Consumer spending on the mend?

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This post is a guest contribution by Rebecca Wilder*, author of the of the News N Economics blog.

There is some evidence out there that consumer spending has dropped so low, that with confidence anew (see national Consumer Confidence and Sentiment surveys), consumers are taking baby steps back into the spending picture. According to Gallup, consumers spent and average $66/day on 9/13/09, up from $59/day at the end of August.

gallup-results-01

The chart illustrates the 14-day moving average of daily expenditures on everything except housing, bills, and car purchase, as surveyed by Gallup. I guess that they view this to be discretionary spending, although autos could be viewed as such. There are a couple of things to note here. First, the trend has been down – falling from around $100/day in the first half of 2008 to below $60/day in the first half of 2009. To be sure, growth rates can be big off of lows – returning to $100/day could mean a >50% surge in spending in the national accounts (obviously, this is a gross over-simplification). Second, the series is not likely seasonally adjusted, so the difference could simply be cost of energy (depending on what is classified as “normal household bills”).

However, if consumer discretionary spending is forming a bottom, which another private survey confirms, the employment picture is key. Spending fueled by debt is likely dead for a while at least, and good old income growth is the only means by which consumers can increase spending (i.e., satisfy pent-up demand) while contemporaneously save a larger share of income (4.2% in July). But credit will flow again to those worthy borrowers that demand as such – it’s just back to basics in banking, with due diligence on lending and underwriting standards.

Source: Rebecca Wilder, News N Economics, September 15, 2009.

* Rebecca Wilder is an economist in the financial industry. She was previously an assistant professor and holds a doctorate in economics.

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More on this topic (What's this?) Read more on Consumer confidence at Wikinvest
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