Paul,
I like that you want to be positive about the USA’s economic conditions but I live and work with people everyday who tell me they are on the ropes and don’t know how much longer they will be able to hold on. The really scary thing is this is the vast majors of everyday people and they and I don’t see things getting better any time soon. How can a government that deficit spends like there is no tomorrow and then encourages it own people to do the same with credit be counting on to fix the mess it go us into. I read a lot of financial info on a daily basis and it doesn’t take much to connect some of the dots to see the trend line isn’t going in the right direction. Until the people standup and say enough is enough and take back their government from elitists in both parties we are headed for some hard times ahead. Who in their right mind thinks you can keep borrowing and deficit spending yourself into prosperity hasn’t take economics 101 which seems to be the largest part of our political leadership in this country.
Sybil, I never impled in my story that the consumer is spending as much as ever. I simply pointed out that some consumer companies, even those with heavy U.S. exposure, have still held up well and that consumer spending, while weakening, has yet to actually decline. I have gone out of my way in all my recent columns to stress that I don’t think the economy is in good shape. I, have, even on several occasions said we are in a recession even though the NBER has yet to officially say as such. I am, however, trying to fight the overly negative tide that is increasingly pervasive in the financial press about the economy. I am not going to urge people to panic or try and spread this notion that we are in a depression when the numbers just don’t bear that out. I am not trying to be Pollyannish. I am not ignoring the painful economic reality for many Americans. But if not writing stories declaring that the end is nigh for the U.S. economy makes me Pollyannish then so be it.
All that said, I do truly appreciate all the feedback on my columns and I hope that you all keep reading and posting on this blog since I do often find that there is a nice, healthy debate about the markets and economy.
PRL
This quote was in another one of today’s stories;
“Adjusted for inflation, median household income dropped by $1,175 between 2000 and 2007″
People are buying candy bars, but not washing machines. Paul, doesn’t this ring any alarms with you? They are still buying at McD’s, but the local deli just went out of business.
You (Paul) imply in your article that you think all is well and good with the consumer and that despite surveys to the contrary, we are actually spending as much as ever. Is that what you are saying? Do you actually think that is so?
Yes, and, the American consumer has always been tapped out, and probably always will be tapped out ! The ‘ahaa’ moment for me occurred about a year ago when the housing bubble started to burst: the vast majority of Americans spend 100% of their incomes: exhaust equals intake. It must be the Zeroeth Commandment. From 2002 – 2007, they spent wildly on housing, bidding up prices in the process. Now, they have cut back dramatically on housing spending (we all see those numbers), but they are still spending everything, and it is going into other things, such as food, consumer goods, etc. This is why we have areas of the economy that are tanking (housing, mortgages, realtors, etc.) while there is still plenty of growth in other areas. It’s important to realize how changes in spending patterns by our massive 200+ million consumers can redirect our economy, not the other way around. Realize that this is the way we are and deal with it, rather than wish it weren’t so.
After posting my earlier comment I went back and read the readers’ comments posted in reaction to that Canadian article I referred to.
Your readers may wish to avail themselves of the link to those comments from other Canadians.
Please see http://www.theglobeandmail.com/servlet/story/RTGAM.20080723.wrvoxx0723/CommentStory/robColumnsBlogs/
In reading all the entries all I could think of was “What ever happened to the ‘Contract with America’?”
Where and how and why was the Contract never “honoured” (as we would spell it in Canada, eh?).
From WIKI:
Government reform
On the first day of their majority, the Republicans promised to hold floor votes on eight reforms of government operations:
(1) require all laws that apply to the rest of the country also apply to Congress;
(2) select a major, independent auditing firm to conduct a comprehensive audit of Congress for waste, fraud or abuse;
(3) cut the number of House committees, and cut committee staff by one-third;
(4) limit the terms of all committee chairs;
(5) ban the casting of proxy votes in committee;
(6) require committee meetings to be open to the public;
(7) require a three-fifths majority vote to pass a tax increase;
(8) and implement a zero base-line budgeting process for the annual Federal Budget.
Among other items:
The Fiscal Responsibility Act
An amendment to the Constitution that would require a BALANCED budget, unless sanctioned by a three-fifths vote in both houses of Congress
(H.J.Res.1, passed by the US House Roll Call: 300-132, 1/26/95; rejected by the US Senate Roll Call: 65-35, 3/2/95, two-thirds required)…
Quo vadis America?
Hi Paul,
You have a smart readership. I read through the entries below.
I know you are not heartless — I have read enough of your past columns.
And looking for a “silver lining” can be helpful. Optimism may become an even more necessary if rare commodity in the future. FDR said that “we have nothing to fear, but fear itself.”
He did not say that because it was necessarily true. But he did it IMHO because he felt it would people get through some of the bad times.
