STOP Blaming the Consumers

Financial FAQs

It’s time to stop blaming consumers for the jobless recovery. The pundits have come up with too many reasons for their depressed confidence to list here, (at least according to the polls).

"Hopes for full global recovery in the next 12 months substantially weakened in the second quarter as the majority of consumers around the world remained in a recessionary mindset", said one survey.

Then why are U.S. consumers actually spending more, as evidenced by the latest retail sales in almost every area, almost as much as during boom times—7.9 percent annually? They are also paying down their debts and saving more. Maybe it’s their way of railing against the system that gives rewards to the wealthiest, like the #OccupyWallStreet protesters are doing.

Graph: Inside Debt

Overall retail sales in September jumped 1.1 percent, following a 0.3 percent increase (originally no change). The September number topped consensus expectations for a 0.8 percent surge. Retail sales on a year-ago basis in September stood at 7.9 percent, compared to 7.5 percent in August. Excluding motor vehicles, sales were up 7.8 percent on a year-on-year basis, compared to 7.9 percent the prior month.

Today's sales numbers are a relief for equities, says Econoday, adding to the argument that the economy is gradually improving and not returning to recession. Based in these numbers, third quarter GDP growth estimates are already being revised upward.

The biggest increase was in motor vehicle sales. Inventories previously held back by disrupted supply in Japan are flowing again.  Car buyers responded by boosting overall unit new motor vehicle sales to an annualized 13.1 million units which were up 8.0 percent from August’s 12.1 million units.

So what is holding back job growth, if not consumer spending? Total personal consumption expenditures are running at maybe half normal, but business investment is still rising—witness the strong capital goods numbers. So it is really technology investments that have boosted production instead of new workers, and of course globalization that has exported so much production overseas.

The 1.1 percent rebound in nondefense capital goods excluding aircraft was a big plus, following a 0.2 percent decline in July.  Shipments for this series jumped 2.8 percent in August after a 0.4 percent rise the month before. Overall, manufacturing remains on a moderate uptrend, taking into account the volatility of durables orders.

So while businesses may not be hiring people, it clearly looks like they are “hiring” equipment with the rise in nondefense capital goods excluding aircraft, says Econoday. 

New York Times columnist Joe Nocera recently reread a book on the history of the Great Depression by Frederick Lewis Allen, and the problems were just the same.

 “In “Since Yesterday,” he says, “bankers are vilified; homes are foreclosed on; people desperately search for work — just like today. Businessmen speak of the need for “confidence,” a word that “enters the vocabulary only when confidence is lacking.” Elsewhere Allen writes, “No longer were vital economic decisions made at international conferences of bankers; now they were made only by the political leaders of states.”

And…“while small business suffered terribly during the Great Depression, big corporations did well. When large companies needed to lay off workers to maintain profitability, they did so ruthlessly. Bursts of economic growth, however, were rarely accompanied by an increase in employment. Why? Because new technology allowed companies to increase productivity at the expense of workers. Just like today”, said Nocera.

So it is a wondrous thing to see consumers hanging in there, in spite of chaotic markets and dysfunctional politicians. Maybe we are seeing some of the innate optimism Americans are famous for. So watch out, politicians. Consumers seem to be finding a way around the economic and political gridlock that is stopping this recovery from putting more people back to work.

Harlan Green © 2011