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Is The Consumer Slowing Down?
Submitted by Lance Roberts Of STA Wealth Management,
There has been much debate in Washington about how to get the economy growing again. Unfortunately, fiscal policy has done little to address the core of economic growth, which is the consumer, or the productive investment required to generate real employment and wage growth. Currently, real (inflation adjusted) personal consumption expenditures make up 67.82% of real gross domestic product as of the third quarter of 2013. This is currently at the same level as seen in 2010.
In a consumption based economy, fiscal policy measures should be focused solely on job creation which inevitably leads to higher levels of consumption. The problem currently is that the fiscal policies that have been foisted upon the economy since the financial crisis have stifled job creation more than encouraging it. As I stated in the latest review of the NFIB survey:
"Business owners are some of the best allocators of capital and resources. They spend money to increase production, expand facilities and hire employees to meet increasing demand. They operate within the confines of the real economic environment, rather than theory, and artificially inflated asset prices does little to increase consumptive capacity for a vast majority of Americans that live paycheck to paycheck."
This is clearly shown in the chart below which is the annual rate of change in real GDP as compared to real PCE.
While the monetary interventions of the Federal Reserve have lifted asset prices since the end of the financial crisis; there has been little translation into the real underlying economy. As the chart above shows, PCE is currently at levels that have historically been associated with economic recessions. This is why when you look at many economic and confidence indicators, while improved, they are still at levels normally associated with recessionary trends.
As stated above, the Federal Reserve's interventions have inflated asset prices which have been a boon to the top 20% of the economy that actually have investible assets but has left a large swath of Americans unaffected. The chart below shows the current detachment of the S&P 500 from PCE which clearly shows the issue.
The retail sales figures for November did NOT improve this analysis despite the media's excitement over a better than expected headline number. The report showed that, ex-automobiles, retail sales for November rose 0.4%. The problem with any single data point is that it obscures the trend of the data, as shown in the chart below, which is more telling of the overall strength or weakness of the consumer. [Note: retail sales make up roughly 40% of the PCE calculation]
The chart above is the 12-month average of non-seasonally adjusted retail sales data. This eliminates all of the questionable gimmickry of the seasonal adjustments to reveal the underlying trend of actual retail sales data. Surging asset prices have done little to boost retail sales which have stagnated in recent months just above the level which has normally been indicative of recessionary drags in the economy. We saw a similar occurrence of this in 1998 which did ultimately turn up as the "tech bubble" spurred many startup internet companies leading to real employment gains. This is not the case currently.
With consumption making up such a large part of economic growth, there seems to be little attention paid to the drivers that support it. While the current administration has focused on restructuring healthcare, increasing the regulatory requirements on businesses and increasing the working population by legalizing illegal immigrants; there have been few efforts to reduce taxes, increase productive investment opportunities or clear the uncertainty that currently stifles business owners.
John Tamny, Real Clear Markets, just recently penned an article stating:
"Indeed, as Joseph Schumpeter long ago observed, and his observation was a tautology, there are no entrepreneurs without capital. Taking Schumpeter's basic insight even further, it's stating the obvious to assert that there are no companies, and no jobs, without investment first. For anyone irrespective of ideology to deny the latter brings new meaning to willful blindness.
So once the obvious is accepted, that companies need investment in order to open for business and hire people, we then can ask where investment comes from. It comes from all of us who save and invest, but the rich, by virtue of being rich, have the most to invest. Investment is what creates jobs, rich people can claim the vast majority of investable wealth in this country, and because they can it's another tautology to say that their savings and investment create the vast majority of jobs."
The important point here is that until we focus on creating an environment that leads to greater investment opportunities by business owners we will likely see a further deterioration in personal consumption. There is currently a fine line between expansion and contraction within the overall economy, and while hopes are that 2014 will be a "breakout" year for the economy, the current economic data trends suggest otherwise.
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"Consumers", "markets" - LMFAO!!!
Bullish
There awaits a very long and cold economic winter for America. While all the Pigs were gorging themselves at the QE trough , those trusted to steer the country for the good of all it's citizens , were too busy getting rich, fat and lazy. It's time for the dawning of a whole new system, run by men of vision and bravery.
