Curious Capitalist

Finally, Americans Are Spending More—Exactly What the Economy Needs

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Illustration by Alexander Ho for TIME; Getty Images

Will economic growth equal wage growth? That’s the biggest economic question of 2014. Like everyone, I was uplifted by today’s news that third quarter GDP figures were revised upward from 3.6 percent to a whopping 4.1 percent. What’s particularly good news is that unlike growth that comes from the restocking of depleted inventories—which basically tells you how weak things were in the sense that businesses unsure of demand wait till the last-minute to restock shelves—this revision was due to, gasp, consumer consumption. Personal consumption was revised up from 1.4 percent to 2.0 percent, thanks to a big jump in consumer spending.

As I’ve written many times, we can’t have a robust recovery in an economy that’s made up 70 percent of consumer spending until people spend more. In the third quarter, we got evidence that they finally are. So, how long until we can stop holding our breaths that we’re finally in a more robust recovery? “I’d say that even one more quarter of better consumer spending would make me feel pretty good,” says Princeton professor and economist Alan Blinder, with whom I spoke this morning.

Now, we just have to hope that job creation starts spreading into the middle, rather than just being at the ends—there are currently plenty of jobs for PhDs and burger flippers, but not so much in between. For more on how salaries and labor markets might shake out in 2014, listen to the latest episode of WNYC’s Money Talking, where I discuss this with Charlie Herman and Bloomberg Businessweek’s Diane Brady.

6 comments
mary.waterton
mary.waterton

Not true. Most of the 4.1% was business inventory in anticipation that people will spend at Christmas. But we won't know till January if that is the fact, or if business are stuck with inventory.

rjsigmund
rjsigmund

i have real retail sales growth at .95% in October, .91% in November, adjusting each business group with the appropriate CPI component...that is highly suggestive of a double digit annual growth rate in personal consumption expenditures for goods (which accounts for ~23% of GDP) in the fourth quarter..

tom.litton
tom.litton

@rjsigmund She isn't taking into account job growth.  Only lost income due to lower interest rates, which is pretty insignificant source of income for most people.

rjsigmund
rjsigmund

what everyone has missed is that the prices for goods have been going down...take rent, tuitions, medical care and other services out of the CPI and prices are down 0.2% YoY..