Weekly Wrap

Personal consumption: up 3% since Christmas 2008

The American consumer is back, or so the data would suggest. As the graph above shows, personal consumption expenditures fell back in the fall of 2008 and winter of 2009, but have recovered since then. Rallying for the past year, the stock market believes the recovery is real. But is it sustainable?

Intuitively, it would seem that consumption should be held hostage by persistently high unemployment. So where is the money coming from?

Not here:

Disposable Income: flat for the past year

No new income? No problem. The banks will lend it to us, right?

Nope:

Consumer credit: down sharply in the past year

How about under the mattress?

Bingo:

Personal savings: dwindling again

The takeaways from this little slide show:

(1) as layoffs mounted in 2008, consumers rationally cut spending

(2) and started saving;

(3) with jobs still scarce, consumers must now draw on savings.

Today's headline: retail sales in February rose 0.3% from the month before, according to the Commerce Department. January's figures, however, were revised downward, so we are doing little better than running in place. Less than half of the retail-sales volume lost since the cycle peak has been recovered. Further progress will require a significant infusion of new jobs, and soon.