Free Markets, Free People

Consumer Spending


GDP numbers up this quarter but is that permanent and significant?

Yeah, I know, boring economics again, but its important stuff.  This is where the crisis is and it is important to understand these stories as they come out.

The Washington Post trumpeted today that the Gross Domestic Product grew by 2.5% this past quarter.   Yes, that is a decent number.  But a) is it a number that will be revised upward or downward (because they’re always revised) and b) are there any clinkers out there we should be aware of, and finally c) is this the beginning of a trend or just a blip?

In answer to “a”, the “b” says down.  So let’s get to “b”:

Real disposable personal income fell 1.7%, the biggest drop since the third quarter of 2009, economist Nigel Gault of IHS of Global Insight notes. Even so, consumer spending jumped 2.4%, a big factor in the overall GDP growth. That means consumers boosted their spending by saving less. The savings rate fell a percentage point to 4.1%, Commerce Department data show.

That trend can’t last indefinitely, economists warn. Consumers eventually will tap out their savings or put the brakes on spending. “Consumer spending only accelerated because the saving rate dropped by a full percentage point,” Mr. Gault wrote. “That’s not a solid foundation for growth.”

Economists are already wondering whether a plunge in consumer confidence will eventually translate into lower consumer spending. October data from the Conference Board this week showed that Americans’ confidence in the economy is lower than at any point since the depths of the recession.

So the good news is that consumer spending most likely drove the GDP numbers up this past quarter.  However, it also appears, given the report, that it is unlikely that’s going to continue.  That is a huge drop in real disposable income and tapping savings isn’t something one would expect to be a long-term trend.  What we may have seen this quarter is consumer spending driven by the fact that a good percentage of consumers could hold out no longer on making some purchases.  Additionally, those out of work and tapping savings can’t do that forever.  

Which brings us to “c”.  Trend or blip?  Well, first my guess is the GDP will be revised downward.  And, seeing how that’s been the case with all previous quarters, I think that’s unfortunately a pretty safe bet.   And “c”?

Blip.

~McQ

Twitter: @McQandO


Quote of the day – why we’re not yet in a recovery edition

Yeah, I know, there are technical definitions of what constitutes a recession and a recovery.  But if you’re unemployed, underemployed or given up on finding a job, you find  none of those technical definitions unimpressive.

Anyway, this particular quote, in a nutshell, tells you why the “recovery” isn’t much to write home about:

Data released by the Bureau of Economic Analysis at the Commerce Department this morning shows that Americans earned a bit more, spent a bit less and saved more in June — all in line with economists’ expectations. Consumer spending drives about 60 percent of the economy, therefore, economists do not expect the recovery to take strong hold until American families feel secure enough and are earning enough to spend again. Unemployment, of course, remains a major drag on the economy.

So, while savings is good in general, it’s not good in a macro sense when you’re in a recession.  And, as the quote notes (and I frankly think the number is low) when 60% of the economy is driven by consumption, increased savings and less spending is not a good sign.  It’s all about confidence, and consumers simply aren’t feeling it.

That may be because of the last sentence which has my vote for the understatement of the year. 

The good news, however, is there was nothing, apparently, “unexpected” about these numbers.

~McQ

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Quote of the day – why we’re not yet in a recovery edition

Yeah, I know, there are technical definitions of what constitutes a recession and a recovery.  But if you’re unemployed, underemployed or given up on finding a job, you find  none of those technical definitions unimpressive.

Anyway, this particular quote, in a nutshell, tells you why the “recovery” isn’t much to write home about:

Data released by the Bureau of Economic Analysis at the Commerce Department this morning shows that Americans earned a bit more, spent a bit less and saved more in June — all in line with economists’ expectations. Consumer spending drives about 60 percent of the economy, therefore, economists do not expect the recovery to take strong hold until American families feel secure enough and are earning enough to spend again. Unemployment, of course, remains a major drag on the economy.

So, while savings is good in general, it’s not good in a macro sense when you’re in a recession.  And, as the quote notes (and I frankly think the number is low) when 60% of the economy is driven by consumption, increased savings and less spending is not a good sign.  It’s all about confidence, and consumers simply aren’t feeling it.

That may be because of the last sentence which has my vote for the understatement of the year. 

The good news, however, is there was nothing, apparently, “unexpected” about these numbers.

~McQ

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Podcast for 01 Nov 09

In this podcast, Bruce, Michael and Dale discuss the state of the economy, and the health care bill that came to the house floor this week.

The direct link to the podcast can be found at BlogtalkRadio.

Observations

The intro and outro music is Vena Cava by 50 Foot Wave, and is available for free download here.

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