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Archive for Saturday, January 29, 2011

Robust spending helps economy gain steam

January 29, 2011

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— The economic recovery is now consistently picking up speed, and American consumers are the ones pushing the gas pedal. They increased their spending late last year at the fastest pace since 2006.

The question now is whether they can spend enough this year to make the economy grow even faster and finally bring down unemployment. It’s up to them because the housing market and government spending aren’t offering much help.

A more active consumer was the main reason the economy grew at an annual rate of 3.2 percent in the final three months of 2010, the Commerce Department said Friday. It was up from 2.6 percent the previous quarter and the best since the start of last year.

That level of growth would be great news in a healthy economy that only needed to hold steady. But with unemployment still at 9.4 percent a year and a half after the Great Recession, steady is not good enough. By some estimates, the economy would need to grow 5 percent for a whole year to significantly bring down the unemployment rate.

Still, the recovery has gained steam since a difficult patch last spring. Economists now think 2011 will be a pivotal year when consumers can finally be counted on to power the economy to stronger growth.

A one-year cut of 2 percentage points in the Social Security payroll tax is a big reason why economists predict Americans will keep spending enough that the economy will grow more strongly this year.

“Consumers are the most powerful cylinder the economy has, and finally it is firing,” said economist Sung Won Sohn at California State University. “Consumers will be picking up the slack this year as the government stimulus fades.”

Comments

just_another_bozo_on_this_bus 3 years, 11 months ago

"Economy" is the production and distribution of goods and services, pure and simple. And in a money-based economy, if there is no money, then production or distribution of goods and services doesn't happen, or is greatly curtailed. The mindless speculation by Wall Street created this economic collapse because it stopped the flow of money. But if money starts flowing again, as happens with the increased spending mentioned in this article, then production and distribution of goods and services increases-- ie, economic growth.

But this crap-shoot economic model, which we still have, is prone to booms and busts, because it treats money as if it were the true wealth in an economy, not just an arbitrary representation of those things that have true value. So there is no way to know if the latest propping up of the house of cards will last for awhile, or if this is just a temporary lull in its final collapse.

just_another_bozo_on_this_bus 3 years, 11 months ago

Of course it stopped flowing. Loans for businesses stopped, loans for housing stopped, and production stopped with it.

"Production is the key to economic growth and wealth, not spending."

No argument there. But in the current consumer-driven system, if spending stops, so does production. And when production stops, jobs go with it, decreasing spending even more. And the vicious cycle goes on.

gudpoynt 3 years, 10 months ago

LO - So, now that the economy shows signs of improving in the wake of stimulus spending, your argument has shifted from:

"Stimulus spending will ruin our nation's economy"

to

"Stimulus spending doesn't work as well as no stimulus spending"

I see.

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