Implications: Real (inflation-adjusted) consumer spending continues to grow, increasing in June for the ninth time in the past twelve months. Look for another increase in July as expert forecasts (such as by JD Power and Edmunds.com) suggest autos were sold even faster this July than they were in July 2009, back when the government was passing out checks for $4,000 per vehicle (automakers release official data later today). This is not some sort of unsustainable trend. After growing 1.7% in the past year, real consumer spending should increase at a faster rate in the year ahead, due to both higher incomes and lower debt levels. In the past three months, real personal income excluding government transfer payments (such as unemployment insurance, Social Security, and Medicare) is up at a 4.1% annual rate. Meanwhile, the personal saving rate is now up to 6.4% of after-tax income, similar to the levels of the early 1990s. In addition, given recent upward revisions to income data, our analysis shows that the financial obligations ratio, which measures the share of after-tax income consumers need to make recurring payments (mortgages, rent, car loans/leases, student loans, credit cards,...etc.), is below the average for the past 30 years.
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Posted on Tuesday, August 3, 2010 @ 9:17 AM
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