Scotia Capital economist Gorica Djeric looks at new data on spending by U.S. consumers and doesn't see a pretty picture:
Consumer spending, which accounts for two-thirds of real gross domestic product (GDP), isthe key growth factor for the U.S. economy. On annual basis, the contribution from realpersonal consumption expenditure (PCE) has been exceeding all other components (i.e., fixedinvestment, private inventories, net exports, government spending) since the 1930s, with theonly exceptions being just about every recessionary period. However, since 2004, householdshave been adding an increasingly smaller share to the U.S. economy, shrinking to 2.2% lastyear, the smallest contribution since 2002. Furthermore, in the first quarter of this year — amidweakening employment conditions, record-high debt-to-equity levels, restrictive lendingstandards and rising inflationary pressures — PCE added only 0.7% to GDP, the least since thesecond quarter of 2001, and considerably below the five- and ten-year averages (of 2.1% and2.3%, respectively) …
After years of profligacy, over-extended U.S. consumers are heading for bunkers, with leadingindicators pointing to more turbulence ahead. Consumer confidence continues to erode, withinflation expectations reaching “an all-time high” in May, further undermining purchasingpower. While ‘stimulus’ rebate check are expected to provide some offset, recent surveysreveal that Americans are planning to put only 40% back into the economy in 2008, with anincreasing share going towards basic necessities, predominantly food and gasoline.