Joe Biden pronounced this Recovery Summer, and so far, we’re off to a great start. The first event of Recovery Summer was the revaluation of Q1 GDP from a previously-announced annualized rate of 3.2% to 2.7%. New home sales dropped 33% last month, and existing home sales dropped 2.2% in May. The Commerce Department followed that with the news that consumer spending on goods dropped in May, while spending on services rose … mainly on energy costs:
Americans spent a little more in May, but not enough to speed along the economic recovery, new data show.
Consumer spending rose 0.2 percent last month after no change in April, the Commerce Department said Monday.
Incomes rose for the sixth time in seven months, boosting household financesand potentially providing fuel for greater future spending.
But money spent on goods declined. The increase came from spending on services — much of that likely the result of Americans using more electricity as the weather warmed up.
Incomes increased, but that came from two sources. The first, growth in average work-week hours, indicates that hiring remains sluggish and companies are doing more with existing personnel rather than risking expansion. The second comes from the deluge of new workers into the Census Bureau — a deluge that won’t last much longer. When those workers come to the end of the project, expect incomes and average work-week hours to decline again.
This isn’t exactly unexpected. Earlier in the month, major retailers reported declines in stores open for a year or longer, a foreshadowing of today’s numbers. The savings rate moved back up to 4%, indicating that consumers have become more nervous about the economy and have begun tightening belts again. Not that consumers have set the world afire, anyway, especially in relation to the 1981-2 recession and recovery:
Consumers haven’t been driving the current recovery. Instead, it has depended more on business spending and exports. In the four quarters following the steep 1981-82 downturn, consumer spending rose by an average of 6.5 percent per quarter. By contrast, even as the economy has grown for the past three quarters, consumer spending rose an average of only 2.5 percent per quarter.
Only one quarter came close to those Reagan-era numbers, 2009Q4, which came in at a 5.7% annualized GDP growth rate. However, more than half of that number came from inventory management, with the actual consumer-spending growth only accounting for an annualized rate of 2.2%. Instead of improving, we’re sliding backwards. That’s not a Recovery Summer, it’s Relapse Season.