Consumers Climb Out of Their Bunkers . . .
From the “It-Aint-That-Bad” file comes the most recent reports of consumer spending.
As we have previously exhorted, the consumer is “not quite dead, yet.” Indeed, the data suggests that after falling into a state of frozen panic during the credit crisis, there are signs of pent up demand being satisfied slowly but surely.
The perma-bears and recessionistas are loathe to admit this, but the data continues to gradually improve. I will be the first to admit that the year over year comparisons are against absurdly low levels, but it is improvements nonetheless. Data reflect a very gradual month-over-month improvement, and show huge gains on a year-over-year level.
It will be some time before we return to the peak levels of 2006-07, when Houses were used more as equity structures than shelter. But that does not mean we won’t see marked improvements over the coming quarters.
Consider these data points:
• Luxury sales rose 22.7% (Mastercard SpendingPulse)
• Furniture sales rose 13.8% and appliance sales rose 6.9%
• Auto sales gained 24% from year ago levels (AutoTalk)
• March was the 7th consecutive month of increasing retail sales growth
• Cargo volume at major ports imports is trending towards an 8% increase in April
• Commerce Department’s personal consumption expenditures was $34.7 billion in February, an increase of 0.3% over January — the fifth monthly gain in a row.
• Gasoline demand continues to rise — +1.2% — before the summer driving season.
Two last things to consider:
Ignore the plus 10% nonsense from the International Council of Shopping Centers — it has more to do with the Easter calendar shift than actual change in consumer behavior.
Second, DJMT calls “shenanigans” on the NYT happy talk. While I don’t completely agree, I will concede that Paul Vigna raises a valid point as to both the NYT and the WSJ. As we noted yesterday, everybody talks their book.
While the universe is not nearly as rosy as the front page of the Times (Jobs and now Retail) proclaims, it is also not as dire as the usual survivalists (MREs, Ammo, and bottled water) have claimed.
A slow, painful recovery still awaits us . . .
>
Source:
Upbeat Signs Revive Consumers’ Mood for Spending
STEPHANIE ROSENBLOOM
NYT, April 6, 2010
http://www.nytimes.com/2010/04/07/business/07shop.html
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April 7th, 2010 at 11:44 am
I am dreadfully confused. I suppose I may have vastly underestimated the US consumer. Can someone PLEASE enlighten me about a few things?
1. Given the employment situation, where are they getting the money, and particularly money to spend on uber-discretionary luxury items and such?
2. Again, with weak employment and housing still an issue – how do we reconcile gains in furniture purchases?
3. Are we talking about m-o-m retail sales growth or y-o-y? Does it matter?
Please enlighten me – I am suitably flummoxed.
4. Gasoline demand in spite of the rise in prices at the pump and fewer vehicles on the road? Is this figure from Mastercard a $ figure or volumes – a rise in the $ figure could just reflect the rise in fuel prices. Perhaps litres per consumer would be a better indicator of spending impact?
April 7th, 2010 at 11:52 am
When millions don’t have to pay their mortgage or rent, that sure frees up a lot of funds for them to spend on discretionary items.
Seriously though – the people who are gainfully employeed, for the most part, probably feel pretty good that they dodged a bullet (and that the world isn’t going to end after all) in this recession, so many of those folks (including myself and my wife) are now spending on expenses that had been put on hold during the crisis. Now I think that people are wrong if they think this particular crisis is over, but people who are employed probably feel the worst is behind us, for the most part. I don’t think this is sustainable, as many people will go back to being cautious about spending once these pent up purchase are made. Just my two cents.
April 7th, 2010 at 12:01 pm
The wealth effect of the the stock market also probably helps. I don’t think humans are built to look at longer term performance of their portfolios. Instead, when looking at quarterly statements, they think “oh things aren’t so bad..i have a job and the market is headed back upwards. I can spend a little more again.”
