Consumers Slash Spending Growth Expectations

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Something embarrassing is happening to the wallet.

Consumer spending – not just retail but also healthcare, housing, tuition, and so on – accounts for 69% of the US economy. Decent economic growth without growth in consumer spending is practically impossible. That’s why everyone is watching consumers. And everyone is praying that they’ll spend.

They’ll have to spend above the rate of inflation for “real” growth (adjusted for inflation) to happen. But that might not be happening over the next 12 months, according to the selfsame consumers.

This isn’t from a wayward blogger spreading some kind of homemade doom-and-gloom gospel, but the New York Fed. It just released its monthly Survey of Consumer Expectations – which covers inflation, the labor market, and household finances, including income and spending expectations. And concerning spending expectations over the next 12 months, it found this embarrassing data point:

Median household spending growth expectations dropped sharply from 3.3% in March to 2.6%, the lowest level observed since the start of our survey in June 2013.

The decline was fairly widespread, but largest among lower education (high school or less) and lower income (below $50,000 household income) respondents.

So that’s bad enough. But in the same survey, inflation expectations rose to 2.8%, thus higher than the spending growth expectations. In other words, spending growth is expected to be less than inflation – which would leave “real” spending growth in the hole.

Income expectations rose, but only by 2.8%, same as the expected rate of inflation, in the fervent hope that any income increases might keep up with inflation. This fervent hope has been frustrated too often.

Median household spending growth expectation for the coming 12 months looks like this:

The spending growth expectations by income level are even more interesting, though the data is volatile and noisy. In the chart below, the red line denotes growth of spending expectations by households making under $50,000. Median household income in the US – half earn more, half earn less – is currently $58,600. So these folks aren’t that far below the median and make up a big part of the population. And note what happened to their spending growth expectation. It plunged from 4.5% to 2.5%, to the lowest in the history of the survey, and below even the rate of inflation expectations:

But even those earning above $100,000 – the biggest spenders who can move the needle – they too are trimming back their spending growth expectations to the lowest in the history of the survey, to 2.7%, just below inflation expectations. This extends the trend that has been going on for years.

The middle brackets, those making between $50,000 and $100,000 slashed spending growth expectations to 2.7%, but they were the only group not setting a new low in the data series.

These survey results from the New York Fed don’t particularly match the results from recent consumer sentiment surveys, which have soared to exuberant levels after the election (divided sharply along political lines), though actual consumer spending has gone the other way. The New York Fed’s survey results however parallel more or less roughly the recently very lackluster actual consumer spending that dragged down first quarter GDP to the worst levels since Q1 2014.

This consumer reluctance, or inability, to spend more is already percolating through the auto sector. Despite record incentives, which should stimulate auto sales, the decline in sales is picking up momentum. Read…  #Carmageddon Not Yet, But Hot Air Hisses out of Auto Bubble




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  118 comments for “Consumers Slash Spending Growth Expectations

  1. Jon
    May 8, 2017 at 2:34 pm

    This is gonna be interesting..
    With the assets ( real estate, stocks, healthcare, insurance, rents ) all time high along with declining wages,, it’s a potent poisonous mix…

    • TJ Martin
      May 8, 2017 at 2:42 pm

      … or alternatively the Perfect ( financial ) Storm brewing on the horizon …. unless the numbers wizards/manipulators wave their magic wands again .

  2. Sound of the Suburbs
    May 8, 2017 at 2:41 pm

    There is a fairer capitalism and it’s based on an understanding of how capitalism actually works.

    Adam Smith observed a world of small state, raw capitalism in the 1700s.

    “But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin.” Adam Smith, The Wealth of Nations.

    Notice anything wrong with today’s ideas and the reality of small state, raw capitalism?

    “I am not sucking all the profit out as dividends; I am re-investing profits to make my company grow” Jeff Bezos, Amazon

    Well done Jeff.

    You have got the growth side and are streaks ahead of the rest of today’s business people, but imagine all companies paid low wages like Amazon, what would happen to demand for Amazon products?

    “Oh yeah, I hadn’t thought about that. Paying low wages boosts Amazon’s profits that I re-invest, but if everyone does the same thing Amazon dies due to a lack of demand” Jeff

    Today’s problems with growth and demand

    • George
      May 8, 2017 at 3:08 pm

      As a resident of Seattle, I look forward to the day when Amazon dies.

      • DH
        May 8, 2017 at 7:02 pm

        I just can’t imagine that happening anytime soon. Just about everyone I know does the majority of their shopping on Amazon.

        • RD Blakeslee
          May 8, 2017 at 8:10 pm

          Ditto.

        • unit472
          May 9, 2017 at 7:08 am

          In the last quarter of the 20th century a huge percentage of consumer spending went through the Walmart company. It looks like the same is happening with Amazon only Amazon does not have to provide the retail distribution centers.

          Curious as to why Amazon has not tried its hand selling cars. Buy a few dealerships in, e.g. California, and sell cars statewide.

        • Belisarius6
          May 9, 2017 at 9:25 am

          You seem to have missed the message of this article DH – that people are curtailing their spending. IMO it’s logical that in times of financial crisis discretionary spending will collapse, which will impact Amazon more as it has the highest variable cost in the sector. Not to mention that it still is very dependent on cash inflows from financing. Disclosure: Amazon is a company that I’ve always wanted to short but have been too scared to do so (thank god!).

      • J
        May 8, 2017 at 9:32 pm

        Why?

        • JR
          May 8, 2017 at 11:34 pm

          If you study a few of Galloway the Great’s videos – you will get the trend. Amazon basically dominates retail. Just google the following sentence and watch the youtube video. I admit – I am a Galloway addict – I have watched *all* of his L2inc videos.

