Consumers must know something about the economy that economists don’t.
According to the Commerce Department, personal spending increased by 0.4% in July, the largest increase in four months. This uptick was due at least in part to a seasonal increase in auto sales and higher gas prices, but was still more than the 0.3% that economists had predicted.
In total, personal spending increased by $44.1 billion last month, even as personal income decreased by $2.7 billion, or about 0.1%, during the same period.
In fact, the good news doesn’t stop there. A recent survey from Reuters and the University of Michigan found that consumer confidence increased by 1% in August compared to the month before. It may be a small amount, but taken together, these two pieces of data indicate that consumers are feeling a little better about the economy as a whole.
Yet, as TheStreet, our sister site, reported this weekend, the sentiment among economists and on Wall Street is that the economy is getting worse not better, with some warning that we are more likely than ever to enter a double-dip recession. (And even after this report came out, stocks fell as investors remained skeptical about the economy.)
Meanwhile, there is still the question of whether consumers should be spending as much as they are.
Earlier this month, the Commerce Department reported that consumers are saving more money, which may deserve praise from a personal finance perspective, but as many have pointed out, our economy grows and shrinks almost entirely based on consumer spending.
Now, however, we may be experiencing the reverse problem. If consumer spending is outpacing personal income, as was the case based on these July numbers, consumers may be putting their bank accounts at risk.
Ever wonder what exactly economists mean when they say "consumer confidence?" This MainStreet article breaks it down for you.