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Friday, June 26, 2009

 

how fiscal stimulus is supposed to work


this morning saw the bureau of economic analysis release of personal income and outlays, where may income spiked higher for a gain of 1.4% atop an upwardly-revised 0.7% in april.

Personal income in May surged far more than expected but it was nearly all related to temporary fiscal stimulus. ... Personal income posted huge 1.4 percent gain in May, following a 0.7 percent boost in the month before. The rise in the latest month topped the market projection for a 0.4 percent increase. The advance in personal income was led by one-time payments under the American Recovery and Reinvestment Act of 2009. However, the wages and salaries component slipped 0.1 percent after an increase of 0.1 percent in April. Consumer spending actually made a moderate comeback with a 0.3 percent gain after no change the month before. The May spending boost matched market expectations.


the boost in income facilitated a massive increase in personal savings, ie household balance sheet repair.

Spending growth has been lagging income growth as indicated by large spike in the personal saving rate to 6.9 percent in May from 5.6 percent in April and 4.3 percent in March. Consumers are being cautious with the one-time payments from a special Social Security based stimulus package (which is not being funded from the Social Security trust fund). However, the additional income will likely help consumption in coming months.


now, all we have to do is keep this up until private sector debt falls from its current dizzying heights of ~300% of GDP back down to ~100%. right. easy. anyway, i don't think it's the negative news some might see it as.

one can follow along at recovery.gov as we incrementally socialize our thirty-year debt disaster by ramping up government outlays which become private sector income and thereby savings -- of the near $575bn approved by congress in the american recovery and reinvestment act of 2009, some $152bn has been obligated thusfar and $52bn spent (on its way to $119bn by year-end).

photo borrowed from christina davidson of the atlantic.

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