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Female consumer uses, swipes credit card to make purchases at Wal-Mart Supercenter store in San Marcos, Texas
The Department of Commerce announced in its "Personal Income and Outlays" report Friday that consumer spending put in a weak showing in July, rising just 0.1 percent as wages and salaries fell. Since consumer spending drives 70 percent of the economy, this is not good news to start off the third quarter. A key reason for the tepid spending was a sharp drop in government spending at all levels because of the federal budget sequester:
Private wages and salaries decreased $15.3 billion in July, in contrast to an increase of $31.3 billion in June. Goods-producing industries' payrolls decreased $4.2 billion, in contrast to an increase of $7.6 billion; manufacturing payrolls decreased $3.7 billion, in contrast to an increase of $5.3 billion.  Services-producing industries' payrolls
decreased $11.2 billion, in contrast to an increase of $23.8 billion.

Government wages and salaries decreased $6.4 billion in July, compared with a decrease of $0.8 billion in June. Government wages were reduced by $7.7 billion in July and $0.7 billion in June due to furloughs that impacted several federal government agencies.

It's always wise not to read too much into statistics of just one or two months. The situation could change for the better. But with no end in sight for the sequester and the continuing slow growth of the economy as shown by other measurements, this certainly is not good news and could be the harbinger of more of the same to come. Doug Short pointed out that personal income since 2012 "has been growing at an excruciatingly slow pace." Year over year, it's only up an inflation-adjusted 1.8 percent.

Martin Crutsinger of the Associated Press wrote:

"This is a disappointing report on a number of levels," said James Marple, senior economist at TD Economics. "Prospects for a pickup in economic growth in the third quarter hinge on a broad-based acceleration in spending by households and business to offset the ongoing drag from government. The data for the first month of the quarter are not following this script."

Several analysts said that economic growth is unlikely to match the 2.5 percent annual rate reported Thursday for the April-June quarter. That was more than twice the growth rate in the first quarter and far above an initial estimate of a 1.7 percent rate for April through June.

That annualized growth of 2.5 percent in gross domestic product for the second quarter was far better than expected after the paltry 1.1 percent of the first quarter. But various indicators in addition to consumer spending show that, overall GDP growth for 2013 will almost certainly be below 2 percent, another lukewarm performance that won't do much to improve the situation on the employment front with 25 million or so Americans either unemployed or underemployed 68 months after the Great Recession began.

Other factors have held GDP growth back previously. But the sequester is crucial now. As New Deal democrat noted in an assessment of second-quarter growth, the drop in federal spending meant a minus 1.6 percent in GDP growth in the second quarter and the in state and local spending was good for another minus 0.5 percent. Altogether, the subtraction from government expenditures at all levels was minus 0.9 percent. The sequester is hurting.

Originally posted to Meteor Blades on Fri Aug 30, 2013 at 09:13 AM PDT.

Also republished by Daily Kos.

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Comment Preferences

  •  We have no money (14+ / 0-)

    maybe if some raised our wages we would have money to spend.

    Just a thought from Captain Obvious.

    Good diary, MB

    Regulate banks, not vaginas

    by MinistryOfTruth on Fri Aug 30, 2013 at 09:20:33 AM PDT

  •  I don't really hear much about Sequester. (5+ / 0-)

    It's like everyone in Congress has just accepted it. The economy never got solid footing before having the stool kicked out from under it. So none of this surprises me.

    Everyone I've spoken to says that their utilities are asking for and getting significant price rates. Housing has slowed down. Raises seem to be a thing of the past. Food prices never slowed down, but now they are really on the rise again.

    And now we're going to waste millions (hopefully not billions) going to war.

    Of course consumer spending is weak. Those who have a little extra money are nervous as they look at the landscape. Those who don't have money to spend don't.

    © grover


    So if you get hit by a bus tonight, would you be satisfied with how you spent today, your last day on earth? Live like tomorrow is never guaranteed, because it's not. -- Me.

    by grover on Fri Aug 30, 2013 at 09:25:44 AM PDT

  •  Don't worry, China's a great emerging market with (1+ / 0-)
    Recommended by:
    Aunt Pat

    a growing middle class!

    Obama: self-described Republican; backed up by right-wing policies

    by The Dead Man on Fri Aug 30, 2013 at 09:26:40 AM PDT

    •  Not any more... (0+ / 0-)

      Krugman last month:

      Yet the signs are now unmistakable: China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.
      http://www.nytimes.com/...

