The Red Flag in Today’s GDP Report.

[Dover]

Today’s report on third-quarter GDP offered many encouraging signs, but also one big red flag: consumers are cutting into savings.

Real disposable personal income fell 1.7%, the biggest drop since the third quarter of 2009, economist Nigel Gault of IHS of Global Insight notes. Even so, consumer spending jumped 2.4%, a big factor in the overall GDP growth. That means consumers boosted their spending by saving less. The savings rate fell a percentage point to 4.1%, Commerce Department data show.

That trend can’t last indefinitely, economists warn. Consumers eventually will tap out their savings or put the brakes on spending. “Consumer spending only accelerated because the saving rate dropped by a full percentage point,” Mr. Gault wrote. “That’s not a solid foundation for growth.”

cont'd

http://blogs.wsj.com/economics/2011/10/27/the-red-flag-in-todays-gdp-report/

[Turbineguy]

1. Considering what the savings rate was in years prior

it's not all that bad. People are going to save until they feel some level of comfort. Spending is more fun than saving. With the interest rates being at zero, people may be better off in the long run by spending rather than saving. It's better to have a warm coat than a bank account full of worthless money.

[canoeist52]

2. I've never found spending to be "fun".

I's actually almost painful to shop and spend. It's just that it seems every appliance has finally worn out and we have to replace it. My vehicle is on it's last legs and will have to be replaced soon. This is the first time in 30 years that we can't afford to buy a new one. Weekly paycheck just isn't enough anymore.

[Dover]

3. I was riding in a car with a friend yesterday and we were listening to Bloomberg radio

Not sure which show it was (around 2pm), but they were saying exactly what you are - that this higher than average GDP
was a result of people HAVING to dip into their savings. They said there are just so many patches and bandaids one
can apply to old vehicles, appliances, clothing, etc. before they need to be replaced. Apparently this was a month where
many had reached that threshold and collectively spent.

So they were cautioning not to misread this month as an indication that things were turning around as regards consumer spending. They went on to say that even the wealthy were not spending much anymore which was alarming since they have really been carrying the economy for awhile. People do NOT have confidence that things
are turning around. And I think there was a movement toward liquidity in order to be positioned to make big purchases when
prices finally do come way down. Perhaps they are still waiting for this to happen and in the meantime, are not spending much.

[canoeist52]

4. Thanks for putting words to my feelings.

Two members of my family lost jobs this week. This, in no way, increases my confidence in a supposed economic recovery. We're losing ground fast.
If government spending on REAL jobs programs isn't invoked immediately I think we're lost.

[Dover]

5. Hang in there...

We're all going to have to get very 'creative'.

[Divernan]

6. Being forced to dip into my meagre savings to repair my old card is NOT fun.