Slowly but surely, the confident assurances of a fantabulous second quarter for the U.S. economy — one which is supposed to make the serious first-quarter contraction reported on Wednesday a distant memory — are crumbling.
Yesterday at the Associated Press, Martin Crutsinger, who just a couple of weeks ago had been relaying confident second-quarter predictions of annualized 3.5 percent and even 4 percent growth, quoted a still-optimistic economist who, in Crutsinger's words, "said strength in other areas (besides yesterday's weak consumer spending report — Ed.) should still lift economic growth to around a 3 percent annual rate in the current quarter." Today, in covering the University of Michigan's consumer confidence report, Christopher Rugaber, Crutsinger's dynamic duo buddy at the AP, brought the growth figure down to a level which won't even offset the dreadful first quarter:
STEADY JOB GROWTH BOOSTS US CONSUMER CONFIDENCE
Strong job growth lifted U.S. consumer confidence this month, as Americans looked past the economy's dismal first quarter performance. [*]
The University of Michigan said Friday that its index of consumer sentiment rose slightly to 82.5 in June from 81.9 in May. That is still below April's reading of 84.1, which had been the highest in almost a year.
... Still, the survey was mostly conducted when the government had estimated that the economy contracted at a 1 percent annual rate in the first quarter. [*] On Wednesday, that estimate was revised much lower, to show a contraction of 2.9 percent.
And so far, steady confidence hasn't yet translated into more spending. Consumer spending rose just 0.2 percent in May after a flat reading in April. Weaker spending suggests growth won't rebound as strongly as many economists had hoped. Some marked down their forecasts for growth in the second quarter, to roughly 2.5 percent from 3 percent.
[*] — It's a mystery how "Americans looked past the economy's dismal first quarter performance" when most (my guess is close to all) of them had no idea how bad it really was. The vast majority of the press reports in the wake of May's annualized contraction estimate of 1 percent said that it was all a one-off due to bad winter weather. After Wednesday's disastrous 2.9 percent contraction reading, it became obvious that the economy's problems in the first quarter were not primarily (if at all) weather-related.
I suspect that the only reason "some" economists marked growth down to 2.5 percent is that the rest were either on vacation, or marked it down to something even lower.
Vahan Janjigian is a CFA, a Chartered Financial Analyst, one of the toughest financial credentials to achieve. His headline at a Seeking Alpha post asks a question everyone in the press would be asking right now if a Republican or conservative was in the White House (we know that because the press thought a recession might be just around the corner during virtually the entire Bush 43 administration):
Is The Next Recession Already Here?
... I wish I could be more optimistic about the economy's near-term prospects. We will learn more when the BEA releases its advance estimate for second-quarter GDP on July 30. Like most economists, I too am expecting to see growth. I seriously doubt, however, that growth will be strong enough to make up for the first quarter's contraction. In any case, given the BEA's recent track record, I won't be putting much weight on that first estimate. Chances are it will be revised significantly.
As I wrote yesterday after May's consumer spending report came in with the second consecutive month of decline in real (i.e., inflation-adjusted) spending:
It's way too soon to predict a second consecutive quarter of contraction, which would, according to the definition normal people use, constitute the existence of a recession. But I suspect that a lot of throats are quietly beginning to tighten around the land.
Don't expect to hear much about those tightening throats from the establishment press during the next month. But rest assured, they're out there, they're very nervous, and they should be.
Cross-posted at BizzyBlog.com.