Tag Archives: Consumer spending

Government Stimulus Is Blowing Up A Massive Economic Bubble, by Michael Maharrey

What happens if the money from the government stops? Will it ever stop? From Michael Maharrey at shiffgold.com:

 

We’re told we’re on the road to economic recovery. The $1.9 trillion stimulus is all we need to get us over the hump. But the truth is, Americans started spending like they were over the hump months ago. In fact, American consumers high on stimulus have been on a spending spree since last summer. The Federal Reserve printed money. Uncle Sam handed it out. American consumers spent it on imported goods.

This isn’t the formula for a genuine economy. It’s the formula for a giant bubble.

During the Great Recession, consumers cut spending. This is what you generally expect during an economic downturn. The economy contracts, people lose jobs, money gets tight and consumers spend less. You can see this in the numbers. Spending on durable goods plunged by 19% from the peak in October 2007 to the trough in April 2009. Meanwhile, spending on nondurable goods (food and gasoline) dropped by 10% during the Financial Crisis, from the peak in July 2008 to the trough in March 2009.

This spending cutback during an economic downturn creates what economists call “pent-up demand.” This helps drive spending upward during an economic recovery. You can see how the pent-up demand drove spending on durable goods post-recession in this graph produced by WolfStreet.

You can also see that consumer spending during the pandemic downturn took an entirely different trajectory. After a sharp but brief drop in the first months of the pandemic, spending surged.

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This Shows Why Consumers Are Bogged Down, by Wolf Richter

From Wolf Richter at wolfstreet.com:

The stagnation zone

Our ever exuberant US consumers spent on average $89 a day in March on “discretionary” items, according to Gallup’s Daily Tracking survey. That was up five bucks from February, which is within the typical range of seasonal increases. It matched the previous high for a month of March since the Financial Crisis: March 2013. In March 2014 and 2015, consumers spent less: $87 and $86 respectively. Flat for the past four years!

But March is a peculiar month, with strong predictive qualities for the entire year. Gallup:

For each of the past six years, the spending average for March has been a rough bellwether for that year’s spending, coming within $3 of the annual average. The months of April, June and October have come within this same range of the yearly averages since 2010. This did not hold true in March 2008 and March 2009, however — years in which the recession and the financial crisis dealt their immediate blows.

And just how flat have the past years been?

This chart shows the monthly averages going back to 2008, when the survey began. The plunge and spike in 2008 was followed by the collapse as the Financial Crisis hit home. Then spending gradually recovered until 2013, when, at lower levels than 2008, it became range-bound — a spending pattern that Gallup calls euphemistically, “fairly consistent since then.” The stagnation zone:

The March results are based on phone surveys of 15,243 adults aged 18 and older in all 50 states and Washington, DC. These folks are asked, among many other things, how much they spent “yesterday.”

When these results are averaged out month after month over the years, going back to 2008, while ignoring the impact of inflation – and there has been a lot of inflation in housing, health care, vehicle prices, tuition, and other big items – we get this:

If it were adjusted for inflation, it would look worse. And based on the results of March 2016, if historical patterns hold, this year will likely add another link to the stagnation zone.

To continue reading: This Shows Why Consumers Are Bogged Down

America Will Spend More on Taxes than Food, Clothing, and Housing Combined (Graphic)

From the editor at againstcronycapitalism.org:

This should not be in the “land of the free.” It is a sad graphic. And remember, much of your tax money is siphoned off by the cronies in industries which are connected and by those in government itself. You are basically an annuity.

http://www.againstcronycapitalism.org/2016/01/america-will-spend-more-on-taxes-than-food-clothing-and-housing-combined-graphic/

The American Story Is A Mystery Only to Economists, by Raúl Ilargi Meijer

From Raúl Ilargi Meijer, at automatic earth.blog:

I think I should accept that I will never in my life cease to be amazed at the capacity of the human being to spin a story to his/her own preferences, rather than take it simply for what it is. Your run of the mill journalist is even better at this than the average person – which may be why (s)he became a journalist in the first place -, and financial journalists are by far the best spinners among their peers. That’s what I was thinking when I saw another Bloomberg headline that appealed to my more base instincts, which I blame on the fact that it shows a blatant lack of any and all brain activity (well, other than spin, that is).

Here’s what Bloomberg’s Craig Torres and Michelle Jamrisko write: “American Mystery Story: Consumers Aren’t Spending Even In a Booming Job Market”. Yes, it is a great mystery to 95% of journalists and economists. Because they have never learned to even contemplate that perhaps people can be so deep in debt that they have nothing left to spend. Instead, their knowledge base states that if people don’t spend, they must be saving. Those are the sole two options. And so if the US government reports that 863,000 underpaid new waiters have been hired, these waiters have to go out and spend all that underpayment, they must consume. And if they don’t, that becomes The American Mystery Story.

For me, the mystery lies elsewhere. I’m wondering how it ever got to this. How did the capacity for critical thinking disappear from the field of economics? And from journalism?

http://www.theautomaticearth.com/2015/03/the-american-story-is-a-mystery-only-to-economists/

To continue reading: A Mystery Only to Economists