Consumer Spending Jumps, But Where Did They Get The Money?

Economists recently increased their estimates for GDP growth in 2011 after retail sales jumped in December. Did wages jump, no. Did employment jump, no. So where did these consumers get the money?

I don’t think consumers got it from paying off old debts. The consumer debt to disposable income ratio has dropped from 15 percent to 13.96 percent over the past three years (but mostly due to reduced interest rates). The amount of debt remains very high. It has dropped 3.5% over the last two years, but it has only dropped from $13.92 trillion to $13.42 trillion (and much less home equity to offset that debt.)

So it’s pretty obvious consumers received this new money from the government. Maybe the new near $900 billion dollar, December stimulus program (tax cuts, payroll tax deduction, extended unemployment benefits, accelerated depreciation, etc.). Or the $100 billion dollar a month deficit we are financing. Or the monthly $75 billion dollar Quantitative Easing (economist talk for printing money) program under way by the Federal Reserve.

Much of this money will go to either propping up GDP or increasing GDP. Either way, it’s just like the stimulus program, it’s temporary. That is unless we get new, temporary, “investments” (political talk for spending) in the months ahead.