Friday, December 21, 2007

Still Shopping

The death of the US consumer has been forecast many times and the turmoil in the mortgage market gave the bears another chance to trot out this meme. If Americans can't refinance their mortgages, where oh where will they get the money to keep spending?

Dec. 21 (Bloomberg) -- Consumer spending in the U.S. rose in November by the most in more than two years as incomes grew and shoppers took advantage of early holiday discounts.

A bigger-than-forecast 1.1 percent increase in purchases followed a revised 0.4 percent gain in October that was more than previously estimated, the Commerce Department said today in Washington. The Federal Reserve's preferred measure of inflation accelerated, the report showed.

More jobs and higher salaries may avert a collapse in spending, which accounts for more than two-thirds of the economy, as home values fall and fuel costs rise. The jump in sales last month reduces the odds the economy will contract this quarter, even as retail surveys suggest shopping has cooled in December, economists said.


This isn't all good news; incomes weren't up as much as spending so Americans are still borrowing from somewhere as the savings rate dipped into negative territory again. That certainly doesn't bode well for the long term health of the US economy. At some point, we will have to save and invest again; we can't depend on the rest of the world indefinitely.

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