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Tuesday, August 7, 2012

Bad News from the Consumer Sector

Sometimes in the midst of all the economic news we here, it is easy to forget the importance of the consumer "sector". Even when the MSM reports on consumers, it is "consumer confidence" that is focused on, and not whether consumers actually have the disposable income to make consumer purchases.

I came across a couple articles a few days ago at Business Insider on the related topic of where consumer spending is going. First is this one on "The Fate of the U.S. Economy Depends on Two Things":
As always, you should read New Deal Democrat's take on the latest weekly high-frequency economic data.

The gist is that things are mixed: Employment data is okay. Housing data is good. Consumer data is bad.

In fact, you can see from this chart that retail spending is threatening to roll over in a way that we haven't seen yet since the last recession. It's not decisive, and the year-over-year growth is still positive, but it is worrisome.
The author suggests looking at two factors to determine where consumers are going to go: energy prices and personal income. I can already tell you where it is going because energy prices are guaranteed to rise, and personal income (for those still with jobs) is largely stagnant.

On to the second article, titled "The American Consumer Rebellion is Gaining Speed":
Despite the Fed’s insistence that inflation is “contained,” or its periodic fear-mongering about deflation, consumers have been hit with rising costs. Tuition has been ballooning—up 21% in California in 2011 alone! Student loan balances exceed $1 trillion. Some parents who are still paying for their own student loans are now watching their kids piling them up too [read.... Next: Bankruptcy for a whole Generation].

Healthcare expenses have seen a meteoric rise. And so have many other items that cut deep into the average budget.

Inflation is a special tax. It’s not that horrid if it’s small, if higher yields compensate investors and savers for it, and if higher wages compensate workers for it. But that hasn’t been the case. The Fed’s Zero Interest Rate Policy has seen to it that entire classes of investors and savers get their clocks cleaned; and wages haven’t kept up with inflation since the wage peak of 2000—with the very logical but brutal goal of bringing wages in line with those in China.

But for a welcome change, disposable income adjusted for inflation, reported earlier this week, actually rose 0.3% in June from May. So spending should have gone up as well. It didn’t. The inexplicable American consumer spent less in June than in May. And April. The decline was focused on goods, the lowest since January.

And instead of buying goods with the additional money they’d earned, they saved! What temerity! It wasn’t a one-month fluke. The savings rate reached 4.4%, after a fairly consistent uptrend from the November low of 3.2%. An unusual and courageous act of rebellion in face of the punishment the Fed inflicts on savers.
The article goes on to note that sales of new cars is on a downward trend. Sales of GM and Ford have fallen, and the burst of sales for Toyota and Honda is largely due to pent up demand (because of supply chain problems caused by the earthquake in Japan last year, and flooding in Thailand) which is largely spent.

The most disturbing point of the article, however, is that the Commerce Department is towing the party line rather than exhibiting any independent thought.

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