Increase in consumer spending

March consumer spending was up 0.6% from February.  Meanwhile, personal income was up only 0.3%.

Analysis: It is good to see an increase in consumer spending since it makes up 70% of the U.S. economy.  One of the reasons that the recession has been as protracted as it has been is that consumers increased their savings during the recession.  This is an issue that I have been tracking for a year now.  My hope was that the recession would cure consumers of their debt addiction.  Further I hoped that consumers would exit the recession spending only what they earned.  However, March’s data clearly demonstrates that consumers spent more than they earned.  This is a back door way of saying that they reduced their savings.

You could argue that consumer spending levels have been too depressed and that consumer savings as brought upon by unemployment-paranoia have been too high.  That would mean that consumer spending in March is simply returning to less paranoid levels.  Only time will tell.  In the long-term spending > savings is not a sustainable trend.  I will be watching this number closely.

Importance grade: 6; because of the big piece of the economic pie that is consumer spending, an increase in spending means an increase in the size of the economy.

Jason