09 May 2007


US consumers may be getting tired

Signs are emerging that American consumers may be getting tired of carrying the economy. How much they pull back will be a major factor in whether the US economy keeps slowing or whether the pace of growth perks up. Consumer purchases of goods and services increased at a robust 4% inflation-adjusted annual clip in the past two quarters. But economists and retail executives now see signs that the anticipated slowdown is at hand. Gasoline prices are pinching, the housing slump continues and the labor market, which has provided significant support, is showing signs of fatigue. Consumer spending accounts for 70% of all spending, so a slowdown is always significant, but even more so now with business investment sluggish. Spending by households was one bright spot in the first quarter at a time when other forces pulled economic growth down to a 1.3% annual rate, the slowest pace in four years. A new survey of economic forecasters by WSJ.com anticipates a substantial slowing in growth of consumer spending in coming months. After the first-quarter increase of 3.8% at an inflation-adjusted annual rate, the economists, on average, expect spending to grow by only 2.2% in the current quarter and then recover a bit to 2.7% growth in the second half of the year. Asked to name the biggest risk to consumer spending going forward, 39% of respondents said housing poses the biggest challenge. Another 32% pointed to weakness in the job market, and 18% cited high energy prices.

There are some bright spots on the economic horizon. Manufacturing is showing signs of a rebound, and a recent pickup in capital-goods orders suggests business investment may bounce back from a soft stretch. Most economists also think the trade picture and government spending will provide better contributions to growth in the second quarter. Federal Reserve officials will weigh these cross-currents, and the inflation outlook, when they meet today to ponder the near-term trajectory of interest rates. No immediate rate move is expected.
(Wall Street Journal 070509)

Man, everyone's tapped out on their credit cards, racked up any available loans they can get, all while the prices of energy and food go up fast, and a nice bout of inflation is on the way. Salaries are going up much slower than inflation, if at all, and there's any wonder why everyone's getting fatigued? Like we've discussed before, recessions might be largely a psychological thing. Everyone just gets tired from running, running, running faster to stay in the same place, and eventually everyone collectively needs to take a breather!

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