Tags: Kellner | consumer | economy | job

MarketWatch's Kellner: Weak Consumer 'Implies Economy Will Remain in Dumpster'

Tuesday, 19 Aug 2014 12:29 PM

By Dan Weil

Consumer spending has stalled, as evidenced by the unchanged level of retail sales in July from June, the worst performance in six months.

The sluggish consumer sector can be considered both good news and bad news, says Irwin Kellner, chief economist for MarketWatch.

"The good news is that it might stay the Federal Reserve's hand when it comes to raising interest rates," he writes. Many analysts say the Fed's low-rate policy represents the most important ingredient in the stock market's five-year rally," he explains.

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"On the other hand, the bad news is that this implies that the U.S. economy will remain in the dumpster, since consumer spending now accounts for fully 70 percent of our GDP," Kellner notes.

Given that non-farm payrolls have risen more than 200,000 for each of the last six months, the longest string since 1997, why is spending sluggish?

The job market isn't as strong as it appears, Kellner argues. "Lots of jobs recently created have either been temporary or part-time. This has kept wages from any meaningful rise." Wages increased 2 percent in the 12 months through July.

"For another thing, savings are low, if not depleted altogether, and home values are still depressed," Kellner writes.

Nobel laureate economist Paul Krugman is concerned about the economy too. It isn't close to a full recovery from the 2008 financial crisis, and government policy that is too tight could really throw a wrench into things, he writes in The New York Times.

"The wrong policies could still turn economic weakness into a more or less permanent depression."

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