          Scott Galloway: Amazon Prime Subscribers Outnumber Gun Owners

      • Maximus Minimus
        May 9, 2017 at 12:13 pm

        That will only happen when people actually do some research and find that they can get stuff sold by Amazon cheaper at the local store or some other online shop. But that is too much to ask from most consumers.
        That said, if I have to choose between Amazon and the local shopping mall “cultural experience”, I have to choose the former.

      • william enick
        May 9, 2017 at 3:01 pm

        We here in Kansas can’t wait till capitalism ends. The Mafioso/Wall Street ethic is killing everything that moves.

    • intosh
      May 9, 2017 at 11:50 pm

      What? You mean North American’s who get paid pennies won’t buy at Amazon? Well, then maybe the fully trained bots and AI will pick up the slack…

      http://www.techrepublic.com/article/inside-amazons-clickworker-platform-how-half-a-million-people-are-training-ai-for-pennies-per-task/

  3. Willy2
    May 8, 2017 at 2:52 pm

    – And Trump’s tax proposals won’t help to improve consumer’s confidence either. Trump wants to get rid of the tax deduction for state income taxes.

    • Kent
      May 8, 2017 at 3:52 pm

      No way Trump would ever let that through. He’s from New York. My guess is its a card that Republicans from liberal states can play. See Ma! We got our income tax deduction back! We kicked butt!

      Deficit blew through the roof and we had to cut your Social Security? Well, what else could we do? There was no alternative!

      • TJ Martin
        May 9, 2017 at 7:53 am

        1) Yes …way

        2) Get a clue . Trump’s sole concern is his image and his wallet … not where he’s from etc

        • Kent
          May 9, 2017 at 9:07 am

          You don’t get it. Where he’s from and watching his wallet are the same thing in this situation.

    • T.J.
      May 17, 2017 at 5:45 am

      I think this is a pipe dream, but I love it. The states that vote for high taxes get high taxes. Full stop.

      That being said I don’t think it will ever happen.

  4. Jarhead John
    May 8, 2017 at 3:06 pm

    Spending money we don’t have has become so pedestrian…We find that it is now “chic,” cosmopolitan and “in vogue,” to save…

  5. mvojy
    May 8, 2017 at 3:09 pm

    Time to short retailers and watch deflation set in. Thanks Janet!

  6. Petunia
    May 8, 2017 at 3:10 pm

    One of the most disturbing signs is of Pawn America, a mid west pawnshop chain declaring bankruptcy. These places are where the poor or financially distressed go to raise emergency money. The only way a pawnshop goes broke is by it’s customers not redeeming their valuables, and/or nobody buying the un-redeemed items. I thought this was a bad sign on top of all the retail bankruptcies.

    • David G LA
      May 8, 2017 at 3:21 pm

      Have you been in a pawn shop recently ? Chock full of CD players and the like. A losing battle IMHO.

    • mvojy
      May 8, 2017 at 3:25 pm

      I don’t think there is a more obvious sign of a weak economy then pawn shops running out of customers

    • alex in san jose
      May 8, 2017 at 4:01 pm

      Pawn shops won’t take something for more than they think they can sell it for, and in fact for a good bit less than they can sell it for. You take in a guitar that you paid $500 for last week. They think they can sell it for $300 so they’ll offer you $100 on it. This is real pawn shop math.

      But if, indeed, their customer base is too broke to buy yet another guitar, or CD player, then the pawn shop is gonna be in trouble.

      My local pawn shop will sell you something for between 1/3 and 1/3 the price on the price tag if you pay cash. But their stuff is really overpriced. Maybe they get enough suckers to support those prices, but that may be changing these days.

      • ERG
        May 9, 2017 at 1:25 pm

        I’d bet there is no shortage of persons bringing items in to pawn but that the main problem is nobody ever buys any of it back.

    • Ehawk
      May 8, 2017 at 5:31 pm

      Pawn Shop…?

      4 letters for you: Ebay

      • Petunia
        May 8, 2017 at 5:47 pm

        When they shut off your water or electricity or there is no food in the house, Ebay is not where you go to raise money. Your answer shows a real lack of understanding of what is going on in this country.

        • alex in san jose
          May 8, 2017 at 6:13 pm

          Petunia – Exactly.

          Ebay requires a safe, stable, place to live, electricity, internet access (not a given where I live) and a reputation gained by buying 10 things on Ebay before you can sell. You need to have the money up front to mail out the item(s) because PayPal, which is required, may hold your money for a while.

          Ebay’s great for a middle-class person/family crashing down into working-class. It won’t save you if you’re working-class crashing down into destitute-class.

        • Smingles
          May 9, 2017 at 11:24 am

          “When they shut off your water or electricity or there is no food in the house, Ebay is not where you go to raise money.”

          Here are a few things to consider:

          A. Pawn America is reorganizing, not liquidating. Most of their stores will remain open.

          B. They overextended themselves. Too many new locations, too many employees. They grew from < 100 employees in 2007 to over 500 at one point.

          C. "Buying trends are shifting and there are differences between the shopping habits of baby boomers vs. millennials, Erlandson said. Pawn America's online business is doing very well, while some of its traditional stores are not." Erlandson is Pawn America's spokesperson.

          "Your answer shows a real lack of understanding of what is going on in this country."

          What percentage of Americans have no access to running water, or electricity, and what percentage of the economy do they represent? The answer to both is a negligible amount. Per usual, you have no idea what you're talking about, and you were condescending to boot.

        • Petunia
          May 9, 2017 at 4:11 pm

          Smingles,

          Poor people get their water or electric shut off occasionally due to unforeseen emergencies, or unemployment. Really, I’m not joking, it has happened to me.

          The story I read talked about PA stores going bankrupt was about stores in the mid west, as I wrote in my comment. It did not mention other locations.

          I am only rude on purpose, so here I go: Your ignorance is glaring. I prefer a more competent opponent.

