Profligate Americans and Economic Expansion

Repeat after me: There will be no meaningful consumption slowdown without a meaningful income slowdown.

Author:: James Padinha
Publish date:: Sep 14, 1999 2:26 PM EDT

Lock

JACKSON HOLE, Wyo. -- The

tired-ass claims that the consumer is

rolling over are entirely bunk.

Allow your narrator to put things in perspective.

Nineteen ninety-eight went down as the strongest spending year of the current economic expansion.

Retail sales rose 4.9% during that year.

The August

numbers released this morning revealed that retail sales are growing at a 10.5% year-on-year rate.

That goes down as the fourth best performance of the cycle.

The fourth best retail sales performance in more than eight years.

Retail sales would turn in a 1999 increase of 8.5% -- an increase 73% bigger than the one recorded during the strongest spending year of the current economic expansion -- if we ended the year right now.

With four months of 1999 data remaining.

Stock

How bout the broader consumption picture?

How bout the

personal consumption expenditure

series?

The one that (unlike the retail sales series) includes spending for services?

The one that

accounts for 69% of the

gross domestic product

number?

It rose 5.7% last year.

Then it grew at a 6.6% year-on-year rate during the first quarter of this year.

Then it grew at a 6.6% rate again during the second.

And now it is likely to grow at a 6.6% rate again during the third.

And those 6.6% growth rates go down as the second best of the cycle.

The second best PCE growth rates in more than eight years.

The pace of consumption didn't decelerate between 1995 and 1996, it didn't decelerate between 1996 and 1997, it didn't decelerate between 1997 and 1998, and it won't decelerate between 1998 and 1999.

The last time the pace of consumption decelerated was between 1994 and 1995.

In the wake of

Fed

action that drove the

funds rate

to 6% from 3%.

And Two Smoking Barrels

The people who continue to forecast spending slowdowns that do not come to pass -- and the people who continue to listen to them -- refuse to accept some very key things.

There will be no meaningful consumption slowdown without a meaningful income slowdown.

There will be no meaningful income slowdown without a meaningful employment slowdown.

And there ain't no meaningful employment

slowdown afoot.

And keep in mind the final

Meyer

nugget discussed in this

space last week.

Although there is some risk that growth could remain above trend and therefore aggravate any initial excess demand, a major concern remains that the prevailing balance of supply and demand in the labor market might put upward pressure on inflation, even if growth slows to trend ahead.

If the Feds are going to worry about costs and prices even if growth slows to trend, you can bet that they'll be fretting even more on signs that it isn't doing so.

And slowdowns don't just magically happen.

They don't appear out of thin air.

If the Feds really want one, they're going to have to make it themselves.