Retail sales surge in May - 13-Jun-2008 - Generational Dynamics

Generational Dynamics Web Log for 13-Jun-2008

Retail sales surge in May

Americans are still spending every penny they can get hold of.

Economists were surprised on Thursday when Commerce Dept. figures showed that retail sales in May were much higher than expected.

Spending went up across every category -- electronics, appliances, clothing, health care, food or general merchandise and sales rose. People even ate out more.

For several months, economists have been saying that consumers would stop buying. Consumers have been maxing out on credit and have been using money from second mortgages on their homes. As those sources are tapped out, consumers should stop spending, according to economists.

Well, the tax rebate checks started going out in May, and economists are attributing the spurt in retail sales to that. Previously, economists had wondered whether consumers would spend their tax rebates or use them to pay off some of their debt, but that question has now apparently been answered.

And yet, economists are still puzzled, because retail spending had begun increasing prior to the time that the tax rebate checks were sent out. But apparently we even have an answer to that.

According to JP Morgan analyst Tom Lee, there's another possible reason why consumer spending increased:

"The record wave of foreclosures darkening the U.S. housing market may actually be boosting consumer spending....

Many owners are stuck with mortgages that exceed the value of their homes after a double-digit national home price slump in the last two years. Conventional wisdom says owners who are unable to refinance or sell their homes are cash-starved and sharply curbing spending.

But Lee said that as an increasing number of "under water" homeowners return their keys to lenders and walk away from their mortgages and properties the reverse is true.

"In a perverse way, people who are leaving homes are actually helping the consumer spending picture," Lee told the Reuters Investment Outlook Summit on New York.

"If you were under water in a mortgage, and then you walked away, you literally stop paying the mortgage so your actual disposable income goes up," he said."

This is another one of those moments when all I can do is shake my head in disbelief.

At any rate, American consumers are apparently determined to tap every penny they can get their hands on.

This is exactly the complete opposite of the behavior of people who survived the Great Depression. For the most part, those survivors spent their lives saving every penny they could. Today, people are spending every penny they can.

People should be saving every penny. "Instead, there is gaiety and gladness, killing of cattle and slaughtering of sheep, eating of meat and drinking of wine: "Let us eat and drink [and be merry], for tomorrow we die." [Isaiah 22:13]

This shows how the generational cycle works. Once a financial crisis occurs, and we reenter a new 1930s style Great Depression, then people will be furious with themselves for not having saved just a small part of the money they're throwing away today, and they'll change their behavior to save every penny for the rest of their lives. (13-Jun-2008) Permanent Link
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Generational Dynamics Web Log for 13-Jun-2008 Retail sales surge in May

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Generational Dynamics Web Log for 13-Jun-2008
Retail sales surge in May