Private Consumption – FINAL ESTIMATE 1Q2013

We have flagged Private Consumption Expenditures as Yellow, caution in the wind. The primary reason is mainly due to the slowdown in durable goods spending. This major component of Consumption has carried GDP growth during the last 3-years of the recovery period. We believe durable goods spending is due for a contraction. The Business Cycle is also due for a downturn on the whole.

The good news is that Services expenditures have been increasing primarily due to inflation and household expenditures, thanks due to the Feds intervention. In other words, the printing of money, primarily trying to inflate us out of another recession. Believe it or not, it is working! If you look at inflationary trends, excluding sales at gas stations, retail sales has increased 5.1% over the last several months. We expect this trend to continue throughout 2013.

Because Household Expenses account for the majority of Service Expenditures and Service Expenditures contribute 60% towards Consumption and GDP in 1Q2013, I believe we will see continued growth in this major component.

Rounding out the most significant changes in 1Q2013, Personal Income contracted during the quarter, which basically impacts available disposable income for consumer spending. So, it is a “catch 22″ in the current economy, people want to spend, but can’t due to lack of funds.

We plan to take a quick look at consumer debt in a future post to determine whether households are borrowings funds to spend.

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