Consumer Spending, Personal Income, Credit Card "Issues"

Friday, September 30, 2005 | 11:16 AM

I spend a lot of time discussing Consumer Spending; Its not because I am a shopaholic (although I do know where you can buy alot of cool stuff at good prices, as well as find decent eats).

I track this stuff 'cause the consumer is responsible for 70% of all the economic activity in the in the United States.

Therefore, if you want to have a clue about how the economy might be doing next year, you have to understand more than a few things about the U.S. Consumer. We most recently visited this issue in "Shopped Out?"

In my book, there are 5 key elements to watch:

1) Income:  Do they have a ready supply of spending dough? Is it going up, so they can maintain present spending levels?

2) Debt:  Have they spent too much? Can they service the debt they have already run up?

3) Deflation/Inflation:  Is inflation eating into their spending power? Is deflation encouraging them to hold off purchases until items get cheaper?

4) Pyschology:  Are they in a spending mood?  Is there anything weighing on that mood?

5) Spending: Too obvious to even discuss.

The idea is to have 5 quantifiable elements -- objective and measurable -- to guide our expectations for what is likely to happen next year. (No, there are no guarantees -- just higher and lower probability events).

Over the past 24 months, all five of these elements are in the process of decaying.

Personal Income has slid all year; Today's report shows  a continual drop;

Real_income

• That Personal Income is actually worth somewhat less, given the significant increases in prices (inflation). In particular, oil and gasoline have had a big impact; I expect in the Winter, natural gas will also.

• Speaking of Inflation: Prices paid for commodities have doubvled over the past 4 years; This does not include health care, education, or other services.   

Consumerprcies_commodities

Sentiment continues to weaken. Its not just Gas prices and Iraq and the disappointing response to Katrina -- its a full spectrum of issues.

93005_ecochartsconf

Debt:  The WSJ reports that "A record 4.81% of credit-card accounts were past due in the second quarter, up from 4.76% in the first quarter."  This number (past due credit-card bills) has risen to a record this year." (American Bankers Association). The ABA said that "Delinquency rates rose for nearly all of the eight types of consumer loans the ABA tracks." (The exceptions were Property improvement and Mobile home loans).

Spending:  Dropped a significant 0.5% this month -- thats the biggest drop in nearly 4 years, since November 2001.

Ecochartsretail


   

I had said a few months ago -- long before Katrina and Rita -- that the potential for a recession was increasing. Its not too hard to imagine the scenarions how this can occur: Interest rates tick up, home refinancing fades, and a big source of spending cash disappears. Its also not to hard to imagine the Fed cutting rates if this scenario comes to pass.

Investors should be aware that Risk levels are on the rise . . .


>

Sources:
Past Due Credit-Card Bills Reach Record in U.S.
By DEBORAH LAGOMARSINO
DOW JONES NEWSWIRES
September 29, 2005; Page D2
http://online.wsj.com/article/0,,SB112791105549854452,00.html

CREDIT CARD LOAN DELINQUENCIES REACH RECORD HIGH IN SECOND QUARTER 2005
WASHINGTON, Sept. 28
http://www.aba.com/Press+Room/092805DBULL.htm

U.S. August Personal Spending Falls 0.5%; Incomes Drop 0.1%
Carlos Torres
Bloomberg, Sept. 30, 2005
http://quote.bloomberg.com/apps/news?pid=10000006&sid=a8ODacamitqI&refer=home

Friday, September 30, 2005 | 11:16 AM | Permalink | Comments (4) | TrackBack (2)
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» This one from Barry Ritholz from At These Levels
Its’ a good idea you read Barry Ritholz’ blog with his thoughts on the consumer. We have covered many of these in our market letter, but this is a darn good summary. I posted some comments there about the CRB index and here is the chart so you can see wha [Read More]

Tracked on Sep 30, 2005 3:17:28 PM

» But you said that more saving was a good thing from Econbrowser
After many of us have been arguing for some time that an increase in the U.S. personal saving rate was key for promoting long-run growth and reducing the trade deficit, th... [Read More]

Tracked on Oct 2, 2005 11:10:30 AM

Comments


if there is a housing bubble and it bursts, retail might burst as well. people could change behavior big-time to save money-

please note i am not necessarily saying i think the above scenario is probable or improbable

Posted by: nate | Sep 30, 2005 12:35:20 PM

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