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Tuesday, September 11, 2012

Retail sales

The retail sales data shows a shift in consumer attitudes from the borrowing and spending binge we were on.  Here is a view of inflation adjusted retail sales going back through the last two recessions.

During the tech bubble pop and stock market crash we can see retail sales really were not impacted all that much.  When the stock market bottomed and took off again, retail sales did also.  However, the last recession clearly impacted spending habits.  Sales still have not gotten back to 2007 levels when adjusted for inflation.  Check out this chart which is also adjusted for population.

Per capita spending is back to levels from the 2000 time period.  That sure was quite a spending binge in the 90s.  Has this chart entered into a down trend?  With most people feeling uncertain about the economy, are spending patterns going to go back more like the early 90s?  Those were much more peaceful times around the globe then we have now.  The promise of the internet was generating lots of excitement, not so much anymore.  People back then had high hopes for future economic growth.  It is not real surprising that people felt more comfortable spending more money.  Is that still the case today?  Just as a reminder it was all done on borrowed money.

A look at the household consumer debt shows the tech bubble did not even slow down the accumulation of debt.  There was a blip in the early 90s, but borrowing quickly recovered.

Even if the FED and the government do not like it, the American people are being more frugal now.  Since they make up some 70% of the economy their spending habits matter a lot.  Even though we are awash in liquidity from the FED and have ultra low interest rates, individuals are spending less then before the recession.  Do you see anything going on in the world that is likely to change that?  I sure don't.  I believe the next recession will reinforce the frugal behavior even more.  I have a hard time subscribing to the theory that there will never be another recession.  About the only way for this to change is for something truly outstanding to come along that makes people feel so good about the economy they are going to go out and start borrowing and spending again.  I don't know what that would be at the moment.  I think IPads probably won't do it.  Here is a peak at the Michigan consumer sentiment chart.

Sentiment is at levels where is was in the late 70s and early 80s.  Between the double dip recessions in the early 80s sentiment did not get above 80.  We have the same case today, so far we have not crossed above 80 .  Spending in the 90s and 2000s took off with sentiment over 90.  I wonder if it will take that again to get things going.


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