WILL LOWER ENERGY PRICES RESULT IN A CONSUMER RECOVERY?
Wells Capital Management seems to believe it might. Today’s chart of the day shows the average household energy expenditures. Bloomberg reports:
Falling energy costs may trigger a U.S. consumer-spending revival that’s faster and stronger than most people anticipate, according to James W. Paulsen, chief investment strategist at Wells Capital Management.The CHART OF THE DAY tracks household expenditures on energy as a percentage of disposable income during the past three decades, according to data compiled by the Commerce Department. Paulsen had a similar chart in a report yesterday.
The ratio dropped to 4.4 percent in this year’s second quarter from a peak of 6.3 percent in the third quarter of 2008. The latter reading was the highest since 1985 and coincided with record prices for crude oil, which had reached $147.27 a barrel in New York trading. Crude settled yesterday at $74.15 a barrel, a drop of about 50 percent.
“Changes in the energy burden are at least as important” in determining what consumers spend as shifts in their financial obligations, such as mortgage and consumer debt, Paulsen wrote.
Second-quarter spending on energy and financial obligations was a combined 22.5 percent of disposable income, less than its average since 1980. During the first three months of last year, the ratio rose to 24.9 percent, its highest level in the past three decades.
This decline may help set the stage for consumer spending to rebound next year, the report said. Renewed job creation may also contribute, in his view.
Source: Bloomberg
IT’S going to be extremely hard to spend when you have no raise and not knowing if you’ll have a job next year. And that is my case. I’ve tighten my belt for the last two years. But now, as stuff break down, I’d have to spent to replace it. For the time being, consumer spending will rebound a bit…but in no way it will recover