Consumer Spending: The Reality of Zero

by: James Picerno

You can slice it, you can dice it. You can even massage it and look on the bright side. But you still can't get blood out of a stone or, it seems, inflation-adjusted increases in consumer spending.

Real personal consumption expenditures were flat in April, down from a slight 0.1% increase in March, the government reported today. Meanwhile, as our chart below shows, the longer-term trend isn't inspiring.

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Looking at the three major components of consumer spending--durable goods, nondurable goods and services--doesn't inspire either. As the second chart below reminds, inflation-adjusted spending looks tired by several measures.

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At least there's no mystery as to what ails Joe Sixpack's spending habits. Higher energy and food costs, a general if still modest rise in overall inflation, and housing and job stress are collectively taking their toll.

That leads to the question of whether the stress testing has legs? By my reckoning, there's good news and bad news. The good news: the economic slump may not deteriorate into a full-blown recession. Yesterday's modest upgrade of Q1 GDP's growth is one clue. The bad news: the "recovery," when it comes, won't seem much like a recovery.

Why? For now, we'll simply say that the economic chickens are returning home and they're of a mind to roost.