What exactly is "real" GDP these days? Is it what the "market" tells us it is?
The Lower 85% are gonna pop some tags
They've got 20 Bernankes in their pocket
Good question. What is GDP? Does anyone believe this statement: "...personal consumption expenditures make up 67.82% of real gross domestic product..."
There are 121,000,000 households in the U.S. with an average income per household of $50K. That's about $6T total income. Subtract taxes and you get about $4 T. How exactly does that amount to 67% of GDP?
Anyone?
I like your math, but don't have an answer. Could it be that you assumed "average" when that number is really the "median"? Perhaps the higher earning households are driving the consumption, but I find it hard to believe that it could make up the gap that your calculation shows.
.... GDP is really 6.5T..? :)
the writer makes a good faith effort here, but his brainwashing (or his bosses) forces him to leave the real problems that he's not allowed to talk about unspoken. we have destroyed competition by moving our productive economy overseas. you will never have widespread vigorous business creation as long as walmart exists. americans can't compete with slaves, and shouldn't have to. guys like this, tamney, mish, etc., have been writing this same article for years, paradise is just around the corner, all we need is another corporate tax break. how about a little sherman anti-trust and some vigorous prosecution of financial crime. i understand it would destroy the 'world economy'. but it would fix ours quick.
I am not a consumer, I'm a FREE MAN! Whahahahahahaha!
The Prisoner
Cut up my VISA card yesterday; take that banksters.
Should of cut up the bill and continued to use the card, until they closed it...
And I taped it all back together.. Thanks!!!
Yea, my unemployment check runs out next month too.
At least you got unemployment. For every application there are thousands of applicants. How the fuck can they say that hundreds of thousands of jobs are being created monthly and not be called out on it by the MSM?
+1000 scissors!
There is no way the average American is going to beef up spending. How on earth can they?
Many workers being pushed into part time work.
Food and energy which the Fed does not count has substancially risen. This lowers discresionary spending.
Raising rents causing less disposable money.
And Obama Care. What happens when the "average" American's Health Insurance premiums double? Most will pay as much as a Car payment more. So, there goes buying a new Car. It will go to Health Insurance. This does not stimulate the economy. It just increases the cost of an item already in the budget.
Yes, inflation. The hidden tax is having an effect on spending habits. Even if Bernanke does not see it, by the way they calculate inflation, it is there.
Higher taxes and especially Property Taxes. The States got very used to the increased Assessments when property values were going up but now are very hesitant to lower them.
And PLEASE do not live in Maryland. We had an increase on sewer charges call the flush tax, an increase in the Gasoline tax, an increase in the liquor tax (got to get thoses joe six packs), an increase in the cigarette tax. And the real stinker expecially for business is the "Rain Tax" which can hit businesses with over $30,000. per year. This is in addition to their Property Taxes.
The Government keeps taxing you more but expects you to continue to spend. Yet, unlike the Government that can just print Money, the average Family has to cut back somewhere.
So, will the consumer come back? In my opinion NO.
Dude.. Vote with your feet man and move to more sensible places in the US.
Is The Consumer Slowing Down?
In Blue Oregon it sure appears that way!
Oregon signs up just 44 people for Obamacare despite spending $300 million. BWA HA HA HA!
http://washingtonexaminer.com/oregon-signs-up-just-44-people-for-obamaca...
That's unfair!
You counted only "patients created".
What about "patients saved"?
"...most will pay as much as a car payment "More".
SELL that winger feAr, man. Most will pay Less and get more is the truth of it. Many will get to pay for the first time either because they were denied before or were just saying fuck it until somthing happens.
We are having a great year in retail. We're up nearly 40% this Dec compared to last.
When hulk hogan, or a cab driver, tells me that everything is ok and to keep buying...........that's the bell to sell!
"Unemployment compensation IS a stimulus since almost all of that money is spent."
- Nancy P.
Your mom's loudmouth dingbat friend who somehow got elected to Congress.
Give me an EBT I'll spend it
You should run for office. Good slogan.
what a crock
The 1st chart is interesting..
