Three % Plus YoY Economic Growth Is Here

Popular Economics Weekly

We are finally back to 3 percent plus GDP growth on an annual basis. And it is largely fueled by consumer spending that has been increasing as more jobs are created.

Retail and Food service sales ex-gasoline increased by 3.5 percent on a YoY basis—though overall retail sales were up just 1.4 percent. This wasn’t a particularly strong report, but it will improve over time with increased consumer confidence and continued employment growth.


Graph: Calculated Risk

Personal Consumption Expenditures are the better measure of growth, and they are increasing at more than 3 percent annually. The consumer came to life in May, boosted by a 0.5 percent rise in personal income, helping to support a 0.9 percent surge in personal outlays that reflects heavy spending on autos and retail goods. And gains are not inflationary, at least yet, based on the very closely watched core PCE price index which edged only 0.1 tenth higher in May and is at a very low 1.2 percent year-on-year rate which is actually down a tenth from an upward revised April.


Graph: Econoday

The reason for my optimism is that incomes are finally increasing faster than inflation. Both proprietors’ income and rental income show especially strong gains, said Econoday. Spending components show special strength for durables, again tied especially to autos, and also strong gains for non-durables, here tied to higher pump prices. Spending on services once again shows an incremental gain.

However the PCE Index was for May, and with weaker June retail sales, PC Expenditures could drop in the June report. But not consumer incomes, which is the main reason for the high readings in consumer confidence.

Even Fed Chair Janet Yellen is upbeat in her latest congressional testimony, and says the Fed on track to raise interest rates sometime this year. When? I believe it will be a single token raise to show the Fed means business though both wholesale and retail inflation are still too low, and the job market is still “slack”, so let’s get it over with in September.

“Other measures of job market health are also trending in the right direction, with noticeable declines over the past year in the number of people suffering long-term unemployment and in the numbers working part time who would prefer full-time employment. However, these measures–as well as the unemployment rate–continue to indicate that there is still some slack in labor markets.”

And that slack with continued low inflation should keep interest rates low as well through next year, which is in keeping with the Fed’s mandate of “maximum employment with 2 percent inflation.”

Harlan Green © 2015

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About populareconomicsblog

Harlan Green is editor/publisher of, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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