The Oregon Biz Report - Business News from Oregon

Read about accutane journal moderate acne here

Consumer Spending Decline Not Due to Income Drop

January 5, 2009

By Bill Conerly, Businomics, Conerly Consulting LLC

Income and spending are both down, and it seems obvious that the one would lead to the other.  But which one leads to the other?  It’s not so simple.  Let’s look at the data.  (I only show the latest months, after the effect of the last stimulus plan had worked through the disposable income data.)

The drop in consumer spending is wildly disproportionate to the drop in disposable income.  Keep in mind that when people lose jobs, their spending typically falls by a smaller percentage than their income drops.  The use savings or credit to smooth their earnings.  From this fact you might expect that the change in spending would be smaller than the change in disposable income.  But the chart clearly shows the opposite.  What’s going on?

The change in spending is due to non-income factors (duh), which I think are primarily weak consumer attitudes and expectations.  The consumer confidence and sentiment surveys show plenty of doom and gloom, caused by the fundamentals of rising unemployment, fear among people with jobs that they may lose their jobs, the financial crisis headlines, and the negativity from the election’s attack ads.

(If you think the drop in spending was due to falling gasoline prices, you’re right that gas sales fell, but non-gasoline retail spending is also down.)

The outlook for consumer spending is thus . . . positive.  People are spending less than normal, less than justified by their actual incomes.  Even if unemployment goes to eight percent, we’ll still have 92 percent of the workforce earning a wage.  The money not being spent will burn a hole in people’s pockets.  It will probably take a few more months of spending declines for this hole burning to take effect, so the economy hits its low point in the spring.  The recession is over by the second half of 2009, perhaps a couple of months earlier.

Addendum:  after writing this point, I came across a good analysis of disposable income data by Dave Altig over at MacroBlog.  Bottom line: there’s reason to be hopeful, but it’s not conclusive.

##

Bill Conerly is principal of Conerly Consulting LLC, chief economist of abcInvesting.com, and was previously Senior Vice President at First Interstate Bank. Bill Conerly writes up-to-date comments on the economy on his blog called “Businomics” and produces a monthly audio magazine available on CD. Conerly is author of “Businomics™: From the Headlines to Your Bottom Line: How to Profit in Any Economic Cycle”, which connects the dots between the economic news and business decisions.

  
Print This Post Print This Post    Email This Post Email This Post

Discuss this article

Jeffers January 5, 2009

Gasoline retail sales is down because the gas spike made a lasting impression with drivers. They had to cut back and now they realize that they can live with it. For those wishing lower miles driven by society, they just got a great Christmas present last year. Habits have changed.

Ben January 5, 2009

It won’t last long.

Leave a Reply

Your email address will not be published. Required fields are marked *

Recent Articles

Press Releases



Top Business News

 

Top Women's News

 

Top Natural Resource News

 

Top Faith News

 

Copyright © 2016, OregonReport. All Rights Reserved. | Terms of Use - Copyright - Legal Policy | Contact Oregon Report

Stay Tuned...

Stay up to date with the latest political news and commentary from Oregon Business Report through daily email updates:

Delivered by FeedBurner

Prefer another subscription option? Subscribe to our RSS Feed, become a fan on Facebook, or follow us on Twitter.

RSS Twitter Facebook

No Thanks (close this box)