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Stacey Vanek-Smith: This morning, some not so good news. Consumer plunged in September, its biggest drop in nine months. Now that’s a big deal considering consumer spending makes up about 70 percent of our economy. To help us suss this out is Lance Pan. He’s the director of investment research at Capital Advisors Group in Boston. He joins us live. Good morning Lance.
Lance Pan: Good morning Stacey.
Vanek-Smith: So let’s start with consumer spending. Why did it drop so much?
Pan: Well actually the market was expecting the number to be down about half a percent. This is not a surprise. Most of the drop was due to the drop from the end of the Cash for Clunkers program because August was a big number. Now the program went away. So the number dropped back. That’s why.
Vanek-Smith: So if the GDP is up and consumer spending is down, what is the takeaway? Where does that leave our economy?
Pan: The third-quarter GDP was a good number. But one quarter of a positive number doesn’t usually end the recession. The economy needs to be on a recovery path, and the consumer spending really is a big picture in that overall kind of scheme. So we will need the consumers to continue to spend in order for the fourth-quarter GDP to stay up, so it is a very big issue or at least is a concern, a challenge for us to deal with — How do we keep the consumer spending up?
Vanek-Smith: So should the government have more programs to encourage spending, like Cash for Clunkers or the first-time home-buyer tax credit?
Pan: Programs like that have had their effect initially. But patients always feel better when they’re on medication. But they really need to be better without the medication for them to be well. So the same thing is the consumers can’t be spending the government’s money forever. At a certain point, they have to feel better about themselves, about the future, to spend their own money. That’s what keeps the recovery going.
Vanek-Smith: So the consumer spending may be a little bit of an artificial drop this morning, anyway?
Pan: It was.
Vanek-Smith: Lance Pan is the director of investment research at Capital Advisors Group in Boston. Thank you Lance.
Pan: You’re welcome.
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