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Is the Consumer Really Back? Well, It Depends On If You Believe What the Government Tells You or Whether You're An Independent Thinker

Reggie Middleton's picture




 

A quick summary of mainstream American news broadcasting shows a
bright green light toward economic growth as the “Great Recession”
finally disappears in the metaphorical rearview mirror.  A variety of
shapes and letters have been used to describe the path of the economic
recovery, most famously, the “V shaped” return of American output.  A
quick look at data from the 2010 1st quarter Gross Domestic
Product report released by the Bureau of Economic Analysis on April 30th
reveals the following:

  • GDP grew at a 3.2% annual rate, as compared to 5.6% in Q4 2009. As
    forecast by Roubini et. al., GDP growth rate would collapse once the
    effect of stimulus measures wore off.  I have claimed that the
    structural changes needed to effect true insurance against an economic
    relapse borne from financial contagion were never enacted, hence we
    never fixed the problem that caused the first crisis, leaving open the
    possibility for a another crisis in the very near future.
  • Personal Consumption Expenditures increasing at a 3.6% rate, with
    non-durable goods purchases climbing to 11.3%
  • Personal Savings declined from 3.9% to 3.1% (even as personal
    disposable income increased by $41.7 billion in comparison to $94.4
    billion in Q1 2009). This gives a very likely source of the spending
    boost.
  • Motor vehicle output contributed to 15% of the total increase in
    Real GDP (.52% of the 3.2% annual rate)

An initial take away from the data is that the American consumer is
alive and kicking after almost two years in the gutter.  However, a look
back into the makeup of US growth from  2006 shows a different style of
consumer makes the recovery more of a question than a definitive
event.  In regards to 2006, data from the BEA release last Friday
extends back to Q2 2006 on a quarterly basis.  During a one year period
spanning from Q2 2006 to Q1 2007 (arguably the high of bubble mania),
personal consumption expenditures contributed to the percent change in
total GDP from 93% to 1700%, while its largest positive contribution to
GDP in the past year has been less than 90%.  In a sentence, the bubble
expenditure behavior has not returned (and probably will not return in
this generation), and those relying on its return to support business
models and valuations (CRE, retail, manufacturing, advertising, etc.)
will be sorely disappointed.

 

GDP PCE

Those looking for a more conventional method of observing consumer
patterns can find similar conclusions by looking at Federal Reserve data
on consumer credit.  Both revolving and non-revolving credit lines have
decreased over the past year, indicating it is still not yet worth it
to take on more debt for a tapped out American consumer.  The biggest
contradiction with BEA statistics that can be drawn directly from
Federal Reserve data is related to automobile sales data.  Even as motor
vehicle output continues to climb according to the BEA, Federal Reserve
data shows that interest rates on auto loans have risen each quarter
since the end of Cash for Clunkers, and the average amount financed has
fallen each quarter as well.  Such contradicting data should raise more
question marks about whether or not the consumer recovery is really out
of the woods (or if it will ever leave the woods).

For those who have not yet read it, the post What We’re Looking
For To Go Splat! Part 2
reviews 147 retail companies whose
operating margins and leverage caused us to take a second (or third)
look at their ability to whether the storm. Subscribers should reference
File Icon Retail Short Analysis for the four
companies that made the short list and the reasons behind short-listing
them.

The previous “Splat” post (part 1) dove a little deeper
into the macro perspective:

Those companies that serve and rely on
these very same consumers’ ability to spend are quite sensitive to the
macro environment. Notice, I said the companies, not necessarily the
companies’ securities – at least not yet. So, what does the
macro/fundamental outlook look like? Let’s glance at personal
consumption over the 12 years or so…

Notice that the only real recovery is in the volatile energy<br />
sector, and that is not discretionary! Automobiles, clothing,<br />
furnishing, etc. are looking yucky!

Notice that the only real recovery is in
the volatile energy sector, and that is not discretionary! Automobiles,
clothing, furnishing, etc. are looking yucky!

And this just in from CNBC:  Spending Beats Income Gain as
Consumers Tap Savings

Consumer
spending increased as expected in March for a sixth straight month as
consumers dipped into their savings, confirming the robust spending
growth.