April 7th, 2010 at 12:09 pm
I’ve owned a discretionary retail business for nearly 10 years. Great product, actually best we’ve ever had. Also, just had the worst March in company history. We cater to middle to luxury buyers. I really don’t know where these reported numbers are coming from but all the other business owners I’m in contact with daily, aren’t seeing it.
Just a little reality from the trenches.
April 7th, 2010 at 12:16 pm
We do need to keep in mind that a 10% unemployment rate is still only 10% of the people. There are still a lot of firefighters, teachers, government workers etc. who haven’t lost a well paying job yet
April 7th, 2010 at 12:19 pm
I completely agree with Paul Vigna. It’s nice to see someone tell like it is and not always be trying to hedge their opinion.
April 7th, 2010 at 12:20 pm
The second leg down awaits us. It’s baked in.
________
HW: Is that really you?
April 7th, 2010 at 12:24 pm
“There are still a lot of firefighters, teachers, government workers etc. who haven’t lost a well paying job yet”
_______________
And with our expanded tax base and revenues, their future is surely secure.
The 10% unemployment rate is fiction (actually, it’s fraud), for reasons we’ve been over before. If we compared apples to apples, we’d be in worse shape than ever before.
April 7th, 2010 at 12:44 pm
Marcus: Yes, it’s me, Harry.
April 7th, 2010 at 12:56 pm
[...] the consumer “climbing out their bunkers”? (Big Picture, DJ Market Talk also ABC [...]
April 7th, 2010 at 12:57 pm
Darn, and my Bunker was coming together nicely … I guess I can turn it into a guest room.
April 7th, 2010 at 12:58 pm
It is a positive that spending is increasing. And the hope of the stimulus philosophy, of course, is that even if the uptrend is unsustainable on current income, the spending itself will raise income and the cycle will become virtuous.
However. There is a lot that is not sustainable as it stands now.
– As Mannwich points out, some of this is coming from missed mortgage payments (about 3.7 million of them per month right now), which inflate PCE by about $40bn/yr (http://www.clearonmoney.com/dw/doku.php?id=investment:commentary:2010:03:02-quantifying_the_stimulus_effect_of_missed_mortgage_payments).
– What growth in income we do have has been from transfer payments, not wages (http://www.newsneconomics.com/2010/04/reducing-household-financial-leverage.html).
– Spending is related not to consumer credit directly, but to the change in consumer credit. And the change has been bottoming out recently (have a look at Econoday).
– As Casual Observer points out, this is surely in part due to the stock market rally, which will not continue forever.
So we’ll see. Maybe it can last long enough to become self-sustaining, maybe not.
Jim Fickett
ClearOnMoney.com
April 7th, 2010 at 1:00 pm
Seriously…for all the talk about a massively overleveraged consumer who needs to start saving more and spending less frivolously, I just do not see the impact outside of the very brief shock in 2008. It is one thing to start spending again on pent-up demand, but completely another to see ramped up luxury and frivolous purchases.
I hate the blame game, but The Govt really needs to own up to encouraging some really bad behaviors. Low rates and bail-outs have made leverage too hard to pass up. Corporations as well are leveraging back up again, and talk of the LBO mkt heating up again is making the rounds.
we….never….learn
April 7th, 2010 at 1:00 pm
I believe the danger in reporting yoy numbers is that it doesn’t tell much of the story. If sales are 100, go down to 25 the next year, then back up to 50 the next, you have a 100% gain in sales yoy, but a 50% loss as compared with two years ago.
I am in SoCal and things are not good here. Although dealing with my own hell in health care, I speak to very few who are not just, “holding on.” The only folks who seem to be busy are those in IT with global markets.
April 7th, 2010 at 1:07 pm
[...] per our prior discussion, let’s take a look at a nice set of charts showing the present state of Consumer Finances [...]
April 7th, 2010 at 1:24 pm
I daresay that if we were to display a chart of consumer spending vs income, the true picture would emerge, with a very tiny minority of very-well-heeled consumers accounting for most of the purchasing.