        • alex in san jose
          May 9, 2017 at 7:50 pm

          Smingles – Why am I on here when it appears I make 1/10th what most of you do, plus, apparently (as revealed in tax discussions elsewhere) I am a good 10 years younger than the average here?

          To show that people like me exist. There are a lot of us. Maybe 10% of the population, maybe more.

          I kind of see myself like Eddie Murphy in the movie “Trading Places”. The part where Eddie and the old guy are watching the stock market, and Eddie goes on about how they’ve not been buying pork bellies because this and that … and then now they’re going to start buying ’em because that other…. and the stock goes up.

          I don’t have running water here. I do have electricity, and after 4 years without it, the internet. I’m doing better than a hell of a lot of people here, in San Jose.

          I’m hoping my posts here will open some eyes, maybe make some people some money in their stock trades, because I seem to come from such a different universe than people here seem to, that my insights are pretty much unique, even out of “left field”.

          Kinda like in the old Doonesbury comic strip, where one character, the kind, even though wealthy, Lacy Davenport is talking to her wealthy friends about homelessness, and one lady says, “But why don’t they just move to their summer homes?” and Lacy just facepalms, thinking, “There’s a lot to do here”.

          So, to sell on Ebay you need a certain level of stability and yes, wealth, that millions of people don’t have. You need a paypal and for that you need a bank account. You need a whole lot of things that people getting “eaten” by the economy don’t have.

        • Niko
          May 10, 2017 at 9:17 am

          Wasn’t Smingles a little troll character in “Lord of the rings”. Wait that was smeagol, oh well same thing.

      • Ethan in NoVA
        May 9, 2017 at 12:08 am

        eBay is so 2000s.

        Craigslist is one place, but a lot of mobile apps have moved into the space like LetGo, Close5 and others.

        Pawn Shops usually pay pretty low I think, and whenever I’ve poked around them they want ebay prices or more to purchase used goods.

    • Ricardo
      May 8, 2017 at 7:35 pm

      You nailed it.

      Another place where pawnshops are many is the Philippines …… but their pawnshops aren’t going bust.

    • Mary
      May 9, 2017 at 10:48 am

      I wonder if those payday check cashing services haven’t cut into the pawnshop business.

  7. nick kelly
    May 8, 2017 at 3:10 pm

    Is it conceivable that after all its official warnings of Fed tightening, it may not raise, or even cut rates? Or do more direct stimulus, asset purchases?
    Because along with the decline listed above, and the bricks and mortar retail collapse, we’re suddenly (last week) into a new, sharp downturn in commodities. One analyst is predicting high- grade iron ore (62%) to enter the 30’s a tonne, before which point all but the super- majors halt production. Oil is in a new but not as sharp a slide.

    Maybe the FED had become so used to the chronic, ever- nigh collapse of the Italian and Spanish banks, that it would have raised anyway, in an attempt to gain some credibility and much needed leeway.

    But a new, acute illness can exacerbate a chronic condition.

    • May 8, 2017 at 3:30 pm

      The Fed doesn’t care about consumers. It cares about asset prices (asset price inflation = very high) and consumer price inflation (within Fed range). It wants to make sure real wages don’t rise (under threat). During the financial crisis, it didn’t give a hoot about consumers either. All its policies were geared toward inflating asset prices. This was very explicit. Benanke wasn’t shy about explaining it publicly.

      Now asset prices are so high that even the Fed is worrying about them.

      So for the moment, the date of the next rate hike is still June 14, with QE starting to be unwound later this year.

      • Pete G
        May 8, 2017 at 3:47 pm

        Clarification!……Wolf, saying the FED cares about consumer inflation is like saying the Mafia collects money for “security services.” The FED’s consumer inflation DOES NOT include housing prices (measures rent in certain metropolises) food, or energy….So pretty much is completely bogus number and is in NO way a measure of consumer inflation….Please do not add credibility to an entirely fraudulent service-to-self cabal….

        • May 8, 2017 at 5:03 pm

          What I meant is that the Fed WANTS consumer price inflation (and it’s getting it).

          And as I said, it wants asset price inflation (this includes home prices). And it got it big time.

          But it doesn’t want wage inflation.

          So yes, I think we agree.

        • interesting
          May 8, 2017 at 10:48 pm

          without wage inflation there can be no consumer spending.

          the FED has sure backed themselves into a corner.

      • Maximus Minimus
        May 9, 2017 at 1:16 pm

        I believe, price stability is the stated mandate of the FED even though it does not have to give a hoot about it since it is accountable to noone.
        Anyways, it does not see inflation since it play with it’s own manufactured numbers.

        The asset price inflation might actually contribute to the spending decline. High asset prices means higher property taxes, and with no income gains that can lead to slow moving economic train wreck.

        • Your Good Friend
          May 9, 2017 at 2:52 pm

          “Price stability” depends on what level. The only thing the fed accomplishes at current grossly inflated prices is collapsing demand.

  8. Kent
    May 8, 2017 at 3:14 pm

    “The New York Fed’s survey results however parallel more or less roughly the recently very lackluster actual consumer spending that dragged down first quarter GDP to the worst levels since Q1 2014.”

    I was going to ask how this reflects past actuals. I think all the noise in the numbers is interesting. There seems to have been a big jump last month, and crushing new low this month. And a long, general downward trend.

    I can’t imagine how folks get along in private sector employment where your job is dependent on the next PE buyout and flip. No pension. Getting eaten alive by rising health insurance costs and rent.

    I’d be hoarding every penny I could find and living on ramen noodles.

    • alex in san jose
      May 8, 2017 at 4:10 pm

      Kent – as I’ve said elsewhere here, I have a feeling that the percentage of 1099 workers in this country has gone way up. And 1099’s pay a lot of taxes, plus they don’t get money automatically deducted so on April 15th they get to write a big check to the IRS. With the result that they’re going to spend as little as possible for the next month or three.

