October 26, 2020

Consumer Spending Slipped 0.2% in April

Consumer spending dropped a seasonally adjusted 0.2 percent in April, the Commerce Department said on Friday. That was the first decline since May 2012. It followed a 0.1 percent increase in March and a 0.8 percent jump in February.

A drop in gasoline prices most likely lowered overall spending. Adjusted for inflation, spending ticked up 0.1 percent in April. Still, that was the smallest gain since October.

Consumers also seemed to spend less to heat their homes in April, which may have reduced spending on utilities. April’s weather was mild after an unusually cold March.

Income was unchanged in April, after a 0.3 percent rise in March and 1.2 percent gain in February. Wages and salaries barely grew, while government benefit payments fell.

In the euro zone, unemployment continued its relentless march higher in April, according to official data published Friday, hitting yet another record.

The jobless rate for the 17 countries that use the common currency rose to 12.2 percent, from 12.1 percent a month earlier, with 19.4 million people out of work, according to Eurostat, the European Union statistics agency. Some analysts said the number of people without jobs could hit 20 million by the end of the year.

Separate data from Eurostat showed that inflation in the euro zone rose to 1.4 percent from 1.2 percent.

Most analysts do not expect the European Central Bank to cut interest rates or take other action to stimulate growth when its policy-making council meets in the coming week, but the inflation rate could prompt the central bank to wait for clearer signs that there is no risk of higher prices.

In the United States, the retrenchment in spending indicates consumers may be starting to feel the effect of higher taxes.

But a separate report Friday showed that consumer confidence rose to a six-year high in May, suggesting the decline in spending may be temporary.

Americans are taking home less pay this year because of a two-percentage-point increase in Social Security taxes. A person earning $50,000 a year has about $1,000 less to spend this year. Income taxes on the wealthiest Americans also increased.

Consumer spending drives 70 percent of economic activity. It grew at the fastest pace in more than two years from January through March, helping the economy expand at a 2.4 annual rate during that quarter.

Economists said the latest spending figures suggested that growth might be slowing in the April-June quarter, to around a 2 percent rate. But most still expect growth to improve slightly after that as the effect of tax increases and government spending cuts fades.

Paul Ashworth, chief North American economist at Capital Economics, called it “a sobering report” for people expecting stronger growth. “There will be some modest pickup in the second half of the year, as the fiscal drag starts to ease, but we expect the improvement to be very gradual rather than dramatic.”

Article source: http://www.nytimes.com/2013/06/01/business/economy/consumer-spending-slipped-0-2-in-april.html?partner=rss&emc=rss

Bucks: Why ‘I Don’t Know’ Is Often Your Best Money Answer

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog. His new book, “The Behavior Gap,” will be out in January.

Of all the phrases in the financial planning world, “I don’t know” may well be the most powerful.

There are other phrases like “it depends” that are similar, but underlying them all is the fact that we are trying to make money decisions without a great deal of certainty. The reality is that we just don’t know what the next five, 10 or 20 years are going to look like.

Sure we can model it based on history, but that would just be a model. One of the most dangerous things I see in the investment and financial planning world is a false sense of precision.

In fact, I think there is a tremendous sense of freedom that comes with recognizing that we just don’t know what the future will look like. At that point, the process of financial planning becomes about making the best guess we can about that future. Then we consistently course correct as we go, before we get too far off track.

You may have heard me use this example before, but I often put it in terms of a pilot’s flight plan. Pilots take the process of preparing a flight plan very seriously, but they also know that the moment they take off, their plan will probably need to be changed. The weather may change, birds may start migrating or the airport they’re headed to may close halfway there. All they know for sure is that they’ll need to make ongoing course corrections throughout the flight.

Accepting the fact that we just don’t know allows us to let go of any anxiety around the idea that we should be able to find someone who does know. And let me share a secret with you about that: There isn’t anyone who knows what the next week, month, year or even decade will look like in the stock market. Anyone who says they do is someone you should run from.

What are some other things we just don’t know?

1) When our certificate of deposit rates are going to move up.

This comes with all sorts of implications. If you are waiting to refinance your house because gurus are telling you that interest rates will go down, please realize that they just doesn’t know what they’re talking about.

How many people have been sitting in money market accounts earning virtually zero because C.D. rates were “only” 1.5 percent and surely they would be going up soon? The reality is no one knows when interest rates will go up.

In fact, the academic evidence is pretty clear. The best estimate for future interest rates is today’s interest rates, meaning we just don’t know.

2) The direction of housing prices.

3) When the economy is going to turn around.

4) What’s going to happen to Apple (or Google or G.E. or Pepsi) stock.

The reality is no one knows. Jim Cramer doesn’t know. The teams of experts from the large banks and brokerage firms don’t know. And we all know what happens when you rely on a Federal Reserve chairman knowing. It turns out he doesn’t know either.

It’s so tempting to believe that there’s someone out there, someone with a big enough computer or access to a huge research staff. But there isn’t. And even if there is, it’s highly improbable that you or anyone will identify them beforehand, when their predictions will be of any value.

Sure, there are plenty of people who can claim that they got a certain prediction correct after the fact. But remember, if you’re in the prediction or forecasting business, you’re bound to get a few right, just like a broken clock is right at least twice a day.

If you choose to get help making financial decisions, look for someone with the experience to help you navigate the uncertainty. Someone who understands that the really important part is the ongoing course corrections based on what you learn in the future.

Sorting out our financial lives involves process, not products, and it means making the best decisions we can, learning new information as we go, making subtle tweaks based on that information and continuing to do so over and over and over again.

