Friday, December 31, 2010

Is The Consumer "Back"? Ah...No.

Pop economist John Crudele of the New York Post makes a mockery over media-fueled claims that a surge in consumer spending this holiday season shows the economy is on its way back on track:

MasterCard Advisors said retail sales soared 5.5 percent this holiday season, excluding car sales. Clueless journalists gushed that "the consumer is back." Even one careful analyst on the economy cheered in his newsletter that this was the largest increase in five years amid an "orgy of consumerism."

Seriously, does anyone really think consumers went crazy this Christmas? With unemployment at 9.8 percent?

It really doesn't make sense. So I asked MasterCard Advisors whether its numbers excluded gasoline sales, which are only increasing because of an unhealthy spike in prices.

Well, no, said MasterCard, we include all retail purchases, including gasoline and food. Just like the government's Department of Commerce does!

So how much has the price of gas risen?

The Energy Department says gas prices went from a nationwide average of $2.91 a gallon in mid-November to $3.05 a gallon around Christmas time.

That's a 4.8-percent increase and indicates that a lot of this holiday's spending wasn't for the purpose of joyful gift- giving but rather went toward filling Luke's pickup.

Add in the rise in food prices - the September 2010 year-to-year increase was
1.4% and showing no signs of abating - and it doesn't seem as if the consumer is back at all. Instead, the consumer is barely treading water, forced to spend more money for basic survival staples, and thus necessitating him/her to cut back on his actual physical holiday spending - gifts and such, you know, the purchase of which actually helps create jobs - or to go even further into debt to pay for the same amount of gifts he/she bought last year.

Both options are economic poison. So the media (and the government) instead take a third tack, warping the data to make it seem that the economy is recovering, when in reality the facts point to a very different conclusion.

Unless the government now feels the fact we can even afford to pay for drastic price increases in basic necessities is a cause for celebration. Talk about defining success down...

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