      The month or so after April 15th used to be a good time because the majority of workers were on W-2’s and this is the time of the year they decided how to spend their tax refund. I remember getting back something like a thousand bucks, in 1980s dollars. Yes, on $25k-$29k, I was paying about 6 grand, again in 1980s dollars. The little guy pays a *lot* of taxes.

      So now the little guy is just as likely to be writing a big check as getting one.

      Also, keep in mind (I just thought of this) that for a huge portion of the population, public schools mean they pay far less to feed their kids (free lunches have traditionally been a big factor in working-class kids going to school, because they’d eat that day) and this is a real factor for a much larger portion of the population than 20 years ago, or even 10.

      • Jon
        May 8, 2017 at 5:53 pm

        Over time… employers instead of hiring a permanent employee, would like to rather hire easily disposable 1099 employees
        Hence, you’d see more and more of 1099 and less of W2s ..

        • alex in san jose
          May 8, 2017 at 6:17 pm

          Yep that’s how it works. Easily disposable is exactly why it’s more and more of a thing. Your worker breaks a leg, injures his back, etc.? Tell ’em to f*ck off and move into the homeless shelter.

    • Lee
      May 8, 2017 at 5:22 pm

      Or maybe lots of rice?

      Went shopping with the better half yesterday.

      I couldn’t believe the prices on steak and other cuts of beef. Chuck is now going for the price we used to pay for prime cuts. T-bone was A$21 a kilo. Scotch was $30 a kilo.

      Others were even higher.

      What was even more interesting was that they now put those RFID security tags in the packages of meat!!!!

      Even fish has gone up to ridiculous prices. The selection of fish isn’t that great where we live out in the burbs, but they had some nice imported blue grenadier from NZ. The price was ‘only’ A$16 a kilo. Fried up really nice.

      (By the way this is the fish you’ll get if you order fish at MCD’s in NZ and many places here in Oz.)

      • May 8, 2017 at 5:40 pm

        Maybe your delicious Aussie beef is so expensive because they’re selling so much of it here. Our Trader Joe’s (owned by German mega-retailer Aldi) sells “grass-fed” Aussie beef for less than it sells US beef. And it’s good!

        • Mike R.
          May 8, 2017 at 6:40 pm

          Wolf,
          What is your basis for stating that the Fed does not wage inflation?
          My belief is that is exactly what they want and need but can’t get. As a result we have stagflation …rising prices but no accompanying rise in wages.
          Please explain if you would.
          Thanks.

        • May 8, 2017 at 7:02 pm

          When wage inflation begins to edge up faster than core PCE inflation, the Fed raises rates. They did during the last cycle. They’re worried about it now. Wage inflation means companies have to pay more for the same work. It’s the Fed’s job to keep US labor competitive. One of the methods is to keep wage inflation below consumer price inflation.

          “Full employment” means wage pressures begin to occur. When they talk about “full employment,” they worry about wage pressures. And they raise rates.

          Average hourly earnings are up 2.5% from a year ago nominal (not adjusted for inflation).
          https://fred.stlouisfed.org/series/CES0500000003

          Core PCE inflation 12-month (which is the metric the Fed favors) = 1.6%
          https://fred.stlouisfed.org/series/PCEPILFE

          So currently, nominal wages up 2.5%, and core PCE inflation up 1.6%… thus for the Fed’s math, nominal wages are rising faster than its measure of inflation. So “real” wages are rising (according to the Fed’s metrics). This is one of the reasons to raise rates. The Fed can never ever publicly admit it. So watch what it does.

          There are other reasons to raise rates that they mentioned, including dangerously inflated asset prices, particularly in commercial real estate, which can take down the banks, but elsewhere too; they’ve mentioned equities, for example.

        • Lee
          May 8, 2017 at 6:58 pm

          Wolf,

          You must get the good stuff as most of the beef sold here is just plain crap. Probably cheaper than in Australia too!! IIRC that grass fed stuff in the local supermarkets is around A$50 or a kilo. Much higher at the ‘good’ butchers.

          Best beef I’ve ever had was when I was living in Japan and it was delicious wagyu. Tried all the different grades and the lower to middle classes were the best. Top grade had too much fat and actually got sick from eating it.

          And in 22 years I’ve been in Oz I can really state that I’ve had only one similar quality purchase of beef from a store here.

          Only a few restaurants serve similar high quality beef. Most is poor to very, very average. Mystery meat IMO.

          Yep, can hardly wait to eat good food again when we travel to Japan later this year. Making a long, long list of what we are going to have. maybe we’ll have to extend the trip!

        • May 8, 2017 at 7:07 pm

          Our tastes might differ. I like range-fed beef that never saw a feedlot. It’s hard to get prime in range-fed beef because it’s too lean. But you’re eating true muscle. It has a special flavor from the grass (corn feed gives beef a sweet-ish flavor that I don’t care much for). Take it a step further and get buffalo…

        • Crazy Horse
          May 8, 2017 at 10:52 pm

          re Buffalo: aka Bison if you are an effete snob from Jackson Hole

          When the white devils cleaned out the Great Plains in order to create Progress, the first thing they did was to slaughter all the buffalo so as to starve all the Indians onto reservations. The Indians found beef so unpalatable that many just wasted away rather than eat the white man’s meat.

          Have you ever looked at a feed lot? Or been within a mile downwind of one?

          One of the reasons I live in Wyoming is so I can put an elk in the freezer every fall—-.

        • TJ Martin
          May 9, 2017 at 8:04 am

          Australian Beef ? *

          Buy free range Buffalo instead . Tastes ten times better ( cooked no higher than medium rare ) … is at least ten times healthier for you .. and places less strain on both the environment as well as the rancher to boot . Fact is the stupidest thing we ever did in this country ( food wise ) was to kill off the buffalo herds that live here naturally replacing them with cattle costing the rancher $$$$$$ needing a plethora of antibiotics care and feeding just to survive .

