Consumer Spending in U.S. Rises, Incomes Jump on Obama's Stimulus Efforts

[sunzt]

While we're still forming a base for the economy, the future outlook looks good right now. I'll break up this article into positive and negative economic signs. Overall though, the positive outlook outweighs the negative outlook.

Positive signs:

Consumer spending rose in May as benefits from the Obama administration?s stimulus plan spurred a jump in American incomes, a sign that efforts to revive the economy are starting to pay off.

The 0.3 percent increase in purchases was the first gain in three months, the Commerce Department said today in Washington. Earnings climbed 1.4 percent, the most in a year, driving the savings rate to a 15-year high. Another report showed consumer sentiment rose in June to the highest level since February 2008.

Government efforts to restore the flow of credit and prop up incomes are making it possible for consumers to spend even as unemployment climbs to levels last seen in the early 1980s

Gaining Confidence

A separate report today showed consumers grew more confident in June, underscoring that the worst of the recession has passed. The Reuters/University of Michigan final index of consumer sentiment gained to 70.8 from 68.7 in May.

?There is some modest improvement to the consumer outlook,? John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, said in a Bloomberg Television interview. The stimulus ?is performing its function to get income into the system, to get the economy going and to get consumer spending going forward. ...

Less Inflation

Today?s spending report also showed inflation moderated. The price gauge tied to spending patterns rose 0.1 percent from May 2008, the smallest gain since records began in 1959. The Federal Reserve?s preferred gauge of prices, which excludes food and fuel, rose 0.1 percent from a month earlier and was up 1.8 percent from a year earlier.

Because the increase in spending was smaller than the gain in incomes, the savings rate surged to 6.9 percent, the highest level since December 1993. The rate may drop back in coming months as the effects of the stimulus wane.

Adjusted for inflation, spending climbed 0.2 percent, following a 0.1 percent drop the prior month.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, gained 0.9 percent last month after falling 1.3 percent in April.

Auto Rebound

U.S. auto sales rose to a 9.9 million-unit rate in May from 9.3 million the prior month. Some industry estimates for June show the rate may exceed 10 million for the first time this year.

Consumer purchases of non-durable goods increased 0.4 percent after dropping 0.4 percent, today?s report showed. Spending on services, the largest category, was unchanged.

?Consumer spending has largely stabilized,? said James O?Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. Stimulus-related measures ?have contributed to increasing spending power. Ultimately, we need the labor market to kick in as well,? he said.

Still, companies like Hertz Global Holdings Inc. are among those seeing an improvement. The second-largest U.S. rental-car company yesterday forecast it will return to profit in the second quarter, after declines in business and consumer travel triggered two consecutive quarters of losses.

?Our car rental demand in the U.S. and Europe has stabilized,? Chairman and Chief Executive Officer Mark Frissora said in a statement. Summer peak reservations are ?better-than- anticipated.?

Negative signs:

At the same time, the wealth destruction caused by the housing slump may force households to keep rebuilding savings, indicating an economic recovery will be slow to develop

?Consumers may expand spending a little, but there are a lot of crosscurrents here,? said Michael Feroli, an economist at JPMorgan Chase & Co. in New York, who projected incomes would jump. ?It?s still too early to look for consumers to be an engine of growth for the economy.?

"...We?re still, longer term, short on jobs, short on wage growth."

The jump in incomes last month reflected tax cuts and Social Security payments from the government?s stimulus plan, the Commerce Department said. Without those benefits, wages and salaries dropped 0.1 percent in May, showing the effects of mounting job losses.

Household purchases, which accounts for about 70 percent of the economy, may drop at a 0.6 percent annual rate this quarter before growing again in the second half of the year, according to economists surveyed by Bloomberg this month. Purchases rose at a 1.4 percent pace in the first quarter.

Job Losses

Job losses are one reason for the projected decline. The unemployment rate, which reached a 25-year high of 9.4 percent last month, probably rose to 9.6 percent in June, economists predicted ahead of the government?s monthly jobs report due next week. The rate may climb to 10 percent by year-end, according to the survey.

Hopefully i didn't make this post too convoluted to understand. If i did, then too bad read it yourself

Edit: Forgot bloomberg link

 

[cubeless]

most of your positives have a negative attached...

methinks there's a bit more rocky before the smooth part if you look at how houses in your neighborhood are selling and the creep of food prices in the grocery store...

but i guess u can still do your happy dance...

just anecdotally i have to say that i contributed to both the car sales and goods purchases, but it was a pentup demand kind of thing that i had been putting off for about a year longer than i would have in previous years...

