There’s never a good time to release bad news about consumer spending and income, but it’s even worse on the day that’s likely to witness Congress vote in favor of the $700 billion bailout for the U.S. financial system.
Spending that mountain of cash to salve so much self-inflicted pain will inspire no one, least of all investors. Yes, it may provide a short-term bump in prices, maybe. And it may keep the apocalypse at bay, maybe. And the government may get the money back when it resells the assets down the road, maybe. But in the long run, it’s not a productive use of capital. Mopping up spillage never is.
For every argument in its favor, it’s easy to worry about the potential for negative blowback. Did we forget to mention that we’re in uncharted territory here?
Adding to the woes about the limits of Washington’s debt-financed restoration of financial order is news this morning that disposable personal income dropped 0.9% last month, the third in a row. No wonder, then, that personal consumption expenditures were unchanged in August from the previous month.
“With the labor market remaining very weak, slow to negative growth in disposable income will most likely plague the consumer for at least the next six months,” Adam York, an economist at Wachovia Economics Group, told CNNMoney.com.
It’s hard to see the outcome as anything other than recession. “It looks like we are poised to see a real-term decline in personal consumption and that will likely result in a negative GDP number in the third quarter,” James O’Sullivan, economist at UBS Securities opined to Reuters.
As we write, the S&P 500 is off by nearly 4%. Meanwhile, the flight-to-safety instinct is very much humming today. Demand for the 10-year Treasury pushed its yield down sharply to around 3.65% in early afternoon trading, New York time, down from 3.83% at Friday’s close.
The problem at the moment is the unknown. The haziness on the future—future earnings, future real estate prices, future this, future that—is weighing on just about everyone. It’s going to take time—several weeks, at least—to get a halfway decent guesstimate of what the government’s getting for its $700 billion. Add to that the question of how much patience the global markets have for yet another big borrowing binge by the U.S. And what will all this do to Joe Sixpack, and to corporate profitability, and real estate prices, and on and on.
No one really knows, and the depth of the ignorance and the magnitude of its implications have rarely been greater.
Yup, it’s a Monday alright.