Keynesian Green Shots.

Only a few times in the life of an Economist he or she can see a pure Keynesian
Green Shot. They only happen when the Economy is in the process of bottoming-recession
and it lets you see a pure effect of the Fiscal Policy. In Keynes words it is a “sterilized”
pump feeding action product of the Economic stabilizers. Keep in mind that Economic
Stabilizers do not have a decisive effect on growth.

Make no mistake; this is just the beginning of the Keynesian Policy of Feeding the
Pump while other stimulus actions like public investment in Infrastructures will become a
reality in the next 18 months. Meanwhile, the economy is in Recession and do not expect
to farm much (yet) as these Green Shots have no self sustain life yet. Remember our
previous report where I commented you that the bad part of the business cycle could be
as long as 40 to 60 months.

Also keep in mind my commentaries on the 600-700 billion recipe USA fashion.
This is not 1982 and Obama policies are very different from the 600 vessels plan and other
Reagan actions. This time the recession has very different roots as we have commented
before.

Below, you can see a new from Bloomberg with my bold effects.

POWERED BY
Personal Income and Outlays

Released on 6/1/2009 8:30:00 AM For April, 2009

Previous Consensus Consensus Range Actual

Personal Income - M/M change -0.3 % -0.2 % -0.5 % to 1.0 % 0.5 %
Personal Income - Yr/Yr change 0.3 % 0.7 %
Consumer Spending - M/M change -0.2 % -0.2 % -0.3 % to 0.0 % -0.1 %
Consumer Spending - Yr/Yr change -0.9 % -1.5 %
Core PCE price index - M/M change 0.2 % 0.2 % -0.2 % to 0.2 % 0.3 %
Core PCE price index - Yr/Yr change 1.9 %

Highlights
Personal income in April unexpectedly rebounded while spending slipped further.
Unfortunately, the income gain was largely due to increased government social benefit
payments, including unemployment insurance. Personal income jumped 0.5 percent in April,
following a 0.2 percent fall in March. The increase in April was far better than the consensus
forecast for a 0.2 percent drop. The spike in personal income was led by an 8.6 percent surge in
unemployment insurance benefits, largely reflecting provisions of the American Recovery and
Reinvestment Act of 2009. Also, rental income rebounded 3.1 percent after several months of
decline. However, a more realistic view of income is the wages and salaries component which
was unchanged, after a sharp 0.6 percent plunge in March. The combination of higher overall
income and cuts in personal income taxes did result in a 1.1 percent jump in disposable personal
income after a 0.1 percent rise in March.

Consumer spending continued to retrench with a 0.1 percent dip after contracting 0.3 percent in
March. April spending came in above the market projection for a 0.2 percent decline.

PCE inflation was mixed. The headline PCE price index edged up 0.1 percent, following no change
in March. In contrast, the core PCE price index firmed to a 0.3 percent boost in April after rising 0.2
percent in March. The consensus had expected a 0.2 percent rise in core inflation.

Year on year, personal income growth improved to 0.7 percent from 0.3 percent in March.
Headline PCE inflation eased to 0.2 percent from 0.4 percent the previous month. However, year-
ago core PCE inflation firmed to 1.9 percent from 1.8 percent in March.

The April personal income report was not as good as many would like to believe despite the
strong headline gain in income. The latest news still has the consumer on the sidelines in
terms of pulling the economy out of recession.

If you look at the detail of today's report, it at best should be a mild positive for equities, given the
cut in taxes boosting disposable personal income and a less-than-expected decline in
spending. But traders probably will not be paying attention to the flat wages and salaries
component, although they should. The strong headline number for income likely will cause rates to
firm, although bond traders are more likely to eventually notice the flat wages. But bond traders also
will be worried about higher core inflation. In terms of the overall financial status of the consumer,
the higher unemployment benefits and tax cuts certainly leave the consumer better off than without.
But the consumer is still likely to be caution about spending until jobs start returning.

Market Consensus Before Announcement

Personal income fell 0.3 percent in March, following a 0.2 percent dip the prior month. But declines
in the all-important wages & salaries component were even worse, dropping a sharp 0.5 percent,
after falling 0.4 percent in February. And consumer spending turned negative again with a 0.2
percent decrease in March. PCE inflation was mixed as the headline PCE price index was
unchanged while the core PCE price index posted another 0.2 percent increase in March. Looking
ahead, we may get some easing in the drop in income as aggregate weekly earnings for production
workers (from the latest employment report) rose 0.1 percent in April. But in recent months, wages
& salaries have been much weaker than production worker earnings. Don't look for healthy
spending numbers in April. We already have seen a 0.4 percent drop in retail sales. Inflation
numbers are likely to be mixed. April's headline CPI was flat but the core rate jumped 0.3 percent.
The PCE price index closely tracks the CPI.

Definition
Personal income is the dollar value of income received from all sources by individuals. Personal
outlays include consumer purchases of durable and nondurable goods, and services. Why
Investors Care
 Changes in taxes or
social security cost of
living adjustments can
cause some sharp
variations in monthly
disposable income
growth. However, on the
whole, monthly changes
in disposable income
fluctuate less than
monthly changes in
personal consumption
expenditures.

Data Source: Haver Analytics

Monthly changes in
personal consumption
expenditures are usually
skewed by large changes
in spending on durable
goods. Spending on
nondurable goods and
services tend to be less
volatile from one month
to the next.

Data Source: Haver Analytics

Luis Riestra Delgado

Economics Exchange Forum: We only exchange information for private use, not for commercial
reasons.

07-06-2009.