Consumer spending and the economy

Investment Analysis Clubs Macro Economic Trends and Risks
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GDP is 70% consumer spending.

https://www.nytimes.com/2024/08/07/business/economy/recession-consumer-spending.html

To Avoid a Recession, Consumer Spending Is Key

It has powered the economic recovery from the pandemic shock. Now wallets are thinner, and some businesses are feeling the difference.

By Sydney EmberJordyn Holman and Julie Creswell, The New York Times, Aug. 7, 2024

…
In July, there was a notable slowdown in hiring and a jump in the unemployment rate to its highest level since October 2021, but consumer spending has remained relatively robust. Wages are rising, though at a slower rate, and job cuts are still low…

Already, some consumers, especially those with lower incomes, are feeling the dual pinch of higher prices and elevated interest rates that are weighing on their finances. Credit card delinquencies are rising, and household debt has swelled. Pandemic-era savings have dwindled. In June, Americans saved just 3.4 percent of their after-tax income, compared with 4.8 percent a year earlier.

On calls with investors and in boardrooms around the country, corporate executives are acknowledging that customers are no longer spending as freely as they used to. And they are bracing themselves for the slide to continue… [end quote]

The rest of the article is feedback from retailers saying that consumers are becoming more price-sensitive so they might start cutting prices.

So far, the data aren’t showing a slowdown in Personal Consumption Expenditures.

Signs of a slowing of consumer spending are subtle, indicating less income rather than less spending.

The last two recessions (2020 and 2008) weren’t classical because they were both caused by crises rather than a normal business cycle. In a normal business cycle, consumers spend less causing suppliers to cut jobs, which then causes the unemployed to spend less. This is how a recession usually gets rolling.

So far, the small the uptick in the unemployment rate was largely driven by more workers entering the work force, and not by employees losing their jobs. Initial unemployment claims are also still low.

As always, I will keep an eye on this in the Control Panel. A trend change to higher unemployment would be a potential recession warning. So far it looks like a soft landing.
Wendy

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Part of my business is in prints. I have some knowledge of other people’s books. Customers have been very price-sensitive for the last year.

We have a different economic ideology. The little guy is out to get rich.

We are not seeing the top of the debt market. We are not in a frothy environment. The pandemic spending was frothy.

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Historically, the solution to weak consumer spending, was make it possible for consumers to go farther in debt. Car financing can now stretch seven or eight years, vs the three years that used to be the norm. Suppressing interest rates makes it possible for Proles to buy bigger, fancier, houses, and carry larger balances on their credit cards.

Steve

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I can think of one change that could be made quickly. Some years ago, an “intrusive, burdensome, big gummit” reg was imposed, requiring the “minimum payment” on a credit card bill to actually be enough to pay off the balance, over some defined length of time. This would, of course, increase the minimum payment, and reduce the amount of money Proles would have to spend on other stuff.

So, repeal that “big gummit reg”, so that the “minimum payment” can go back to $10, with the rest of the 20% interest being charged on a four figure balance being added to the balance. Then consumers have “more money to spend”.

Steve

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