David Rosenberg lays out the bear case for U.S. consumers in his latest research note:

WAGE DEFLATION

There are so many headwinds confronting the U.S. consumer it’s not even funny. For a look at the new harsh reality of soaring usage of grocery vouchers, as well as other supplements to the household budget, have a look at the grim article on page 2 of the weekend FT (Families Take Up Food Stamps as Wages Shrink). On the very same page, there is an article on the latest trend in terms of 21st-century breadlines — Middle Classes Turn to Car Park Handouts. To think we still get asked why we aren’t more bullish over the outlook for spending. Truly amazing.

TREMENDOUS UNDEREMPLOYMENT
The U.S. economy is actually 9.4 million jobs short of being anywhere remotely close to being fully employed, which is why any inflation that can somehow be created by the Fed is simply going to be unsustainable noise along a fundamental downtrend in pricing power. After last Friday’s report, we have now lost 6.9 million positions that have been cut during this recession and we have to count in the additional 2.5 million jobs that need to be created — but never were — just to absorb the new entrants into the labour market. The ‘real’ unemployment rate is now 16.8%, so to suggest that this down-cycle was anything but a depression is basically a misrepresentation of the facts.

We will certainly take note that (i) the ECRI leading index is soaring to the moon and (ii) the August chain-store sales data came in better than expected. But when you look at the data and the constraints on pricing power, it does suggest that the outlook for profits is far less robust than the markets have discounted — looking at the August retail sales data, it is quite apparent that merchants were very aggressive in their price points and value-oriented chains were the big winners last month. Be that as it may, the year-over-year comps are likely looking better now that we are coming off the detonated figures of late 2008, and on top of that, the lengthening of the back-to-school season could artificially add about a quarter-point to the September chain-store sales numbers.

LEADING JOB MARKET INDICATORS … NOT LOOKING GOOD
•  Jobless claims stuck at 570k — basically in line with a sustained 200k-300k payroll losses
•  Temp agency job losses are continuing even if at a slower pace — this is not good news
•  Downward revisions to the prior data — these tend to feed on themselves
•  No change in the record-low workweek
•  The Challenger and JOLTS data reveal an ongoing decline in hiring intentions

Cullen Roche

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