Posted by: John Gilmore | September 16, 2006

Consumer Spending Tumbles

We’re hearing a lot of people today tell us that the ‘great recession’ is either over – or will be ending soon. We’re hearing this from political leaders, financial leaders and economists. Many of these people are now pointing to the 3rd quarter increase in GDP (3.5%) released yesterday. As we discussed in yesterday’s post – no one should be celebrating this gain in GDP.

The problem – as we’ve seen time and again – is that very few people are analyzing the details behind the 3.5% gain – and are therefore blindly following the blind.

What is the real economy? Does the GDP number really give us a good indication of what is going on? I believe the answer is no. The real economy to ordinary people (that’s you and me) is employment, consumer & business spending, wages/income & our purchasing power (U.S. Dollar). I don’t know about you – but if I’m out of a job – I could care less what the government says about GDP (whether the actual number is accurate or not). If I don’t have a job – I’m not spending – I’m just trying to survive.

This is what 26 million of us are now doing – just trying to survive.

Because real unemployment is somewhere between 16-22% (depending on how you measure) – it should not surprise anyone that consumer spending is declining.

From the Wall St. Journal:

Spending Tumbles

Spending by Americans took a big tumble in September, as they lost a popular government subsidy and were left with a lousy job market and a credit crunch.

The 0.5% drop in spending was the largest since December 2008, when the recession was at its worst. Most of the drop was in durable goods, which include autos. Outlays on nondurable goods and services posted a gain from last month.

We’ve seen massive amounts of ‘stimulus’ money flowing into our financial system – but little of this is making its way to ordinary Americans. Since our monetary system is based on debt – let’s look at what banks are doing with their reserves.

Are they lending? No. Why? As I’ve said before – banks do not want to lend in this economic environment and as our economy continues to lose jobs – there will be fewer and fewer people and businesses who can qualify for loans.

Since we now know that bank loans directly contribute to our money supply – we would expect our money supply growth to slow considerably based on the charts above – and that’s exactly what we’re seeing.

Personal income is also flat or down.

With nearly 10% of the U.S. labor force out of work, incomes aren’t going up much. September’s flat reading followed a 0.1% August gain, revised from an originally reported 0.2% increase.

So – in the real economy where you and I get the money we need to survive – life is not good and the trends are not good. All of the people out there saying that the recession is ending are living in a fantasy land of government statistics and wishful ‘outlooks’.

For you and me – economic conditions continue to decline. As you’ve seen me say before – we’re rapidly approaching a cliff – and we’re going to be pushed off at some point.

Get ready for significant stock market declines in the near future. Economic fundamentals do not support current stock prices. When everyone wakes up to this economic reality – life in the stock market is going to be chaotic.

I have posted another good blog post by Karl Denninger below relating to the consumer spending report – followed by the Wall St. Journal article mentioned above.

jg – October 30, 2009
________________________________________

Friday, October 30. 2009

Posted by Karl Denninger in Macro Economics at 09:05

Another Bad Economic Report (PCI/Spend)

http://market-ticker.denninger.net/archives/1557-Another-Bad-Economic-Report-PCISpend.html

How do you get “economic recovery” out of these numbers?

Personal income decreased $0.1 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $0.2 billion, or less than 0.1 percent, in September, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $47.2 billion, or 0.5 percent.

That looks like flat income and down spending to me.

Oh wait – we have to read past the first two sentences, right?

Let’s do that.

Private wage and salary disbursements decreased $11.2 billion in September, in contrast to an increase of $10.1 billion in August. Goods-producing industries’ payrolls decreased $7.8 billion, compared with a decrease of $6.3 billion; manufacturing payrolls decreased $1.5 billion, compared with a decrease of $4.1 billion. Services-producing industries’ payrolls decreased $3.4 billion, in contrast to an increase of $16.4 billion.

Wait a minute. I thought that income was flat? We have a decrease, a decrease, a decrease and a decrease. How do we get to flat with those?

Supplements to wages and salaries increased $0.1 billion in September, compared with an increase of $2.0 billion in August.


Proprietors’ income increased $0.7 billion in September, compared with an increase of $3.4 billion in August. Farm proprietors’ income decreased $1.6 billion, compared with a decrease of $1.2 billion. Nonfarm proprietors’ income increased $2.3 billion, compared with an increase of $4.6 billion.


Rental income of persons increased $5.4 billion in September, compared with an increase of $5.2 billion in August. Personal income receipts on assets (personal interest income plus personal dividend income) decreased $13.8 billion, the same decrease as in August. Personal current transfer receipts increased $17.3 billion in September, compared with an increase of $9.6 billion in August.

Ah.

Small business income was down compared to August, rental incomes were basically flat (compared to prior month), but income receipts on assets (dividends + interest on assets) decreased. Those are bad comps too.

The big Kahuna was government handouts, which was up big m/o/m. There’s the entry that kept PCI and DPI from collapsing.

Real PCE — PCE adjusted to remove price changes — decreased 0.6 percent in September, in contrast to an increase of 1.0 percent in August.

Consumers are not spending.

All in all, another bad report. Not a disaster, but certainly not the stuff of which “economic recovery” is made.

The evidence continues to pile up……

_____________________________________
OCTOBER 30, 2009, 8:58 A.M. ET

Consumer Spending Tumbles

Wall St. Journal

by JEFF BATER

Spending by Americans took a big tumble in September, as they lost a popular government subsidy and were left with a lousy job market and a credit crunch.

The 0.5% drop in spending was the largest since December 2008, when the recession was at its worst. Most of the drop was in durable goods, which include autos. Outlays on nondurable goods and services posted a gain from last month. Spending rose 1.4% in August, revised up from a previously estimated 1.3% increase. That gain was driven by “cash for clunkers,” which let motorists swap gas guzzlers for newer models. The car-rebate program started in July and ended in late August.

The subsidy helped push the economy to what the government reported this week was a 3.5% increase during the third quarter, seen as an end to the recession. But the recovery is expected to be slow, and questions abound to its sustainability once government stimuli fade. Another popular incentive, the first-time homebuyer tax credit, lapses in November, although the housing industry is trying to push an extension through Congress.

Commerce Department data Friday showed personal income flat compared to August while spending last month decreased by 0.5%. A key gauge of prices reiterated inflation wasn’t an immediate threat, as the economy fights to recover.

Economists surveyed by Dow Jones Newswires had forecast income held steady during September and spending fell 0.5%.

With nearly 10% of the U.S. labor force out of work, incomes aren’t going up much. September’s flat reading followed a 0.1% August gain, revised from an originally reported 0.2% increase.

Personal saving as a percentage of disposable personal income was 3.3%, compared to 2.8% in August.

As for price gauges in Friday’s report, the price index for personal consumption expenditures excluding food and energy, year over year, rose 1.3%. The year-over-year gain in August was also 1.3%. The Federal Reserve watches this core PCE index closely for signs of inflation pressures. Fed officials define their statutory goal of price stability as inflation of 1.5% to 2%.

On a monthly basis, the core PCE increased 0.1% in September compared to August. It has climbed at that rate five months in a row.

The PCE price index rose 0.1% in September compared to August. It rose 0.3% in August. Year over year, the PCE price index was down 0.5% in September. It fell at the same rate in August.

Write to Jeff Bater at jeff.bater@dowjones.com

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