The 8pm report from the National Hurricane Center has Gustav emerging from a tropical storm back to hurricane status. The present projections have Gustav impacting the Texas or Louisiana coast by Monday or Tuesday. In its path will be hundreds of off shore oil and gas platforms.

The movement in crude oil prices today reflect a real battle between those who think Gustav will peter out and those who believe Gustav will do real harm. At the end of the day oil was near its lows of the day. It remains to be seen just what Gustav will do but should the hurricane have any significant impact on drilling operations in the Gulf of Mexico we can expect to see crude oil prices spike upwards rather significantly on Tuesday morning.

Yesterday the revised GDP gave the market a boost and today the personal income data took it away. Recall that yesterday I said the GDP was a backward indicator, it was old news in that the figures used in the calculation were from April to June. Today’s personal income and spending data is ‘after’ the GDP time period and it showed a decline. So the whopping 3.3% GDP is very likely to be the peak and we return to a down path in GDP once again. Well, at least until the next Government hand out.

With 70% of the US economy tied to consumer spending, the Government would rather everyone continue to go into debt and keep spending as opposed to saving their money. The stimulus money that everyone received over the past few months was nothing more than a bribe for you to go out and go shopping and spend even more than what they gave you. And you know what, statistics do show that a good proportion of people will do just that. So with the GDP now in the rear view mirror, and the market being confronted with more recent data we had ourselves a sell off today.

A graph of retail sales spanning four decades shows how the primary trend of consumer spending (as measured by retail sales) has been on the decline. With the US economy now more than ever reliant on consumer spending it is no wonder why the Government wants to keep encouraging people to spend, spend, spend. It does not matter to them if you go into debt, just as long as you keep spending!