Consumer spending had its largest fall this year, thanks to the end of the "Cash for Clunkers" program. And, incomes were flat. No change to the money coming in and a drop in the cash going out translates to an impediment to economic recovery.
In September, consumer spending fell 0.5%, the first decline in five months and the worst in nine. Wages and salaries dropped 0.2%, effectively offsetting the 0.2% up-tick in August. The economy did grow in the third quarter of 2009, hinting that the worst recession in 70 years may be coming to a close, but the tough September suggests we still have some work in front of us.
Whether September was the anomaly or the rule comes down to perspective: how do you feel about the signs of recovery until then? If you think it was legit, then last month was but a bump in the road. Yet, if you think the indications of economic recovery were the result of short-term measures (such as "Cash for Clunkers") that didn't result in real change, then Punxsutawney Phil's economic cousin is telling us to wear a heavy coat for a while.
Choosing a camp isn't easy. The dismal September capped a relatively positive Q3. Gross domestic product grew at an annualized 3.5% last quarter, powered by a 3.4% consumer spending gain. Several consumer product companies -- including Colgate (NYSE: CL), Kellogg's (NYSE: K) and Procter & Gamble (NYSE: PG) -- reported strong results, with more in store for next year.
Economists are forecasting slower consumer spending in the fourth quarter of this year, with GDP growth slowing to 1.5%, and the risk of a double-dip recession looms.
Consumer spending is the fuel on which the U.S. economy relies, accounting for 70% of it. With the holiday season coming up, we'll get the keenest sense of where the numbers are headed. Holiday spending will provide the barometer we need.
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Reader Comments (Page 1 of 1)
11-01-2009 @ 5:29AM
al coholic said...
The 3.5% number is bogus. We borrowed from the future with programs like cash for clunkers and other stimulus programs that have only a one time effect.
A large number of consumers have sworn off debt and won't be using their credit cards this year to finance Christmas. That means a very lean year for hoiday spending.
There is also the spector of a heavy correction in the stock market since there is no reason it should be up 60% this year. All those strong earnings you mention are only strong compared to the meager guidance they were based on.