Since robo-traders function by the millisecond, the Wall Street mindset—if you want to call it that—has gone strictly short-term incrementalist.
That is, find the highest frequency data available and compare it to the most recent observation before or the expected one this time. Overwhelmingly, that amounts to a small change that is invariably incorporated into the bullish narrative as positive or even gangbusters; and, in the rare case of a “disappointing” number, there are always a raft of reasons to dismiss it as a one time aberration or a stat of “rear view mirror” irrelevance.
That’s why today’s stunning –13.6% decline in personal consumption expenditures was viewed as a relief because, well, it was only a tad under the -12.5% expected.
In other words, these Wall Street cats could step off the edge of Grand Canyon and text back a “so far, so good” report.
It wasn’t; it was catastrophic. At an annualized rate, the drop from April 2019 amounted to $2.4 trillion of PCE (personal consumption expenditures). That’s 8.1X larger than the deepest year-over-year drop during the Great Recession, which was $301 billion in June 2009.
Yet scratch a Keynesian economist or Wall Street strategist, which amounts to the same thing, and you will be told that the Energizer Bunny of household consumption spending is the mighty force which makes the economy go.
So now that we have a $2.4 trillion hole that is unlike anything which has ever appeared in the consumption spending data, do these buy-the-dip V-shaped recovery advocates have any basis for believing that the US economy can leap out of a pit this deep in a single bound?
Personal Consumption Expenditures, Change From Prior Year In Billions
And especially, when it becomes more evident by the day that the “re-opening” being grudgingly permitted by the Virus Patrol is nothing of the kind. For instance, here are the new CDC guidelines for re-opening offices—the very place that generates the high incomes, which along with more debt, have kept the Energizer Bunny going:
- Upon arriving at work, employees should get a temperature and symptom check;
- Inside the office, desks should be six feet apart;
- Employers should consider erecting plastic shields around desks;
- Seating should be barred in common areas;
- Face coverings should be worn at all times;
- Replace high-touch communal items, such as coffee pots, water coolers, and bulk snacks, with alternatives such as prepackaged, single-serving items;
- Limit use and occupancy of elevators to maintain social distancing of at least 6 feet.;
- Abolish communal perks like latte makers and snack bars;
- Isolation for employees should begin before they get to work — on their commute where individuals should drive to work alone;
- Put arrows on the floor so people will go to the restroom one direction and come out the other;
- Ample sanitation stations with wipes.
Another way of measuring the massive economic hole that has been engendered by Lockdown Nation is via consumption spending in constant dollar terms relative to the longer-term past.
As shown in the chart below, the March-April plunge has reduced household spending to June 2012 levels, thereby wiping out eight years of the Energizer Bunny’s relentless upward climb; and it now stands just 2.2% above its pre-financial crisis level way back in November 2007.
Yes, the US economy will eventually regain traction, but when you look at the absurdly restrictive “re-opening” guidelines being handed down by the CDC and implemented by the states, climbing out of the the hole below will be a long-time coming.
Constant Dollar Personal Consumption Expenditures
For instance, walking into a restaurant in a mask and sitting inside of a plexiglass booth with plastic utensils and plates, hand sanitizers, mimeographed menus and throw-away salt shakers is not likely to rekindle an all-clear-to-spend state of mind among consumers.