US Consumer Is Battered But Not Beaten

Cornelius's picture

First, the bad news. Only 14%, an abysmally low number, believe that job prospects will improve over the rest of the year. Nearly 60% believe high unemployment to continue over the next several years, hardly a demand-inducing statistic. Despite the massive stimulus packages, confidence in government policy retreated with a third straight monthly decline (32% holding unfavorable views), though it is significantly better than the 50% a year ago. Consumers also shied away from big ticket items as homes, vehicles and major household durables declined in July. Additionally, anticipated price discounts continue to remain at their all-time peaks; a consumer-led deflationary indicator, despite the US ZIRP.

The good news is a significant improvement in sentiment on a YoY basis (63.2 vs. 53.5). Of course, July 2008 was still pretty squarely in the volatility backwash and consumers seem to be buying the V-shaped bounce (or at least something closer to the square root sign). Total PCE also is expected to increase 1.5% in 2010 - off an admittedly low basis but a promising indication after we consider the sharp (permanent?) increase in the US household savings rate. 

Consumer confidence is clearly still very fragile. If we do see a secondary market crash, the resulting hit to the consumer psyche may kill much of the momentum that has been slowly building up. The other aspect of the story is that the currently unsustainable level of government spending is artificially inflating expectations, regardless of consumer approval of government policy. Even without a market crash, we may see confidence erode simply as federal programs scale back down to "normal" levels.

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Anonymous's picture

How did any positive commentary end up on ZH?

Ghettomedic's picture

A glitch in the apparatus has manifested.

mdtrader's picture

And it happened on a tripple digit down day. Oh the irony. ;-)

More bullish commentary please. I need to get my 950 puts back in the money. lol.

Anonymous's picture

Don't worry, we can follow it up with this bearish post from the Financial Ninja: "The economy has been weak for far longer than you might think." Apparently the "unemployment duration" has been increasing relentlessly since the 70's - even during the "bull markets" of 1997 onward and 2003 onward. Can you say "continued permanent job loses"?

Dixie Normous's picture

Maybe the consumer has finally realized that spending their money on stuff made elsewhere (see China) doesn't really help anyone here aside from the importer.

I would also argue that people who lost decent jobs at decent wages realize that if and when they do go back to work it will be in a lesser job for less money.

Anonymous's picture

I highly doubt that. The US consumer has always been one of thrift. Therefore, products made in near-slave-labor countries (like China) will ALWAYS have a demand here. That's because the average consumer isn't smart enough to connect the dots behind the "buy American" mantra. To them, sounds patriotic, which is good, but "made in America" has been tarnished with the additional label "thus more expensive". They don't realize that buying American will mean more jobs for their countrymen, thus fuelling growth, and thus more spenders. Combine that with corporate America's love affair (and, honestly speaking, the capitalist wet dream) with slave-labor wages in foreign countries, and combine that with a total disregard for the very market they serve, ain't gonna happen.

That's not to say though that big ticket items and industrial goods aren't still highly regarded (cars to the contrary, though this attitude is glacially changing). But beyond that and agriculture, I don't see a return of textiles, raw material production like steel, or car manufacturing jobs anytime soon.

Cornelius's picture

Yeah, that whole free trade thing is a crock of shit.

AnonymousMonetarist's picture

Won't be your daddys' normal.

Anonymous's picture

going forward, given the deflationary trend in the price of consumer goods along with sagging demand, what is reasonable p/e for S&P earnings? Can p/e of 16 be justified?

Anonymous's picture

SPX earnings are currently at around $7. Therefore the current PE is around 140.
Perhaps we get a weak recovery of sorts and those earnings go up 4 or 5 fold over the next couple years.
Call it $30 .
By then perhaps Bond yields would have gone up a tad.
Perhaps investor sentiment would be very bruised.
So perhaps a PE of 10 ( historical bear mkt bottoms
around 5-7X). So generously speaking SPX at 300 is
a distinct possibility.

Ducky's picture

by mid 2010 expect green shoot forward looking earnings for 2011 to trade @ 16.

i'm with you

Anonymous's picture

I'm still buying gold, guns and groceries what's seem to be the problem?

