Spending, Durables: Basically, Stuck

Over the past few months, personal spending, on a year-over-year basis, has been improving. Perhaps this is the stabilization that we have been hearing about. But, behind the headline numbers is the reality that we are looking at no change during the past year. Comparisons are getting easier and we need to see growth in order to waive the victory flags.

On the other hand… Durables have begun to roll over on a monthly basis again. Holiday shopping along with Cash-for-Appliances should provide a boost when that program actually goes into effect. Otherwise, it does not look good for durables moving ahead, especially given that most unemployed are not looking to make “big” purchases anytime soon.

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Disclosure: Horowitz & Company clients may hold positions of securities mentioned as of the date published.

Comments

[logicalthought]

As Chris Coonan comments above, the unemployed don't buy durable goods. Perhaps equally important, though, is that because the credit card companies all seem to have raised their rates on unpaid balances to 25% or more (even for folks with perfect credit), NO ONE (employed or not) will buy much of anything unless it can be payed for with cash, and we all know how tight cash is these days.

The author points out that personal spending appears to finally have flatlined (i.e., stopped getting worse). If so, this is completely consistent with the "L-shaped" scenario, by which at some point the economy stops getting worse, but doesn't necessarily get better. If this is the case (and I believe that it is), there's no way that the S&P 500 will be able to maintain its current multiple of 17x to 18x run-rate earnings of $63 (based on Q3 annualized), as 17x to 18x is a GROWTH multiple, not a "flatlined" one.

2009 Nov 28 08:07 AM

[notsosmart]

the unemployed will control everything.the 1st quarter of '10 will show the way.friends & aquaintences are still being laid off every week here.rail traffic is not moving-check for yourself.co.have seen productivity rise as those with jobs work harder & they are not going to hire.the lines for bargains you see on tv give a false picture.

2009 Nov 28 09:58 AM

[conceptwizard]

Contrary to most thoughts rge FED does not want spending to occur as it will drive up the inflation rate. Banks are hoarding cash by the billions cutting credit lines to the tune of 1.2 trillion and raising rates. Does it sound to you that are are going to lend anytime soon.

The savings rate is up and 4 million people on the 20 week extended unemployment handout are set to expire shortly.

GE lobbists did a good job with the cash for washing machines for all the people without a house to go and buy. Geesh what are they thinking? Another false GDP bounce so the markets will roar ahead on no fundementals.

Interesting points to follow:

Comex delivery ends within a few days, i wonder if they really have that much phsyical gold?

Japan is fed up and not going to allow the appreciation of the Yen any further. Dollar rally means equity drop.

Dubai fallout is estimated to be much more than what is officially on the books.

Bernake says no significant increase in GDP for 5-6 years.

ts shaping up to be an interesting week next week

2009 Nov 28 10:55 AM

[Dave Wrixon]

L-Shaped scenarios are for losers. Economies are like sharks, they keep swimming forward or they die.


On Nov 28 08:07 AM logicalthought wrote:

> As Chris Coonan comments above, the unemployed don't buy durable
> goods. Perhaps equally important, though, is that because the credit
> card companies all seem to have raised their rates on unpaid balances
> to 25% or more (even for folks with perfect credit), NO ONE (employed
> or not) will buy much of anything unless it can be payed for with
> cash, and we all know how tight cash is these days.
>
> The author points out that personal spending appears to finally have
> flatlined (i.e., stopped getting worse). If so, this is completely
> consistent with the "L-shaped" scenario, by which at some point the
> economy stops getting worse, but doesn't necessarily get better.
> If this is the case (and I believe that it is), there's no way that
> the S&P 500 will be able to maintain its current multiple of
> 17x to 18x run-rate earnings of $63 (based on Q3 annualized), as
> 17x to 18x is a GROWTH multiple, not a "flatlined" one.

2009 Nov 28 11:34 AM

[Dave Wrixon]

What he actually means is that he is hoping he can keep the lies going for another term.

On Nov 28 10:55 AM conceptwizard wrote:
> Bernake says no significant increase in GDP for 5-6 years.
>

2009 Nov 28 11:36 AM

[Dialectical Materialist]

You could be right, but I hope not. I know the Fed has been acting stupidly, but to not want spending and think that is going to help would be ridiculous. My assumption is that they want spending (which is inflationary) and that will meld just fine with their plans to inflate away a portion of the debt. I have no doubts they are afraid of hyperinflation and do not want that to occur. But the notion that they don't want to see some degree of inflation is as incredible as the idea that they support a string dollar -- the evidence just isn't there.

On Nov 28 10:55 AM conceptwizard wrote:

> Contrary to most thoughts rge FED does not want spending to occur
> as it will drive up the inflation rate.

