Household Spending- Treading Water

The Commerce Department is due to release a batch of statistics at the end of September, and economists are not expecting good news. According to a survey conducted by Bloomberg, they predict flat household purchases- up just .5% from the prior month, and offset by a .5% increase in prices. The cost of gasoline is particularly painful, with unleaded gas surging to $3.84 per gallon.

In short, consumer spending is dead in the water. Since household spending accounts for 70% of the nation’s economy, there will be a domino effect:

Consumer caution is rippling through retailers, restaurants and their supply chains, with railroads and cargo companies including Norfolk Southern Corp. (NSC), FedEx Corp. (FDX)and United Parcel Service Inc. reporting slowing global demand.

Housing may be one sector that is responding, albeit modestly, to the quantitative easing policies of the Federal Reserve. Reacting to lower mortgage rates. sales of new housing have risen to a two year high. However, new houses represent a much smaller share of the housing market than they did during the boom years of the last decade.

All in all, not a pretty picture. And one which could get worse if the Congress and President don’t come up with a way to avoid the “fiscal cliff” – mandated tax increases and spending cuts- at the end of the year.