Consumer spending comprises about 70% of the US economy. It's continued health is vital to US economic expansion. However, the US consumer's health - and his ability to drive economic growth -- is becoming an item of concern for more economists.
You aren't buying as many cars as you used to -- October auto sales were the weakest for any month since mid-1998.
US car companies employee' discount pricing strategy was hugely successful, bolstering car sales. However, this promotion is now officially over. Third quarter GDP was 3.8%. Car sales represented .62 of this increase, or 16%. This surge in sales volume won't be available for the 4th quarter numbers.
Your interest in home buying has hit its lowest level since 1991.
The housing market is clearly slowing. Interest rates are increasing. Inventories have increased for 6 of the last 7 months and are almost 20% than last year. Median and mean home prices both dropped last month. Rental vacancies are near 10-year highs.
"Here we are, officially celebrating the fourth anniversary of this economic expansion, and the wage income share of the national income pie is south of 46 percent," fumed a research note by Merrill Lynch North American economist David A. Rosenberg. "At no point in the past 50 years has this ratio been so low so far into a business cycle." Historically, the ratio has been 3.5 percentage points higher.
The ratio is important because it looks at wages -- your paycheck -- instead of other sources of income, like the stellar Wall Street bonuses we saw last year and are almost certain to see again this year. Wage gains haven't kept pace with inflation, but total income continues to look good, thanks to those hefty bonuses.
Since January 2001, total hourly earnings of production workers increased from $14.27 to $16.27, or an increase of 14%. Over the same time, the inflation gage increased from 175.1 to 198.8 or an increase of 13.5%. This makes the real income increase .5% over 5 years. And this assumes CPI is a valid measure of inflation. (Considering home price appreciation is not included in CPI and health insurance represents .366% of the measure, CPI is a questionable measure of the inflation people really experience.)
Your debt has increased. Outstanding balances on credit cards have risen to more than $800 billion, or $7,200 per U.S. household. The United States debt-to-income ratio rose as much in the past five years as it did in the previous 15 years, according to Merrill Lynch.
Total consumer debt outstanding increased from 7.6 trillion in 2001 to 10.2 trillion in the second quarter of 2005. In other words, total consumer debt now nearly equals total US GDP.
At some point, the US consumer will be tapped out. His wages aren't increasing, he already has a large amount of debt, and he faces escalating energy and medical costs. While there is no bright-line for consumer health, it appears that wherever the line is the US consumer is far below it.
Link
