Wednesday, August 13, 2008

Relief From Consumer Spending

No one should be surprised or dismayed by the decline in spending reported today for U.S. consumers in July. The only thing that had been driving up consumer spending was higher prices for food and energy. With energy prices peaking and the beginning of a new season of fresh produce, there was no reason for spending to go up again last month.

Think of it this way. The increase in consumer spending in the first half of this year was involuntary. Consumers had been forced to spend more month after month just to keep up with energy prices. And so when consumer spending shows the slightest decline, as consumers finally have a few dollars to pay down their debt, we can view that not as a sign that the recession is killing the economy, but with a sigh of relief.