Here is the broadest picture of the American consumer and it sure looks like there’s more dropping than shopping going on. So if personal consumption spending (PCE) is the great 70% engine that’s supposed to keep the GDP growing, then the August PCE report might beg to differ: Real spending grew a mere 2.27% over prior year.
The fact is, three of the four GDP sectors have already thrown in the towel. Housing and business CapEx are flatlining, net exports are heading south (thank you, POTUS) and the government sector already is bulging with red ink.
So if the vaunted American consumer is now slouching towards stall speed—a trend which has been underway since real consumption spending growth peaked at 4.5% back in February 2015—from whence cometh the stick save for an aging business cycle that is on the verge of rolling over?
The answer, of course, is that there will be none. Not from the Fed and not from anyone else because the Fed’s massive 10-year long “stimulus” in the form of NIRP and QE did not fix the economy that collapsed in 2008; it just injected it with palliatives that actually aggravated the on-going metastasis below the surface.
What the Wall Street permabulls and Keynesian stimulus preachers don’t get is that under the current central banking regime, the advancing age of the business cycle does not become her. In mechanical terms, months 120-130 of the cycle (where we are now at the never before recorded mid-point) are far more precarious than months 20-30 because Keynesian policy is a form of dissolute economic living.
Accordingly, the longer the stimulus is applied, the more unsustainable debt, speculation and malinvestment builds up throughout the warp and woof of the financial system and underlying economy. Like alcoholism in humans, Keynesian stimulus is a progressive disease that leaves the body economic ever more vulnerable to external shocks, otherwise known as black swans.
The heart of the matter is deep and sustained interest rate repression. It means that prior excesses are never ameliorated or purged. They just become the rotten foundation on which new layers of debt, speculative excess and economic “mistakes” are layered upon.
So when all four sectors of the GDP (excluding second order change in highly volatile business inventories) are limping and listing toward the flat-line in month #124 of a business expansion, you can be sure that the economy is literally riddled with disease.
The investment and spending mistakes fostered by 10-years of artificially cheap debt and the desperate scramble for yield among investment managers eventually overwhelm capitalism’s inherent forward momentum.
A Wall Street Journal story today nicely illustrates this progressive disease syndrome and is fittingly entitled, “The Seven-Year Auto Loan: America’s Middle Class Can’t Afford Their Cars”.