That’s some spin, eh? Consumers dip into their savings to buy things,
denoting a poorer consumer that cannot subsist off of income alone.
Yet, this news channel sees it fit to say that this confirms “robust
spending growth”.  To think some people wonder why blogs are becoming
more popular…

 

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Tue, 05/04/2010 - 07:11 | 330417 I need more asshats
I need more asshats's picture

Are you usually wasted when you write this stuff? I'm thinking you're big into meth or coke? Do tell...

Mon, 05/03/2010 - 19:35 | 329879 johngaltfla
johngaltfla's picture

Inflation=spending. Sheesh, everyone chill. Let's all play newspeak and rock on with all this hope and change we're experiencing.

Mon, 05/03/2010 - 18:47 | 329843 JW n FL
JW n FL's picture

 

Public Spending Boosted March Construction


Lifted entirely by the public sector, total construction spending beat expectations and increased for the first time in four months. Private residential and non-residential spending remained weak.


 


 

 

http://mediaserver.fxstreet.com/Reports/98af00e5-0bd6-449e-bc7a-ebcb04be7bd1/0c011af8-04b7-458b-957d-3bfd212ae3be.pdf

Mon, 05/03/2010 - 16:47 | 329657 Blaise Pascal
Blaise Pascal's picture

What's the old saying?

"Who are you going to believe, me or your own lying eyes?"

Blaise Pascal; Mathematician, Philosopher, Gambler

Mon, 05/03/2010 - 14:54 | 329457 Gimp
Gimp's picture

Gas prices continuing to go up will put a crimp on any so called "recovery" the politburo is selling.

Drink more vodka and do what you are told! Achtung baby.

Mon, 05/03/2010 - 14:38 | 329418 RobertShaw
RobertShaw's picture

Consumer sepnding up. Doesn't that include sales of gas?  If so, mystery solved as gas prices are going up.

Mon, 05/03/2010 - 14:37 | 329416 theobannion
theobannion's picture

I'm a true contrarian: When I agree, I have nothing to say.

SOB.

Mon, 05/03/2010 - 14:23 | 329388 akak
akak's picture

Where is "HarryWanger" (James Kostohryz in real life) to fervently defend the corporate media's latest tale that "All is Well!", and to tell us that it's all blue sky and lollipops from here on out?

Mon, 05/03/2010 - 16:28 | 329617 HarryWanger
HarryWanger's picture

Ok, once more, consumer spending which makes up 2/3 or the economy was at a record. Yes a record! However you want to spin this, it's great news. I don't watch CNBC and have no desire to defend them but they are putting the correct "spin" on this story. It is good for the economy. And it's a hell of a lot better to spend what you have than borrowing to purchase.

To say this report is neither strong or a great economic indicator is just silly. 

Mon, 05/03/2010 - 19:09 | 329860 akak
akak's picture

Your mainstream talking points and fables are what are really not strong, and are silly.

Mon, 05/03/2010 - 19:06 | 329859 sgt_doom
sgt_doom's picture

"Ok, once more, consumer spending which makes up 2/3 or the economy was at a record. Yes a record! However you want to spin this, it's great news."

Negative, negative, negative, you aren't weighing all the variables and ALL the data.

The actual number of consumers has been radically shrinking, so today the vast bulk of that 70% consumer spending is by 20% of the consumer population.

That's bad.....that is very, very bad, and indicative of great jewelry sales, perhaps, and and uptick in Lexus or other limo sales, but sucks for the greater majority of Americans.

Do the math, examine the numbers....

Mon, 05/03/2010 - 16:50 | 329664 Fish Gone Bad
Fish Gone Bad's picture

Saving is what makes country great, not spending.  I thought you might enjoy having Peter Schiff tell you himself: http://www.youtube.com/user/SchiffReport#p/a/u/0/UI5_wCmshlY

Mon, 05/03/2010 - 14:23 | 329387 anony
anony's picture

"A taste for the superfluous holds sway over a people who are still unacquainted with the necessary".

Mon, 05/03/2010 - 14:12 | 329358 Rick64
Rick64's picture

Confidence, got to keep the confidence game going or all is lost. Which quarter, month, or year can we compare the numbers to and make it look positive and then revise it when nobody cares.

