Can The Consumer Save the Economy, Again?

The Unsinkable Consumer Is Drowning In Debt

The mainstream media exults every time retail sales come in higher than anticipated as evidence of how robust and powerful the American consumer is. According to Peter Schiff's podcast, these retail sales figures don't indicate a robust economy. They just represent how Americans are getting less for more money. And to make matters worse, they are drowning in debt as a result.

In fact, the 0.7% increase in retail sales in September was more than anticipated. The predicted increase was 0.3%. Retail sales are up 3.8% on a year over year basis.

The report received widespread attention. According to CNN, this indicates that customers "aren't tapping out just yet." Peter, however, said that the news was not genuinely positive.

First, it's crucial to keep in mind that retail sales numbers are not adjusted for inflation.

“Everything costs more. Everything you buy is a lot more expensive. So, assuming that you don’t buy less, and of course, some people are buying less, but if you just buy the same stuff and everything costs a lot more, well of course, retail sales are going to go up.”

But this doesn’t indicate that the economy is thriving, and it doesn’t mean Americans are on a spending spree buying more stuff.

“In many cases, they’re buying a lot less. They’re just paying more. And they’re buying fewer of the things that they want because they’re paying more to buy the things that they need.”

If you adjust the annual retail sales increase of 3.8% by the CPI, it drops to 0.1%. In other words, almost the entirety of the retail sales increase was due to rising prices. Nevertheless, the raw retail sales data creates the impression that Americans are happily spending money. Peter said you can’t necessarily draw that conclusion.

“Obviously, if the government is underreporting how much prices are going up, then the retail sales are actually capturing the real increase in prices because it’s what the consumers are actually paying. It’s not what the government is pretending they’re actually paying, but what they are, in fact, paying. So, these retail sales numbers are probably a better reflection of inflation than the CPI.” - Peter Schiff

And, The Current Position From The Federal Reserve

Jerome Powell, the chairman of the Federal Reserve, gave the indication that the central bank is likely nearing the end of its cycle of rate increases and that additional increases are unlikely unless there is convincing evidence that greater economic activity is hurting the effort to get inflation back down to two percent.

Powell stated in prepared remarks on Thursday that "the Committee is proceeding carefully" in light of the dangers and uncertainties as well as how far we have come. "Based on the totality of the incoming data, the evolving outlook, and the balance of risks, we will decide the extent of additional policy firming and how long policy will remain restrictive."

Powell expressed his satisfaction with the strides the Fed has made in the effort to reduce inflation and reaffirmed the Fed's commitment to its two percent target.

The Federal Reserve is using smoke and mirrors in an attempt to hide the real impact of the results of their work in causing inflation to be so out of control.

One of the key economic indicators that has the biggest impact on consumers' purchasing power and standards of living is inflation. The official measure of inflation (the CPI), according to some experts, is inaccurate and does not accurately reflect the true cost of living for the majority of Americans. They contend that by making incorrect assumptions and use of defective methodology, the CPI understates inflation.

According to Shadow Government Statistics, if the old approach (1980-based) had been used, the inflation rate as of March 2023 would have been closer to 14.1% than the actual rate of 5%.

Since 1990, more modifications have been made to the way inflation is calculated. Here is how the 1990 calculating method may have reported the current inflation rate. Inflation data for March 2023 was made public in April. Based on this graph, the actual inflation rate for April would have been closer to 8.3% than the stated 5% annual inflation rate using the 1990 approach.

Home Sales Lowest In 13 Years

High mortgage rates continued to squeeze the housing market, pushing new home sales down to their lowest pace in 13 years, data from the National Association of Realtors showed Thursday.

In the years following the housing bust, many homeowners secured low-interest mortgages. Many more homeowners secured inexpensive rates when the Federal Reserve drove interest rates back down during the pandemic. More than 60% of homeowners have mortgages with interest rates below 6%, which makes them hesitant to sell their properties and purchase new ones now that interest rates are approaching 8%.

After accounting for seasonal factors, existing house sales in September decreased by 2% from August. Sales have decreased 15.4% from last year.

Despite rising loan rates, the exceptionally low number of available properties has been pushing up property prices. At $394,300, the median price of existing homes sold in September increased by 2.8 percent over the same month last year. This was the third month in a row that prices rose over the previous year. - Breitbart

“As has been the case throughout this year, limited inventory and low housing affordability continue to hamper home sales,” said NAR Chief Economist Lawrence Yun. “The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains.”

In conclusion, the narrative that strong retail sales figures are a sign of a buoyant economy misses the mark when examined critically. The reality is that the average consumer is grappling with rising inflation, soaring home prices, and higher interest rates - factors that are eroding real purchasing power and pushing many into debt.

The Federal Reserve's current stance offers little comfort, considering the skepticism around the accuracy of official inflation metrics. While it might seem that consumers are still spending, it's crucial to recognize that this spending is often driven by necessity rather than optimism. Amid these complexities, expecting the consumer to single-handedly "save" the economy seems both unrealistic and unfair.