          *Australian beef indeed . Like theres no free range beef to be had here in the US . And folks ask me why I refuse to do business with Trader Joe’s . e.g.

          BUY LOCALLY !

        • May 9, 2017 at 8:14 am

          Concerning buffalo (well, bison), see my other comment in the same section. Totally agree.

          Concerning free-range cattle that never end up in a feedlot – check the price of that beef. It matters. We’re not talking about a buck a pound difference. We’re talking multiples!

        • May 10, 2017 at 11:11 pm

          Yes, I know what Lee’s talking about. In all our years of living in Oz, I managed to buy decent steak only a few times. The quality was a real crapshoot.

          Lee, I know it doesn’t help, but we buy a lot of Oz beef and lamb here in Malaysia at much better prices, and more consistent quality, than I used to buy in Oz a decade ago. All the good stuff IS exported. Happy wagyu-ing in Japan. :)

      • nick kelly
        May 8, 2017 at 5:51 pm

        Depending I guess on the Scotch- $A 30 a kilo (over 1000 ml) doesn’t seem as high as the meat prices.

  9. qe4
    May 8, 2017 at 3:18 pm

    no doubt,9 years of virtually no private sector demand is biting hard,can markets,fed keep ignoring reality?or will the fed massively ramp up the presses?My bet’s on the latter,

  10. Everett
    May 8, 2017 at 3:20 pm

    I am the owner of a Mobile windshield business, and I can verify that auto dealerships are in serious trouble. Any talk of the contrary is smoke and mirrors, we cover a huge area and all dealerships are hurting, some worse than others. The ones that are getting hit the hardest are the ones who deal in high end or “expensive” vehicles. The dealerships that deal in “cheap” auto’s are surviving but even they are hurting. I have personally watched first hand many dealerships attempting to change their business model to stay alive. Truthfully, I do not pity them because most were convincing the average Joe that he could afford a vehicle that he simply could not…….greed. I have been doing this a very long time and these guys flew high for decades but it is finally coming unwound and it’s about time. Someone recently said “Americans know the price of everything and the value of nothing.” How especially true when it comes to auto’s, they simply are not worth these astronomical prices.

    • Jarhead John
      May 8, 2017 at 3:41 pm

      Preach it brother…preach it!

    • Jungle Jim
      May 8, 2017 at 3:49 pm

      I’ve seen things like this before. I lived in Boston during the severe recession in the mid-1970s. The largest dealer in town survived handily by concentrating on his service department. His new car sales were just enough to keep the franchise, but service was where the money was. He had two shifts six days a week and one on Sunday. People had to keep older cars on the road and they couldn’t take time off so he did well.

      • Lee
        May 8, 2017 at 5:10 pm

        I don’t understand why people take their cars to dealers to get fixed.

        They have to be the highest priced option in the marketplace.

        Then you also have to worry about the continual con: “Your tires need replacing, how about an air conditioning service, or a brake fluid flush………”

        By the way, you guys want to know what the standard per hour labour charge is at one famous car brand here?

        A$145 an hour………………..

        • Jon
          May 8, 2017 at 5:49 pm

          I never go to stealership for services…
          Better, I drive an electric car.. subsidized by tax payers, my company provides free charging.. which make me virtually free to own this car.
          Also, EV has no engine ie no engine oil or no transmission and no brake replacement needed, just just rotate the tires and that’s it..

        • Kent
          May 8, 2017 at 7:21 pm

          @Jon,

          My next car will be electric for just that reason.

        • Enquiring Mind
          May 9, 2017 at 10:23 am

          Electric cars may be a passing fancy according to some Toyota people I talked with on Monday. They have been developing fuel cell technology for longer term prospects, and continue to push hybrids, too.

    • alex in san jose
      May 8, 2017 at 4:04 pm

      Everett – I have figured that even if someone *gave* me a car, I could not afford to keep it. Owning a car is like supporting another person; one who has expensive tastes.

      Jungle Jim – That guy was smart, and that may be the way to go now, because people aren’t “handy” like they were when I was a kid, and although the car-parts places like Pep Boys and NAPA may be doing well right now, lots of people can’t be bothered to change their own oil these days.

  11. JC
    May 8, 2017 at 5:13 pm

    I own a small bicycle shop and just 20 min ago before reading this I decided to dump all my $1000+ bikes and replace them with $350-$499 ones and boosting my service output.

    • alex in san jose
      May 8, 2017 at 6:22 pm

      JC – smart move.

      There are too many bike shops competing for the same $1000+ bike buyers. Every shop around my area (the so-called “silicon valley”) has many $1000+ bikes and yes there are people who buy them, but what’s happening is the average prole who used to drive a junky car 10 years ago is walking, riding the bus, or riding a bike.

      There’s a real need for bikes in the price range you cite.

      My own bike was $299 new, and the rack, panniers (you get what you pay for with those), lock, lights, etc brought it up to about $500. A lot nicer than a bargain-basement bike from Target, but not so expensive that I can’t replace it if something happens to it.

      • new attitude
        May 8, 2017 at 6:55 pm

        Here in the bay area, guys wear leotards while riding their bicycle.

        • May 8, 2017 at 7:11 pm

          I did that in Oklahoma and Texas too. What else are you going to wear when you’re racing? But they’re not called leotards. And we wore tights over our bike shorts on cold days. It’s universal. Ever raced a bike with your suit and wingtips?

  12. Your Good Friend
    May 8, 2017 at 6:02 pm

    What was everyone expecting?

    “HALF of all Americans wouldn’t be able to write a $500 check”

    http://www.dailymail.co.uk/news/article-4289558/HALF-Americans-t-afford-write-500-check.html

    What do all these people have in common? Mortgages. Big fat bloated mortgages.

    Houston we’ve got a problem.

