Aggregator • MaxedOutMama • ID=88945 |
BofA Economists Smoke Or Eat Really Good Weed - MaxedOutMama Jun 26, 2014, 12:00 pm
Unfortunately, the result appears to be somewhat Maureen Dowd-like confusion rather than cosmic clarity.
Exhibit 1:
The weekly petroleum update through March. Remember that really bad winter we had? This should have vastly increased the demand for heating oil (distillate), NG and propane. But look at the Products Supplied, and see the YTD drop for propane, the almost flat distillate (2.9% YTD, +0.6% last four weeks), and the huge drop in propane supplied for the last four weeks.
You know what that means? Consumers ran out of money, and so did a lot of businesses, so they turned the thermostats WAY down in just about unison. There was a corresponding drop in late-season deliveries in the affected areas. I know because I was so concerned I called some suppliers.
This meant that consumer spending in the second quarter would be affected. People who owed money would have to recover and pay off that bill, and those who didn't but had still turned down the thermostat would be socking money away for the next potential winter disaster. Nothing induces spending caution like having to live in a house at 58 degrees for six weeks when it is very cold outside. Rising food costs would reinforce the caution.
Exhibit 2:
Today's Personal Income and Outlays report.Many of those who do not inhabit the BofA Colorado economic prediction center have realized that Q2 is about over. While unquestionably economic activity rebounded, it really did so in March. Since, it appears that consumers have pulled back a bit, probably because they are doing so while they still can.
So today's real consumer spending report covers the first two months of the second quarter, and the so-far figures are -0.2 April and -0.1 May. This compares to Q1 revised of -0.3 Jan, + 0.3 Feb and +0.8 March.
Call me a troglodyte unenlightened slide-rule bearing primitive non-enlightened economic life form, but those figures make sense given the history, so I don't expect massive upward revisions in real PCE for this quarter.
PCE accounts for over 2/3rds of GDP, so no matter how ebullient the rest of the economy is, it seems unlikely that Q2 annualized can come out over 2.6-2.8% at this point.
Exhibit 3:
See, when you don't inhabit the Economic Weed Dome in CO, you naturally go looking for confirmation of your assumptions. So what would be an indication that consumers outran their cash flow due to excessive basic costs in Q1, and will have to recover in Q2? Heh! Credit card debt. We can find that in H8.
Call me a weed-edibles deficient economist, but that says to me that consumers are still struggling to comp, and that we have further consumer caution ahead.
Now admittedly I have never eaten a hash brownie in my life, and thus can't really be in tune with up-and-coming economic thinking. But all my experience tells me that consumers are going to be getting those CC bills, and that they will have to recover over the summer. Their ability to fully do so seems somewhat questionable, especially since post-ACA, many of them are paying sharply higher copays and medical costs, with higher medical deductibles. This cuts into other spending, and it is in no way confined to the relatively small number of individuals who in fact have ACA policies.
So, marijuana chocolate aside, it looks like the rest of the year will be constrained on the consumer side. A lot depends on the weather, because utility bills in the southern regions are the big bank account drainer for the rest of the country that was not so winter-struck, and thus a correlating drive.
This leads me to a 75-80% certainty of consumer-led recession beginning in Q2 2015, becoming blatant at the end of Q3 2015. If we had a light winter next year maybe not - maybe the extra would produce a spending rebound in Q2 2015.
The Fed did not get it last year. They are moving counter-cyclically again, but I really don't know what they have left to shoot with. It's very hard to correct a consumer-led downturn from basically broken finances. That takes fiscal policy, not monetary policy. It's likely that the Fed would only make things worse if they tried to strongly ramp up the QE.
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