Source: Sam Ro
On Wednesday, Bloomberg LP Chief Economist Michael McDonough tweeted a chart of the unprecedented divergence between job growth and retail sales growth. This is concerning as personal consumption accounts for roughly 70% of US GDP.
It’s particularly concerning considering all of the extra spending money Americans supposedly have thanks to falling gas prices.
“Recent US data have been disappointing,” Goldman Sachs Kris Dawsey said late Thursday. Dawsey thinks GDP growth could tumble to 1.4% in Q1 from 2.2% growth in Q4 of last year. Economists had previously expected GDP growth to accelerate in Q1 to around 3%.
For the most part, economists have attributed much of the recent weakness to unusually harsh winter weather and the plunge in oil prices, which has slammed the spending plans of US drillers. For this reason, economists are optimistic that weakness in Q1 could be offset by a rebound in Q2.
Dawsey specifically sees three reasons to be bullish on Q2:
- Consumers will bounce back: “While some of this output may be lost for good (i.e. people won’t eat two restaurant meals the next time they go out to make up for snow-delayed date night), a simple bounce-back to the prior level of spending would boost the growth rate in Q2 by roughly the same amount as the Q1 drag. In addition, some of the activity may just be shifted into Q2, in particular with regard to residential investment, resulting in an even bigger potential boost.”
- Energy companies will bounce back: “…the adjustment in oil-industry cap-ex has been more front-loaded than we expected, meaning that less adjustment will probably be needed in the remaining quarters of the year.”
- Gas savings will fuel spending: “…the consumer spending response to lower gasoline prices has been slower in coming than we would have anticipated. (Personal saving has increased by $123bn (annualized) since September, roughly the same magnitude as the $111bn decline in nominal spending on gasoline over this time.) Assuming at least some of the boost anticipated for Q1 shows up in Q2, it raises some upside risk to our standing 3% forecast.”
“Assuming at least some of the boost anticipated for Q1 shows up in Q2…” Dawsey said.
“Assuming” is the key word
(Deutsche Bank)Rather than spending the gasoline price savings, consumers have been saving. Deutsche Bank’s retail analysts highlighted this in the chart you see to the right.
Dawsey assumes that the consumer will spend some of those savings in Q2, which would help resolve the divergence in that jarring chart Bloomberg’s McDonough pointed us to.
Unfortunately, there isn’t a whole lot of evidence to support that assumption.
In fact, the opposite is true.
Jefferies Sean Darby recently pointed us to a worrisome survey of consumer expectations from the New York Federal Reserve. The survey showed that consumer spending growth expectations for the year ahead have only been tumbling.
Maybe it’s time to be a little more cautious about things, especially as the US dollar surges and makes US exports more expensive for the rest of the world which is either slowing or stagnating. Far too much hinges on the assumption that the consumer ramps up spending.