Ominous Consumer Spending Problems In the First Quarter GDP Numbers?

According to some supposedly expert economists and the White House, the economy contracted by 1% in the first quarter of 2014 because of the severe weather in those three months.  Thus, keeping consumers huddled in their homes.  Not buying the things that would have otherwise driven the economy.

But, consumers didn't stop buying in the first quarter.  Spending was actually up 3.1%.  Albeit, this was down from what CNBC said was "brisk" spending of 3.3 percent in the previous quarter.  So, its a little hard to believe that the consumer was absent due to weather.

What the report does show is something that I warned about in a previous post,  Retailers Are Signalling Economic Woes For 2014.  Despite the fact that consumer spending was up, corporate profits declined by $213 billion dollars in the same quarter.  What these contradictory facts show is that the consumer is being forced to pay higher prices for essential items like food, clothing, energy, and, especially, healthcare; thus reducing the amount of discretionary spending that would have normally driven corporate profits.

Thus, the consumer is at a recessionary tipping point where he or she can't afford to buy the kind of items that would cause the economy to expand.  This is what happens when you have a combination of stagnated wages and soaring prices for essential items like food and energy.  That is why I believe that weather had nothing to do with the first quarter slowdown of the economy, and, that is why I also believe that the second quarter will also contract; thus sending us into recession.

References:

Frigid winter takes toll as US GDP contracts for first time in 3 years: http://www.cnbc.com/id/101713801

National Income and Product Accounts Gross Domestic Product: First Quarter 2014 (Second Estimate) Corporate Profits: First Quarter 2014 (Preliminary Estimate): http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Food prices soar as incomes stand still: http://www.cbsnews.com/news/food-prices-soar-as-incomes-stand-still/

Electricity Price Index Soars to New Record at Start of 2014; U.S. Electricity Production Declining: http://cnsnews.com/news/article/terence-p-jeffrey/electricity-price-index-soars-new-record-start-2014-us-electricity

Will ObamaCare Push Us Into Another Recession In 2014?: http://cuttingthroughthefog.blogspot.com/2014/01/will-obamacare-push-us-into-another.html

Want Stimulus? Repatriate Foreign Profits.

Currently, American corporations have more than $1.5 trillion in profits sitting in foreign accounts. That money is being left there because it would be taxed at a rate of 35% if it were to be repatriated to this country.  But, also understand that those profits have already been taxed once by the country of origin.   Further, the United States is the only country, in the industrialized world, that still double taxes foreign profits; making U.S. companies less competitive in the world marketplace.

The Democrats have refused to budge on either lowering or eliminating the taxation of this money.  This is just plain stupid.  As a result, we get nothing in return.  We get no taxes and that money is never put to work in helping our economy grow.  In fact, that money is very likely being used to help other country's economies.  

What the Democrats are afraid of is that, if this money were to be returned to the U.S., untaxed, companies would redistribute these funds in the form of dividends; thus lining the pockets of  -- once again -- the very rich 2% of us.  But, this is a lie. In fact, under normal economic circumstances, more than 60% of Americans are usually invested in the stock market (see Gallup data referenced below). Further, even if that money were only to be distributed as dividends, it would be taxed at the current dividend tax rate of 15%; and, that is 15% more than we're getting with that money sitting overseas. Make no mistake about it, that 15% dividend taxation means we could reduce our federal debt by $300 billion dollars.  That's twice the amount of revenues that Obama is proposing with his tax increases on the rich. 

More importantly, this money would represent a cash infusion of at least a trillion dollars into the economy without having to borrow a single cent from China.  This truly would be stimulus without debt.  But, the Democrats would prefer to use government funding so they can pick and choose who gets the money.  Usually, their politically-connected buddies.

I really think that the repatriation of foreign profits should be on the table as part of the fiscal cliff negotiations.  Maybe as a bargaining chip in allowing some tax increases on the rich.

--- The Big Picture: The Top 10 Companies (out of the S&P 500) With Untaxed Foreign Profits (representing $408 billion that is left sitting in foreign countries): http://www.ritholtz.com/blog/2011/04/what-us-companies-have-the-most-untaxed-foreign-income/

--- Gallup: Americans Invested In The Stock Market: http://www.gallup.com/poll/147206/stock-market-investments-lowest-1999.aspx