28 May 2013

Just Like Christmas (Daily Spending is Up)

Consumption is back - and GDP has no bigger component. Government spending, exports, and investment are all small by comparison to consumption's 70% of GDP. So as consumption goes up, so does GDP.

On September 15, 2008, Lehman Brothers declared bankruptcy. A month later, the S&P 500 had dropped by a quarter. Two months later, it had dropped by a third, wiping out trillions in value and triggering the financial crisis that would become the Great Recession. Jobs losses during the next 12 months would total more than 6 million - this in an American economy that had never ever created 6 million jobs in a single year. (Or even 5 million jobs, only once creating more than 4 million jobs in all of American history.)

The good news is that we're recovering. The stock market has bounced back. The housing market is bouncing back, up nearly 11% in the last year with its biggest annual gain in 7 years.

Now, it seems that everyday purchases are up. Gallup measures Daily US Spending, "not counting the purchase of a home, motor vehicle, or normal household bills."

In the three months before the Lehman Brothers' bankruptcy, Gallup's measure of daily spending averaged $96; in the three months after, the average dropped to $86. It got worse the next few years: in 2009, 2010, and 2011, it averaged $64, $65, and $68, about a third less than what it had been prior to Lehman Brothers. Given consumption matters so much, this dip in spending was a huge drag on the recovery. But that's changing.

So far this year, average daily spending is $85. That's still not where it was before Lehman Brothers, but it is up 30% from 2009 through 2011. Last year the 3-day moving average broke $100 only 7 times; already this year it has broken $100 15 times.

This far exceeds what it was in 2010 when daily spending broke $100 only twice - the 22nd and 23rd of December. In 2011, it broke $100 only on Black Friday.

It's only Memorial Day but already beginning to look a lot like Christmas. At least to retailers. And that could make the biggest difference of all.

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