Consumer Spending Drought: 16 Signs That The Middle
Class Is Running Out Of Money
By
Michael, on February 28th, 2013
Is "discretionary income" rapidly becoming a thing
of the past for most American families? Right now, there are a lot of
signs that we are on the verge of a nightmarish consumer spending
drought. Incomes are down,
taxes are up, many large retail chains are deeply struggling because of the
lack of customers, and at this point nearly a quarter of all Americans have
more credit card debt than money in the bank. Considering the fact that
consumer spending is such a large percentage of the U.S. economy, that is very
bad news. How will we ever have a sustained economic recovery if
consumers don't have much money to spend? Well, the truth is that we
aren't ever going to have a sustained economic recovery. In fact, this debt-fueled
bubble of false hope that we are experiencing right now is as good
as things are going to get. Things are going to go downhill from here,
and if you think that consumer spending is bad now, just wait until you see
what happens over the next several years.
Even though the Dow is surging
toward a record high right now, everyone knows that things are not good for the
middle class. A recent quote from CPA Howard Dvorkin
kind of summarizes our current state of affairs very nicely...
"The fact of the matter is that
America is broke — whether it's mortgages, student loans or credit cards, we
are broke. The old rule of thumb is that people should have six months' of
savings," Dvorkin says."If you talk to people, most don't have two
pennies."
These days most Americans are living
from paycheck to paycheck, and thanks to rising prices and rising taxes, those
paychecks are getting squeezed tighter and tighter. Many families have
had to cut back on unnecessary expenses, and some families no longer have any
discretionary income at all.
The following are 16 signs that the
middle class is rapidly running out of money...
#1
According to one brand new survey,
24 percent of all Americans have more credit card debt than money in the bank.
#2
J.C. Penney was once an unstoppable retail powerhouse, but now J.C. Penney has
just posted its lowest annual retail sales in more
than 20 years...
J.C. Penney Co. (JCP) slid the most
in more than three decades after the department-store chain lost $4.3 billion
in sales in the first year of Chief Executive Officer Ron Johnson’s turnaround
plan.
The shares fell 18 percent to $17.40
at 11:28 a.m. in New York after earlier declining 22 percent, the biggest
intraday drop since at least 1980, according to data compiled by Bloomberg.
J.C. Penney yesterday said its net loss in the quarter ended Feb. 2 widened to
$552 million from $87 million a year earlier. The Plano, Texas-based retailer’s
annual revenue slid 25 percent to $13 billion, the lowest since at least 1987.
How much worse can things get?
At this point the decline has become so steep for J.C. Penney that Jim Cramer
of CNBC is declaring that they are in "a true tailspin".
#3
In the United States today, a new car has become out of reach for most middle
class Americans according to the 2013 Car Affordability Study...
Looking to buy a new car, truck or
crossover? You may find it more difficult to stretch the household budget than
you expected, according to a new study that finds median-income families in
only one major U.S. city actually can afford the typical new vehicle.
The typical new vehicle is now more
expensive than ever, averaging $30,500 in 2012, according to TrueCar.com data,
and heading up again as makers curb the incentives that helped make their
products more affordable during the recession when they were desperate for
sales. According to the 2013 Car Affordability Study by Interest.com, only in
Washington could the typical household swing the payments, the median income
there running $86,680 a year.
#4
The founder of Subway Restaurants, Fred Deluca, says that the recent tax
increases are having a noticeable
impact on his business...
"The payroll tax is affecting
sales. It's causing sales declines," he said, estimating a decline of
about 2 percentage points off sales at his restaurants. "There are a lot
of pressures on consumers," Deluca said, adding "I think this is on
the permanent side, but I think business will adjust to it."
#5
Many other large restaurant chains are also
struggling in this tough economic environment...
Darden Restaurants, which owns the
casual dining chains Oliver Garden, LongHorn Steakhouse and Red Lobster, said
blended same-store sales at its three eateries would be 4.5 percent lower
during its fiscal third quarter.
Clarence Otis, Darden's chairman and
chief executive, said that "while results midway through the third quarter
were encouraging, there were difficult macro-economic headwinds during the last
month of the quarter."
"Two of the most prominent were
increased payroll taxes and rising gasoline prices, which together put
meaningful pressure on the discretionary purchasing power of our guests,"
he added.
