Government spending is obscuring what’s actually happening with the economy. From Daniel Lacalle at dlacalle.com:
The weak GDP figure for the first quarter came with a double negative. Poor consumer spending and exports, plus a rise in core inflation, The US administration’s enormous fiscal stimulus, underscores the importance of considering the weaker-than-expected data.
A deceleration in consumer spending, a decline in the personal savings ratio to 3.6%, and poor exports added to a set of figures for investment that were also negative when we looked at the details.
The gross domestic product is much weaker than the headlines suggest. If we look at consumption, both durable and non-durable goods were flat or down, while the only item that increased modestly was the services factor. Residential and intellectual property boosted investment, while equipment remained weak in the past two quarters. The slump in export growth coincided with a significant increase in imports, which weakened the trade deficit. Government spending continues to rise, albeit at a slower pace, and becomes the main factor to disguise what is evidently a concerning level of growth for a leading economy with enormous potential.
It is precisely because of the unnecessary increase in government spending, designed to bloat GDP and provide a false sense of strength in the economy, that inflation remains elevated and rising in a three- and six-month period.
Rising public debt has bloated the economy and left it at a disappointing level compared to its potential, as evidenced by higher inflation and weaker growth.
When the Fed’s preferred inflation measure rises to 2.8% in March from a year ago and the core PCE deflator rises to 3.1%, there is no strong economy. The propaganda repeatedly claims that the fight against inflation is over, but inflation has accelerated on a quarterly and half-year basis.
STRAIGHT LINE LOGIC 