      "The true strength of our nation comes not from the might of our arms or the scale of our wealth, but from the enduring power of our ideals." - Barack Obama

      by HeyMikey on Fri Aug 30, 2013 at 08:19:57 PM PDT

      [ Parent ]

  •  Yes, the sequester is hurting -- and will continue (2+ / 0-)
    Recommended by:
    grover, Eric Nelson

    to hurt -- real people. Somebody remind me: what was its intent???

    Dance lightly upon the Earth, Sing her songs with wild abandon, Smile upon all forms of Life ...and be well.

    by LinSea on Fri Aug 30, 2013 at 09:36:46 AM PDT

    •  Oh, you remember! (2+ / 0-)
      Recommended by:
      LinSea, HeyMikey

      Sequester is such a terrible awful idea that no one in his right mind would ever swallow such a poison pill. Of COURSE they will get a deal done!

      Who knew that many members of Congress would rather swallow hemlock than sit a table with their colleagues and be reasonable professionals?

      Yeah. I know. We all should have known.

      © grover


      So if you get hit by a bus tonight, would you be satisfied with how you spent today, your last day on earth? Live like tomorrow is never guaranteed, because it's not. -- Me.

      by grover on Fri Aug 30, 2013 at 09:42:43 AM PDT

      [ Parent ]

  •  I've said it before, and I'll say it again. (8+ / 0-)

    You can't grow a demand side economy with supply side manure.  You just bury those on the ground in shit.

    In an economy that's 70% or more driven by consumer spending, this is what happens when consumer spending slows down.  When consumers don't have money to spend, consumer spending slows down.  When consumers have jobs that pay shit, or no jobs at all, they don't have money to spend.

    It ain't rocket science.

    I'll believe corporations are people when one comes home from Afghanistan in a body bag.

    by mojo11 on Fri Aug 30, 2013 at 09:40:57 AM PDT

    •  add to that (1+ / 0-)
      Recommended by:
      HeyMikey

      Lowered tax rates for the wealthiest means a lot of money is sitting around, not being spent.  The lower the economic status, the quicker the money is spent.  Also, low tax rates at the top encourage short term outlook.  If you can keep most of your bonus, you look out for today's bottom line, not a company's future.  The only thing that trickles down is urine--everyone knows that, yet our government keeps saying otherwise.  It's as if our leaders are paid stooges.

      Under capitalism, man exploits man. Under communism, it's just the opposite. John Kenneth Galbraith .

      by melvynny on Fri Aug 30, 2013 at 07:33:41 PM PDT

      [ Parent ]

      •  OUR leaders? (1+ / 0-)
        Recommended by:
        melvynny

        Paid stooges?  Heaven forfend!

        Wall Street doesn't invest anymore.  Wall Street (and its suburbs) trade.  And there's a big difference.  Investing is about buying into a company you think has a future.  Trading is about making a pile for yourself and getting out before the price drops.  High speed high volume trading, kills any kind of incentive for blank paper R&D, because that kind of development costs money.  It's a lot easier to just wait for the next startup to launch your R&D efforts and then buy up heir patents when they inevitably fold.  And if those patents happen to conflict with your business model?  Well nobody said you have to actually BUILD the new widget... but nobody else can either. This, I'm convinced, is why we haven't already migrated to fossil-free energy.  It isn't the brain power we lack, or even the motivation.  It doesn't benefit the short term bottom line required to prop up share prices.

        I'll believe corporations are people when one comes home from Afghanistan in a body bag.

        by mojo11 on Sat Aug 31, 2013 at 05:41:25 AM PDT

        [ Parent ]

        •  short term (0+ / 0-)

          All business thought is short term--ideally, there would be a maximum salary plus stock options that can't be redeemed for 10 years.  The old model for capitalism assumed local business locally owned--businesses without borders need many restrictions--shame no longer exists--it's only about the last quarter.

          Under capitalism, man exploits man. Under communism, it's just the opposite. John Kenneth Galbraith .

          by melvynny on Sat Aug 31, 2013 at 06:18:14 AM PDT

          [ Parent ]

  •  People are - or should be - afraid of (6+ / 0-)

    exactly what happened to me.

    I got employed at a good job back in April of 2010. I worked and worked. The job remained.

    Dear old Toyota Truck turned 18 years old, 246000 miles... I HAD bought a car back in 2003 but all the driving I had to do at shitty jobs wore it out and it was becoming a nightmare. I sold it - cut my losses in 2011. Ol Toytota wasn't getting any younger.

    I finally decided to buy a new car to replace the truck as my main vehicle. I got a new car with a 4 cylinder engine and good gas mileage etc... etc... etc... back in March.

    I made 1 payment and then got the word the company was closing its doors. Now I am laid off and I have a car payment to make. Arguably it's good to have the reliable car for job interviews, but arguably better to not have the stress of coughin up that extra cash.

