When consumers receive an income, those funds can go into savings or spending. Consumer spending is the measurement of funds dispersed (not in savings) and that can go into goods and services that consumers deem warranted. This can include durable goods, such as washing machines, and non-durable goods, such as food. As the U.S. economy is comprised of over 70% consumer spending, this is a very important piece of economic data.
A healthy housing market is essential to economic growth in the U.S. economy. But despite what we are hearing from the media, the housing market rebound is facing major headwinds.
To start with, home prices in the U.S. housing market are nowhere close to their pre-crash levels. There are millions of homeowners in the U.S. economy whose homes are worth less than what they originally paid for them. From their peak in 2006, home prices in the U.S. housing market are still down roughly 30%. For millions of homeowners to break even on their home investment, home prices will have to go up by at least 40%.
We just learned housing starts plunged 16.5% in April from March. (Source: U.S. Census Bureau, May 16, 2013.) This decline in new housing starts was one of the sharpest declines since mid-2011.
The chart below depicts housing starts from 2001 to today. Notice the recent sharp decline in housing starts.
Chart courtesy of www.StockCharts.com
Housing starts may not be a very exciting number to some, but I follow housing starts to gauge consumer spending. Think of it this way: when a family buys a new home they need to buy things that are needed in the household—new furniture, appliances, lawn mowers, and so on. It is this spending that ultimately results in economic growth for the U.S. economy.
Construction spending in the U.S. economy is also on the decline. It registered an annual rate of $893.6 billion in December of 2012, and by March 2012, construction spending fell to an annual rate of $856.7 billion—a decline of four percent. (Source: Federal Reserve Bank … Read More
Wal-Mart Stores, Inc. (NYSE/WMT), the biggest retailer in the U.S., just reported its second-quarter same-store sales declined 1.4%. As a reader of Profit Confidential, this should come as no surprise to you.
Consumer spending in the U.S. economy is bleak; it doesn’t seem to be improving, and it’s nowhere near what the stock market is depicting. Consumer spending makes up about two-thirds of U.S. gross domestic product (GDP), so if consumer spending continues to decline, our economic growth becomes questionable.
Personal consumption expenditure, a measure of consumer spending, has been experiencing a decline. From between 2010 and 2011, consumer spending increased by little more than five percent. Meanwhile, the rate of change between 2011 and 2012 was only 3.64%. (Source: Federal Reserve Bank of St. Louis web site, last accessed May 16, 2013.)
What Wal-Mart’s contracting same-store sales and slowing consumer expenditure rates show is that consumer spending in the U.S. is not growing. From the statistics, we can see the average American consumer is suffering.
As of February (the latest available figures), there were more than 47.5 million Americans, which is 15% of the population or 23 million households, on food stamps. (Source: U.S. Department of Agriculture, May 10, 2013.) Food stamp usage has increased immensely. So, how can consumer spending increase when we are sitting at record poverty levels in the U.S.?
This “job growth” the government talks about—the official rate—doesn’t include people who have given up looking for work and people who have part-time jobs but want full-time jobs. And even if we put that aside, the majority of jobs that have been created over the … Read More
The stock market has only one direction in mind and that’s up. I sense there’s froth building up. This current market action reminds me a bit of what happened in 1999, but the situation is different in that interest rates are at record lows, the Federal Reserve is providing liquidity, and the valuation of stocks is much more reasonable versus that of 1999.
My concern is how far the stock market can rise before we see a correction of any significant magnitude. Yet even with selling, it would be a buying opportunity, not a sign to exit.
The one key thing you need to make sure of is that your portfolio is diversified to withstand any major selling in a particular sector and market cap. Case in point: if you were heavily weighted in the precious metals, such as gold and silver, your portfolio would have been devastated by now.
This doesn’t mean you shouldn’t have any metals in your portfolio, but you need to have ample diversification, which is the key to success in the stock market.
If your assets are well diversified, it would be fine to play a possible upside bounce in gold. (Read “Is Gold’s Near-Beath Crisis Over-Exaggerated? Concerns of a Market Meltdown May Not Be.”)
The reality is that it doesn’t matter if you are investing in real estate, gold, stocks, art, or classic cars; the prudent way to protect your assets is to make sure you are diversified in the stock market.
The concept of spreading the investment risk is portfolio management—a process that encompasses the creation, monitoring, and adjustment of … Read More
Core retail sales declined 0.1% in April—and that’s after they already fell 0.4% in the previous month! (Source: U.S. Census Bureau, May 13, 2013.)
When compared to the first four months of 2012, consumer spending in the U.S. economy declined in the first four months of 2013 at electronics and appliance stores, health and personal care stores, gasoline stations, and general merchandise stores.
And looking forward, consumer spending in the U.S. economy doesn’t appear to look very promising either.
If companies don’t spend or create better-quality/better-paying jobs, can consumer spending really pick up? It’s well documented in these pages: the job creation we have seen since the financial crisis started has been in low-wage-paying sectors.
Keeping all this in mind, with consumer spending still bleak and core retail sales constantly declining, the retailer must be suffering.
But that’s not so!
When you look at the stock market and, more specifically, at the retailers, it appears that consumer spending in the U.S. economy is booming! Consider the chart below of the S&P Retail Index. This index tracks the performance of some of the most well-known retailers in the U.S. economy.
Chart courtesy of www.StockCharts.com
Dear reader, the stock market isn’t portraying the real picture of the U.S. economy. The retail sales number actually shows how consumer spending—the biggest contributor to our gross domestic product (GDP)—is fairing, and those numbers look terrible.
Even with the printing of trillions of dollars of new money via quantitative easing, the Federal … Read More
Consumer spending in the U.S. economy looks to be in trouble.
A popular measure of U.S. consumer confidence, the IBD/TIPP Economic Optimism Index fell 2.4% in May. It registered at 45.1, compared to 46.2 in April. What’s problematic is that this consumer confidence measure is only 0.7 points above the reading in December 2007, when the U.S. economy entered into a recession. (Source: Tipponline, last accessed May 7, 2013.) A reading below 50 indicates consumers have a pessimistic view of the U.S. economy.
This U.S. consumer confidence measure essentially has three different components. It asks consumers three questions: 1) how will the U.S. economy perform in the next six months; 2) what is the status of their personal financial outlook; and 3) how confident are they in federal economic policies? Of the three components, two witnessed a decline. Consumer confidence toward the U.S. economy had the biggest drop in May, down 8.5%.
As we all know, consumer confidence is essential to consumer spending, as consumers tend to hold back on their purchases if they believe economic conditions will become worse.
Another major obstacle in front of consumer spending, consumer credit in the U.S. economy grew at an annual rate of only 5.7% in the first quarter of 2013. If this rate remains the same, then 2013 will post an increase in consumer credit, which was lower than the credit expansion rate of 2012. (Source: Federal Reserve, May 7, 2013.) When consumers borrow less, they spend less.
Adding to the misery of consumer confidence, jobs growth in the U.S. economy isn’t anywhere close to what it really should be. Last month, … Read More
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