Consumers Pare Spending in September

[Spazito]

WASHINGTON (Reuters) - American shoppers took a breather last month as spending tumbled for the first time since February, the government said on Friday in a report that showed a boost from tax cuts fading.



Personal spending fell 0.3 percent in September after hefty gains of 1.1 percent in August and 1.0 percent in July, the Commerce Department (news - web sites) said, showing consumer spending losing momentum as the third quarter ended. Adjusted for inflation, spending was off a sharper 0.6 percent.

<snip>

The out-sized spending gains over the summer had reflected lower tax withholding from paychecks and federal child tax credit refunds. But the report on Friday, which showed a 1.0 percent drop in after-tax income -- the biggest slide since October 2001 -- showed the tax-cut effect waning.

<snip>

In its report on U.S. gross domestic product on Thursday, the department said the core price index had risen at an annual rate of 1.8 percent after posting a gain of 1.1 percent in the prior quarter, leading some investors to worry inflation pressures were building.

more

http://story.news.yahoo.com/news?tmpl=story&u=/nm/economy_income_dc

[spotbird]

1. GDP up and spending down?

So we are making things but not buying them?

[Guaranteed]

2. Yeah. That's called a recession.

On edit: of course, extended a bit more...

[ender]

6. thats not a recession - thats a Depression.

a crisis of over-production.

this is gonna be nasty...

[Zynx]

7. GDP is somewhat misunderstood.

It is a purely consumption number with some tweaks for trade balances and inventory levels. It has nothing to do with production other than the fact that where there is consumption, there must be some production.

However, while consumption was strong in July and August, it appears as though September was weaker than they thought because they have an annualized rate of real consumption growth of 6.6%, but if you take July, August, and September together you get about 4%. Just July and August you might get a 6.6% annualized rate, but with a .6% decrease in spending(inflation adjusted) one would have to think these GDP numbers are overstated.

[spotbird]

9. Yesterday there was speculation

here that the GDP increase was largely due to mortgage cash-outs and the war. Do you agree? And if so would this explain the September decline since the cash-out craze is over?

[Zynx]

10. The war had little to do with this quarter.

This quarter was mainly massive home buying, building, and mortgage cash outs along with those tax rebates. All that spending at an annual rate(which is how GDP is done) produces a huge number. There was also a huge number of auto sales. In the fourth quarter, none of this will be there and the economy will slow down considerably.

Business spending I can't explain and I didn't see any numbers previously to suggest that it would be so strong. My guess is that it will be revised down and it was just a crazy outlier.

[Beetwasher]

11. Thanks for your thoughtful, intelligent analysis

and welcome to DU!

[dbt]

13. Echo that, Beetwasher

Zynx, if you're not already participating in the daily Stock Market thread, I think you need to be. Welcome!

:+
dbt

[Zynx]

15. I'll start doing that. Most days I'm not here from 7:30-3:30 or so.

I may comment early in the morning on futures trading and maybe after the closing bell.

[spotbird]

17. Yes, you are really helping me to understand all this!

Welcome!

[gasperc]

3. How can GDP shoot up 7.2% but spending nose dive?

especially in September when the bulk of rebate checks went out? Hmmm... should we batten down the hatches storm a brewin'

[Zynx]

4. Because July and August were good months.

However, I do wonder how they say real consumer spending rose at a 6.6% annual rate in the GDP report when it appears to be a 4% annual rate when you put all of these monthly data together. It seems to me that there will be a downward revision.

[progressiverealist]

5. or course there will be a revision...

but the screeching heads who breathlessly reported the economy "rocketing ahead" won't say a peep. It will be on page sixteen just below the account of Troop Sixteen's bake sale.

[underpants]

8. Wow that recovery lasted what? A DAY?!?!?

So the after tax income FELL huh? So much for th etax cuts.

[progressiverealist]

12. my thought exactly.

so where are the headlines screaming "Bad economic news for Bush... tax cuts didn't work!"

[PurityOfEssence]

14. pssst: they're out of money...

Don't tell anybody, though; the economy runs on confidence...

[spotbird]

16. "The department said personal income rose 0.3 percent

in September, the same as in the prior two months." Accorcing to the article, but later it says that:

"The out-sized spending gains over the summer had reflected lower tax withholding from paychecks and federal child tax credit refunds. But the report on Friday, which showed a 1.0 percent drop in after-tax income -- the biggest slide since October 2001 -- showed the tax-cut effect waning."

"On an inflation-adjusted basis, disposable income fell 1.2 percent."

What is the difference between personal and disposable income? Is disposable what’s left after essentials like energy are paid?

[Zynx]

18. Definition of Disposable Income:The income that a person retains after tax

It fell so sharply because the rebates are gone.

[Beetwasher]

19. That's an average

I'm pretty sure when they say personal income went up, it's an average.

Rich people getting much richer brings the average up.

A good analogy is that when Bill Gates walks into a bar, the average income of everyone in the bar is in the millions, even if everyone else in the bar except Bill Gates was just laid off...

[Neutrino]

20. "Consumer Spending" is all on borrowed money--

Credit Card debt, Mortgage Debt, Refinancing Debt--just like the
Federal Gov't--awash in Debt.