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Is The Inexplicable American Consumer Rebelling?
Wolf Richter www.testosteronepit.com
The strongest and toughest creatures out there that no one has been able to subdue yet, the inexplicable American consumers, are digging in their heels though the entire power structure has been pushing them relentlessly to buy more and more with money they don’t have, and borrow against future income they might never make, just so that GDP can edge up for another desperate quarter.
But it’s been tough. 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.
There’s other evidence: while new car and truck sales weren’t great in July at a seasonally adjusted annual rate of 14.09 million units—down from June’s 14.38 million and February’s 14.50 million, the high of the year—they concealed ominous undercurrents. Honda’s sales jumped 45.3% and Toyota’s 26.1% over July 2011. After the March 11 earthquake last year, supply-chain problems created shortages, which the flood in Thailand made worse. Brand-loyal buyers who couldn’t find the right model, option package, or color, rather than switching to other makes, delayed their purchase—thus creating pent-up demand. Now, supply problems have been resolved, and buyers are swarming all over their favorite dealerships. This specialized pent-up demand obscured a huge problem: GM’s sales dropped 6.4% and Ford’s 3.8%. The two leaders taking a simultaneous turn south! This doesn’t bode well for total vehicle sales once Honda’s and Toyota’s pent-up demand has been satisfied. Another act of rebellion by the inexplicable American consumer.
But the Commerce Department, in its press release on income and spending, had a convenient answer: blame “the economic turmoil in Europe.” For everything. And then it added what was practically a campaign ad: “Therefore, it is critical that we continue to push for policies that will grow our economy and support our middle class, such as abolishing the Fed (sorry, my screw-up) the remaining proposals in President Obama’s American Jobs Act.” And it goes on to praise Obama’s tax proposal. Priceless! Expunging the last vestiges of objectivity from our government agencies, such as the Department of Commerce whose Bureau of Economic Analysis had collected the numbers.
The cellphone in your pocket is NASA-smart, write Alex Daley and Doug Hornig. Yet it costs just a couple hundred dollars. So why is it that these rising technical capabilities are leading to drastically falling prices in tech products, but not in your medical bill? The answer may surprise you. Read.... “Why Your Health Care Is so Darn Expensive.”
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Based upon what I'm seeing people are spending, but not on meaningless consumer items.
It seems people want to have a good time, that's what I'm noticing. Get money and spend and live a little.
I don't blame them, but they sure aren't getting my gold when the time comes.
Incomes went up, hahahahahahahahah. Of course adjusted numbers adjusted for whatever bullshit will give the answer they want. The consumer is dead, they aren't buying anything other than subprime loaned cars.
Every welfare case who gets disability goes out and gets a new car because the can prove $250 a week in income.
Over the past few months I have noticed a massive increase of brand new Cruzes parked in handicapped spots, with people getting out that can seemingly walk pretty well.
Wolf,
You're on to something, here.
How is stagflation different from the currrent economy? I think the major similarity is, in 1970 to 1980, a large demographic group was hitting the 'save for retirement' phase of their lives. An expensive foreign war, or 2, was also being very expensive.
The government just acted like we have to wait this decline out.
Lo and behold, the "Bob Hope generation's" children started having babies and buying station wagons and bigger houses around
1981. FORBES 'end of equities' issue marked a bottom in the stock market, sort of.
The other big similarity is . . . .
Government is scared/REFUSES to admit that they can't control either of these downturns!
God forbid they would admit that there are too many rules, non-enforcers and non-regulators!
One could make the case that government employees produce far more tax-revenue than all us out of work people, stimulus?
Before you start planning your next book, look up Harry Dent. He predicted the current downturn would start around 2007, in 1999 and 2003, I think . . . ?
Your Testosterone pit could bring some sanity to the market-Hopium discussion about QE3!
Best Regards,
T.
All those soaring costs...makes me feel lucky to have grabbed that "High Yield 0.05% Account" at my local bank.
Cell phones are made in China and they are a nuisance. I don't know why the health costs are going up. Probably because it is run under organized crime families.
The most work I can do these days is to walk down to the ATM to take out $600. After that I'm too tired to spend it. But in a week or two I'll have to wait in the Financial Aid office to get more money for next year. I hate work.
China slowdown intensifies:
"To lure increasingly price-sensitive shoppers, companies from electronics retailers to footwear makers are being forced to offer discounts that are hurting margins and driving down earnings. Even McDonald’s Corp. (MCD), the world’s largest restaurant chain, has introduced a value dinner starting from 15 yuan ($2.40) and reported slower same-store sales growth.
China’s second-largest electronics retailer, Gome Electrical Appliances Holding Ltd. (493), in July forecast a first- half loss even as its website offered discounts of as much as 50 percent. I.T Ltd. (999), a department store that sells brands including Levi’s and Puma in Greater China, cited discounting for narrower gross profit margins in the year ended February. Slower sales have left Nike Inc. (NKE) with too much inventory in China, its second-largest market after the U.S."
http://www.bloomberg.com/news/2012-08-01/china-slowdown-forcing-discount...
All Companies letting go almost all of their Employees to improve their bottom line and then wonder why there is no one to buy their products.
best way to revolt against the system of debt based consumption is to save, quit work, and not buy anything other than necessities.
Starve the beast.
um. no , you don't revolt by dropping out. that's just called dropping out.
you revolt by revolting. rebelling , whatever you want to call it, but it includes actively throwing a monkey wrench of some sort into the system, or getting others to do so.
not everyone wants to be a crusader. dropping out is juuuuusssst fine. but don't pretend its revolting.
AH., let me add; "and be your own doctor and take care of your health...."
Do weed and booze count as necessities?
They are part of the food groups. I can remember as if it was yesterday, my goberment edumakaton. The food pyramid. Bacon, cigarettes, cheese, booze, 5 slices white bread with mayonnaise and cheeses food product. ( I don't remember pot on the list. )
Is that a rhetorical question?
Yes
hell yes.
as luis bunuel had a character note in the exterminating angel, in the modern era analgesics are as necessary as food.
as for real wages having peaked in 2000, caca. they peaked in the u.s., speaking of analgesics, in the early 1970's: http://en.wikipedia.org/wiki/Real_wage