In early October, we analyzed the changing state of the consumer over the last 40-plus years (please refer to Brian McGough’s two posts dated October 12 for more details). Specifically, we wanted to see how consumers were faring in the year-ago period to gauge what type of consumer environment retailers are comparing against in their upcoming reported October results.
Since January 2007, personal consumption expenditures hit their YOY peak in growth in November 2007 and have since grown at a moderated to declining rate. Nondurable goods spending has helped to support total PCE growth as gasoline, fuel oil and other energy spending picked up in September 2007 and began to really accelerate in October followed by four months of 30%-plus YOY increases. Energy spending continued to grow at double-digit rates since that period through July as gasoline prices hit historical highs.
At the same time energy costs took a larger share of wallet, consumers were hit with overall inflationary pressures as CPI reflected these higher energy costs and began its steady YOY increase in August 2007.
The unemployment rate, which has been on an upward trend since January 2007, also began to increase at a more significant pace during this October to November 2007 timeframe. Not surprising, disposable personal income growth decelerated in October as well as it coincided with the uptick in unemployment rates. Since then, disposable income growth has continued to moderate until it turned relatively flat in March 2008. The government’s rebate checks helped to boost numbers in May (also provided a lift to May, June, July retail sales numbers), but this government intervention only provided a short-term fix and disposable income growth has since abated.
In fact, the narrative is quite frightening. Last fall, as inflation and unemployment headed up, what did Americans do? We took our personal savings rate below 0% in November 2007. Then the government came in with rebate checks, but that was a 2-month fix. Now we're looking at unemployment rate a full point above least year, and there's no more tax shelter. Unfortunately, now we comp against a negative personal savings rate in November. That's a tough one heading into holiday and into 2009 -- especially if Brian is right in his October 12 analysis that discretionary spending could finally turn negative in 1Q09 and be down about $170 billion in FY09.