When discussing today’s unexpectedly weak Q4 GDP print, which came in at 2.6%, far below consensus and whisper estimates in the 3%+ range, and certainly both the Atlanta and NY Fed estimates, we pointed out the silver lining: personal spending and final sales, which surged 4.6% Q/Q (vs 2.2% in Q3), although even this number had a major caveat: “as we discussed previously, much of it was the result of a surge in credit card-funded spending while the personal savings rate dropped to levels last seen during the financial crisis.”
Indeed, recall the stunning Gluskin Sheff chart we presented a month ago, which showed that 13-week annualized credit card balances in the U.S. had gone “completely vertical” in the last few months of 2017 which we said “should make for some great Christmas.”
Meanwhile, even more troubling was the ongoing collapse in the US personal savings rate, which last month tumbled to the lowest level since the financial crisis as US consumers drained what little was left of their savings to splurge on holiday purchases.
And while we highlighted and qualified two trends as key contributors to the spending surge in Q4 personal spending, Gluskin Sheff’s David Rosenberg – who is once again firmly in the bearish camp – did one better and quantified the impact. Not one to mince words, the former Merrill chief economist described what is going on as “The Twilight Zone Economy” for the following reason:
how many times in the past have we seen a 2.6% savings rate coincide with a 4.1% jobless rate? How about never…huge ETF flows driving equities higher, but these metrics are screaming ‘late cycle’.
He then proceeded to give “some haunting math” from the GDP number: “The savings rate fell from 3.3% to 2.6%. If it had stayed the same, real PCE would have been 0.8% (annualized) instead of 3.8% and GDP would have been 0.6% instead of 2.6%.“
Some haunting math from the GDP number. The savings rate fell from 3.3% to 2.6%. If it had stayed the same, real PCE would have been 0.8% (annualized) instead of 3.8% and GDP would have been 0.6% instead of 2.6%.
— David Rosenberg (@EconguyRosie) January 26, 2018
Oops, or as Rosenberg put it:
Q4 GDP growth of 2.6% — a booming stock market, massive post-hurricane repair and rebuild, a consumer credit card binge, and this is all we get??
— David Rosenberg (@EconguyRosie) January 26, 2018
Meanwhile, a more troubling development is that the conditions observed ahead of the Black Monday crash are becoming increasingly apparent. Here is Rosenberg’s stark assessment of where we stand:
“Rising bond yields. Full employment. Fed tightening. Trade frictions. Weak dollar. Rising twin deficits, spurred by tax reform. Sound familiar? It should. This was 1987. Start rebalancing.”
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