So has personal consumption increased over the decades -- or has the corporate side of things merely pulled back?
we need MOAR FEWD STAMPZ Barry - then spending can go up again
right Barry? you fucking piece of shit asshole
What's a market?
isnt Tweeter and Facebook and Amazon going to be creating millions of jobs next year?
Is there a hooker ETF?
I was in Manhattan past weekend thru Tuesday.Lots of happy shoppers with many bags in hand,limos etc.Have not been there in many yrs.
Baby boomers don't consume. They just smell after they die.
I would downvote this comment, but I like your avatar too much. Pretty much sums up modern day presidencies. All bullshit and no subsistence.
Summoning my inner Million Dollar Bonus........ <Sarc on>
Obviously, the problem is that the consumer is hoarding money.
Ergo, the solution is Negative Nominal Interest Rates, which will compel the consumer to spend their money instead of hoard it.
<Sarc off>
I cut so much spending off years ago...paid off and dumped 4 credit cards. Kept one CC for any emergencies and certain purchases, but it is almost always paid immediately with zero balance.
My fiat goes to food storage, lead/copper and lead/copper-delivery systems, other necessary supplies, and as much Ag as I can get after all that. BTFD bitchez! lol
Dumped the 401k long ago...don't contribute anymore and cashed in for more Ag.
Dumped the bank account as well other than to use for about 3 regular monthly bills. Unfortunately, I'm on direct deposit, but I yank all fiat out of the account the morning after it gets deposited. All that's left is what is needed for a few onine bills and a small buffer of less than 100 bucks just in case.
Everything else is used for above said supplies or stashed.
I pay fiat for nearly everything now instead of using the debit card. I store all the change I get...save the nickels (put aside for hoarding/bartering purposes along with pre-1965 Ag coins), and have built a monster stash of quarters, dimes, pennies which I convert when the buckets overflow into more Ag or lead/copper.
If everyone would do that they would be so much better off and protected from the coming crash. Unfortunately, so many people are going to have all their fiat wiped out when the banks close down and the "bail-ins" begin, and the markets crash, and the riots start, and they will have no cash, no food storage, no Ag or Au, no lead/copper and lead/copper delivery systems.
Man, I wish the sheeple would wake the fuck up and get to preparing for this shit. It's going to get real ugly, real fast when the globalist scumbags pull the rug out from under everyone and then head for their armored redoubts in Switzerland while civilization plunges into Dark Age style chaos and martial law.
All I need now is a cabin in the mountains to get away from it all before it happens...working on it, working on it...
If any of you out there knows of any good websites or realtors for mountain cabin realty or of any good cheaper deals on something small and affordable please message me and let me know.
Hopefully we have at least another couple years before the SHTF so that I can get something lined up to bug out to. If not, then I'll be able to hunker down where I'm at to fend off the zombies and the SWAT teams until any of them finally figure out a way to get me.
So somebody asked Mia Hamm's husband what he was having for Christmas dinner...he said, "Well I don't know about you guys...but I'm eatin' me a ham." lol
Merry Christmas everyone ;-)
"In a consumption based economy, fiscal policy measures should be focused solely on job creation which inevitably leads to higher levels of consumption. "
Maybe the capability for job creation is what has structurally changed. Jobs depend on resources. And it could be that either resources are being constrained or resources have been redirected to other parts of the world, or both now.
"Taking Schumpeter's basic insight even further, it's stating the obvious to assert that there are no companies, and no jobs, without investment first."
Wasn't QE basically a huge investment and somewhat global in nature? And yet real employment and real growth suffer locally and globally.
To sum up the charts: No one has any fucking money.
Then where is all the pre-QE money and the QE money at, if no one has any money?
The problem is that a huge amount of investment is going towards businesses that employ relatively few people and add nothing to the economy:
E.g.
- facebook
- twitter
And then we have massive amounts of capital being deployed to extract ever more expensive oil - in a sense that is wasted capital when you take the difference between the costs of extracting a barrel of oil now vs what it was 15 years ago.
This has resulted in productive enterprises being starved of capital.