John Ransom

For the second day in a row the Commerce Department released numbers that caught economist off guard and demonstrated once again that all the "happy talk" about the economy is premature. In April consumer expenditures fell rather than rose, as economist widely expected. From Bloomberg:

Household purchases, which account for about 70 percent of the economy, dropped 0.1 percent, the first decrease in a year, after a revised 1 percent gain the prior month that was the strongest reading since August 2009, Commerce Department figures showed today in Washington. The median forecast of 77 economists in a Bloomberg survey called for a 0.2 percent April rise. Incomes advanced 0.3 percent after climbing 0.5 percent.

And since they can't blame the weather in April, what's the rationale to explain how they missed the decline in consumer spending? They blame the weather of course-- again.

Economists are saying the pent-up demand in March--because of the terrible winter weather prior to that-- skewed the numbers upward, and that in April we are just coming back to a more realistic spending pattern.

“A lot of pent-up activity took place in March and now we’re coming back to more normal levels of spending,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. Stanley was one of economists who correctly predicted the decline. “The risk at this point is that the consumer is falling back into a pattern of mediocre spending growth.”

And herein we see the problem: I don't know what alternate reality economist live in, but certainly a 1/10% drop in consumer spending isn't mediocre spending growth. Either Stanley or I have the math wrong here. So if I carry the 2, divide by 13, use only whole numbers... yes: a drop in consumer spending is STILL the opposite of growth.

Yesterday on Ransom Notes Radio we ran a clip of Mike McKee, the eternal optimist for Bloomberg, talking about how the numbers indicated that we could be looking at 4% annual growth in GDP this quarter. Of course I made fun of him, and today it's hard for me to see how these consumer spending numbers would be consistent with that type of robust GDP growth. We have yet to see sustained economic growth under the Obama administration. We have yet to see sustained economic growth under the Obama administration. At this point if you reassembled the Carter administration, even the dead members, it would have a better chance of turning around this economy around.

The bond market is telling us that this economy is in trouble. Stock markets do rally during recessions. And inflationary pressures are beginning to heat up a little bit.

Get ready for stagflation. Oh, wait, it's already here.

At what point do Democrats start to scramble for self-preservation? Because if the pattern holds true, this economy is going down not up. Quantitative Easing, at least in the short term, made up a bit for all of the policy initiatives from Democrats that killed jobs.

Those days are over, as even the liberals at the Fed have indicated.


John Ransom

John Ransom is the Finance Editor for Townhall Finance.