Return of the Consumer?
The Ahead of the Tape column today in the WSJ suggests that the consumer is “not quite dead.”
“Household net worth plummeted during the recession thanks to sharp declines in real estate and financial assets such as stocks, falling to a low of $48.5 trillion in the first quarter of 2009.
The massive decline knocked out a key support for consumer spending at a time when labor market and credit conditions were worsening rapidly. Monthly consumer spending fell as much as 2% last May compared with the prior year—the worst reading of the recession—after posting gains of more than 7% during the boom.
Spending growth has since resumed—a source of surprise and widespread skepticism given the steep contraction in consumer credit and the high 9.7% unemployment rate.”
I prefer to spend counter-cyclically, hence the posts regarding shopping for big ticket items during the recession (more on this later today). Anecdotally, the stores and malls seem busier, as the slowly recovering economy may be returning consumers — and their pent up demand — back to some of the prior consumption.
At least, that is what the data seems to be showing . . .
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Source:
U.S. Consumer, the Sequel: Beaten but Not Out
KELLY EVANS
WSJ, March 11, 2010
http://online.wsj.com/article/SB10001424052748704655004575114133625156648.html
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March 11th, 2010 at 10:11 am
With the Fed’s Flow of Funds out in just a couple of hours, the Journal should have waited and held this story until tomorrow (or perhaps spiked it depending on how the report looks). Why go to press when you can wait 24 hours and get a fresh look at what’s going on?
Just an observation.
March 11th, 2010 at 10:17 am
I’ve been spending like crazy since January. There have been so many scare-stories about how credit card companies are going to dump us because we had the nerve to demand fair(er) treatment with the new credit card law.
Well, it didn’t happen to me. I’m one of those freeloaders who pays his bills off every month and never carries a balance, but since January I’ve gotten multiple “spend $x by 4/1/10, get $Z in rewards” offers on my two cards.
That was a good inducement to get me to do some deferred spending.
March 11th, 2010 at 10:37 am
I’m curious what role delinquent mortgage payments are having. A number of homeowners who have stopped making mortgage payments but are being allowed to remain in their homes rent free have very high levels of temporary discretionary income.
I also wonder if there is a subset of credit card users who have accepted they will eventually go bankrupt and in the meantime are “gaming” their credit cards to max out balances before the day of reckoning.
And then again, it might be that our society is so addicted to instant gratification (and so uninformed on financial costs, saving for retirement, etc.) that, now they are feeling more comfortable about their jobs, they are breaking out the credit cards and spending like there is no tomorrow.
March 11th, 2010 at 10:37 am
“I prefer to spend counter-cyclically, hence the posts regarding shopping for big ticket items during the recession”
After all these years, still a trader at heart!
March 11th, 2010 at 10:37 am
I think that a hidden and actually quite disturbing cause of the recession was Paulson’s “the World is Ending” scare tactic to get Congress to pass the bailouts. He scared the living daylights out of everyone, making them spend less and horde cash. Even those who were not likely to be affected froze up. What’s happening now is simply a return to reality among those who are not jobless or likely to be jobless. It’s not a sign of recovery or of a robust economy, but a rebound from a place that never should have been in the first place. The only “World” that was really about to “End” in 2008 was that of Wall St, but it is we who have been made to suffer in order to save it.
March 11th, 2010 at 10:44 am
mGk –
Uh, Paulson’s “the world is ending”… was AFTER the world was scared to death. LIBOR spiked +5%, credit became unavailable, bond prices were in freefall. Loans could not be had to buy cars, homes, appliances, etc. Every business from CSCO to F/GM/TM to hotels and airlines said — “in Sept/Oct our business hit a wall… zero sales”.
There is no “Wall Street” and “Main Street” its a false idea. Although I would’ve preferred to SPEND money to bailout some homeowners… LENDing money to Wall Street has certain cost far less for the tax payer (it may even end up proftable!). Thats was a “crisis” is. It a bad situation. You pick your posion and solve the problem. Its easy to monday-morning QB it (but its lame).
