Spending's Still on a Tear. Merry Christmas!

Equipment spending won't add nearly as much to growth during the current quarter as it did during the last.
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Loser

JACKSON HOLE, Wyo. -- Here I am, an old man in a dry month.

Just two quick comments today.

(a) The November

durable goods

numbers

released this morning point to a fourth-quarter business equipment spending profile weaker than the one that prevailed when October figures were released a month ago. They also pretty much guarantee that equipment spending will not add nearly as much to growth during the current quarter as it did during the last.

Shipments of nondefense capital goods excluding aircraft fell 1.1% last month and the October increase was revised down by two-tenths. Where they formerly looked likely to post a fourth-quarter (annual) increase between 6% and 7%, they now look likely to turn in one between 1% and 2%.

Equipment spending added 1.44 percentage points to growth during the third quarter -- note that it's been adding 1.11 points (on average) since 1996 -- but it is firmly on track to add less than half of that during the fourth.

(b) The November

consumption

numbers released (http://www.bea.doc.gov/bea/newsrel/pi1199.htm) this morning confirm that spending is still on a tear.

The

personal consumption expenditure

(or PCE) series has now been accelerating for five straight quarters -- we've not before seen such a string during this cycle -- and is currently growing at a 7.4% year-on-year rate. That goes down, if you can even believe this, as the fastest pace of consumption since the second quarter of 1989.

Spending added 3.3 percentage points to the third quarter's growth rate. It is firmly on track to add at least that much during the fourth.

Also

The

real (inflation-adjusted) disposable (after-tax) personal income

series is growing at a 4% year-on-year rate during the current quarter, which marks an acceleration on 3.7% during the third.

The PCE

chain-type price index

troughed at 0.9% during the first quarter of 1998 and has been accelerating steadily since; it is growing at a 2% year-on-year rate now. This is not especially threatening given that the core (excluding food and energy) price measures are not showing similar acceleration, but policymakers can reasonably be expected to embark on a tightening course more aggressive than the one that's currently likely to play out if they begin to.

Side Dish

Merry merry merry merry Christmas!!