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Washington: Where Hope for the Economy Goes to Die

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Consumers are furious about Washington's lack of resolve and pragmatism, according to Minyanville's exclusive consumer survey.

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MINYANVILLE ORIGINAL Consumers are still sour on the economy, according to Minyanville's exclusive poll on consumer purchase intent by Active International and Toluna.

The past month has seen some bad economic news. Here is a short recap.
  • The unemployment rate stayed on its recalcitrant 8.2% level and only 80,000 jobs were filled in June.
  • The biggest drop in employment hit the retail trade sector, the most consumer-facing business out there. In total, retail companies shed 5,400 employees.
  • Retail sales in fell by 0.5% -- far out of experts' expectations -- in the same month.
  • Municipal governments are going into bankruptcy and default, and layoffs in the public sector are continuing.
Consumers are reacting to this by simply going into hiding. Our data shows that about half of respondents say that this is a "so-so" time to make a big purchase like a refrigerator. About a third think it is a good idea.

Judging by company filings that have come out recently, consumers might be putting their wages towards deleveraging themselves, rather than making large purchases. In Bank of America's (BAC) earnings release, we saw smaller provisions for loan losses.

Expectations of inflation, despite the near absence of inflation, are also keeping consumers away from the checkout lines at retail outlets. 37.8% of respondents said that they expect the prices for big-ticket items to go up in the next year, a percentage that is up from 35.8% in our late-June survey. Meanwhile, the core inflation rate went up by exactly 0% in June on a monthly basis. Prices are only 1.7% higher than last year, a slower expansion than GDP. One of the most persistent complaints from respondents is the price of gasoline. Indeed, pump prices, as well as oil futures, have fallen considerably in the past few months. The inflation rate that ignores price shifts in volatile areas such as food and energy was actually higher last month (2.2%) than the core inflation rate. Still, inflation expectations are in the air and gas prices are a major concern to many Americans.

The stagnation in consumer-facing industries is particularly worrisome when one takes into account the fact that consumers (and some chunks of government spending on health care that tend to get factored in with consumer spending) account for the lion's share of America's economy. This brings to mind an essay by William Emmons that the St. Louis Fed published earlier this year titled, "Don't Expect Consumer Spending To Be the Engine of Economic Growth It Once Was." Emmons says that lower wealth, stagnant incomes, reduced access to credit, a lack of confidence, and the possibility that the Fed itself might end its program of monetary stimulus is holding back consumer spending right now. Judging by the rich comments left by our survey respondents (you can read them all in the embedded document below; just scroll to pages five through eight), we should add the government's incompetence and unwillingness to make any positive effort towards change to that list. At least half of the commenters mentioned the federal government among their biggest worries about the future of the US economy.



Twitter: @vincent_trivett
No positions in stocks mentioned.
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