Two government reports released last week concluded that consumers and businesses went on a big-ticket spending spree in July. Home, car and equipment sales rose by the largest amount in years, the government found.
The reports also found that new home sales jumped almost 10 percent from June, while orders for long-lasting goods like appliances, planes and computers rose nearly 5 percent in July, the third increase in the past four months.
Some economists took the news as evidence that the economy had hit bottom and is on the upswing.
While the news is certainly welcome, it must be met with cautious optimism. The increases came from very low levels and some were the result of temporary government programs such as “Cash For Clunkers.”
A key indicator will be the results of the July-September quarter. It’s likely that growth in the quarter will continue to be strong. But those gains will slow once government stimulus programs are reduced or eliminated. The question will be by how much.
