THE RETURN OF THE U.S. CONSUMER?
Yesterday’s GDP report was broadly better than expected. And one of the widely celebrated components of the report was the better than expected personal consumption expenditures. But how strong was this component in reality? When we take a step back and look at the bigger picture we can see just how weak the consumer remains.
The Q3 real personal consumption expenditures came in at 2.2% year over year. Since 1950 RPCE has averaged 3.4%. Since 2005 it has averaged 1.5%. Since 2000 it has averaged 2.3%. Since 1990 it has averaged 2.8%. And since 2008 it has averaged 0.4%. If we put this all in picture format you can get a better gauge of the real situation (as seen below in figures 1 and 2). It’s not pretty.
The bottom line: we’re still in a secular weak period for the U.S. consumer as the de-leveraging continues. Large budget deficits are playing an important role here and as long as the USA doesn’t fall for the austerity trap during the next 24 months we should see a modestly growing economy. It’s a muddle through scenario, but thankfully, it’s not a collapsing growth scenario. As I’ve mentioned many times before, the risks are still exogenous as our weak patient heals very very slowly.
Figure 1 – Real Personal Consumption Expenditures
Figure 2 – Personal Consumption Expenditures
If I remember correctly, the spending rate actually increased more than the income growth rate for the last quarter
It annoys me greatly that even after such a traumatic event; government, people, and businesses don’t seem to have learned any lessons. Everyone seems content to just reinflate and carry on as if nothing had ever happened.
Meanwhile, income equality, education, healthcare, infrastructure, energy security, unemployment all continue to decline.
“If I remember correctly, the spending rate actually increased more than the income growth rate for the last quarter.”
Yes, exactly. And everything else you say. I need to get a better understanding of the dynamics at work here. Something is not right. The so-called “producers” NEED consumers, but you can’t push them into debt in order to do so. What exactly is the end-game here? We all need to move forward TOGETHER. And not to protect corporate profits with deregulation and corporate tax cuts since those are the only cards left after millions have already lost jobs and expenses cut to the bone.
What am I missing?
Nothing, as far as I can tell. We need to get the powers that be to understand we’re not Greece, so we can cut taxes (on small businesses, the middle class, etc.) to help better repair the consumer balance sheet.
Gallup also has a big drop in the unemployment rate, by their measurements.
Nice flash back to April 2008 by LA. At that time the stock market was doing what it is doing now. PCE was at 2.3% back then too; just by chance.
http://www.businesscycle.com/#
It is cnbc video which I could only watch in my iPad 2 after buying iswifter. IMHO, Apple will fall from grace just like it did the first time. Telling the consumer what he needs works only sometimes; I.e., early in the product life cycle. IMO, Apple is not very good handling the product life cycle as it matures and customer needs become important. Jobs arrogance in trying to dictate what people want works only when that coincides with people needs.
I have my iPad within a wifi zone I built at home with the other machines being windows pcs. It looks like I cannot transfer a PDF file over to the iPad to read it there. I will mail it to myself and try reading it via mail in safari.
Savings rate has been dropping recently. Credit tapped out consumers are raiding the piggy bank! And as the boomers head into retirement they will save more. With deleveraging I expect the savings rate to start to climb again. Auto’s have helped since the average vehicle age has steadily increased and the wheels are simply coming off. I expect auto sales to do OK even if we dip into recession in 2012.
exactly – the savings rate dropped 30% YoY to 3.6%… has dropped from 5.3% in 3mos.
so the consumer has seriously cut back on the deleveraging. this is why I think this drags on longer than a few years Cullen — we will ebb/flow and be fooled that “it’s over” time after time… each mini-cycle of “it’s better” will interrupt the much needed consumer deleveraging. we saw the same phenomena in last 2009 when things were obviously “better”.
People are and will continue to prioritize and purchase necessities, and perceived necessities, like a smartphone. The list includes cars, food, media, clothing, medical. Other areas are at risk. Whirlpool’s outlook demonstrates that. This same frugality will hit the xmas shopping season… hard!
I’m looking for ebb and flow in the RPCE numbers. The median has been hit hard. I don’t know where to draw a line but it only stands to reason that less than 40% of US households have the ability to spend freely. The rest will spend when they have to which will produce a pent up demand effect. One month’s worth of data for anything seldom means anything (other than a trading opportunity) but in relation to RPCE probably means even less. Those charts look weak and are headed in the wrong direction whick tells me that the forces that have pushed us to this point are still out there. Not surprising since nothing’s getting resolved except maybe the race to the bottom. Would that be a side effect or part of a plan?
No jobs no sustainablity. And aa far as boomers saving…as job losses increase, boomers are gong to bust the traditon of savings as they increaasingly are forced to continue to dip into their savings.
Would anyone care to discuss any similarity to market reactions to US TARP back in Oct 2008 and this week’s Europe EFSF “Solution” being “agreed to”? As I can see when the TARP was passed in the US in early Oct 2008, after having been discussed and false started in Sep, the market initially went up for a very short period (< 1 month), but after that it kept falling until March of 2009. Anyone care to venture a guess that this is exactly what is going to happen in the case of EFSF?
Could get interesting. The charts look quite similar at this point, yesterday we pierced the falling 200 day just as we did then as well
Cullen, the flip of the coin is the savings rate which is now down to 07 levels. That GDP report is alarming. Consumers have taped savings to spend, possibly pushed into taping savings for lack of yield (forced to eat the capital), and this is the contrary of what you would expect at this point in the deleveraging cycle. meaning the meagre GDP push to its real pre-crisis level, comes with future strain of the saving rate that will need to go up. Pretty bearish reading.
Calvin hit the nail on the head! The market finally realized we were going into a deep recession instead of a minor one at the end of 08. And it seems scanning some of the guidance’s they are coming down which is a prelude to earnings drop. So recession in 2012? This crisis seems will push Europe over the edge into recession and take the world with it, but we will see.
http://www.zerohedge.com/news/chart-day-savings-rate-drops-december-2007-levels
On a rough eyeball the first chart appears to show that Real Personal Expenditures have only been this low once since 1970 without being associated with recession (out of 7 recessions) and only 3-4 times since data was first collected (out of 10), depending on how you want to treat that huge dip circa 1950, which was apparently not.
Hi!
Re-twit you post: to my @likqseez twitter