Consumers Slow Down (No Kidding) and Newt is a Brat

Liz | 01/15 at 07:26 PM

Here are the three least surprising stories of the week: consumer spending slowed again in December, JP Morgan Chase reported disappointing earnings, and Newt Gingrich turned out to be an irresponsible brat—as we had long suspected. 

As to spending in December, it failed to live up to the excitement generated by November’s retail surge. Retail sales in the final month of the year rose a scant 0.1%, considerably less than the prior month’s 0.4% gain and below the prevailing expectation of a 0.3% rise. Worse, comp-store sales fell more than 5 percent during the first week of January from the previous seven days, apparently the largest decline since records began in 1989. In other words, having pretended during the first weeks of the Christmas season that life had returned to normal (note rising consumer sentiment), Americans came to their senses during December. No one should be shocked. The 2.4% bounce in spending in the third quarter was fueled by a collapse in savings. In September, consumers socked away 3.6% of their income—the lowest savings rate since the 2.6% level recorded in December 2007. That’s quite a drop from the 8.3% of income put aside in May 2008.

The American consumer still has too much debt, and is scared besides. Home prices continue to plummet; stocks, too, failed to deliver winnings last year. We have a political stalemate, which signals to many that our economic problems will not be resolved any time soon. In short, there’s not much to cheer about. As bored as Americans are with the lingering effects of the recession, as tired as they are of penny pinching, the numbers do not lie. Incomes are simply not rising fast enough to prop up robust consumer spending growth.

As for JP Morgan Chase, the normally buttoned down Jamie Dimon delivered what some listeners described as a “rant” when asked about the bank’s 23% slide in fourth-quarter earnings. Dimon blasted wrong-headed rules and regulations which have constrained the financial sector and which he describes as “counter-cyclical.” He is completely correct. The popular notion of punishing the banks for their role in our financial crisis has taken precedence over nurturing the struggling recovery. Efforts in the U.S. to redistribute income (a la the debit charge fee rulings) and more generally in the west to raise required reserve ratios while banks are already struggling with sovereign debt exposure may help politicians but it surely won’t lead to expanded credit.

 We haven’t even begun to see the carnage that may follow tightening reserve demands in Europe. Banks need to raise capital so are trying to sell assets; unfortunately, since most are in the same boat, there are few takers. This will not end well.

Meanwhile, Newt Gingrich has been excoriated for his attacks on Bain Capital. Really, what is he thinking? He knows full well that Bain has for the most part been successful by making other companies successful, and that the bought-out firms without the advantages of a well-heeled owner would nearly always have done worse. He talks about quick profits – in private equity there are no quick profits. That’s why investors agree to a multi-year “lock-up” of their money.

Americans aren’t interested in the intricacies of the private equity game – they re taking away from Gingrich the notion that Romney made his fortune doing something shameful. This is an appalling message from a Republican, or from anyone for that matter. A couple of years ago I interviewed two very successful business people – one English, one French, about why they had chosen to live and work in the United States. Both explained their choice in almost exactly the same words: “In the United   States you have always celebrated success.” Both added, “I’m not sure that will be true going forward.” These words haunt me today. Are we as a nation going to become suspicious of success? Will we abandon the system that has lifted so many millions out of poverty? For the sake of our ambitious children, for those immigrants coming here to make their fortunes, for the inspired entrepreneur who might change our lives or the lab technician who may cure cancer – I surely hope not.

 

 

Comments

obama obamacare health care wall street congress fox news jimmy carter labor unions bets imf gordon gekko rush limbaugh nobel peace prize taxpayers goldman sachs budget deficit axelrod kennedy afghanistan greed maoist wal-mart aig census capitalism corporate rahm emanual indiana economics ceo