Article source: http://feeds.nytimes.com/click.phdo?i=6a6df8d6fbae9856a94f8762d51d26f3

Economix: Labor Supply Always Matters

Today's Economist

Casey B. Mulligan is an economics professor at the University of Chicago.

As it has for the last three summers, the economy’s regular seasonal cycle will accumulate yet more evidence against Keynesian models of recession labor markets.

Two important seasons in the labor market are Christmas and summer. The Christmas season is an obvious time of high demand — people want to spend more in November and December. Basic economics says that Christmastime demand, while it lasts, raises wages, employment and hours, while it reduces unemployment.

Employment and work hours are also high during the summer, and as you are reading this, employment is likely to be surging well above what it was a month ago (the Census Bureau employment data for June is not due out until July 8, and the July data not until a month after that).

In the past, a few readers of this blog have given demand the credit for the summer job surge. In my view, demand contributes a little to the summer job surge (after all, agriculture, construction and other industries are expected to be more active when the weather is warmer), but supply is the primary reason that jobs are created during the summer.

One basis for my opinion is that people in vast numbers become available for work when school lets out for the summer, and about the same number are no longer available when school resumes. For example, about 20 million people 16 and older are attending school during the academic year, and very few of them are working full time. Nobody knows the students’ intentions for sure, but certainly millions of them would like to work during the summer.

I don’t know of any change in demand occurring over the summer that would number in the millions (even doubling the size of our military overnight would not create much more than a million jobs).

It’s easy to tell the summer supply stories and demand stories apart. The demand story is a lot like Christmas — customers demand, employers want to satisfy customers, so they hire more workers. If the demand story applied to summer, then we should see summer employment and work hours surge, and wages increase, too, while unemployment should dip.

If I’m right that the summer job surge comes from supply — the increased availability of workers — then summer wages and unemployment should follow patterns opposite to Christmas: wages should fall and unemployment surge.

The charts below display three labor market indicators — weekly hours worked, hourly pay for full-time jobs and unemployment — for the two seasons. (I use data from the Current Population Survey Merged Outgoing Rotation Group from January 2000 through December 2009).

The charts show seasonal spikes: the level of the indicator during the Christmas season (November and December) or the summer (June through August), relative to the indicator during the four months near the season. Wages and unemployment are represented as a proportional change from their off-season values, and spikes in hours are expressed as a proportion of a group’s average hours for the entire season and adjacent months.

(A person not at work counts as zero. To create this particular chart — other charts and tables are also available — I focus on people less than 35 years old, because their job turnover rates are greater and thus more visibly display the effects of short-term fluctuations like Christmas or summer. Please note that I have truncated the green hours bar and indicated its actual value with text, because the teenage summer hours spike is 0.295, which far exceeds the scale needed to display the other figures.)

Each group’s hours spike is positive on Christmas. During the summer, the hours spikes are positive only for the two younger age groups, which we expect because those are the groups attending school during the academic year and becoming suddenly available to work in June. All three Christmas wage spikes (middle panel) are positive, while all three summer wage spikes are negative.

It’s hard to believe that summer involves the kind of demand surge we see over Christmas; summer wages and unemployment go in exactly the opposite direction that they do during Christmas.

Thus, the summer job surge is nothing like Christmas. The economy creates jobs in the summer — even during the last several years, when our economy supposedly suffered from a lack of demand — because millions of people become willing and available to work. This is not to say that everything is working well in the labor market — employment is much lower than it should be — it’s just that greater labor supply remains one route to higher employment.

As noted by Greg Mankiw, the Harvard economist, and Gauti Eggertsson of the New York Fed, the fact that, even now, jobs are created when people are willing to work is a big challenge to the Keynesian economic model that assumes that labor supply is irrelevant during recessions, liquidity traps and other labor-market crises.

As Paul Krugman put it: “What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant.”

That’s why Keynesians contend that expanding unemployment insurance can increase employment, even while they know that it erodes work incentives. Yes, unemployment is too high and employment is too low, and I applaud Keynesian economists for trying to understand that.

But they have gone too far and have ultimately given the wrong advice, in assuming without proof that labor supply is irrelevant. The labor market’s seasonal cycle shows pretty clearly that they’re wrong.

Article source: http://feeds.nytimes.com/click.phdo?i=3c57a582f18d52b62b80ad9fc8ea7b2a

You’re the Boss: Other Than That, We Loved the Place

Start-Up Chronicle

My wife went to New York City last week to see a show. Afterward, she went to dinner with some friends who ran into some other friends and they all dined together.

When one couple found out my wife had just driven in from the Hamptons, they got around to discussing the food scene (after the weather and the rental prices). And when they mentioned that they had tried that new place called Southfork Kitchen, my wife, coy as ever, asked how the couple enjoyed it.

“We loved the ambiance,” said one guy.

“The food was scrumptious,” said his partner. “Very local.”

“The music was just perfect.”

“And the desserts were out of this world.”

“We had just one complaint.”

“Oh, yes, one little giant complaint.”

“What was that?” asked my wife.

“The owner,” said the first guy.

“He wouldn’t shut up,” said the second.

“We went for a romantic dinner and he comes over and starts to talk and goes on and on and we didn’t want to be rude, so we kept asking questions and he kept answering the questions and we couldn’t get rid of him.

“Other than that, we loved the place.”

Bruce Buschel owns Southfork Kitchen, a restaurant in Bridgehampton, N.Y.

Article source: http://feeds.nytimes.com/click.phdo?i=01803f61a2fa9a656ed87af99282b4b8