Death of the Consumer 26 comments
an article to
-
Font Size:
-
Print
- TweetThis
Moving forward, the most critical indicator of the viability of our economy will be consumer spending. Simply put, without a buoyant consumer, there will be no recovery. Due no doubt to the negative characteristics of consumer data, the death of the consumer is receiving scant coverage. America is a nation whose growth in recent decades has been predicated on a model of consumption. From a nation that used to save to invest, we now borrow to consume. As buying power in Treasuries from foreign entities wanes, we will be forced to fund our consumption through currently non-existent savings. An increased savings rate will put pressure on consumption, which will in turn pressure GDP. In the following chart, notice how consumption as a percent of GDP remains above historical norms. Consumption would have to contract another $800 billion for personal consumption expenditures as a percent of GDP to revert to historical levels. It is important to realize that what we are experiencing now isn't a classic inventory-led downturn, but a structural debt deflation. Since Americans have been wont to save, consumer credit has played an outsized role in our economic growth. As such, it is critical to be keen on developments in the availability of credit, which can be measured by consumer credit outstanding. Consumer credit outstanding, a measure of short and intermediate-term credit, is falling precipitously. Banks are, quite justifiably, not willing to service loans to deteriorating credit risks. Until the unemployment picture improves, banks are unlikely to rapidly increase the extension of credit. Notice that consumer credit outstanding has rebounded off of every single downturn besides the recession of 2001. Before we can realistically call for an end to the recession, we need to see a halt in the decline of consumer credit outstanding, and eventually a rebound. We are experiencing nothing of the sort yet. Retail Sales Consumption in the past decade, as reflected by retail sales, has enjoyed an impressive and inexorable rise. Year over year E- commerce sales growth remained robust even in the midst of the recession of 2001.; in fact, the rate of growth accelerated. As you can see from the following chart, E-commerce retail sales are declining dramatically. The consumer is conspicuously missing in this supposed "green shoot" environment. At the very least, the V-shaped recovery thesis is not corroborated by data on the consumer front. Hopes of recovery must therefore be regarded as mere presumption until the outlook for the consumer improves.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
Excellent summary of what got us here. This should be emphasized in the new Economics 101. However, denial is such a large part of current thinking, I am sure that it wouldn't be included.
User353732 wrote:
Consumers have been indoctrinated into believing 3 great falsehoods by their political, financial and media bosses:
they are entitled to a rising material standard of living decoupled from income or income eraning capacity;
they have a right to cheap credit in large amounts decoupled from their asset base , wealth creating capacity and credit integrity:
that both credit card debt and home equity credit lines are gifts of the tooth fairy;
that the Govt will always insulate them from the ill consequences of bad decisons and behavior.
-Publilius Syrus
Not a chance of inflation ( interms of rising prices) happening. While inflation deflates the debt it also causes high interest rates. Out economy has been operating for the last 10 years on 0-2% intrest rates. Actually, we were operatingon interest rates belwo the real inflation. High itnerest rates will bring the whole economy to standstill - nobody will be able to afford to buy the houses, nobody will be able to afford credit cards, no student loans etc. This will actually put us into stagflation and will not help with repayment of the deflated debt because too many people loose their income.
Look at any country where high inflation happened, the economy was much worse as a result. With bad economy how are consumers supposed to repay the debts even if these debts deflating at 5% a year? If you lose your income, you lose 99% of the cash flow, 5% is not going to hel you.
Bloated government as well as a grossly metastasized Wall St. were enabled by the ultimately Fed-fueled years of excess. Factoring in the dependants and jobs associated with these now-huge non-productive sectors reveals the enormity of the changes required.
Wall St. and DC, as "authorities" in the old system, covered by MSM, have been able to get away with utterly stupid policies and daylight bailout robberies because the failed entities are huge and the effects of their failure would also be huge. Until the futility of this becomes more clear to many, we continue to dig our hole of useless debt deeper.
Have you bothered to look for country of origin for your purchases?
China, and Washington, will set our inflation rate. And it will have NO correlation to incomes of the middle class.
On Aug 24 07:00 AM Jiang Nan wrote:
> Anyone thinking inflation is coming better take a good look at these
> charts, without consumption couple with high unemployment and low
> capacity utilization, companies would be in no position to raise
> prices.
>
> Any credit driven asset price inflation will be short live in these
> background. Inflation may come but at least not the next 2 years.
The Author: "From a nation that used to save to invest, we now borrow to consume."
Yes. That's right in every time and every place. Some of us save to consume and some of us borrow to consume. Some borrow to invest (I think of the short sellers of AIG). This is an old game, and you will be wise to study history.
Keep 'em rolling Moses!
Moses:
The difference between income and consumption has been made up by debt over the past three decades.
To bring income and consumption into balance, consumer spending needs to retreat two decades (or more, counting the drag of interest on debt).
That is the prescription for a decade like the 1930s, (which took consumption back to 1910s levels)
On Aug 24 07:00 AM Jiang Nan wrote:
> Anyone thinking inflation is coming better take a good look at these
> charts, without consumption couple with high unemployment and low
> capacity utilization, companies would be in no position to raise
> prices.
>
> Any credit driven asset price inflation will be short live in these
> background. Inflation may come but at least not the next 2 years.
User 353732
I think we are safe in the knowledge, that if, is not in question!
What remains in doubt, is WHEN?
What comes after that, will shake the foundations and they truely need shaking!