March 11th, 2010 at 10:47 am
If you want to shop and have a good laugh check out Colbert http://www.colbertnation.com/the-colbert-report-videos/267141/march-10-2010/survival-seed-bank I laughed so hard i was crying. I grow my own veggies and buy a local Angus every year but are people actually getting suckered to pay that much for seeds? I just bought peas this morning from K mart for 72 cents a pack. In the ground for St. Patrick’s Day.
March 11th, 2010 at 10:51 am
The increase in consumer spending comes at the expense of saving as the savings rate is back below 4%. We are just back to our spend, don’t save mentality. In the short term, this is a boost to economic growth, but it does little to rectify our egregious debt to GDP level.
This amount of debt will be a drag, especially if the economy “normalizes” and rates rise (causing the servicing of the debt to rise as well).
March 11th, 2010 at 10:52 am
[...] significant portion of the increase. Some commentators, Barry Ritholtz seem to postulate iPods etc. I prefer to spend counter-cyclically, hence the posts regarding shopping for big ticket items during the [...]
March 11th, 2010 at 11:13 am
@cognos: Thank you for proving my point. TARP was submitted as an emergency measure in early September, BEFORE business “hit the wall” in Sept/Oct. In the future, don’t change the chronology to support your prejudices. In my universe, cause comes before effect.
March 11th, 2010 at 11:30 am
To me, the things that have come to pass regarding the game of writing mortgages on homes too expensive, for people who can’t afford them, needed a death-threat in order to stop. The banks and the CDO underwriters and insurers needed a reality check, and this was a painful one. The economy had to contract as an “effect” to that drop in overall spending. Now, government has stepped in to avoid having to go through 15% unemployment, instead of the nearly 10% we have today (officially). I don’t applaud those who manipulated the pols again, but the end result will be a less painful breakage of the system. We’ll be better off from all of this only if we don’t make the same mistakes again.
History isn’t a good predictor of this…
March 11th, 2010 at 11:58 am
Hey, if you want a good GDP score, somebody has to spend.
If you’re broke and/or unemployed, once you stopped paying the mortgage and had your UI extended, you have to do something with the ‘extra’ cash. Neither savings, nor debt service. Consumption only going forward.
If you’re weathly and/or employed, you’re golden. Feel free to spend as before. Just don’t be all up in the face about it, that’s so 2005.
If you’re a state employee, your governor would prefer you work in the private sector and/or take a pay cut. You know, budget deficits and all that, plus state borrowing or taxing is not their preferred action. Otherwise, keep spending and don’t worry about your pension.
If you work in the private sector, find some cost savings before elimination of your job becomes the cost savings and find as many consumers as possible to buy your product/service. In the meantime, keep up spending and don’t worry about your 401k.
March 11th, 2010 at 12:12 pm
Show … me … the tax receipts …
March 11th, 2010 at 12:16 pm
cognos:
“There is no “Wall Street” and “Main Street” its a false idea.”
I disagree with that premise. The terms are ways of drawing a distinction between classes in our society, with Wall Street also being a classification of profession in addition to being a distinction of class.
To say that there is no “Wall Street” and “Main Street” is to essentially say we live in a classless society, or to say that different classes don’t have different perspectives on how this country should be run. I hope your not trying to take that position or that I misinterpreted what point you were trying to make.
March 11th, 2010 at 1:14 pm
Why go to press when you can wait 24 hours and get a fresh look at what’s going on?
–
The WSJ has progressed to being more like CNBC every passing year. The reason to print this is so Wall Street can continue to fleece main street buyers into the market while they sell (again).