This is typical of the nominal banana republic, wherein the middle classes are mined and exploited to shift wealth into the uppermost 1%. If you look for a category of consumer spending that does not involve high-ticket hard goods, and whose pricing is not all that different from top to bottom of the economic spectrum, something like restaurant sales, you will find that they have not recovered nearly so well — because they rely on large NUMBERS of consumers, not just a relative handful with money to burn.
And this is a perfectly viable way to support an economy — however it does not lead to social stability, and demands increasingly a police state presence to protect the wealthy from the poor.
@HW, you need to move your merchandise up the exclusivity ladder a bit.
April 7th, 2010 at 1:24 pm
You are correct in that the world hasn’t ended. A lot of the spending shortfall last year was due to fear and uncertainty. Thus, an improvement is to be expected as people realize the world hasn’t ended.
That being said, tax refunds are probably the biggest source of cash used for these purchases. In this household, a tax refund is paying for some new furniture and some small home improvements. None would have been purchased without this extra ‘found money’. I would be surprised if many others were not acting in the same way.
Gas prices are up so cash spent on gas should also be up.
As mentioned above, the wealth effect is making some of these purchases feel ‘safe’. A fall in equity prices would translate to fewer discretionary purchases.
Everyone knows that the consumer will not return to pre-2008 levels for another decade, more or less. If equities and commodities reflected honest levels, this would be seen as the all clear to invest in America again. However, oil prices are going up due to speculative excesses again and other commodities will likely rise in sympathy, creating an indirect tax on consumption and a depression in productive spending. Hot money chasing returns will continue to bloat asset values to bubble proportions.
Without a properly functioning Wall Street, the entire economy suffers because real investment is an impossibility. I won’t put a fucking dime of my own money into the markets unless it either becomes an honest game or I see an opportunity to stick it to a greater fool.
April 7th, 2010 at 1:25 pm
I don’t really see how an uptick in consumer spending is a positive here. Especially as the savings rate ticks down. I mean, it might be a positive for the next quarter or two, but after that? We would all be better off if consumers keep tightening the belt, saving money and THEN spending at a healthy rate 6 or 9 months from now.
I don’t deny the validity of the numbers, but it seems like a dead cat bounce — one last little hurrah before settling down for a new reality. (I’ve seen more of the latter than the former in my part of the world — the rust-belt Midwest .)
April 7th, 2010 at 1:25 pm
Real personal income ex-transfer payments has not increased at all from the lowest levels of this recession. Income has only gone up because transfer payments have increased dramatically (govt just handing out money). Transfer payments have gone from about 12% of total income to over 20% of total income in the past year. This is the main reason that consumption has gone up. Another reason is that the savings rate has gone down. Another is that there are now over one million householders that have become squatters over the past year, as they have not made a single mortgage payment for 12 months yet still live in the house (and that number is increasing rapidly as delinquencies continue to increase to new highs). The situation with squatters has occurred because of the federal govt moratorium programs, massive foreclosure backlogs, and banks that don’t want to foreclose cuz it will force them to write down the loans (making them insolvent). And last, these transfer payments (and other govt spending) have only been made positive because of the almost $2 trillion of new money printing by the federal reserve. That has ended now.
April 7th, 2010 at 1:28 pm
There are simply occasions when the attempt to quantify human behavior is futile. “Casual Observer” comment above, naming “the wealth effect” as causation for increases in spending is likely the closest explanation.
Although hope is irrational, it does mark the beginning of movement forward. If there is to be a “second leg” down, it will most likely be a correction of the most recent “leg up.” Hope, complacency, and thus spending will continue, regardless of what the numbers say.
“Hope is like a road in the country; there was never a road, but when many people walk on it, the road comes into existence.” ~ Lin Yutang
April 7th, 2010 at 1:35 pm
Listen.