So try to take the responses below with as much courage as you can muster. Most of us know that your thoughts are not intended to be wrong or hurtful to anyone. They may indeed help some. And, who knows, they may prove to be right. Maybe we are nearing a turning point; no one can know the future.
I do think there is more adjustment to come. This will probably be a very long drawn-out process. It took a long time to get into it and maybe will take as long to get out.
I remember in a macro economics class that I took that the professor indicated that a lot of economists in (later) studying the Great Depression had concluded that the depression was needlessly lengthened because the “bitter medicine” was not taken quickly. That is, the authorities should have “let the chips fall where they may”.
This was meant to say that the quicker the bad debts had been liquidated without any bailouts or other mitigative steps taken by governmental authorities, the quicker things would have turned around on their own.
Well, I don’t know. Perhaps it might have been quicker. But it may also have been a lot more painful. But it is certainly easier to say something like this after the fact, and also then from an ivory tower. To suggest something like this when one is in pain seems almost cruel.
And yet there could be other painful ramifications from actions not well thought out. These could cause even more (unintended) pain, besides just ‘drawing things out’.
One story (“Wall Street’s laughing all the way to the bank”) I read in my paper today was quite angry, suggesting that the well-connected are getting the bailouts and the average Joe-s and Joette-s are getting the shaft: http://www.reportonbusiness.com/servlet/story/RTGAM.20080723.wrvoxx0723/BNStory/robColumnsBlogs/home
A similar editorial was aired on the NBR on PBS on the night of Monday, July 21, 2008 — http://www.pbs.org/nbr/site/onair/transcripts/080721g/
Justin Fox, the Business & Economics Columnist for TIME indicated (in talking about the bailouts) that “I just know that as one of the guys who bailed all these ninnies out, I and you should get a pretty big say in the future structure and regulation of their industry, don’t you think?”.
Please see http://www.pbs.org/nbr/site/onair/transcripts/080721g/
I suspect that will be no shortage of finger-pointing and recriminations in the future. We are human and that is our nature. It has only just started. We need victims, we need to blame; some of us need revenge, while many of us just want to understand.
People are hurting. They don’t hold you personally responsible. But some people do lash out a bit from the pain, as will likely become, sadly, even more evident in the near future, as the pain and bitterness are likely to increase.
You are not part of the problem IMO. You can and will play your part in the orchestral effort of all us to bring a solution to bear.
Be safe and be strong!
What is the point to your underinformed declarations? Do you ever read anything before you write these articles? “The Consumer Stands Strong” is total BS! Obviously, we are not “tapped out” to the point that we can’t buy food and other necessities.
A lot of us still get paychecks. We are totally on the edge though when it comes to making ends meet, and before long a lot of us are going to go over the edge. I think you have the wrong notion in making your assessment.
The reality is the consumer is laboring and struggling severely.
Wait till this winter’s heating bills hit. You think the economy is doing Ok but I disagree because the whole picture isn’t out there for the American people to see so the government can avoid the panic this would cause. If food and gas are hurting now wait till you add heating to the average American’s winter budge. That’s when the double dip will be starting. Then we can only hope the incoming democratic congress and possible democratic president will taxes all into prosperity.
Barackatopia is the belief that one man will “CHANGE” the world and we will all live in peace and harmony with endless economic prosperity for all in total tranquility with nature. And I have a bridge in Brooklyn for you too.
I ALWAYS GET A CHARGE WHEN YOU MANAGE TO FIND A COUPLE OF COMPANIES THAT POSTED AN INCREASE DURING SUPPOSEDLY,”CHALLENGING TIMES”. I WORK IN A MID SIZED TOWN, “ANY WHERE USA” LET ME TELL YOU SALES AT MANY FOOD ESTABLISHMENTS INCLUDING THE LOCAL DUNKIN DONUTS IS DOWN. THERE USED TO BE A CONSTANT LINE AT THE DRIVE THRU IN THE AM. THIS IS NOW CONSPICOUSLY GONE. YOU DO NOT HAVE TO LOOK TOO FAR TO SEE THE CHANGE IN CONSUMER SPENDING OR LACK THEREOF!
i would love to see some statistics on how much consumers are spending with real money and not credit. consumers have been “tapped out” for some time; it’s more in focus now because credit is bigger and harder to come by. Read A People’s History of the US and, beyond its’ socialist overtones, you’ll see how long the US has been ruled by crooks.
Paul,
I agree with everyone else. If you have inflation running anywhere from 5-10% on the avergage then sure sales/revenue have increased due to rising prices but that does not mean people are actually still “spending”. They are buying a smaller basket of goods for more money on food/small goods instead of toys. If that is a strong consumer then I must be partipating in the wrong economy. I know some good news is important but we do need to realize the actual problem and stop ignoring it. I also agree that perhaps the numbers the government gives us could be “perceived” in a differnet way before released.
