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TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spendin

by cs702 12y ago

TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they are not yet spending at rates anywhere near the rates at which they were spending before the financial crisis in 2008. When consumers spend less, businesses in the aggregate sell less of everything, because every dollar spent by a consumer is a dollar earned by someone else -- usually a business. Before the financial crisis, consumers borrowed aggressively to finance consumption, like drunken sailors... but unlike the financial sector, they never got a bailout. They were forced by the circumstances to follow Steve Martin's advice from Saturday Night Live: "don't buy stuff you cannot afford."[2] Are we really that surprised that many consumers are reluctant to borrow and/or spend like before the crisis? -- Edits: modified first paragraph to convey what I actually meant to say, in response to ctl's comment. The original paragraph was poorly written. (Thanks for pointing out the inconsistency, ctl!) -- [1] http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp.html http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp... [2] https://screen.yahoo.com/dont-buy-stuff-000000884.html https://screen.yahoo.com/dont-buy-stuff-000000884.html

executor14 12y ago
Actual TLDR: Spending was muted because of the harsh winter. Recent economic indicators have been very positive so expectations are for a significant rebound for Q2.
- itbeho 12y ago
  Looks to me like it's how the government is accounting for spending in healthcare that is the biggest contributor to these numbers. Next quarter they will report big gains, just in time for campaign season and the run up to the election. http://www.businessinsider.com/why-health-care-spending-in-gdp-obamacare-2014-6 http://www.businessinsider.com/why-health-care-spending-in-g...
  - executor14 12y ago
    Weather and botched implementation of the healthcare exchanges probably also played a part in that. But for whatever reason seems the increase in healthcare spending will be delayed for a quarter or two.
crazy1van 12y ago
> Are we really that surprised that many consumers are reluctant to borrow and/or spend like before the crisis? Seems like it is not only unsurprising but also a good thing. People learned a lesson about spending recklessly and some economists would claim that's a bad thing. GDP is not the end-all, be-all metric of a healthy economy.
adsenseclient 12y ago
The main thriving product of the 21st century American economy is Stock of publicly traded US companies. The stock market is largely decoupled from economic reality. As long as the total market cap of all US companies is going up (which was the case in Q1), there is a "recovery". The settlement between this recovery and the real economic decline will only occur around 2040, when US dollar is debased and finally ceases to serve as the world reserve currency. Feel free to downvote.
dclowd9901 12y ago
Part of this slowdown in consumer spending also has to do with the tightening of credit as well, making it more difficult for people without means to spend. In my opinion this is a great thing. When people are backed against a wall because they have no other way to pay for their livelihood than their salary, they're not going to be ok with stagnant wages and companies low balling them. Bring on the pain, I say. Real growth comes from companies investing in their workforce, not people drowning themselves in debt. Put another way: it used to be that you could buy a house for the equivalent of a year's salary. Now it seems most houses are about 5-6x the average salary of a given area. If that were still the case today, most Bay Area residents should be making near 1 mil/year or houses here should be closer to about $150-200k, more likely the latter since credit is primarily the reason for the inflated cost.
- crassus 12y ago
  I know that people will make political hay of this, but there is danger to managing to quarterly statistics. If your economy needs some adjustments to achieve long-run sustainability then it's possible that GDP may fall for a quarter or two and there's nothing wrong with that. GDP is a great metric for long-term or inter-national comparison. It's terrible as a quarterly national management metric.
- malandrew 12y ago
  Interesting observation. It's really hard to shake off the shackles of presentism and imagine what the US would look like on an alternative timeline where the US government had not aggressively promoted home ownership and easy credit. The economy and legislation are now so thoroughly distorted in favor of home ownership that it's difficult to imagine how things could have been different. Specifically, I'm wondering if there was a time when we were having the same debate about housing that we are now having about college tuition, but that it has been long enough (and there have been economic gains for homeowners) that we conveniently forget how much our longstanding policies drive up housing prices. The idea of buying a home on a full year's salary sounds crazy, but then again there was a time when 4 years of college could be paid off fully via part time work while at school, something that is distant pipe dream these days for the majority of jobs within the reach of most college students.
pessimizer 12y ago
The funny thing is that consumption is actually historically very, very high: http://www.tradingeconomics.com/united-states/personal-savings http://www.tradingeconomics.com/united-states/personal-savin... Savings rate, now: 4% Pre stock-bubble average: 8% edit: "Personal Savings in the United States increased to 4 percent in April of 2014 from 3.60 percent in March of 2014. Personal Savings in the United States averaged 6.82 Percent from 1959 until 2014, reaching an all time high of 14.60 Percent in May of 1975 and a record low of 0.80 Percent in April of 2005."
- jonnathanson 12y ago
  A lower Personal Savings Rate doesn't necessarily mean people are "consuming" more. At least not the sort of consumption (discretionary) that many businesses care about. It simply means that the proportion of income being saved is lower. There are any number of factors that could make that true, including rising costs of living or inflation vis-a-vis stagnant income. In fact, while personal income has been increasing on a low nominal basis, income growth rate has been slowing. Yes, PSR accounts for "disposable" income, but that term can be somewhat misleading. Disposable income is simply the net of income minus taxes. It's not necessarily available for discretionary purposes. I would say that savings rates are quite low right now, and that accordingly, nominal consumption is high. But there's a deeper story there. http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm http://www.bea.gov/newsreleases/national/pi/pinewsrelease.ht...
  - pessimizer 12y ago
    I'm having trouble understanding what you're saying here. What's left after saving and spending?
    - jonnathanson 12y ago
      It's not that there's something left after saving and spending; it's that there are different types of spending. PSR is a useful starting point, but not a complete story, in assessing consumer health and markets. For instance, it is not incongruous right now to say that a) people are saving proportionately less, and b) people are not buying as much stuff. Obviously they are spending in direct proportion to what they're not saving -- but the categories of their spending matter a great deal. Tl;dr is I'm not disagreeing with you at all; I'm just expanding.
jcampbell1 12y ago
The decline is seasonally adjusted vs Q4 2013. Since both periods are after the recession, your TL;DR make no sense, and is a misleading interpretation.
ctl 12y ago
Your comment makes no sense. GDP is slightly down compared to 2013. Why are you talking about 2008? The article implies that the main driver here is reduced consumer spending from a harsh winter.
- cs702 12y ago
  > Why are you talking about 2008? I'm talking only about consumer borrowing and spending prior to the crisis in 2008. My understanding is that, five years after the crisis, consumer spending still has not recovered[1], which seems rather unusual for an economic recovery. PS. I modified the first paragraph in my comment above, so it more clearly conveys what I actually meant to say. -- [1] For example, see http://www.clevelandfed.org/research/trends/2014/0214/01houcon.cfm http://www.clevelandfed.org/research/trends/2014/0214/01houc...
  - jcampbell1 12y ago
    Consumer spending is much higher than prior to 2008. The article you link to says the opposite of what you are saying.

