Consumer Spending Falls, as Unemployment Jumps

New economic figures released Wednesday, just ahead of the Christmas holiday, continued to point to a nation’s economy stuck in the doldrums, with consumers quickly discovering frugality as unemployment lines continued to grow last week. The new figures come just one day after the government said that GDP shrank at a 0.5 percent annual rate in the third quarter; of course, most economists now predict the pace of economic retreat will pick up much more dramatically this quarter, and Wednesday’s data certainly seems to buttress that viewpoint. Consumer spending fell 0.6 percent in November, the Commerce Department said, representing the fifth straight month of decline; the drop was slightly better than an expected 0.7 percent decline, but still points to consumers that are clearly choosing to hold onto their cash. Spending fell an unrevised 1.0 percent in October, by comparison, despite two months’ worth of increases in real disposable income. Thanks largely to retreating gasoline prices, consumers saw disposable income rise 1.0 percent in November, but — much like the nation’s banks — consumers are clearly choosing to hold onto their extra cash. Read the full report from the Commerce Dept. on personal income and outlays. Hesistance to spend comes as the nation’s unemployment lines are reaching their highest levels in 26 years, according to a report by the Labor Department on Wednesday morning. First-time applications for state unemployment benefits jumped by a whopping 30,000 to a seasonally-adjusted 586,000 in the week ending Dec. 20, the highest weekly reading since Nov. 1982. The unemployment figures were far worse than economists had expected; the Wall Street Journal on Tuesday reported that most economists were projecting a slightly worse 560,000, compared to a revised 556,000 recorded one week earlier. At least the number of people collecting benefits fell by 17,000 to 4.37 million, the government reported; but the four-week average of continuing claims rose nonetheless, reaching its highest level since Dec. 1982. Which means that employers are cutting back sharply on jobs, and those losing their jobs are having a tough time finding another one. Read the full jobs report. From a mortgage market perspective, this should be expected to boost foreclosures even further in the months ahead, for far more traditional reasons than we’ve seen throughout most of 2008; add in what appears to be a backlog of foreclosure activity, and we could be in for a pretty ugly Q1 2009. In perhaps a flicker of good news, the Commerce Dept. also reported Wednesday morning that durable goods orders fell 1 percent in Nov., faring far better than the 3 percent decline that economists had been expecting. But it’s worth noting that the government also made a significant downward revision to Oct.’s estimate of a 6.9 percent drop, revising it to an 8.4 percent fall. Similar revisions are likely to Nov.’s initial estimate. Write to Paul Jackson at [email protected].