Why is it bad news? Because consumer spending increased while consumer earning and saving decreased. That is why consumer confidence dropped to 39.8 percent this month at the same time as people were shopping more.
Personal income has dropped during each of the last three months and is now dropping at 2 percent annually, according to a Commerce Department report. So the increase in spending doesn't show a healthy economy. It shows just the opposite. What people spent was from their savings
Disposable personal income -- the money left over after taxes and other payments to the government -- edged up just 0.2 percent in September compared to a year earlier, when adjusted for inflation. Meanwhile, inflation-adjusted consumer spending jumped 2.2 percent from September 2010.
The September saving rate dropped to 3.6 percent, the lowest rate since the recession started in December 2007. A savings rate around 5 percent is needed to repair households' finances.
As economist David Rosenberg said, "Absent the decline in the savings rate, consumer spending in real terms would have actually contracted over the past three months."
Unless wages and hiring increase this is totally unsustainable.
While those numbers prove that if there was an increase in GDP it hurt more than it helped, here's why the GDP numbers are false and almost certainly worse than what was reported.
The people at the Bureau of Economic Analysis know the GDP numbers they released last week aren't accurate. They say right upfront that this is an initial estimate. "The Bureau emphasized that the third-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency."
It takes about a year for all the dust to settle and the all the facts to come in so there will be many revisions over that time. The difference between the final number and the initial one averages out to 1.3 percent, according to one study. Could be plus, could be minus. We won't know until we get there. Even then it's based on some very arguable numbers.
The BEA gets its final GDP numbers by subtracting inflation from the nominal GDP number it starts with. Surprisingly, the bureau doesn't use the Consumer Price Index - which is what pretty much all the rest of the government uses. The BEA number for last quarter was 2.4 percent, the CPI has annual inflation at 3.9 percent. Using the CPI, GDP growth was 1 percent last quarter.
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