Professor Mark J. Perry's Blog for Economics and Finance
Real personal consumption expenditures increased by 2.77% in November from a year earlier, to $9.432 billion, according to today's BEA report. This was the largest increase in spending since a 2.96% yearly gain in January 2007, and lifted consumption spending above the pre-recession peak of $9.355 billion in December of 2007, when the recession officially started (see chart above). The U.S. consumer is back.
but GDI was revised down quite a bit to 1.1%.how do you sustain consumer spending growth at 2X income growth?
http://cr4re.com/charts/charts.html?GDP#category=GDP&chart=PersonalIncomeLessTransferNov2010.jpgreal personal income is still 4.5% off from the peak.
Yet again morganovich asks the all important question...Is there anyway to determine if its credit powering the spending or actual cash?
Juandos,Here's what you asked. Yes, consumer credit is a factor in the increased consumer spending.Credit
we have ten percent unemployment, 20% if you count those underemployed...one out of six have been unemployed in the last 18 months, and 17% are working in a lower paying job out of their field...so who could be pushing spending back up? for the most part, it must be the same people who will be getting an average of $129,000 extra to spend when the bush tax cuts are renewed...maybe if we all get lucky, they'll trickle down on the rest of us...
"...so who could be pushing spending back up? for the most part, it must be the same people who will be getting an average of $129,000 extra to spend when the bush tax cuts are renewed..."Wow! Such blatant class envy!Do you mean those same people who won't have that average $129k extra stolen from them?Consumer spending is a good thing for all of us, right? what difference does it make who's doing it?
so who could be pushing spending back up? for the most part, it must be the same people who will be getting an average of $129,000 extra to spend when the bush tax cuts are renewed...Nobody is getting a tax cut. The recent agreement between the Party of Evil and the Party of Stupid simply keep the tax rates the same for most people. The extra spending is probably coming from the use of credit. With interest rates low many people have a hard time convincing themselves to save and much easier to keep adding debt and buy more than they can afford. The problem is that most people have a liquidity problem and are sitting with impaired credit ratings at a time when they have a hard time finding enough work to allow them to earn enough to live as they used to. We have already seen new automobile orders fall for the fourth month in a row. Housing starts are also weak and turning down and existing home sales are not picking up as predicted. Inflation is rising and GDP looks to be turning down again. With Obama's healthcare mess far from being resolved manufacturing activity looks to be ready to turn over again. While Mark is always ready to see the bright side of any situation he will have a hard time ignoring the coming reality in the next few months.
Consumer spending is a good thing for all of us, right? Is it? When the spending is financed by credit and there is a reduction in capital most of us are likely to suffer negative effects. What the country needs is more investment and lower prices so that the real standard of living can increase again.
It's important to note with 10% unemployment, 90% of the workforce is employed, and a large proportion of them, if not most, are earning more money than ever before (e.g. from raises and overtime).
Anyway, if bubbles, like the housing market or stock market, didn't burst, the result would be too many workers retiring too early. So, the bursting of asset bubbles help keep future labor supply and demand in equilibrium.
It's important to note with 10% unemployment, 90% of the workforce is employed, and a large proportion of them, if not most, are earning more money than ever before (e.g. from raises and overtime). BLS reports that U-6 stands at close to 20% and if we used the same methodology to measure unemployment as we used to during the Carter Administration we would be looking at 23% unemployment. With regular hours and overtime down most people are not earning more than ever before because their increases have not managed to keep up with rising taxes and prices.
Anyway, if bubbles, like the housing market or stock market, didn't burst, the result would be too many workers retiring too early.The problem is not the bubbles bursting but bubbles being formed in the first place. They have caused resources to be wasted and wealth to be destroyed.So, the bursting of asset bubbles help keep future labor supply and demand in equilibrium. The bubbles destroyed capital. That is a bad thing.
VangelV, the 1981-82 recession was much worse. Unemployment, inflation, and interest rates were all much higher. Today, taxes are near historical lows, and there were fears of deflation recently. Huge amounts of capital flowed into the Nasdaq from 1995-00, in spite of low or negative earnings (for example, Cisco Systems had a P/E of 80, while Amazon.com had huge losses per share). After the bubble burst, surviving Nasdaq firms became stronger. The result is the U.S. not only leads the world in the Information Revolution (in both revenues and profits), but leads the rest of the world combined (also, today, about two-thirds of the world's biotechs, in revenues and profits, are American).Were resources really wasted and capital or wealth really destroyed?Also, the U.S. had a homebuilding boom. Huge amounts of capital flowed into the U.S. housing market, from 1995-06. The result is "too many" houses (Canada didn't have a housing bubble, and Canadians live in much smaller and older houses).The real destruction of capital is the government spending spree, over the past two years, that mostly "spinned the economy's wheels." However, fortunately, the government has been able to afford the wasteful spending, at least so far, because of the enormous "excess" capital from productive U.S. firms and international trade.
Americans' Tax Burden Near Historic LowApril 16, 2009 "The middle fifth of taxpayers, who earned an average of $60,700 per household in 2006, paid just 3 percent in federal income tax that year, down from a high of 8.3 percent in 1981. The average family forked over barely 9 percent of its earnings to the IRS in 2006...The effective tax rate hit its all-time low in 2003 and has since crept up only slightly."
About Me Name: Mark J. Perry Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. Perry is currently on sabbatical from the University of Michigan and is a visiting scholar at The American Enterprise Institute in Washington, D.C.
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