US Consumer Mood Down in July Survey

Reuters writes U.S. consumers’ mood wanes in late July:

U.S. consumer confidence waned in late July to its lowest ebb since April on growing pessimism about the long-term economic outlook, especially about income and jobs, a survey showed on Friday, even as some economists reckon the longest recession in decades may be easing.

The Reuters/University of Michigan Surveys of Consumers said its final July consumer sentiment reading fell to 66.0 from June’s 70.8, though it was slightly higher than economists’ median expectation for a reading of 65.0, according to a Reuters poll.

The index of consumer expectations fell to 63.2 in July’s final reading, from 69.2 in June.

Consumers believe that the economic free-fall is now over, but consumers see little reason to believe the stimulus policies will improve their financial condition anytime soon,” the Reuters/University of Michigan Surveys of Consumers said in a statement.

On the long-term outlook, 58 percent of respondents said they anticipated bad times, up from 49 percent in May.

Lower income and less favorable job prospects in the next year are key factors making consumers anxious about their financial position, the statement said.

“People are a little more worried about the economy, especially over the labor market and what’s happening in Washington. It’s still consistent with the picture that the economy is bottoming out, but you are not going to get a big bounce in consumer spending,” said David Wyss, chief economist with Standard & Poor’s Ratings Services in New York.

The current conditions index slipped to 70.5 in the final July reading, from 73.2 in June.

U.S. stocks extended losses after the report’s release, but the dollar and safe-haven Treasury bonds traded fairly steady.

“We are going to see the stock market improve, but it has gotten ahead of itself given my expectations of a soft economic recovery. We are going to need a mid-rally correction. This (recent rebound) is the biggest rally we’ve had since the 1930s, and it makes me nervous,” Wyss said.

“Recent income gains were reported by the fewest consumers in the more than 60-year history of the survey in each of the past three months. Reported declines in income, from lost jobs, shorter work hours, cuts in pay or bonuses were also at record levels,” the survey statement said.

We may be seeing a temporary bottoming out, but are still in for a long period of ongoing job losses and little consumer spending. The recent rally has indeed been a phenomenal one, all the more a reason to be concerned about expensive stocks. To get an idea of how low consumer spending may go, please see True Consumption as Percentage of GDP:

us-true-consumption-as-percentage-of-gdp-1929-2008

The likely bottom for a serious recovery would here be somewhere between 86% and 90%.

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College Grads Move Back Home – Time to Reflect and Change Attitudes

CNNMoney.com writes College graduates move back home:

They’ve been dubbed boomerang kids and a recent poll by collegegrad.com shows that 80% of 2009 college graduates moved back in with their parents. That’s up quite a bit from recent years.

So whether kids are home for just an extended summer or until they find a job, its important to set up some guidelines before they settle in.

Consider drawing up a written agreement between you and your child. Outline a time frame as well as responsibilities, both financial and around the house. Some parents charge rent while others won’t even consider the idea. Whichever you choose, make sure to make clear exactly what the child is responsible for when it comes to other expenses like groceries.

Keep credit cards and cell phones separate. Johnny can pay for that himself. These are financial responsibilities your child needs to learn to take on.

But do consider keeping your child on your health insurance plan. If your health plan is employer-based it probably offers lower premiums than individual health insurance.

Twenty-five states give graduates the option to be covered under their parent’s policy, but state laws vary, so the age cutoff could be 24, 25 or 26. New Jersey has the highest age limit at 30. Check out the Kaiser Family foundations Web site at statehealthfactsonline.org to learn about your state’s rules.

The reality is, if your child is too old to qualify, you’ll need to find individual health insurance and decide who will pay for it.

Don’t forget about auto insurance either. If your child plans on driving the family car, your payments will go up. So figure out who is going to pay what.

The bottom line is, you don’t want to risk your own financial health. You shouldn’t feel like you’re on the hook for things you used to pay for when your child was younger.

Food and shelter for one extra person costs thousands of dollars each year. So laying everything out on the table ahead of time and establishing a plan of action is key.

…and one more thing to teach your kid above all: Live within your means. Don’t repeat this generation’s mistakes. Work hard, spend little, be frugal, save money, DO NOT use credit cards.

Attitudes are already changing accordingly. The recent Gallup poll shows In U.S., One-Third Still Set on Spending Less as New Normal:

The accompanying table displays by income the percentage of those saying their new normal is to spend more or to spend less in the years ahead, based on a combined sample of those interviewed in Gallup’s April and July surveys. While one might expect there to be differences in the impact of the recessionary economy across income groups, that is not the case. There is little substantive variation by income in the percentage saying their new normal is to spend less. Those with lower incomes are slightly more likely than higher-income Americans to say their new normal pattern is spending more, but not by much.

