You may have noticed how “Gross Domestic Product” is talked about constantly. High GDP means economic growth. Shrinking GDP means recession.
Yet you also may have noticed how economists constantly stress over consumer spending. They want to see more of it, and when they do, they claim the economy is growing.
Well, despite all the flaws in making discretionary consumer spending so important (because it leads to the insanity of saying it is good for the American economy if most Americans use consumer credit), it still has some value compared to the GDP numbers.
I was reminded of all this yesterday looking at this Zero Hedge post.
Something curious happened earlier today: January spending – which will be part of Q1 GDP – soared, which, as we reported earlier, was entirely on the back of a record monthly surge in spending on services, while spending on goods, both durable and non-durable, dropped.
How did that happen?
Goldman Sachs supplies the answer (emphasis in original Zero Hedge post):
January nominal personal spending rose 0.4% (vs. consensus +0.1%). Both durable (-0.4%) and nondurable (-0.7%) goods spending fell on the month. Services spending rose a sharp 0.9%, the strongest gain since the bounce-back from the September 11 attacks in October 2001. Out-sized gains occurred in two categories of services spending: household utilities (+9.7%), boosted by colder weather, and health care (+1.6%) in light of enrollments in the Affordable Care Act exchanges.
Do you see what Goldman Sachs just admitted? They put Obamacare in the same class as the Polar Vortex and the resulting hardship. Both forced people to spend money in ways they would not have done otherwise. Thus, both helped reduce personal spending.
As Zero Hedge comments:
So there you have it: the first official confirmation that in addition to all its adverse impacts on employment, previously highlighted by everyone with a frontal lobe and even the CBO, in January Obamacare had a dramatic impact on US consumer discretionary impact. As in lowering it.
But far worse was “utilities”, namely the “harsh weather”, which was the primary reason for the surge in spending on non-discretionary services. Which also means far less spending on stuff one enjoys blowing money on, and far less revenues and profits by those same retailers whose seemingly infinite advertising budgets are what continue to send the social networking bubble to unseen highs.
This shows that the GDP is a useless number. If Congress passed a law that forced us all to hire maids to clean our homes (which Justice Roberts would say is fine because it is really a tax), then this wouldn’t be recorded as impoverishing enslavement but as an economic enhancement. Greater spending means greater GDP.
The economist Murray Rothbard famously said that all government spending should be subtracted from, not added to the rest of the spending that makes up the GDP. I agree. So arguably the new higher Obamacare-mandated payments should also be subtracted from, not added to, the GDP.