What is driving consumer spending

Update on a few outstanding economic indicators 

I woke up this morning and asked myself. “What is driving consumer spending?” I know I am weird that way, but the question has been cooking for a while in my greying mind. 

If you look at the chart above it appears that the average consumer is "completely consumed" by the media hype of a recovering U.S. Economy (pun intended).  Consumers are spending again in predictable record numbers and it shows mostly in durables goods. Apparently Mr. and Mrs. Main-Stream Consumer have “drank the kool-aid”, as the numbers shown above reflect a robust recovery since Q1 2010.  To me, the data shows spending, but it does not show a recovering economy. The real answer to whether the consumer is doing better is in wealth addition - “take home pay.”  If the unemployment picture is any guide to recovery, we can learn something.  

First, unemployment from the government shows everything is recovering nicely. Note the downward trend in the numbers.



Trouble is…the numbers are all a “big fat lie.”  The economy is not recovering…it’s tanking…and tanking across many sectors except financial. Here is the real unemployment.



Before you discount the blue line, understand it uses the original calculation created by the government and used for years - before they monkeyed with the formula and dropped out sector by sector in the calculation, looking for ways to simply make the numbers appear better.  Not quite the rosy picture we a being told is, isn’t it.

The only reason why 22% unemployment and soup lines are not the discussion of the day is that the government has found a way to hide the soup lines…they issue EBT Cards…digital transfer of your wealth from the now Chinese financed coffers, to the recipient. We don’t need soup lines when the recipient can eat at Olive Garden.  Here is one chart to show the real data.

The “tell” that the recovery is on the ropes is the rise in unemployment, the lack of jobs being added each month and the increase in the number of food stamp recipients.  1 in 6 in this country are receiving food stamps.  I don’t know about you, but after a while, I find myself beginning to say to myself, “I want some free stuff - I am paying for it” …how about you. I see it in the lines at the grocery store almost every time I am there.  Someone is buying cokes and chips and all the stuff in the “like to have” bucket and paying for it all with tax payer money.

I mentioned unemployment.  Just think for yourself…at 100K jobs a month being added to the “employment role” and approximately 220K “jobs lost” per month in the economy, (mostly to outsourcing U.S. jobs by non-tax paying mega-companies who are figuring out its more profit to have a person in New Delhi make that part, then someone here. All this globalization means the unemployment numbers are going to go up, not down.  

So basically we have more people going out of work and consumer spending is increasing. Great. Then why are they all out buying new cars, going deeper into debt and deeper into a debt filled lifestyle? Simple answer: Low interest credit. Low interest credit allows people to but things they could not afford if a real interest rate of some 7-10% was applied.  Cheap money is why everywhere you look someone is building a commercial building. We don’t need them…but developers are banking on (Big Time) the recovery will take place soon and people will fill them up…I can tell them the gamble is a at best a 50/50 shot. There is no data to support we will pull out of this depression.  In fact it looks like nothing is going to happen until 2016-2017.

Let’s dive in a bit. Momma is working, daddy is working and there is less spending power today, than yesterday.  This is not good…less “bread” to buy bread.  Want proof?


 
Inflation adjusted pay is simply going down, not up. This means the buying power is also going down. I frankly believe this chart is not completely accurate as it uses “FED inflation numbers” which we proved earlier are a bold faced lie.

We switched the world economy from Gold to the Petrodollar so watch the Petrodollar.

Here is gasoline for the last few years and the prediction for pricing in the future. Just understand that in 2014 we are right on target with the curve at $3.60/gal nationally.

What will throw this chart into a higher gear is if we have continued destabilization in the Middle East – like Iran and their ambitions to destabilize the world.  If Iraq and Iran move further towards totalitarian Islam: and there is nothing I can see that will stop them short of boots on the ground, we will pay a larger share to the accumulative 13 trillion dollars to basically “finance terrorists.”  Yep, after the GOV takes a pinch, a large part of your gasoline dollar goes directly to those who hate us and want us all dead.   

I bet you’re asking, “Where did Jim get 13 trillion dollars sent to terrorist? 

This sum is the estimated amount of wealth sent by US Citizens to countries that certifiably hate us and wish us dead, really dead…including our good friends Saudi Arabia who convinced OPEC to use US Dollars to settle international crude oil accounts. These “sandbox” countries needed the wealth transfer initially in 1948 and beyond - now they don’t. They could buy and sell us 10 times over. Sadam was taken out because he would not play ball and threated to settle Iraq’s oil trade in some other currency. So was Gadfly, he was removed because he threatened to create a new gold backed currency. Can’t have anyone leaving the reservation can we?   

Take a deep breath. Politicians sold you down the river on crude oil and basically killed viable alternatives including solar and now HHO. Now, that sale of your future is going to come home to roost.

