Consumer spending to the rescue? Maybe not

from the Los Angeles Times:



Consumer spending trend is a shaky foundation for economic recovery
Analysts say the upswing in buying is largely by affluent people snapping up luxury items and delinquent homeowners who have extra money since they aren't making their mortgage payments.

By Don Lee, Los Angeles Times
May 16, 2010


Reporting from Washington

Increased consumer spending has fueled hopes that the current economic recovery will keep getting stronger, but behind the encouraging numbers is a little-noticed reality: Much of the new spending has come not from America's broad middle class but from a small slice of affluent people at the top.

And upper-crust spending, while welcome, can be worrisomely volatile: Since it involves luxuries, not everyday necessities, the buying can suddenly shrink if something such as the recent stock market plunge panics affluent shoppers.

What's more, some analysts calculate that another big chunk of the recent spending spurt has come from an even shakier source — delinquent homeowners who have more cash in their pockets because they've stopped making mortgage payments now that their houses are worth less than the loan amounts.

Economists' uneasiness over building a recovery on such uncertain foundations is all the greater because the larger fundamentals are also shadowed by uncertainty.

The improving job market should broaden the base of consumer spending, but wages are not expected to go up fast, which will crimp middle-class spending power. .........(more)

The complete piece is at: http://www.latimes.com/business/la-fi-consumer-spending-20100516,0,4184055.story

A toney community nearby here has their bars and restuarants all full up again on weekends. It's all folks that were never particularly "threatened" by the economic down turn, in terms of consumer spending anyway. A guy I know that runs a wine store says he can see people spending money again. Some guys I know in construction say they are busy, and getting backed up. But in their case it's because many of their competitors are literally gone.

It is hard to tell if it is a case of the "rich" taking advantage of lower prices, or if the consumer is actually coming back to the markets. One must remember that despite the high numbers, "only" about 5 percent of the population lost their jobs. The other 95% were roughly in the same position they always were. That's a tad deceiving because of the "under employment" issue, and because of the employed people who are in trouble with mortgages. But the vast majority of people, in terms of cash flow (not long term savings or retirement accounts) haven't seen alot of change over the last 2 years. They've just been scared shitless. The quesiton is, are they still scared.

I know I bought work clothes and shoes, car repairs, tires, and a bunch of stuff I hadn't been able to buy and or do for some time. I bet many are in the same boat as me. I got caught up and had my spending spree from the end of Feb through about 2 weeks ago. I still have a bit of money left, but I can't buy anything substantial going forward unless business picks up at work and my income improves.

If you're fortunate enough to have the money and credit, there's never been a better time to buy a house with depressed prices and government incentives. Or, visit an auto dealer, they'll do handsprings to see a bona fide customer come walking in. Many companies have cut prices to try to spur spending and, as this article points out, it's going towards those who still have the money to spend or those deffering until the cards max out. Much of the recovery has been on Wall Street, not Main Street...the emphasis on pushing up stock prices as opposed to dealing with the massive credit crunch that is still handcuffing any real growth.

Bottom line is this country is flat broke...with no real answers in the near future. Too many jobs and industries have been outsourced and the "downsizing" of corporate America means less chances for the "service" sector to come to the rescue. The rises we see now will be short-lived unless there's a revival of our commercial infrastructure...can't create jobs that don't exist.