by cs702 12y ago

executor14 12y ago

Actual TLDR: Spending was muted because of the harsh winter. Recent economic indicators have been very positive so expectations are for a significant rebound for Q2.

itbeho 12y ago
Looks to me like it's how the government is accounting for spending in healthcare that is the biggest contributor to these numbers. Next quarter they will report big gains, just in time for campaign season and the run up to the election. http://www.businessinsider.com/why-health-care-spending-in-gdp-obamacare-2014-6 http://www.businessinsider.com/why-health-care-spending-in-g...
- executor14 12y ago
  Weather and botched implementation of the healthcare exchanges probably also played a part in that. But for whatever reason seems the increase in healthcare spending will be delayed for a quarter or two.

crazy1van 12y ago

> Are we really that surprised that many consumers are reluctant to borrow and/or spend like before the crisis? Seems like it is not only unsurprising but also a good thing. People learned a lesson about spending recklessly and some economists would claim that's a bad thing. GDP is not the end-all, be-all metric of a healthy economy.

adsenseclient 12y ago

The main thriving product of the 21st century American economy is Stock of publicly traded US companies. The stock market is largely decoupled from economic reality. As long as the total market cap of all US companies is going up (which was the case in Q1), there is a "recovery". The settlement between this recovery and the real economic decline will only occur around 2040, when US dollar is debased and finally ceases to serve as the world reserve currency. Feel free to downvote.

