Agoracom Blog

Real Consumer Spending and Confidence Is Plummeting

Posted by AGORACOM at 9:02 AM on Sunday, June 29th, 2008

My friend, Barry Ritholtz, made a great point on Friday when he stated:

We learned today that consumer spending upwards by 0.8% in May. However, that appears to be primarily inflation driven consumption, fed by stimulus checks, and higher food and energy prices.

To illustrate his great point, consider the fact that you aren’t actually buying more gas, you are simply paying more for it. Buying more gas would imply that you are doing a lot more traveling related to business, travel, etc. and that you are filling your tank more than usual, which would be a good sign for the economy.

On the other hand, simply paying more for gas means you are driving the same (perhaps even less) but spending more money at the pump. Nobody should mistake this as a sign of a robust economy.

If he is right, then what is the actual state of consumer spending? It is an important question and, thankfully, Merril Lynch’s David Rosenberg provides the startling answer via the chart below:

For a great read on the state of consumer confidence, be sure to read Barry’s latest post.


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