If all sell siders reading this want to make an income beyond the outer reaches of avarice, all you have to do is insist Wall Street and all ancillary markets become honest and reflect honest values. Fast buck traders might not like this, but that’s about all. All asset managers would likely see huge inflows from new customers who want to see their money grow in an honest game. As America prospered from cash available for new ideas, this would produce a positive feedback effect and your assets under management would grow exponentially.
Rather than being oily crud buckets who would probable be wearing loud plaid jackets if you were doing the same kind of work in another profession, you would actually look respectable because your work would look respectable. Why not jump on the bandwagon instead of trying to make every flyspeck of economic improvement look like an earthquake event.
April 7th, 2010 at 1:39 pm
Exactly, dh. Call me when this becomes even remotely akin to “investing” and not g@mbling……
I swore off sports g@mbling years ago for a reason. This is worse. It’s cloaked in legitimacy. At least with the former, it is what it is and not cloaked in anything it’s not.
April 7th, 2010 at 2:13 pm
There are simply occasions when the attempt to quantify human behavior is futile. “Casual Observer” comment above, naming “the wealth effect” as causation for increases in spending is likely the closest explanation.
There’s that and the fact that foreclosure moratoriums are still in place and many who are delinquent have simply quit trying to even pay their mortgage and are waiting for the day(s) of reckoning. Add a bunch of little things up like this along with the BIG move up in the markets and that’s as quantifiable as its gets imo.We were in burning hell a year or so ago. Now its just less hot. Many have suffered from various degrees of burns and for some it never got past warm. Less bad is better than really bad.
April 7th, 2010 at 2:20 pm
Mannwich Says:
April 7th, 2010 at 1:39 pm
Exactly, dh. Call me when this becomes even remotely akin to “investing” and not g@mbling……
reply:
———–
Yup. When you bet at the track, there’s no pretension about what you’re doing.
Om Wall Street, it’s degenerated into various manifestations of binary behavior. Rather than betting on if the bird on the left will fly off before the bird on the right, it’s actually become a guess on how long the current bubble will continue to inflate and the game is to get more new cash in so it can be used to help with the asset inflation. It’s still a ponzi, just on a smaller scale than a couple of years ago. It’s now a full blown ponzi industry and ponzi behavior has become institutionalized and supported with Fed seed money. When this bubble eventually bursts, another will take it’s place. What’s different this time is that it’s been overtly Fed supported and nobody is trying to hide it anymore. It’s the new Wall Street and there’s no reason to expect it to change.
April 7th, 2010 at 2:24 pm
Money market accounts have fallen by $50,000,000,000 in the last 3 months. That might have something to do with the uptick.
So our savings rate is going down again.
April 7th, 2010 at 3:51 pm
Don’t trust any of those numbers. Luxury items probably the result of all those bonuses. No take a look at the consumer credit and please rationalize the rosy “consumer is back” story with it.
April 7th, 2010 at 4:10 pm
And just as you say that, it appears that many are climbing back in……
http://www.calculatedriskblog.com/2010/04/consumer-credit-declines-in-february.html
April 7th, 2010 at 4:15 pm
Although I am not in the “survivalist” camp, the following situation gives little support to the thesis that the “consumer is back”…..”The Federal Reserve said Wednesday that borrowing declined by $11.5 billion in February, surprisingly weaker than the small $500 million gain that economists had expected. The February decline was the 12th decrease in the past 13 months as consumers slash borrowing in the face of a deep economic recession and high unemployment.”
Many people seem to be hoping that we are going back to 2006 and then forward……I think you can just forget about that and face the sitution that people have and are scaling back their expectations…..
April 7th, 2010 at 4:18 pm
Saving is an old 20th century vestige. Like black and white photography, it harkens back to the way we were.
Savings used to create the capital base on which businesses grew. That’s so old school, man. Now we electronically create it, hand it to the banks and let them disperse it as they see fit (with interest). Much quicker process. Plus you can buy whatever you want, whenever you want and fuel business growth at the same time.
