Where is the Consumer?

confused consumerWell, bulls were able to finish out their rally with a green Friday, as the markets bounced up and down today but ended up closing slightly in the green. Once again, trading remained very low as it is hard for investors to know where to go from here. Today's closing gives media analysts and bulls even more reasons to cheer on the big rebound recovery that many believe our economy is experiencing. I have expressed my personal opinions to that in previous posts, but I wanted to discuss a major element that has been overlook in these analyst's reports. That is the consumer.

When you examine the make up of the much important GDP, you will find that the consumer (consumer spending) essentially makes up 70% of the number. That means that 70% of the influence in turning this recession around has to do with the fate of you and I. Of course, from the looks of what we see on TV and from politicians, it would seem that financial institutions and corporations have bounced back and are moving forward. Although I disagree with that, there is one key element that people fail to mention in this great debate. The consumer. To think that we are recovering solely based on corporate profits and profiting banks is asinine. The consumer needs to be leading us out. As of now, that leadership is nowhere near being present.

Currently, there is about 15,000,000 unemployed Americans amongst us and that is only continuing to rise. 7,000,000 just since the beginning of the recession. Do we really comprehend the size of that number? Do we honestly feel that such a large increase in unemployment can be quickly recovered by a few trillion spent by the government? Not only that, but our personal savings rate has spiked from nearly 2% to almost 8%, just in a year. So not only have we seen massive cuts in consumer income, but we've seen a huge jump in personal savings. This is not a good mixture when trying to jump start an economy.

Coupled with this has also been the recent increase in gas and energy prices. Paying $2.50-$3.00 per gallon adds up and cuts into that much needed income for many families. Also, we have seen home values drop anywhere from 20-60%. To have the largest asset for most families be reduced by 50% in just a year has major effects not only on spending but overall consumer sentiment. This is probably why we continue to see low consumer sentiment numbers out of Michigan.

Media and politics can preach a recovery as much as they want to, but in the end it will be the consumer that drives us out. As of now, the consumer is hiding, protecting and preserving the assets they have left. What corporate gain we have seen has been largely induced by government spending and stimulus packages. Be assured that if unemployment numbers continue to come in at what we've seen and home median prices continue to fall, consumers will find it no reason to come out of hiding. In turn, we should continue to see that 70% of GDP remain very dismal. Look to the consumer, which lately, we have not. Happy Trading.

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  1. Anonymous Says:

    when do gdp numbers usually come out?

  2. Anonymous Says:

    Anonymous - GDP will come out Friday, 7/31 at 8:30 am. Consensus estimates call for a -0.7 % contraction.

    FF - Your preaching to the choir, but really we're the minority now. Glad to hear your IRA is green, but your Zecco account must be feeling some pain.

    P.S. Notice how everyone is all of a sudden becoming bullish. I think it's just about time for a rude awakening. Let's see those GDP numbers next friday come in below expectations. That could do it.

  3. Anonymous Says:

    1000-1050 easy tqarget for S&P to hit and still be with in limits beofre next elliott wave move.. There is going to be more pain for the Bears, but start shorting like hell around 1000 to 1050.. There is going to be a pullback,, probably not going to take out lows, but there is going to be a significant correction in the fall.