Economic Growth Fueled by Spending Won't Last, HSBC Warns

Wednesday, 02 Nov 2011 07:52 AM

By Michelle Smith

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Data showing a rebound in U.S. economic growth in the third quarter helped reinforce the belief that the worst is over for the world’s largest economy, but HSBC says a strong third quarter is not “necessarily a precursor” to a strong 2012, CNBC reported.

Consumer spending, which has been on the rise, is viewed as an important economic indicator.

Americans' renewed energy to spend money is credited for the growth that the nation witnessed over the summer. But reports show that much of the cash being tossed around are funds that people are taking from their savings.
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Some believe that this due to the Fed's slashing of interest rates and the announcement that those rates are likely to remain low until 2013.

The annual yield on six-month certificates of deposit was unchanged this week at 0.23 percent, according to Bankrate.com, reports the AP.

shoppersgetty200v2.jpg
(Getty Images photo)
Five years ago, it was 3.62 percent. If you put your money in the six-month CD today, you'd make about enough to buy a burger.

Whatever the reason for the spending, CNBC reported that Kevin Logan, the chief U.S. economist at HSBC in New York, described it in a note to clients as “something that is less likely to happen in coming quarters.”

With disposable income falling due to a weak jobs market and inflation, the draw down in savings witnessed in the third quarter will not last, Logan told CNBC.

Even with the growth fueled by spending, the Associated Press reported, the economy would have to grow twice as fast to put a dent in the unemployment rate, which has stayed near 9 percent since the recession officially ended more than two years ago.

Furthermore, the figures may show that income has slightly increased, but once the numbers are crunched that picture isn't as bright either.

Pay increased 0.3 percent, and overall income just 0.1 percent. After deducting taxes and adjusting for inflation, income fell for a third straight month, AP reported.


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