 

[ProfJohn]

I am not sure much of this is related to the stimulus.

Seems more related to the 'normal' pattern of a recession. We hit bottom and now we are getting ready to start recovering.

The long term problem is that we are facing a very slow recovery due to the hole we dug ourselves. It may take years to recover all that lost wealth.

 

[First]

Yeah, but this isn't really all that surprising. It has been known for a while that the stimulus was more likely than not going to be successful. I wonder if all those posters with sigs mocking people's claims that the stimulus/bailouts will be a success, will take them down when the next boom occurs sometime in the next 1-2 years?

And yes, this is directly attributed to the stimulus, since no one can explain statistically how simply letting WaMu, AIG, Bear, et al go down would not have led to a deep, worldwide depression.

 

[ZeGermans]

China passed a successful stimulus measure. Unfortunatly ours was about a third of the size it should have been, and even then half of it was pissed away on tax cuts in the spirit of 'bipartisanship'.

 

[First]

Originally posted by: ZeGermans
China passed a successful stimulus measure. Unfortunatly ours was about a third of the size it should have been, and even then half of it was pissed away on tax cuts in the spirit of 'bipartisanship'.

Tax cuts aren't "pissed away" stimulus whatsoever. They have a relatively small, but real effect on both saving and spending, the former of which has risen (predictably), which isn't a bad thing as people de-leverage by paying off bills and saving for houses/retirement/etc. again.

 

[Engineer]

Originally posted by: cubeless
most of your positives have a negative attached...

methinks there's a bit more rocky before the smooth part if you look at how houses in your neighborhood are selling and the creep of food prices in the grocery store...

The creep in the grocery store seems like a rocket ship straight up. I've noticed that since gasoline went to 4.xx last year, grocery prices started skyrocketing and haven't really stopped. Kroger profits were up 12.5% on the idea (per an article) that people are eating out less and buying more groceries. I can tell you that the 12.5% is more of inflation than people just eating out less.

As for local housing, we (my wife and I) have walked our neighborhoods for several years (up to 2.5 hours walking per night so we can go up to 8 miles or so in any given evening) and housing sales have increased about 3 fold this year with some houses selling in just over a week (which would not have happened in the last two years). On the down side, we see many more abandoned homes (forclosed?), even in affluent neighborhoods (upwards of $1,000,000 per home for some).

 

[ZeGermans]

Originally posted by: Evan

Originally posted by: ZeGermans
China passed a successful stimulus measure. Unfortunatly ours was about a third of the size it should have been, and even then half of it was pissed away on tax cuts in the spirit of 'bipartisanship'.

Tax cuts aren't "pissed away" stimulus whatsoever. They have a relatively small, but real effect on both saving and spending, the former of which has risen (predictably), which isn't a bad thing as people de-leverage by paying off bills and saving for houses/retirement/etc. again.

Yes a bunch of rich people get free money to add to their portfolios while normal people suffer

 

[EagleKeeper]

Every year there is a jump in consumer spending in the April-June time frame

Income tax refunds.

 

[ProfJohn]

Originally posted by: Evan
Yeah, but this isn't really all that surprising. It has been known for a while that the stimulus was more likely than not going to be successful. I wonder if all those posters with sigs mocking people's claims that the stimulus/bailouts will be a success, will take them down when the next boom occurs sometime in the next 1-2 years?

And yes, this is directly attributed to the stimulus, since no one can explain statistically how simply letting WaMu, AIG, Bear, et al go down would not have led to a deep, worldwide depression.

The work in shoring up the banks is different than the Obama stimulus.

So far the Obama stimulus has not results in much if any improvement in the economy.
So far they have only spent $44 billion of the stimulus. Our overall economy is about $1 trillion per month so $44 billion is so small that it would almost not matter.

 

[sunzt]

My prediction: By 2012, the booming economy will make repubs look foolish for their bets opposing stimulus measures. Repubs will then focus on future hypothetical hyperinflation due to stimulus and ignore economy as much as possible to try to win white house. Ultimately they will lose because as we all know.... it's the economy. 2010 though is too close to call; the economy should be recovering by then, but how great and pronounced the recovery will dictate congressional outcomes in various areas of the country.

