Financial Update-Consumer Spending Sees Historic Drop
- Nov 26, 2008
Consumer spending numbers, as expected, are going nowhere but down. The U.S. Department of Commerce is reporting that personal consumer spending among Americans dropped 1 percent in October compared with the month before, which is the largest decline since September 2001. On the other hand, saving is up. Personal saving as a percentage of income rose to 2.4 percent during the same month, up from 1 percent in September. Orders for durable goods dropped even more than consumer spending, by an unexpectedly large 6.2 percent, which is the third monthly decrease in a row. Not counting cars, airplanes and other transit-related durables, orders decreased 4.4 percent. Orders for commercial airliners were down 4.7 percent, while motor vehicle demand saw a 4.5 percent decrease during the month. Jobless claims actually declined by 14,000 in the week ended Nov. 22, according to the U.S. Department of Labor. But the four-week moving average of claims rose to 518,000 from 507,000. That figure is the highest it’s been since early 1983. The European Commission, the executive arm of the European Union, has proposed a stimulus package totaling €200 billion ($256 billion) to aid the ailing euro-zone economy. The total isn’t as grand as it seems, since most of the money has already been allocated for fiscal stimulus purposes by member countries. The announcement comes on the heels of President-elect Obama’s statements that the U.S. fiscal stimulus package is going to be very “costly.” Somewhere, John Maynard Keynes is smiling. The Asian financial crisis of 1997 might just be a distant memory for North Americans, but not so in Asia. China’s central bank, the People’s Bank of China, has cut interest rates by a little more than full percentage point, the largest cut since that crisis 11 years ago. The move comes after three smaller cuts earlier this year, and persistent reports of labor unrest in southern China as export growth slows and workers are laid off. According to official Chinese government data–always to be taken with liberal grains of salt–China’s GDP grew 9 percent in 3Q08, less than the double-digit growth the country is used to, while industrial production dropped to an 8.2 percent increase year-over-year in October, compared with 11.4 percent in September. Perhaps a more accurate measure of China’s economy is the fact that the country’s power consumption was down 3.7 percent this October compared with last October, according to the China Electricity Council, the first year-on-year monthly drop since 1999. American International Group, once an insurance giant, now a money pit, has announced that its new CEO, Edward Liddy, will receive $1 a year as a salary. That doesn’t mean he will receive nothing for overseeing AIG: he will get “unspecified equity grants,” as the Washington Post put it, along with a possible “special bonus for extraordinary performance” in two years’ time. The company’s other top executives are taking no bonuses or raises in their base salary next year. A handful of financially challenged or seriously embarrassed companies are similarly cutting executive pay, but mostly there’s been conspicuous silence on the matter from Wall Street and the financial industry. No word yet on the subject, for example, from Citigroup, which is cutting 52,000 jobs and accepted a multibillion-dollar federal bailout last week.