#6
The CFO of Family Dollar recently admitted to CNBC that this is a "challenging time" because of reduced
consumer spending...
At Family Dollar where the average
customer makes less than $40,000 a year, the combination of a two-percent hike
in the payroll tax, rising gas prices and delayed tax refunds has created a
"challenging time and an uncertain time for the consumer right now,"
said Mary Winston, the company's chief financial officer.
"In our case, anything that
takes money out of our customer's wallet gives them less money to spend in our
stores," she told CNBC. "So I think all of those things create
nervousness for the consumer, and I think there are sometimes political
dynamics going on that they might not even fully understand the details, but
they know it's not good."
#7
Even Wal-Mart is really struggling right now. According to a recent Bloomberg
article, Wal-Mart is struggling "to restock store shelves as U.S. sales slump"...
Evelin Cruz, a department manager at
the Wal-Mart Supercenter in Pico Rivera, California, said Simon’s comments from
the officers’ meeting were “dead on.”
“There are gaps where merchandise is
missing,” Cruz said in a telephone interview. “We are not talking about a
couple of empty shelves. This is throughout the store in every store. Some
places look like they’re going out of business.”
This all comes on the heels of an
internal Wal-Mart memo that was leaked to the press earlier this month that
described February sales as a "total disaster".
#8
Electronics retailer Best Buy continues to struggle mightily. Best Buy
just announced that it will be eliminating 400 jobs
at its headquarters in Richfield, Minnesota.
#9
It is being projected that many of the largest retail chains in America,
including Best Buy, will close down hundreds of stores during 2013. The
following is a list of projected store closings for 2013 that I included in a previous article...
Best Buy
Forecast store closings: 200 to 250
Sears Holding Corp.
Forecast store closings: Kmart 175
to 225, Sears 100 to 125
J.C. Penney
Forecast store closings: 300 to 350
Office Depot
Forecast store closings: 125 to 150
Barnes & Noble
Forecast store closings: 190 to 240,
per company comments
Gamestop
Forecast store closings: 500 to 600
OfficeMax
Forecast store closings: 150 to 175
RadioShack
Forecast store closings: 450 to 550
#10 Another sign that consumer spending is slowing down is the
fact that less stuff is being moved around in our economy. As I
have mentioned previously, freight
shipment volumes have hit their lowest level in two years,
and freight expenditures have gone
negative for the first time since the last recession.
#11 Many young adults have no discretionary income to spend
because they are absolutely drowning in student loan debt. According to
the New York Federal Reserve, student loan debt nearly tripled
between 2004 and 2012.
#12 The student loan delinquency rate in the United States is
now at an all-time
high. It is only a matter of time before the student loan debt
bubble bursts.
#13 Due to a lack of jobs and high levels of debt, poverty
among young adults in America is absolutely exploding. Today, U.S.
families that have a head of household that is under the age of 30 have a
poverty rate of 37 percent.
#14 According to one recent survey, 62 percent of all middle
class Americans say that they have had to reduce
household spending over the past year.
#15 Median household income in the United States has fallen for
four
consecutive years. Overall, it has declined by more than $4000
during that time span.
#16 According to
the U.S. Census Bureau, the middle class is currently taking home a
smaller share of the overall income pie than has ever been recorded before.
Are you starting to get the picture?
Retailers are desperate for sales,
but you can't squeeze blood out of a rock.
For much more on how the middle
class is absolutely drowning in debt, please see this article: "Money Is A Form Of Social Control And Most Americans Are
Debt Slaves".
But if you listen to the mainstream media,
they would have you believe that happy days are here again.
Right now, everyone seems to be
quite giddy about the fact that the Dow is marching toward an all-time
high. And I actually do believe that the Dow will blow right past
it. In fact, it is even possible that we could see the Dow hit 15,000 before
everything starts falling apart.
But at some point, the financial markets
will catch up with economic reality. It is just a matter of time.
In the meanwhile, those that are
wise are taking advantage of these times of plenty to prepare for the great
economic drought that is coming.
Don't be caught living paycheck to
paycheck and totally unprepared when the next wave of the economic collapse
strikes. Anyone that believes that this debt-fueled bubble of false hope
can last indefinitely is just being delusional.
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