Do you believe in miracles?

From the WSJ:

“At a time when the global economy is doubting itself in the face of Brexit, the U.S. consumer is emerging with a smile on his face,” said Gregory Daco, head of U.S. macroeconomics at Oxford Economics.

I find it hard to see much reason for smiles! That´s not what the data show. The chart indicates that nominal consumption expenditure growth has come down over the past two years. The basic reason is the Fed tightening of monetary policy through the “rate hike talks”. On a smoother basis (12-month growth), it has fallen and has remained reasonably flat.


The chart below clearly illustrates that consumption is depressed! Both the spending level and the trend growth are below what they were. Maybe Gregory Daco is mistaking “open mouth” for “smile”!


What about the Fed´s inflation mandate? The Fed does not understand what inflation means! Sometimes they think it´s the “oil price”, sometimes the “foreign exchange” and sometimes, “other stuff”.

The fact is that for the past 20 years “inflation” has not been a problem. And given the (low) growth rate of spending, inflation will blossom only through a miracle!


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