Consumer Spending Dropped .5% in September with End of Clunkers Program

Consumer spending dropped .5% in September according to the latest information from the Bureau of Economic Analysis, led by the end of the Cash for Clunkers Program.

Consumer spending dropped .5% in September according to the latest information from the Bureau of Economic Analysis (see the full report), led by the end of the Cash for Clunkers Program. This further reinforces my opinion that much of the increase in GDP last quarter was from government stimulus programs. With the clunkers program over, and the $8,000 first-time homeowners tax-credit set to expire, one has to wonder how much spending power th economy has. It's also concerning that the only growth seems to be from government give-aways.

Of course, that's just my pessimistic side. The optimistic view is that any growth is good and that we knew that without government support, the economy would be terrible. The question remains though: when is the economy ready to grow on its own without trillions in Federal cash?

Another interesting piece of data from the report is that the personal savings rate increased from 2.8% in August to 3.3% in September. So, unless prodded by the government, people are socking cash away. That's probably a good thing in the long-run as consumers repair their balance sheets and pay down debt although in the short-term we'll have to deal with lower demand.

According to the report, inflation was also tame.The price index for PCE increased 0.1 percent in September, compared with an increase of 0.3
percent in August. The PCE price index, excluding food and energy, increased 0.1 percent, the same increase as in August. That takes some pressure off the Fed to raise rates.

As I've argued though, goods-and-services inflation no longer seems to be a problem in a modern economy. Low rates seem to now be feeding asset bubbles instead of leading to an appreciation in the price of goods. While low inflation will help the Fed keep rates down, it needs to consider the sinking dollar and the surging stock, oil, and gold markets.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • TGuthri

    October 31, 2009

    People are buying like mad where I am - iphones, cars, houses. No recession in site. But that's Connecticut.

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