Cracks in the Foundation

Reports would seem to deny my pessimism about the resilience of American Consumers, but I still await the end of the Christmas Season. The Producer Price Index went up 3.2%, and Economists attempt to put a pleasant face on it by stating it was only 0.4% rise when Food and Energy prices are subtracted from the mix. This brings forth two Protests: the first states 0.4% inflation at the Wholesale level is no small number as Retail outlets pass almost all Costs forward; the second element declares that almost all Consumers raise their consumption of both Food and Energy during the Christmas season, so they make a much greater contribution to overall Consumption. My mind would ease if I could locate some numbers on actual Physical Product Gains and Losses.

Here is what Economists make of the Situation of good Retail Sales for November. Drew Matus of Lehman Brothers may express the sentiment best if the trend in Consumer Spending continues, but I doubt most Economists would publicly concur, though almost All would surely Wish it so. Brian Fabbris honors the only real component of the Report, when general merchandise sales rose about 0.5%; this later is something which I doubt, considering such Sales on a long November as basic furnishings on Construction closings (I could certainly be wrong on this aspect). The Grinch could still steal Christmas, but Santa may escape one more year.

Phil Izzo and The Skeptical Optimist both note the decline in Federal Corporate Tax receipts. This is partially the fault of the continually revamped Tax laws concerning Corporate Tax breaks, but it also highlights the fact there is too much Corporate paper out there; paper which must generate a higher level of Profits to cancel the percentage increase of the paper. This has nothing to do with the level of Tax receipts, but will impact the value of the Corporate stock. It is mentioned here because Households are extremely reluctant to shift their Investment schedules to an increase in Consumption; yet, they will be purchasing less valuable Product (Corporate paper), and likely to minimize their Consumption to maintain Investment schedules. lgl