by Daniel Costello

Here's an interesting post from U.S. News & World Report on the seeming paradox that consumer spending is rising while unemployment remains at its highest level in nearly three decades. The latest data shows that consumer spending rose 0.7 percent in October, while incomes rose just 0.2 percent

That raises the question: how are unemployed consumers getting the money to buy all this stuff? The article concludes it's the rich that are pulling us out of our economic doldrums.

Thoughts?

 

Here's the argument. With so many consumers out of work, the money has to be coming from somewhere.

One possibility is that a wide swath of Americans are drawing down on savings to snap up cash-for-clunker car discounts and sales at the mall. But that's unlikely: the saving rate only recently dipped according to the latest data and it's been rising all year.

Are people taking on more debt? Fat chance as credit card companies continue to pull back on credit limits and lenders remain skittish to sign new auto or home loans for anyone without diamond-worthy credit.

That leaves assets. While home values are still falling, the stock market is up this year, nearly 23%. While the middle-class have a lot of their savings in the stock market, much of it is in pensions and retirement accounts so it's not likely being used to buy new flat-screens. That leaves the only other group who could spend extra cash from savings or this year's stock gains: the rich.

The usual economic data doesn't break down spending by income category. But wealthy consumers buy a disproportionate share of stuff, so it makes sense that any rise in spending could be attributed largely or entirely to them. The top 10 percent of earners account for 22 percent of all spending, for instance, according to Moody's Economy.com. The top 25 percent of all earners account for 45 percent of spending. The bottom 50 percent of earners, by contrast, spend just 29 percent of all the money in the consumer economy.