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Why Consumer Spending Remains a Problem

Economics / US Economy Jan 28, 2011 - 11:41 AM GMT

By: Profit_Confidential

Economics

Consumer spending on Black Friday and Cyber Monday was excellent, but the spending momentum failed to extend into the holiday shopping season. The retail sales excluding auto in December slipped to 0.5%, down from one percent in November and below the estimate of 0.6%. Spending remains problematic and will hamper growth.


The Conference Board Consumer Confidence Index came in at 60.6 in January, its highest level in eight months; but the reading remains well below the reading of 90. Above that is considered normal for a healthy economic market.

There continue to be mixed readings. The key is to look for same-store sales growth in retailers that sell non-essential goods. Increases here could mean consumers are spending on goods and services that are non-essential. These include electronics, appliances, furniture, autos, and other big-ticket items.

The uncertainty was clearly reflected in the weak Durable Goods reading, which was a disappointment and, in my view, worrisome. The Durable Goods Orders reading for December saw a disappointing decline of 2.53%, much worse than the 1.5% estimate polled by Briefing and down from the upwardly revised negative 0.1% in November. Excluding transportation, Durable Goods increased 0.5% versus the estimate calling for a rise of 0.6% and the revised 4.5% in November. The snowstorms may be blamed for the lower spending, but it’s a concern. The reality is that consumers continue to be careful when buying non-essential, big-ticket items.

I’m disappointed with the Durable Goods results, which in my view continue to indicate weak demand for non-essential goods and services. Again, until we see sustained improvement in jobs and housing, there will likely continue to be problems arising,

Consider that a key driver of the housing market is jobs. We need jobs and security in order to give buyers confidence to assume a mortgage and not to worry about losing their jobs and missing payments. And, until we see this, we question how confident homebuyers will be.

First-time claims for the week ending January 20 were weak, rising 51,000 to 454,000, well above the estimate of 405,000 and the highest since October. The surge was blamed on the snowstorms and seasonal adjustments. Watch the next few months. For a healthy jobs market, the key level to watch for is 400,000 and below.

All eyes will be on the January non-farm payrolls next Friday, which need to be stronger following a disappointing December, when the non-farm jobs report showed the disappointing creation of 103,000 jobs, below the estimate of 170,000.

The Fed’s Beige Book pointed to stronger growth this year, but the Federal Reserve also added that there continues to be issues with the soft jobs and housing sectors. The Fed said that it may take up to five years for the unemployment rate to fall to the normal level of around six percent.

When a person struggles financially, one of the first things to go is the home, along with any cars. At this time, there are estimated to be about five million homeowners behind on at least two payments, according to data from foreclosure tracker RealtyTrac Inc. What is more worrying is that an estimated 1.2 million homes will be foreclosed this year, above the one million in 2010.

Given the current problems, consumer spending will likely to continue to be soft. And this will impact the growth of GDP.

By George Leong

http://www.profitconfidential.com

We publish Profit Confidential daily for our Lombardi Financial customers because we believe many of those reporting today’s financial news simply don’t know what they are telling you! Reporters are trained to tell you the news—not what it can mean for you! What you read in the popular news services, be it the daily newspapers, on the internet or TV, is the news from a “reporter’s opinion.” And there’s the big difference.

With Profit Confidential you are receiving the news with the opinions, commentaries and interpretations of seasoned financial analysts and economists. We analyze the actions of the stock market, precious metals, interest rates, real estate and other investments so we can tell you what we believe today’s financial news will mean for you tomorrow!

© 2011 Copyright Profit Confidential - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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