The Commerce Department said Friday that consumer spending in September dropped precipitously. Although statistics seem to indicate the recession is over, the American public, it seems, is not convinced.
For one, jobless statistics point to a jobless recovery, if any. These numbers with regards to spending, point to a potentially ugly holiday shopping season.
The Commerce department report that spending dropped 0.5 percent in September, matching economists' expectations. This plunge was the largest amount in nine months, reflecting the end of the government's Cash for Clunkers auto sales program. Incomes were flat.
Since America no longer produces many goods, our contribution to the economy is mostly buy, buy, buy, as has been emphasized over and over again. If households continue to hold off on spending to cope with rising unemployment, heavy debt and tight credit conditions, this will produce another weak holiday season, perhaps derailing the recovery.
This also points to the fears that were generated by the Cash for Clunkers program. The concern is that much of Q3 growth stemmed from clunkers sales incentives that ended in August, as well as other temporary incentives.
Evidence is show in that the 0.5 percent drop in consumer spending in September followed a 1.4 percent surge in August. That surge was was propelled by a big jump in car sales that month via the Cash for Clunkers program.
Due to this, some economists believe that consumer spending will slow sharply in the current quarter and beyond. Analysts add that the risk of a double-dip recession cannot be ruled out over the next year.
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