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The United States Department of Commerce has issued a statement proclaiming that personal income grew faster in September than in any other month since August 1999. This growth is largely due to the increase in federal farm subsidies which boosted personal income by $ 61 billion. Private wage and salary disbursements also increased by over $ 25 billion in September, adding to the total personal income bump up. The Department of Commerce said that the net personal income increased by 1. 1 % in September while the disposable personal income (adjusted for taxes and inflation) increased by 0. 7 %.
The advance gross domestic product also indicates that consumer spending is still on the rise. It is growing at an annual rate of 4. 5 %. In recent years, consumer spending has been boosted by the initial increase in personal income, better quality of products, and higher expectations for future wealth. In the last quarter, there has been a dramatic increase in the purchases of durable goods, especially automobiles. The automobile market experiences alternating on and off periods of demand depending on the durability of new cars and the attraction of new technological advances.
Investment has also increased in the past quarter. Business investments in equipment and software increased at an annual rate of 8. 5 percent. This increase is partially due to the high expectations for future returns in the technology markets. The increase in investment has produced a greater economic capacity, higher productivity and weaker inflationary pressures in the national markets. However, the drastically increasing consumer spending has in the past year out grown the personal income. This means that personal savings has become negative.
If placed on an aggregate expenditures vs. aggregate output chart, the consumer spending + investments curve will fall underneath the 45 -degree line. The public is spending more than it is earning, effectively dipping into savings and inventory. In August, personal savings was -$ 28. 4 billion! Because personal income has increased in the past month, Septembers personal savings was buoyed back up to -$ 7. 8 billion. Although this negative savings rate may suggest a decrease in gross domestic product, the truth is actually in the contrary.
This is because the personal savings rate the US Department of Commerce calculates, is purely the difference between personal income and consumer spending + investments. Factors such as net exports, capital gains and the wealth related to property are not included in the equations. This causes the underestimation of income growth and hence the impression that people arent saving. All things considered, the national is still growing.
This is the longest period of economic growth in Americas history and it has yet to show signs of slowing. Much of this growth is a direct effect of extensive investment spending and government spending. Fortunately, even though the current employment rate has exceeded the theoretical full employment rate, there is minimal inflation. This economic prosperity follows Keynesian equilibrium models perfectly.
Barrett, Jennifer. Economic Growth Continues. New York Times 29 Oct. 2000. Called, Jane.
Statement by Robert J. Shapiro. US Department of Commerce. (Oct. 27 2000): Online. Internet. 29 Oct. 2000.
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