dclowd9901 12y ago

Part of this slowdown in consumer spending also has to do with the tightening of credit as well, making it more difficult for people without means to spend. In my opinion this is a great thing. When people are backed against a wall because they have no other way to pay for their livelihood than their salary, they're not going to be ok with stagnant wages and companies low balling them. Bring on the pain, I say. Real growth comes from companies investing in their workforce, not people drowning themselves in debt. Put another way: it used to be that you could buy a house for the equivalent of a year's salary. Now it seems most houses are about 5-6x the average salary of a given area. If that were still the case today, most Bay Area residents should be making near 1 mil/year or houses here should be closer to about $150-200k, more likely the latter since credit is primarily the reason for the inflated cost.

crassus 12y ago
I know that people will make political hay of this, but there is danger to managing to quarterly statistics. If your economy needs some adjustments to achieve long-run sustainability then it's possible that GDP may fall for a quarter or two and there's nothing wrong with that. GDP is a great metric for long-term or inter-national comparison. It's terrible as a quarterly national management metric.
malandrew 12y ago
Interesting observation. It's really hard to shake off the shackles of presentism and imagine what the US would look like on an alternative timeline where the US government had not aggressively promoted home ownership and easy credit. The economy and legislation are now so thoroughly distorted in favor of home ownership that it's difficult to imagine how things could have been different. Specifically, I'm wondering if there was a time when we were having the same debate about housing that we are now having about college tuition, but that it has been long enough (and there have been economic gains for homeowners) that we conveniently forget how much our longstanding policies drive up housing prices. The idea of buying a home on a full year's salary sounds crazy, but then again there was a time when 4 years of college could be paid off fully via part time work while at school, something that is distant pipe dream these days for the majority of jobs within the reach of most college students.

pessimizer 12y ago

The funny thing is that consumption is actually historically very, very high: http://www.tradingeconomics.com/united-states/personal-savings http://www.tradingeconomics.com/united-states/personal-savin... Savings rate, now: 4% Pre stock-bubble average: 8% edit: "Personal Savings in the United States increased to 4 percent in April of 2014 from 3.60 percent in March of 2014. Personal Savings in the United States averaged 6.82 Percent from 1959 until 2014, reaching an all time high of 14.60 Percent in May of 1975 and a record low of 0.80 Percent in April of 2005."

jonnathanson 12y ago
A lower Personal Savings Rate doesn't necessarily mean people are "consuming" more. At least not the sort of consumption (discretionary) that many businesses care about. It simply means that the proportion of income being saved is lower. There are any number of factors that could make that true, including rising costs of living or inflation vis-a-vis stagnant income. In fact, while personal income has been increasing on a low nominal basis, income growth rate has been slowing. Yes, PSR accounts for "disposable" income, but that term can be somewhat misleading. Disposable income is simply the net of income minus taxes. It's not necessarily available for discretionary purposes. I would say that savings rates are quite low right now, and that accordingly, nominal consumption is high. But there's a deeper story there. http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm http://www.bea.gov/newsreleases/national/pi/pinewsrelease.ht...
- pessimizer 12y ago
  I'm having trouble understanding what you're saying here. What's left after saving and spending?
  - jonnathanson 12y ago
    It's not that there's something left after saving and spending; it's that there are different types of spending. PSR is a useful starting point, but not a complete story, in assessing consumer health and markets. For instance, it is not incongruous right now to say that a) people are saving proportionately less, and b) people are not buying as much stuff. Obviously they are spending in direct proportion to what they're not saving -- but the categories of their spending matter a great deal. Tl;dr is I'm not disagreeing with you at all; I'm just expanding.

jcampbell1 12y ago

The decline is seasonally adjusted vs Q4 2013. Since both periods are after the recession, your TL;DR make no sense, and is a misleading interpretation.

ctl 12y ago

Your comment makes no sense. GDP is slightly down compared to 2013. Why are you talking about 2008? The article implies that the main driver here is reduced consumer spending from a harsh winter.

cs702 12y ago
> Why are you talking about 2008? I'm talking only about consumer borrowing and spending prior to the crisis in 2008. My understanding is that, five years after the crisis, consumer spending still has not recovered[1], which seems rather unusual for an economic recovery. PS. I modified the first paragraph in my comment above, so it more clearly conveys what I actually meant to say. -- [1] For example, see http://www.clevelandfed.org/research/trends/2014/0214/01houcon.cfm http://www.clevelandfed.org/research/trends/2014/0214/01houc...
- jcampbell1 12y ago
  Consumer spending is much higher than prior to 2008. The article you link to says the opposite of what you are saying.