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Are Consumers The Walking Dead?

Last week we were supposed to be soothed by one part of the weak GDP report: personal consumption was up 2.6 percent from 2.2 percent in Q2. That was good for the weekend, until the BEA reported that September personal income fell 0.1 percent, spending was up a paltry 0.2 percent and the savings rate decreased to 5.3 percent.

Has anyone gotten the feeling that US consumers are the real "Walking Dead" in this economy?

Oh sure, the stock market is up this morning, but that's not because of the data, it's because investors like clarity and they see a big cloud of uncertainty lifting this week--first with the election and second with the Federal Reserve outlining the details of its bond buying spree, aka "Quantitative Easing 2".

Estimates are all over the place for the total amount to be spent, ranging from $500B-2T, but the general consensus is that Bernanke & Co will leave the plan open-ended.

The take-away for investors is that reflation is on (when the government dumps money into the financial system to prevent deflation and to stimulate economic growth), so stocks and commodities have been charging higher, while the US dollar has been falling.

Today's data and market reaction is really a perfect lead-in to the mid-term elections, where Americans are fed up and dispirited with the economy and feel like rich people are recovering, but everyone else...not so much. It does no good for politicians or economists to point out that things have gotten better over the last two years. While that is true, it just doesn't matter and here's why:

  • No Jobs: With nearly 15 million Americans unemployed and an unemployment rate of 9.6 percent (17.1 percent if you include part-timers and disgruntled workers), there's no relief in sight on the jobs front.
  • 99ers swelling: "99ers" describes those unemployed workers who have been out of work for over 99 weeks and are no longer eligible to receive federal unemployment benefits. There are approximately 1.5 million "99ers"
  • Housing market stuck: Although prices have dropped nearly 30 percent from the top, many say that the housing market could drop further or at best, tread water for another three years. That's why there are an estimated 15 million homeowners who are underwater, or owe more than their properties are worth
  • Stock market up, but not for everyone: while the stock market is up an astounding 75 percent from the March, 2009 lows, many Americans were simply too scared to stay the course through the depths of the lows or through the "flash crash" or were forced to cash out retirement and investment accounts to survive the Great Recession
For all of these reasons, the recession isn't over for many Americans, only 22 percent believe that the economy is improving and voters are likely to vent their frustration at polling places across the country tomorrow.

Image by Flickr User mush2274, CC 2.0