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Stacey Vanek Smith: When you have less, you spend less — seems logical. That’s why some new consumer spending data is so unusual. From July to September, American families purchased more, even as their net worth shrank faster than it has at any time since the worst of the financial crisis.
Joining me now to untangle this for us is our own Gregory Warner. He joins us live. Good morning, Gregory.
Gregory Warner: Good morning Stacey — and let me just add to the mixed messages here. Because not only did our net worth go down, consumer confidence also plunged. People felt worse about the future; nevertheless — through this fog and gloom — people drove to the mall and bought stuff.
Smith: Well, you’ve gotta love the American spirit. But do we have any idea why?
Warner: I called Peter Morici. He’s an economist and professor of business at the University of Maryland.
He says: what does it mean that your net worth is down? It means your house is worth less; it means the stocks in your retirement account are down. These are intangibles — the don’t slim your wallet, they don’t pay the rent.
Peter Morici: What matters to people is their paycheck and the price of gasoline. One is up, the other’s down. Even if only in nominal terms, people’s paychecks are rising, the price of gasoline has been softer, and consumers are feeling somewhat better.
Smith: OK, Gregory so does this mean we’re stuck in a “somewhat better” economic recovery?
Warner: The consumer spending question is what people have been grappling with ever since the financial crisis. We want consumers to spend more; we don’t want them to splurge their way into debt. Morici, the economist, says that this data shows consumer spending is appropriate with the slow rise in income. So that’s good for thrift, maybe bad for GDP growth. But recovery can’t rest on the shopper’s back.
Smith: Our own Gregory Warner, thank you Gregory.
Warner: Thanks Stacey.
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