Monday, August 29, 2011

No Double Dip

The Lehmann Letter (SM)

The stock market rallied today on word from the Commerce Department that personal consumption expenditures had risen strongly (0.8%) in August by considerably more than income (0.3%):

This encouraged those who fear a double-dip recession. If households increase their spending by more than their income, that means they are borrowing once again. Perhaps household balance sheets are repaired sufficiently to permit strong consumer spending.

We'll see.

Just keep in mind the Commerce Department's Friday GDP report: Second-quarter GDP rose by 1% after a first-quarter increase of 0.4%. That's no sign of double-dip either, but it does keep us focused on the real risk: That the economy will expand sluggishly, impeding profit and employment growth.

© 2011 Michael B. Lehman

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