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Consumer Spending Drought: 16 Signs That The Middle Class Is Running Out Of Money – Incomes Are Down, Taxes Are Up, Many Large Retail Chains Are Deeply Struggling Because of The Lack of Customers


by Michael

Drought - Photo by Bert Kaufmann

Is “discretionary income” rapidly becoming a thing of the past for most American families?  Right now, there are a lot of signs that we are on the verge of a nightmarish consumer spending drought.  Incomes are down, taxes are up, many large retail chains are deeply struggling because of the lack of customers, and at this point nearly a quarter of all Americans have more credit card debt than money in the bank.  Considering the fact that consumer spending is such a large percentage of the U.S. economy, that is very bad news.  How will we ever have a sustained economic recovery if consumers don’t have much money to spend?  Well, the truth is that we aren’t ever going to have a sustained economic recovery.  In fact, this debt-fueled bubble of false hope that we are experiencing right now is as good as things are going to get.  Things are going to go downhill from here, and if you think that consumer spending is bad now, just wait until you see what happens over the next several years.

Even though the Dow is surging toward a record high right now, everyone knows that things are not good for the middle class.  A recent quote from CPA Howard Dvorkin kind of summarizes our current state of affairs very nicely…

“The fact of the matter is that America is broke — whether it’s mortgages, student loans or credit cards, we are broke. The old rule of thumb is that people should have six months’ of savings,” Dvorkin says.”If you talk to people, most don’t have two pennies.”

These days most Americans are living from paycheck to paycheck, and thanks to rising prices and rising taxes, those paychecks are getting squeezed tighter and tighter.  Many families have had to cut back on unnecessary expenses, and some families no longer have any discretionary income at all.

The following are 16 signs that the middle class is rapidly running out of money…

#1 According to one brand new survey, 24 percent of all Americans have more credit card debt than money in the bank.

#2 J.C. Penney was once an unstoppable retail powerhouse, but now J.C. Penney has just posted its lowest annual retail sales in more than 20 years

J.C. Penney Co. (JCP) slid the most in more than three decades after the department-store chain lost $4.3 billion in sales in the first year of Chief Executive Officer Ron Johnson’s turnaround plan.

The shares fell 18 percent to $17.40 at 11:28 a.m. in New York after earlier declining 22 percent, the biggest intraday drop since at least 1980, according to data compiled by Bloomberg. J.C. Penney yesterday said its net loss in the quarter ended Feb. 2 widened to $552 million from $87 million a year earlier. The Plano, Texas-based retailer’s annual revenue slid 25 percent to $13 billion, the lowest since at least 1987.

How much worse can things get?  At this point the decline has become so steep for J.C. Penney that Jim Cramer of CNBC is declaring that they are in “a true tailspin“.

#3 In the United States today, a new car has become out of reach for most middle class Americans according to the 2013 Car Affordability Study

Looking to buy a new car, truck or crossover? You may find it more difficult to stretch the household budget than you expected, according to a new study that finds median-income families in only one major U.S. city actually can afford the typical new vehicle.

The typical new vehicle is now more expensive than ever, averaging $30,500 in 2012, according to TrueCar.com data, and heading up again as makers curb the incentives that helped make their products more affordable during the recession when they were desperate for sales. According to the 2013 Car Affordability Study by Interest.com, only in Washington could the typical household swing the payments, the median income there running $86,680 a year.

#4 The founder of Subway Restaurants, Fred Deluca, says that the recent tax increases are having a noticeable impact on his business…

“The payroll tax is affecting sales. It’s causing sales declines,” he said, estimating a decline of about 2 percentage points off sales at his restaurants. “There are a lot of pressures on consumers,” Deluca said, adding “I think this is on the permanent side, but I think business will adjust to it.”

#5 Many other large restaurant chains are also struggling in this tough economic environment…

Darden Restaurants, which owns the casual dining chains Oliver Garden, LongHorn Steakhouse and Red Lobster, said blended same-store sales at its three eateries would be 4.5 percent lower during its fiscal third quarter.

Clarence Otis, Darden’s chairman and chief executive, said that “while results midway through the third quarter were encouraging, there were difficult macro-economic headwinds during the last month of the quarter.”

