Personal income and spending lower, savings up
Posted by WARREN MOSLER on August 2nd, 2011
Still no mention of how the federal deficit contributes to savings.
Or how QE and 0 rates have lowered personal income.
Now that the debt ceiling hike looks to be passed,
we’re back to the ‘death by 1000 cuts’ scenario.
Jury still out on whether China is in the process of a hard landing
UK austerity keeping a lid on demand there
Eurozone seems to be slowing as well, as Italy and Spain watch funding costs escalate.
As the carpenter once remarked, ‘no matter how much I cut off it’s still too short…’
But in the first half stocks did show they can make reasonable returns with very modest GDP growth.
While unemployment showed it doesn’t come down with only modest GDP growth.
Personal Spending Down 0.2% While Income Growth Slows
By: ReutersUS consumer spending unexpectedly fell in June to post the first decline in nearly two years as incomes barely rose, a government report showed, suggesting economic growth could remain subdued in the third quarter.
The Commerce Department said consumer spending slipped 0.2 percent, the first drop since September 2009, after edging up 0.1 percent in May.
Economists polled by Reuters had expected spending, which accounts for about 70 percent of U.S. economic activity, to rise 0.2 percent.
When adjusted for inflation, spending was flat in June after easing 0.1 percent the prior month. The decline came even as gasoline prices retreated from their peak just above $4 a gallon in early May and suggested the much-anticipated bounce back growth in the third quarter would lack vigor.
Consumer spending barely grew in the second quarter, inching up at an annual rate of only 0.1 percent—the weakest pace since the end of the 2007-09 recession. Spending increased at a 2.1 percent rate in the first quarter.
That contributed to hold the economy to an anemic growth pace of 1.3 percent in the second quarter.
The weak spending in June also reflected tepid income growth after employment growth ground to a near halt in June, with nonfarm payrolls rising only 18,000. Income ticked up 0.1 percent, the smallest increase since November, after rising 0.2 percent in May.
Disposable income ticked up 0.1 percent, also the smallest increase since November. But when adjusted for inflation, disposable income rose 0.3 percent. With real disposable income outpacing spending, savings rose to $620.6 billion from $581.7 billion in May.
August 2nd, 2011 at 11:55 am
Warren -
Do you know of any country that uses fiat and doesn’t sell bonds? Can’t seem to dig up anything on the net…
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ESM Reply:
August 2nd, 2011 at 12:01 pm
@Unforgiven,
Have you checked through the Islamic countries? In theory, interest (riba) is forbidden under a strict interpretion of Islam, although in practice financiers have found clever ways around this.
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macrosam Reply:
August 2nd, 2011 at 6:53 pm
@ESM,
Sukuk/Shariah issuance
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WARREN MOSLER Reply:
August 3rd, 2011 at 1:23 am
as already indicated, emerging nations used to use ‘central bank credits’ until they were ‘mature enough’ to sell securities.
the cb credits worked just fine.
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August 2nd, 2011 at 5:07 pm
Unforgiven,
Not selling bonds and just financing spending by the “emission of currency” was a standard in the Soviet bloc. The monetary system was essentially stable as long as the upwards pressure on wages was kept under control and prices of consumer goods were sensible (they were set by the planning authority). An example was Czechoslovakia.
That’s why I never had any problems in understanding the Functional Finance theory. For me money were always tokens created by the government (I learned about credit money much later).
What was completely screwed up in communism was the microeconomics – people did not work much unless they were terrorised because it was irrelevant to them (the wage was the same and it was easy to steal what didn’t belong to anyone). There were shortages of the majority of products. The unemployment was zero but hidden unemployment was very high. There were no private property rights (or these were very limited). I can probably keep writing about what was wrong for a day or two but let’s leave it here.
So they fixed the system by going to another extreme. When I left Poland almost 10 years ago the unemployment was 20% (obviously the real number was lower as the grey sector created a lot of jobs and eventually 5% of the population left the country).
You cannot count on these mitigation factors in the US I am afraid.
I believe that the Chinese monetary system got a face lift (they sell bonds) and looks like a Western one but in essence the Party still controls it – commercial banks are mostly owned by the state. Instead of “printing” money they “lend it and forget about the debt”. They only have serious problems in enforcing the will of the central planning authority in the regions and endemic corruption. But at the micro level there is even more economic freedom than in the West.
Anyway, I have to go…
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Unforgiven Reply:
August 2nd, 2011 at 11:12 pm
@Adam (ak),
Thanks guys! Keep it coming!
Great insight into the soviet bloc. Warren had a point of view on this, as I recall. Basically the bloc countries did the same thing to the soviets as the soviets did to the vermacht.
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Mario Reply:
August 2nd, 2011 at 11:34 pm
@Adam (ak),
very interesting insights Adam. Thank you for sharing indeed!!!
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