Wednesday, March 16, 2016

Consumers & Our Economy

"There are three kind of lies: lies, damned lies and statistics."

- Mark Twain

I think this applies to the talking shills in the media when referencing to the consumer. Yes, cars sales are up along with rents and home prices. These high priced items reflect consumer spending, however everyone has a limit. The first sign of that limit was revealed in the Consumer Retail Report by the government. It was down .01% for February and revised way lower for January. Furthermore, when you read the latest report on consumer spending by CardHub, it makes you realize a couple of possibilities. One, spending will slow or defaults will rise. That resolution is based on the total figure of debt. The average debt on household credit, according to the findings of the study is $7,879.00. In addition, at the end of 2015, the total debt outstanding on credit cards stood at $917 billion. Together, this points to a tipping point on an individual's ability to pay off their debt. If they just make minimum payments, they will suffer the effects of compound interest, to which credit card companies will raise on their card rates. It leads to default somewhere down the road. Keep in mind, if your car goes repo, you are stuck between a rock and a hard place.
Old Habits
die hard as it seems that Americans are returning to their bad habits of living beyond their means. In the last quarter of 2015, consumers added $52.4 billion in debt and for eight of the past 10 quarters, consumers have increased their debt. When you pay off your credit cards with minimum payments, you end up with maximum interest charges. Consider the biggest age group at present: the Millenniums. They have the highest school debt in history and they love their social media. They love their gadgets and technology. They use Pay Pal and not cash. They don't understand what it takes to make a buck. They live way beyond their means. As a result, most live with their parents because debt is their albatross. Not good for our future economy. This gets reflected by corporate decisions. Stores are closing which means vacancies rise along with commercial landlords ability to meet debt obligations on their properties not to mention job losses.
Consider this:
Retailers are closing stores because sales are down, along with revenues. The following is just a sample of well known brand names that are feeling the pinch: Sears, Macy's, Men's Warehouse, Gap, Gameboy, WalMart and John Deere.
Bottom line: Even with all the spending and credit being utilized, the effects on the overall economy is shrinking sales and revenues with the consumer reaching the limit of ability to safely meet their expenses and obligations. Not good going forward.