Good for families, bad for retailers and consumer dependent GDP forecasts

Today HSBC’s Chinese preliminary purchasing managers’ index slipped to 50.4 in November from 50.9 in October. The reading just above 50 implies a weak expansion among manufacturers, and is a sign that growth in the third quarter is fading. The much anticipated rebound in exports remains elusive: new export orders slumped to 49.4 from 51.3. Things the US economy is demanding like energy equipment are largely being made at home, with clothing now coming more from Mexico and cheaper labor parts of Asia beyond China. See: Waking up from the Chinese Dream

Despite intense marketing initiatives and central bank injections to the financial system, consumer spending in the developed world continues to be subdued. See: Target’s profit plunges on weak consumer spending. Here is a direct video link.

Cash-strapped, North American families are focusing their spending more on necessities and automobiles (responding to the 0 down, 0 interest for 8 years financing campaigns, as auto dealers scurry feverishly to bring forward even more demand from the future and capitalize on it today). Cars that are not made in China. Nor is the world grabbing up much of what is made in Canada either for that matter: today the Loonie is plunging again as the Bank of Canada reiterated that “significant slack” remains in the economy and growth is being held back by sluggish business investment and exports.

Spending less and waiting for lower prices is the right thing for consumers to do. But it’s not good for the still bloated retail sector that has yet to downsize significantly from the gargantuan proportions it achieved during the now deflating consumer credit bubble. For more on how significant consumer spending is to the economic cycle see Joseph Ellis’ excellent book “Ahead of the Curve”.  Here is a direct video link to a Bloomberg report.

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