Consumer spending slows to a crawl

The US economy is still growing, though, so investors shouldn't panic.

By Jonathan Berr Jun 29, 2012 11:43AM
Image: Man counting money (© Flying Colours Ltd/Getty Images/Getty Images)Americans are starting to hunker down.

Consumer spending in May was flat for the first time in six months, but showed a 0.1% gain for the second month in a row when adjusted for inflation. The good news is that those figures were expected by economists. Of course, the fact that the economy is performing as badly as expected provides little comfort to investors.

Consumer spending is a big deal, accounting for more than two-thirds of economic activity.   Think of it like an engine in a car that's starting to run out of gas. Signs of consumer unease are everywhere, even though oil prices are down. Consumer sentiment recently hit a five-month low.

Shares of Procter & Gamble (PG) tumbled more than 8% after the world's largest consumer products company recently slashed its earnings and revenue forecasts because of slowing economic growth. Rival Unilever (UL), whose products include Dove soap and Hellman's mayonnaise, has barely budged this year, as with Kraft (KFT), maker of Oreo cookies. Investors are concerned that cash-strapped consumers will start to favor cheaper store brands if they are concerned about their financial futures. This may force consumer products companies to heavily discount their products, pressuring their profit margins.

While these fears are reasonable, there are a few things to remember before people start to bury their money in their backyards. First, the U.S. is not Europe. Countries such as Greece need huge bailouts because they can't afford to pay their debts. The U.S. can pay its debts but occasionally plays ill-advised games of fiscal chicken, such as the pointless dispute in Congress over extending the debt ceiling. 

Another thing to remember is that the U.S. economy is continuing to grow, albeit at a tepid pace of 1.9% last month. Most experts are expecting the economy to expand 2% this year, though they may cut their forecast in light of Friday's consumer spending data. Even so, the American economy is in far better shape than the eurozone, where economists expect the economy to contract by 0.5% this year.

The big wild card is China. Recent media reports indicate that the government in Beijing may have fudged its economic data to create the impression that the world's most populous country is immune to the global slowdown. If that is true, the U.S. economy will benefit because, for all its faults, investors know that information from Washington is reliable.

Investing is like life -- it's always better to deal with the devil you know. Spending by Americans has slowed, but there are no signs that it will stop or, worse yet, reverse. In today's uncertain climate,  that will provide some comfort.
Jun 29, 2012 1:21PM
We only spend money when its necessary and catch sales when they offer 35-75% off original price. We spend more time entertaining at home and with family. Grocery shopping is done every two weeks instead of weekly. Instead of  several trips a year now its one or two with careful planning and its always for a family/ friend function if we go..

Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.