My, those "this quarter's really, really going to be great" predictions can disappear so quickly these days.
Yesterday, in the wake of the government's third revision to gross domestic product showing that the economy shrunk by an annualized 2.9 percent during the first quarter instead of the previously reported 1.0 percent, commentators, analysts, and economists fell all over themselves insisting that the second quarter and the rest of the year will be fine. The reaction at Goldman Sachs was — get this — to raise their estimate for second-quarter growth from an annualized 3.8 percent to 4.0 percent. Today, in the wake of a particularly weak consumer spending report for May, the backpedaling — well, partial backpedaling — is under way, particularly at the Associated Press (bolds are mine):
CONSUMER SPENDING IN MAY WAS DISAPPOINTINGLY WEAK
U.S. consumers boosted their spending only modestly in May, a disappointment to economists who said the weaker-than-expected gain will likely mean a lesser economic rebound in the April-June quarter than many had envisioned.
Spending rose just 0.2 percent last month after no gain in April, the Commerce Department said Thursday. The two months followed a robust spending surge of 0.8 percent in March.
Income rose a solid 0.4 percent in May after a 0.3 percent April gain.
Last month's 0.2 percent gain in spending was just half the increase that analysts had been expecting. Some said that unless June brings a big increase, spending may not provide as much support to the economy in the second half of the year as they had been expecting.
Paul Dales, senior U.S. economist at Capital Economics, said consumer spending may end up rising at an annual rate of 1.7 percent in the April-June quarter, which he said "wouldn't be much of a rebound" from the sluggish 1 percent growth in consumer spending last quarter.
Consumer spending is closely watched because it accounts for about 70 percent of economic activity.
Dales said strength in other areas should still lift economic growth to around a 3 percent annual rate in the current quarter after a dismal 2.9 percent annual decline in economic output in the first three months of the year.
So we're already down to an annualized 3 percent for the second quarter. But I think Mr. Dales is kidding himself, or is choosing to kid us.
Crutsinger's most significant omission was not noting that consumer spending in real terms declined in both April (-0.2 percent) and May (-0.1 percent). Gross Domestic Product is always presented in real (i.e., inflation-adjusted) terms. If June's reading is 0.3 percent or lower, personal consumption expenditures could conceivably end up negative in the second-quarter GDP report.
The first quarter's real spending increase per the Commerce Department's Personal Income and Outlays report was only 0.6 percent. June's real spending increase will have to come in at a whopping 0.9 percent for the second quarter to match the first. Yet Mr. Dales somehow believes that second-quarter personal consumption expenditures, at 1.7 percent, will come in higher than they did in the first quarter (1.0 percent). I'd sure like to know why.
I'd also like to know why Martin Crutsinger didn't ask Mr. Dales why. Perhaps it's because he and the rest of the establishment press want to let everybody down slowly as we watch the wonderful second quarter we've been promised for several months vaporize.
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.
Cross-posted at BizzyBlog.com.
