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The Consumer Bust

Consumer spending accounts for two-thirds of economic growth. The bad news: spending is slowing.

Consumer spending fell -.2% in June…the first decline in almost two years (the last was in September 2009).

But of even greater concern: consumer spending has not fallen more than 3% per capita during any downturn in the past several decades, but the ‘Great Recession’ brought spending down 7% (according to the Federal Reserve of New York).

Add to that the fact that personal income rose .1% in June…the smallest increase since last November. And that increase was based on higher government payments through unemployment benefits and public aid…wages and salaries actually fell.

And to make matters worse, consumer sentiment fell to the lowest level since March 2009 (according to the Reuters/University of Michigan consumer sentiment index)…and the sentiment level is now 26% below the average since 1978.

Consumers that are not confident are not going to spend.

And that means one thing: “We’re spent”, according to the New York Times. Decades of excessive consumption have caught up to us, and what we are experiencing is “a fizzling of the great consumer bubble that was decades in the making”.

Spent is right. And a proxy for consumer discretionary spending, Consumer Discretionary Select Sector SPDR (XLY), is spent. The fund is oversold at this point (and down -3% year-to-date, and 11% over the past month). But more to the point, consumer staples has outperformed the consumer discretionary sector, based on relative strength among sector funds; Consumer Staples Select Sector SPDR (XLP) is still up 2% year-to-date following last week’s volatility.

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