Sure you get some capital misallocation (ya can’t make an omelette without breaking a few eggs) , but with all the horses you are putting in the race, you are bound to have a few winners. You just have to push the reset button on the banks balance sheets every time a credit cycle ends. Its just electronic data anyhow – money isn’t actually a thing…..
Hypercapitalism. China is learning well from us. Just throw a bunch of vacant buildings up and see what sticks.
April 7th, 2010 at 4:25 pm
Where is cognos today?
April 7th, 2010 at 4:58 pm
Can’t speak for anyone except myself, but over the last five years or so, I have been cutting back on everything. Anything that I can do myself I will, my own taxes, painting, lawn mowing/ fertilizing, car washing, house cleaning, cooking, home repairs, and yes Barry “financial planning”.
I realized a while back that my salary along with my wife was not keeping up with inflation and grant you our combined salary puts us well above the 10% club in terms of household income. I do not plan on making any major purchases, like vacations, cars, furniture, anything at all until I have paid off all the BANKSTERS and have done away with most off my credit cards. You might say, this guy must be in debt up to his eyeballs. Not so, my debt to equity is less that 5%. I won’t be happy until I don’t owe a god-dam bank a dime. So I don’t know about any pent up demand. When I did shop, I went to JC Penny and my inventory of new cloths stand like this; 20 new shirts (still in packaging) 12 new slacks (tags still on) 6 pairs of shoes (never seen the light of day) dozens of new socks, underwear, belts, ties, sweaters, casual shirts(16 unopened).
Get the picture! I don’t need to buy anything for myself and yes my wife still spends a little but she is on a strict budget. I suppose this is where the retail numbers are coming from. It’s hard to believe that just a few tops and some slacks could push the SP500 to over 1200. God help us if she stops spending….
April 7th, 2010 at 5:32 pm
we are in the same boat as simply-put. A lot of people I meet say the same thing, that they are being thrifty like us, but these improved numbers are coming from somewhere.
I’ll say this: there sure as hell are a lot of new cars and suv’s rolling around town these days. People must be re-allocating where they spend the money or something.
We are doing all of our things, and being frugal in what we buy. However, I will say this: my own household is doing much better than it was 1 year ago at this time. We’ve stayed away from debt, we’ve added to our security cushion, and everyone is much happier. On one income.
April 7th, 2010 at 5:35 pm
[...] suggest “signs of pent up demand being satisfied slowly but surely,” Barry Ritholtz notes. Data isn’t as cheer as the bulls believe, but it’s also not as dire as the pessimists [...]
April 7th, 2010 at 6:43 pm
The bears here will ALL continue to be wrong.
Q1 is strong, GDP will beat expectations (+3.8?), EPS will show 60-80% YoY growth.
Credit cycle has turned — see ALL credit markets, residential MBS, comm RE (GGP?), banks (RF, ZION, HBAN?), HY and corporate spreads. All show the same thing — few defaults, better recoveries, fewer early stage deliquencies.
Latest payrolls report was +150k. This is UP 800k from the bottom one year ago at -700k/month. What do the next 6 months look like? So easy: +250k, +350k, +450k, +550k, +650k, +750k. What will this do for hiring? Psychology? Spending? Markets?
Company profits are extremely high. Something like 200 companies in the SPX have increased dividends or buyback in Q1. Highest rate ever. Cash profits get recycled into the economy. Many companies say they are starting to hire. I hear about 1 per day, today is was “home depot”. The rest of the world (China, Brazil, Russia, Japan, Australia) also seem to be in recovery.
Given all that – Why in the world would Q2 be the start of the slowdown?
Recovery is self-reinforcing.
April 7th, 2010 at 6:45 pm
Anyone look at ISM #s?
The economists I like have said for years that ISM is THE single best number to look at.
April 7th, 2010 at 8:26 pm
The really, really rich are letting their “poor” kids spend it. Lots of people out there who are basically immune from any big drop (what’s 15 mil v. 30 mil when you’re 75 years old?)
