Obersvations On the US Consumers

Blogged previously: Will the Markets Continue to Advance?

I paid attention to Tim Wood's observations on how the normal Americans are doing.

• Another item that is contributing to the toxic American economy is rising commodity prices and the stagnate business environment that rising commodity prices have caused. Let me give you a few examples. This past week I went to my local lube and car wash. The manager and I were talking while I was waiting on my vehicle to be washed. He told me that a year ago they would do anywhere between 80 and 100 oil changes in a typical day. But with the rising fuel prices, business has dropped to an average of somewhere between 50 and 60. As for car washes, he said that they were doing upwards of 400 a day. At present, business has dropped to between 60 and 100 per day.
  
  Another friend of mine is a boat dealer and sells bay boats and pontoon boats. This time last year if you went by his store, you could hardly talk to him because he was so busy. I remember needing something and literally not being able to get to him. He told me this week that June is his peak month and it was absolutely dead at his store. He said that he counts on the summer sales to help carry him through the winter season. He is now worried about making it through the summer. There was also another local business owner present and he too is also now feeling the exact same pain.
  
  In yet another example, I needed a trailer ball so I stopped in at a truck accessory store. It was also dead there and I quizzed the owner. He too was telling me how slow it had gotten. He said that recently he had 13 employees between all of his sales and installation people. He is now down to one sale person, a secretary, one installer and himself. He said that it is now costing him to keep the doors open. He had a beautiful black 4-door F-250. He said that it cost $170 to fill it up and he had it parked in the shop and is no longer driving it.
  
  Here’s another one. I went to the local mall with my wife this week. She knows the lady that runs one of the shops in the mall. This lady is looking for a job because sales are so bad that the company is not going to renew its lease this summer and will be closing the doors.
  
  In yet another example, I was talking to a lady at the local gym. Yes, I talk with everyone trying to get a feel for things. Anyway, she was telling me that they are now seeing gym memberships declining.
  
  I also know people at one of the local giant home improvement stores. Sales are down and I am being told that they are not refilling positions in an effort to cut overhead. This slow down is not just affecting the small business owner. It is hitting everyone.

Today, I noted that CNN carried one interesting article, Making a good living, but still feeling strapped

• NEW YORK (CNNMoney.com) -- Only a few years ago, Americans who considered themselves middle class were scrimping to pay for their kids' college education.
  
  Now, many of them are struggling to cover far more basic needs - gas and groceries.
  
  Take Stacy and Chuck Burris. The Pittsburgh, Pa., couple view themselves as solidly middle class. In recent months, however, they've felt anything but.
  
  Burdened by high cost of food and fuel, they are having trouble balancing their budget even though Chuck Burris earns a "comfortable salary" as a software engineer. The parents of five children, three of whom are grown, have essentially stopped eating out and entertaining and are considering canceling the annual family vacation to Maine. They keep to a Spartan shopping list and have planted a larger garden. Instead of buying their 12-year-old daughter summer clothes, they are turning her pants into shorts by cutting off the legs and getting hand-me-downs from family.
  
  Never before in previous recessions have they had to cut back like this.
  
  "We are struggling to stay in the same place," said Stacy Burris, 47. "You don't mind pinching pennies to send your kids to college. You do mind pinching pennies when it's simply to buy some eggs."
  
  Many others nationwide are feeling similarly strapped. Recent consumer sentiment studies and polls show that Americans feel worse about their financial situations and the economy than they have in decades, even as economists debate just where things stands. And people don't expect things to improve anytime soon.
  
  "Consumers are very financially stressed, more than what's indicated by the job and income statistics," said Scott Hoyt, senior director of consumer economics at Moody's Economy.com.
  
  Personal finances worsening
  
  High fuel and food costs, coupled with miniscule raises and shrinking home values, led more people to report that their personal finances have worsened than at any time since 1982, according to a recent consumer survey by Reuters and the University of Michigan.
  
  The future looks grim to them, too. Just one in five households surveyed expect their finances to improve during the next year, the least favorable in half a century. Three-quarters of those surveyed said they expected the nation's economic troubles to continue over the next year, the highest level since 1980. They predict the unemployment rate will jump by one percentage point to 6.0% by year end.
  
