Some temporary signs boosted investor confidence over the weekend, rallying stocks in the first round of trading on Wall Street following the deflationary storm called Hurricane Irene. Investors chose to ignore these old patterns and embrace lukewarm news as obvious signs that the economy was starting to build momentum again. In the first trading since Irene came ashore, the DOW and NASDAQ are sharply up compared to last week’s rough-and-tumble trading. That confidence might last until the end of the week when less pleasant economic news is released, such as unemployment figures for August.
First, consumer spending increased as Americans spent more money than they actually have on summer travel and other goods. Consumer spending “jumped” 0.8 percent in July, which is the largest single increase in five months. Wages and salaries crept up by 0.3 percent, and the savings rate declined from 5.5 to 5 percent, which means effectively that Americans continue on with their diet of debt, spending more than they are either making or saving. “Never mind,” say the experts. “Any increased spending is good spending.” Apparently, this formula does not apply to government spending for some ideological reason.
Second, Hurricane Irene turned out to be significantly less devastating than predicted. Although there is widespread damage and flooding, the hurricane’s path along land weakened the storm, bringing an end to the media inflation billing it as the storm of the century on the east coast.
Finally, President Obama announced the appointment of Prof. Alan Krueger of Princeton University to head his Council on Economic Advisors. The news here it that Krueger is a labor economist whose work includes measuring whether minimum wages increase unemployment (they don’t, contrary to “right to work” libertarian fantasies), what policies might improve long-term joblessness (more good-paying jobs with less contingent labor contracts might help), and the income and educational background of Islamic terrorists (turns out they are educated and come from middle class families). The inability of both government stimulus and private enterprise to create more job growth has significantly downgraded Obama’s political capital going into the next Presidential election, so the appointment of Krueger appears to signal a willingness to get serious about dealing with unemployment and joblessness. ::KPS::