the visible hand

it is the theory which decides what can be observed – einstein

glimmering PCE

Posted by ecoshift on April 29, 2009

I assume most of you with any interest in the topic are finding plenty of economic analysis on the front pages these days… While it’s difficult to connect some of the dots on a daily basis (e.g. GDP down 6.1% and DJIA up 2.1%) it seems pretty clear that we are in for another leg down in the markets when the gamesmanship with accounting practices, PPIP and bailout funds tapers off and the collapse (investment down, imports down, exports down, unemployment up, housing prices down) in the real economy plays itself out. Much is being made of the small rise in personal consumption expenditures yet it’s difficult to see how the PCE bump can pull us into recovery without significant increases in wages or personal income for the typical consumer. Maybe if we all make a commitment to buy a new refrigerator on the same day the crisis will be over…

Not that a decline in the rate of decline is a bad thing.

Silver lining of shrinking economy: consumer spending up |

“Rising unemployment rates represent a hit to personal incomes, but Bryson notes that spending power is being buoyed now by modest new tax cuts and cooler inflation. Falling energy prices acted as a kind of income boost for the first quarter of 2009, for example…

The potential for households to add to GDP is constrained by the decline in personal wealth during the recession. For many families, lost wealth in home values and retirement accounts means that a priority now is to pare debt, control spending, and rebuild savings.

Still, in the first quarter Americans were able to expand their savings rate even as they boosted spending. Savings rose to 4.2 percent of overall disposable income, more than double the savings rate in 2008 and far above the prior two years.”


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