Consumer Spending Biggest Drop Since 9/11
Another non-shocker in economic news. Consumer spending is off by a substantial amount.
WASHINGTON (AP) — As the financial crisis was gaining force, Americans cut back on their spending in October by the largest amount since the 2001 terrorist attacks.
The Commerce Department reported Wednesday that consumer spending plunged by 1 percent last month, even worse than the 0.9 percent decline that had been expected. Personal incomes were up 0.3 percent last month, slightly better than the 0.1 percent gain analysts had expected.
A significant drop in consumer spending along with a modest, but better than expected, gain in personal incomes suggests that consumer confidence is also off and that people will continue to damp down spending as we head into the final holiday season and quarter of 2008. I’m thinking this does not bode well for this last quarters GDP numbers.
The big decline in spending in October underscored concerns that the economy is falling into a deep recession. Consumer spending accounts for two-thirds of total economic activity.
In other words, that kind of a drop is bad news for the economy. A one time stimulus package is unlikely to have any significant effect as well. Throwing a possible tax increase on top of it is probably not a good idea either.
Of course part of the decline can be blamed on falling gasoline prices, which is actually a good thing.
Many economists believe the current recession will last through the middle of next year and will be the most severe downturn since the 1981-82 slump.
Part of the fall in spending reflected declines in gasoline and other energy prices, which had been soaring earlier in the year. Adjusting for price changes, spending fell by 0.5 percent and it was the fifth consecutive decline, the longest stretch of spending declines since 1990-91, when the country was in a recession.
Still a downward trend is bad news. It is simply a matter of time, in my opinion, before the National Bureau of Economics Research announces that the country is in a recession. What remains to be seen is for how long have we been in a recession.