What Is Not Seen

It is not only spending on regular consumer goods that are in decline. According to Business Week:

[s]pending on vices is also dropping. According to the government’s figures, alcohol consumption and casino gambling have been declining since November. Indeed, Nevada gambling revenues are down by 4% over the past year.

How about that!

There is another sad story related to the 0.1 % year on year increase in the latest retail sales report. Considering the conditions for the US consumer, we can see that he is still heading in the wrong direction, with no signs of rescue.

Data from the St Fed show that the personal savings rate is at the moment hovering just above zero. With falling home equity values and a savings rate on 0.3 %, the average consumer has hardly any real resources to draw on. According to other numbers, showing the yearly percentage change in real disposable personal income, consumers have on average experienced a 2.1 % decline in income growth over the last year. This augurs ill for both the private- and the overall economy, and cast a shadow over the retail report.

It is not hard to guess where the money – that resulted in the 0.1 % increase in spending –came from. Consumer credit or consumer loans, increased with a total of 9.2% or $65 billion during the last year. That is, American consumers incurred on average 9.2% more debt. It is this debt that is presently financing the additional consumption.

What both households and business are in desperate need of, is not consumer spending, but real saving. Only then can the US economy eventually get up on sober feet’s.

Retail sales (nominal) for March came in stronger than expected, with a 0.2 % increase in sales since February. Despite the positive number, signs of economic weakness is prominent, as consumers are experiencing tougher conditions as food and energy prices are souring. While nominal sales are positive, inflation adjusted sales are likely negative.

Spending on gasoline products increased by a total of 18.9 % since March 2007. Other categories such as motor vehicles (-3.2 %), home furniture (-7.1 %) and building material (-6.9 %) all experienced negative changes. The decline in categories, such as, home furniture and building materials, were to be expected because of the ongoing deflation of the housing bubble.

With overall consumer spending on $380,177 million, up from $379,742 million of last year, a merely 0.1 % change, consumers have been shifting some of their spendings, away from other goods, to maintain their consumption of gasoline products. This has resulted in a decline in real consumption, and adding additional pressure to the average consumer. By this shift, it should be clear how elastic the demand for energy and food has been. (Something FED does overlook in their preferred measure of inflation.) With payrolls in decline and unemployment rising, a further surge in commodity prices will eventually result in squeezing margins and reduced spending for many households.

It should be remembered that the importance of retail sales are often blown out of proportion. The reason for this is that consumer spending consists of 70 % of GDP. However, GDP does only provide a part of the puzzle determining economic growth. Compared too total economic spending, consumer spending does merely constitute about 35-40 %. I have commented on this fact before, here.