The horizon is not so far as we can see, but as far as we can imagine

Some Questions About Consumer Spending

Image by Admit One

Image by Admit One

Why did it increase .5%?  The savings rate has gone from negative to about 5%, a ton of people have lost their jobs, and wage gains have been essentially nonexistent.

Is it, therefore, just a slight bounce from extreme restriction during the height of the panic, or is there reason to believe it will continue to go up?  I see, on the horizon, another wave of foreclosures, continued job losses (even if not as high as before, they will still be losses) and any recovery will cause further oil inflation, while there’s little reason to expect significant wage increases amongst those who are employed.

So why would we assume that consumer spending is going to keep increasing?  Is there an expectation that credit will loosen and Americans will go back to borrowing?  If so, does that mean that foreign countries like China are going to step into the void and start lending in a big way again (their lending to America is down, and lending from Americans to America is up).  Or is there another bubble on the way which will give Americans inflated assets to borrow against as they borrowed against their home values?  If so, I can’t see what it would be.  Certainly cap and trade can be turned into a new asset class, and maybe a new bubble, but it won’t give ordinary consumers much money…  Is there another bubble possibility I’m missing?

I’m constitutionally a bear, not a bull, so I don’t make the bull case scenario as well as I do the bear, but I’m not seeing where more consumer spending is coming from.  The stimulus is not getting to consumers in large enough amounts to offset other losses, and the huge bailouts for the financial sector are likewise mostly not making their way into the broader economy, but are going to fill in a rather larger hole.  Increased savings could lead to increased real investment, I suppose, but again, I don’t see that that money is mostly going to investment in the real economy.

I guess what I’m saying is that I don’t, yet, see a very strong bull  case scenario.  At this point it rests primarily upon cyclical factors like decreased inventory levels and business need for capital spending as well as on government stimulus, and perhaps that’s enough, but I’m not yet convinced.

Anyone want to make the bull case scenario?  Be happy to hear it.


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  1. Didn’t consumer spending increase by just .5%? I heard that it increased because of the spike in gas prices(Yes, gas in included in the consumer spending number). So, if you take out gas it was flat, or maybe even fell.

  2. Ian Welsh

    Interesting, if it’s just gas price increases, then it’s not much of a bullish sign, is it?

    Everyone seems so happy this last month, and I agree that the rate of increase of suck has decreased, but I’m missing the bull case scenario…

  3. senecal

    Spending might increase as a part of de-leveraging — i.e. as prices drop, those consumers with cash are tempted back in. Recent auto sales, spurred by discount prices and no-interest loans, might be an example. Auctions of foreclosed properties in California similarly caused real estate sales to jump.

  4. jbaspen

    Ian, hasn’t any real growth in employment over the past 20 years come from small business?
    My question is can these people still readily access needed credit? I see the Fed propping up the “Gangs of New York”, and the Obama stimulus maintaining existing state & local bureaucrats. If these people are cut off from sources of vital credit…

  5. tc

    I heard gas prices and cars were the big factors for the slight increase. There is a huge pent up demand for cars (sales have been at historically low levels), and with potential deals due to bankruptcy, a bit of that might have leaked out. Relax, little bear. This is just a tiny speed bump on the rocky road to hell. All that optimism is just part of the 70’s disaster movie formula. Think of all the folks in the Poseidon Adventure who wanted to wait in the ball room, or followed the priest in the wrong direction. Or Towering Inferno, where the people insisted on taking the elevators that opened into the inferno. This will be a long descent, and it will seem uneventful at times. So it might help you to keep a sense of the dramatic narrative.

  6. gtash

    Is refinancing of home mortgages considered spending?

  7. tatere

    Anecdote not data, but speaking for myself, I have been doing some spending that I really think of as saving – replacing stuff that is on the verge of breaking and such, while I can afford to, because I need it for work and I will be in big trouble if my income goes down (freelance) and *then* it dies.

  8. Ed

    I returned to New York in March after a long absence. One thing I noticed in March, thankfully, was that Manhattan seemed pretty quiet. During the “boom” it was hard to walk down the street because the sidewalks were packed with people holding conversations about god knows what on their cell phones. When I returned there seemed to be alot fewer of these and it was easier to get into restaurants.

    Now it looks like all the cellphone people are back in force, and I’ve noticed alot of new restaurants and boutiques that basically cater to the wealthy and wannabees.

    My theory is that the TARP bailout did have an effect. The funds bailed out Manhattan. I don’t think it helped much with the rest of the country.

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