Posted At : October 1, 2009 1:12 PM
The good news is that earlier today the Bureau of Economic Analysis (BEA) reported Personal Income rose +0.2% for August, which was slightly ahead of the +0.1% consensus forecast and equal to the revised July increase of +0.2%. BEA also released Personal Spending for August which was +1.3% over July. This is the largest one month increase in consumer spending since 2001. The surge in spending is good news for the economic recovery, given the fact that 70% of US GDP is consumer related. (However, a large portion of the jump in spending was due to the “cash for clunkers” program). The data also revealed that the personal savings rate (savings as a percent of disposable income), which had been rising recently, fell back to 3% in August compared to 4% in July and 6% in March. The BEA reported that the PCE Deflator Index (personal consumption expenditure), which is a very broad gauge of inflation, was up only +0.1% in August and decreased -0.5% on a year over year basis.
However the bad news is that Initial Jobless Claims for the week ending September 26th were 551,000 up +17,000 over the previous week. The jobless claims figure was slightly ahead of the consensus forecast of 535,000 and serves as a reminder that US labor markets are still weak. Conversely, continuing jobless claims were down -70,000 from the previous week and -80,000 less than the consensus forecast. Overall, today’s economic data was mixed. The rise in consumer spending is very positive for the economy, if it can be sustained (which it can’t) but slightly negative for fixed income markets as rates if the economy surges. The reality is that the lack of improvement in the labor markets will continue to inhibit a robust recovery, and will presumably cause the Fed to keep rates low.
Regards -Keith Springer