Consumer Spending Flat, Income Rises To 9 Month High

Consumer spending slowed down in December and the Commerce Department said it was the weakest since June. Economists were expecting a 0.1% increase in December. Consumer spending jumped 4.7% for all of 2011, the biggest increase since 2007. Consumer spending its one of the closest watched data points because it makes up more about 70% of the U.S. economy. When adjusted for inflation, consumer spending actually dipped 0.1% last month. This snaps a three-month streak of gains.

Wages fared better than consumer spending last month. Income saw a nice jump last month rising 0.5%, the largest gain since March. Analysts were expecting an income increase of 0.4%. Many people took advantage of the income jump to build up their savings.

One area of the economy that has been doing well lately is motor vehicles. The last three months of 2011 saw a big increase in vehicle purchases and car companies have been scrambling to restock their inventories.

Growth was hampered last quarter and the whole year as cuts in annual government spending and poor home sales held the economy down. Unemployment continues to be a problem as well despite the unemployment rate falling.

2012 looks to be slightly better. The Federal Reserve is estimating a 2.5% growth for the year. Economists see income as the biggest question mark moving forward. Income will need to rise more in order to support stronger spending which will in turn grow the economy faster. Many analysts believe the economy will continue to grow at a slow rate in 2012.

Watch for the Black Friday Hangover – David Rosenberg

The markets were positively giddy last week when reports came in about Black Friday shopping. Stores were seeing brisk sales and ecommerce saw a sizable jump in YoY sales. While it was good for a market rally, what does it spell for Q1 early next year. David Rosenberg says to watch out for the Black Friday hangover when the bills come due.

He writes in his latest investment note:

Credit card usage was quite rampant on Black Friday — it outstripped cash and debit-card payment by more than a two-to-one ratio. But when the bills come in early in the New Year, look for a bit of a consumer pullback — another risk to the Q1 outlook (especially if we wake up on December 17th and realize that Congress has recessed without extending last year’s tax goodies into 2012).

With economic crisis in each direction, complete political gridlock in Western countries and continued unrests in the Middle East it is not a stretch to see consumers pulling back in Q1 after the credit cards bills for Christmas start rolling in. This would represent a decent downside risk to GDP numbers in Q1 if retail traffic plummets as Rosenberg suspects.

Rosenberg continued his note:

Despite all the hoopla over Thanksgiving, total chain store sales only came in +3.2% YoY in November, which was light versus consensus expectations and far slower than the 5.5% pace of a year ago. Volumes may have been blown out, but the retailers cannibalized their margins with the widespread promotional activity. Not only that but one-third of the retail universe missed their sales targets last month. And guess what item was the hottest seller in the post-Thanksgiving sales rush? Try … hand guns: a record 32% YoY pace (to 129,166 — based on FBI background checks). All of a sudden, being a bank teller or gas station attendant just became a tad less safe.

Nothing like record gun sales to boost the holiday cheer.

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