Good News Comes in Threes

  • Consumer spending spiked 0.8 percent in July, the strongest gain since February. Subtracting inflation, real consumer spending rose 0.5 percent, the best performance since December 2009. These numbers were inflated by the return of vehicles to dealer showrooms after supply chain disruptions from the disasters in Japan. Nevertheless, consumers are still in the game despite low confidence, anemic hiring and the never-ending housing slump. This is critical to the economy since consumer spending accounts for 70 percent of GDP.

 

  • The yield curve is not signaling a recession, meaning that the spreads between the yields on short- and long-term Treasury securities are high by historic standards. Typically a flattening or negative yield curve presages a recession; long-term inflation expectations recede, pulling long-term interest rates down with them. The difference between 2 and 30-year yields was 3.32 percentage points yesterday versus 2.27 points in the recession year of 2008.
  • It's a three-day weekend! Have a good one.