Mon, 05/03/2010 - 14:04 | 329339 jimcg
jimcg's picture

What about the sales tax receipts from the various states?

They've actually been lower in the face of increased retail sales.

Strange!

 

 

Mon, 05/03/2010 - 13:52 | 329310 Tic tock
Tic tock's picture

How do we tell if this isn't only due to higher prices for ordinaries?

Mon, 05/03/2010 - 13:41 | 329286 Sudden Debt
Sudden Debt's picture

Yes consumers are back! They are all booking cheap vacation trips for this summer to Florida!!

I wonder how many Americans read the news.... :)

Mon, 05/03/2010 - 16:22 | 329609 Cursive
Cursive's picture

Just in time to hit the oil-soaked beaches?

Mon, 05/03/2010 - 13:29 | 329265 Ruth
Ruth's picture

Shopping, one of society's socially acceptable addictions...tell ya can't!

Mon, 05/03/2010 - 13:10 | 329246 Racer
Racer's picture

Isn't this how this mess all started in the first place... people spending beyond their means and using the house as an ATM? But now they are using their savings because that is no longer an option. There are only so many months that this can go on and the people will be in an even worse mess that they were before.

Buy stocks, they only ever go up, Bennie and the Inkjets say so

Mon, 05/03/2010 - 19:01 | 329856 sgt_doom
sgt_doom's picture

"Isn't this how this mess all started in the first place... people spending beyond their means and using the house as an ATM?"

Gee, have a difficult time comprehending simple arithmetical relationships, I bet???

Negative, cave dweller (as that would be your only excuse for being so damnably IGNORANT!).

It began with the securitization of everything, which followed the privatization of everything.

And will end with the disintegration of everything.

Geez, how do people as frigging ignorant as you continue to exist?

Nope, douchey, a four percent foreclosure rate in the US wasn't the actual result for the global meltdown, but the Ponzi-Tontine scheme of claiming dividends and profits where none exists (hedge funds and PE leveraged buyout firms), and with 83% or greater of the American GDP consisting of the Fantasy Finance Sector -- in case you haven't noticed -- there's no frigging economy left, dood!

Try, for a change, to improve that nonexistent learning curve of yours by looking up the following:

CPDO, CDS, CDO, synthetic CDO, ABS, ABS CDS, ABS CDO, MBS, InterContinental Exchange (ICE, ICE Futures, ICE Clear), TradeSpark, Edgmont Group and Financial Intelligence Units, offshore finance centers, off-balance sheet, SIV, SPV, SPE, SPAC, STAC, BDU, etc., etc., etc.

 

Mon, 05/03/2010 - 15:16 | 329485 masterinchancery
masterinchancery's picture

I just heard a radio commercial advocating buying real estate with a home equity loan on your house.  Nostalgic but scary.

Mon, 05/03/2010 - 18:41 | 329833 A Nanny Moose
A Nanny Moose's picture

Ah, the good ol' days of travelling blissfully down the path of debt to take advantage of those prices that always go up.

Apparently flipping in Sacramento is vogue again...what short memories we have.

Mon, 05/03/2010 - 13:04 | 329240 optimator
optimator's picture

The consumer is dipping into his savings to buy NOW before hyperinflation kicks in.

Mon, 05/03/2010 - 15:42 | 329529 ConfederateH
ConfederateH's picture

I agree optimator.  Also, the astute consumer has also been stocking up on survival gear and real, inflation resistant assets, and taking that one last dream vacation (at least I am in June...).

Mon, 05/03/2010 - 13:19 | 329254 Racer
Racer's picture

Didn't stocks also go up vertically in Zimbabwe?

Mon, 05/03/2010 - 14:22 | 329385 Assetman
Assetman's picture

They trade stocks in Zimbabwe?

Mon, 05/03/2010 - 17:15 | 329718 Pladizow
Pladizow's picture

Yeah, "Live" stock.

Mon, 05/03/2010 - 18:37 | 329828 A Nanny Moose
A Nanny Moose's picture

Does roadkill count as livestock?

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