A Storm Of Indicators Show The US Consumer Is Tapped Out

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by Tyler Durden
Wednesday, Jul 27, 2022 - 04:50 PM

The US economy is a 70% retail and service economy, which means it is entirely reliant on continued growth in domestic consumption in order to maintain all other elements of the system.  With manufacturing only a small part of overall employment (8%) and agriculture also limited (10%), our country is overly dependent on spending habits and ultimately consumer debt.  If we produced more goods domestically and exported more overseas then stagflation might not be as big a concern. However, as it stands now the stability of the entire machine rests on people's faith in the economy and their willingness to continue spending in the hopes that a return to normalcy is “right around the corner.”  

In order to measure when our system will break, it's important to track the health of the average consumer as well as their concerns for the future.  Sadly, as soon as Americans stop spending and start saving, our economy goes down.  That is the way the system has been designed.

The mainstream media was quick to jump on news this month of “increased” retail spending -  overall retail sales climbed 1% for June.  Of course, what they don't mention is that official inflation is at 9.1% and REAL inflation is closer to 17% .  OF COURSE retail sales are climbing, everything costs far more than it did a year ago. 

But if we look at this data closer some alarms should go off.  Why did retail only climb 1% when official inflation is at 9%?  Sales should be much higher, but they are not.  The 1% increase in retail in the midst of 40 year highs in price inflation is a sign of a sales implosion, not an improvement.  A year ago in 2021, retail sales spiked by 7.73% in the middle of the inflation chaos.  Inflation didn't go away in the past year, it only got worse, and now the increase is only 1% in 2022.  

What about consumer sentiment?  Well, it has plunged 37% since last year, indicating that faith in the economy is rapidly devolving and that Americans are more likely to cut their expenses in order to protect themselves from potential fiscal shocks in the months ahead. 

What is causing this consumer decline?  There are numerous factors.  

First, the $6 trillion-plus in covid stimulus funds from 2020 has cycled through the retail chain and well out of people's pockets.  It's gone, and the huge increase in economic activity that it triggered is gone also.  We are finally feeling the effects that naturally occur at the end of helicopter money.  

Around 43% of all Americans are falling into debt this year.  Around 23% say they have no savings at all, while 28% say they have savings but only enough for three months of expenses should they lose their jobs.  Half of Americans said inflation was the primary cause of their financial struggles and 64% classify themselves as “financially unhealthy.”  What does this translate to in the near term?  Far less spending.   

US credit card debt peaked at $856 billion in the fourth quarter of 2021 and has started to decline, hitting $841 billion in the first quarter of 2022.  Once again, with rising inflation you might assume that credit spending would continue to climb, but this is not the case.  This is yet another signal that consumers are tapped out and simply can't spend the way they were a year ago. 

Unemployment dropped to incredible lows as retailers frantically hired as many people as possible to keep up with the wave of consumer spending fed by covid checks and PPP loans.  As is the case with most economic trends, it takes time for the system to realize that the money has disappeared.  This is building up to mass layoff in the final quarter of 2022.

Rising job losses in tandem with rising prices is the last technical indicator of stagflation along with falling GDP.  With GDP well in decline recession has essentially already arrived, but the Biden Administration continues to tout the high employment rate as proof that all is well in the economy.  They consistently ignore all other important factors including GDP, rising prices, rising debt and loss of consumer spending power.  An avalanche of job losses this year going into 2023 is so predictable it hurts, yet the White House acts as if it is oblivious.

Perhaps Joe Biden is oblivious (as his mind continues to degrade into dementia), but his economic advisers are not.  They are well aware of what is about to happen and they are trying to keep the American people in the dark.  Some might consider this tantamount to treason, but that's a discussion for another time.  Needless to say, a considerable downturn is about to take place going into 2023 and hopefully people are preparing for the inevitable consequences.