  13. MaxDakota
    May 8, 2017 at 6:24 pm

    Saw a good chart once showing how so much consumer spending is cyclical and based on demographics – getting married, having kids means ramping up your spending for the next two decades. So demographics should theoretically help spending now that Millennials are hitting that age, right? Except I look around and all my peers are broke, incomes are stagnant, and nothing seems worth buying.

    Went to an open house yesterday for fun and it was a zoo, and we were the youngest by far, everyone else in their 50s and 60s. Whenever we go out (dinner, plays), or travel, I’m always struck by how few people our age there are. The only place I regularly see a majority of people in their 20s and 30s is at the supermarket.

    Then again, the house was crap, when we go out to eat the food and service are crap, and the last two plays we saw made me wonder if stage acting is a dying art. So it seems most people in their 30s are probably working a lot, grocery shopping instead of eating out, and not falling for the shiney crap constantly vying for our discretionary spending.

    Some days I think I should buck up and not be such a perma bear. Other days I wonder if I’m bearish enough!

    • Bee
      May 9, 2017 at 12:10 am

      Do you ever feel like there’s a parallel between our generation and those who grew up in the Depression? Lately that thought has been crossing my mind.

      • RD Blakeslee
        May 9, 2017 at 9:49 am

        Born in 1931 – saw father lose job after job during the 1930s , even though he was trained tool and die maker, a skill in real demand in the heyday of U.S. industry.

        No foodstamps, no welfare, no unemployment payments.

        My future (I’m not complaining! It was valuable character formation, contrary to the attitude of our millennials) was to be drafted for the Korean war.

        There’s no comparison.

        • Bee
          May 9, 2017 at 10:12 am

          His comments were regarding Millennials’ spending habits, so my comment/question was a follow-up to that. I knew I should have added a disclaimer, but it was very late so I didn’t. Even though it was my first comment here, I knew someone would take offense.

          “No foodstamps, no welfare, no unemployment payments.” – I’d like to tell you I’ve taken none of those entitlements I paid into for many, many years—and I’d qualify for *all* of them now. I used to think it’d be a shame to sign up for one, but after being accosted by people such as yourself (mostly Boomers, actually), I’d have no guilt in doing so.

        • TheDona
          May 9, 2017 at 11:05 am

          RD, my dear brother-in-law’s Father was in Korean war. During heavy snow with no food coming in, he kept his squad alive by tracking and hunting animals. He still hunts, fishes, grows most of his food to this day….in his late 80s. And by the way he is well off and does not need to. A self sufficient person does not part with that value.

      • MaxDakota
        May 9, 2017 at 4:26 pm

        Our in laws still have a vegetable garden and an orchard, and are really frugal with heating and utilities in general, definitely dating back to our grandparents’ generation.

        Living in LA, keeping a vegetable garden seems not worth while with the cost of water, plus our yard gets too hot and isn’t that big to begin with.

        Growing up, I didn’t mind my family’s extreme frugality. Those lessons have really sunk in because we are still very frugal now out of habit, not necessity.

        By comparison, the local and state governments’ spending habits really drive me crazy. How many billions in taxes has LA collected to build out our public transportation that no one uses? Whenever I see a bus or train, it is always empty, even at rush hour.

        • Bee
          May 9, 2017 at 5:30 pm

          Move to your namesake. Your heating frugality will really be tested come November, though (through all of April). [I don’t think I’d even need heat in LA; that doesn’t seem like much of a test?!]. You could plant an enormous garden and can your harvest. You’d love it. They’re frugal there, too, don’t ‘ya know!

  14. Jonathan
    May 8, 2017 at 6:30 pm

    It’s both hilarious and tragic about how the U.S mainstream media and economists are using any excuse, no matter how flimsy, to put lipstick on the U.S economy pig. What sort of weather are we blaming this time round?

    • fred
      May 8, 2017 at 7:27 pm

      Golf ball size hail!!!

      • interesting
        May 8, 2017 at 10:59 pm

        I just got a text from a buddy in Denver……all 4 cars need new windows (front and back) due to that golf ball size hail…..and the garage needs a new skylight.

        that’ll help consumer spending right there.,,,,maybe we need more extreme weather?

  15. Justme
    May 8, 2017 at 8:12 pm

    Can I inject a question that I think is a relevant but somewhat off-topic? Does anyone know a good source for data on total lending losses incurred on US (and other) mortgage loans over time? Likewise, how about amount of total mortgage payments made as a function of time? Sources such as FRED tend not to have the raw numbers.

    • George McDuffee
      May 9, 2017 at 10:32 am
      • Justme
        May 9, 2017 at 12:47 pm

        Could not find any loan loss data there, but thx.

  16. ru82
    May 8, 2017 at 10:21 pm

    IMHO….Spending will be going down only because inflation is ramping up. People have to spend more money for the same amount of goods. Thus their expectations of spending less is real.

    Their expectation is they do not have enough money to increase spending…but they are still buying the same amount of stuff. Eventually if wages do not keep up they start to buy less stuff but still spend the same amount of money.

  17. PrototypeGirl1
    May 8, 2017 at 10:32 pm

    There is a lot of opportunities in this country, most people are not pursuing those opportunities because They don’t know how, they are not allowed to by their companies, or they or a family member has medical issues that they have to take care of. A lot of people are ordering groceries online and picking them up through the drive through so there is less impulse spending. I’ve said all this before we have a real medical problem in this country. 100’s of thousands of people, including children on anti-depresents , anti-anxiety, adhd, xyz, painkillers. All this leads to many lost opportunities, and a very poor economy.

    • alex in san jose
      May 8, 2017 at 10:53 pm

      Prototypegirl1 – At any US company, if you start something on your own, the company owns it.

      “non-compete” clauses are rampant. In fact, it even reaches down into scut jobs, where if you work for one fastfood place and leave, you’ve signed an agreement that you can’t go work for another fastfood place.

