The issue is that much of that debt accumulated over the past decade's irrational exuberance is still hanging around like an unwelcome relative, making it harder to pump more income into our consumer-driven economy. And we are set in our ways, so instead of cutting way back, like we are being told the government should do, we are going further into debt in order to have gifts this year for which we hope to be able to pay in the future.
We might well call it the 'Wimpy Economy,' after Popeye the Sailor's sidekick whose signature line was, "May I pay you back on Tuesday for a hamburger today?"
This 'collective impoverishment' as the Europeans are calling it, is reflected in the dramatically increased demand for Food Stamps. Ostensibly middle class families in traditionally affluent communities are driving government assistance program requests to heights not seen in decades. The message for business is that the hype about Black Friday and Cyber Monday sales notwithstanding, this is still a shaky economy. Be ready with your promotional offers. JL
Constantine von Hoffman comments in INC.:
The holiday shopping season has begun with a hopeful bang.
Americans said they intended to spend more this season, and, so far, there are numbers to back that. But even though the shell shows signs of cracking, those chickens haven't hatched yet. American are planning to spend an average of $751 on gifts this year, up 22 percent from last year, according to a CNBC survey.
Even better, Black Friday weekend sales were up 8.7 percent over last year, according to MasterCard Advisors' SpendingPulse. Over those four days we collectively dropped $50.06 billion on retail purchases (excluding cars but including gas). These numbers came on top of a 4.7 percent increase in sales from the end of October until Thanksgiving.
The week after Black Friday hasn't sucked either. So far, you, me and everyone else in the nation with access to the internet spent $6 billion online from Nov. 28 to Dec. 2, according to comScore. That's a record amount of money and a record number of ugly sweaters and bricks of fruitcake.
But ... and you just knew there was going to be a "but," didn't you? ... a lot of that spending is just adding debt to people who are making less money and relying a lot more on the government for food. The Fed just announced consumer credit increased by $7.65 billion to $2.457 trillion in October.
That number is based on revolving debt (basically credit cards) and non-revolving debt (student & auto loans) and not mortgages. Economists surveyed by Dow Jones had been expecting the number to be around $6.5 billion.
Total consumer debt has increased in 12 of the last 13 months, which tells you people are borrowing to pay for a lot more than just presents. This is happening because wages increased an average of 1.8 percent this year, which is exactly half of the 3.6 percent overall inflation rate.
This is probably also why enrollment in food stamp programs is up 7.8 percent this year, according to the Department of Agriculture. While this has slowed from what it was at the worst of the recession, it is a troubling sign in more ways than one. Mike "Mish" Shedlock published a chart on his blog showing food stamp participation from 1969.
The yellow stripes represent periods officially declared to be recessions. Food stamp usage increased after earlier recessions, as well. But, as Tim Wallace notes, "this 'recession' is far more devastating than any in the past as the curve is more like a right angle than a curve."
So maybe it's not time to celebrate all that holiday spending.
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