The economy: Economy continues to recover but is not fully recovered. It remains fragile. While the percent of consumers with the “Strongest” financial balances increases, there is no evidence that prosperity has trickled down to the 28% of consumers with the Weakest financial balances.
Consumer spending: Active shopping for big ticket items, particularly housing and computers, is up month to month. Propensity to spend freely for food, clothing, and other consumables is stable.
Equity prices and trading: Stock prices continue to be unstable. They fluctuate widely in response to the news of the day. However, investors are increasingly willing to buy stock in the event the Dow declines by 10%.
Politics: Americans who lean Democratic outnumber those who lean Republican by a margin of 16 points – 47% Democratic to 31% Republican. In January the two parties had been close to neck-and-neck, with 39% leaning Democratic and 37% leaning Republican.
BACKGROUND NARRATIVE & STATISTICS
Consumer Balance Index (CBI)
The CONSUMER BALANCE INDEX (CBI), which tracks consumer perception of their financial balance – income and assets versus debt and current spending rate – indicates the economy is recovering but has not fully recovered. It advanced three points from 84 in March to 87 in April but remains eight points below its pre-recession reading of 95.
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The March to April advance in the CBI is the result of a sharp increase in the percent of consumers who have the Strongest financial balances, up from 18% in March to 24% in April.
The gain in the CBI is associated with an increase in the index tracking Affluence, which jumps from 58 in March to 70 in April – the highest index since September 2008. The increase in consumer feeling of affluence encourages spending.
Consumer Spending
The index tracking willingness to spend freely for food, clothing, gasoline, and medical expenses stays stable, while the index tracking active shopping for housing, furniture, computers, and other big ticket items jumps 16 points to 109, the highest level since reaching 111 in February 2008.
The percent of consumers planning to have more children – which is, perhaps the largest commitment to spend – moves up from 9% in March to 12% in April.
CONSUMER SPENDING: Nov 2007, March & April 2010
(1,000 telephone interviews of which 500 were conducted in January and 500 in February)
| Nov 2007 |
Mar 2010 |
April 2010 |
Diff. Mar-Apr |
||
| Willingness to Spend Freely for Consumables: | |||||
| INDEX | 85 | 73 | 73 | - | |
| Percent Spending Freely For | |||||
| Food | 49% | 38% | 38% | - | |
| Clothing | 41% | 33% | 33% | - | |
| Gasoline | 37% | 42% | 41% | -1 | |
| Medical Services | 71% | 62% | 64% | +2 | |
| Active Shopping for Major Goods Index | 101 | 93 | 109 | +16 | |
| Percent Actively Shopping For… | |||||
| New Car | 6% | 5% | 6% | +1 | |
| Used Car | 7% | 7% | 8% | +1 | |
| House | 7% | 5% | -2 | ||
| Furniture | 9% | 8% | 10% | +2 | |
| Personal Computers | 9% | 7% | 10% | +3 | |
| Major Appliances | 7% | 8% | 8% | - | |
| New Carpeting | 3% | 2% | 4% | +2 | |
| Color TV | 8% | 8% | 8% | - | |
| Air Travel | 18% | 19% | 21% | +2 | |
| Overnight Hotel/Motel | 18% | 17% | 19% | +2 | |
While consumers feel more affluent, they remain under considerable financial pressure, which inhibits spending freely.
Specifically, the index that tracks Financial Pressure eases by only four points from 158 in March to 154 in April, remaining higher than the 150 index in December.
To relieve financial pressure, consumers are trying to improve their financial balances by restricting spending and by reducing their indebtedness. Specifically, the percent of consumers reporting money left over for savings at the end of the month increases from 36% in March to 40% in April. In addition, twice as many consumers reported they reduced (27%) than reported they increased their credit card debt (13%).
Equity Prices
The roughly half of consumers who own stocks directly or in mutual funds are increasingly confident about the future prices of equities. The ratio of buyers to sellers of stock if the Dow declines by 10% increases between March and April.
In March, there were 1.20 prospective buyers for each prospective seller, while in April there were 1.35 prospective buyers per seller. However, the ratio of buyers to sellers remains measly compared to the 2.81 buyers per seller in November 2007 on the eve of the Great Recession.
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Comment
The structure of the economy is being radically altered as the nation struggles to restore prosperity. Data reported monthly in 8Sages.com do not reveal the nature of the economy’s metamorphosis now in progress.
Looking ahead, the economy is poised for explosive growth of the sort that occurred during the decade or so following the end of World War II and the Great Depression.
Growth after World War II was spurred by the pent-up demand for civilian goods that could not be produced during war-time. Supply grew swiftly to match demand. Civilian employment increased almost instantly with the demobilization of the military and with the growth in labor productivity that had been achieved in response to war-time necessity.
Growth is again poised to grow explosively with the end of the Great Recession and the resolution of war. There is substantial pent-up demand for consumer goods and capital equipment that consumers and industry could not afford to buy during the recession.
Supply today is also poised to grow almost instantly to meet demand, given the large numbers of workers who are unemployed or underemployed and eager to work. Also, productivity of labor has increased given restraints on wage increases, and we have seen gains in efficiency achieved under the lash of increased competition during the recession.
For a discussion of changes in the structure of the economy now in progress, request a free copy of the Synopsis of the forthcoming book titled “The Pursuit of Happiness in Today’s Emerging Grazing Society.” Please use the Contact Us link (top of page) to request your copy or to reach us with your thoughts and questions.
Copyright April 2010 by Leo J. Shapiro – All Rights Reserved.