Has the Consumer Really Recovered?

by: The Housing Time Bomb

If you look at the most recent data from the Consumer Metrics Institute (CMI) the answer is a resounding NO.

I love the CMI because it looks at how the consumer is actually performing in the 10 key areas of consumer spending. Here are the 10 sectors that they use to compile their consumer spending data.

  • Automotive
  • Entertainment
  • Financial
  • Health
  • Household
  • Housing
  • Recreation
  • Retail
  • Technology
  • Travel

The CMI does not include the numbers like inventory builds and government spending which are what the government uses to create our quarterly GDP number number.

As you can see below, the consumer spending trends are pretty nasty:

This chart looks at what the consumer does once GDP begins to start contracting. The first contraction started in 2008 following the financial crisis. The second contraction began in 2010 after GDP peaked in Q4 2009.

As you can see above, in 2009 we saw a massive rally in spending as the government threw the kitchen sink at the consumer via "cash for clunkers" and "housing tax credits" in an attempt to revive the consumer.

Back at the time I had warned that all these government stimulus programs were going to do was pull forward future demand which would be devastating down the line.

The data is now starting to support this. As you can see above the consumer has been in contraction for all of 2010 once GDP growth peaked in the end of 2009. In fact, if you look at the number of days of contraction this year in 2010 versus the 2007-2009 downturn the numbers are actually worse:

Take Continued:

The CMI goes on to explain how the majority of our growth in 2010 was as a result of massive government stimulus combined with improved exports thanks to a falling currency.

However, they believe this tailwind is about to wind down:

The growth in exports has primarily benefited major corporations. These same corporations have been growing margins over the past year by cutting jobs, and now appear reluctant to start major re-hiring.

The growth in governmental spending has probably peaked, with both the future impact of Federal ARRA spending capped and with local governments being forced to deal with looming deficits.

We have said before that the real consequences of the "Great Recession" on U.S. consumers were triggered by rising energy prices, dropping home values and persistent unemployment. Until something dramatically turns around in those specific areas consumer demand for discretionary durable goods is not likely to improve.

The Bottom Line

The consumer is still on life support and the various government stimulus that turned things around are all now beginning to wind down.

Corporations are doing well because they are slashing jobs and seeing an increase in exports. CNBC will tell you that companies are recording record profits because the economy is receovering. This couldn't be further from the truth. They are hoarding profits and slashing jobs as they prepare for the worst economic crisis since The Great Depression.

As deleveraging continues the consumer is likely to disappear once again now that the government is being forced to wind down their massive stimulus as a result of rising concerns around their solvency.

The tax cuts were the last big spending bill IMO. As the "tea partiers" get into office I expect the government to switch gears and start talking austerity versus bailouts.

This is going to be a very painful reality to the millions who count on government checks to finance their lifestyles that allow them to watch Dancing with the Stars on their 70" flatscreen TV's.

The Fed's spending binge is on it's last legs and the consumer is starting to roll over and play dead. This being said: I wouldn't be surprised to see them spend what little they have left on Christmas which means the shopping season may not be a disaster this year.

Why would Americans do such a crazy thing when the economy teeters on collapse? Because most Americans are too stupid to look and see what's happening all around them.

They turn on their massive flatscreens and are told by the media talking heads that the economy is recovering, and they believe them because they are too lazy and stupid to take the time to do some research and realize they are being sold a bag of goods.

In fact, as the market rises, many of them are once again piling into stocks thinking that this is some sort of massive new bull market.

Folks, when the herd piling into stocks like this you can be sure this rally is likely on its last legs. Wall St loves to sell to the suckers and take huge profits as Main St piles into the rally at the top.

As the economy rolls over once again as a result of the collapsing consumer, Main St will once again get left holding the bag as Wall St laughs all the way to the bank.