A nation with their freezers full/Are dancing in their seats/While outside another nation/Is sleeping in the streets

It never ends, does it?

This one I definitely caught while reading the BBC on my mobile (Samsung SGH-D807, if anyone cares).

US consumers go on shopping spree:

US consumers have surprised analysts, as official figures revealed that retail sales grew 1.4% in May.

Observers said that the increase, the highest in 16 months, suggested that high petrol prices may not be biting as hard as had been feared.

More oddly:

The data, which also comes amid slumping house prices, buoyed market investors, with Wall Street shares offsetting some of Tuesday’s losses.

What in hell for? The US economy already needs a couple of billion US dollars per day in borrowings to stay in comic books and prada shoes. Dissavings are the root of much of the structural problems that will seriously get in the way if/when the Fed has to deal with a recession coupled with declining demand for US dollars.

More importantly housing prices are important for a reason, besides being bricks-and-mortar. They are, by and large, supposed to be sources of wealth. So we buy houses. That provides jobs, creates derived demand for resources, etc. It also means households have wealth, meaning they are more likely to consume (Eco 1 time). If you substitute buying houses for a 1.4% increase in consumer spending, you don’t have much. Something that is short-term, probably done on credit, and probably benefit importers as much as US manufacturers.

Importantly, psychologically we like to shop. This is a period when, really, we should be saving against the declining value of our wealth (the slumping housing market), and potential deterioration in the value of our savings (those inflationary pressures I’ve mentioned previously). It’s probable we are – a prediction of 0.6%?

But it’s likely that what we’re observing is a little bit of just dumb, i.e. habitual consumerism, and a little bit of expected future price increases due to petrol prices (former Eco 1 students: what does an expectation of price increases tomorrow to do demand today? It shifts today’s demand curve outwards. Extra credit: what happens with consumers start accepting inflationary expectations? We tend to see it).

What I suspect we’re seeing is more potential loss and headache for the Fed (not to mention Congress) if that 1-in-3 chance recession does indeed come around. It will just mean that much more unsecured debt that will American consumers have millstoning around their necks while interest rates go up to shore up demand for the dollar.


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