It may not have the clout of the official monthly Dept of Commerce Retail Sales report not due out for two more weeks, but in retrospect considering how many credibility issues with seasonal adjustments government data has had in recent months, the Gallup Consumer Spending report may have become far more realistic than official government data.
In which case all hope of a Q2 GDP rebound abandon, ye who read this: after a strong April, in which the average consumer reported a daily spend of $91, $3 higher than a year prior, and the highest spending month since before the great financial crisis...
... in May things quickly deteriorated, with average daily spending in April and May unchanged at $91, despite a consistent jump the just concluded month of May in recent years, and despite the substantial jump in gas prices, which in May 2008 led to a $28 jump in average spending, and $10 in 2014.
Worse, on an apples to apples, year-over-year basis, average spending in May of 2015 was $7 less than 2014, and nearly identical to 2013, when the US unemployment rate was nearly 3% higher, and the economy was supposedly sputtering badly enough for the Fed to launch QE3.
Finally, as the chart below shows, this was the biggest month of May consumer spending drop in nominal dollar terms since the 2008 financial crisis.
This is what Gallup does to calculate average spending:
Gallup's daily spending measure asks Americans to estimate the total amount they spent "yesterday" in restaurants, gas stations, stores or online -- not counting home, vehicle or other major purchases, or normal monthly bills -- to provide an indication of Americans' discretionary spending. The May 2015 average is based on Gallup Daily tracking interviews with more than 15,000 U.S. adults.
What it found is that last May's spending level has largely gone unmatched since, except in December 2014, when spending also averaged $98. However, Americans typically spend more in December because of holiday shopping. Still, the latest monthly figure is higher than what Americans spent each May from 2009 through 2013. By contrast, Americans spent an average of $114 in May 2008 -- prior to the global financial meltdown later that year that both deepened and prolonged the U.S. recession that started in late 2007.
But the punchline is that while the long awaited, and now long forgotten "gas savings" from the drop in crude, which in california is rapidly approaching an unchanged Y/Y print, never materialized in a jump in actual spending as today's latest disappointing consumer spending data confirms, now that gas prices are rising consumer are retrenching even more!
The stagnation in Americans' spending may be related to gas prices, which continued to rise last month -- though they are expected to plateau and eventually dip as the year progresses. Confidence in the economy also dipped, with lower weekly measures in May than in April. Gallup has found that Americans' perceptions of the economy are related to gas prices, and what they pay at the pump certainly influences how much they spend overall and how much they have left for discretionary purchases after they take care of the basics. If gas prices do stabilize, this may enable Americans to spend more on other things.
While Gallup's historical spending averages have generally been higher in the spring and summer months than in the winter, spending usually dips or stays flat in June compared with May. With consumer spending the major driver of U.S. economic growth, healthier spending in June could help keep the economy on a strong track toward recovery after a disappointing first quarter that saw the economy shrink.
Or, should May's weaker than expected trend persist into June, then one can forget all about a second quarter GDP rebound. In fact, while Q1 GDP was saved to the tune of 2% from a surge of inventory accumulation, in Q2 this won't repeat, and in the meantime, personal spending is starting off quite poorly and on the wrong foot. Should there be a comparable Y/Y decline in spending in June as well, it is virtually assured that Q2 GDP will also be negative.
Which would mean that the US has officially entered recession just as the Fed is timing its first rate hike in one trading generation.