When "justifying" the abysmal Q1 GDP print, one after another economist has scrambled to explain that this number is irrelevant, due to a spending halt during the "harsh winter", following which the US consumer has been spending like mad in Q2, and the PCE, which in Q1 was an abysmal 1.0%, and the worst since 2009, is set for a major rebound. Well, guess what: after last month's huge miss (originally -0.1% now revised to 0.0%, on expectations of a 0.2% rise), the month of May - the second month of Q2 - just showed that US consumer still refuses to spend. In fact, while personal income came in line with expectations in the month of May, rising 0.4%, same as expected, and disposable income in current dollars rising by $56 billion to $12,877 billion, it was spending which missed for the second month in a row and the 4th miss in the past 6 months rising only 0.2%, half the expected 0.4%! This was the fourth spending miss in the past six months.
In fact, what's worse is that while overall spending on PCE was a weakish $18.3 billion, the personal spending on all important services was a paltry $4.1 billion: essentially tied for the lowest since November. Hardly the stuff magic unicorn numbers such as those presented by Markit (how are those post-IPO shares trading anyway?) yesterday would like us to believe.
The breakdown of income and spending in the long-term:
It gets worse. As Bloomberg economist Joseph Brusuelas explains, while inflation-adjusted spending is increasing at 2.4% 3-month annualized pace, May run rate "likely exaggerates" consumer’s true condition, direction of real spending, says Bloomberg economist Given probability of further increases in food, gasoline prices in June, spending run-rate likely to "soften noticeably." Brusuelas adds that 2Q weakness may spill into 3Q, “further damping prospects for a breakout year in growth.”
Translation: it's bad.
And, of course, the reason for it all, is precisely what we said would lead to a spending halt back in April: the collapse in the savings rate to the lowest since Lehman. We warned that as consumers scramble to rebuild their savings, they will spend far less, something further driven, no pun intended, by surging energy and food costs. To wit:
"since spending was so much higher than income for one more month, at least according to the bean counters, the savings rate tumbled and at 3.8% (down from 4.2% in February), was the second lowest since before the Lehman failure with the only exception of January 2013 after the withholding tax rule changeover. So for all those sellside economists who are praying that the March spending spree, funded mostly from savings, will continue into Q2 (because remember March is in Q1, which as we already know had an abysmal 0.1% GDP growth rate), we have one question: where will the money come from to pay for this ongoing spending spree?"
Conveniently, the BEA decided to revise its personal saving rate series, but what it shows is clear - precisely as we predicted it would, the savings rate has been rising steadily since March, when it posted a tiny 4.2%, and is now back to 4.8%, which however is still unchanged from a year ago, and hardly the base that will propel US consumers into the dire spending spree the economy needs in the month of June, the last one of Q2, to hit the magical 4% GDP forecast.
Expect the downward sellside Q2 GDP forecast revisions to begin momentarily.