2009 Nov 28 01:38 PM

[fwi]

Bernanke is using 60 year old theories (Keynesian) for an economy that has drastically changed in a vastly different global economy. His entire CV is caught up in his so called "scholarship"in Depression economics. THe main problem is that one does not use old ideas for problems that have new parameters. He and obama have simply brought back crony capitalism, created business oligarchies, and have regulated and taxed the wrong part of the economy. His complict protection of the so called manufacturer Unions does not even make sense , as our main exports are Not manufactured goods. Rather than being astute referees to the financial game, these swelled heads have become the players, the referee, and in some cases, (mortgages) The market.

For these reasons, I do not believe that the valuation on the S&P is correct, that the growth numbers are pure fantasy, and the government's huge miscalculation will weigh the US down for years.Wall Street has been smart to take advantage of Washington's daily ability to be duped. This wil not go on forever.

2009 Nov 28 02:57 PM

[The Geoffster]

A tweak here, a tweak there, a nip and a tuck later and an elephant looks like a camel, but it's still an elephant.

2009 Nov 28 05:11 PM

[bob adamson]

Thank you for the interesting report on spending trends Mr. Horowitz. I find it fascinating that an essentially background information piece like this acts as is one big Rorschach inkblot test for many readers.

Admittedly it is legitimate to suggest how data such as that outlined in the article shows the successes or failures of past policies and actions of the government or central bank. It would, however, be particularly useful to read comments that suggest what should be done going forward and giving reasons for what is proposed. Simple assertions about the past or proposing future actions are essentially ‘preaching to the choir’.

2009 Nov 28 05:31 PM

[Ponchovilla]

Random thoughts on recent Mish topics and other “stuff”
Nov 29 2009 PONCHOVILLA SEZ

To Wells Fargo: You’re wrong
Wells Fargo Chief Economist: "There is no clear, easy way out for housing"
Have a U Haul truck ready on the day the sheriff hands you the eviction notice.
'Black Friday' Lures Shoppers; Frugality Hits Videogames
Or …. “Saving your way to the Poor House while Area retailers see signs of black and I’ll hide the credit card bill when it comes in January”.
xml.baltimoresun.com/b...
Was that a black ……. Hole? Certainly not a balance sheet black. Maybe a little balance sheet gray, eh? Never did understand the concept of telling the bankruptcy judge… “well the good news was that we gained market share”
Now I must admit I am complicit in the Black Friday frenzy. I needed some 4” pvc from Home Depot Friday am to divert rainwater from the house. Walked in at 5:50 am with more HD “associates” than customers. Bought two poinsettia plants at .99 each and a Ryobi 18V drill and circular saw “special buy combo” for $49.99 (reg 149.99 ? who knows?) Only one battery and charger in the deal with two items requiring 18V battery packs. Could use one at a time. No Economics PHD required, particularly at today’s tuition rates. HD has a two battery pack deal for $50.00 that can be ordered online. Do the math. Any profit here on the combo deal with one battery/charger worth $25?
BTW the pvc pipe and coupling was ~ $9.00.
Phoenix Councilman: "Problem One of Expenses, Not Budget"
Must have learned “ethics” from Mom and Dad instead of a college for credit course or a corporate ethics memo. I had an Alzheimer thought that the Congressional Ethnics committee might provide some guidance on ethics but I forgot what it was already. It was that damn Clinton who ignited the fire with that “it depends on what the definition of is, is” followed by GDUBYA and his team of experts (Rove, Chaney and Gonzalez) who extrapolated the Clinton theme to “just say no” to the laws of the land.
Let’s just cut taxes to help the over burdened USA Corporations: www.washingtonmonthly....
or maybe unburden the “small business owner” from massive, conflicting burdensome paperwork, unnecessary rules and regulations plus complicated tax code from Federal State and Local authorities. So I’m delusional. My defense attorney says it’s the voices that I keep hearing and my psychiatrist committed suicide. The mortician was grateful.
So much material. Such a waste of time.
Pre Final Thought: COINCIDENTAL OR CORRELATED? Never studied the coincidental data in statistics so I need some help on this. After visiting LA, CA my burro seems to be disabled for several days afterwards. I have observed him drinking from the toilet bowls of several motel rooms just before the DEA arrives. Is his disability due to coincidental or correlated events?
Final Thought: WHAT WOULD THE UNEMPLOYMENT RATE BE IF GOVERNMENT ACTED EFFICIENTLY? Hint use historical data of government expenditures as a % of GDP. No cheating; your Mom and Dad would be disappointed.
www.usgovernmentspendi.../
www.usstuckonstupid.com/

2009 Nov 29 06:06 AM