On April 29, the big "unexpected" economic news was that the gross domestic product of the U.S. expanded at a mere 0.2% during Q1.
More than that, the price index for consumption expenditures declined at a 2% annual rate, well below the Fed's 2% inflation growth target.
During the first three months of 2015, "businesses slashed investment, exports tumbled and consumers showed signs of caution." (Wall Street Journal, April 29).
Even before the news about the sharp slowdown in the U.S. economy, long-time deflationist Gary Shilling wrote an April 16 Bloomberg article titled, "Where Have All the Consumers Gone?"
Here's an excerpt:
Retail sales rose less than expected in March after declining for three consecutive months. Since the U.S. began collecting data in 1967, only twice has it seen three-month stretches of waning retail sales in non-recessionary times.
This is puzzling. Why would consumers spend less as the economy picks up steam? And why haven't consumers gone shopping with the one percent extra income that collapsing oil prices have handed them?
Last year, most forecasters assumed consumers would promptly spend their energy savings, resulting in a blowout Christmas season. Because it makes up 70 percent of gross domestic product, consumer spending was the only sector that could push the economy from its tepid 2.3 percent real growth rate to the 3.5 percent to 4 percent rate some economists had been predicting since the recovery started. Forecasters also pinned their hopes on consumer confidence readings, which hit a 10-year peak as shown by the University of Michigan survey.
Those prognosticators must not be aware of the low correlation between consumer confidence and spending. Our work shows that changes in consumer sentiment often lag, rather than precede, shifts in outlays. ...
What's holding consumers back? Many economists blame severe winter weather, the usual scapegoat for disappointing retail sales. Yet according to the U.S. Commerce Department, people stuck at home didn't order heavily online, either.
One explanation for consumer hesitancy came in March's payrolls report, which showed that employers created an anemic 126,000 jobs. The preceding 11-month average had been a much higher 284,000 new jobs. Most of them, however, are in low-paying sectors such as retail trade and leisure & hospitality, rather than high-paying manufacturing, utilities and information technology. Also, recent layoffs in the energy sector are of mostly well-compensated workers.
Another reason consumers aren't opening their pocketbooks is that U.S. businesses are still cutting costs, and ultimately most costs are for labor compensation. With slow economic growth and almost no inflation, revenue growth has been limited.
You can read the entire article by following the link below:http://www.bloombergview.com/articles/2015-04-16/consumers-are-saving-not-spending-their-energy-bill-savings