Consumer Spending: The Reality of Zero

by: James Picerno May 30, 2008    
James Picerno

James Picerno

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You can slice it, you can dice it. You can even massage it and look on the bright side. But you still can't get blood out of a stone or, it seems, inflation-adjusted increases in consumer spending.

Real personal consumption expenditures were flat in April, down from a slight 0.1% increase in March, the government reported today. Meanwhile, as our chart below shows, the longer-term trend isn't inspiring.

Looking at the three major components of consumer spending--durable goods, nondurable goods and services--doesn't inspire either. As the second chart below reminds, inflation-adjusted spending looks tired by several measures.

At least there's no mystery as to what ails Joe Sixpack's spending habits. Higher energy and food costs, a general if still modest rise in overall inflation, and housing and job stress are collectively taking their toll.

That leads to the question of whether the stress testing has legs? By my reckoning, there's good news and bad news. The good news: the economic slump may not deteriorate into a full-blown recession. Yesterday's modest upgrade of Q1 GDP's growth is one clue. The bad news: the "recovery," when it comes, won't seem much like a recovery.

Why? For now, we'll simply say that the economic chickens are returning home and they're of a mind to roost.

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This article has 12 comments:

  •  
    May 30 04:47 PM
    For the top 10% that control 90% of this country's net worth, in general, there are no problems. Tiffanys is making money hand over fist.

    Walmart is making a boatload of cash too.

    However, while Tiffanys confirms that the high end is hanging in there, Walmart doing better is actually a signal that most people are hurting and running for the "I'll buy that for a dollar" aisle.

    Remember. Though idiots like Larry the Krudlow like to use consumer credit numbers as a way to say people are doing great, he is, as always just a bold faced liar. US consumers owe almost $980 Billion dollars in revolving charge card debt alone. Thats "not" auto loans, mortgages, etc.

    Someone needs to ask Krudlow, if Americans are so wealthy and everything is so good, how come they cannot pay off that debt, and why do they happily pay 20% interest on that debt year after year, while the stock market has returned so little?

    Hang 'em high folks.
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  •  
    May 30 09:54 PM
    You'd be surprised by some US "Distribution of Wealth" analysis. I did a post on this a while back, you might enjoy where we fall on the Gini index and in comparison to other countries.

    everydayfinance.blogsp...
    Reply | Link to Comment
  •  
    May 31 11:11 AM
    Of course, if you use REAL inflation numbers and not the numbers pushed by dot gov (which no one really believes anyway), inflation-adjusted consumer spending is negative, and has been for quite some time.
    Reply | Link to Comment
  •  
    May 31 11:38 AM
    Check out "Everyday finance" site above. Interesting. Overall, if you get flat sales and income growth, and that is considered "bad," things are pretty good. The US is repositioning its work force, I believe. Efficiency has challenged everything. The days of UAW for life; walk in the back door; complain and still get paid--are over. Now even at McDonalds people have to be "nice" or lose their jobs. Things have changed. I think we have done a good job--but it is tough on folks. Flat isn't bad. It isn't good.
    Reply | Link to Comment
  •  
    May 31 11:49 AM
    archman. It's not what others make. Nor is it the fact that people living in poverty. It's how you(presuming you are middle class) and I(middle class) live compared to history and the world today. And we are in the top 10% are we not. If you did not manage your finances and occured too much debt do not blame the system.
    The real issue for the poor is opportunity. How hard is it to get out of poverty here vs. countries in history and the rest of the world. And the answer is pretty good for life in the USA. In comparison that is. Except the environment is increasingly difficult for people to move up isn't it archman. Who did that. We want less government and more money left with the people. And we want to exercise our right to take the wealth in our land out of the ground. Who has been stopping that. Nuclear energy is clean and safe. Ask the French. Who stopped nuclear energy.
    Again, I do not care if people get rich here. That is their right! And not your right to stop it. I do care about MY opportunity and your parties interference with it.
    Reply | Link to Comment
  •  
    May 31 02:13 PM
    hate to pick on you archman, but if joe sixpack would cut back on nonessentials, like cigarettes, booze, cable tv, gambling money, eating out, gym fees, air conditioning, movies, etc., they could pay back the credit card debt. i don't blame them for wanting, but you have to spend only when you have it. it's not our right to be happy or rich. the government should just guarantee us an equal right to pursue happiness.