    Nobody wants to go through that.

    Better to not buy things and just wait.

    •  Recipe for deflation. (1+ / 0-)
      Recommended by:
      xxdr zombiexx
      Better to not buy things and just wait.
      Entirely rational for individuals.'

      Suicide for an economy.

      This is a job for Big Government. Unfortunately it's AWOL.

      Hey--not certain here--but check with the Children's Center for Hope & Healing in Gainesville.

      "The true strength of our nation comes not from the might of our arms or the scale of our wealth, but from the enduring power of our ideals." - Barack Obama

      by HeyMikey on Fri Aug 30, 2013 at 08:22:57 PM PDT

      [ Parent ]

  •  I so wish that (4+ / 0-)
    Recommended by:
    LinSea, Eric Nelson, cactusgal, HeyMikey

    more of the American public would pay attention to the completely unnecessary damage that the sequester does to our economy . . . and our country.

    Ugh.

  •  That minus 1.6 percent in GDP growth will cost.. (3+ / 0-)
    Recommended by:
    cactusgal, Dragon5616, HeyMikey

    ..the loss of 1.6 million new jobs.
    Lost opportunity  for millions, according to July CBO report (pdf)

    As many as 1.6 million new jobs could be added to the U.S. economy if Congress simply canceled the budget cuts implemented due to sequestration from Aug. 1, 2013, to the end of September 2014, a new non-partisan study (pdf) has concluded.
     The study, which was compiled by the Congressional Budget Office at the behest of House Budget Committee ranking member Chris Van Hollen (D-Md.), looked at the practical impacts of repealing sequestration from now through the end of fiscal year 2014.
    The good news is the progressice caucus solution that even republicans themselves prefer over the republican budget

    Thx MB

    P.S. The GOP corporate shills may want this shrinking of opportunity but most working folk don't if they knew better. I think people are beginning to get it though which is good  

    warning -  progressive caucus repeat message by me

  •  I've been very fortunate (0+ / 0-)

    I haven't been furloughed or anything, but nobody I work with has any confidence that our jobs will be here in a year. Even though we are actually very well funded, the process of renewing contracts is completely broken. I've been saving everything that I can in anticipation of the worst, and live in a constant state of uncertainty. I know that I'm not alone, and this has to be bad for the economy.

    Small varmints, if you will.

    by aztecraingod on Fri Aug 30, 2013 at 07:07:51 PM PDT

    •  Sadly I've seen this myself (0+ / 0-)

      I was furloughed but luckily they cut it down to six days so the hit to my paycheck wasn't as bad as it originally was going to be at 22 days.

      Don't know what next year holds but if the worst happens they will be taking a hatchet to contracts, no new starts and scarily enough we're not confident when the director sez no RIFs that RIFs won't happen anyhoo.

  •  Sequester: Pin the average consumer down... (0+ / 0-)

    until he cries, "uncle". Then, sell him on the values of the Republican Party.


    Reality occupies a dimly lit corner somewhere on the edge of town. I drive by every now and then on my way to visit mom. That’s where the cookie jar is.

    by glb3 on Fri Aug 30, 2013 at 07:10:55 PM PDT

  •  midnight (0+ / 0-)

    I should get paid !
    I'll save the economy!

    ;)

  •  Sending jobs away kills your customers. (0+ / 0-)

    They'll never get it.

    "Life is short, but long enough to get what's coming to you." --John Alton

    by Palafox on Fri Aug 30, 2013 at 07:22:44 PM PDT

  •  Sharp drop gov't spending? (0+ / 0-)
    Real federal government consumption expenditures and gross investment decreased 1.6 percent in the second quarter, compared with a decrease of 8.4 percent in the first.  National defense decreased 0.6 percent, compared with a decrease of 11.2 percent.  Nondefense decreased 3.2 percent, compared with a decrease of 3.6 percent.  Real state and local government consumption expenditures and gross investment decreased 0.5 percent, compared with a decrease of 1.3 percent.
    http://www.bea.gov/...
  •  I think people own too (0+ / 0-)

    much junk anyway.  There should be compulsory education on how to counteract the affects of marketing and advertising.  Old people and young people are particular susceptible to modern day snake oil salesmen.  My daughter, 25, is in debt and seems to not be able to resist the urge to buy the latest and greatest fad idea.  We all need to step back and take stock of what is needed and what is wanted.  Yeah, I know this is counter to the consumer society - but maybe a correction is in order.  

