The economy: Economic growth falters in May. There is a two-point decline in the Consumer Balance Index, largely reflecting a decrease in the percent of consumers with the “Strongest” financial balances: that is, the ratio of assets and income to debt and spending. Also, the percent of consumers who say the economy is getting worse increases two points from 40% in April to 42% in May.
Inflation: The percent of consumers who believe price increases will accelerate jumps from 26% in April to 34% in May – the highest level in well over a year. The percent who believe interest rates will be higher six months from now jumps from 53% in April to 61% in May – again, the highest level observed in well over a year.
Consumer spending: The index tracking active shopping for big ticket items is essentially flat, ticking up a point from 109 in April to 110 in May. A four-point decline in the percent of consumers actively shopping for housing and a three-point decline in those actively shopping for air travel is offset by increases in the percent of consumers actively shopping for new cars, appliances, televisions, household furnishings, and other major goods.
The index tracking propensity to spend freely for food, clothing, and other consumables is stable at 73 for the third successive month. A two-point decline in the percent spending freely for food is offset by a two-point increase in the percent spending freely for gasoline.
Equity prices: Stock prices continue to be unstable and to fluctuate widely in response to the news of the day. However, investors are increasingly willing to buy stock. The number of prospective buyers to prospective sellers in the event of a 10% decline in the Dow moves up from 1.21 (March) to 1.38 (April) to 1.68 (May)
Politics: Obama’s approval rating moves up from 46% to 48%, recovering all but one of its four-point loss from 49% in January to 45% in February. Fewer Americans spontaneously name “health care” as a major national problem (25% in April to only 12% in May). Mention of unemployment as a major problem also drops, from 35% in April to 25% in May.
In January, the Republican and Democratic Parties had been running close to neck-and-neck, with 39% leaning Democratic and 37% leaning Republican. In April, Democrats outnumbered Republicans by 14 points – 47% Democratic to 33% Republican.In May, the gap between the parties narrowed to 11 points, with 45% of Americans leaning Democratic and 34% 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 slipped. The CBI drops two points from 87to 85, after having gained three points between March (84) and April (87).
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Consumer Spending
The index tracking willingness to spend freely for food, clothing, gasoline, and medical expenses stays stable. The index that tracks active shopping for big ticket items also remains essentially stable, moving up only one point from 109 to 110.
While the index tracking active shopping remains flat, the percent of consumers actively shopping for a house drops four points, from 9% in April to 5% in May, undoing the three-point gain from 6% in March to 9% in April.
In step with the decline in active shopping for housing, the percent of consumers planning to have more children – which is perhaps the largest commitment to spend – drops two points from 12% in April to 9% in May, reversing the earlier gain from 9% in March to 12% in April.
CONSUMER SPENDING: March, April, & May 2010
(1,486 telephone interviews of which 482 were conducted in November 2007 and 502 in March and April 2010)
| Mar 2010 |
April 2010 |
May 2010 |
Diff. Apr-May |
||
| Willingness to Spend Freely for Consumables: | |||||
| INDEX | 73 | 73 | 73 | - | |
| Percent Spending Freely For | |||||
| Food | 38% | 38% | 36% | -2 | |
| Clothing | 33% | 33% | 32% | -1 | |
| Gasoline | 42% | 41% | 43% | +2 | |
| Medical Services | 62% | 64% | 65% | +1 | |
| Active Shopping for Major Goods Index | 93 | 109 | 110 | +1 | |
| Percent Actively Shopping For… | |||||
| New Car | 5% | 6% | 8% | +2 | |
| Used Car | 7% | 8% | 9% | +1 | |
| House | 6% | 9% | 5% | -4 | |
| Furniture | 8% | 10% | 9% | -1 | |
| Personal Computers | 7% | 10% | 10% | - | |
| Major Appliances | 8% | 8% | 10% | +2 | |
| New Carpeting | 2% | 4% | 5% | +1 | |
| Color TV | 8% | 8% | 10% | +2 | |
| Air Travel | 19% | 21% | 18% | -3 | |
| Overnight Hotel/Motel | 17% | 19% | 20% | +1 | |
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 number of prospective buyers to sellers of stock if the Dow declined by 10% increasesbetween March and April, from 1.20 prospective buyers for each prospective seller (March)to 1.35 prospective buyers per seller(April) and to 1.68 buyers in May. However, this ratio is 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 stock market has been highly volatile during the past several weeks, reacting violently to the news of the day – which is reported in “real time” – and virtually ignoring news about economic and business indicators that are reported in “batch time.”
News reported in “real time” has been generally negative, focusing on the financial crisis in Europe, the Congressional hearing and possible criminal prosecution of major financial institutions, the imposition of new regulations on major financial institutions, and the like.
News reported in “batch time” after the close of a month or quarter has been generally positive in terms of retail sales, industrial production, GDP growth, job losses, and the like.
Incongruously, press reports that headline steep declines in stock prices mingle the negative “real time” with positive “batch time” reports and include material that supports as well as material that denies the scary headlines.
The May 8Sages.com posting should be read as a “real time” report on what is happening in May.
The structure of the economy is being radically altered as the nation struggles to restore prosperity. Economic growth is poised to grow explosively with the end of the Great Recession and the resolution of war.
For a discussion of the coming boom in the economy and the 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 make your request.
Copyright May 2010 by Leo J. Shapiro – All Rights Reserved.