Evidence is mounting that the days of pandemic-era profligate spending may be over in a bad sign for stocks and corporate bonds.
Consumers are pulling back. Consumers are pulling back. Photographer: Joe Raedle/Getty Images ByLisa Abramowicz March 28, 2022, 5:00 AM EDT
Signs are emerging that the resilience of American consumers is rapidly waning, potentially undermining one of the few remaining pillars supporting the bull market in equities.
U.S. households have until recently mostly absorbed higher prices on everything from coffee to chicken to clothes, helping companies maintain fat profit margins despite higher input. But that doesn’t mean consumers were happy about paying more for the same goods, which is why the University of Michigan’s sentiment index has steadily deteriorated to the lowest since 2011.
Steadily Deteriorating Consumer sentiment has dropped to its lowest since 2011
Sources: University of Michigan, Bloomberg
The line from the bulls has been to watch what consumers do, not what they say. And for the most part, the bulls have been right about consumer spending, which is why many investors remain positive on stocks and the riskier parts of the credit markets. Although Americans have griped about higher prices, they have kept buying goods and have increasingly gone out to eat and started traveling as the pandemic waned.
But the latest surge in inflation rates, stemming in part from rising energy prices as a result of Russia's invasion of Ukraine, has pushed many households to the breaking point. Energy prices have surged about 26% over the past year while food costs have jumped 8% in the largest increase since 1981, according to Joseph Lavorgna, the chief economist at Natixis North America LLC. These two inputs account for more than 20% of household outlays, he wrote in a March 23 research note.
Meanwhile, the big increase in homes prices and the recent increase in 30-year mortgages rates to 4.5% from about 3% last year has pushed home loan payments as a percent of family income to 22.4% on average for new buyers from 18.7%, according to Tom Porcelli, the chief U.S. economist at RBC Capital Markets. Standard Chartered Bank strategist Steven Englander calculates that housing affordability is the lowest since 2007, with costs an estimated 15% higher in March than December.
Retail sales data have been resilient on a nominal basis, supported by inflation that isn't stripped out of the numbers. But a look at unit sales of general merchandise goods such as apparel, footwear, toys and sports equipment dropped in nine out of 10 weeks between the end of December and early March on a year-over-year basis, according to NPD Group data cited in a recent Wall Street Journal article. The report noted that 43% of consumers recently surveyed said they would delay less-important purchases if prices kept going up.
Analysts expect this trend to show up in Thursday’s personal consumption data, with the pace of increased spending expected to lag behind the inflation rate. It will also be important to watch the saving rate, which has dropped back to pre-pandemic levels. If the rate falls further, it may show that consumers are whittling down cash piles built up during the pandemic. Even if the rate stays the same, it may indicate that the days of profligate, pandemic-era spending are over.
Back to Normal The U.S. personal saving rate has dropped to pre-pandemic levels
Sources: U.S. Commerce Dept., Bloomberg
The shift among consumers has been subtle, but one that has consequences amid the monetary and fiscal policy tightening that is currently happening. Consumer spending accounts for almost 70% of the annual economic output, up from around 60% in the early 1980s, the last time consumer price inflation was as high as it is now. The more consumers push back on higher prices, the bigger the ripple effect throughout the economy. Companies will see their profit margins shrink, diminishing their appetite to expand, invest or hire new people who are demanding substantially higher wages.
This isn't a reason to sell stocks or high-yield bonds outright. Many companies still have high cash balances and they have taken advance of buoyant credit markets in recent years to extend their debt maturities at historically low interest rates. But at the same time, the emerging weakness in consumer spending is enough to suggest that it's no longer safe to employ a “buy the dip” investing strategy like it was just a couple of months ago.
The longer consumers rein in their spending in response to the highest rates of inflation since the early 1980s, the more difficult it will be to emerge from the recession that seems increasingly inevitable. As we now know, recessions resulting from sudden exogenous shocks, such as the Covid-19 pandemic-induced on in 2020, can be reversed or offset extremely loose monetary policy and extremely generous fiscal policy. We may be about to find out that recessions born out of stagflationary shocks are harder to mitigate.
