Consumers Can’t Carry the Economy
Recently I read about an interview The Wall Street Journal did on thirteen economists on the recent increase in Retail Sales, and here is a recap of what they had to say about retail in todays economy.
Retail sales were boosted in July by autos and gasoline – and that’s mostly it. Ex-auto and gas sales dropped for the second time in three months, and had bad breadth – only 3 of 11 retail categories rose on the month (eating/drinking, non-stores, miscellaneous).
Today’s retail sales report is the logical reflection of an economy having households riddled with doubt regarding income, employment, and the valuation of their main assets – homes and equities. Consumers pulled back on spending in July in all categories with the exception of autos and gasoline – and energy prices have since come off.
The most notable drag on spending continues to be persistent weakness in the heavily weighted grocery store component, which accounted for 13% of overall retail sales in July and 20% of retail control. Grocery store sales fell 0.3% in July, a fifth straight decline for a 4.3% annualized drop over this period. Food prices in the CPI report have risen 0.9% annualized over this period, so the decline is even bigger in real terms.
As long as the deleveraging process is ongoing, and it remains most certainly ongoing, consumer spending will be limited. We are fond of saying that in the medium term, the paying down of and defaulting on debt is a positive. It will help lay the groundwork for more sustainable growth in the future. But in the immediate, the process is painful, it limits output and quite frankly, its just no fun at all.
The consumer is simply not in a position to drive the recovery and we expect more deleveraging ahead. While the labor market continues to tread water, people will remain cautious and hold off from any big ticket purchases.
Bottom line: Households are as spooked as the private business sector. Government policies and legislation have caused all three to pull in their horns since the first of 2010, households are spending less and saving more; businesses are reluctant to hire and reserving their capital to equipment replacement purchase not expansion. While the public sector has benefited greatly by the stimulus the private sector is waiting to see tangible evidence to bet on the future, parked on wait and see.
And thank you for making me Your Orange County Real Estate Connection.
Michael Caruso, Broker ABR ABRM CRB CRS GREEN GRI
2007 President, Orange County Association of Realtors (949) 753-7900