Implications: Consumers are buying again and doing it with vigor. "Real" (inflation-adjusted) consumer spending increased 0.3% in November and is up at a 3.3% annual rate in the past six months. This is not an unsustainable or temporary buying binge. Real wages and salaries in the private sector are up at a 2.8% annual rate in the past six months; real profits for small businesses are up at a 4.7% rate. In addition, those touting a "new normal" where the real economy grows 2% or less per year are making a fundamental mistake about deleveraging. Consumer deleveraging may impede spending when the debt reduction begins; deleveraging may also impede spending when the debt reductions accelerate. But deleveraging does not hurt spending when the debt reductions slow down. If a consumer is still paying down debt but is doing so more slowly than last year, her spending increases faster than her income, not slower. On the inflation front, consumption prices are up only 1% versus a year ago but seem to be modestly accelerating, with prices up at a 1.3% annual rate in the past three months. The opposite is true if we exclude food and energy. "Core" prices are up 0.8% versus a year ago but up at only a 0.3% annual rate in the past three months. Low core inflation is the excuse the Federal Reserve is using for quantitative easing. In other news this morning, new claims for unemployment insurance declined 3,000 last week to 420,000. Continuing claims for regular state benefits fell 103,000 to 4.06 million. These figures suggest robust growth in private sector payrolls in December.
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Posted on Thursday, December 23, 2010 @ 10:25 AM
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