The Tired American Consumer
Wednesday, July 5th, 2006
By Michael Lombardi, MBA for Profit Confidential
The U.S. auto market is supplying more of the same–negative U.S. economic news. And, while the car makers are doing their best to lure consumers with incentives like interest-free loans and fuel incentives, consumers are not interested like they used to be.
Ford’s U.S. sales fell by 6.9% in June from a year earlier, while sales at the Chrysler unit of DaimlerChrysler fell by 15%. GM vehicle sales plummeted 25% in June 2006 compared to June 2005. You could say June 2006 was a sales month American car makers hope they can soon forget.
But it’s not just the car markers that are suffering. Private residential construction spending in the U.S. dropped 0.8% in May after falling 1.2% in April. U.S. home builders are feeling the pinch… while their stocks are taking a bath.
As I’ve written in the past, American consumers are feeling the effect of two years of rising U.S. interest rates. All those credit card balances, lines of credits, and, (for many), mortgages now carry higher monthly payments.
From its most recent statement, the market has the impression the Fed may stop rising rates. But that is not written in stone. A few more inflationary reports and we can all expect higher rates–not lower rates. The Fed is more concerned with halting its impression of rising inflation than it is in helping consumers. After all, who told U.S. consumers to load up on all that debt anyway?
Poor and tired American consumers: A few more rate hikes and they could stop spending in their tracks. And that’s bad news for the U.S. economy, and bad news for American stocks.
NEWSFLASH–U.S. 90-day T-bills have hit a new yield high of 5.02%. Considering the risk and lack of value I see in the general stock market (Dow Jones big stocks and the S&P 500), I see the 5.02% 90-day T-bill return as safe and attractive for investors for now.
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Tags: interest rates, stock market, U.S. economy
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
