WaPo: Say, consumers sure seem to be pulling back these days

AP Photo/Manuel Balce Ceneta

Yesterday on ABC’s This Week, Treasury Secretary Janet Yellen insisted that the US economy looked strong and thought that a recession wasn’t an inevitability. Yellen argued that she didn’t “see a drop off in consumer spending as a likely cause of the recession in the months ahead.” I embedded Yellen’s remarks in my first post this morning, but let’s show the clip one more time:

Yellen must not be looking very hard, as the Washington Post reported the day before that consumers have started yanking back pretty hard already on spending, especially on services:

More Americans are beginning to hold off on booking flights, getting haircuts, building backyard pools and replacing old leaky roofs — in some of the new signs that the consumer engine of U.S. economic growth could be losing steam.

Over the past several weeks, households had already cut back on big-ticket purchases because of soaring prices, but in a worrisome twist, data suggests consumers are also beginning to tap the brakes on dining out, vacation plans and even routine services like manicures, hair cuts and home-cleaning appointments. Business owners around the country say rising prices, dwindling savings and concerns of a souring economy are taking a toll on household spending decisions. …

Consumer spending, which makes up more than two-thirds of the U.S. economy, has held strong through April even with inflation at historic highs. But there are growing signs that the spending streak could be ending.

Retail sales slowed last month for the first time this year, driven by a 4 percent drop in car sales. U.S. flight bookings dipped 2.3 percent in May from a month earlier, according to data from Adobe Analytics. And both high- and low-income Americans have begun pulling back, particularly on services, in the past four to six weeks, according to an analysis of credit card data by Barclays. The slowdown in spending is now concentrated in services, not goods, the bank found in a new analysis of credit card data.

Even without this data, though, Yellen’s claim is strange indeed. The latest figures for retail sales from the Census Bureau show that retail sales fell in May, scoring a -0.3% month-on-month change over April — and that wasn’t adjusted for inflation. Gasoline station sales alone went up 0.4% month-on-month in May and 43.2% year on year, for instance, which is almost entirely attributable to inflation. Draw that inflation out of May’s results and the setback will be considerably worse than a -0.3% month-on-month result.

Did Yellen miss that report, too? What exactly is Yellen watching as Treasury Secretary, anyway?

CNBC also takes note of consumer reluctance, although we still seem to be spending on “experiences,” such as movie theaters. When it comes to big-ticket goods, though, watch out:

Rising interest rates have dampened mortgage demand, which is now roughly half of what it was a year ago. Homebuilder sentiment has dropped to the lowest level in two years after falling for six consecutive months. Real estate firms Redfin and Compass both announced layoffs earlier this week.

“With May demand 17% below expectations, we don’t have enough work for our agents and support staff,” Redfin CEO Glenn Kelman wrote in an email to employees later posted on the company’s website.

The auto industry has suddenly emerged as one potential big problem. Not only will higher interest rates squeeze new-car buyers, some of their existing loans might fall apart too:

And while demand for new and used cars remains strong, auto industry executives are starting to see signs of potential trouble. With the cost for new and used vehicles up by double digits over the last year, car and other motor vehicle dealers saw sales decline 4% decline in May from the previous month, according to the U.S. Department of Commerce.

Ford Motor CFO John Lawler said this week that delinquencies on car loans are starting to tick up too. Although the increase could signal tough times ahead, he said said it’s not yet a worry, since delinquencies had been low.

Restaurants are now also seeing falling demand, especially among lower-income Americans. That’s true even with fast-food restaurants, which are normally recession-resistant:

The cost of food away from home rose 7.4% over the 12 months ended in May, but prices for food at home climbed even faster, shooting up 11.9%, according to the Bureau of Labor Statistics. Restaurant Brands International CEO Jose Cil and Wendy’s CEO Todd Penegor are among the fast-food executives who have emphasized the gap as an advantage for the industry.

But McDonald’s CEO Chris Kempczinski said in early May that low-income consumers have started ordering cheaper items or shrinking the size of their orders. As the largest U.S. restaurant chain by sales, it’s often seen as a bellwether for the industry.

On top of that, traffic across the broader restaurant industry slowed to its lowest point of the year in the first week of June, according to market research firm Black Box Intelligence. That was after the number of visits also slowed in May, though sales ticked up 0.7% on higher spending per visit.

Needless to say, all of these are flashing red lights for a recession. The US economy lives on consumption, and American consumers have done more than their fair share in keeping economic growth alive. If consumers are hitting the brakes at the same time the Federal Reserve is yanking the leash on monetary supply, a recession looks not just possible but almost certain.

At this point, a recession looks all but certain, so it’s unclear why Yellen and the White House aren’t doing more to prepare people for it. Perhaps they’re hoping to bluff their way into avoiding a consumer-spending retreat by jollying people along, but with shortages on grocery shelves and skyrocketing gas prices, that’s a pretty absurd strategy to take. And some Democrats are wondering why Biden and his team aren’t revising their messaging now anyway, given how badly it’s flopping with voters. CNN’s Melanie Zanona sounds skeptical about Biden’s blamethrowing, and her panel even more skeptical about Biden’s spin management:

“Inside Politics” host Abby Philip asked Zanona about a meeting Democrats had with White House aides on the Hill this past week. “How did that go over?” she asked.

“Not well, to put it mildly, listen, Democrats, they have been panicking privately. They have been saying for months, back in December they started pressing the White House to get a handle on inflation, start talking about this issue,” Zanona said. …

New York Times correspondent Jonathon Martin said that high gas prices, inflation and more would be hard for Biden to overcome.

“I think the frustration the Democrats have is that the Biden folks have known this for months now and that there’s still no clear plan to confront it beyond trying to turn the tables on the GOP, but even Biden doesn’t do that consistently. I think that’s another frustration as well,” he continued.

“Messaging is only going to go so far,” Zanona notes, “while people’s realities are a different thing.” It’s more that voters are realizing how far Biden is disconnected from reality.

Trending on HotAir Videos