Stimulated spending & saving is obvious and evident in this economy.
Consumer spending rose 0.3% in May while incomes rose 1.4%. Analysts call the gains a clear effect of the federal government’s economic stimulus package.
As incomes rose much more than spending, the personal savings rate hit 6.9% in May - a level unseen since December 1993.
- More demand for big-ticket items. The Commerce Department announced a big gain in durable goods orders – they went north 1.8% in May, matching what happened in April. Economists had projected a 0.9% drop.
- Fed thinks recession is waning. The Federal Reserve left the key interest rate untouched last week. The Fed’s policy statement shared the belief that “the pace of economic contraction is slowing” and that inflation would “remain subdued for some time.” Interpreting this, many economists believe the Fed will leave interest rates alone until 2010.
- Over in the real estate sector … Sales of existing homes increased by 2.4% in May, as bargains beckoned – sale prices were 17.0% under where they were a year ago, according to the National Association of Realtors. Disappointingly, the Commerce Department estimated that new home sales were down 0.6% last month.
- Consumers gain yet more confidence. The final Reuters/University of Michigan consumer sentiment index for June came in at 70.8, up from 68.7 in May.1
Is that a light we see at the end of the tunnel?
Our forcast, you may recall was that by July of 2009 we would see a base in terms of psychology, and by December of 2010 we would see a strong base and the beginning of a long term, decade long recovery. One item that is of concern to us is the possibility of a rise in the "long bond" interest rates. An overall rise in rates would hurt a chance for growth. But we can find ways to grow, even in rising rates. It is just much harder.
Conserve your liquid assets and make wise decisions. Move forward with care. But don't be afraid to take advantage of obvious fundamental good investments or business decisions.