Blocking those who argue to argue, eliminates the argument.
well, this sounds like a free market problem. corporations are still sitting on tons of cash, and keep raising prices despite not having much of any reason to. they can invest in new supply chains and other infrastructure projects as well. they just don't want to.
there's possible a government solution to it, but anything the dems do will just be labeled socialist anyway. besides, don't matter who you vote for, we have no say so over who sits on the corporate boards, and they're the ones - the 'free market' - that dictates the economy. maybe people could stop storming the government and storm a corporate headquarter.
“To announce that there must be no criticism of the President, or that we are to stand by the President, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public.”
“To announce that there must be no criticism of the President, or that we are to stand by the President, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public.”
“To announce that there must be no criticism of the President, or that we are to stand by the President, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public.”
You know, it’s interesting because, at my core, I espouse more conservative (read: not Republican) fiscal policies and methods, but this is a case in which I actually agree with you and OCD.
My belief is that the free market isn’t “free” anymore. I think that competition breeds innovation and helps the consumer with pricing, but do we honestly have that much of it anymore? Maybe to some degree, but definitely not to the level that we had during the height of American economic dominance.
All the lobbying money, M&A’s, and strangling/buyouts of emerging competitors, I feel like, has resulted in companies that previously became strong through their competitive edge now controlling and dictating the market, often collusively with their shrinking pool of competitors (airlines for example). The whole “too big to fail” bailout was good evidence of that, and just had me seething.
In an ideal market, IMHO, companies should - for the most part - be enabled to rise or fall freely based on the value they provide to the market. They shouldn’t be rewarded for their laziness and past reputations.
Blue ostriches on crack float on milkshakes between the sidewalk titans of gurglefitz. --YTown
1. If Biden is responsible for gas prices (Which seems to the battle cry from the right) How do you explain gas prices in every other country that Biden has no hand in?
2. How do you and others on the Right explain the HUGE profit increases for Oil Company profits?
#GMSTRONG
“Everyone is entitled to his own opinion, but not to his own facts.” Daniel Patrick Moynahan
"Alternative facts hurt us all. Think before you blindly believe." Damanshot
in everything that you've witnessed from your level, would you say the economy has turned more into a monopsony? or are we not there just yet.
“To announce that there must be no criticism of the President, or that we are to stand by the President, right or wrong, is not only unpatriotic and servile, but is morally treasonable to the American public.”
1. If Biden is responsible for gas prices (Which seems to the battle cry from the right) How do you explain gas prices in every other country that Biden has no hand in?
2. How do you and others on the Right explain the HUGE profit increases for Oil Company profits?
1. Biden isn't technically responsible for what the price of gas is. He can attempt to influence it.
2. I have covered this in my explanation margin/markup/COGS in the sigh.... the economy thread.
Bottom line... COGS go up. margin stays and "profit" goes up.
Blocking those who argue to argue, eliminates the argument.
The president could just freeze prices so nobody could raise their costs of goods to the consumer. But then that would be labeled socialist or communist.
Ooops! Wait, never mind....
Intoducing for The Cleveland Browns, Quarterback Deshawn "The Predator" Watson. He will also be the one to choose your next head coach.
1. If Biden is responsible for gas prices (Which seems to the battle cry from the right) How do you explain gas prices in every other country that Biden has no hand in?
2. How do you and others on the Right explain the HUGE profit increases for Oil Company profits?
1. Biden isn't technically responsible for what the price of gas is. He can attempt to influence it.
2. I have covered this in my explanation margin/markup/COGS in the sigh.... the economy thread.
Bottom line... COGS go up. margin stays and "profit" goes up.
There are those that feel he is solely responsible for rising fuel costs.. In fact those same people claiming that now, are the same ones that praised Trump for lower gas prices.... They completely forgot to think about the lower usage. Attempting to influence will never be accepted by the Right... Especially the FAR Radical Right (Just thought I'd use that phrase given how much they use Liberal Elite Left)
That works out fine except when the COGS don't go up significantly.. We are talking about an increase based solely applying the same percentage to a larger number.. The profit increase far outstrips that.
#GMSTRONG
“Everyone is entitled to his own opinion, but not to his own facts.” Daniel Patrick Moynahan
"Alternative facts hurt us all. Think before you blindly believe." Damanshot
The president could just freeze prices so nobody could raise their costs of goods to the consumer. But then that would be labeled socialist or communist.
Ooops! Wait, never mind....
smh. he can't freeze prices on gasoline.
