Consumer spending numbers are out and economists were surprised to learn that Americans spend at weakest pace in 20 months
Americans spent at the weakest pace in 20 months, a sign that high gas prices are taking a toll on the economy.
Consumer spending was unchanged in May, the Commerce Department said Monday. That was the worst result since September 2009. And when adjusted for inflation, spending actually dropped 0.1 percent.
April’s consumer spending figures were revised to show a similar decline when adjusting for inflation. It marked the first decline in inflation-adjusted spending since January 2010.
Economists are optimistic for the second half of the year, saying growth should pick up to a 3.2 percent pace. They note that two of the biggest factors slowing the economy are abating.
Gas prices are falling. And U.S. factories are expected to begin producing more once Japan’s factories resume more normal operations. The March 11 earthquake and tsunami in that country has led to a parts shortage, particularly for auto and electronics manufacturers.
Economists Optimistic For Second Half
Are economists ever pessimistic? The idea that growth will pick up because of falling gasoline prices is complete silliness. Gasoline prices are falling because growth is slowing.
Moreover, in about 2 months you will be able to toss that “auto parts shortage” theory in the ashcan where it belongs.
Personal Income Weaker Than Expected
Please consider Consumer Spending in U.S. Stagnated in May
Consumer spending unexpectedly stagnated in May as employment prospects dimmed and rising inflation caused Americans to cut back.
Purchases were little changed, the weakest outcome since June 2010, after a revised 0.3 percent gain the prior month that was smaller than previously estimated, Commerce Department figures showed today in Washington. The median of economists surveyed by Bloomberg News called for a 0.1 percent gain. Prices excluding food and energy rose more than forecast.
The report showed incomes increased 0.3 percent for a second month. The gain was also less than forecast.
Today’s report also showed that spending adjusted for inflation figures, which are used to calculate gross domestic product, dropped 0.1 percent for a second month. It was the first back-to-back decline in two years.
In May, cars and light trucks sold at an 11.8 million annual rate, the slowest since September and down from a 13.1 million pace a month earlier, according to researcher Autodata Corp. Some of the drop in demand last month reflected a shortage of Japanese-made vehicles after the earthquake and tsunami in March disrupted supplies. With inventories running low, companies offered smaller discounts, deterring buyers.
“The economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the committee had expected,” Fed Chairman Ben S. Bernanke said at a press conference after a meeting of the Federal Open Market Committee on June 22. He said the slowdown is caused in part by “factors that are likely to be temporary,” including more expensive commodities as well as supply chain disruptions associated with Japan’s natural disaster.
Bernanke Latches On To Parts Disruption Theory
Note that Bernanke has latched on to this parts disruption excuse as well. To be fair, the disruption mattered, however, it is complete silliness to believe a parts disruption is the primary source of weakness.
The job market, wages, falling home prices, and exhausted pent-up demand for autos are at the center of things. The entire global economy is slowing and Bernanke has not figured that out, nor does he understand why.
There is no reason to be optimistic about the second half. The recovery, assuming you think we had one, is dead.
Mike “Mish” Shedlock
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