Thursday, October 30, 2008

Darned if we do, darned if we don't (spend)

We're told the economic crisis is all the fault of people borrowing too much money, that they should live within their means. Since median incomes have been falling for years, as the wealth has been redistributed upward to the ultra-rich, that means that people should spend less. But when they do spend less, we have a recession. Does anybody remember that Bush told us it was our patriotic duty to continue spending after 9/11/2001? Of course, that didn't include companies spending on salaries for the people that do the work.

October 30, 2008, 8:51 am
Economy Shrinks as Consumers Cut Back
By David Leonhardt

Updated at 11:30 a.m.

The longest American shopping spree on record is over.

The Commerce Department reported this morning that consumers sharply cut their spending this summer, causing the United States economy to shrink at an annual rate of 0.3 percent. By almost all accounts, the economy is now in recession.

The last quarter in which consumers reduced their spending came in 1991. Since then, neither the recession of 2001 nor the slow income growth of the past seven years has kept households from increasing their consumption. They often relied on debt — in the form of home-equity loans, mortgage refinancings and credit-card loans — to continue spending.

But the housing bust, the resulting credit crunch and the deteriorating job market have forced many people to cut back. Personal consumption fell at an annual rate of 3.1 percent in the third quarter of this year, its biggest drop since 1980, when the economy was in a deep recession.
But the report nonetheless pointed to the serious problems facing the United States economy: consumer spending is falling, and no engine of growth seems likely to replace it in the near future.

Many economists expect consumer spending to continue falling in 2009 — although probably not at such a steep rate — and the current downturn to continue for months. Employers are now cutting jobs, and the pay of most workers is lagging well behind inflation.
Consumer spending makes up a little more than two-thirds of economic activity in the United States, more than it did in past decades. The rest is a combination of business spending, government spending and the net difference between exports and imports.;_ylt=AtUfLuPUoE3g281V2bXqtdCs0NUE
Consumer cut in spending the most since 1980
By JEANNINE AVERSA, AP Economics Writer Jeannine Aversa, Ap Economics Writer – 14 mins ago

WASHINGTON – Scared and out of money, Americans stopped buying everything from cars to corn flakes in the July-September quarter, ratcheting back spending by the largest amount in 28 years and jolting the national economy into what could be the most painful recession in decades.

With retailers bracing for a grim holiday buying season, the economy isn't just slowing; it's actually shrinking, the government confirmed Thursday. It reported that the nation's gross domestic product declined at an annual rate of 0.3 percent in the year's third quarter and consumers' disposable income took its biggest drop on record.
Clobbered by pink slips, shrinking nest eggs and falling home values — consumers are holding ever tighter to their wallets. The new report said Americans' disposable income fell at an annual rate of 8.7 percent in the quarter, the largest in records dating back to 1947.

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