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Here's Why Consumer Spending Dropped in November Lombardi Letter 2017-11-28 02:20:50 consumer spending consumer spending index economic growth savings household income Although market sentiment is high, sustained by the Donald Trump effect, consumer spending and consumer confidence are lower in November. U.S. Economy https://www.lombardiletter.com/wp-content/uploads/2016/12/Consumer-Spending-150x150.jpg

Here’s Why Consumer Spending Dropped in November

U.S. Economy - By |
Consumer spending

Consumer Spending Was Lower Last November Despite a Bullish Stock Market

The Dow Jones is just 81.05 points away from hitting 20,000, but consumer spending failed to meet expectations. Retailers said that sales were slow in November. The trend proves what many had noted recently: falling household incomes and growing debt.

So, while market sentiment is high, sustained by the Donald Trump effect, consumer confidence is tepid. First of all, while investors are happy to take risks in expectation of boosting their savings, they may not be confident enough to spend their money.

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It’s still unclear which of Trump’s promises will actually turn into policies. Nobody can predict the effects they will have. Trump has promised to disrupt the system. But so far, Trump has shown with his cabinet picks that the very same banks that produced—and then bounced back from—the sub-prime financial crisis could have a big say in his administration.

Clearly, investors see the future through rose-tinted glasses. They are optimistic, but consumers don’t seem to share that sentiment. And why should they? A report from the U.S. Department of Commerce showed that consumer spending rose a measly 0.2% in November.

November was less favorable than October, when consumer spending was 0.4%. Nobody should be surprised. After all, personal income did not show any improvement in November. In fact, if anything, salaries dropped 0.1%.

The reality is that household income has not grown in nine months. (Source: “U.S. consumer spending slows; business investment perking up,” Reuters, December 22, 2016.).

There is a disconnect, however, between consumer spending and the overall state of the economy.

The U.S. economy, promise experts, has grown. The statistics point to higher employment. But nobody seems to be wondering about what kinds of jobs are being created. The buoyant economic growth indications, moreover, seem to fly in the face of consumers saving less.

In November, the savings rate dropped to $780.9 billion, when it was $809.1 billion in October. That’s the lowest since May 2015. (Source: Ibid.)

So, consumers are saving less and spending less. Where is that money going? Is it debt?

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