If we get a disruption in crude supply from the Middle East or some pirate blocks the Straits of Hormuz, (where 60% of Middle Eastern oil must pass), the U.S.A. will grind to a halt in less than 3 days.  

So we started with what the consumer is spending. And we have the largest single spending issue on the table as going up.  Let’s check another critical and larger factor - food.

Here a quote from Today Magazine written today:

“Two months of sharp increases in food prices show grocers are starting to pass along their higher wholesale costs to consumers.

Retail food prices rose 0.4% in March, the same as in February and the largest amount since September 2011. By comparison, the prices of all consumer goods rose 0.2% in March and 0.1% the month before, reports the Bureau of Labor Statistics.

Beverly Cabellon, 61, of Pleasant Hill, Calif., was taken aback by the $38 price for two steaks at Costco recently, up from the $27 she paid last September. "I will be grilling more vegetables and shrimp this summer," she says, adding that she and her husband will likely eat beef once a month instead of weekly. "And I may switch to pork and chicken."

Beef, pork, poultry, eggs and milk have had the most dramatic price increases as drought, a virus outbreak and rising exports have thinned U.S. supplies.

Overall consumer prices rose 0.2% in March, a bit more rapidly than in recent months, and annual inflation was 1.5%, up from 1.1% in February.

Annual inflation was 1.5% in March, up from 1.1% in February. That's well below the Federal Reserve's 2% target, as falling gasoline prices offset rising food costs.

But higher food bills are squeezing households still struggling with meager wage gains, and could crimp spending just as the recovery is expected to accelerate.

With all this talk of rising prices and the cost of milk some 2 times what it was just two years ago, you can bet, most people, and I am now including the middle class in that statement, are struggling to feed their family with a declining purchasing power.

Here is some more data to look at:

This chart compares the rate of interest to commodity prices over a long time scope.  

It shows when “real interest rates” are high, commodity prices should be low. It appears to do this time and again.  However, in the case we have today, interest rates are forcibly low by the Fed and commodity prices are predictably higher.  

Notice the commodity index is never below say 7%.  I think this fact is the “fundamental baseline inflation factor”: keeping commodities above negative or deflationary territory. The traders need to make money and in a declining market, no one makes money.  

It makes sense. If what you use to “measure everything” is decreasing in value year, over year, over year, prices will naturally go up with the changes. In fact it will never fall below the true inflation.  Let’s see the loss of measuring yard stick in two charts.

Or, expressed another way,

You don’t have to be a senior economist to understand the loss of purchasing power. You see it each time you go out to dinner or to the grocery store.  All your wealth, and the wealth of the rest of the world I might add who store their wealth in dollars, has been thoroughly robbed, as in stolen, and is now sitting in gold bars at the Federal Reserve for the benefit of about 50 unnamed people. Yes good people, gold bars…you don’t think they would use paper do you? The greedy thieves win and you, and the rest of the known world, lose. This is why there is a 1% who own 50% of the wealth of the country and its getting worse with each day. Not part of the 1%...so sorry…I am not either. 

So let’s wrap it up…

·         Rising commodity prices

·         Midwest, Texas and California draughts

·         Unstable crude supply, getting more unstable with each day

·         Declining purchasing power

·         Rising unemployment

·         Distorted government numbers

·         Your wealth being stolen each day in the form of inflation

What does it all mean?

·         Deflation…across the board.

o   Your home price is set to fall about 20% once the above knowledge of deflation and unemployment really kick in.

o   Your money is set to increase in value for a short while…maybe some 12 months

o   Your life savings withdrawal will suddenly be able to buy more…because you darn sure aren’t making any interest on those funds nor living off it.

o   You can financially bet on things that rise with the dollar

o   You can take that vacation to Europe

§  To see how many Muslims have taken over…

·         Why would anyone want to go where American kidnappings are routine I don’t know?

o   You can pay off your debts with cheaper money

o   You can sell your big gas guzzling car for about “half what’s worth” because if your car does not get 30 miles per gallon, it’s going to be declared “unsellable junk.” 

§  (Remember the big Excursions? When gas hit $4.00 a gallon they were offering 80 cents on the book value dollar at dealerships and they were flooded with walk away turn-ins.)

o   You can pay for your kids’ liberal socialist indoctrination into the new world order.

o   Your property taxes will go through the roof as they adjust you tax rate up to compensate for the loss of revenue from a declining asset class.

You will think everything is ok if we can just get to the other side…trouble is the other side is considerably different…and a paper for a different day.  What’s next: The other side of deflation…hyperinflation…and it going to make right now look like an all-expenses paid luxury cruise.    

Stay tuned.

Jim Rohr

jimships@yahoo.com