Wall Street still overestimating the American consumer

(10 am. – promoted by ek hornbeck)

  Despite every effort from Washington, the American consumer continues to repair his/her balance sheet. The federal government has repeatedly gone back to what it knows and teased us with goodies (like cash4klunkers) in an effort to get us to spend money we don’t have on things we don’t need, but those days appear to be over.

 (Bloomberg) — U.S. consumer credit fell in September for an eighth straight month, the longest series of declines on record, as thousands of Americans lost their jobs and banks tightened access to loans.

   Borrowing fell more than economists predicted, declining by $14.8 billion, or 7.2 percent at an annual rate, to $2.46 trillion, according to a Federal Reserve report released today in Washington. Credit dropped by $9.86 billion in August, less than previously estimated. The consecutive declines were the most since records began in 1943.

 The optimists, who are already predicting that happy days are here again, fail to mention how the economy will rebound without the American consumer. Consumer spending is 70% of the economy. So how will the economy grow when the consumer is paying down debt rather than buying junk at the mall?

   A good way of measuring of how Wall Street has completely underestimated this trend has been in the consumer credit numbers.

Oct08 Nov08 Dec08 Jan09 Feb09 Mar09 Apr09 May09 Jun09 Jul09 Aug09 Sep09
Forecast Consumer Credit 2.0B 0.0B -4.2B -4.2B -2.2B -4.2B -6.0B -9.8B -4.0B -3.8B -9.9B -9.9B
Actual Consumer Credit -3.5B -7.9B -6.6B 1.8B -7.5B -11.1B -15.7B -3.2B -10.3B -21.6B -12.0B -14.8B

 It isn’t just a matter of the so-called experts on Wall Street missing the forecasts in all 12 months of the past year by a large margin. The real trick is that they’ve missed 10 of those 12 months in the same way – by overestimating the spending ability of the American consumer. After a certain number of misses in the same direction it’s no longer a surprise – it’s a bias.

  They keep expecting the American consumer to start spending again, or at least spend more than he/she is going to, no matter what the job market like look like. Wall Street seems to have missed the biggest and most important lesson of the last bubble – housing supported the American consumer. Not paychecks.

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 With the implosion of the housing bubble, the American consumer can no longer use their homes as ATM machines. With the implosion of the credit bubble, the American consumer can no longer tap easy credit from the banks.

  It almost makes sense why the stock market seems to want to go higher, if you think the American consumer is just about to start spending again. At some point Wall Street is going to wake up to the fact that the game has changed and their premise is wrong. The American consumer isn’t going to start spending again until either the jobs return, or their balance sheets are repaired. Neither of those things are going to happen anytime soon.

  When Wall Street figures this out the stock market will correct very sharply. This realization is most likely to happen when the Christmas sales numbers begin to come in.


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  1. Denied medical care cause I am not taking an untested unproven unconstitutional vaccine bioweapon?


    Jobs are not coming back, ever.

    And what do you think devout Christian families in Montana are going to do when their kids come home from school with their required gay/straight sex talk in third grade.  Ya think.

    Christmas is going to be Red this year.

    • publicv on November 7, 2009 at 00:49
  2. They missed HUGE!

    It isn’t just a matter of the so-called experts on Wall Street missing the forecasts in all 12 months of the past year by a large margin.

    In the third quarter alone they overestimated consumer spending by 50%.

    Why would we believe any of the numbers coming out of the “so-called” experts at this point? They dont fuckin’ get it. The only single minded solution they have is to get us back to “the way it was”

    Oh we will test the March lows again … just as soon as they can get the last of the suckers in.  

    • sharon on November 7, 2009 at 01:30

    is my dad who owns a wine/liquor store.  business just keeps getting better and better.  people are staying home and drowning their sorrows.

    re credit, i have lived on a cash basis for over ten years now.  i spend no more than than what i absolutely need and, once in awhile, want.  as a student this is a necessity, but when (if?) i end up bringing home a paycheck again, i don’t know that i will go back to older patterns of consumption. the reality is that it just goes to the corporate coffers not to the workers or into the economy.  i buy nearly all of my food at the green market and am pleased to be putting the dollar bills into those calloused hands.

    when will bernancke and geithner see the depression forest between the trees?  between mb’s post on unemployment and these signals on credit, these look to be dire times.  the only bright side of this for me is that it has stopped the annual family orgy of conspicuous christmas consumption.  

  3. Thanks for the statistics gjohnsit, and keep up the good work.  And it’s great to read you here, where I am not distracted by that dreadful advertising banner they’ve got over at Orange now.

  4. state by new pharmaceuticals offering eternal life.

    Throw in 600 new sports channels and the new sitcom, Sarah and Michelle do Memphis, and you have it.

    Also, we’ll have 79,728  hospitality workers per 1 Jet Setter, each earning enough to buy those one dollar hamburgers at McDonalds daily for the life of the solar system. Yes, good times are coming. Life will be meaningful once again, Yippee——-Can’t wait——–

    • dkmich on November 7, 2009 at 16:50

    I was going to do 50/50 so that I would be at least half right and only half wrong no matter what.   Unfortunately, I never bought any gold, but I did get my escape ticket passport renewed.   The other day I was reading our subdivision newsletter and “saw” that our houses dropped roughly 60K in value.  I knew they had fallen, but I never knew how much or saw it in print before.  I’m never going to be able to retire.  🙁

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