    if you cannot afford a large house, new car, masseuse, getting your hair done, nails polished or jewelry, that's tough. my mother raised ten kids and never had any of those things. i remember her wearing the same clothes for years. we never accepted government handouts, even though we were eligible.

    we grew our own food, cooked it without a microwave, made clothes from scratch, washed everything by hand and walked everywhere. we had no disposable diapers and there no was no need to recycle anything, except pop bottles other people threw away.

    there are still people who believe they can do it, if the government stays out of the way. that's the only freedom they need or want.
    Reply | Link to Comment
  •  
    May 31 02:40 PM
    Curious Cat, If Joe Six Pack cut back on cigarettes and booze, WE WOULD HAVE NO TAX REVENUE! I agree that everyone is responsible for making their way in life. That same caveat should hold true for Govt. fiscal spending, which brings me back to the first sentence of my comment. While the "EXTRAS" seem to be the items we should be cutting back on, the reality is that taken together they basically fund the operating costs of our countery.
    Reply | Link to Comment
  •  
    May 31 03:23 PM
    good post Arch- Krudlow never talks about the drop in 401K participation or RECORD BORROWING OF 401ks & IRAs, whose talked about that in the media?
    Reply | Link to Comment
  •  
    May 31 05:52 PM
    ecklebob,

    tax revenue can be generated from any products or services we create. instead of growing tobacco, our farmers could grow food, which would help feed people. just because we have created a convoluted tax system, which employs a ton of accountants and a legal system that employs countless attorneys, does not mean that we will lose revenue if we redeploy these human resources.

    some of those people are actually creative. maybe the engineer, who would have solved the high cost of desalination or the riddle of cold fusion or room temperature super conductors or whatever other pressing social problems we have, has been sidelined into one of those black holes.

    joe six pack might be more productive if he weren't drinking himself into oblivion. he might make more money and buy bigger ticket items if he wasn't struggling to breath because he has lost his lung capacity. he wouldn't be a drain on societies medical resources if he did not destroy his liver and lungs or lose his limbs to diabetes because he overeats and eats the wrong foods. if he ate vegetables, instead of meat, we would have enough food to feed everyone too.

    you see, clean living would actually pay off in more ways than one. our economy would not suffer, it would function with greater efficiency. our economic and social arteries are clogged because of our own irrational behavior. people could be nicer, cleaner, healthier, calmer, more productive and helpful to those who actually get a bad deal in life. instead, you try to rationalize the addictions of the many to support their habits.
    Reply | Link to Comment
  •  
    May 31 11:10 PM
    Curious Cat, I did not write that this is the way it SHOULD be. I wrote about the way it is. Our leaders are but twisted serpents, not trusted servants. While your points would ultimately help humanity, they would not IMMEDIATELY put money into the coffers. Our CONgress, both Republican and Democrat, have no interest in gambling on change when they have cash cows such as the sin taxes at their DISPOSAL.
    Reply | Link to Comment
  •  
    Jun 01 12:40 AM
    THE TRUTH. THE TRUTH, THE TRUTH, TELL US THE TRUTH YOU F$%^&KIN GOV'T PARASITES, THIEVES AND USURPERS OF YOUR CONSTITUENTS' LIVES.
    WITHOUT A TRUTHFUL GOV'T WE'LL BECOME A "DEMOCRATIC" DICTATORSHIP, LIKE GERMANY IN 1939. WAR AND MORE WAR IS THE ONLY WAY DICTATORS WILL BE ABLE TO CONTROL US FOR AWHILE. THEN **KAA-BOOOM**
    Reply | Link to Comment
  •  
    Jun 01 10:19 AM
    Consumer spending is driven by wage increases. If median wages adjusted for inflation per household aren't going up-they aren't-consumers make up the difference with credit. Credit is going through de-leveraging. I write about it @ theinvestingspeculator...
    Reply | Link to Comment
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