It’s Official: The Consumer (And The Economy) Is Alive and Dead

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Friday’s plunge in consumer sentiment—from 82.7 during the post-election glory days to 74.5—was hastily ascribed to the Fiscal Cliff which, much like Sandy, is recruited to explain everything that doesn’t go according to plan. And a lot hasn’t gone according to plan.

On Thursday, it was the Gallup/Wells Fargo survey of small-business owners that had thrown a monkey wrench into the hope machinery. Small-business owners are generally an optimistic bunch, and they’re key job creators. But they suddenly decimated their hiring plans to the record low set in November 2008, the catastrophic post-Lehman days. Back then, it was followed by massive and brutally rapid layoffs.

“An eye-opening drop in optimism,” mused Marc Bernstein, head of Small Business for Wells Fargo.

Consumers have been giving mixed signals. For example, the Restaurant Performance Index, released on November 30, fell in October for the second month in a row and hit 99.5, the lowest level in 14 months. It was the first time during that period that it dropped below 100, indicating contraction.

Then on Friday, Gallup’s consumer spending report was a bit lumpy. At $73 in self-reported daily spending, it was flat in November compared to the prior two months, and down from a post-crisis high of $77 in August. Still, it was up two bucks from last year. Ominous sign: those making more than $90,000 a year throttled back their spending to $113, the worst November since 2008. Spending by lower income Americans, who have to shell out just about everything they to keep their chin above water, remained stagnant. But, but… spending picked up around Black Friday and Cyber Monday and is tracking higher in early December.

Hours later, the Fed’s Consumer Credit report, a stalwart indicator of how much consumers are borrowing to prop up the economy, shed more light on our strung-out heroes. Not seasonally adjusted, consumer credit increased by $10.3 billion in October, the third month in a row of increases, raising hopes in some quarters that the unemployed, the underemployed, and those working for wages that haven’t kept up with inflation would somehow summersault over their income hole by borrowing from the future—a strategy that has been a key driver of economic growth in the US, and that has hit a wall during the Great Recession.

But credit cards and other forms of revolving credit edged up only $1.4 billion, after a swoon in September. What did jump was non-revolving credit. By $8.9 billion. Alas, almost $7 billion of it was student loan debt held by the government. Consumers aren’t splurging. They’re borrowing to pay for essentials. And for education.

But wasn’t there a shining example of the growing strength of the economy? Indeed: the jobs report’s soothing numbers. Unemployment dropped to 7.7% and 146,000 jobs were created, despite Sandy! It inspired the usual mix of derision and controversy. But its sausage-like innards and self-contradictions include the fairly reliable Employment-Population ratio that had deteriorated to 58.7%. It had dropped into that range in late 2009, for the first time since 1983, from a peak of 64.7% in April, 2000. The stagnating ratio confirms that barely enough jobs have been created since 2009 to keep up with the growth of the working-age population. And now, it has taken a turn for the worse.

The BLS headline numbers slammed into another vision of realty, released the day before. Gallup’s unemployment rate leapt from 7.4% to 8.3%—though it’s still lower than it was in November last year. Underemployment shot to 17.2% from October’s post-crisis low of 15.9%. A nasty reverse, after months of uneven improvements.

Gallup’s own Payroll-to-Population rate—the percentage of the adult population who are employed by an employer, not self-employed, for at least 30 hours per week—took the sharpest nosedive since the data series began in 2010, down two percentage points, hitting 43.7% in November.

Sandy’s fault? Not so fast, Gallup says. The Payroll to Population rate “declined across all regions, and the East had the smallest October to November decline, while the Midwest saw the biggest decline.”

More sobering still: The size of the workforce—those working plus those actively looking for a job—skidded in November to 67.2% from 68.3% in October and is now lower than it had been in November 2011 (67.7%). “When Americans drop out of the workforce, as happened in November, it masks a decline in jobs,” Gallup explained. Hence, also the BLS’s rosy unemployment number.

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