Consumer Spending: Have We Learned Nothing?

We are right back to where we were before Monday's "rally for no apparent reason," looking at S&P 1040 as an inflection point. Below that we'll want to press short to see if we can reach S&P 1020.

Too much economic data to go through this morning but my favorite nugget was this one, from the New York Times -- it indicates that Americans have (a) learned nothing and (b) are happy to spend whatever the government gives them.

The Commerce Department said Thursday that consumer spending rose 1.3 percent in August, even better than the 1.1 percent gain that had been expected. But incomes edged up 0.2 percent, the same as in July.

That's pretty much what we've been doing for an entire decade, before we had the house ATM funding the difference between wages and spending. Now we have the government ATM filling the hole. Until we return to an era where spending is born of wages and savings, rather than handouts from either a house bubble or a government bubble, we'll have learned nothing. And now we can clearly see why politicians act the way they do. Why should they act responsibly when the people are willing to spend at 5x their rate of income growth?

The subsidized economy of America continues on...

...consumer spending jumped by the most in nearly eight years in August due partly to the government's Cash for Clunkers program...

Why bother saving money when the government is happy to fund your lifestyle? After all, money grows on trees. And no one asks what the costs of all these benefits are.

Comments

[tinscale:]

Well, how else are we gonna prop up this market?!! :-)


"Why bother saving money when the government is happy to fund your lifestyle? After all, money grows on trees. And no one asks what the costs of all these benefits are."SeekingAlpha.Init...

Oct 01 12:40 PM

[User 353732:]

Over the past 20 years, WashDc and Wall St have fashioned and now, with consummate skill, operate a dark ,satanic, mill.
The mill accumulates and transfers risk in the economy from Wall St(and its fellow travelers) to Main St. The mill also extracts and aggregates rewards from the economy and transfers them from Main St to Wall St.

It does this by making serial bubbles. Bubbles come and bubbles go but the mill keeps running, spewing its toxic vapors. It will keep running, doing what it is designed to do, until one of two things happen. Either Main St is completely poisoned or the mill is redesigned and rebuilt to nourish not poison Main St.
Under the current Regime, the probability of the latter outcome, is nil.

Oct 01 01:38 PM

[John Galt:]

Spending more than you make:

Sometime you might expect from teenagers working their first job who don't make much money. Not from adults. Grow up America.

Oct 01 02:08 PM

[Steak:]

Heh, learning...I'm not doing any such thing! Thats what we have Asians for, right?

Oct 01 03:40 PM

[predictorma...:]

In short, the answer to your headline is no.

Cash for Clunkers- consumers take on more debt, push purchases from the future into the present.

Cash for local governments ("Stimulus" ?!) preserve the jobs of overpaid, over benefitted government employees for another year. Postpone true restructuring and re-engineering.

Cash for everything else that isn't building something- waste

The feds do record capital expenses as operating expenses so it distorts things a little. I am fine with the infrastructure improvements (though I think it should do where most needed or where it benefits the most, not just to those who are fastest with the paperwork).

I am angry at our government for not putting in place measures that encourage thrift and the return to a strong economy based on real growth and investment.

Oct 01 03:44 PM

[Vuke:]

Let's have fun, fun, fun until daddy takes the T-Bird away..........

Oct 01 04:44 PM

[rosey99:]

Patience, and more patience, that's the prescription for what ails you TraderMark. Eventually we will get to see what the economy really looks like without all that government largess sloshing around. IMO, we are closer to that day than most realize, but who can say?

And after that, it will be interesting to see how, for example, the FED unloads all those MBS and other dubious assets. It could get very interesting, and we should all be careful what we wish for. Just a gut feeling - pure speculation, if you will - but the situation seems pretty fragile to me and I don't know how much longer the distorting combination of QE, ZIRP, and consumption subsidies/handouts will last. Something will likely give within months, not years, and the picture will come more into focus. I don't think it will be a very pretty picture, but that's just my opinion. Simply put, in the end I think they will just give up (more or less) and try instead to manage deflation. It could be a big policy fight, but in the end I don't really see that there will be much choice. At this point just about every tool they have is either blunted or broken.

To paraphrase Ross Perot: "The sucking sound you will hear will be the sound of contracting credit." Add higher taxes to the mix, and it could suck, blow, and really hurt all at once. But I guess it has to happen, or at least that's my two cents worth.

So patience my man. . .Soon we'll know if the future will taste bubbleicious or deflationtastic. I honestly don't think it will be a blend.

Oct 01 05:59 PM

[fwi:]

I realize that the govt. reported that consumer spending was up due to the Cash for Clunkers program, but the model does not account for the Reduced spending that prudent citizens engage in , as they plan and prepare for much larger tax burdens. The specter of future tax hikes influences present spending behaviour. So the blip up really isn't intentional consumer spending, it is just the slosh of government throw away money. Which will have to be mopped up with higher taxes on said happy consumers.

Oct 01 08:59 PM

[The Khan:]

There's a problem here. You have money in your hand, the banks don't pay interest, Wall St is a den of thieves, you have an idea that inflation, maybe hyperinflation, is around the corner, you want to be prudent, what do you do? No good burying it in the garden. You spend it. Not much else to be done with it. If you're smart, you redirect your spending a little, buy a little insurance, with a percentage of spending going into things with intrinsic and enduring value/utility (gold, silver, guns, ammo, non-perishable food, hand tools, etc).

What the hell else am I going to do with my money if it's likely going to be worthless in the (near?) future?

Oct 03 11:27 AM