Once again, hopeful comments appear that the overwhelming majority of ordinary citezens on the street would laugh at – or curse at. I can’t say exactly at what point the statistics deviate from real life, but they do. Cat food at my local grocery is up from $0.63 to $0.89 since last fall: +41%. We know about gasoline. Coffee that was 0.99 is 1.29: +20%. That is in the last 6 months so double it. Cereal is up similarly. And these costs compare to an increase in income of 3% over a 31 month period. Call that +1%. As other commenters have said, the real change in spending power is heavily ‘red’, and it does not count increased indebtedness. No, the consumer is not strong. Nor hopeful.
This is not rocket science. It is all being done with debt and credit cards. The savings rate is zero. Every quarter the total consumer debt level grows and grows. Common sense says the debt service costs will eventually overwhelm more and more consumers and take money away from other items. The consumer is not spending real money, they are simply adding to their debt levels.
First of all inflation is far higher than creative accounting government numbers show. Probably around 7% if you use the same gauge that was used up to 1996. So if sales are up 5% that means people actually bought less stuff, not more. Consumers still have to satisfy the basic necessities (baisc foods, energy, health, rent…and all the other stuff left out of the government inflation numbers). They will cut back on discretionary items like luxury cars, designer clothing, electronics, air travel and gourmet foods. Rough times for Starbucks and Apple but less so for Pepsi or Johnson & Johnson .
karen smith, houston texas: I see you are an optimist. Do you really have receipts (non energy/fuel) that ALL show a 10% – 18% increase in cost over the past year? YOu need to go to the local news in Houston as they love tgis tyupe of info, and will surely do a coverstory on “reality”.
Regardingthe sales growth not keepong up with inflation, and thus meaningless would be correct, except for the fact that Profits are up at greater % than revenues. The real question is what did they charge for their food (i.e. Big Mac) in May of 2007 vs May 2008. If the price increased greater than the shown X% (”growth”) they did not have an increase in sales, only an increase in revenue.
LOL Paulson has let the cat out of the bag now. He says 3.9 billion going to home owners in troubled loans in order to refinance them is wasteful. Let he needs 300 billion at least to go to Wall Street Bankers whose home mortgages are not in trouble.
Paulson has just proved this is just a scheme to steal billions from the US taxpayer and give to the super rich.
LOL
DID YOU HEAR THAT AMERICA? PAULSON SAYS MONEY FOR NORMAL PEOPLE IN TROUBLE IS WASTEFUL.
LOL our country is being run by crooks
I’m sorry…finally tapped out??? The American consumer has BEEN tapped out since 2000. Consumers have been living on borrowed time (and money) for years. Check the level of personal debt and indebtedness and you’ll find the answer, coupled with today’s story (old news re-hashed) that wages are actually falling and you actually ask the question…”is the American consumer finally tapped out?”. Paul, you need to keep up with the times!
Calling inflation growth distorts reality . La Monica claims a 3.5% same store sales increase for McDonald’s shows growth for consumers. Overall inflation was up at a 4.9% rate for the year. Inflation in food was up over 5% in the previous 12 months. That 3.5% increase is a real decline of about 1.5%. Consumers are squeezed with debt and worse declines are probably coming.
Forgot to mention have you seen a McDonald’s BIG MAC lately? It’s bun and meat are the same size as a kid’s hamburger now. Perhaps McDonald’s is merely making more profit by selling less for more money?
If truth in advertising was real McDonald’s would have to rename the BIG MAC to the LITTLE MAC.
LOL considering the best increases in retail sales right now are about 3 percent per year and that inflation is at least 10 percent if not 18 percent. I have sales receipts going back to 2005 and that is what inflation has run on all the items on those receipts. Forget about the government numbers they are lying to keep S.S. payment increases down.
So this means the US consumer is down about 7 percent from last year in real spending after inflation is taken into account. They try to make the 3 percent increase in sales look like the consumer is still spending but that is just a lie.
Considering that for each dollar not spent in the economy 5 dollars is lost in the GDP numbers. This means that GDP should be down about 20 percent or more due to the drop in consumer spending. Which means we are in a recession. Once again the government is lying to us about the true state of our economy. I figure by next year we will be at the point Russia was under Yeltsin.
Yes, I think American consumers are tapped out… and have been for some time. It seems to me the problem has been masked by a run up in consumer debt over the last few years. Now consumers are struggling to pay that hangover debt in addition to attempting to maintain their current lifestyle.
I believe we’re starting to to see that combination taking its toll. The fact that sales are up at places like McDonald’s is indicative of that. What are the sales at nicer resaurants like Olive Garden or Applebee’s? I’m guessing they’re down proportionally to McD’s rise. We see the same trend between Walmart, Target, Costco, and better stores like Macy’s, J.C. Penny’s etc. People still want to eat out, but can no longer do so at the same price point they previously did.