“Two of the most prominent were increased payroll taxes and rising gasoline prices, which together put meaningful pressure on the discretionary purchasing power of our guests,” he added.

#6 The CFO of Family Dollar recently admitted to CNBC that this is a “challenging time” because of reduced consumer spending…

At Family Dollar where the average customer makes less than $40,000 a year, the combination of a two-percent hike in the payroll tax, rising gas prices and delayed tax refunds has created a “challenging time and an uncertain time for the consumer right now,” said Mary Winston, the company’s chief financial officer.

“In our case, anything that takes money out of our customer’s wallet gives them less money to spend in our stores,” she told CNBC. “So I think all of those things create nervousness for the consumer, and I think there are sometimes political dynamics going on that they might not even fully understand the details, but they know it’s not good.”

#7 Even Wal-Mart is really struggling right now.  According to a recent Bloomberg article, Wal-Mart is struggling “to restock store shelves as U.S. sales slump“…

Evelin Cruz, a department manager at the Wal-Mart Supercenter in Pico Rivera, California, said Simon’s comments from the officers’ meeting were “dead on.”

“There are gaps where merchandise is missing,” Cruz said in a telephone interview. “We are not talking about a couple of empty shelves. This is throughout the store in every store. Some places look like they’re going out of business.”

This all comes on the heels of an internal Wal-Mart memo that was leaked to the press earlier this month that described February sales as a “total disaster”.

#8 Electronics retailer Best Buy continues to struggle mightily.  Best Buy just announced that it will be eliminating 400 jobs at its headquarters in Richfield, Minnesota.

#9 It is being projected that many of the largest retail chains in America, including Best Buy, will close down hundreds of stores during 2013.  The following is a list of projected store closings for 2013 that I included in a previous article

Best Buy

Forecast store closings: 200 to 250

Sears Holding Corp.

Forecast store closings: Kmart 175 to 225, Sears 100 to 125

J.C. Penney

Forecast store closings: 300 to 350

Office Depot

Forecast store closings: 125 to 150

Barnes & Noble

Forecast store closings: 190 to 240, per company comments

Gamestop

Forecast store closings: 500 to 600

OfficeMax

Forecast store closings: 150 to 175

RadioShack

Forecast store closings: 450 to 550

#10 Another sign that consumer spending is slowing down is the fact that less stuff is being moved around in our economy.   As I have mentioned previously, freight shipment volumes have hit their lowest level in two years, and freight expenditures have gone negative for the first time since the last recession.

#11 Many young adults have no discretionary income to spend because they are absolutely drowning in student loan debt.  According to the New York Federal Reserve, student loan debt nearly tripled between 2004 and 2012.

#12 The student loan delinquency rate in the United States is now at an all-time high.  It is only a matter of time before the student loan debt bubble bursts.

#13 Due to a lack of jobs and high levels of debt, poverty among young adults in America is absolutely exploding.  Today, U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

#14 According to one recent survey, 62 percent of all middle class Americans say that they have had to reduce household spending over the past year.

#15 Median household income in the United States has fallen for four consecutive years.  Overall, it has declined by more than $4000 during that time span.

#16 According to the U.S. Census Bureau, the middle class is currently taking home a smaller share of the overall income pie than has ever been recorded before.

Are you starting to get the picture?

Retailers are desperate for sales, but you can’t squeeze blood out of a rock.

For much more on how the middle class is absolutely drowning in debt, please see this article: “Money Is A Form Of Social Control And Most Americans Are Debt Slaves“.

But if you listen to the mainstream media, they would have you believe that happy days are here again.

Right now, everyone seems to be quite giddy about the fact that the Dow is marching toward an all-time high.  And I actually do believe that the Dow will blow right past it.  In fact, it is even possible that we could see the Dow hit 15,000 before everything starts falling apart.

But at some point, the financial markets will catch up with economic reality.  It is just a matter of time.

In the meanwhile, those that are wise are taking advantage of these times of plenty to prepare for the great economic drought that is coming.

Don’t be caught living paycheck to paycheck and totally unprepared when the next wave of the economic collapse strikes.  Anyone that believes that this debt-fueled bubble of false hope can last indefinitely is just being delusional.