March 11th, 2010 at 1:34 pm
mGk –
What? Your dates are wrong. Lehman FAILS Sept 15th. AIG FAILS Sept 16th. (Odd… bc given these failures obviously things were pretty wrong underneath the hood. But hey… then ALL financing comes to a halt for regular business, massive layoff start, here we go down depression road. I was pretty “scared” back in the spring. It was somewhat obvious that a crisis was coming after Bear and given what was happening in housing. I am in the “panic early” camp. Regulators, politicians and YOU… seem to like waiting. Bad idea.
Paulson first breaks the idea of TARP on Sept 19th, and says a “plan is being worked on”. The official first TARP itself comes out Sept 29th.
Looking back… he should’ve done it in March. Sure it would’ve rewarded Lehman and AIG and probably saved 1 or both. But then it would’ve moderated the YO-YO move. This is the point of regulation and government officials in a crisis.
March 11th, 2010 at 1:37 pm
The only reason retail sales are improving is because the word on the main street is “hey, the guy down the street hasn’t made a mortgage payment for over a year, and he hasn’t been foreclosed on”. So the word is getting out that you can quit paying your mortgage and stay in your house. Therefore, the would be mortgage is being used as disposable income. This is happening, and it will get worse. People are under water and even if they can make their payments, they are strategically defaulting.
What’s more, now the administration wants to pay you to default!
Brilliance!
March 11th, 2010 at 1:42 pm
Kansas City announced they will be closing HALF of all public schools due to a $50M city deficit. $50M is less than the individual bonuses paid to several (if not many) Wall Street executives. Do you really want to argue there’s no difference between Wall Street and Main Street?
March 11th, 2010 at 1:47 pm
Another $1B+ for the US govt on its stake in Citibank today.
Lets hope the USG rides it to $6/shr and makes $25B.
March 11th, 2010 at 1:49 pm
And how much debt has the consumer taken on through the massive, accomodative USG fiscal policy to backstop and/or prop up both “real estate and financial assets such as stocks” and the overall economy in general? Is the trade off worth it? In order to determine a person’s true “net” worth you must subtract their liabilities from their assets to arrive at “the big picture”.
March 11th, 2010 at 1:50 pm
inflation + temporary unsustainable stimulus (cash for clunkers) = consumer is back?
March 11th, 2010 at 1:51 pm
No has mentioned all the tax return money at work.
March 11th, 2010 at 2:02 pm
Maybe people have bought the idea that the recovery is happening and better times are just ahead. So they go out and spend since they feel that they don’t need to save as much for the future. Will they be in for a rude shock?
March 11th, 2010 at 2:47 pm
If consumer spending is up, why are sales tax receipts down?
http://globaleconomicanalysis.blogspot.com/2010/02/retail-sales-rise-where-lets-take-look.html
http://boards.fool.com/Message.asp?mid=28170148&sort=whole
March 11th, 2010 at 3:02 pm
Everyone keeps asking about sales tax receipts. Don’t worry!!! It’s a “lagging indicator” :D!!
March 11th, 2010 at 4:11 pm
I think to a certian extent it’s what you’re used to. Last year when my ncome went down I resolved to cut back, and for many months I did. Now I’m tired of it. My spending has crept back up because it’s been how I’ve lived my life for the past several decades. The fact it’s maybe not a sound financial decision — well, assure me I’ll be alive in 10 years, then I’ll worry about it.
March 11th, 2010 at 4:11 pm
Are there no smart folks on this site. Return of the shopper is very simple. Folks are getting back there Income tax refunds and blowing it all at the malls. I’d bet you would find this same spending spree every year at this time. Folks that get a refund file early. Folks that pay file late. The early birds are out buying their worms. JMOP
March 11th, 2010 at 10:02 pm
According to Consumer Metrics, the Consumer is already rolling over.
http://www.businessinsider.com/chart-of-the-day-consumer-metrics-index-2010-3?utm_source=Triggermail&utm_medium=email&utm_campaign=CS_COTD_031110
April 7th, 2010 at 11:29 am
[...] we have previously observed, the consumer is “not quite dead, yet.” Indeed, the data suggests that after falling into a state of frozen panic during the credit [...]