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 Posted: Fri Oct 30, 2009 3:46 am |
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won't be much of a recovery if demand(which is wage driven)cannot
consume:Consumer spending plunged in September by the largest amount
in nine months, Personal incomes unchanged workers contend with rising
unemployment and a squeeze on wages
the lie here is of course wages, consumption, debt service, and
savings. savings were higher just a few months ago, but the savings
rate reflects the hoarding of cash by those unemployed, but as the
unemployed stay unemployed longer, and more join the ranks, they are
exhausting their meager funds as i predicted. we are in a deflationary
environment, a depression.
http://news.yahoo.com/s/ap/20091030/ap_on_bi_go_ec_fi/us_economy
Consumer spending falls 0.5 percent in September
By MARTIN CRUTSINGER, AP Economics Writer – 28 mins ago
WASHINGTON – Consumer spending plunged in September by the largest
amount in nine months, reflecting the end of the government's Cash for
Clunkers auto sales program. Incomes, the fuel for future spending,
were flat.
While the government reported that the overall economy grew in the
July-September period, signaling the end of the worst recession in
seven decades, the weakness in spending and incomes as the quarter
ended underscores the fragility of the recovery.
The Commerce Department said Friday that spending dropped 0.5 percent
in September, matching economists' expectations. Personal incomes were
unchanged as workers contend with rising unemployment and a squeeze on
wages.
Economists worry that the recovery could falter in coming months if
households cut back on spending to cope with rising unemployment,
heavy debt loads and tight credit conditions.
The concern is that much of third-quarter growth stemmed from
temporary government programs such as the clunkers sales incentives
that ended in August.
The government said Thursday the gross domestic product, the broadest
measure of economic health, expanded at an annual rate of 3.5 percent
in the third quarter, the first increase after a record four straight
declines. A 3.4 percent rise in consumer spending, which accounts for
70 percent of total economic activity, powered the gain.
And consumers appear willing to pay a little more for Colgate
toothpaste, Kellogg's Frosted Flakes and Gillette Fusion shavers,
according to earnings released Thursday. Procter & Gamble Co., Colgate-
Palmolive Co. and Kellogg Co. all gave upbeat reports and even
stronger outlooks for next year.
However, some economists believe that consumer spending will slow
sharply in the current quarter, lowering GDP growth to perhaps 1.5
percent. Analysts said the risk of a double-dip recession cannot be
ruled out over the next year.
The 0.5 percent drop in consumer spending in September followed a 1.4
percent surge in August which was propelled by the big jump in car
sales that month as consumers rushed to take advantage of the
clunkers' incentives.
Last month's drop in spending resulted in a boost in the savings rate
to 3.3 percent of after-tax incomes, up from 2.8 percent in August.
Many analysts believe households will keep striving to increase
savings in the months ahead to replenish nest eggs that were crushed
by last year's stock market crash. That also would hold back spending
in the months ahead, weakening the recovery.
The Obama administration is being encouraged to extend some of the
elements of the $787 billion economic stimulus package that Congress
passed last February to jump-start the economy, but the White House
has been cautious in endorsing various proposals being advanced by
Democratic lawmakers for fear of pushing the federal budget deficit
even higher. The deficit hit an all-time high of $1.42 trillion for
the budget year ending Sept. 30.
But inflation remains in check. An inflation gauge tied to consumer
spending edged up just 0.1 percent in September, after a 0.3 percent
August rise. Excluding food and energy, the gauge rose 1.3 percent
over the past year, well within the Federal Reserve's comfort zone.
Fed officials meet next week and economists believe they will again
keep a key interest rate at a record low in an effort to support the
economy given that inflation is not a threat. |
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