Friday, October 30, 2009

What A Difference A Day Makes

Yesterday, there was mass euphoria over the first positive Gross Domestic Product in more than a year. The headlines said this showed that the recession was over. However, today's numbers on personal spending have somewhat put a dent in that excitement.

This morning the Personal Income and Spending Numbers were released and Personal Spending was down 1/2 of one percent. On a one month basis, that is huge (Click to See Full Story: "Income Flat, Spending Falls as Consumers Stay Wary").

The spending number is important because our economy is 70% driven by the consumer and his or her spending. Again, the drop in spending is being blamed on the fact that the Cash For Clunkers program ceased. But, don't forget, the Cash for Clunker program only benefited less than three tenths of one percent of the people of this country -- about 700,000 people out of a population of 300 million. So, to say that overall spending was impacted by the cessation of this program, clearly shows how that program had skewed the economic numbers and had little or no overall benefit to the general population.

Yesterday, I said that if you dug down into the details of the GDP report, you would have seen that business investment was negative. That means that businesses aren't buying things. This morning shows that personal spending, too, is missing. Put those two facts together and you can see that the "spending" that is needed to turn the economy around is not there. That's why I am not sure that yesterday's growth in terms of GDP is sustainable.

Update: This blog was written just before the stock market opened. When it was actually posted, the market was only down about 3 dozen points. As of now (12:30 Pm Eastern), the market is down nearly 200 points and has wiped out all of yesterday's euphoric gains. I think this shows that my concerns over spending are being validated by today's trading behavior in the stock market.

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