  A survey from the Conference Board released Tuesday found that only 13.4% of respondents said they expect their incomes to rise in the next six months, the lowest level since the study began 41 years ago. Their inflation expectation has hit an all-time high.
  
  Consumers' perceptions matter. Their dour view is prompting many to rein in spending and avoid incurring additional debt, with the fewest people planning to buy furniture, appliances and home electronics since the early 1980s, the Michigan survey found. The percent planning to take a vacation in the next six months also hit a record low, according to another recent Conference Board report.
  
  "Consumers are the ones in trouble here," said Paul Ashworth, senior U.S. economist with consulting firm Capital Economics.
  
  Looking at government statistics, however, things don't look that dire, which is one reason why economists are dickering over whether the country is in a recession. Unemployment is at a relatively low 5% and inflation is running at a modest 3.9%. The economy expanded at an estimated 0.6% in the first quarter, weak but still in growth territory.
  
  Most experts are predicting more bad times ahead, but there's still no consensus on whether the economy is facing recession. Federal Reserve officials lowered their expectations for growth, but still kept it in positive territory, according to minutes released last week from a recent board meeting. Moreover, many economists say that if there is a recession, it will be mild and short.
  
  Consumers, on the other hand, don't feel that way. Many are being pummeled by plummeting home values, a weak stock market and soaring grocery and gas costs.
  
  Feeling the pain at all income levels
  
  Hoyt of Economy.com argues that every income strata is feeling it. The wealthy are hurting from the roiling stock market, the middle class from falling home prices and working folks from rising prices.
  
  Food prices, for instance, climbed 5.1% over the past 12 months and April's 0.9% rise was the largest in 18 years, according to the Consumer Price Index. Gas, meanwhile, hit its highest recorded price of $3.937 on Monday, up nearly 21% from a year ago and 9.7% over the past month, according to AAA.
  
  Meanwhile, Americans aren't feeling flush. Home values have plummeted more than 14% in the past year, according to the S&P Case/Shiller Home Price Index, which tracks 20 of the largest markets. That's the sharpest rate in two decades. And wages are basically stagnant, rising only 0.6% between the first quarter of 2000 and the same period this year on an inflation-adjusted basis. Wages have actually fallen behind inflation for the past seven months, according to Jared Bernstein, senior economist at the Economic Policy Institute, a liberal leaning think tank.
  
  "Folks are having considerable difficulty making their personal family budgets given their pay and prices," said Bernstein, who recently wrote Crunch: Why Do I Feel So Squeezed? "The prices they face most commonly in day-to-day life are rising faster than both inflation and their paychecks."
  
  Their investment portfolios aren't doing well, either. The Standard & Poor's 500 index is down nearly 9% over the past year. And the value of Americans' stock and mutual fund holdings fell by $186 billion in the first quarter, the first drop since 2003's bear market.
  
  All this financial stress comes at a time when most Americans have the thinnest savings cushion to fall back on. They have been loading up on debt in recent years, drawing on the equity in their homes, in particular. The percentage of their disposable income that goes toward debt payments is at 14.3%, near the all-time high.
  
  "Consumers need to get their financial house in order," Hoyt said.
  
  Uncertainty hard to deal with
  
  Weighing even more heavily on consumers is uncertainty about where the economy is headed, said Ken Goldstein, economist with The Conference Board. It's unusual to have such slow growth for so many months and Americans don't know how to respond.
  
  "What's really pushing consumers into a funk is the fear of what's coming next," Goldstein said. "You can't be sure you know exactly where we are or where we're going. Consumers are afraid that the light at the end of the tunnel is an oncoming train."
  
  That's exactly how Chris Ackerman feels. He said that he and his wife, who live just outside Seattle, find that their paychecks no longer cover their rent, student loans and daily living expenses. That is forcing the young couple to turn to their credit cards to make ends meet.
  
  They've already cut out much of their entertainment and trips to visit her family and friends 30 miles away. If gas and grocery prices continue to rise, Ackerman, who works for an importer, said he'll have to stop contributing to his 401(k) plan. He doesn't see many other options.
  
  "The worst part is looking to the future," said Ackerman, 25. "What if everything keeps getting worse. That's the scariest part. Is my grocery bill going to double again? What will we do?