Is The Inexplicable American Consumer Rebelling?

The strongest and toughest creatures out there that no one has been able to subdue yet, the inexplicable American consumers, are digging in their heels though the entire power structure has been pushing them relentlessly to buy more and more with money they don’t have, and borrow against future income they might never make, just so that GDP can edge up for another desperate quarter.

But it’s been tough. Despite the Fed’s insistence that inflation is “contained,” or its periodic fear-mongering about deflation, consumers have been hit with rising costs. Tuition has been ballooning—up 21% in California in 2011 alone! Student loan balances exceed $1 trillion. Some parents who are still paying for their own student loans are now watching their kids piling them up too. Healthcare expenses have seen a meteoric rise. And so have many other items that cut deep into the average budget.

Inflation is a special tax. It’s not that horrid if it’s small, if higher yields compensate investors and savers for it, and if higher wages compensate workers for it. But that hasn’t been the case. The Fed’s Zero Interest Rate Policy has seen to it that entire classes of investors and savers get their clocks cleaned; and wages haven’t kept up with inflation since the wage peak of 2000—with the very logical but brutal goal of bringing wages in line with those in China.

But for a welcome change, disposable income adjusted for inflation, reported earlier this week, actually rose 0.3% in June from May. So spending should have gone up as well. It didn’t. The inexplicable American consumer spent less in June than in May. And April. The decline was focused on goods, the lowest since January.

And instead of buying goods with the additional money they’d earned, they saved! What temerity! It wasn’t a one-month fluke. The savings rate reached 4.4%, after a fairly consistent uptrend from the November low of 3.2%. An unusual and courageous act of rebellion in face of the punishment the Fed inflicts on savers.

There’s other evidence: while new car and truck sales weren’t great in July at a seasonally adjusted annual rate of 14.09 million units—down from June’s 14.38 million and February’s 14.50 million, the high of the year—they concealed ominous undercurrents. Honda’s sales jumped 45.3% and Toyota’s 26.1% over July 2011. After the March 11 earthquake last year, supply-chain problems created shortages, which the flood in Thailand made worse. Brand-loyal buyers who couldn’t find the right model, option package, or color, rather than switching to other makes, delayed their purchase—thus creating pent-up demand. Now, supply problems have been resolved, and buyers are swarming all over their favorite dealerships. This specialized pent-up demand obscured a huge problem: GM’s sales dropped 6.4% and Ford’s 3.8%. The two leaders taking a simultaneous turn south! This doesn’t bode well for total vehicle sales once Honda’s and Toyota’s pent-up demand has been satisfied. Another act of rebellion by the inexplicable American consumer.

But the Commerce Department, in its press release on income and spending, had a convenient answer: blame “the economic turmoil in Europe.” For everything. And then it added what was practically a campaign ad: “Therefore, it is critical that we continue to push for policies that will grow our economy and support our middle class, such as abolishing the Fed (sorry, my screw-up) the remaining proposals in President Obama’s American Jobs Act.” And it goes on to praise Obama’s tax proposal. Priceless! Expunging the last vestiges of objectivity from our government agencies, such as the Department of Commerce whose Bureau of Economic Analysis had collected the numbers.

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