Tuesday :: Aug 3, 2004

"No Reasonable Offer Refused!"

by pessimist

For the last few months, Republicans have been crowing about the booming economy and how the 'Clinton' recession that began in March of 2001 was finished.

Certainly, the Top 1% hasn't been feeling any pain in their wallets, but in my working-class hometown, the signs aren't merely visible - they are screaming for attention!

What's causing this apparently incongruous dichotomy between reality and Bu$hCo promises?

Consumer Spending Drop Largest in 3 Years

Consumers, the lifeblood of the economy, clutched tight to their wallets in June and caused the largest spending drop in three years. The Commerce Department reported Tuesday that consumers cut their spending by 0.7 percent in June from the previous month as high energy prices and a sluggish job market made for more cautious buyers. The disappointing showing in June raised new questions about consumers' future willingness to spend.

Based on what I'm seeing, 'willingness' isn't the correct word - 'inabillity' is.

Americans' incomes, the fuel for future spending, rose by 0.2 percent in June, down from a solid 0.6 percent increase the month before. Consumer spending accounts for roughly two-thirds of economic activity in the United States. Thus, it plays a crucial role in shaping an economic recovery. Wages, meanwhile, were flat in June after a 0.6 percent rise in May. That reflected the slowdown in job creation in June as business showed more caution.

This tells me that the increase in earning brought about by the increase in low-wage service jobs this year has peaked. The local help wanted signs are no longer in the windows, and the job section in the paper is smaller each week.

"Jobs will be the key factor to get income and spending back on track," said Lynn Reaser, chief economist at Banc of America Capital Management. The nation's payrolls grew by just 112,000 in June, half the amount analysts had forecast. Economists are predicting a rebound in July, however, with job growth in the 200,000 range. The government releases the employment report for July on Friday.

We'll see!

The decline was led by a cutback in spending on automobiles and other big-ticket durable goods. Spending on durable goods declined by 5.9 percent in June, compared with a 3.7 percent rise in May. For nondurables such as food and clothes, spending dipped by 0.3 percent, following a 1.4 percent increase. Spending on services rose by 0.2 percent, down from a 0.3 percent increase.

"Maybe some households are putting some money in the cookie jar seeing as over 80 percent of the general public see higher interest rates and hence higher monthly debt-servicing bills ahead," said Merrill Lynch's chief economist David Rosenberg. "Perhaps concerns are intensifying over what seems to be a semipermanent high energy price environment."

Among the things I see are big appliances and cars up for sale by their owners. If people are selling such things, they certainly aren't in the market to be buying them! Six months ago, it was a seller's market. The buyers are calling the shots now.

Some economists suggested merchants may need to discount to entice shoppers, and more generous incentives for big-ticket items may be needed to boost sales in the coming months.

There are few big ticket items more popular than SUVs. Our local used car lots are full of them! In fact, one is hard-pressed to find anything smaller! If one were really in need of such a vehicle, now would be the time to buy! Prices are great - if you can afford the gas!

Economists still expect the Federal Reserve to boost short-term interest rates again when it meets next on Aug. 10. The Fed increased interest rates June 30 for the first time in four years. It raised a key rate to 1.25 percent, from a 46-year low of 1 percent. Economists believe the Fed will raise rates next week by another one-quarter percentage point in a bid to keep inflation from becoming a problem.

That's it! The Fat Lady Sang! Carve this turkey - it's done!

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