Consumer Spending Up, As Stimulus Takes Effect

There have been plenty of critics of Obama's $800 billion stimulus plan who argue that it hasn't made enough of a difference. I've been one of them. But the news today is that consumer spending is up, for the first time since February, at 0.3 percent clip, and that much of the credit must go to the stimulus bill. One-time payments in the form of Social Security and unemployment benefits and reductions in payroll taxes have helped after-tax income to climb by 1.6 percent in May. Is that a green shoot we see, or is it just another green praying mantis settling on dead cold ground?

The response from the gaggle of economists at the WSJ Real Time Economics blog is dubious. Here's a representative quote:

Almost all the jump in incomes reflects the impact of the stimulus package, which gave $250 one-time payments to people receiving a variety of social security benefits. By contrast, wage and salary income fell 0.1%. It will continue falling as wage gains slow and payrolls fall. Most of the stimulus money was not immediately spent, so the saving rate jumped to a 16-year high of 6.9%. It has further to go... Not a green shoot, in our book. -Ian Shepherdson, High Frequency Economics

Richard F. Moody pours even more cold water on the news.

Yesterday's revised GDP data show that during the first quarter, aggregate wage and salary disbursements fell on a year-over-year basis. While this may not seem much of a surprise, this is the first over-the-year decline in wage and salary disbursements since the second quarter of 1958.

I think this is, unfortunately, the right way to look at things. As long as employment continues to fall, one-time payments to temporarily goose consumer spending are, well, one-time payments to temporarily goose consumer spending. It's hard to call this a green shoot when we're keeping the economy going by giving the unemployed a monthly allowance. Wages and salary this month still fell by a slight 0.1 percent. The stimulus is unquestionably responsible for today's bit of good news, but there's still not much to grow on.