Consumers run out of equity, steam and spending cash

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Economist Nouriel Roubini writes that the American consumer is under siege from all angles in his latest post. His impetus in pointing out the growing attack is a recent Bloomberg article that highlights sales declines at some of the nation’s largest retailers.

Sales at Macy’s Inc., J.C. Penney Co. and other U.S. retailers
fell in May as shoppers curbed purchases due to higher gasoline prices
and a sluggish housing market. …

U.S.
retail sales from February through May rose at half the pace from a
year earlier as consumers reined in purchases of non-essential items
such as clothing and home furnishings.

"The
American consumer is not aggressively shopping right now as they are
shut in with further worries,” said Eric Beder, an analyst at Brean
Murray Carret & Co. in New York.

…

With lower home prices and higher
interest rates, people are finding it harder to extract equity from
their homes. That may contribute to a slowdown in consumer spending,
which accounts for more than two-thirds of the U.S. economy, economists
have said.

We’ve been talking about the effects of the decline in mortgage equity withdrawal and consumer’s inability to continue to prop up the economy with their spending for a while now. It seems to be coming to fruition with each passing quarter.

Consumers are facing rising interest rates, higher costs of living, and loan resets by the trillions of dollars. While unemployment is at record lows it is very questionable whether salaries can help the average American through this. Actually, there really isn’t a question - these massive ARM resets are going to decimate a large chunk of people who end up upside down in their homes.

Roubini summarizes the news and recent economic data (and it ain’t pretty):

The US consumer is clearly under stress and these early May retail
sales figures confirm the weak consumption trends already evident in
April:

- April retail sales fell in nominal and real terms

- Nominal and real disposable incomes fell in April

- Real consumption spending in April was weak at +0.2%

- Real spending on goods in April fell with spending on services being the only component of spending growing in real term

- Oil and gasoline prices are rising further denting the real incomes of households.

- The worsening housing recession and a serious mortgage credit crunch
are further hurting the US consumer. These weakening housing/mortgage
indicators include: a further sharp fall in pending home sales, very
weak housing demand, falling mortgage applications, a mortgage credit
crunch getting worse, home prices falling, home equity withdrawal
sharply shrinking, and a trillion dollars of ARMs being reset this
year. Then, in spite of the recovering supply side factors (a rising
ISM in manufacturing, some modest increase in capex spending by the
corporate sector), the outlook for the US economy remains relatively
weak.