Implications: American consumers increased their spending for the sixth straight month in March, both on a nominal (or cash) basis and on a "real" (inflation-adjusted) basis. Inflation-adjusted consumer spending is up at a 4% annual rate since September and it is important to notice that this whole period is after cash for clunkers. In addition, "real" consumer spending is now 0.5% higher than it was at the pre-recession peak in November 2007. Some analysts remain befuddled by the gains in spending given what they believe are continued high debt levels. However, they are missing the fact that workers can both increase their spending and continue to pay down debt, just as long as debt reductions are slower than before or incomes are rising. Here's a simple example. If you made $50,000 after taxes last year and paid down $10,000 in debt, you could spend $40,000. If you make the same $50,000 this year and only pay down $5,000 in debt, you can spend $45,000! No longer in a panic, US consumers are starting to pay down their debts at a slower pace and after-tax incomes are 3.4% higher than a year ago. Private sector wages and salaries increased at a 3.1% annual rate in Q1, the fastest pace in more than two years.
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Posted on Monday, May 3, 2010 @ 10:29 AM
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