The Possibility Of A Consumer Led Recession Just Increased Big Time

With the release of the latest GDP report, the possibility of a consumer lead recession just increased.

First, before today's GDP report there was a series of charts that caused me great concern. Here they are in the appropriate order.

Year over year job growth has been deteriorating for some time. This has lead to

declining real income. As a result

Consumer confidence is dropping, as is

Consumer sentiment. Therefore

Personal Consumption Expenditures are dropping

This is not a new situation. Retail sales have been soft for the last few years

And the year over year change is now negative

Now we have two new key pieces of data from the latest GDP report.

In the first quarter of 2008, personal spending on durable goods decreased by 6.1% and personal spending on nondurable goods decreased by 1.3%. The only area of personal spending to increase was services, which increased 3.4%.

In other words, in the first quarter of 2008, people were buying less "stuff". And it's not just a decrease in one category but both categories of physical goods that raises my concern.

Going forward the key variable to watch will be job growth. Declining job growth means declining income, lowering confidence and thereby decreasing spending further.

All of this also means that if this trend continues (declining job growth leading to declining wages leading to declining sentiment leading to lower spending) the second half of this year might have some ugly surprises in store for us.

Comments

[olephart]

"The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in March, before seasonal adjustment"

http://www.bls.gov/news.release/cpi.nr0.htm

That is an annual rate of 11% inflation not the 3% reported after the "seasonal adjustment".


"Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 0.6 percent in the first quarter of 2008"

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

The 0.6% increase was based on the aforementioned bogus inflation data. Had the untampered data been used the resulting GDP number would have been -1.2%. Likewise, the prior quarter would also have registered a negative number.


U-3 (official unemployment rate), April 2008 - 5.0%

U-6 Total unemployed, April, 2008 - 9.2%

http://www.bls.gov/news.release/empsit.t12.htm

The underlying unemployment rate is almost twice the headline rate.


Thus with inflation and unemployment running at about 10% each the misery index is at 20%. Couple these with a contracting economy and you might predict a consumer led recession.

[dadw5boys]

Bankrupt the people then blame them????

That is the best one I have heard all day!

[dadw5boys]

Let's see Government, Drives wages down with illeagl immigration and H1-B Visa's, Drives the value of the dollar down, takes on a huge National Debt that will not be paid off in 4 lifetimes, enacts Homeland Security that assures that not citizens has any rights they can't afford to enforce, sit FAR right wing Judges on every Federal Court in the countrymaking sure business never faces damages for their actions, robs Social Security (does a lock box look good now?), Socialized Risk for Wallstreet Gamblers while Privatizing the Profits, No Bid Contracts what can one say here without losing their lunch, unfunded medicare prescription drug plan that is bankrupting Medicare, wealthy tranfers to would be terrorist in Iraq to buy a cease fire Al Sadr, 4000 dead and Mission Accomplished, AWOL PRESIDENT, Veterans commiting with mental problems caused by excessive stress from over extended tours of duty in a WAR ZONE, enviormental policys that have lead to the closing of the fishing season for Salmon, a border fence that was paid for and called useless by the people who piad the bill no fence was better and cheaper, $ 300 Million to each Barbra bush, Laura Bush and Lynn Cheny with not oversight, Haliboutron with no oversight, Economic director for Iraq was an Ice cream Salesman no college degree and no business experience, where does it stop.
To tired to list the rest it would take 6 months just to type.

[Reio2288]

I think some are waking up. Its not the war, its not congress, its not obama or clinton. Its BIG BUSINESS. These greedy corporate shills have been sucking america dry. In the name of greed and profits for the extreme few, like a parasite they have ravaged the country all the time hiding in the shadows blaming american and our government. Well the shows over jerks. Your terrible jobs that abuse workers, you tamped the american working class to death and took advantage of the blue collar class for so long that people see thru your phoney disguise and your enormous profits at the expense of the working man and woman. I shop local independant businesses, I can only hope that that the rest of america will do the same. Just for the summer, DONT SHOP ANY BIG BUSINESS and the message to stop destroying average working joe will be clear our economy will improve with more local businesses and employees will be treated better by local owned businesses. BIG BUSINESS GREED IS DESTROYING AMERICA !! These guys think they are immune they are so powerful. Lets take our business away and give it to Mom & Pop businesses

[dadw5boys]

and used our military to destory small countries.

