Stock markets put on a happy cheer today for higher than predicted August US Retail Sales data: 2.7% M/M ahead of the market consensus for a more modest 1.9%. But stripping out the massive one-time-juice from cash for clunkers and higher oil prices, core retail sales actually rose by a more modest 0.6% M/M. Running with this 'good news' many pundits are heralding the much desired return of the US consumer. If we look at the real product of cash for clunkers though, we have to admit a less-lasting benefit than we would like.
I am all for greener cars, and there was doubtless some gains made in fuel efficiency by handing in older cars for new. But after this marginal benefit, the net effect is likely to be more negative. For one thing cars that were older and therefore largely paid for have now been replaced with cars that are new and mostly financed. Cars aren't exactly appreciating assets. The government program has really prompted consumers to spend more and save less again; precisely the disastrous approach that got us into the mess in the first place. Secondly, we have once again borrowed growth from the future- car sales- and spent it today. Once people have a car payment, it is harder for them to buy other things in the future. This is the case, even if they are able to keep their jobs, and their houses–which for many, still remains to be seen. Buying new cars in response to a government incentive looks good this quarter, but likely increases the risks ahead.
I am happy to see some signs of life in the economy, but one month's data born of government stimulus doesn't declare a recovering consumer.
This Reuters clip reminds us that at this point, in one of the harshest economic periods in history, the story of most consumers in the world today is not so much about recovery as it is about survival. Watch: Time of Crisis.
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