  •  Thanks to the President and his enablers (1+ / 0-)
    Recommended by:
    LeftHandedMan

    I can say this, because I predicted this from the BS tax deal that didn't have a debt ceiling raise in it in 2010 to every fail every step along the way. It's a shame trolls opinions on these events was given the same reverence here. Then the dumbass or corrupt White House threw away real solutions like the TDC and even more a high value platinum coin. And if they didn't want to do that, they could read section IV of the 14th amendment and invoke it while going to court as James Galbraith wanted.

    I file this economic effect of the White House's sequester under under "no shit."

    Yeah, I'm a little bitter. And now restructuring Medicare is on the table just like I said it would be(despite those who emberrasingly screeched it wouldn't be I guess they have to STFU now when they had to once Social Security was put on the table).

    People who don't want to learn at this point and make excuses for the sequester the White House wrote to get out of the problem they caused, have the suffering of seniors, children and others on their hands. Being stupid and proud of it has consequences or being corrupt and proud of it. It's one or the other.

    This was easy to see coming and I did. I'm pissed this sellout administration is putting the New Deal and great Society on the table because they can't do what any other Democratic administration could do and pass budgets and raise debt ceilings and the Republicans were just as crazy in the 90s and as bad as he was, Bill Clinton got out of it; This is a bipartisan political debt problem where both sides decide to believe in economic myths and sacrifice the public for the market confidence Gods and fake bond vigilantes in their mind.

    One either accepts that and leads or stays stupid or corrupt and pretends debt and deficits are a constraint.  The same goes for everyone here who makes excuses for this.

    You may be as disappointed and angry as me, MB. I am just going off, because I have been warning about this for years now to no avail. I am not ready to make nice with anyone who enabled this given the suffering of everyone from the sequester and general economic deficit terrorist stupidity or corruption.

    Those who deflect debates about the issues with complaints about tone usually have a lot to atone for.

    by priceman on Fri Aug 30, 2013 at 07:47:09 PM PDT

  •  The Sequester is what you get (0+ / 0-)

    when you think that not making an argument against Movement Conservatism is, itself, an alternative form of making an argument against Movement Conservatism. It's thinking that poisoning yourself is a form of Judo that is going to knock the other guy flat on his or her back.

    The whole intellectual underpinning of the policy was that it was so toxic, so bad, so painful, that the people who passed it on one day would turn around later and freak out that it existed and never allow it to happen.

    That is how scary "Movement Conservatism is bad for America, it is destroying the American people's ability to solve problems, create a new economy, and for our population to effectively govern themselves" is to say.

    It's an indictment of the state of non-Conservative politics in America. Being accused of being partisan is worse than poisoning yourself.

    'We will pass it now, knowing it's self-abuse on a grand scale as we do it, and then, in a few months, maybe six, we, the same people who passed it out of sheer cowardice and an amazing form of naive cynicism will suddenly look at the potential pain, the abstract suffering, the hypothetical damage we thought of as the key to making our self-torture a good idea and then we will freak out like we are actually in pain, suffering, and seeing actual damage occurring and do something different.'

    That is about as fucking idiotic an assumption as you can make in politics.

    But a fucking idiotic assumption that leads directly to widespread mass self-abuse, enabled by just stupid assumptions about your future self that are as daft as you can make, is more viable than the same of a non-Conservative in DC being accused of partisanship.

    Why would the GOP do anything different?

    The GOP is going to end up viable for years, maybe decades, longer than they should be because of who has to stop them being more afraid of being accused of being far-Left extremists by people who are going to call you that even if Evan Bayh is in the White House and Lanny Davis gets to decide what is possible in non-Conservative American politics.

    I am a Loco-Foco. I am from the Elizabeth Warren wing of the Democratic Party.

    by LeftHandedMan on Fri Aug 30, 2013 at 08:13:48 PM PDT

  •  the sequester effect is only part of the story, (0+ / 0-)

    with respect to federal spending. gov't employees haven't had a raise in four years, the ripple effects of that, combined with the ripple effects of the sequester, have had a substantial impact on the economy, especially in areas where that income is most felt.

  •  A law ao bad they would HAVE to fix it. (0+ / 0-)

    How's THAT working out for you?

    The Budget Reconciliation Act of 2011.....

    Obama, McConnell, Boehner, Reid and Pelosi negotiated it. 95 Democrats and 174 Republicans in the House voted for it and 45 Democrats and 30 Republicans in the Senate voted for it. Obama signed it.

    All so they could kick the debt ceiling down the road for a few months.

    Who's to blame for this?  EVERYBODY.

    The modern Democrat is one who promotes old GOP ideas and calls them progressive in comparison to new GOP ideas.

    by masswaster on Sat Aug 31, 2013 at 09:50:13 AM PDT

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