Although mortgage rates remain low, they have moved up in
recent weeks as rising energy prices led to fear of higher
inflation, and as the Fed has indicated that it plans to keep
raising short-term interest rates to prevent inflation from
taking off.
In reality there is not a fear of inflation, there is a
certainty of inflation: fuel price increases ARE inflation.
Raising interest rates will not alleviate the adverse effects
of this inflation, it can only make them worse for all of us,
excepting the wealthy elites whose on behalf the Fed acts.
rkm
--------------------------------------------------------
http://www.washingtonpost.com/wp-dyn/content/article/2005/09/30/AR2005093000239.html
washingtonpost.com
Katrina Contributes to Drop in Spending
Personal Income Also Fell in August
By Nell Henderson
Washington Post Staff Writer
Saturday, October 1, 2005; A01
Consumer spending plunged in August at the steepest monthly
rate since the 2001 terrorist attacks as Hurricane Katrina
slashed incomes, fanned inflation and caused $170 billion in
losses from property damage, the Commerce Department reported
yesterday in its first tally of the storm's economic effects.
The report came the day after the Labor Department said
279,000 people filed new claims for unemployment insurance
benefits because of Katrina, which struck the Gulf Coast on
Aug. 29.
With energy prices still high, saving low, interest rates
rising and consumer confidence plunging, analysts are widely
forecasting that U.S. economic growth will slow through the
end of the year as households and businesses reduce spending.
"It's clear that the economic impacts from the hurricanes
[Katrina and Rita] will stretch well beyond the Gulf Coast
region to all corners of the nation and beyond," said Scott
Anderson, senior economist with Wells Fargo Economics. "Of
great concern for the economy is the mood of the U.S.
consumer."
Consumer spending fell 1 percent in August, after adjusting
for inflation, partly because of a big fall in auto sales
after a boom in July, when the nation's top three automakers
offered employee discounts to all buyers. The last time
spending dropped as much was in September 2001.
Personal income -- which comes from wages, salaries, rents,
interest and other sources -- fell 0.1 percent in August; it
would have risen 0.2 percent if not for the hurricane,
according to the Commerce Department.
The hurricane hit shortly before the end of August, but the
economic disruption began several days before as warnings of
the approaching storm prompted Gulf Coast businesses to close,
refineries and oil rigs to shut down, and residents to flee.
Even with falling incomes and spending, U.S. consumers
collectively still spent more than their after-tax incomes in
August, the Commerce Department reported. It was the third
consecutive month that personal savings was negative -- the
first time that has happened since the government started
gathering such data in 1959.
Consumers were able to spend more than their take-home pay all
summer by dipping into their savings, taking on more debt or
selling assets that increased in value, particularly rapidly
appreciating homes.
Federal Reserve Chairman Alan Greenspan, in a research paper
released Tuesday, estimated that consumers gained an extra
$600 billion in cash to spend last year by selling or
refinancing their homes, or through home-equity loans --
equivalent to 7 percent of after-tax personal income. In a
speech that day, he also said that process may account for
much of the decline in the personal saving rate over the past
decade.
Thus, consumer-spending growth should slow and personal saving
should rise if the housing market cools as mortgage rates
climb, he said.
Although mortgage rates remain low, they have moved up in
recent weeks as rising energy prices led to fear of higher
inflation, and as the Fed has indicated that it plans to keep
raising short-term interest rates to prevent inflation from
taking off.
Consumer prices jumped 0.5 percent in August, according to the
Commerce Department's inflation measure. Inflation rose to 3
percent in the 12 months that ended in August, up from 2.6
percent in the year ended in July, the department said.
Rising energy prices pinched household budgets, leaving
consumers less money to spend on other items. After adjusting
for inflation and taxes, personal income fell 0.5 percent
August.
Wages and salaries, the largest component of personal income,
rose 0.2 percent in August.
However, rental income declined $88.5 billion and small
businesses' income was cut $12.2 billion, both calculated at
an annual rate, because of uninsured property damage, the
department estimated.
Insured property damage was estimated at $70.2 billion in
August, at an annual rate, though the insurance payments are
likely to be made be made over time, an analyst said.
Katrina's other economic effects could not be separately
identified and quantified, the department said.
On Friday, the Labor Department will release its first
estimate of how many jobs were lost in September, and the
unemployment rate for that month.
The Commerce Department report "is at the leading edge of a
wave of hurricane-related bad (and distorted) economic data
that will be released in coming weeks," Nariman Behravesh,
chief economist with Global Insight, wrote in an analysis.
"Employment, incomes and spending are all likely to be pulled
down by the damage from Katrina and Rita and the ongoing
impact on energy prices."
That downturn should be followed by an economic rebound next
year as insurance, government and private money pours into
rebuilding the Gulf Coast region, analysts said.
© 2005 The Washington Post Company
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