NEWS AND COMMENTARY
Are Buying, But Not For Long
Don't be fooled into thinking that higher consumer spending numbers
mean the economy is turning around.
When adjusted for
inflation, consumer spending increased only 0.2%. Although Americans
spent more on services, food and clothing in April, they spent less
on durable goods like cars and appliances. And sales of both new
and existing homes fell in April.
Americans also spent
more than they earned, causing the savings rate to fall from -0.6%
in March to -0.7% in April. Spending more than you earn is not a
good idea if you are already deeply in debt and facing increased
prospects of unemployment. Consumer debt is at historic highs, and
consumer and business bankruptcy filings were up 17.5% in the first
quarter. Jobless claims continue to rise, and the June employment
report, to be issued Friday, is expected to show a three-year high
in the unemployment rate.
As Fed Chief Greenspan
acknowledged last week, consumer spending -- which accounts for
two-thirds of the country's economic activity -- has a huge impact
on the economy. But with increased levels of unemployment and minimal
savings to fall back on, Americans will be forced to cut their spending,
dragging the economy down even further.
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