Spending Soars, Savings Suffer

Personal spending soared 1.3% in August, the biggest monthly leap since 2001, the Commerce Department announced today. Of course, this $129 billion jump in consumption “shows strength in August, indicating some economic improvement,” as CNN writes. A quick look at the chart reveals that the once sober American consumer is starting to fall off the wagon yet again.

Personal Consumption Expenditures

As always, the drama’s in the details. “Cash for clunkers” was by far the biggest driver of new spending, almost single-handedly pumping up durable goods orders 5.8%. Interestingly, August’s rise was the biggest since October 2001 — right after Sept. 11, when retailers slashed prices and President Bush urged us to go shopping and “Get down to Disney World.” Heh… looks like only government decree can whip us into such consumption frenzies.

And for our 1.3% leap in spending, American incomes rose just 0.2%. In fact, when adjusted for inflation and taxes, what the government calls “real disposable income” actually fell 0.2%. What’s more, we as the collective “consumer” spent over $129 billion more in August, but chose to save $112 billion less. Savings as a percentage of personal income is now down to 3%, from 4% in July.

This “indicates economic improvement”? Must be reading the wrong release…

The Daily Reckoning