      This is why startups tend to be by people still in college, with wealthy parents (college really only makes sense for people who are wealthy enough that whether they went to college doesn’t matter) so college is goof off and socialize time, not study time. People who haven’t had to sell their soul to any company, high-tech or otherwise, to survive.

      • Nick
        May 9, 2017 at 12:17 am

        Quite a bit of generalizing for one post, Alex.

        There is nothing stopping anyone from dedicating all their free time towards starting their own company. It just comes down to how much they are willing to sacrifice. Most people let themselves off the hook with every excuse in the book. Say what you want about greed, capitalism, etc but the truth is the sky is the limit for anyone in this country. Just have to be willing to struggle and persist…and work smart. Very few do.

        • Kent
          May 9, 2017 at 5:49 am

          And have an idea that makes sense economically. Can’t tell you how many people I know who have lost everything marketing bad ideas.

        • Mike
          May 9, 2017 at 7:39 am

          I’m continually amazed at how deeply the Horacio Alger myth has been embedded in the American psyche. I would have thought that recent experience would have eroded its mystical power a bit but its grasp is proving to be very tenacious.

          That doesn’t make it any less mythical.

        • Nick
          May 9, 2017 at 8:49 am

          Mike – My post was referring more so to personal experience rather than the “rags-to-riches myth.” But like I said, people feed themselves all sorts of excuses. My business failed for years before we caught a break…

      • T.J.
        May 10, 2017 at 7:44 am

        Trade school is valuable if you are developing a trade, like plumbing.
        College is valuable if you are developing a fancier trade, like pharmacy or engineering. Other than majors that develop a fancy trade I see no value in college.

    • joanrn
      May 9, 2017 at 10:54 am

      prototype and alex. i have pursued my own business separate from my employers my entire working life. i have a few rentals. the first duplex we built ourselves with the money from a second mortgage from our home. the rentals will be great retirement income and will keep up with inflation. due to the depreciation deduction, rentals have saved me taxes on my other income.
      it just takes time. save a little at a time and wait for the next down turn. watch for raw property to build on and investment property that needs TLC.

      • Your Good Friend
        May 9, 2017 at 2:49 pm

        I understand you’re negative cap rate? How badly?

  18. interesting
    May 8, 2017 at 10:41 pm

    “And everyone is praying that they’ll spend”

    LOL…keep praying, maybe sending all the well paying jobs out of the country isn’t a recipe for continued consumer spending?

    It’s just math actually…….consumer get his/her $28/hr job replaced with a $15 hour job must mean his “spending power” is reduced by ~40%

    capitalism’s end game seems to be that eventually those in the economy can’t afford to live in the economy……I know i’m one of them…..AND i make decent money……BUT STILL CONSIDERED “LOW INCOME” IN O.C.

  19. Lee
    May 9, 2017 at 12:19 am

    Retail spending data was released for the last month here in Oz…………..

    it isn’t pretty:

    “Nominal retail sales fell outright for the second consecutive month in March. This is a very rare occurrence (it has been seven years since it last happened) and means that there wasn’t any momentum in retail spending going into the second quarter.

    This is a material deceleration from the prior quarter, which was also revised down two tenths to 0.7% q/q, and confirms our sense that the pace of household consumption recorded late last year was facilitated by a sharp drop in the saving rate, and was unsustainable.”

    So let’s see:

    1. The price of iron ore is tanking. Supply is increasing and Chinese imports were at record levels, but now falling.

    2. Coal is heading down again.

    3. Interest rates on interest only loans are up and going higher. The big Four banks announced near record profits of around A$15 billion for the past six months.

    4. Dwelling approvals crashed by 13% in March.

    5. Retail sales are stagnant.

    6. The price of electricity and NG are going up by double digits every year at the same time export prices of NG are LOWER than the domestic price. Gasoline is up about 12% YOY.

    7. Car production in Australia is ending by the end of the year.

    And the A$ is still higher than at the start of the year……….

  20. Paul
    May 9, 2017 at 12:39 am

    Yes, where the land of Oz, but there is no Wizard. Just plenty of borrowings to fund so called economic growth. What a mess there will be when the lender calls in the loan.

  21. Boo Randy
    May 9, 2017 at 5:02 am

    In Zimbabwe and Venezuela, stock markets soared as the underlying economy collapses. Seems like we’re going down a familiar path.

    • May 9, 2017 at 7:17 am

      Those markets soared because they were/are denominated in local currency which was/is experiencing hyperinflation and was/is becoming worthless. So those markets became a measure of hyperinflation, and nothing more.

      • Kent
        May 9, 2017 at 9:42 am

        Zimbabwe and Venezuela had similar characteristics not found in the US.

        Zimbabwe’s government instituted a set of economic reforms which devestated production of food and other materials.

        Venezuela’s government became accustomed to high oil prices and structured its budget around that.

        In both cases, the governments attempted to mitigate the consequences to the poor by printing money.

        • Your Good Friend
          May 9, 2017 at 11:41 am

          The US did the same thing. The US structured itself around the skim they earn from credit. In this case, grossly inflated prices.

          What does the US do next? Print money.

  22. Meme Imfurst
    May 9, 2017 at 7:51 am

    I have said this many times, the FED’s so called ‘mandate’ is
    a certifiable madness exercise to destroy the middle class, or should I say all but the 1%.

    yea, yea, yea….go ahead and call me a doomer again, but the effect of this madness is exactly what every post here is saying but not saying. If this bunch of elite central bankers are not stopped soon, there will be nothing left but head scratching, and their pet projects like Amazon and the rest of the FANG, and Uber.

    • CV5
      May 9, 2017 at 10:25 am

      This is exactly what Wolf has implied. FED says: Assets values up, wages down. Brilliant!

