Friday, July 9, 2010

How is Spending Still Strong?

Since Lehman collapsed in September 2008, consumption has remained surprisingly strong in the face of high unemployment (thus lower wages), lower asset values (less ability to tap home or 401k for spending), and a collapse in consumer credit.

How? The government! Less taxes and higher transfer payments (i.e. unemployment / welfare benefits).

Going forward we'll need a sustained source.

Source: BEA / Federal Reserve


  1. This comment has been removed by the author.

  2. I think spending from underground economy savings continues to support Aggregate Demand. With the recession hurting this segment harder than the real economy, AD will really drop when said savings reach zero.