Keynesian Green Shots

Keynesian Green Shots.

Only a few times in the life of an Economist he or she can see a pure Keynesian Green Shot. They only happen when the Economy is in the process of bottoming-recession and it lets you see a pure effect of the Fiscal Policy. In Keynes words it is a “sterilized” pump feeding action product of the Economic stabilizers. Keep in mind that Economic Stabilizers do not have a decisive effect on growth. Make no mistake; this is just the beginning of the Keynesian Policy of Feeding the Pump while other stimulus actions like public investment in Infrastructures will become a reality in the next 18 months. Meanwhile, the economy is in Recession and do not expect to farm much (yet) as these Green Shots have no self sustain life yet. Remember our previous report where I commented you that the bad part of the business cycle could be as long as 40 to 60 months. Also keep in mind my commentaries on the 600-700 billion recipe USA fashion. This is not 1982 and Obama policies are very different from the 600 vessels plan and other Reagan actions. This time the recession has very different roots as we have commented before. Below, you can see a new from Bloomberg with my bold effects.

POWERED BY

Personal Income and Outlays Released on 6/1/2009 8:30:00 AM For April, 2009

Previous

Consensus

Consensus Range

Actual

Personal Income - M/M change

-0.3 %

-0.2 %

-0.5 % to 1.0 %

0.5 %

Personal Income - Yr/Yr change

0.3 %

Consumer Spending - M/M change

-0.2 %

Consumer Spending - Yr/Yr change

-0.9 %

Core PCE price index - M/M change

0.2 %

Core PCE price index - Yr/Yr change

0.7 % -0.2 %

-0.3 % to 0.0 %

-0.1 % -1.5 %

0.2 %

-0.2 % to 0.2 %

0.3 % 1.9 %

Highlights Personal income in April unexpectedly rebounded while spending slipped further. Unfortunately, the income gain was largely due to increased government social benefit payments, including unemployment insurance. Personal income jumped 0.5 percent in April, following a 0.2 percent fall in March. The increase in April was far better than the consensus forecast for a 0.2 percent drop. The spike in personal income was led by an 8.6 percent surge in

unemployment insurance benefits, largely reflecting provisions of the American Recovery and Reinvestment Act of 2009. Also, rental income rebounded 3.1 percent after several months of decline. However, a more realistic view of income is the wages and salaries component which was unchanged, after a sharp 0.6 percent plunge in March. The combination of higher overall income and cuts in personal income taxes did result in a 1.1 percent jump in disposable personal income after a 0.1 percent rise in March. Consumer spending continued to retrench with a 0.1 percent dip after contracting 0.3 percent in March. April spending came in above the market projection for a 0.2 percent decline. PCE inflation was mixed. The headline PCE price index edged up 0.1 percent, following no change in March. In contrast, the core PCE price index firmed to a 0.3 percent boost in April after rising 0.2 percent in March. The consensus had expected a 0.2 percent rise in core inflation. Year on year, personal income growth improved to 0.7 percent from 0.3 percent in March. Headline PCE inflation eased to 0.2 percent from 0.4 percent the previous month. However, yearago core PCE inflation firmed to 1.9 percent from 1.8 percent in March. The April personal income report was not as good as many would like to believe despite the strong headline gain in income. The latest news still has the consumer on the sidelines in terms of pulling the economy out of recession. If you look at the detail of today's report, it at best should be a mild positive for equities, given the cut in taxes boosting disposable personal income and a less-than-expected decline in spending. But traders probably will not be paying attention to the flat wages and salaries component, although they should. The strong headline number for income likely will cause rates to firm, although bond traders are more likely to eventually notice the flat wages. But bond traders also will be worried about higher core inflation. In terms of the overall financial status of the consumer, the higher unemployment benefits and tax cuts certainly leave the consumer better off than without. But the consumer is still likely to be caution about spending until jobs start returning. Market Consensus Before Announcement Personal income fell 0.3 percent in March, following a 0.2 percent dip the prior month. But declines in the all-important wages & salaries component were even worse, dropping a sharp 0.5 percent, after falling 0.4 percent in February. And consumer spending turned negative again with a 0.2 percent decrease in March. PCE inflation was mixed as the headline PCE price index was unchanged while the core PCE price index posted another 0.2 percent increase in March. Looking ahead, we may get some easing in the drop in income as aggregate weekly earnings for production workers (from the latest employment report) rose 0.1 percent in April. But in recent months, wages & salaries have been much weaker than production worker earnings. Don't look for healthy spending numbers in April. We already have seen a 0.4 percent drop in retail sales. Inflation numbers are likely to be mixed. April's headline CPI was flat but the core rate jumped 0.3 percent. The PCE price index closely tracks the CPI. Definition Personal income is the dollar value of income received from all sources by individuals. Personal outlays include consumer purchases of durable and nondurable goods, and services. Why Investors Care

Changes in taxes or social security cost of living adjustments can cause some sharp variations in monthly disposable income growth. However, on the whole, monthly changes in disposable income fluctuate less than monthly changes in personal consumption expenditures.

Data Source: Haver Analytics

Monthly changes in personal consumption expenditures are usually skewed by large changes in spending on durable goods. Spending on nondurable goods and services tend to be less volatile from one month to the next.

Data Source: Haver Analytics

Luis Riestra Delgado Economics Exchange Forum: We only exchange information for private use, not for commercial reasons. 07-06-2009.