Veteran's picture

...and toilet paper.  Shit tickets are going to be teh hawtness

Ghettomedic's picture

As an investment guns and gold aren't that great.

Anonymous's picture

When starving malcontents are trying to get into your house for your food and gold, suddenly guns look like a great investment (as long as you have ammo)

Anonymous's picture

Guns have always been great investment. They tend to go up in values even if it is heavily used.

Anonymous's picture

Fractional reserve money creation trumps the Fed printing press by a factor of 10.

Deflation continuing. Sell all assets.

mightybillfuji's picture

wait until you see how the consumer feels net of the 3 billion cash for clunkers and the phase out in about 4 weeks of the 8,000 tax credit for home buyers

and very soon the tax bills are going to start coming in for all this magical spending....

JohnKing's picture

The ministry of propaganda needs to get busier, the consumer needs more green shoot commentary.


Is Baghdad Bob available?

Anonymous's picture

No, but CNBC is.

OBRon's picture

Momentum?  What momentum?

Listening to cnbc, you would think the rush to the equity mkts has been like a flood of Biblical proportions.

They're just now finding out it was more like someone left the hose on in the driveway.

And now that Timmy & Ben are finished washing the car, it's still a clunker.


Daedal's picture

On a long term basis, 'confidence' is about as useful as a stress ball. Everyone was 'confident' that home prices would appreciate.

slowtwitch's picture

exactly. consumers are a bunch of sheep.. who cares what they think.

Anonymous's picture

“One might reasonably wonder how the Saving Rate managed its impressive climb from 0.9% to 6.9% in nine short months, even as the economy shed a record 4.9 million jobs,” wrote Stephanie Pomboy of MacroMavens.
“The bulk of the credit for increased saving belongs to Washington. Of the $679 billion increase in savings over the 9-month stretch, fully $371 billion came courtesy of direct government transfer payments and another $351 billion
in the form of reduced taxes. Together these two helped offset a -$133 billion decline in wage income and -$157 billion decline in “other” income, such as assets. So while the -$247 billion reduction in consumer spending over the stretch is impressive (and unprecedented) had it not been for Washington,
that parsimony still would not have kept pace with the -$290 billion decline in earned income.”

Stephanie Pomboy, “More Lies and Statistics,” MacroMavens, July 31, 2009.

Anonymous's picture

Paid-down debts is counted as savings, for that matter, so was defaulted debts.
Soon, the saving rate will shooot to sky highhhh given the fact that consumers/businesses are defaulting debts left, right and in the middle.

ED's picture

oops...I thought it said battered but not eaten. Dang, there goes my impulsive, hair-trigger consumer psycology again

Anonymous's picture

i like my rallies freshly squozen

Anonymous's picture

Last time I checked, the consumer confidence report was a telephone survey of about 5,000 households, each of which is polled on three broad areas:

1 - their individual prospects
2 - their local economy's prospects
3 - the nation's prospects

There are *no* specific questions regarding the participant's expectation to go out and consume, or not. Yet the pundits uniformly grab the results, and use it to prognosticate on the future of consumer spending!

Furthermore, as the respondents are by and large polled during the day, during the work week, you've got to wonder how significant a conclusion can be formed from a subset of the population that watches daytime TV regularly. "Hello, we'd like to have you participate in a nation-wide consumer confidence survey. Is a non-working member of the household available to participate?"

Arthor Bearing's picture

Only ponzi schemes depend on confidence, it should be irrelevant

Anonymous's picture

First rule of fight club: Do not talk about fight club!

Dr Hackenbush's picture

"it's the unemployed people that are ruining this recovery for all of us."  -CNBC 

Anonymous's picture

Maybe we should euthanize them so that this persists....nice trend for the very few..

The most gilded age in US history

bernbear's picture
bernbear (not verified) Aug 14, 2009 1:24 PM
Anonymous's picture

I am more than a consumer I tell you!

Milton's picture

$80 hoodies at Abercrombie are not happening.

Anonymous's picture

Anybody noted that City/county all over the US and certain states have started laying off "government" employees, including police/fire officers, en-masse?

Anonymous's picture

I'm starting to detect a pattern.

A depressing pattern, true, but an enlightened one nonetheless.