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Spending down 1/3rd

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August 31, 2009 – Comments (9)

Mish has a post showing how spendirng is down in all demographic groups.

If 70% of the economy is c/onsumer spending and that is down 1/3rd, it seems to me that the economy should be showing down about 23%...

Seems like something isn't adding up...

9 Comments – Post Your Own

#1) On August 31, 2009 at 8:43 PM, MGDG (35.40) wrote:

Ah, a little massaging of the data to make things look less bad. Actually it's just government spending which is helping to pump up the GDP numbers. We'll see how long they will keep that up while waiting for the consumer to kick into gear.

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#2) On August 31, 2009 at 9:06 PM, outoffocus (23.28) wrote:

Well if you check the "revised" GDP numbers, they are always "revised downward" when adjusted for reality.  Turns out they are "as bad as expected".

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#3) On August 31, 2009 at 9:34 PM, Imperial1964 (97.91) wrote:

Consumer spending isn't really 70% of the economy directly.

That has to be a misuse of the statistic to say $.70 of ever $1 spent in this country is consumer spending.  Government spending and business spending make up a lot more than 30% of the economy.  I remember reading that government spending is now over 50% of the economy, but I don't remember where so I can reference it.

Government spending has ramped up so much that it has largely offset the consumer cutback.

And I don't think most people are cutting back their spending by 30%.  Even with 10% unemployment and the occasional reduction in wages, the savings rate would still be over 20% if that were true nationwide.  Unemployment was already at 5%, and most of the people laid off are still receiving unemployment benefits.

And anecdotally, I don't know anyone who still has a job and cut their spending by 30%.

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#4) On August 31, 2009 at 9:40 PM, devoish (98.06) wrote:

And the savings rate isn't all its cracked up to be either.. 

If we expand our survey to the top 1% of all households, we find an average income of $1.36 million for 2007. These folks had an average federal tax burden of just under 33%, so their after tax income averaged $916 thousand. If you assume this group had a savings rate of 33%, you get total savings of $452 billion (remember, $171.5 bn of this comes from the top 0.01%, we’re assuming a savings rate of around 25% of after tax income for the “poorer” 99% of the top 1%) This is more than 100% of the personal savings of the entire population, according to the BEA data. It implies that 99% of the US population still has, on average, a negative savings rate of around 1.3%. If you subtract the next nine percent, which likely still has a positive savings rate, the data for the bottom 90% becomes even more depressing, implying a negative savings rate of close to 5%.

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#5) On August 31, 2009 at 11:12 PM, dbjella (< 20) wrote:

My father is 65 and my mother is 64.  In the last 15 years they have: 

1) bought 3 new cars

2) bought 2 computes

3) bought 5 cell phones

4) bought 2 TVs

5) bought 2 GPS units

6) Taken a "major" trip every year

7) installed new windows

8) added a new roof

9) replaced the cement driveway

10) bought a new boat moter

11) purchased 2 new sets of golf clubs.

12) bought new washer/dryer 

 

My dad told me they are "done" buying stuff and will hold on to the stuff they already have until they die.  

I wonder how many of them are out there who have everything the "need?" 

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#6) On September 01, 2009 at 2:09 AM, awallejr (81.44) wrote:

Amusing that your link uses "dollar" amounts.  "Re-callibration" is not an option with Mish I suppose.

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#7) On September 01, 2009 at 4:45 PM, eldemonio (98.51) wrote:

Measuring wealth by looking at how much someone spends is asinine.  Ergo, if you think GDP is an accurate reflection of wealth - you're a jackass. 

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#8) On September 01, 2009 at 5:12 PM, dwot (65.40) wrote:

Sometimes I don't get comments at all.  I can't find anyone mentioning wealth by how much someone spends or anyone saying that GDP is a measure of wealth.  I reread my post and all the comments and I am clueless how anyone could read that someone said GDP is a reflection of wealth into anything anyone said.

 

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#9) On September 02, 2009 at 2:06 AM, MGDG (35.40) wrote:

I'm with you dwot, I was wondering how wealth got thrown into the equation. On a personal note I have cut my discretionary spending by more than 50% this year after having cut it by 35% in 2008.

Most of my current savings is from selling equities and using the procedes to pay off debt. It's actually quite lucrative as you pocket the capital gains and then recieve an additional high rate of return on the extinquished debt.

When consumers purchase goods the manufacturer needs to purchase more raw materials and employ workers to build additional product to replace what was sold. So it's not just the spending that contributes to economic growth. This actually works better if we are actually producing those goods rather than importing them.

We need trucks, trains and planes to move the raw materials to the manufacturer and the finished goods to the retailer, thereby putting additional people to work and increasing capital spending to buy new equipment and facilities to handle the increasing activity.

Yes the government spending has increased substantially, but most of that is just putting money in someones pocket who nactually spends those dollars, or should be spending them. Some of it is spent by business, some is spent by consumers and most of the current spending is to buy toxic assets from banks, which produces nothing--oops, I'm veering from the topic.

I would guess that consumer spending is currently well below 70% of GDP, but with the contraction in GDP it may not be as low as I think. The headlines may report an increase in any given numbers from the previous month, but when compared to YOY they are continuing to decline across the board.

To me the month to month numbers are just noise and the longer trend is more important and the underlining factors, such as job growth which will result in a reversal of the declining trend. I don't put much stock in a jobless recovery, unless we just plan on the government to provide us with food, clothing, housing and medical care. If you don't own a profitable business or have wealth that can be tapped, you'll generally need a job to pay for these things.  

    

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