Oh look, the dirty hippies were right again
by David Atkins
As Digby noted below, we seem to be at something of a media turning point on austerity. A bunch of people are waking up to the reality that progressives were right all along, that asset growth doesn’t make up for lack growth, and that we might just want to try stimulating the economy instead of strangling it. Even the New York Times editor’s blog is stumbling towards reality:
Consumer spending is usually a sign consumer confidence. But that’s not the case in today’s fraught economy.
Data out this week shows that consumer spending increased by 0.2 percent in March. That was slower than the 0.7 percent advance in February, but still more than economists had expected. Unfortunately, much of the higher spending in March was on utilities to heat homes in what turned out to be an unusually cold month. Spending actually fell on goods – which are better measures of underlying demand.
So rather than a sign of strength, spending figures for March show that money is tight, causing households to cut back on other spending in the face of higher spending on necessities. Against that backdrop, it should come as no surprise that consumer confidence fell in April to a nine-month low, as measured by the Thomson Reuters/University of Michigan consumer-sentiment index.
For an economy in which consumer spending accounts for 70 percent of all activity, that is not good news.
It is also cause to think twice about claims that consumer spending will be buoyed by the wealth effect from rising home values and rising stock prices. House prices have risen as the number of foreclosures and other distressed sales has declined. Prices are not likely to keep rising at the current pace, however, without more jobs and higher pay so that potential homeowners can afford to buy.
What’s also left unsaid is that higher home values may buoy established homeowners, but there are millions of people out there already priced out of homes whose values have risen far in excess of wages.
It’s all about consumer demand and wage growth. That’s what the economy needs. It also needs infrastructure improvement and climate change mitigation, both of which would make for great jobs programs. The solutions are out there. They always have been. It’s just that those offering the solutions have been marginalized by the Very Wrong, Very Serious People.
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