Defintion for Today
Today's retail sales report for May revealed a much better-then-expected jump of 1%, the best monthly showing in six months (year-over-year growth of 2.5% is still sluggish). It wasn't just spending on gas either (core sales, ex-autos, ex-gas were also up 1%).
Given what we know about incomes and the job market right now (and what we know ain't pretty), the sales report strongly suggests folks are spending their rebate checks. Yes, I know there's too much spending and too little saving in our economy, but at a time like this, with the economy growing well below trend, we really need folks to kick up their consumer spending (it's 70% of the economy!), most usefully on non-imports (i.e., not just on gasoline).
And in fact, forecasters at Merrill Lynch raised their second quarter forecast for real GDP from -0.4% to +0.3%.
Now, I grant you, even if they're correct, creeping along at 0.3% won't feel much different from slumping along at -0.4%. In either case, growth that slow will fail to generate the job and wage growth that's so sorely missing right now. But it would imply that the stimulus has been more effective than some of us feared.
Which brings us to today's definition:
Keynesian Stimulus: what supply-side administrations turn to when they actually want to accomplish something useful.
Jared:
To paraphrase Ayn Rand:
"Now, tell me - what is your economic policy for the day-after-tomorrow?"
June 12, 2008 4:34 PM | Reply | Permalink
Hmmm...I dunno...'nother rebate?
June 14, 2008 7:53 PM | Reply | Permalink
Slightly off topic, but this is as good a place as any...
A typical headline about this story from Reuters:
"Retail sales rise much more than expected"
One can find this type of story framing every day in the business press: "Company X's earnings were better/worse than analysts forecast."
This makes the story about expectations and not the actual economic news. I think this is relevant because it is typical of most reporting these day. Pundits think this or that, when they are consistently wrong, invite them back again.
Everyone can have expectations or emotional feelings about a candidate, so everyone's opinions are equally valid, but why do we have to hear them? If an analyst for a financial firm is consistently wrong in their projections how do they keep their jobs?
How about this headline instead: "Retail sales poor compared to last year, even when boosted by government handouts."
June 12, 2008 4:40 PM | Reply | Permalink
Given the audience for the "business press" -- investors -- the original headline is the proper one. Surprises (and their effect on the actions of other investors) are the subject matter of business reporting.
If before the government's report of better than expected retail sales, investors anticipated a hold on the federal funds rate throughout 2008, stable bond prices and lower equity prices, then, they now will expect the reverse and buy and sell, accordingly.
And if you're an investor, that's what you want to know.
June 12, 2008 8:49 PM | Reply | Permalink
I'm an "investor" and I have no interest in what some self-appointed expert thought before the news came out.
It's the difference between momentum trading and investing based upon fundamentals. I admit that value investors are in a minority these days (except for the likes of George Soros and Warren Buffet), but I'd rather interpret the data myself, thank you.
The business press is just lazy and/or incompetent. Their standard operating procedure is to read the press release from the gov't or firm, then call a couple of their regular contacts who are the (unnamed) analysts and report on whether they are surprised or not.
I wouldn't bring this up, except that's how the political reporters operate as well. "Well Joe, how do you think the candidate did in the debate/speech?" Not, "well Joe, what do you think of the candidate's proposal?"
June 12, 2008 9:48 PM | Reply | Permalink