During The Years Of Plenty, Prepare For The Years Of Drought - Photo Taken By Tomas Castelazo

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  • http://twitter.com/jsusanka James M. Susanka

    now worries though the IMF will come like a rose.

  • Randall

    AMERICA
    – MILLIONS OF JOBS ARE AVAILABLE NOW; MILLIONS OF MORTGAGES SAVED
    NOW; MILLIONS OF STUDENT LOAN DEBTS CLEARED NOW; THOUSANDS OF
    VETERANS THANKED NOW-INCLUDING HOMELESS VETERANS!

    THE
    ECONOMIC FREEDOM AND STABILITY ACT (EFSA)

    Please find
    below a simplistic compilation of suggestions for fixing America’s
    economy. Instead of giving any further bail-outs of billions of
    dollars to the banks, financial houses, or corporations that will
    squander the money on obscene and unearned bonuses without
    giving any thought to using those funds for the betterment of the
    poor and middle class, the following plans are presented
    instead:

    PLAN A:

    There are 40-50 million
    baby boomers who remain employed in the work force. We suggest that
    the United States government offer each of those employed baby
    boomers $1 million dollars each, tax free, as severance to
    retire from their employment within 90 days of receipt of the $1
    million dollar severance with the following
    stipulations:

    I.
    The new EFSA retiree MUST cease their current employment and not hire
    on as an employee anywhere in America ever again. 40-50 million job
    openings will occur – Younger potential employees and college
    graduates are then hired. Unemployment costs saved and
    employment opportunities will immediately be resolved. (The new
    retirees CAN start a business, and they can eventually hire new
    employees too).

    II.
    The new EFSA retiree MUST buy a new AMERICAN made energy saving,
    green rated automobile. With 40-50 million new American made
    vehicles ordered the auto industry will once again become stable and
    solvent with jobs and needed resources enjoying economic growth-
    Employment, Environment and Auto Industry fixed.

    III.
    The new EFSA retiree MUST either buy an American house/condo or pay
    off their existing mortgage thereby increasing jobs, and stabilizing
    the housing and mortgage issues – Employment and Housing Crisis
    fixed.

    IV. The new EFSA
    retiree MUST purchase a life insurance policy to insure that those
    who depend on them for support will be taken care of in the event of
    untimely death or medical setback. –Dependents and Caregiver
    Coverage Fixed.

    V.
    The new EFSA retiree MUST purchase and carry yearly medical, dental
    and vision coverage for themselves and their dependents, decreasing
    healthcare costs and burdens for the nation, and ensure continued
    wellbeing and quality of life. – Financial, Employment and
    Healthcare Coverage Fixed.

    VI.
    The new EFSA retiree MUST forfeit all future Social Security,
    Medicare, and/or Medicaid benefits decreasing trillions of dollars of
    social welfare costs; eliminating the financial burdens on the coming
    generations, and encouraging self-determination. Budget Deficit
    fixed.

    *** Certainly even some of the noted suggestions
    warrant further consideration, or the opportunity to be further
    elaborated on and implemented. Such an economic and stability
    program could be in effect by the end of June 2013 without much
    financial investment considering the billions of taxpayer dollars
    being wasted each minute as you read this proposal.

    AMERICAN
    VETERAN ACKNOWLEDGEMENT OF SACRAFICE ACT (AOS)

    PLAN B:

    THE
    AMERICAN VETERAN ACKNOWLEDGEMENT OF SACRIFICE ACT– AOS

    1.
    10-20 ACRES OF AMERICAN LAND AND AN AMERICAN MADE
    TRUCK (NEW OR USED) WILL BE PROVIDED ALL HONORABLY DISCHARGED
    VETERANS.

    2. VETERANS MUST GROW SOMETHING
    FOR THE GOOD OF THE COMMUNITY ON THE LAND (FOOD, LIVESTOCK,
    WILD
    GAME, PRODUCTS, ETC)

    3. VETERANS CANNOT
    SELL, CONVEY, USE AS COLLATERAL OR TRANSFER OWNERSHIP OF THE LAND
    FOR
    10 YEARS. THE TRUCK CAN BE SOLD OR OWNERSHIP CONVEYED AFTER
    FIVE YEARS.

