First Quarter Consumption

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Thursday’s miserable GDP number supposedly included a bit of good news: personal consumption was up 2.2%.  Yay consumers!  Something didn’t quite add up, though, but after looking at the numbers for a few minutes I got distracted by something else and never came back to it.  Luckily, Dean Baker did:

Many pointed to this rise as an increase in consumer confidence.

Okay, so how does this increase in confidence fit with the rise in the savings rate from 3.2 percent to 4.2 percent?….Higher consumption can’t be explained by rising income either. Income fell in the first quarter. So, where does higher consumption come from?

The answer to the mystery is lower taxes and higher transfers, most importantly the big cost of living increase in Social Security payments that seniors got this year. (The cost of living adjustment is based on the 3rd quarter CPI compared with the prior year. This included the run-up in gas prices, but not the subsequent fall.)

So there you have it.  Not really especially encouraging news, after all.  Atrios has another big reason to be pessmistic about the economy over at his place.  And I’m still waiting for Eastern Europe to implode.  Did somebody say “green shoots”?

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FACT:

Mother Jones was founded as a nonprofit in 1976 because we knew corporations and the wealthy wouldn't fund the type of hard-hitting journalism we set out to do.

Today, reader support makes up about two-thirds of our budget, allows us to dig deep on stories that matter, and lets us keep our reporting free for everyone. If you value what you get from Mother Jones, please join us with a tax-deductible donation today so we can keep on doing the type of journalism 2020 demands.

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