Consumer spending rises, even as jobless claims jump

Economic data is sending some mixed signals today: consumer spending surged in August even as jobless claims rose last week.

Jobless claims rose 17,000 to 551,000 for the week ending September 26, the U.S. Labor Department announced Thursday. Meanwhile, the Commerce Department reports that both consumer personal income and consumer spending rose in August, personal income inched 0.2 percent higher, while real (inflation-adjusted) consumer spending, aided by the federal government's cash-for-clunkers auto rebate program, jumped 0.9 percent; nominal consumer spending surged 1.3 percent.
Economists surveyed by Bloomberg News had expected initial jobless claims to total 537,000. Meanwhile, the four-week moving average for initial jobless claims decreased 6,250 to 548,000. Also, continuing claims fell 70,000 to 6.09 million. That survey also expected personal income to increase 0.1 percent and consumer spending to rise 1.1 percent in August.

The 1.3 percent surge in August consumer spending was the the largest one-month increase in about eight years, with the 'clunkers' program propelling most of that increase.

Meanwhile, consumer prices rose 0.3 percent in August, but are down 0.5 percent in the past 12 months, the Commerce Department said. The core rate, which excludes the often-volatile food and energy component, rose 0.1 percent in August, and is up 1.3 percent in the past year -- at a level that's within the U.S. Federal Reserve's comfort zone for inflation.

The U.S. savings rate, which had approached five percent earlier this year, declined to three percent, suggesting , the frugal consumer trend continued in August, but at a more modest pace.

Separately, Challenger's Gray & Christmas' monthly job report on planned lay-offs indicated that 66,404 jobs were cut in September, compared to 76,456 in August, Bloomberg News reported Thursday. It was the lowest Challenger job cut total since March 2008.

Analysis: Investors should probably discount most of August's 1.3 percent surge in consumer spending, as the data reflects the initial impact of the clunkers program -- a one-time event, and not likely an enduring change in American spending behavior. In many cases, the 'clunkers' program advanced car sales that would have occurred in 2010 or later to 2009.

Meanwhile, initial jobless claims remain stubbornly high at 551,000. However, the more-telling stat,the four-week moving average, continues to show improvement, dropping another 6,250 to 548,000 -- an encouraging sign. At the current pace, it may be a year or more before initial jobless claims return to normal levels below 300,000.

Also, inflation remains tame: the core inflation rate's 0.1 percent rise in August and 1.3 percent increase in the past year represents an environment where price pressure, not pricing power, is dominant, and the Fed will likely interpret the data as such. The data indicates that, despite massive monetary and fiscal stimulus, the greater risk for the economy (so far) remains deflation, not inflation.
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