and that "against the initial expectations, May's consumer confidence missed by the most in 8 years." Additionally, the Politico's Ben White, reporting at CNBC, unhelpfully noted that real gross domestic income fell by an annualized 2.3 percent.
Less consumer spending, lower consumer confidence, and lower incomes are usually not ingredients one uses when concocting a recipe for solid sustained growth. But we can probably expect Crutsinger and others in the press continue their "happy days are here again" chorus until the early morning hours of July 30, the date of the government's initial second-quarter growth estimate.
Cross-posted at BizzyBlog.com.
