Consumers spending what they save

Bob Moon Aug 28, 2009

Consumers spending what they save

Bob Moon Aug 28, 2009


KAI RYSSDAL: There are many, many ways to wreck a perfectly good Friday afternoon. Including, but not limited to, digesting the latest numbers on consumer spending and personal incomes. If it wasn’t so important we’d probably pass.

The fact is that as goes the American consumer, so goes the U.S. economy. There’s no clear sign that consumer is experiencing the same kind of recovery we’ve seen on Wall Street lately. The Commerce Department told us this morning consumer spending rose two-tenths of a percent in July. Pretty much as expected.

But household incomes were unchanged. Do the math, try to figure out where the extra spending money’s coming from. And the answer is that we went to the bank and dipped into our savings.

We asked our senior business correspondent Bob Moon to figure out what it all means.

Bob Moon: Today’s economic numbers offer a glimpse of a recovery that’s still just taking shape. You can start to make out the barest outlines of a promising picture, but most of the colors are yet to be filled in.

There’s a flat line here that indicates our incomes are stable. And where the picture gets a little brighter, over here? That represents a slight increase in consumer spending.

But you can also view it from this angle: There’d most likely be nothing to look at at all, were it not for the government providing the paint, so to speak. So says FTN Financial’s chief economist Christopher Low.

Christopher Low: The relief that we’ve seen in income, the growth that we’ve seen in consumption, has pretty much been a function of government help, rather than consumers feeling better.

Low says the picture would have looked even more abstract, without the boost in new car sales toward the end of July, thanks to the Cash for Clunkers rebates.

Mesirow Financial’s chief economist Diane Swonk says, yes, we needed the government’s help. But it’s still encouraging to see the program worked.

Diane Swonk: Given the kick to production, the fact that we were actually able to get something out of this, I think that’s the most important to take away. That if you do stimulus right, you do actually get a reaction.

Some economists have cautioned of a possible double-dip recession as the effects of the government programs fade. But FTN Financial’s Christopher Low points out the bulk of the federal money is yet to be spent.

Low: If the stimulus ended today, it would be a big flop. But it doesn’t end today, and we’re hoping with another six months of spending growth from the federal government, we might start to see some hiring, we might start to see some income growth. Maybe even some consumer spending again.

For now, though, the recovery is still very much a work in progress.

I’m Bob Moon for Marketplace.

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