[mbaty]

Dear consumers, we've got to keep shopping. But now it's time to shop for the right things. Let's shop around and find the very best healthcare system that covers all. Let's shop around and find the most effective efficient way to build an infrastructure of public transportation. Let's shop around and find the most effective way of building bridges between disagreeing nations. Let's compare prices and decide to spend our money on making sure everyone has food, clean water, and shelter--and we all know the money's there if we want it; just look at the war. And let's use our collective consumer power to find the most effective and equitable form of government--and we'll shop around to find the absolutely wisest, most informed and honest politicians. Don't buy the hype; we've got enough already, and pretty words are cheap when they are insincere. Finally, let's shop around to find the very best economy, knowing that money is just a number placed upon an item of service or a good--an arbitrary value that we've made up; and since we're making it all up and printing more money and fixing the numbers to look good, we might as well make it fair and equitable for all. Money is a collective agreement, and it's time for us, as the consumers, to renegotiate.

[hopeless277]

Like what??? You make these sweeping statements and then walk away. I thought only Republicans did that.

[elpollo]

Bondad, your analysis would be far more gloomy if you didn't take all your data from the Bureau of Lying Statistics. Probably their most egregious lying is with with unemployment and CPI. I'm glad to see you didn't use the unemployment BS. Unfortunately, CPI bullshit gets added to everything preceded by "real." I wish "real" were real.

I was reading an article on the history of the Bureau of Lying Statistics recently by the brilliant former Republican, Kevin Phillips. I believe it was in this May's Atlantic. It seems that LBJ started this perversion to prevent the economic truth of the Vietnamese War from being made public under his reign.

[berensma]

Harper's. Good article.

[bluesnot]

Are you saying the scary statistics are even worse than they appear? That this is as positive as the number massagers could get? Yikes.

[Seamus45]

Even with the BS statistics from the DoL, we have had 4 straight months of negative job growth.
That has only occured in the past during a recession, not before.

The DoL's birth-death model is a real joke.
45K construction jobs added in April!
Where????

[KillTheMessenger]

Looks like they need to introduce a new subject in economics classes: "Why consumer spending on borrowed money is not a growth but an inflation driver."

Retail produces almost no manufacturing jobs in the US, it produces very few durable goods, adds nothing to the skills of retail employees and creates a low income workforce with no perceivable future.

[Crowhaul]

I can't speak for anyone else but, when a few days after 9/11 Bush encourage me to get out there and 'keep shopping', I swore resolutely to stop being the consumer they want me to be. I thought, if this is how I, as a freedom-loving American, am supposed to behave, something is seriously wrong here. Keep shopping? Sweet jesus. The American-as-consumer days are over.

[Rockyman]

We are in for some "ugly surprises" indeed. Consumer spending has been unsustainable without borrowing huge amounts of money. Wouldn't it be wiser if we only bought things with money we have EARNED to this point and not keep reaching out to the future and drag as-yet unearned money into "play" now!

[joebhed]

" All of this also means that if this trend continues (declining job growth leading to declining wages leading to declining sentiment leading to lower spending) the second half of this year might have some ugly surprises in store for us."

And, the first half of next year.
And the second.

Hale identifies a number of inter-related factors now playing a negative role in determining the state of the economy.
But the big unknown out there right now is the scale of the next "haircut" to be taken in financial services as a result of the ALT-A mortgage market fallout.
Until either that fallout begins to take on a structure, or until something is done to reduce its impact, it is just too soon to say which quarter, or which half, of which year will see a real turnaround in the US economy.

There is a slight chance of a giant bailout to the holders of the ALT-A mortgage securities coming down the pike.
The economic advisors of both Dems and Repugs would rather see a huge increase in the national debt, and further tightening of the noose around the American taxpayers' necks, than have to deal with the continuation of the negative factors that Hale describes.

