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

[Wilbur]

Consumer "lead" recession? Jeez, try consumer LED recession. Doesn't ANYONE on HuffPo know spelling and/or grammar? This is pathetic!

Wilbur

[Portmanteaux]

Wilbur....future Secretary of Education

[AlphaOverdawg]

Right. What exactly is "consumer lead", and how does it differ from plain old lead? Or is that a "lead recession", and how does THAT differ from your ordinary recession. Even better than "consumer led" is "consumer-led". These distractions are killers. Maybe they should be ignored in favor of the real import of the blog? But it's not very encouraging to see such gaffes in a bold headline, tends to reduce confidence in the writer's message. Where are the editors?

[JBS]

Spell-check only tells if the word is spelled correctly, not that it's an homonym.

[elljay]

I believe this vindicates Wilbur:
http://www.merriam-webster.com/dictionary/led

[Thagan]

U.S. Commodity futures Trading Commission
Agricultural Forum
Apri8l 22, 2008
webcast: http://www.cftc.gov/index.htm

I listened to the April 22 Agricultural Forum and I am outraged. This has to stop. Hedge funds and pension money managers are distorting the real cost of supply and demand in the commodity markets without having to buy a bushel of anything. Further they are making margins call and squeezing out the small farmer. This activity is killing the economy, people worldwide are starving, and gas prices are unreal. No one in America is buying the thin excuses given for the cost of oil rising from $25 dollars to over $100. It is clear that price should reflect actual cost of supply and demand. No one has the right to drive up artificial prices at the expense of the consumer. It’s tanking the economy on every level from homes, retail business, farmers. STOP THIS PRACTICE NOW.

I googled commodity and hedge funds and found tons of hedge funds including our big financials salvitating over the money that can be made in the commodity market. Favorable conditions were stated as the war, low interest rates, etc. Haven't our financials caused enough economic damage without falsely inflating the cost of essentials like gas and food?

[threesmommy]

I can imagine the Wall Street worker bees with no more subprimes to trade; they have to find something and apparently it was commodities and oil. But, what do you mean "Stop this practice now"? Who is going to do the "stopping"? The gov't? The traders themselves? It's not going to stop.

[joebhed]

Welcome to capitalism.
Where cash is king.
There has always been trading in commodities.
But it was kind of hard to make a killing with just buying and selling pork-bellies.
So we added the time value dimension to things, like we did with money.
The skin in that market is betting the future price of those pork bellies.
With the added economic "value" of the time-differentiated prices, the size of the market grew, actually requiring an increase in the money supply to support that trading.
Things got kind of tight buying and selling those futures instead of those pork-bellies.
So, they added a hedge on the bet on which way the price of those pork-bellies would move over different periods of times.
This created a whole new market - in hedges, or hedge funds.
They bet on the probability of the extent of the movement of the future price of the pork-bellies.
They thus add new "value" to the size of the markets, and require an additional increase in the money supply.
Those hedge-funders didn't want to take the risk that their bets on the extent of the movement of the price, and so they developed a market in derivatives of the hedge.
This added "value" to the market and created a need for another increase in the money supply.
Each increase in the money supply to support these exotic financing schemes, the debts of the American taxpayers increases.
et cetera. et cetera. et cetera.

[ErnestineBass]

What will America look like one year from now?
Refer to Germany, 1923-1929.

[dadw5boys]

YOU HUGE MUTUAL FUNDS AT WORK MAKING THE FUND MANAGERS SUPER RICH WHILE YOUR PROFIT FROM THE FUND IS KILLED BY THE PRICE INCREASES.

YOU MONEY WORKING AGAINST YOU!

[BillZBubb]

Actually it is a "Republican lead" recession. Republican policies have lead to this.

[elpollo]

As in weighted down the economy with "lead." Pb. "Led" is the past participle to the verb "to lead." The only time that (I can think of) when the spelling "lead" can properly be used with the short e pronunciation, is when referring to the heavy metal. But since lead is so toxic, one can make a reference to the toxic waste of the Repukes taking the lead in the repeal of Glass Steagall.

[janmB]

Some of us experienced the "recession" long before other people did. The statistics we get for unemployment and inflation are prepared by the same accounting methods used by ENRON. When trouble hits the stock markets then our leaders get bent out of shape.

Lowering interest rates the first time around--got us into this mess and now the FEDS are doing it again !!. Instead of letting the stock market do it own thing---going up and down---the FEDS interfered with the natural process and now we have inflation of double-digits if the truth be known and the dollar will still sink lower.