Is There a Puzzle to sluggish consumption?… No, Look to Capital Income
“It doesn’t “add up,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York. “Consumer confidence is at a cycle high, and consumption is declining. You also have a situation where real disposable income is rising significantly over the first five months of the year, and consumption is falling. It’s sort of like, which of these is not like the other?”
Like I wrote elsewhere, as the stock market and housing market slow down, declining consumption by capital income will offset consumption gains by labor. This is how I would explain the dilemma. We have to wait a couple of months for the data to show this. But the puzzlement of Neil Dutta will have an explanation.
And today the Dow is back to hovering around 16,800, a level which I saw as the limit of the Dow back in April. It is sitting at 16,804 as I write this post. Stocks are stagnant. Stocks are not conducive to consumption by capital income which reached very high levels during the stock rise of the past two years.
Consumption isn’t declining. That is government mumble. They need to correct with revision.
I think the issue is somewhat simpler for consumers Edward.
First is the cost of gas, the oil choke collar has reengaged, and this acts as a brake on consumer spending.
Second is the cost of food, food is a bigger priority than clothes and leisure activities, and higher grocery prices means less disposable income.
Third is the lack of really good sales, years of bargain hunting and looking for the best deals has made consumers unwilling. To pay full prices, anecdotally all the women in my family have admitted to holding off until bigger sales come for new clothes.
Finally, a mix of paying off debts.and putting aside money for savings have all led to decreased growth in consumer spending.
John,
You make a good point. From 4thQ 2013 to 1stQ 2014, consumption rose.
However, there are certain sectors that have declining consumption. The stock analysts are watching those. They come from individual company reports. The government has not released the macro aggregate numbers yet, but specific companies are reporting to the stock exchanges. And the stock traders are seeing trends of consumption declining in certain sectors.