(From this morning's Bloomberg report on consumer spending and incomes...)
It was the best of times:
Spending by U.S. consumers climbed in August by the most since 2001, indicating the biggest part of the economy is starting to rebound from its worst slump in almost three decades.
It was the worst of times:
Automakers including General Motors Co. benefited from the Obama administration's $3 billion "cash-for-clunkers" incentives. A projected drop in auto purchases last month is a reminder that such gains will be hard to sustain as the stimulus programs expire and households grapple with rising joblessness and stagnant incomes.
And the Bloomberg 'graph that falls between those two explains the disconnect (emphasis added in bold):
The 1.3 percent increase in purchases was larger than forecast and followed a 0.3 percent gain in the prior month that was bigger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.2 percent for a second month and inflation decelerated.
So incomes rose 0.2%. And spending rose 1.3%, thanks largely to government spending. Is such a pattern sustainable when deleveraging is the financial imperative of the day? Here's John Hussman to explain:
My discomfort about strenuously overbought and moderately overvalued conditions overlaps with skepticism about the U.S. economic "recovery," which appears to be nothing but an artifact of government spending, while intrinsic economic activity remains weak. Stimulus induced "strength" is unlikely to propagate because, as I've noted before, economic recoveries are invariably led by expansion in debt-financed forms of spending such as gross domestic investment and durable goods. These classes of spending tend to lead other forms of economic activity by nearly a year, and it is difficult to expect this in an environment of heavy continued deleveraging pressure. Rather than abating, foreclosures and mortgage delinquencies are setting further records (pressured even more by continued net job losses), and we have now hit the point where Alt-A and Option-ARM resets are beginning (after a lull in the reset schedule since March).
Indeed. Save more, spend less. That's what's rational at the household level. But short-term Uncle Sam isn't crazy about deleveraging, so periodically we get these induced departures from the larger (and ultimately more durable and powerful) trend. But that trend persists, like it or not.
Shobhana Chandra, "U.S. Consumer Spending Jumps by the Most Since 2001," Bloomberg, October 1st, 2009
John Hussman, "Strenuously Overbought," Weekly Market Comment, September 21st, 2009