Reply #48: All is not well, Mr. Greenspan…

[54anickel]

http://www.kitco.com/weekly/paulvaneeden/aug062004.html

In his latest testimony before the Senate, Alan Greenspan gave an upbeat review of the economy, saying that the current recovery is broad-based and sustainable. Greenspan is undoubtedly one of the best-informed economists on the planet, and highly revered, so he must know what he’s talking about. But judging by their spending habits, consumers do not necessarily share his optimistic views.

Consumer spending is important because it accounts for roughly two-thirds of all the economic activity in the US. One way to gauge consumer spending is to look at same-store retail sales figures over time, and according to yesterday’s Wall Street Journal, stores catering to middle income families have reported declining sales, or meager increases at best, while those catering to lower income families had only anemic increases. Only Saks, Neiman Marcus and Nordstrom (who cater to the high-end market), showed strong increases in sales.

Are higher gasoline prices to blame? Wal-Mart has speculated that higher gasoline prices are taking $7 a week out of its average customer’s pocket. If you fill your car weekly, your gasoline expenditure should be around $1560 a year per car, and for the typical American family with two cars, the annual bill would be roughly $3,120. Using the latest US Census figures from 2002, the median household income, after state and federal taxes, is about $37,000 a year, so for a median household, gasoline represents more than 8% of income.

While we’re on the subject of household incomes, it’s worthwhile to note that incomes peaked in 1999 and have been declining ever since.

Judging from the retail sales figures, middle and lower income families are feeling the pinch of a weaker economy. The only bright light for the economy seems to be the wealthy, and that hardly makes for a broad-based recovery.

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