Where's the Consumer?

by: Karl Denninger

You'd think that the economic news was "all roses and green shoots" Tuesday morning.

Yeah, ok. The BEA says otherwise:

Personal income decreased $159.8 billion, or 1.3 percent, and disposable personal income (DPI) decreased $143.8 billion, or 1.3 percent, in June, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $41.4 billion, or 0.4 percent.

Got that? Income is down but the "green shoots" mantra from the media has people spending more, even though one wonders where that spending is showing up?

The Johnson Redbook Index also showed seasonally adjusted sales in the period were down 5.6% compared with July 2008, compared to a targeted 6% fall.

Redbook said that on an unadjusted basis, sales in the week ended Saturday were down 5.4% from the same week in 2008 after a 5.5% decline the prior week.


Note that WalMart (NYSE:WMT) is no longer part of the Redbook survey, but anecdotal reports are that their same-store sales have been running down about 5% through the quarter (we'll find out when they report earnings, of course.)

What's worse in the income and spending report is that "saving" (actually debt pay downs) has decreased; this is particularly troubling given the continuing over-leveraged state of the consumer. The last thing we need in our economy is yet more debt defaults driving even more economic contraction, but it appears that's exactly what we're going to get.

Oh, and don't look at tax receipts either: they're down huge, with individual income tax receipts down some 22%! The last time we saw numbers like this was The Depression; you can claim that personal income is down "only" 2% if you'd like, but the last time I checked you only paid tax on income actually received, and while the tax system is progressive there is no way you can square a 2% "reported" income decline with a 22% decline in income tax receipts. Someone's lying and I'm quite confident that people aren't paying taxes on money they didn't earn!

Pending existing home sales numbers put up a strong showing (+3.6%), but let's remember two things:

  • The $8,000 "first time home buyers credit" requires that sales close by November 30th to qualify and
  • Virtually all of the strength is in the lower-priced segments.

One would think that we'd get actual counts from the government on actual home sale closings, since all home sales require a HUD-1 to be filed - a government document that would be easy to tabulate. Instead we are "treated" to data compiled by "interested parties" such as the NAR. Heh, you take what you can get I guess.

Nonetheless month-over-month gains are to be expected beginning in April through July, leveling off in August and then declining into the winter months, just on the basis of seasonality (families hate moving during the school year if it can be avoided, and in the northern states moving during the winter is a royal pain due to the weather.)

Overall the primary area of concern is personal income; as I have repeatedly said until we see a durable increase in personal income there can be no meaningful economic recovery, as the consumer remains 70% of the economy and without income you are simply running up your credit cards to survive - a folly that works in the short term but has ruinous consequences a few months later.