Archive for Friday, May 2, 2008

Spending up because of price increases

May 2, 2008


— Don't be fooled by a larger-than-expected increase in consumer spending. People aren't buying more - they're just paying more for what they buy.

That is raising doubts about whether the 130 million stimulus payments the government began sending out this week will be enough to lift consumers' sagging spirits.

The Commerce Department reported Thursday that consumer spending was up 0.4 percent, double the increase economists had forecast. However, once inflation was removed, spending edged up a much slower 0.1 percent.

The March reading was the fourth straight lackluster performance and did nothing to alleviate worries that consumer spending, which accounts for two-thirds of total economic activity, remains under severe strains, reflecting an economy beset by multiple problems.

Rising food costs, soaring energy prices and falling employment have pushed consumer confidence to its lowest levels in five years. Incomes in March rose a weak 0.3, but after removing inflation, after-tax incomes were flat.

The Bush administration is counting on its $168 billion stimulus program to give the economy enough of a lift to keep the country from slipping into a full-blown recession, but private economists are worried the boost could well be fleeting.

"Consumers are facing bad news on all fronts," said Nigel Gault, chief U.S. economist at Global Insight. "Any burst of spending based on the stimulus payments is likely to prove short-lived."

Sal Guatieri, senior economist at BMO Capital Markets, said economic growth could still turn negative this quarter even with the rebates. He cited a recent Associated Press-Ipsos poll that found only 19 percent of people plan to spend their rebates, with others surveyed preferring instead to use the $600 to $1,200 checks for the typical family to pay off bills or boost savings.

Guatieri said he expected the rebate checks to be a "moderate tonic," but he cautioned that once the rebates are spent, growth could turn negative later this year.

On Wall Street, investors brushed aside weak economic reports to focus instead on a rebound in the dollar's value against other currencies and falling oil prices. The Dow Jones industrial average surged 189.87 points to close at 13,010.00, the first close above 13,000 since Jan. 3.


gr 9 years, 11 months ago

Is this like: According to total sales records, consumers are buying more gas than ever?"but he cautioned that once the rebates are spent, growth could turn negative later this year."Solution: More Rebates! Yea! the government is so nice to us.Result: Higher taxes next year. Since the government returned a small portion of the money they stole from you this year, that means they don't have as much to spend (technically, but not in reality). So, next year, they will have to increase the taxes to make up for that money they returned to you. Maybe they will make someone else pay for the money they stole and returned to you. Or maybe they will make YOU pay for money they returned to someone else.

fu7il3 9 years, 11 months ago

Nah, they will leave it for the next administration to work out. That way, it wasn't Bush that created tax hikes, it was the next guy/gal.

Moderateguy 9 years, 11 months ago

Actually gr, I believe what has happened is that the government is having the Federal Reserve print more paper money to give to people. The net result is every person's dollar is worth less than it was before. Now, many people, if not most, are going to take their freshly printed new money to the store and buy something made outside the United States. A long term bad idea all the way around...

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