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This is just another symptom of the End of Consumerism. Attitudes are changing. Attitudes emerge out of ideas. And ideas are the strongest force in society, stronger than the most powerful army. To understand the long term outlook for the US economy, a thorough understanding of the power of ideas and attitudes is indispensable.

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Biden Tries to Square the Economic Circle

President Obama already tried to square the economic circle, without success. So now it’s time for maverick Joe Biden to try his luck:

Vice President Joe Biden told people attending an AARP town hall meeting that unless the Democrat-supported health care plan becomes law the nation will go bankrupt and that the only way to avoid that fate is for the government to spend more money.

“And folks look, AARP knows and the people with me here today know, the president knows, and I know, that the status quo is simply not acceptable,” Biden said at the event on Thursday in Alexandria, Va. “It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially.”

“We’re going to go bankrupt as a nation,” Biden said.

“Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, that’s what I’m telling you.”

…fortunately this one can be put to bed just as easily. Biden is saying we have to go spend money to avoid bankruptcy. OK, there is only one problem: This is what we have already been doing for the past decades. If he was right, then we wouldn’t have Americans going bankrupt left and right right now.

He refers to Health Care spending in particular. Unfortunately the United States government already spends more than any other industrialized nation on health:

… so we’re good there, right Joe?

And relative and absolute total government expenses have been growing for the past 60 years already:

…so we’re good here, right Joe?

And as individuals and government we have up to now been spending and consuming at levels unprecedented since the Great Depression, in fact consumption is still pretty high compared to historic averages:

… so we’re good here, right Joe?

It’s not that since WW2 we haven’t been diligent and thorough on consumer spending. We even borrowed money that we couldn’t afford to spend it on consumer goods, just to make sure we keep spending:

… so we’re good here, right Joe?

President Bush in particular has been rather diligent about driving spending up by more or less 100% in virtually every category, plus Obama’s budget even TOPS those expenses:

  • Department of Defense and international expenses (spending on wars and occupations) will go up from $666 billion to $673 billion (under President Bush it grew from $316 billion to$666 billion)
  • Other appropriated programs will go up from $613 billion to $695 billion (under President Bush it grew from $298 billion to$613 billion)
  • Social Security expenses will go up from $662 billion to $695 billion (under President Bush it grew from $406 billion to$662 billion)
  • Medicare expenses will go up from $425 billion to $453 billion (under President Bush it grew from $216 billion to$425 billion)
  • Medicaid expenses will go up from $259 billion to $290 billion (under President Bush it grew from $117.9 billion to$259 billion)
  • Other mandatory program expenses will drop from $673 billion to $571 billion (under President Bush it grew from $290 billion to$673 billion)
  • Net interest will go up from $139 billion to $164 billion (under President Bush it dropped from $222.9 billion to$139 billion)
  • Disaster cost will go up from $4billion to $11 billion (under President Bush it went from $0 billion to$4 billion)

So we’re good here, right Joe?

Whatever it is that Joe Biden recommends, it obviously has nothing to do with “change”.

By Joe Biden’s logic Americans should be far far a way from bankruptcy. We have followed his pathetic advice to the T for decades, haven’t we?

Who’s up for more spending? Anyone?

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Consumer Credit – June 2009

total-consumer-credit-us-june-2009
Click on image to enlarge.

Total consumer credit outstanding dropped to $2.5 trillion in April of 2009. This is the 4th month straight since the peak in December. It has dropped by a total of $89 billion since then. This goes hand in hand with the end of consumerism and is a harbinger of the coming and ongoing contraction in the production of gonsumer goods in the US. It is the downward side of the consumption business cycle in full swing.

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True Consumption as Percentage of GDP

To follow up on Consumer Goods vs. Factors of Production:

In that post I illustrated consumer goods production vs. investment goods production in the US. I noticed that the composition of the GDP at bea.gov has one flaw: It includes so called “Residential Investment” under Investment. But what mostly falls under this category are purchases of new homes.

A home clearly does not qualify as a factor of production and it is thus a mistake to include the production of it under investment goods (factors of production). It makes a lot more sense to include it under consumption.

The percentage of consumption vs. GDP throughout history would then look like this:

us-true-consumption-as-percentage-of-gdp-1929-2008

The likely bottom for a serious recovery would here be somewhere between 86% and 90%.

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