U.S. consumer spending is the economy's driving force, no question about it.
But it isn't driving very well lately, The Wall Street Journal said Monday. Remarkably, spending proved resilient through the first three quarters of the year, holding its own even when job growth started slowing down, but numbers lately look questionable -- and just at the time that spending is supposed to be reliable.
Consumers and their merry spending habits make up an estimated 70 percent of the gross domestic product, plus or minus a percentage point or two. On the face of it, that's a fairly unnatural starting point -- and moving the country's manufacturing base halfway around the world to emerging economies with cheaper labor is, of course, sensible and stupid at the same time. It's nice to have cheap goods. It's untenable to have high unemployment as the result.
Consumer wages, it should be said, are behind the driving force of the economy.
So, let's fix spending. Let's put some dollars into consumers' wallets or bank accounts and sit back and watch the fun. This should be like watering a lawn -- at least in theory.
President Obama has made a few attempts to simply provide more funds for consumers. The payroll tax cuts give the economy an immediate boost given they are available to the poor and middle-class alike and these groups are more apt to spend to their limit month to month than the well-to-do. The Federal Reserve, taking another approach, has taken interest rates down to historic lows and left them there, an encouragement for businesses to expand, albeit without spectacular success. They have also taken to buying mortgage-backed securities and invoked an "operation twist" to keep mortgage rates low and convince businesses that lending will be cheap in the long term. (Operation is a strategy of buying long-term securities from the proceeds of short-term maturing notes, which is a convincing enough gesture extending the promise of cheap money.)
Unfortunately, at this point, the future is now. Following Europe's lead, lawmakers in Washington are unwilling to extend their own spending and the federal government is first and foremost the largest spender out there. The government does plenty of consuming.
Here on in, not so much If you're sneaky enough, you can't wage war and peace at the same time, but you can't add and subtract from the federal deficit at the same time without lying about it. Math just doesn't work that way.
On the positive side, inflation has remained manageable and, paradoxically, on the positive side home prices are rising, a sign of some demand in the housing market. But the employment situation is thin and grim. The paltry additions to employment each month don't match the number of workers dropping out of the picture from sheer frustration.
However the budget talks are resolved, it will be curious to see how much consumer confidence will shift once the arguing is over. Currently, polls say that more people blame Republicans for budget talk gridlock than blame Democrats. When the dealing is done, lawmakers will have to put on a poker face in front of podiums crowded with microphones. They will try to sell us something. But will the consumer be buying?
In international markets Monday, the Nikkei 225 index in Japan was flat, rising 0.07 percent, and the Shanghai composite index in China rose 1.07 percent. The Hang Seng index in Hong Kong gained 0.39 percent and the Sensex in India was off 0.07 percent.
The S&P/ASX 200 in Australia gained 0.13 percent.
In midday trading in Europe, the FTSE 100 index in Britain lost 0.11 percent while the DAX 30 in Germany shed 0.17 percent. The CAC 40 in France gave up 0.2 percent and the Stoxx Europe 600 slide 0.18 percent.
|Additional Analysis: Economic Outlook Stories|
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