What's ailing the American consumer?

Retail sales are sickly, and US households are dipping into savings -- a sure sign that many families have yet to see an economic recovery.

By InvestorPlace May 13, 2014 6:27PM

Shoppers carry bags while waiting for a taxi cab on 5th Avenue in New York. © Craig Warga/Bloomberg via Getty Images
By Anthony Mirhaydari InvestorPlace

Amid the market's run to new record highs this week, hopes were high that the April retail sales report would confirm that the recent economic stalling was weather related. Now that the snow has melted, all's well again. Wallets will open. Shoppers will hit the malls. Money will flow. Right?

Maybe not.

The April retail sales report was a bit of a downer. And when combined with a concerning drop in the personal savings rate as well as the ho-hum pace of income gains and signs of bubbling inflationary pressure (particularly in food and rent), it all suggests the U.S. consumer is suffering more than Wall Street realizes.

Retail sales

First, let's talk the retail sales report.

Core retail sales (removing autos and gas) dropped -0.1% month-over-month, a big drop from the 1.4% growth seen in March. That returns to the soft pace seen over the winter: The January core retail sales report featured a 0.7% drop and averaged -0.1% between November and January, a normally busy season for shopping.

According to the team at Capital Economics, the weak report "gets the second quarter off to a soft start and suggests that real consumption growth in the quarter as a whole may be a big weaker than we previously expected." Macroeconomic Advisors, which is looking for Q1 GDP growth to be downwardly revised to -0.7%, is now looking for a 3.7% rebound for Q2.

American savings

The problem isn't just the winter weather (although that clearly played a role), it's that middle class pocket books are stretched too thin. You can see this in the way the personal savings rate dropped to just 3.8% in April, down from 6.4% in 2011 that marketed the top of the post-recession recovery in household savings. We've seen a steady decline in the savings rate since then despite the ongoing economic expansion.

Similar dynamics of reduced savings and increased reliance on credit were seen in the last two market cycle (late 1990s and mid-2000s). What's different this time is that the wealth effect of higher stock prices and home prices, which lifted consumers during those last two cycles, isn't as potent anymore. Home prices nationally remain 20% off of their July 2006 housing bubble peak. Stock ownership has been in decline according to Gallup polling.

It's also worrisome to see households turning to credit to fuel this diminished level of spending. The New York Federal Reserve's Quarterly Report on Household Debt and Credit showed that households increased their debt load by $129 billion in the first quarter, up about 1.1%. The most recent uptick has been driven by credit card debt as mortgages and auto loans cool off. To me, that suggests budgets are being squeezed.

The problem remains stagnant wages when adjusted for inflation, which after a three-year reprieve is poised to cause problems again. Food prices are rising at nearly a 2% annual rate. Housing costs are rising at a 2.7% annual rate. Yet inflation-adjusted disposable personal income, per capita, is rising at just a 1.5% annual rate -- a far cry from the 3.7% rate hit in 2006 or the 5.2% rate hit in 1998.

Bottom line

Until wages rebound, Wall Street -- giddy with excitement over the record highs in the Dow Jones Industrial Average and the S&P 500 -- should act so surprised that many Main Street families are still struggling to get by.

Maybe this realization explains why the SPDR S&P Retail ETF (XRT), which surged so violently on Monday, gave a little back on Tuesday as retail stocks overall remain well off of their recent highs.

More from InvestorPlace

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.

Tags: XRT
May 13, 2014 7:15PM
This is not hard to figure out.  Reduced numbers of jobs, low pay,  lack of benefits,  overpriced consumer goods,  a government that has sold out to corporate and special interests.
The middle class doesn't have a chance.
If the government expects consumer spending to bail the economy out of this swamp,  we'll need to have some way of making the money to do it while government spending is cut to the quick.
Otherwise we're on a sinking ship,  people.

May 13, 2014 6:57PM
Taxes, Fuel costs, lack of leadership in Washington, rising health costs, the National Debt, Shipping jobs to China, Corporations.....
May 13, 2014 6:48PM
"What's ailing the American consumer?"

First of all, seems folks are refusing to talk about how Big Oil has jacked up prices this year in spite of an massive oversupply of Crude and continual lack of Demand. Folks are paying way more at the pump this year along with dealing with wages not that different then a Decade Ago. The Working Poor and Fading Middle-Class are working Harder for Less. Yet there is Record Wealth here and across the Globe.

"What's ailing the American consumer?"

Corporate Greed on a Massive Scale.

May 13, 2014 7:14PM
The declining value of the dollar. Where do you think this massive money printing will lead us?
May 14, 2014 12:24AM

Groceries!  The prices for food is completely out of control.  Walking out of the grocery store with 2 bags and a receipt for $45 is total ****.

