This morning, we reported that Americans personal consumption expenditures -- consumer spending for those who don't speak economist -- rose by 0.7%. That's a pretty significant rise, the biggest since last October. But Rex Nutting at Marketwatch reports that this economic data should hurt, not help, stocks. He says that economists at some major banks have downgraded their first quarter GDP growth estimates as a result. Were the numbers really bad?
It's hard to see how economists can find February's report that discouraging. For starters, Marketwatch reported the consensus estimate as predicting a 0.6% increase in spending. Instead the increase was greater, at 0.7%. So this implies that those banks must have been more bullish than average to begin with, if they expected better. Moreover, today's report revised upward the spending estimate for January to a 0.3% increase from 0.2%.
Still, Nutting writes:
Consumer spending is now losing momentum. So far in 2011, real (inflation-adjusted) consumer spending is rising at a mere 1.3% rate.
This number is accurate, but here's the chart, to provide some perspective:
To be sure, spending hasn't grown as much since October as it had since July. But it was only marginally better a year ago, averaging 1.9% in January and February of 2010. You can see that spending also dropped in January of 2010, even further than it did this year. But it grew more in February 2010 than it did last month.
Overall, this isn't a directional shift, and it's a little strange to forecast the entire year based on two months worth of data. Spending growth slowed as 2010 ended, but this doesn't indicate that the recovery is out of steam yet. In fact, even if you take inflation into account, spending grew the most in February since October.
We should also keep in mind how far spending fell in 2009, which made it easier to rise relatively quickly in 2010. As fears of a double-dip subsided, spending more easily returned. But it increased throughout most of 2010. Can we really expect it to continue to rise as quickly going forward as it did when rebounding from the bottom of the trough?
It's possible that the recovery could slow in 2011, especially considering all of the economic shocks that have hit already this year. But it's a little too early to make any dire predictions just yet. Let's get a few more months of data before we declare the recovery doomed.
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