Tags: shoppers | spenders | economy | gdp | employment | cost

'Happy' Shoppers Don't Always Translate Into Big Spenders

Image: 'Happy' Shoppers Don't Always Translate Into Big Spenders
(Skypixel/Dreamstime)

By
Friday, 28 Apr 2017 11:25 AM Current | Bio | Archive

  • INDICATOR: First Quarter GDP and Employment Cost Index
  • KEY DATA: GDP: +0.7%; Consumption: +0.3%; Consumer Prices (Over-Year): +2.0%/ ECI (over-Year): +2.4%; Wages: +2.5%
  • IN A NUTSHELL: “Just because people feel happy doesn’t mean they will act on those feelings, and they clearly didn’t during the first quarter.”

WHAT IT MEANS: Well, it looks like the old saying “watch what I do, not what I say” has to be taken to heart when it comes to the economy. Households and business leaders have been telling surveyors that they are feeling so much better about things since the election. Yes, that may be the case, but they didn’t go out and put their money where their mouths were. Growth in the first quarter was the slowest in three years. Consumer demand for big-ticket items flatlined while spending on soft goods declined and services demand moderated. As for businesses, they clearly didn’t think a surge in spending was coming anytime soon as they reduced inventories significantly. That said, they did invest a lot more in structures, equipment and even intellectual property. And builders helped save the day by putting up a lot more housing units. Growth was also aided by a surprising narrowing of the trade deficit. How long that will continue is anyone’s guess, but we shouldn’t count on it for much longer. As for inflation, the Fed’s preferred measure, the Personal Consumption Expenditure deflator, accelerated and is now at the target of 2%, while excluding food and energy, it is nearing the target.

On the labor front, employment costs increased faster in the first quarter. Wage gains are accelerating, especially in the private sector. More moderate gains in private sector benefits expenses restrained labor costs, though they are accelerating. I guess the government hasn’t found that huge increase in health cost expenses that companies have been complaining about.

MARKETS AND FED POLICY IMPLICATIONS: It is time to put up or shut up in Washington. Households and businesses have been promised that there would be tax and health care reform but they have yet to see anything but grandiose proposals that, at least in the case of health care, fell flat with the public. The same thing could happen with “tax reform” if the wealthy wind up with the largest cuts in taxes and corporate loopholes were kept while business taxes were reduced. Neither the reform portion of the tax reform has been specified nor any details provided on how to fill the massive hole in the budget created by the tax cuts, creating doubts that anything significant will actually get passed. The Trump administration has decided to go big (or extreme), which was Trump’s standard negotiating ploy when he was in the private sector. And it frequently worked. But in the public sector, extreme positions only manage to rally the opposition, making it harder to get anything done. If waiting for change becomes waiting for Godot, confidence and the backing for change will decline, making it even more difficult to get anything done. As for the Fed, the inflation numbers are now at the Fed’s target while the labor markets are at full employment. The members can look past the slow growth, especially since the first quarter numbers have been strangely low for quite some time. I expect another rate hike to come at the July meeting when the Fed will have the first reading on second quarter growth. Meanwhile, investors need to recognize that tax reform, whatever it may look like, is not likely to be passed before the end of the year and its impact not felt until next spring. It’s fun to wish and hope. But all too often, reality is a downer.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

© 2017 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
JoelNaroff
Just because people feel happy doesn’t mean they will act on those feelings, and they clearly didn’t during the first quarter.
shoppers, spenders, economy, gdp, employment, cost
632
2017-25-28
Friday, 28 Apr 2017 11:25 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved