American consumers are not in the mood to spend. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 63.2 in April from 69.5 in March, worse than the 69 reading expected.

Consumers haven’t been feeling this pessimistic since March 1982. Their sentiment for the next six months wasn’t that good either as that reading fell to 53.4, the lowest reading since November 1990, from 60.1 last month.

With jobs on the downward spiral, tightening credit, higher gasoline prices and declining values of their homes, Americans are feeling the need to tighten their belt, spending their hard-earned salary on bare necessities. That is good for discount stores like Walmart (WMT), but not good for Tiffany (TIF) or Gap (GPS).

But the thing is, if Americans don’t spend, they will affect the US economy even more, as consumer spending makes up two-thirds of the overall economy. Just on Wednesday, oil prices rose to a record high of $112.21 a barrel on supply concerns as people in the US are about to start their summer driving season. Today, oil is trading above $110 a barrel.

ECB Thinks Differently From IMF

The International Monetary Fund has been urging the ECB to cut the main interest rate, but that sentiment isn’t shared by ECB’s Axel Weber, who is also president of the Deutsche Bundesbank. He said ahead of the G7 meeting that “there is no leeway at all to discuss a rate cut” as the global economy is still in a robust state and the Eurozone and German economies are in a better shape than that of the US.

I’m glad the ECB is standing firm on its primary mandate of maintaining price stability - inflation is very high in the Euro area and if it’s not kept under control, it could lead to more dire consequences. Weber shares German Finance Minister Peer Steinbrueck’s view that the IMF’s growth outlook is too pessimistic. Steinbrueck said that G7 would discuss the weak US dollar behind closed doors.

Forex Trading

EUR/USD retreated from yesterday’s record high of 1.5920 and is trading in the 1.5800s on Friday. USD/CHF’s resistance lies around 1.0100-1.0130.

Grace Cheng

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This article has 22 comments! Add yours below...

This article has 22 comments:

  • lobsterboy
    Apr 11 01:53 PM
    The consumer will ultimately send this recession in a further downward spiral. This stimulus package will mainly be spent on existing debt.
  • ShrugsnFigures
    Apr 11 02:28 PM
    People are trying to survive. I'm sure they would love to keep spending, but how can they? It's hard to justify spending at Gap or a similar store if one cannot afford to eat or drive to work.
  • John Jay
    Apr 11 03:19 PM
    A thoughtful analysis on what % of consumer spending returns to the US to circulate and what % immediately leaves the country should be done. Consumer spending that siphons money to our economic competitors who do not buy an equal amount from us in return is not helpful to the economy.
  • Yaowarat
    Apr 11 04:50 PM
    What sort of economy do we have when it is dependent upon debt gorged featherless bipeds buying Ipods, BBQ grills, and SUVs ?
  • ValueInvestor
    Apr 11 06:54 PM
    Exactly Yoawarat,

    When the country has a negaitve savings rate and debt is given out left right and center its only a matter of time before it all blows up. We've seen just the tip of the iceberg this year.
  • Flegle
    Apr 11 09:36 PM
    Listen, the people that don't use this $ to pay bills will buy 2200 plasmas along w/$200 in cables. Good? nope they are just speeding up the fact they are almost at there credit limits as now they will need stereo system along w/HD cable packages ($$$). Credit cards will just delay the pain and make it much much worse. Start changing live style now!!!
  • mark mchugh
    Apr 11 09:52 PM
    Nice article Grace,
    Short and straight to the point.
  • Bob G.
    Apr 12 12:02 AM
    The Wall Street analysts claimed that high gas prices were hurting Walmart a few months ago. Now that gas prices are at new records, Walmart is one of the strongest stocks. Once again the analysts have proven that they aren't worth listening to.
  • u2canbfmj
    Apr 12 12:10 AM
    Inflation Baby. America is a joke. Fundamentally, most have no clue of the true cause. Nor do they care! We are spoon fed disinformation, eat it up and poop out McCain, Obama and Clintion. Anyhow, to my fellow americans, revolt and reinstate the US constituition as it was written. Take the hit economically that will come from removing the banking powers, only then will we be able to compete with china and growing powers. We've been warned! Read Thomas Jefferson, Ron Paul, Peter Shciff!
  • Coelacanth
    Apr 12 01:42 AM
    If Friday's German wholesale price indexes were any indication it appears Trichet & Co. are right to be concerned about inflation. The EUR/GBP cross certainly seemed to think so. LOL.

    As far as American consumers are concerned.....it appears they're taking the expression "shop until you drop" literally.
  • hihosilver
    Apr 12 08:18 AM
    I like the commentor's idea of revolting to reinstate our constitution. But I cannot fathom Americans storming the White House and Capitol. We've become a country of whimps! Also, how will removing banking powers improve the greed groove? I'm willing to learn!
  • Will Rahal
    Apr 12 09:23 AM
    Shopping for New York Real Estate will get cheaper.
    I have posted a chart of employment in financials relative to natural resources and this ratio fall in periods of high inflation as P/E contraction also takes place.
    see
    wrahal.blogspot.com/2008/04/tangible-vs-...
  • WAKEUP
    Apr 12 01:43 PM
    One more time: The high-rolling times are over, for about ten-to-twenty years. It's going to get gradually harder and harder to survive, financially. No amount of hand-wringing about non-spending at Tiffany or Gap will change that. It's been too easy, for too long, to simply buy a house and watch it ooze profit. That's history, now. The easy availability of jobs is history, also. If you think Americans are shopping cheaply, now, check again, in about 12 - 18 months, when it will be BEANS AND RENT, that account for most of Americans' spending.
  • CrossProfit
    Apr 12 03:44 PM
    "American consumers are not in the mood to spend."

    Though this is a well articulated article, however, lumping ALL American consumers together is not scientifically accurate. There are basically three distinct parts comprising the American consumer. Each retailer tends to target one of the three as rarely has there been a retailer that can attract customers from two segments.

    For the high end, see forward evaluation example here;
    www.crossprofit.com/view_symbol.asp?id=24998

    For other segments see for example;
    www.crossprofit.com/view_symbol.asp?id=25576
    and
    www.crossprofit.com/search.asp?q=wmt&...

    (Based on weekly close)

    CrossProfit
  • galewhitaker
    Apr 12 04:07 PM
    It seems to me that the stock brokers that are calling the bottom think that high oil prices are a temporary anomally. They keep talking about oil dropping back to $85. I've got news for the guys with rose colored glasses, oil is headed higher and it will never come down. Here is more bad news: The effects of $100 oil have not yet been felt by the economy. When it is finally felt the value of equities are going to drop like a rock.
  • Eaise
    Apr 12 07:01 PM
    Well in case you didn't start out with a pessimistic outlook, reading this article and all of the commentary will certainly get you there.
  • Plant Fruit Trees Today
    Apr 12 08:05 PM
    The best time to fill your suburban lot to the brim with fruit trees and a workable system of small scale agriculture was 5 years ago.

    The second best time is TODAY!!!!
  • Plant Fruit Trees Today
    Apr 12 11:03 PM
    Surfing USA

    If a surfer riding a wave creates just the right amount of credit / money at just the right speed, he can stay "up".

    If a surfer rides too far out in front of the wave (creates too much money / credit too fast) then he will sink.

    As soon as he sinks, the wave crashes over him.
    "credit crunch surfer dude."

  • Plant Fruit Trees Today
    Apr 12 11:03 PM
    Surfing USA

    If a surfer riding a wave creates just the right amount of credit / money at just the right speed, he can stay "up".

    If a surfer rides too far out in front of the wave (creates too much money / credit too fast) then he will sink.

    As soon as he sinks, the wave crashes over him.
    "credit crunch surfer dude."

  • chinesepetti
    Apr 13 04:38 AM
    I really do not understand the logics when people are saying comsumers spending takes 2/3 of USA GDP; it is almost like saying you could create wealth and valuable production by spending money. Can any Harvard experts help me here?
  • CrossProfit
    Apr 13 08:18 AM
    iwishing,

    See;
    en.wikipedia.org/wiki/Gross_domestic_product

    This explains what GDP means and how GDP is calculated.

    CrossProfit
  • NI123
    Apr 14 07:13 AM
    Grace,

    You are HOT!

    Oh, and nice article.
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