Consumer Spending Grows Weakly

Consumers were cautious in October.  Car sales were a large part of the slowdown, but it’s seems that consumers have decided to be a bit more cautious.  They are not coming to a halt, but slowing down:

Over the last three months, consumer spending has increased by 1.7% (annualized rate).  Real disposable income is up 7.0% on a comparable basis.  That income growth rate is unsustainably high, but a reasonable income growth figure for the coming months is 3.0 to 3.5%, which is still twice as high as recent spending growth.

Business Strategy Implications: Our recession fears (probability one in four) are based on the housing downturn making consumers shut down their spending.  We’re not seeing that, but the story looks more plausible right now.  Companies selling discretionary products to consumers (home electronics, cars, clothing for example) should monitor their sales carefully, and be sure to do your contingency planning.

Other Blogs Posting on This Topic:  Capital Spectator offers his astute comments, with connection to the stock market; Nouriel Roubini finds this report supports his recession forecast; Skeptical Speculator combines this news with global data