In two days, sentiments on the economy have improved dramatically thanks to a pair of economic reports. Tuesday (November 24), the gross domestic product was said to have risen by 2.8 per cent from the second to the third quarter.

This was the second estimate of the GDP, which was slightly lower than the previous estimate of 3.5 per cent growth for the third quarter. However, with a .7 per cent dip during the second quarter, the reinforced number showing a strong improvement was receive mostly as a positive indicator on the economy.

One of the notes in the release credited growth in consumer spending for some of the gains. Further evidence to support more confident consumers was released Thursday morning as the Commerce Department said consumer spending was up by .7 per cent during the month of October.

Spending was down by .6 per cent during September and the October rise was the best monthly showing since a climb of 1.3 per cent in August. The August number is a bit misleading as much of the spending that month was attributed to a high point in the cash for clunkers program.

The growth in spending exceeded analyst expectations of .5 per cent growth for October. Data on income showed a slight increase as well, though spending gains exceeded income gains, as evidenced by a reduction in savings held by Americans.

There are two positive things to take away from this last point. One is that income is growing, regardless of how small. New jobless claims surprised with fewer than 500,000 reported this week as well. Combined, this suggests employers may be gaining some confidence that the economy is headed in the right direction.

The second point, which also contributes to the first, is that consumers once again appear confident in the state of the economy – at least enough to return to the norm of spending more than they are bringing in.

While data on housing, credit, and other sectors has been closely monitored, consumer confidence and spending ultimately account for 70 per cent of the economy. The fact that spending climbed reasonably in October bodes well for the once uncertain and now more promising retail holiday buying season, which kicks off with Black Friday events across the country this week.

Neil Kokemuller
9:15 AM EST
Friday, November 25, 2009

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University. He is also in house stock market commentator at Live Charts UK, where you can find real time charts and share prices.

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