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The Inexplicable American Consumer Strikes Again
By Wolf Richter www.testosteronepit.com
The recent consumer confidence indices, after a pickup in the spring, have collapsed to levels not seen in years and in some cases in decades. Yet the inexplicable American consumer, the toughest and most indefatigable creature out there that no one has yet been able to beat down, struck again. Consumer spending increased at an annual rate of 2.4% during the third quarter, though the mood, as measured by the confidence indices, has become outright morose.
The Bloomberg Consumer Comfort Index dropped to -51.1. By comparison, it averaged -46.2 so far in 2011, -45.7 in 2010, and -47.9 in 2009. The shocker was this number: 95% of the people surveyed had a negative opinion about the economy, the worst reading since April 2009, and just 1% away from the worst reading since the index began in 1985.
The Conference Board's Consumer Confidence Index plummeted to 39.8, the lowest level since March 2009, at the trough of the great recession. The Present Situation Index fell to 26.3 from 33.3, its sixth consecutive monthly decline.
"Consumer confidence is now back to levels last seen during the 2008-2009 recession ... as pessimism about the current economic environment continues to grow," said Lynn Franco, Director of The Conference Board Consumer Research Center, on October 25 when the Confidence Board released its numbers.
Mid October, it was the Thomson Reuters/University of Michigan's preliminary index that headed south. Its sub-index for consumer expectations six months from now, which gauges future consumer spending, dropped to 47, the lowest since May 1980.
The reasons are obvious. The Fed is winning its 12-year war on real wages. Its mechanism: create inflation that exceeds nominal wage increases. The numbers are ugly. According to today's GDP report, real disposable personal income—income adjusted for inflation and taxes—decreased by 1.7% in the third quarter (BEA). Since their peak in 1999, real wages have dropped 9%. Median household income—a function of wages and unemployment—has fallen 9.8% between December 2007 and June 2011 (Sentier Research). For many people, the situation is even worse due to the skyrocketing costs of healthcare and higher education, which are eating up an ever greater part of the declining family budget (for more: A Dysfunctional System That Bankrupts A Generation). And Unemployment remains a fiasco by any measure: U-6, the broadest measure the Bureau of Labor Statistics offers, and the one that most closely resembles reality, hovers at 16.5%.
And yet the inexplicable American consumer went ... to the mall. And to the doctor—of the $10.8 trillion in consumer spending (seasonally adjusted annual rate), $1.76 trillion went to healthcare, about half of which was paid for by government. And healthcare has been on a tear, up 6% over the same period last year.
Back to the mall. The worse things get, it seems, the more consumers pull out their credit cards—confirmed by the savings rate which dropped to 4.1% from 5.1% in the second quarter. The effect of shopping as a drug against the funk of daily life has been well established, though its impact on the mood of the shopper has proven to be ephemeral. Now the drug has worn off, and as the confidence indices show, consumers feel worse than before, worse than in years. That can only mean that they will return to the mall to shop till they drop.
Or they will cave. Though the miraculous powers of the inexplicable American consumer should never be underestimated, some uncomfortable indicators have been accumulating. Among them, my favorite:
“It is hard to imagine a very robust holiday season compared to last year,” Blake Jorgensen, Chief Financial Officer of Levi Strauss warned earlier in October. He was griping that his price increases of $5 to $15 per pair of jeans didn't sit well with consumers. (Duh, did you think the American consumer is stupid? Disclosure: the only jeans I've ever bought were Levi's, but I'm going to wear mine down to rags before I pay fifty bucks for a new pair. Hint, Mr. Jorgensen: I'd be willing to buy two for the price of one right now, or none for a couple of years. Do the math and think about it.)
On the other end of the big American mall, during bailout mania, the Fed handed out trillions of dollars in secret. But now... The GAO Audit of the Fed Doesn't Quite Call It 'Corruption'
Wolf Richter www.testosteronepit.com
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Yeah but we got Osama, plus Ghadaffi. Killing other despotic leaders is what matters.
Surely the "mall" was not meant to be taken literally in this article. Mall vacancies are at an all time high. Consumers spending much less money and time in malls, not more.
... yeah, ... here's another one over here! ... get that guy! ... take him down ... before he tells the others and unhinges the entire statistical-recovery ... jeeezzus!! ... where do all these nay-saying fucking truthers keep coming from?!! ... wadathey got a gawd-damn truth-factory around here or something? ... call FEMA ... tell them ... tell them, ... look, just tell them it's still spreading ... tell them ... we've lost ... containment ... ... FUCK!!! ............. FFFFUUUURKKK!!!!!!!
... well, ... that's great ... that's just fukkin great ... now what the fuck are we supposed to do? huh? ... we're in some pretty-shit now man!! ... game over! ... GAME OVER, MAN ... ... what are we supposed to do now ... huh? .. what are we supposed to DO ?! ..... GAME OVER !!
http://www.youtube.com/watch?feature=player_embedded&v=-ov1qvi_Oes
No conundrum here. Morgage payments are not a component of GDP. But former homeowers' rent IS. Falling wages are not a component of GDP, but the rising retail price of goods IS.
