Was Q1 a Cash for Clunkers period?

posted at 10:41 am on April 30, 2012 by Ed Morrissey

Did a warm winter steal economic activity from the spring?  The Wall Street Journal’s Marketwatch warns that businesses and consumers may have already spent the cash they would have normally used in Q2.  The hiring boost from December to February may not have indicated any real economic boost, which is why March produced such anemic job growth:

The government reported last Friday that the U.S. grew 2.2% in the first three months of 2012, up sharply from 0.4% in the year-ago quarter. Read more on GDP report.

Yet many economists believe one of the warmest winters on record played a starring role. Business hiring and consumer purchases that would have taken place later in the year occurred in January and February instead. See charts of GDP report.

Similarly, many economists suspect the mild winter boosted hiring from December through February, with job growth averaging 246,000 a month. They believe hiring will pull back in April just like in did in March, when the government reported that just 120,000 jobs were created, based on a preliminary reading. …

Yelena Shulyatyeva, an economist at BNP Paribas, said the employment gain in April will probably be similar to the increase in March. BNP Paribas forecasts that 125,000 jobs were created last month.

The reason: Companies hired or retained workers during a warm winter and have less need to add employees now.

Right now, the projections for Friday’s report aren’t exactly scintillating.  The consensus for Marketwatch analysts is an additional 165,000 jobs and a steady 8.2% on the unemployment rate.   That would be marginally better than March’s 120,000, but still not much better than treading water in relation to population growth.  It would be slower than the three-month period of the winter that averages 217,000 jobs added a month, which isn’t exactly a barn-burner of a rate, either.

On the other hand, one key economic indicator exceeded Marketwatch consensus expectations today, but another fell short.  Personal income and outlays in March grew 0.4% and 0.3% over February, compared to expectations of 0.3% and 0.4%, respectively:

Personal income increased $50.3 billion, or 0.4 percent, and disposable personal income (DPI) increased $42.5 billion, or 0.4 percent, in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $29.6 billion, or 0.3 percent. In February, personal income increased $39.6 billion, or 0.3 percent, DPI increased $29.4 billion, or 0.2 percent, and PCE increased $93.7 billion, or 0.9 percent, based on revised estimates. Real disposable income increased 0.2 percent in March, in contrast to a decrease of 0.1 percent in February.

Real PCE increased 0.1 percent, compared with an increase of 0.5 percent.

The bad news here is that consumer spending didn’t make expectations, and real spending (adjusted for inflation) seems to have slowed significantly.  It’s still going up, but the rate of increase hasn’t kept pace.  That also points to a soft spring.  Reuters notes that gasoline prices account for the difference, and that the soft spring may have already started:

U.S. household income rose in March by the most in three months but consumers socked away part of the extra cash and only modestly increased spending, suggesting economic growth ended the first quarter on a soft note.

The Commerce Department said on Monday consumer income rose 0.4 percent last month. Analysts had expected a gain of 0.3 percent. After-tax income climbed 0.2 percent in March when accounting for higher prices.

Consumer spending rose 0.3 percent last month, also just below the median forecast in a Reuters poll of 0.4 percent.

When taking into account inflation, which has been fed in recent months by higher gasoline prices, spending was up 0.1 percent.

Don’t expect a significantly bad spring, based on these numbers, but don’t expect a return to even the mild growth we saw this winter.  Looks like the Stagnant Spring has already arrived.


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