US Consumers: Statistical World versus the Real World (Survey, Black Friday Crash, Slower Cyber Monday Sales)

It’s one thing to "live" in a world of statistics (virtual reality), and it’s another to live in "reality".

It’s been said that US consumers have been vibrant because confidence has been “high” while inflation remains “low”. (chart from Wall Street Journal)

Well that’s what Wall Street likes to tell the public in order to justify the manic bidding up of stocks.

But again recent surveys reveal (like Philippines self-rated poverty and anecdotal accounts), that the average American consumers have been struggling. 

On the one side, the average Americans  have reportedly been buffeted by stagnant income.

On the other, inflation’s substitution and income effects have likewise burdened consumption by reducing disposable income.

As I explained before

Price increases in energy, food, rentals and transportation will effectively reduce the average resident’s disposable income as spending will be diverted to essentials. This is the income effect.

And should there be residual disposable income, rising prices may impel the average consumer to conserve resources by switching into the more affordable alternatives. This is the substitution effect.

Now the plight of the average US consumers

From the Wall Street Journal (bold mine)

The American middle class has absorbed a steep increase in the cost of health care and other necessities as incomes have stagnated over the past half decade, a squeeze that has forced families to cut back spending on everything from clothing to restaurants. 

Health-care spending by middle-income Americans rose 24% between 2007 and 2013, driven by an even larger rise in the cost of buying health insurance, according to a Wall Street Journal analysis of detailed consumer-spending data from the Bureau of Labor Statistics.

That hit has been accompanied by increases in spending on other necessities, including food eaten at home, rent and education, as well as the soaring cost of staying connected digitally via cellphones and home Internet service.

With income growth sluggish, discretionary spending on things like clothing and movies, live shows and amusement parks has given way…

To see how it has moved, the Journal analyzed Labor Department data on 2013 out-of-pocket spending for the middle 60% of the population by income—households earning between about $18,000 and $95,000 a year, before taxes. 

The data show they are losing ground. Overall spending for the group rose by about 2.3% over the six-year period from 2007, even as inflation totaled about 12%. At the same time, income for the group stagnated, rising less than half a percent. 

With health care and other costs rising, these consumers spent less on furniture, entertainment, clothing and even child care, the Journal analysis found.

“Part of the story is that your income growth is slowing,” said Steven Fazzari, an economist and chairman of the sociology department at Washington University in St. Louis. “They’re spending more on necessities, cutting back on other types.”

As spending on necessities increase, this includes adaption from technological changes telephone to wireless/internet…

Spending on mobile-phone service, meanwhile, has soared, rising nearly 50% since 2007, the year the iPhone came out and data plans became more commonplace…

Similarly, spending on home Internet service has soared by more than 80%. Last year, it made up about 0.8% of spending for middle income households, up from 0.4% six years earlier. Despite talk of “cord cutting,” spending on cable and satellite television is still up 24% from 2007.

...discretionary spending has either been reduced or eliminated

Spending on housing was up just 2.4%. But that masked big declines in spending on home purchases and mortgage interest, reflecting lower levels of homeownership and low interest rates. Spending on rent soared 26%, as some families lost their homes and rising demand for apartments helped push up monthly rents.

Restaurant spending fell slightly, while outlays on food eaten at home rose 12.5%.

To make up the difference, middle income Americans have cut costs where they can. Spending on event admission and fees has fallen 16.5%, while spending for a broad category that includes boats, motor-homes, cameras and party rentals has fallen 31%.

Spending on household textiles, including bath and bed linens, has fallen 26.5%. Spending on care for children and the elderly has fallen 25%…

A variety of factors can affect spending in a category. The 6.5% decline in spending on new cars and trucks, for example, likely reflects a combination of delayed car purchases as well as a shift to less expensive vehicles, or even used ones, for which spending is up 2%. Lower apparel spending—down 11.5% overall, but down 18% for women 16 years old and over—likely reflects a combination of fewer clothing purchases and a preference for less expensive clothes, as well as aggressive discounting by retailers jockeying for business.

Spending on electricity is up 11% since 2007, according to the Labor Department data.

The middle class spending squeeze has been visible in the latest 11% crash in the much ballyhooed Black Friday sales:

From the Bloomberg: (bold mine)

Even after doling out discounts on electronics and clothes, retailers struggled to entice shoppers to Black Friday sales events, putting pressure on the industry as it heads into the final weeks of the holiday season.

Spending tumbled an estimated 11 percent over the weekend from a year earlier, the Washington-based National Retail Federation said yesterday. And more than 6 million shoppers who had been expected to hit stores never showed up.

Consumers were unmoved by retailers’ aggressive discounts and longer Thanksgiving hours, raising concern that signs of recovery in recent months won’t endure. Retailers also were targeted by protesters, who called on consumers to boycott Black Friday to make a statement about police violence. Still, the NRF cast the decline in a positive light, saying it showed shoppers were confident enough to skip the initial rush for discounts…

Consumer spending fell to $50.9 billion over the past four days, down from $57.4 billion in 2013, according to the NRF. It was the second year in a row that sales declined during the post-Thanksgiving Black Friday weekend, which had long been famous for long lines and frenzied crowds…

This year, many shoppers stayed home. The NRF had predicted that 140.1 million customers would visit retailers last weekend. Instead, only 133.7 million showed up. The slow start may make it harder for retailers to hit sales targets over the next month. The NRF had predicted a 4.1 percent sales gain for November and December -- the best performance since 2011. (the latter paragraph grafted from the bloomberg article below)

Not even Cyber Monday promos helped, from another Bloomberg article

Cyber Monday sales growth is slowing as consumers embrace the convenience of online shopping, spreading out their purchases instead of being lured by one-day specials.

Internet holiday shopping rose 8.5 percent on Cyber Monday yesterday, typically the busiest day for Web shopping as people return to their desks after the U.S. Thanksgiving holiday weekend. That compares with online sales growth of 20.6 percent posted on the same day a year earlier, according to a report by International Business Machines Corp.

Record stocks backed by questionable statitics and reality has gone in different directions. One of them is wrong, which means current conditions won’t last.

Such is a splendid example of the baneful effects from the invisible Fed facilitated arbitrary confiscation and redistribution process: By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. (Keynes, The Economic Consequence of Peace)

Updated to add: There is one aspect I didn't include above: it's consumer credit. 

Let me quote Austrian economist Mark Thornton at the Mises Blog (bold mine)

In aggregate American have done some minor repairs on their balance sheets. However, looking below the aggregates we find American getting less mortgage debt but even more consumer credit and credit card debt. Consumer debt peaked at almost $2.7 trillion during the Housing Bubble. This dropped back to about $2.5 trillion during the recession. However, since that lull in consumer borrowing consumer debt has expanded to $3.15 trillion. This represents a 25% increase since the recession and an all time high. 

If consumers have already been laboring under lackluster income growth AND higher prices of necessities, yet recent consumption has been financed by RECORD debt, then then how much more debt can consumers absorb to sustain their current spending patterns?

Interesting no?