Refreshing economic news

Happy Thanksgiving eve folks!

There is a lot of economic data today, here are the major stats…

Consumer Spending:

That ultimate bellwether in economic growth, consumer spending, was up 0.7% in October. This number is made more positive because spending in September had been down 0.6%. More importantly, the annual growth rate of consumer spending in October was 2.9%. While less than the 3.4% predicted, the number is still good as we are just exiting a deeeeep recession.

Why it’s important: This number is important because consumer spending makes up 70% of gross domestic product, i.e. the economy. Consumer spending has been uneven, largely due to the high unemployment rate. Other factors making the spending chaotic include, low home equities, difficulty accessing additional credit, and increased consumer saving. This latter point deserves a comment. Note that the 0.7% rise in consumer spending is still less than the long-term rise in either gross domestic product, or inflation. That means that consumers, while spending more than last year, are spending less than they normally would. That must mean that savings is still growing. I like this. That 2.9% rise in consumer spending means that 70% of the economy is growing at 2.9%. The other remaining components of GDP, business investment (I), government spending (G) and net exports (X), have all had very favorable trends. Therefore, I would expect fourth quarter GDP to beat current expectations at this juncture. However, expectations may be revised upwards, and we still have two months more for something to get hinky.

Personal Income:

In October personal income rose 0.2%, the second straight month of growth.

Why it’s important: I don’t normally report this number, however for incomes to grow means that businesses are spending on their employees again. This is a harbinger that the unemployment situation should start to improve soon. If businesses are willing to up the pay of their current employees, it means that they are finally opening their coffers for people again. It is a small gap between this behavior and an eventual willingness to hire new employees.

Consumer Price Index (core):

This gauge of inflation rose 1.4% relative to last year’s number (compare this to the consumer spending increase I mentioned above). Month to month, the core CPI (i.e. the one that excludes volatile food and energy price movements) rose 0.2%.

Why it’s important: This number shows the economy in a Goldlilocks kind of place. We neither have too much inflation, nor do we have the evil hauntings of deflation. I have spoken at length of the importance of there being just a little bit of inflation in the economy to induce people to spend now, rather than later. The 1.4% rise is ideal – if increasing prices that outstrip personal income growth can be considered ideal. Look for personal incomes to tick upwards to eventually match, and outstrip, inflation growth.

Jobless Claims:

Thankfully, this number improved…with initial jobless claims falling 35,000 to 466,000. The four week moving average was a drop of 16,500 claims to 496,500. This is the lowest figure since November 8 of last year.

Why it’s important: Duh!

In summary, these numbers are all encouraging. We should be paying close attention to retail sales figures for the week after Thanksgiving. If they are strong then we will be able to definitely say that the U.S. is emerging, not tepidly, but well from its deepest recession in several generations. In other words, we will have exited a time of economic uncertainty into a time of economic certainty.

Happy Thanksgiving to everyone!

Jason