The strong seasonal trends in housing has stock market participants popping the champagne again. Meanwhile, the U.S. consumer continues to show signs of deterioration. This morning’s ICSC same store sales data showed another year over year decline of -0.7%. Econoday reports:
According to ICSC-Goldman, sales for the month of July will probably be weak due to several factors including sharp price markdowns on clearance items, limited inventories and cooler-than-normal temperatures for the month.
In other words, consumers are tapped. The Redbook consumer sales data continued its trend of large year over year declines at -5.4%. The personal income data showed what happens when the stimulus wears off. Incomes declined 1.3% as the underlying deflation in the economy continues to tug at consumer’s wallets. The personal income data showed a 0.4% jump in spending, but attributes most of the gain to higher gasoline prices.
The following chart summarizes just how weak the recovery in the consumer and the overall economy has really been thus far. Did I say recovery? Well, I guess a pulse equals recovery in this market….
Updated – Analysts react:
- Personal income fell in June by 1.3%, in line with our expectation. The swing over the last two months reflected one-off payments associated with the fiscal stimulus package. These payments sharply boosted the May figure and were substantially smaller in June, resulting in a significant drag on the headline result (specifically, eligible individuals receiving social security, supplemental security income, and railroad retirement benefits each received $250 in May, which boosted current transfers by $157.6 billion in that period, while one-time payments of $250 billion to eligible individuals receiving veterans benefits boosted transfer receipts in June by just $5.6 billion). Excluding those payments, personal income was essentially flat in May and down by 0.1% in June. –Michelle Girard, RBS
- The wallets are still being held quite tightly. Consumer spending rose in June but when you adjust for price changes, it was actually down slightly. Part of the problem may have been the Cash for Clunkers program. Durable spending was off and it was likely that some of the demand for vehicles held in abeyance until the program took effect. We are likely to see a large increase in July and August, especially if the additional $2 billion passes. Households have also been quite conservative in the purchases of services. Right now, if it isn’t necessary, they don’t seem to be buying it. –Naroff Economic Advisors
- Consumer spending rose 0.4% in nominal dollars in June (the biggest increase since February), but that’s not good news since all of the extra spending was eaten up by inflation. Higher gasoline prices drove the consumption price index up 0.5% and meant that spending fell 0.1% in real terms. The June decline takes real spending to its lowest level yet in this cycle, down 1.8% from a year earlier… When given sufficient incentive (as in cash-for-clunkers) consumers will spend. But reduced wealth, high debt, tight credit, and a weakening labor market are all weighing on consumers. Consumers remain a missing link in hopes for strong recovery. –Nigel Gault, IHS Global Insight
- Real personal spending bounced early in the year as falling prices lifted purchasing power; however real spending has been flat or falling since February. The cash for clunkers program lifted vehicle sales 16.5% in July and should lead to a real gain. –Julia Coronado, BNP Paribas
- No green shoots at all in these data; no surprise given the leverage overhang and the fall in incomes. The absence of stimulus effects accounts for most of the swing in incomes between May and June, but wages and salaries are less volatile than headline income and they are dropping steadily every month, -0.4% in June. The saving rate has not yet peaked, despite the June dip. Third quarter spending will rise due to cash-for-clunkers, but fourth quarter down again? –Ian Shepherdson, High Frequency Economics
- Though we still have limited data for the quarter, factoring in the comprehensive revisions and what we know about car sales in July (and taking into account that it seems likely that ‘cash for clunkers’ will boost vehicle sales in August also), we could see real PCE rise in the neighborhood of 4% in the third quarter. –RDQ Economics
- We simply do not expect the type of forceful rebound in consumer spending that would be a necessary ingredient in the robust, “V-shaped” recovery that many analysts are calling for. Whether by their choice – motivated by heavy debt loads and the loss of significant amounts of net worth over recent quarters – or by the choice of lenders less willing to extend credit, households are likely to maintain a higher savings rate than has been seen over the past decade. –Richard F. Moody, Forward Capital
- Today’s data does not particularly change the view in any way, especially given the fact that much of this information has been digested by the market due to the fact that Friday’s GDP report captured much of this data. We know that consumers continue to be backed into a corner, and despite the reduction in the personal savings rate, we continue to believe that going forward consumers are likely to have more propensity to save than to spend. As we suspected, the magnitude of the advance seen in May has dissipated largely because of lower amount of government transfers (by way of stimulus dollars and jobless benefits). –Ian Pollick, TD Securities
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.