Consumer spending accounts for two-thirds of all economic activity. And the willingness of U.S. consumers to flex their muscles is widely seen as the reason why the world economy doesn't collapse. That's why government numbers out this week rattled financial markets to their core. The Commerce Department reports that consumer spending slowed in July, rising by the smallest amount in nine months. A separate report shows consumer confidence dropped in August for the second straight month, a sign of growing concern over a lack of jobs and rising unemployment. The result was a big hit to the markets, where the Dow fell below 10,000 points for the first time in four months. Federal Reserve Chairman Alan Greenspan says the challenge facing policy-makers now is to understand how gains and losses in stock investments affect consumer spending, especially in a sluggish economy.
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At the same time, new budget estimates show the federal surplus is rapidly dwindling. The Congressional Budget Office predicts the government will need to use $9 billion of Social Security reserves to make ends meet. That had Democrats calling on the president to submit a new budget request that reflects the lower surplus projections.
Meanwhile, a university study predicts a steep drop in farm income for Illinois farmers this year. The annual study estimates the average Illinois farmer will make about $24-thousand dollars this year. That compares to last year's average of $51-thousand.
Researchers at the University of Illinois blame lower corn yields, reductions in crop prices and cuts in government payments for the decline.