On Aug 24 06:01 AM User 353732 wrote:
> 1. For at least 20 years, consumers have confused (or been confused
> by Wall St) the difference between debt driven consumption and income
> based consumption. They have viewed the acquisition of material goods
> and services and transient bought experiences as a metric for their
> financial well being. They thought because they were consuming more
> that they were better off and that their durable material quality
> of life was steadily improving . In fact ,of course, they were living
> off not true income but financial vapors and toxic fumes. They also
> thought that the bubbles of home equity and stock prices represented
> real wealth and genuine savings. They were consuming more and getting
> poorer. They were experiencing paper gains but their sustainable
> wealth was shrinking.
> Now the buubles and vapors are dissipating consumers are realizing(not
> all: many millions still live delusional lives) that they are substantially
> poorer in BOTH income and wealth. Many think this is transient condition.
> Increasing numbers believe that it is an enduring state.
> The full impact of the realization in changed behavior and priorities
> has yet to be felt.The significant contract in consumer spending
> and the significant change in the MIX of consumer spending may not
> be felt until early to mid 2010.
> 2. Consumers have been indoctrinated into believing 3 great falsehoods
> by their political, financial and media bosses: they are entitled
> to a rising material standard of living decoupled from income or
> income eraning capacity;
> they have a right to cheap credit in large amounts decoupled from
> their asset base , wealth creating capacity and credit integrity:
> that both credit card debt and home equity credit lines are gifts
> of the tooth fairy;
> that the Govt will always insulate them from the ill consequences
> of bad decisons and behavior.
>
> This tri-falsehood bubble is the root of all bubbles that plague
> and have plagued the USA and the source of many of our current social
> pathologies. This great Ur- bubble is now just starting to deflate.
> The elites are terrified of this and will use all the levers of power
> and propaganda to prevent it from happening. They know that if this
> root bubble evaporates then so will their power to control and manipulate
> to pillage and reign.
> We do not know if or when the root bubble will implode but if it
> does the consequences will transform all prevailing models of consumption,
> borrowing, savings and producing, retirement, health care, and education
> and the relationship of the people with their masters.
punch #1 1999 dot.com bubble crash, down but not out, Punch #1 hit their retirement portfolios and such, while unsettling it did not affect day to day consumer behaviors because housing and jobs were secure.
Punch #2 2008 financial meltdown, was the knock out punch, hit portfolios hard especially retiring baby boomers as well as home values and jobs, all at unprecedented rates.
Punch #3 Complete loss of consumer confidence to much personal financial net worth trauma happened this time for consumers to shake it off and get back into the game.
Many pundits believe consumers will resume traditional consumer habits however with falling home values, no home equity loans to tap, reduced credit card limits, higher credit card interest rates, devastated portfolios, a priority for personal debt reduction, job insecurity, higher fed,state and municipal taxes, and larger government spending to think this will not weigh heavily on consumers and cause a long term dramatic shift in their spending habits is beyond my comprehension, but thats only me
Total US import from China in 2008 = 338 billion
I wonder why the less than 10% of products from China have such big impact on US retail prices.
On Aug 24 09:18 AM TeresaE wrote:
> Well, American companies selling American made goods.
>
> Have you bothered to look for country of origin for your purchases?
>
>
> China, and Washington, will set our inflation rate. And it will
> have NO correlation to incomes of the middle class.
It was past FED policy that caused my mailbox to get full of letters offering easy credit; especially in home equity loans!
Are people going to create an "economic war" to overcome the ruling society like banks and governements?
On Aug 24 07:00 AM Jiang Nan wrote:
> Anyone thinking inflation is coming better take a good look at these
> charts, without consumption couple with high unemployment and low
> capacity utilization, companies would be in no position to raise
> prices.
>
> Any credit driven asset price inflation will be short live in these
> background. Inflation may come but at least not the next 2 years.
On Aug 24 09:55 AM enigmaman wrote:
> Consumers have been dealt a one, two, three punch,
> punch #1 1999 dot.com bubble crash, down but not out, Punch #1 hit
> their retirement portfolios and such, while unsettling it did not
> affect day to day consumer behaviors because housing and jobs were
> secure.
>
> Punch #2 2008 financial meltdown, was the knock out punch, hit portfolios
> hard especially retiring baby boomers as well as home values and
> jobs, all at unprecedented rates.
>
> Punch #3 Complete loss of consumer confidence to much personal financial
> net worth trauma happened this time for consumers to shake it off
> and get back into the game.
>
> Many pundits believe consumers will resume traditional consumer habits
> however with falling home values, no home equity loans to tap, reduced
> credit card limits, higher credit card interest rates, devastated
> portfolios, a priority for personal debt reduction, job insecurity,
> higher fed,state and municipal taxes, and larger government spending
> to think this will not weigh heavily on consumers and cause a long
> term dramatic shift in their spending habits is beyond my comprehension,
> but thats only me
As a now former consumer (unemployed and just wanting to keep what little I have left), I can tell you that my purchasing habits have changed forever. I had 2 credit cards at one time, they're gone. I'm paying 17% on my car note (had to be purchased because of car accident 2/09). So you can't count on me, I guarantee.
Please don't tell me the 30% is government spending, because Obama can't count on me either.
Yes, but I used to heat my house with those!
On Aug 24 10:54 AM Pauly B wrote:
> The one good thing out of all this is that I don't have all those
> damm credit card applications in my mailbox!
>
> It was past FED policy that caused my mailbox to get full of letters
> offering easy credit; especially in home equity loans!