Posted At : May 18, 2009 10:32 AM
Economic Update: Consumer spending continues decline…Am I the only one?
Yesterday the Commerce Department announced that retail sales (consumer spending) surprisingly declined .4% in April, while expecting them to be flat and revised March lower. They claim, was that unemployment is causing the decline in spending. I am still miffed by the lack of understanding of what is really causing this economic collapse. Sure, unemployment is part of it. However, am I the only one who sees the dramatically changing demographic shift in this country! As I have been saying in previous commentaries and published in my Economic Tsunami report (which is as pertinent today as when it was published 16 months ago so read it again), the aging of our population, which is rapidly passing their peak spending years and turning from net spenders to net savers, will have a profound effect on our economy for years to come. GDP is 70% driven by consumer spending, and even a small decline severely affects the economy.
Well now we have a perfect storm: Our aging population entering a new (and natural) cycle of saving for retirement, the over-indebtedness of the consumer who is scrambling to pay down debt and a depleted savings rate that went as low as .5% in 2006. The normal savings rate is around 7% and was over 10% in the early 1980’s. Given the recent destruction of assets and the fear of an aging population who is under invested for retirement, less spending and more savings is certainly in the cards. This will severely affect everything from lower corporate profits with companies completing for less business (deflation) to declining state and local tax revenue leading to cuts and bankruptcies, much like Vallejo. (Watch out Municipal Bond investors). There is definitely money to be made in this market for those who are prepared.
Regards – Keith Springer
President of Springer Financial Advisors