For at least the past decade, anyone who has bet against the
resiliency and unending spending capacity of the U.S. consumer has decidedly
lost the wager. Even through the recession of 2000-01, they hardly slowed their
profligate ways. 9/11 managed to create a pause in spending – at least for a
short time – but it was more than made up for in the ensuing quarters.
the careers of Economists who have declared the U.S. consumer to be tapped out
litter the countryside like corpses after a war.
There are early signs, however, that taking the other side
of this bet is no longer a sure thing. We see a variety of factors suggesting
that the consumer, while not yet exhausted, is slowly but surely moving in that
direction. While it is premature to declare the American consumer “shopped
out,” I suspect it is now quite late in the cycle. Barring a significant
improvement in economic fortunes, including robust job creation and increased
personal income levels, that exhaustion now looks all but inevitable.
First up: Energy. Despite the same economists telling us how much smaller
energy is as a percentage of GDP than in the 1970s, high-energy prices still
hurt spending. How bad are the gas pains? Well, if the increase in drivers
using credit cards to manage gas costs is any indication, pretty bad.
Weak back to school sales are another sign of Personal Spending
slowing. The National Retail Federation noted the “dip,” blaming (of course) energy prices. This is consistent with an
Opinion Research Corp. (Aug. 18-21) survey cited by
ICSC.org. It showed that 58 percent of
households are reducing their discretionary spending on clothing, shoes,
jewelry and consumer electronics, as well as restaurants, spa and beauty
services, and other nonessential purchases.
The recent drop in Consumer Confidence also is energy
related. The danger, according to Oxford Analytica, is that “persistently low confidence
undermines consumer spending.”
Further, its not just the Wal-Mart shopper who
feels the pinch; Even high end consumer electronic sales are expected to dip next year.
My best guess — and its only a guess — is that the combination of energy prices
combined with the end of the easy refi money will be a serious one two punch.
Add to that big expenditures for discounted GM vehicles, and you have the
makings of a wobbly consumer.
The key tell: Look to see how this holiday
shopping season is. If its more difficult for retailers than expected, we will
have unequivocal confirmation that the consumer has finally exhausted