Worst buying conditions in decades
Bloomberg reports that Americans are seeing the worst shopping conditions in decades on high prices
The University of Michigan’s preliminary sentiment index rose slightly to 71 from 70.3 in August, data showed Friday. The figure was lower than the median estimate of 72 in a Bloomberg survey of economists.
Purchasing conditions for household durable goods, homes and motor vehicles have all fallen to decades lows. The report said the declines were due to complaints about high prices. Consumers expect inflation to rise 4.7% in the coming year, the highest level since 2008.
The university’s current conditions gauge fell to 77.1, the lowest since April 2020, from 78.5. A measure of expectations fell from 65.1 to 67.1, according to the survey conducted from August 25 to September 12.
The polls are not surprising
The polls are not at all surprising and arguably almost useless. The polls do little more than show the current conditions visible in other data.
For example, sales of existing homes have fallen every month since February. So, yes, the conditions of purchase are bad. What did the poll tell us that we didn’t already know?
And if consumers aren’t buying homes, they aren’t buying appliances, furniture, and new cabinets to put in homes.
Expectations don’t make sense either way. If conditions improve, shopping will also improve, regardless of what consumers currently think about the future.
If conditions worsen, so will real (inflation-adjusted) spending and home buying.
At least the survey makes sense and corresponds to reality. They don’t always do it.
Cyclical components of GDP
Cyclicals such as housing and durable goods are the most important chart in the macro.
Cyclicals, including housing and durable goods, make up only ten to fifteen percent of GDP, but fluctuations explain the variations between growth and recession according to EPB Macro’s Eric Basmajian.
A great real estate crisis is the key to understanding this recession
On July 14, I followed up on the idea above in A Big Housing Bust is the Key to Understanding This Recession
Don’t expect strong consumer spending to save the day.
Given revisions and inflation, retail sales remain very weak
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The amount of nonsense surrounding high retail spending recently is staggering. It is real spending (adjusted for inflation) that fuels GDP, not nominal spending.
Real consumer spending peaked in March 2021 at $236,100 million. It is now $231,138.
Strong consumer spending? Where?
Real spending bottomed out in December 2021 and picked up over the next four months through April.
Additionally, housing remained strong in 2021 and relatively strong in the first quarter of 2022.
That’s why I’ve pegged a recession to start in May.
For more information, please visit Adjusting for revisions and inflation, retail sales remain very weak
Polls tell us what we already knew
Economists depend on consumer sentiment surveys. I think they would be better advised to understand the data.
GDPNow Q3 Forecast Plunges to 0.5% on Weak Consumer Spending
In the meantime, please note that GDPNow’s forecast for the third quarter dips to 0.5% on weak consumer spending.
With housing in the gutter and set to get worse, I expect a third quarter of negative GDP. But hey, let’s not call it a recession.
This post is from MishTalk.Com
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