      All of this a by-product of a fractional reserve fiat money regimen.
      It sows the seeds of its own destruction, first the currencies, then us.

  23. beadblonde
    May 9, 2017 at 8:49 am

    What folks need is more credit. There must be some straightforward way of accomplishing an increase of their available credit. Perhaps tax cuts will help. For that matter the Fed could print some money and replenish their bank accounts to offset the minimum payments on their loans. The Fed can create deposits for them and pay interest on those deposits. Almost all the technical problems are solved and it just takes a little effort and imagination to complete the circle.

    • Kent
      May 9, 2017 at 9:45 am

      The best way to increase credit is to increase wages and savings.

    • Jungle Jim
      May 9, 2017 at 9:59 am

      I know this is going to sound unsophisticated, but credit is just another form of debt, something we’ve already got far too much of. So other than as a short term “sugar fix”, how will that help the situation ?

    • Bobber
      May 9, 2017 at 10:11 am

      What we really need is a debt jubilee combined with a wealth tax. It’s been proven that people with too much money are not happy, and their lives end up in misery. People spend every minute of their lives worrying about denying basic necessities to freeloaders and accumulating wealth to service their fragile egos. These people are too lost to understand whast they’ve become. A nice wealth tax of about 3% per year would free them from their shackles and allow them to re-engage in our society.

      • May 9, 2017 at 10:19 am

        We have a form of debt jubilee and don’t need another one: it’s called bankruptcy.

        • MaxDakota
          May 9, 2017 at 4:55 pm

          Since my tax rate is close to 50% after federal, state, local, I think it is fair to say I am plenty engaged in society. In addition, we donate to our church and various other charities, so there are specific communities with which we are personally and by choice engaged.

          Look up any list of the best vs worst run states, or if you need something even more cut and dry, look at states’ income vs spending. It is immediately clear that the states with the most “progressive” tax schemes are also the most poorly run. California especially does not have a tax collection problem, it has a spending problem! Another downside to over relying on 1% of people for your tax base…the state can’t balance its budget if even a handful of these people leave California.

          California is going to spend and tax itself into the abyss. If it were not important for our business to be here, I would have moved to Texas by now. Still thinking about it!

    • May 9, 2017 at 10:15 am

      Zimbabwe?

  24. Sporkfed
    May 9, 2017 at 9:34 am

    Trump should have concentrated on changing tax and trade policies and left the rest.
    A ten percent tariff on imported manufactured goods with an increase in the standard deduction would do wonders .

    • Your Good Friend
      May 9, 2017 at 11:37 am

      That would accelerate the economy in a big way.

  25. Everett
    May 9, 2017 at 6:17 pm

    Exactly Jungle Jim, people do not need more credit, that insanity is what has brought this whole world to the brink of the greatest financial collapse in history. In 2001, I pulled in the driveway, checked the mailbox, went into the house and threw a letter from my bank on the table. I pointed at that letter and told my wife, something isn’t right with this whole mess. That bank is begging me to borrow more money than I can ever repay. We are getting out of debt and staying out, and we did. I haven’t borrowed a dime since 2005 and I am not going to, this whole thing is an old haystack looking for a match.

    • alex in san jose
      May 9, 2017 at 9:11 pm

      Same here, “neither a borrower nor a lender be” as the old saying goes. If I don’t have cash, I don’t buy it.

      I could see myself buying land or a house, someday, but with a hefty down payment and during a time when “everyone” just knows buying a house or land is a bad idea, so prices are lower than average; hopefully quite a bit lower.

      I can honestly see a time where a large van or small RV set up for living in full time and a storage unit full of MRE’s might be traded for a house or land. People are being “eaten” by the economy now; they’re losing utterly everything.

  26. ML
    May 10, 2017 at 2:00 am

    For some people, money is no object. For others, money is no subject. It’s upon the massive swathe in between rich and poor that the economy depends. That is why there is more focus on the financial standing of the in between than the extremes.

    A while back I read on WS – for where else for me to go to read about what is happening in USA – that a high percentage of Americans only have about $400 savings. Maybe some of
    that percentage is realisng that 400 isn’t enough.

    Or maybe most of them have woken up to the benefits of prioritising: of not wanting to buy anything and everthing but becoming more discerning. Such as getting your money’s worth out of one experience before rushing off to buy another. Every so often it can pay to stop and take stock of what one wants out of life. Whenever that happens, auth.orirites and the retailers shudder because the economic model is based upon consumer spending non-stoo more and more.

  27. rejected by target
    May 10, 2017 at 9:07 am

    I’m a bit late in commenting here (as usual), just thought I’d share this story in relation to the jobs/salaries topic…Yesterday I got a call from some recruiter about a job he’s trying to fill for their client (Loomis Sayles). After discussing the job requirements, I asked is it a temp gig, temp to perm, etc. He said it’s a 12 month contract (thus making my stomach churn) with no chance to go perm. I said sorry but not interested (I was led around previously by Fidelity Investments with those “forever temp” jobs that went nowhere). He proceeded to give his sales pitch about how awesome it is that this company doesn’t hire anybody permanently, that the majority of employees there are contractors, and some have been going on as long as seven years (whoop-dee-doo). And it works out great for everyone! (Yeah, right.) I still declined, said thanks and ended the call. Of course, he was shocked and said they’ve got five of these positions open and he’s hired three already, and none of THEM have any problem with the contract nature of the role. I’d wager they all have a second income source via a spouse/partner so they can afford the luxury of not being able to financially plan beyond 12 months.

    I’m currently waiting on my application for a work permit that will hopefully allow me to move overseas to teach English (and maybe something more). My gut tells me to stick to that plan. If I were to have taken this role (assuming they didn’t disqualify me upon seeing that I’m too “old” for their corporate culture), I’d be looking at yet another year of uncertainty combined with no benefits and at the end of that contract I’d find myself another year older with even fewer prospects to make a living…

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