Meanwhile, some baby-mama two check-out isles over swipes a magical card and gets a cart full (worth at least $200) for FREE. 

We are screwed.  

May 13, 2014 7:19PM
The picture projected from the DC mob with their great "Big Kahuna" is a false impression and a lie at the very best, things are tough out here in the real world. Some on the hill are so far removed they can no longer relate. Here's hoping the coming election is the beginning of some good change!
May 13, 2014 7:09PM

"What's ailing American consumers?"


Um, could it be Obamanomics?

May 13, 2014 7:45PM

In a word Obamanomics...

High taxes, no demand for labor, government regulations crushing business, government intrusion into all areas of life, and extreme government spending.

Get rid of the democrats and the economy might actually grow.

May 13, 2014 8:18PM

I dont know ,, but why does my US govt.  give 300 million to Congo last year when we are trillions in debt ,,, i know , i know they just print it,,i thats the case why cant they start subsidizing our postal service , its a vital service .

May 13, 2014 7:26PM
This is what we have to show as a Country after 6 years of the Obamunist in charge. It's his policies, his regulations, and his far left idealogy that has ruined this Country. It's takers versus makers. There are plenty of freeloaders, leeches and parasites in the Democrap Party looking for handouts. Comrade Obama is all about big government, entitlements for life's losers and raising taxes on productive people. Punish success and reward failure is the mantra of this administration 
May 14, 2014 7:03AM
The workers are running out of money to consume and are going broke or already broke. The takers living off others peoples money are growing with their free medicaid, baby raises, housing paid, food paid, discounts on utilities, free cell phones and time off. The financial monkey on the back of US workers is what is ailing the consumer. Support your family. support the illegal's family, support the neighbors family, support other countries with jobs gone overseas and support the government. More taxes & inflation just adds to the frustration of the ailing working consumer. Average working people can't afford to get sick, go on vacation or hold savings.
May 13, 2014 11:42PM
Let's see 10,000 a day or 300,000 a month Boomers are retiring. They're turning in their work clothes for leisure clothes. driving cars for personal business about 50-70% less annual mileage, selling nests and right sizing and just generally doing more with less consumption of big box, electronic and mall junk.  The US economy is going to loss 78,000,000 consumers of crap in the next 5-15 years.
May 13, 2014 11:02PM
The Robber Barons are back!  I got tired of being cheated so I quit working for less than I thought I should be paid!   I've learned to live on a lot less thank you!  Maybe if I dropped my overpriced cable TV and internet access, that might free up some money to spend on consumption elsewhere to help the economy?  We only have so much money.  If people are borrowing to make ends meet, it isn't going to get better before it gets even worse!
May 13, 2014 7:05PM

People are too busy spending all their money on cell phones and service, internet access, satellite/cable tv, And cars with all the latest unnecessary tech in them to have either the time or money to spend on anything else.

People live far better now than 30 years ago, and make FAR more money.  But they don't believe it because they are spending it on crap they don't need and didn't even have a few decades ago.

The problem is wasteful spending by the citizens of this nation, and the politicians they elect.  And now no one has any more 'disposable' income that isn't already committed.  

So they blame the rich. Or corporations. Or whatever. But by God it is someone else's fault! Not their own!

May 13, 2014 10:32PM
Obama!Liberals!That what is ailing the American consumer.
May 13, 2014 11:08PM

 A Yale professor who was among three Americans who won the Nobel prize for economics said Monday that rising economic inequality in the United States and other countries is the most important problem.

He said he supports having a contingency plan in place now to raise taxes on the rich if inequality gets worse.

Top marginal tax rates under the presidents

Ike 92% - these are fondly called the good old days

JFK 91%  Let’s send a man to the moon by the end of the decade.

LBJ  91%

Nixon 77%

Ford 70%

Carter 70%

 Reagan 69.12%

Bush One 31%

Clinton 39.6%  Can you say balanced budget?

Bush Two 35%  Let’s go off to 2 wars while cutting income taxes.  Great idea.  Huh?

Obama 35% and now back to approx. 39% We have to thumb a ride with the Russkies to the space station.

May 14, 2014 5:02AM

Obamas "Fundamental changing of America" is what's ailing the American consumer!!

Both Liberals and Rinos are what's killing America.....We need a complete change in government! If that doesn't happen in the next election cycle you can say goodbye to America! It will be our last chance people!

"It's not society's job


 Governments job


  Wall Streets job

 to "take care of you"


Don't sit around and complain about it do something about it!

Ultimately the power is with the people!!!!!!!!!!!!

May 14, 2014 7:52AM
LMAO! It's called Obamanomics! "Period"
May 14, 2014 12:04AM
You have to have better than a McDonalds or Wal Mart Obama career job to do enough spending to make the economy move.
May 14, 2014 7:41AM
Dingle Barry is ailing the American Country.
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