Blocking those who argue to argue, eliminates the argument.
I would like to point out that these polls are conducted on landlines. Who the hell still has a landline? I do, because I don't give out my cell, but we barely use it and I have never been polled about Trump. But most people with landlines are older and right leaning.
Also, all polls in the Trump era have been consistently wrong.
Last edited by OldColdDawg; 03/30/2208:48 PM.
Your feelings and opinions do not add up to facts.
But seriously, I don't want to pump Biden up because there is plenty I don't like about his presidency. However, at this point he absolutely doesn't deserve his rating or all the BS rhetoric coming from the right. They wouldn't boot Trump for being full on brain dead, I'll be damned if they are going to do it to Biden. Sooner or later we'll work together or destroy each other, the right and left in America, but until then we are going to focus on ridding America of all things Trump.
Last edited by OldColdDawg; 03/30/2210:00 PM.
Your feelings and opinions do not add up to facts.
Yeah, that's a grand total of one thing. And you know if a Democratic president froze prices the likes of you and 40 and Peen would label him a communist.
Intoducing for The Cleveland Browns, Quarterback Deshawn "The Predator" Watson. He will also be the one to choose your next head coach.
I’m curious, what are your thoughts on Karl Marx’s theories of alienation via capitalism and how do you think that fits into the current American capitalism dynamic? If you see any correlation to his theories, what do you believe is the best way to stave them off?
Blue ostriches on crack float on milkshakes between the sidewalk titans of gurglefitz. --YTown
I’m curious, what are your thoughts on Karl Marx’s theories of alienation via capitalism and how do you think that fits into the current American capitalism dynamic? If you see any correlation to his theories, what do you believe is the best way to stave them off?
Why ask me? Just tune in to your CNN or MSNBC to get your facts. pfft
I’m curious, what are your thoughts on Karl Marx’s theories of alienation via capitalism and how do you think that fits into the current American capitalism dynamic? If you see any correlation to his theories, what do you believe is the best way to stave them off?
Why ask me? Just tune in to your CNN or MSNBC to get your facts. pfft
I think you're giving MSNBC/CNN WAAAAAY too much credit thinking those topics are discussed on their networks. It also sounds like you got caught mentioning something you know little about.
There is no level of sucking we haven't seen; in fact, I'm pretty sure we hold the patents on a few levels of sucking NOBODY had seen until the past few years.
All while you swore to us that Karl Marx was just a misunderstood nice man.
You have mistaken me for Trump again.
The Q runs deep in 40
Whats funny about all these Trumpian Q types,,, They forget that Trump was and remains a fan of Putin, Xi and Un. All dictators.. Exactly what he attempted to do here in the USA...
They forget that he pushed his Minion to riot on Jan 6.
They forget he lied over 30,000 times in 5 years,,,
They forget that he thinks someone is great until they do something he doesn't think shows how much they love him,, then they are worthless (mo brooks as a recent example)
He'd turn on his Mother if she said something bad about him...
When you follow the Q, you can't expect a reasonable thought process.. There are many on here that prove that everyday.
Last edited by Damanshot; 03/31/2203:30 PM.
#GMSTRONG
“Everyone is entitled to his own opinion, but not to his own facts.” Daniel Patrick Moynahan
"Alternative facts hurt us all. Think before you blindly believe." Damanshot
The Original Article is Wrong, it repeats the Lie that inflation has to do with some war in Ukraine. The Inflation is because the democrats are in offices, because of a stolen election, and the democrats brought the inflation because they think money grows on trees, and don't understand the principle of value, like a dollar has a value.
" stemming in part from rising energy prices from Russias' invasion of Ukraine"
Russia couldn't effect the energy prices as much as Biden and the democrats who shut down oil pipelines on DAY ONE of his presidency, and have for decades been hostile with regulations and crazy laws to any kind of business that would benefit Americans, by way of the American economy, or American business success.
Russia, though their invasion of Ukraine is almost without a doubt encouraged because they have friendly democrats who will aquiesss to them and be soft on foreign relations, which the Russians probably helped get into office with their stolen election, still couldn't effect the energy prices near as much as the democrats, who with the reigns of policy, have a direct impediment on Americas' energy production
Can Deshaun Watson play better for the Browns, than Baker Mayfield would have? ... Now the Games count.
