What is consumer spending? What does an increase in Personal Consumption Expenditures mean?

Consumer spending rocketed upward in August, then fell back to earth in September, the squeaked out an increase in October. This episode examines consumer spending data from the US Department of Commerce, and answers basic questions about how the Bureau of Economic Analysis comes up with their data.

Once we understand some fundamentals of the numbers, we analyze them and come to some conclusions. If you haven't watched the episodes on CARS, the Cash for Clunkers program, you might want to go there to learn about our expected redistribution effect.

Good economic policy spurs new spending, and creates new growth. Poor economic policy pushes money from one month to the next, or from one quarter to the next. As we look at the data, we see that the consumer spending increase came from Cash for Clunkers, which caused a huge drop in September.

Essentially, September's buyers purchased in August. That's not good news.

Worse news is that the Federal government is growing by leaps and bounds. A $1.1 trillion budget is sitting on the President's desk, full of the same sort of poorly formed economic policies. The Republicans are slowly mounting a defense, but it's like a football game -- there are only four quarters, so time kind of matters.

Tell truth to power. Hear the real story. Think for yourself. Join the conversation at econmilitia.com.

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[roger767]

@danalove If consumers don't spend, they save money. Allowing the banks to have more money. They use that money to loan out to new starting businesses or for existing businesses to invest in new innovations. Creating new products/cheaper products. Which causes people to spend again.

[danalove]

Does the economy recover without consumer spending? How does consumer spending recover in high unemployment?