Edit: Regardless of the causes, the outcome of the economy (good or bad) will ALWAYS be affiliated with the current administration.

 

[ZeGermans]

....and then Obama remains a center-right president, trolls the hell out of conservatives and liberals, and remains a pretty repugnant person.

 

[alphatarget1]

Originally posted by: Engineer

The creep in the grocery store seems like a rocket ship straight up. I've noticed that since gasoline went to 4.xx last year, grocery prices started skyrocketing and haven't really stopped. Kroger profits were up 12.5% on the idea (per an article) that people are eating out less and buying more groceries. I can tell you that the 12.5% is more of inflation than people just eating out less.

Where do you live? I never shop at Krogers. Everything there is more expensive than HEB (in Texas at least).

Sometimes I wonder if higher food prices is a good thing for America. Maybe people will finally eat less and not be so obese anymore.

 

[charrison]

Originally posted by: alphatarget1

Originally posted by: Engineer

The creep in the grocery store seems like a rocket ship straight up. I've noticed that since gasoline went to 4.xx last year, grocery prices started skyrocketing and haven't really stopped. Kroger profits were up 12.5% on the idea (per an article) that people are eating out less and buying more groceries. I can tell you that the 12.5% is more of inflation than people just eating out less.

Where do you live? I never shop at Krogers. Everything there is more expensive than HEB (in Texas at least).

Sometimes I wonder if higher food prices is a good thing for America. Maybe people will finally eat less and not be so obese anymore.

HEB actually have pretty low prices for groceries as compared to the rest of the country. The super walmarts keep them honest.

 

[charrison]

Originally posted by: Engineer


The creep in the grocery store seems like a rocket ship straight up. I've noticed that since gasoline went to 4.xx last year, grocery prices started skyrocketing and haven't really stopped. Kroger profits were up 12.5% on the idea (per an article) that people are eating out less and buying more groceries. I can tell you that the 12.5% is more of inflation than people just eating out less.

Prices at the grocery store have been falling here. However, I dont know if they are back down to where they were before energy prices went up. The grocery shrink ray has disappeared and packaging has gone back to larger sizes.

 

[Engineer]

Originally posted by: charrison

Originally posted by: Engineer


The creep in the grocery store seems like a rocket ship straight up. I've noticed that since gasoline went to 4.xx last year, grocery prices started skyrocketing and haven't really stopped. Kroger profits were up 12.5% on the idea (per an article) that people are eating out less and buying more groceries. I can tell you that the 12.5% is more of inflation than people just eating out less.

Prices at the grocery store have been falling here. However, I dont know if they are back down to where they were before energy prices went up. The grocery shrink ray has disappeared and packaging has gone back to larger sizes.

Certain things such as milk, eggs and beef have indeed went down. Other items have continued to go up directly in price (for same package size) or have had their package size reduced (Kroger and other brand chewy granola bars for example are now using crisp rice in the recipe which makes them lighter and generally not as good but price remained the same for less product). I did most of the shopping over the last year and they don't raise prices quickly, they continually add a nickle here or there and wait a few weeks/months and then do it again..and again.

However, I will say if you keep to the sales and use coupons, you can still do very well.

Also, if you have a 5% rewards credit card that works for stores such as Kroger (doesn't generally work for WalMart however), you can do OK with that too.

 

[alchemize]

WalMart is getting ready to go through a big transition. They used to be "A merchandise company that has food". They are now moving to the "Supermarket that has merchandise" model. They are dramatically reducing their toy section, along with other SKU's store wide. In other words, becoming more like a super-target. The grocery chains are their next target now that they've killed kmart and pushed target back to a distant second.

 

[bamacre]

Originally posted by: Evan
when the next boom occurs sometime in the next 1-2 years?

When do you predict that boom's bust to happen?

As to the OP, people said the same thing during the bubble. We're not improving our economy, we're just selling out our long-term for the short term. We don't need more bubbles and busts, we need a healthy, stable economy. Of course, that's what the Fed was supposed to give us, and instead we get the opposite, an economic roller coaster.

 

[charrison]

Originally posted by: Engineer

Originally posted by: charrison

Originally posted by: Engineer


The creep in the grocery store seems like a rocket ship straight up. I've noticed that since gasoline went to 4.xx last year, grocery prices started skyrocketing and haven't really stopped. Kroger profits were up 12.5% on the idea (per an article) that people are eating out less and buying more groceries. I can tell you that the 12.5% is more of inflation than people just eating out less.