The kids spend it and that helps.
Avarice works also: I got a job, my savings were depleted by “only” 60 % and I’m making money again. Market’s up, throw the extra into it and spend like a sailor.
Can’t lose. Right?
April 7th, 2010 at 9:01 pm
Help me. My memory is short. The cognos thing is reminding me of a back and forth that went on here a couple of years ago. What were the names of the combatants? I was looking at some footage today of the WV mining disaster, and man, the kids were watching the bad news on what had to be a 60 ” flat screen. Doesnt make it any better. Another Brash CEO, streetfighter, beauracratic infighter (Rumsfeld) – I mean really. Words fail.
April 7th, 2010 at 11:09 pm
NEW YORK (CNNMoney.com) — Consumer borrowing dropped in February, after increasing for the first time in a year during the previous month, according to a government report released Wednesday.
Total consumer credit fell a seasonally adjusted $11.5 billion, at an annual rate of 5.6%, to $2.448 trillion in February, the Federal Reserve reported.
“February’s decline reflects on the still dire state of the economy,” said Yasmine Kamaruddin, an economic analyst at Wells Fargo (Another BANKSTER).
“Even if we have seen retail sales and personal expenditure increase in past months, we haven’t seen these gains translate into the use of credit because consumers faced with unemployment and slow wage and salary growth are still shying away from taking on credit,” she added.
What the BANKSTER DIMON from CHASE has planned for you:
How the BANKSTER DIMON dealt with new regulation in 2009.
We and other (BANKSTERS) competitors have had to make some
fairly drastic changes in the business model:
• We have substantially reduced very low
introductory or promotional balance
transfers. This change alone reduced our
outstanding balances by $20 billion. (WE LIKE ZERO AND YOUR TAX DOLLARS TOO BUT NONE FOR YOU… GREED IS GOOD)
• In the future, we no longer will be offering
credit cards to approximately 15% of the
customers to whom we currently offer them.
This is mostly because we deem them too
risky in light of new regulations restricting
our ability to make adjustments over time as
the client’s risk profile changes. (REALLY RICH CUSTOMERS THAT HELP THE BOTTOM NEED ONLY APPLY)
• We reduced limits on credit lines, and we
canceled credit cards for customers who
had not done business with us over an
extended period. (SO IF DIDN’T CARRY A BALANCE AND WAS NOT SPENDING… BUT I THOUGHT YOU DIDN’T WANT ME TO USE CREDIT FOOLISHLY)
In fact, the industry as a whole reduced limits
from a peak of $4.7 trillion to $3.3 trillion.
While we believe this was proper action to
protect both consumers and card issuers, doing
so in the midst of a recession did reduce a
source of liquidity for some people. (WHAT A GREAT POLICY TO GET THE ECONOMY GOING AGAIN)
All of this does not make me very bullish at all, but again we can layoff a few more million workers to get earnings per share up so that the SP500 gets up 1300 or 1350. ZERO interest for CHASE but no credit for you….
And to top it off…
Mr. Dimon’s bank shelled out more for lobbying efforts last year—$6.2 million—than any of its peers, and the CEO has lately been a regular presence in the halls of Congress. He preaches about how new regulations could force J.P. Morgan to further crimp credit-card lending and raise fees for consumers.”
(DOES THIS SOUND LIKE EXTORTION)
There is more…
On the low key there are well circulated rumors that Dimon would like Tim Geithner’s job as Treasury Secretary.
Now doesn’t this beat all….
April 7th, 2010 at 11:34 pm
[...] production – that economic recovery in the US is taking hold. I agree with Barry Ritholtz, who comments at The Big Picture, that we need to be balanced about this: "While the universe is not nearly as [...]
April 16th, 2010 at 10:43 am
[...] do we know about Retail Sales? They have gained strength for 7 consecutive months. There gains have been concentrated in a few [...]