Walking on ice: the U.S. consumer

Although the economy grew surprisingly well in the second quarter, the signs are much less rosy for the third quarter. Which candidate will the American voter trust with the economy? The guy with seven houses or the Harvard educated elitist? That question could represent the essence of this election. Does McCain's promised slash and burn reform of spending reassure or trouble Americans? Does Obama's lack of track record in leadership put him in a vulnerable position? Here are a few headlines about our fragile consumer psyche in the wake of the steep fall in the Dow yesterday.

Dow plunges on warming of financial tsunami - Just what we don't want to hear. From the FT:

Weary investors in the United States received a further pummelling yesterday as data showed new unemployment claims at a near-five-year high last week, a leading fund manager gave warning that America faced a “financial tsunami” and key retailers released disappointing sales figures.

The mounting nervousness about America’s economy dragged down shares. The Dow Jones industrial average fell 344.60 points, or 3 per cent, to 11,188.20, and the S&P 500 closed down by 38.20 points, or 3.3 per cent, at 1,236.80 points.

Consumer spending slows

From the NYT:

'Consumer spending, responsible for the bulk of U.S. gross domestic product (GDP), slowed in July as the effects of the government’s stimulus package tapered off.

The Commerce Department announced that consumer spending grew at a 0.2% rate in July. But on an inflation-adjusted basis, consumer spending dropped 0.4%, as high prices took their toll on the household budgets of strapped consumers.

"The temporary impact of the stimulus has passed, and it looks like consumer spending is on track to decline in real terms in the third quarter," John Ryding, the chief economist at RDQ Economics, told The New York Times. "It’s certainly a wake-up call to people who [Thursday] looked at the GDP report and said, ‘Hey, the economy grew by 3.3%, so everything’s O.K.’ "

Economy stays stuck as consumer cut back From the NYT:

The nation’s economy failed to pick up speed in August and the final days of July, as rising prices and a weak job market prompted consumers to reduce spending and shop at discount stores to try to conserve cash.

Economic activity stayed “weak, soft or subdued” across the country, according to the Federal Reserve Bank’s beige book, a regular snapshot of the economy. The latest edition of the survey, released on Wednesday, signaled that the economy spent the summer in a rut, with consumers feeling little relief from the government’s tax rebates.

Other headlines:

Coffee shops feel jolt

Wal-Mart follows shifts in consumer spending

New York: prepare to tighten your belts The NY governor is taking the lead in budget cutting; could McCain-Palin be next with this message?

"Te time to act is now."
Powerful words erupt from the mouth of one of the most powerful men in New York State.
Governor David Paterson is addressing the people of New York in a live televised speech. He says New York will be $26 million in debt within three years if things don't change. He says New York State must tighten its belt as its residents have, in order to recover from a recession.
He calls it a recession.
"For too long, we have done less with more, and paid more with less, " he says, "Your government is going to follow your lead."

TK: And by the way, the rest of the world isn't feeling so good either. From Bloomberg:

The euro declined to an 11-month low against the dollar on speculation a credit-market slump will push European economies into recession.

Japan adrift in recession - From The Standard:

Asia's largest economy was left rudderless again yesterday after Japan's prime minister quit suddenly, sparking concerns that free-market reforms will be put on the backburner as a recession looms.

Japanese stocks ended at a five- month low as the return of the revolving door politics of the recession-ridden 1990s left the country searching for its third prime minister in less than two years.

Whoever replaces Yasuo Fukuda will inherit the same problems he faced - a deadlocked parliament, a worsening economy, an ageing population and huge public debts.

TK: Check out this link to audio presentations by Steve Lutz, John Stanton and Desmond O'Rourke at the recent U.S. Apple Association marketing conference. All three talks tied in what is going on in the economy with impacts on produce department sales.