Prices at the grocery store have been falling here. However, I dont know if they are back down to where they were before energy prices went up. The grocery shrink ray has disappeared and packaging has gone back to larger sizes.

Certain things such as milk, eggs and beef have indeed went down. Other items have continued to go up directly in price (for same package size) or have had their package size reduced (Kroger and other brand chewy granola bars for example are now using crisp rice in the recipe which makes them lighter and generally not as good but price remained the same for less product). I did most of the shopping over the last year and they don't raise prices quickly, they continually add a nickle here or there and wait a few weeks/months and then do it again..and again.

However, I will say if you keep to the sales and use coupons, you can still do very well.

Also, if you have a 5% rewards credit card that works for stores such as Kroger (doesn't generally work for WalMart however), you can do OK with that too.

We are fortunate to have HEB which operates on the always low price model like walmart does. For the past couple of months they store has been littered with price drop notices. And for the stuff we buy, the prices has gone down.

 

[charrison]

Originally posted by: alchemize
WalMart is getting ready to go through a big transition. They used to be "A merchandise company that has food". They are now moving to the "Supermarket that has merchandise" model. They are dramatically reducing their toy section, along with other SKU's store wide. In other words, becoming more like a super-target. The grocery chains are their next target now that they've killed kmart and pushed target back to a distant second.

Grocery stores are going to need to adapt that is for sure. HEB has started carrying alot of merchandise. I can go get a gallon of milk and 42 inch flat screen while I am there.

 

[charrison]

Originally posted by: bamacre

Originally posted by: Evan
when the next boom occurs sometime in the next 1-2 years?

When do you predict that boom's bust to happen?

As to the OP, people said the same thing during the bubble. We're not improving our economy, we're just selling out our long-term for the short term. We don't need more bubbles and busts, we need a healthy, stable economy. Of course, that's what the Fed was supposed to give us, and instead we get the opposite, an economic roller coaster.

There were booms and busts before the fed was around and they will continue to occur. The economy is cyclical and will continue to be so.

 

[Fingolfin269]

Originally posted by: cubeless
most of your positives have a negative attached...

methinks there's a bit more rocky before the smooth part if you look at how houses in your neighborhood are selling and the creep of food prices in the grocery store...

but i guess u can still do your happy dance...

just anecdotally i have to say that i contributed to both the car sales and goods purchases, but it was a pentup demand kind of thing that i had been putting off for about a year longer than i would have in previous years...

Your anecdote is actually a part of the problem. Fear leads to less spending by those who can actually afford to spend. I know I've been saving a lot more than I normally do just in case but lately have been spending a little more. I'd say this is true for many people out there.

 

[cubeless]

Originally posted by: Fingolfin269

Originally posted by: cubeless
most of your positives have a negative attached...

methinks there's a bit more rocky before the smooth part if you look at how houses in your neighborhood are selling and the creep of food prices in the grocery store...

but i guess u can still do your happy dance...

just anecdotally i have to say that i contributed to both the car sales and goods purchases, but it was a pentup demand kind of thing that i had been putting off for about a year longer than i would have in previous years...

Your anecdote is actually a part of the problem. Fear leads to less spending by those who can actually afford to spend. I know I've been saving a lot more than I normally do just in case but lately have been spending a little more. I'd say this is true for many people out there.

you say fear, i say prudence... i have a lot more years to live (statistically) and between the potential for increased inflation and taxes that i see based on what's going on my nest egg isn't as sunny side up as it used to be... i can just see us folks who scrimped in the present to pump up our 401k's getting screwed (even more) now...

 

[GeezerMan]

Link


Link 2


Maybe a bit early for those green shoots.

 

[bamacre]

Originally posted by: charrison

Originally posted by: bamacre

Originally posted by: Evan
when the next boom occurs sometime in the next 1-2 years?

When do you predict that boom's bust to happen?

As to the OP, people said the same thing during the bubble. We're not improving our economy, we're just selling out our long-term for the short term. We don't need more bubbles and busts, we need a healthy, stable economy. Of course, that's what the Fed was supposed to give us, and instead we get the opposite, an economic roller coaster.

There were booms and busts before the fed was around and they will continue to occur. The economy is cyclical and will continue to be so.

Certainly, and government gave us central bank-like policies before we had an actual central bank. But these massive booms and busts are not a natural phenomenon of the market.