Doug Kass: It's the Average Joe's (Lack of) Spending That Matters
Americans are spending less across all income levels and wage growth is slowing as a sense of uncertainty sets in.
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We're finding no shortage of chatter about what's happening with government-spending, which is obviously significant. In his latest must-read report, Jared Woodard, Bank of America's Research Investment Committee head, writes that the U.S. has never been more government-dependent: It relies on government for 85% of job growth, 33% of all spending and -- worst of all -- 6%-7% budget deficits, all of which are at record highs (excluding crisis and war).
But it still seems to me the consumer side of the equation is not getting the attention it deserves. I'm talking about the consumer spending outside of the spending from government employees or related entities. Just the average Joe.
The Consumer Is Spent Up, Not Pent Up
The rule of thumb is to never bet against the U.S. consumer, but if you did for the last few months, you would have been right. It might not have been Keynesian economics that did the trick post World War II, it may just have been that Americans felt great all of the sudden and had also underspent for about the prior 15 years coming out of the Great Depression, so there was a fair bit of catch up.
What if we are going through the opposite of that now? People just feel like garbage due to all the political toxicity, stress, and wars, on top of being overspent and over consumed? And the U.S. government doesn’t have a balance sheet left to deal with any of this.
I am not a huge believer in Keynesian economics. In fact, as opposed to separating out government spend from gross domestic product, one could even argue you could give it a negative number, given all of its unintended consequences.
This is a good article with regard to the history of government spend and its implications: Get The Government Out Of GDP!
Even if you believe in Keynesian economics, it was never supposed to be this way. Government was meant to spend to plug the hole in bad times and then run a surplus in the good times. Not complicated. What we have now is far from that. Spend, spend, spend, and it has exploded since Covid.
Here are some more blurbs on the state of the U.S. consumer. A Wall Street Journal article from Tuesday and a snippet from Macro-Strategy. I would add Dick’s Sporting Goods to the list, they chunked it a few days ago too. It feels like there is just a broad slowing in consumer demand, for the time being at least: Consumer Angst Is Striking All Income Levels.
The WSJ reports that U.S. consumer spending is declining across all income levels. Wage growth is also slowing across all income groups. The article says its not all about tariffs, but rather a broader sense of uncertainty as many have less hard cash on hand. Checking and savings deposits across all income levels have declined over the 12-month period through February and are getting closer to inflation-adjusted 2019 levels. Wage growth for all income groups has slowed over the past year, and inflation adjusted debt balances are starting to surpass pre-pandemic levels.
As highlighted in Absolute and Relative Growth and Decline, U.S. domestic money supply is still below its 2022 high, although it has been climbing marginally. All that we have seen over the last few years is that money that had already been created in 2020 and 2021 has realigned within the domestic and international economy and financial markets (velocity increasing), funding the U.S. deficit and asset price appreciation. That is now exhausted. The growth in the velocity of money has started to turn down. Without an increase in monetary growth from the present 3% – 4% level, nominal GDP growth – (MV = PT) - will disappoint.