    4. THE LAND CAN BE INHERITED
    BY DEPENDENTS OF THE VETERAN BUT CANNOT BE SOLD, CONVEYED, USED AS
    COLLATERAL OR TRANSFERRED OUT OF THE FAMILY FOR 10 YEARS.

    5.
    VETERANS ARE RESPONSIBLE FOR STEWARDSHIP OF THE LAND TO
    INCLUDE ALL WASTE CREATED ON THE LAND.

    6.
    THE LAND CANNOT BE A BLIGHT ON THE COMMUNITY, OR THE LAND CAN BE
    RECOVERED BY THE GOVERNMENT AS FORFEITURE FOR FAILURE TO MAINTAIN THE
    LAND AS IT WAS INTENDED TO BE USED.

    With the implementation of
    the SEVERANCE AND VETERAN ACTS, America’s students will see a
    brighter future to invest their efforts and talents while creating
    plentiful jobs without fear of increasing the unemployment
    ranks.

    STUDENTS TO PROFESSIONALS ACT – (STP)

    PLAN
    C:

    THIS PROGRAM WAS CREATED TO CONNECT HIGH SCHOOL AND COLLEGE
    STUDENTS TO EMPLOYERS WHO WILL ACT AS BENEFACTORS, MENTORS AND
    INVESTORS IN THE STUDENTS’ FUTURE PROFESSIONAL AMBITIONS BY FUNDING
    A STUDENT’S EDUCATION OR SKILL TRAINING ON A 1:1 RATIO:

    ONE
    YEAR OF EMPLOYMENT WITH THE SPONSORING COMPANY FOR ONE YEAR OF
    COLLEGE OR SKILL TRAINING.

    1. A SPONSORED
    STUDENT WILL WORK SIX TO EIGHT WEEKS OF EACH SUMMER ATER THEIR
    SOPHOMORE YEAR IN HIGH SCHOOL UNTIL THEY GRADUATE FROM HIGH SCHOOL,
    AS AN INTERN WITH THE EMPLOYER-SPONSOR WHO HAS CONTRACTED TO INVEST
    IN THE STUDENT’S COLLEGE OR TRADE SCHOOL TUITION.

    2.
    ONCE THE STUDENT GRADUATES FROM THE COLLEGE OR TRADE SCHOOL OF
    THEIR CHOICE, THE STUDENT WILL WORK ONE YEAR FOR THE EMPLOYER-SPONSOR
    FOR EVERY YEAR THE EMPLOYER-SPONSOR FUNDED THAT STUDENT’S EDUCATION
    OR TRAINING.

    3. SAID EMPLOYMENT WILL BE AT
    A COMPETITIVE RATE OF PAY, WAGE, SALARY AS DETERMINED BY THE MARKET
    AT THE TIME OF COMPLETION OF COLLEGE OR TRAINING.

    4.
    CONTRACT AND NEGOTIATIONS REGARDING COLLEGE/TRAINING
    TUITION/EXPENSES AND EMPLOYER REIMBURSEMENT WILL BE DEFINED BY
    ARBITRATION AND STANDARDS DETERMINED BY THE DEPT OF LABOR.

    ***
    THIS PROGRAM WILL CREATE AN AMERICAN TRANSITIONAL VIABLE WORK FORCE
    WITH PRACTICAL WORK EXPERIENCE FOR PROSPECTIVE EMPLOYERS-SPONSORS TO
    ACCESS AND MENTOR.

    *** THIS PROGRAM WILL CREATE JOBS AND
    DIRECTLY CONNECT THE WORKFORCE WITH THE INDUSTRIES IN NEED OF HUMAN
    CAPITAL.

    *** THIS PROGRAM WILL ENABLE STUDENTS TO TRANSITION
    TO EMPLOYMENT WITH A DIRECT INVESTMENT IN THEIR FUTURE, WHILE
    BOLSTERING THE ECONOMIC GROWTH OF THE NATION.

    With the
    implementation of these simple SEVERANCE, VETERAN & STUDENT ACTS,
    America’s economy, spirit, and future will exponentially
    expand beyond the nation’s current burdens and constraints,
    with prosperity and renewed INVEST in AMERICA (I AM) – SOLUTION.