So, you have rising homelessness and poverty at the same time as rising GDP.
You know, I've been unemployed for over a year, I don't receive any govt assistance (living on savings and odd jobs), I eat beans and rice most meals, I have zero debt, and I have ZERO interest in buying shit. I'm not happy, but the mall is no beacon of hope for me. America is fucked up.
There are 10 million or more americans in the same boat as you. The reason credit card purchases continue, is there is no income, so purchases are put on plastic, buy 100$ of groceries and pay the minimum payment on the card. Millions are doing it, in the long term it makes no sense, but on a long enough time line we are all dead.
Good luck in your new job, you are now your own boss and your only employee, probably not what you want to hear, but the sad truth is this economy isn't going to improve or recover.
Sell stuff on ebay and craigslist, paint houses for the rich and lazy, it is the 1970s without the music or the hope, just fear and higher oil prices and insipid inflation leaching into the price of everything but wages.
There has to be a piece of data to explain the $130 billion addition money spent in Q3. Like someone posted here "please find this money, thanks".
Walmart is now advertising Lay Away. I never understood Law Away. I understand credit cards, you get the merchandise, but law away is like a credit card without getting the merchandise. ME NO UNDERSTAND. Can't you save the money then buy it? No comprendo.
Just like the spike in subprime auto loans explaining the spike in auto sales, there HAS to be an explanation for this incomprehensible spending.
Maybe Q3 was early Christmas and the real Christmas is going to suck hard?
It's a way for desperate sales people to get almost skint wannabe consumers to commit to a purchase they will struggle to afford, or will fail to pay other critical bills to afford ... like a car or house repayment ... and you get to tell people you're buying item 'x', and feel a warm inner glow of ego doing cartwheels, for being a wanna-be go-getter ... digital hunter-gatherer, a provider of substance and materiale ... a mover and shaker of shopping trolleys ...
I love the smell of nothing-soup in the morning.
Lay-away is a great idea. Just think: you have a claim on the item, but can't use it. So it stays in perfect condition. You can even go to the store and admire it from time to time.
What are the terms of these lay aways time wise? Can I lay away 1000 rolls of toilet paper and make minimum payments over 2 years and perhaps double or triple my investment ?
Huge increases in the price of essentials, like food, lots of govt spending--healthcare, and lots of autos bought with subprime loans, public employees getting raises--is there any doubt why "gdp" went up?
It would be interesting to find out just how many $$$ are being put into the economy from non-mortgage payments.
http://www.zerohedge.com/article/thanks-60-minutes-report-fraudclosure-u...
I see fewer people "walking away" from their mortgages and many many more simply not paying their mortgage (or rent for that matter). They seem to know it wall take months to years to get thrown out and then they will just move down the road. Instead, they buy a GeeGaw or DooDad with that money.
I'd like to see numbers on all of this.
I've a friend that got caught blatently cheating on his taxes and easily caught. His tax guy from Shlok let him do it. He got a notice from IRS that he owed 15K in taxes. The tax guy says, "Send them a check for 9K and you'll never hear from them again". That was a few years ago and he's never had another letter.
Like my landlord, I pay to rent a room as it is too far to cmmute. He said he is going to foreclose after i leave and he is moving to an apt as he found a job that pays a livable wage. I don't know why he is bothering to leave, i know the banks don' t want the property.
I only know one guy doing that, just squatting, no paying... I need to get out more.
"The hell with whatever's coming. It smells so bad and the future looks pretty bleak so - let's just go along until the music stops."
At least, that is how it looks to me....
Or maybe people are simply Prepping for a SHTF scenario
http://www.shtfplan.com/headline-news/clinging-to-their-guns-firearm-own...
http://www.shtfplan.com/emergency-preparedness/the-prepper-movement-why-...
http://www.shtfplan.com/emergency-preparedness/a-survival-q-a-living-thr...
I mean, sure, Americans will buy shit, but most of them won't have the money - they'll just put it on the credit card. How is that, "growth" if we aren't making more money to cover the actual end bill, never mind the interest?
The healthcare point is interesting - I think people are taking care of shit now before shit rises from hospitals striking back at insurers.
That, and like me, getting my dental stuff done while I have insurance before I get laid off again.
So did the quantity of Health Care "widgets" go up ? Are we paying more for the same services ? Or are we paying more for less services ?
Figures lie and liars figure.
You young ones need to look at 1997 spy with the LTCM 'dip 'and reversal.
Also read about 1982. This is all rehash. Fuck the fed, end the Fed but don't fight these bastards. They are the best manipulators (when they have too)
All that I want to spend money on is gold...
Nope...I'm in South Florida and that's not it. It probably helps with the shopping when one no longer makes their mortgage payments.
Absolutely right...that is about the only thing that explains these two divergent reports.
Hurricane spending?
snow storm spending (or lack thereof)
North East to get hammered this weekend,,, trust me
Look at M1.
End of story.
http://www.shadowstats.com/alternate_data/money-supply-charts
http://research.stlouisfed.org/fred2/series/M1