E US Consumer Spending Flashes An Alarming Call To Action

 

We know this chart indicates a well known fact. Retail sales are diminishing in the United States. And over time the magnitude of this decline is astonishing. Xmas season is shown by the longer lines, and in 1999 reached a peak of 15875 million (15.875 billion) down to 7611 million (7.611 billion) in 2018.

As of 2018, consumer spending made up 68 percent of the economy. At 14.2 trillion dollars in 2018, two thirds of consumer spending is for services including housing and health care. Total GDP for 2018 was 20.9 trillion dollars.

Kimberly Amadeo reports that in late 2018, one quarter of workers in the United States made less than 10 dollars per hour. She cites income inequality for the decrease in spending at the retail level.

It is clear that while outsourcing jobs to emerging markets has been central to income inequality, Amadeo says that preventing companies from outsourcing jobs will not work:

 

Trying to prevent U.S. companies from outsourcing will not work. It is punishing them for responding to global redistribution of wealth. Neither will protectionist trade policies or walls to prevent immigrants from entering illegally.

 She says that Trump tax cuts have made it worse for the bottom rungs and that:

 

This shift is about lessening global income inequality. The richest 1 percent of the world's population has 40 percent of its wealth. Americans hold 25 percent of that wealth. But China has 22 percent of the world's population and 8.8 percent of its wealth. India has 15 percent of its population and 4 percent of its wealth.

So, iIt is not as if China and India, for example, are wallowing in wealth. Most of the wealth remains in the USA, and developed nations. Yes wealth is shifting to EM's, but not that quickly.

A Strong Solution

As a solution, Amadeo says that taxes should be raised for the top fifth of US income earners to pay for education for the bottom two fifths. This would be an investment in future prosperity for the entire nation. It is clear from the Fred chart below that this investment is sorely needed:

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Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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Gary Anderson 3 weeks ago Author's comment

#Update: Even with a 3.2 percent GDP for the quarter, consumer spending remains weak. Inventory buildup drove GDP, not consumer spending.

Gary Anderson 4 weeks ago Author's comment

See also a study about purchasing power parity that helps explain the power behind the Chinese growth engine: talkmarkets.com/.../china-ppp-aiig-bank--powerhouse-economics

Livius Dan 1 month ago Member's comment

Gary, feel free to ask other Americans that live outside of the USA whether or not I'm exaggerating. They'll beg to differ. Many I know personally do not want to ever come back. Besides, I have provided references, one in particular mentioned major waiting lines for US or former US citizens to get residency and citizenship in Switzerland. One of the biggest issues that concerns me about the US currently are invaders from 3rd world countries both legal and illegal, most of course uneducated as Gary points out. I guess we'll have to see what happens!

Gary Anderson 1 month ago Author's comment

I don't consider families to be invaders. If anything, America is financialized, and the nation could benefit from the innovation that immigrants can provide for real world jobs. We can't compete making simple widgets but why not try to educate the immigrants quickly. The government should do this in the national interest.

Livius Dan 1 month ago Member's comment

You can't educate anyone against their will. Education is a cultural thing. Not all the world and cultures feel the same about education.

Carol Klein 4 weeks ago Member's comment

People should value education more. Ironically, many need an education to realize that. The solution is to make it free.

Gary Anderson 1 month ago Author's comment

Of course you can't. But Dan, we are the richest nation in the world. We can't fix our potholes. We spend little on education. China brought 500 million people out of poverty. We are richer, and we need to do better.

talkmarkets.com/.../belt-and-road-the-sri-lanka-china-port

Dan Richards 4 weeks ago Member's comment

If we stopped sending billions of dollars to countries that hates us every year, we could fix all the potholes we want. And education, healthcare, etc.

Gary Anderson 4 weeks ago Author's comment

Or, we could increase economic activity by helping our neighbors with infrastructure, not money, and earn our pothole repairs. China is doing just that.

Livius Dan 1 month ago Member's comment

You hit the nail right on the head Gary. We will do better when we assume responsibility as a nation and as people. As long as we have affirmative action and do not treat everyone equally based on merit and not on some entitlement issues some think they deserve, we'll never do better!

Gary Anderson 4 weeks ago Author's comment

There are some talented people who come from Affirmative Action who just need the opportunity. You think you will solve everything with tired right wing solutions. But there really needs to be more educational opportunity for more people.

Harry Goldstein 1 month ago Member's comment

While better education is key, I believe that there is a deeper problem - lack of work ethic. The newest generation seems to have a sense of entitlement, and a desire to make a quick buck. How does one fix THAT problem?

Gary Anderson 1 month ago Author's comment

Many saw their parents work hard only to be swindled by Wall Street in the housing bubble and crash. The resulting Great Recession and Fed tightening reduced wages, making it very difficult for millennials. If what you say is true, Harry, then America should be ecstatic that immigrants would want to come to our nation. My experience with immigrants in the farm community is that they can work circles around Americans. That Donald Trump is ignorant of this fact makes it certain that America will fall short of our own business needs.

Harry Goldstein 1 month ago Member's comment

I said the next generation is entitled and perhaps somewhat lazy. I didn't say they weren't racist! Seriously though, you do make a good point.

Gary Anderson 1 month ago Author's comment

No, I agree. I know you didn't say that. If what you say is true about their work ethic, ultimately, then there are others who will come and work hard.