Consumer confidence will return when the government takes proper steps to restore that confidence. And, to me, that point is not marked by the government digging further into the grandkids' pockets to keep this charade going.
So. 2010? 2011?

[WIpatriot]

Gotta agree, joe. Bernanke will buy this junk MBO and dump them into Fannie and Fredie, while Paulson wants to give complete economic authority to the Fed.All of the candidates' econ advisors will continue on this path. However, I see nothing down the road that indicates we will get out of this mess by 2012 or any year, until we get some economists in the administration that have the people's interest at heart and are not beholden to Big Biz.

[Rockerbabe]

HuffPost's Pick

It is about time! I paid off my credit cards last year and will have the second mortgage paid off by early summer. I now pay for most purchases with cash. It is going to stay that way if at all possible.
I am sick and tired of the hyper-marketing of EVERYTHING. I am tired of the overly paid executives. I am tired of pay raises that don't even cover the cost increase in my medical insurance. I am tired of the oil barons and their never-ending greed. I am tired of the Congress and other elected officials who don't listen to anyone on limiting government spending (except on healthcare for the elderly and poverty-stricken). I am tired of government officials who get pay raises I only dream about.
I am tired of all the platitudes about jobs in this country and no one doing much to keep the good work here, so all the employed workers can actually afford to buy the products being made. I want this current President and his henchmen to become even more irrelevant than they already are. I want less money for the government, so maybe, there will be less war.
I want the people (the money shakers, mortagage makers, etc) to suffer just like those being forclosed on. Washington needs to clean house and Wall Street's house and consumers refusing to buy all these "goods and services" is a good way to keep our money out of their greedy hands.

[radicalcentrist44]

Quit crying, you sound pathetic.

[MilwaukeeDan]

radicalcentrist, thanks for your great input to Bonddad's blog, I'll look forward to your next bits of wisdom. Please explain how you can be a radical centrist, on second thought, forget it.

[TommyBobama]

I agree that if the government "cleaned house" and took over the economy then you would get your wish. Everyone in the country would suffer just as much as you.

[WIpatriot]

Just wondering how you made the leap from "Washinton cleaning house" to taking "over the economy". TB...or are you just on your 'liberals are socialists' rag again?

[berensma]

I am tired of this ,too.

[dadw5boys]

Well now build your savings and I pray you have no Illness and maybe you won't be one of the Millions of Americans who work 40 year or more and all the have is a home and a few grown children to show for it.

Then the Medical Bills will take the house as you live longer. GOOD LUCK!

[fisharefreinds]

Nope, this is a concerted effort to create an Americas union, like the Euro. In order to do this the dollar had to be deflated and no longer the world currency.

[WindFeather]

Huh? did we read the same post? bottom line...I hope that our economy does NOT return to "consumer" based...my gosh...they only way to grow legitimately..is not to SHOP..is it to BUILD..and if we have to suffer through this down turn..and "if" some good comes..like saving for the future... all the better..not this year or next..but yes...in 20 years...

I say..let us not be buyers..let us be builders and inventors and sellers... That is what made American a once great nation..and we can do it again... the kids can and will live without 25 wal-mart christmas presents...trust me..

[namron]

"Lead" is the correct use, Wilbur. You and W. attended the same high school?

[AlphaOverdawg]

Wrong. You probably think "alot" is a word also, and don't realize the "effect" of bad spelling and how it can "affect" perception. Did you go to high school?

[ErnestineBass]

Thank you, AlphaOverdawg. A+.

[TommyBobama]

Wilbur is correct. You're not.

[kors8858]

The time to learn the Canadian National Anthem is upon us. The intellects of this country will need to bail very soon, before this becomes a true dictatorship. Just as many of the intellects fled Germany, anyone with a college degree needs to flee America and her RepubliChrists. Allow Darwin's principles to take hold and then come back in 15-20 years.

[dadw5boys]

They are buying jets to haul all their cash out of the country.