Consumer spending has improved lately—in some ways, back to the point before the 2008 crisis. Traffic of homebuyers through model homes is at its highest since April 2006. Retail sales gains were robust during the months of August and September.
The unemployment rate still remains high. Where are consumers getting all the money?
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The Bureau of Economic Analysis (BEA) says consumer behavior is irrational considering the current health of the economy. Personal income increased a mere 3.5% over the year ended in August.
Wages and salaries alone were up only 3.7%. The Labor Department says real weekly pay is down 1.3% since its October 2010 peak. That’s certainly not enough to beat inflation much less
contribute to discretionary income.
This may mean that government measures of total income may be missing other sources of money consumers have to purchase cars, homes, and iPhones.
After adjusting for changes in tax law, personal income
shows an increase of 4.5% over the past year.
Tax receipts may not accurately track income because of individual withholding changes or tax code changes.
It’s also been observed that the BEA data misses growth during times of economic change. The trend in consumer spending may just be indicating change is in process. Change in this case is definitely good.