US Consumer Rebound Elusive

Today’s consumer data out of the United States furthers the point that the consumers will not be the backbone of any prolonged US economic recovery. Released just minutes ago, personal income and spending data have shown a substantial divergence from one another as real incomes for the top 20% of American society rises while the lower 80% are the victims of stagnating wage growth. Worse yet was that personal spending showed no growth month over month despite expectations of a modest uptick in consumption. This underlines the idea that the Federal Reserve was gravely mistaken in its assertion that lower fuel and energy prices would translate to stronger spending growth. Instead, as evidenced by today’s figures, consumers are increasingly turning towards saving and deleveraging household debt in lieu of spending. Nevertheless, debt continues to grow in other areas, notably subprime automobile loans and student debt, both of which hang over the economy like a dark black cloud.

 

At a time when corporate profits and revenues are beginning to tumble after several years of lacking capital expenditures and investment, the outlook for major equity benchmarks is increasingly biased lower as much of the rally in prices has come on the back of buybacks instead of organic growth. While this has translated to exceptional bonuses for management teams and contributed to increases in shareholder value, it does not come for free as evidenced by the languishing top and bottom lines. The consumer is not able to back up the corporates especially with personal spending flat at 0.00%. Even though Michigan Consumer Sentiment figures from last Friday beat expectations, they fell to the lowest level in six-months. However, in a boon to the Federal Reserve, consumers are increasingly anticipating higher inflation rates, something that might help the rate outlook as the Fed eyes inflation anchoring before shifting policy. Envisage equity prices continuing to consolidate as traders await more hints on the outlook.