Thursday, December 23, 2010

Consumer Spending Above Pre-Recession Level

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. 

18 Comments:

At 12/23/2010 2:34 PM, Blogger morganovich said...

but GDI was revised down quite a bit to 1.1%.

how do you sustain consumer spending growth at 2X income growth?

 
At 12/23/2010 2:45 PM, Blogger morganovich said...

http://cr4re.com/charts/charts.html?GDP#category=GDP&chart=PersonalIncomeLessTransferNov2010.jpg

real personal income is still 4.5% off from the peak.

 
At 12/23/2010 4:07 PM, Blogger juandos said...

Yet again morganovich asks the all important question...

Is there anyway to determine if its credit powering the spending or actual cash?

 
At 12/23/2010 4:57 PM, Blogger Walt G. said...

Juandos,

Here's what you asked. Yes, consumer credit is a factor in the increased consumer spending.
Credit

 
At 12/23/2010 5:39 PM, Blogger rjs said...

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...

 
At 12/23/2010 7:06 PM, Blogger Ron H. said...

"...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?

 
At 12/23/2010 7:50 PM, Blogger VangelV said...

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.

 
At 12/23/2010 7:52 PM, Blogger VangelV said...

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.

 
At 12/23/2010 8:03 PM, Blogger PeakTrader said...

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).

 
At 12/23/2010 8:28 PM, Blogger PeakTrader said...

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.

 
At 12/23/2010 9:11 PM, Blogger VangelV said...

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.

 
At 12/23/2010 9:13 PM, Blogger VangelV said...

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.

 
At 12/24/2010 3:37 AM, Blogger PeakTrader said...

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.

 
At 12/24/2010 4:20 AM, Blogger PeakTrader said...

Americans' Tax Burden Near Historic Low
April 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."

 
At 12/24/2010 11:53 AM, Blogger VangelV said...

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.

No it wasn't. At the time the US was the world's largest creditor nation and was the dominant manufacturing power in the world, way ahead of anyone else. People had savings and their debts were far more manageable than they are today. Government was much smaller and regulations did not get in the way of productive activity as much as they do now. Public sector workers were a much smaller drain on the economy and their pensions were not the huge burden that they are now.

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.

There were massive losses in capital as the Fed's liquidity games allowed distortions that diverted scarce capital into companies like Pets.com, Nortel or Groceries.com.

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).

Profits? The biotech sector is still consuming capital and bleeding red ink. As for the US IT players that survived the downturn, it is clear that they face a profit margin squeeze and lower revenues as bankrupt state governments cut budgets and reduce capex spending. They are still overvalued and find themselves in a situation where the state of the art products that they make have somehow become commoditized.

Were resources really wasted and capital or wealth really destroyed??

Yes they were wasted and destroyed. All that capital that went into companies that used metrics like page views and eyeballs was thoroughly destroyed. And capital depreciation was much faster than the accounting allowed or showed. Each new semiconductor breakthrough made billion dollar plants obsolete and worthless as new product made the older one undesirable. While engine plants could still be productive a decade or more after they were built that was not true for many semiconductor facilities that were shut down a year or two after having been built because they were not capable of making the newest products that hardware manufacturers wanted.

While there has been a revolution on the software and information content side the gains for those advances have accrued to users far more than they have for the writers of the software and content providers. So when Bill Gates improves his operating system his becoming much richer because of foreign sales is more than offset by the benefits that are gained by the Chinese and German users of his products.

My problem is not with the fact that someone is getting rich from selling products and services, which is absolutely great for the users and producers of those products and services. It is with the fact that the average American is now broke and so is the state, city, and country that s/he lives in. That means that most people will have to make huge adjustments and will have to learn to live much more modestly and to save and invest far more.

There is no way to narrate our way out of that point no matter how much we try to divert attention from reality.

 
At 12/24/2010 11:59 AM, Blogger VangelV said...

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).

Canada did not go as crazy as the US but it too has a major problem because there are too many people who own homes that should have rented instead. Debt loads are too high and their jobs are tied closely to the fortunes of the US economy.

The real destruction of capital is the government spending spree, over the past two years, that mostly "spinned the economy's wheels."

I agree that government spending is a waste of resources. That is why I believe that government needs to become much smaller and fire about 90% of its employees. (That statement applies to all levels of government.)

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.

It has? Where do you think that governments get their money from? Any time they 'invest' they use capital that has been confiscated from productive members of society.

 
At 12/24/2010 12:08 PM, Blogger VangelV said...

"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."


You have to look at all of the taxes, fees and charges that individuals pay.

Social Security taxes are higher. Local and property taxes are substantially higher. Gasoline, alcohol, and most sales taxes are higher. Healthcare premiums are much higher. Add license fees, charges, and embedded regulatory costs and consumers and taxpayers are paying far more to the government than ever before.

Whenever you post something like this you better try the smell test first. If people paid far less in taxes how is it that government is several times the size that it was in 1981?

 
At 12/24/2010 5:33 PM, Blogger juandos said...

Thank you Walt G for that 'credit link'...

Interesting stuff...

Well we know where the biggest credit problem is, right?

 

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