For the first time ever I sold all my stocks

[clobber]

However, the pre-COVID economy was 70% consumer spending IIRC and we have 23 million people unemployed.

Many of whom are making more in unemployment than their normal pay.

Is the concern that people are quitting their jobs and collecting unemployment?

That was not my point. As pb4uski pointed out, the USA economy is heavily based on consumer spending. I interpret his post to meant that with consumer spending should be down because of the unemployment (and it largely has been). However, some (many?) are actually making more money due to the temporary unemployment as well as stimulus checks. For example, apparently sales of recreational water craft are through the roof.

When told you will make more money for the next few months, many people will spend it.

 

[brewer12345]

That was not my point. As pb4uski pointed out, the USA economy is heavily based on consumer spending. I interpret his post to meant that with consumer spending should be down because of the unemployment (and it largely has been). However, some (many?) are actually making more money due to the temporary unemployment as well as stimulus checks. For example, apparently sales of recreational water craft are through the roof.

When told you will make more money for the next few months, many people will spend it.

Latest data is out on consumer spending today. It dropped heavily and with the stimulus money coming in, the savings rate hit a record 33 percent. Some may have spent it, but not most.

 

[tulak]

When told you will make more money for the next few months, many people will spend it.

Thanks for the clarification. I don’t buy the premise that they will spend it, not for an income stream that is temporary. Odds are higher that they will wait to see what happens.

And I saw Brewer’s post regarding the drop in consumer spending. Not surprising.

 

[pb4uski]

I guess my point was that I think there are a lot of unemployed people out there that live paycheck to paycheck and are scared that eventually that they won't be able to pay their bills and are preserving what little that they have rather than spending like they would when they had a steady paycheck coming in and that will have an adverse impact on the economy and in turn, corporate earnings.

I think it will come back, but it'll take a couple years.

 

[corn18]

Latest data is out on consumer spending today. It dropped heavily and with the stimulus money coming in, the savings rate hit a record 33 percent. Some may have spent it, but not most.

But they will spend it once they are more confident in the future. They always do.

 

[tenant13]

I've ran a few hypothetical scenarios and with my current net worth, very generous spending and market returns around 6% I would have ended up - at 90 yrs old (I'm 57) - with more than I currently own. With market returns capped at 2% I would have gone down to 100k (no heirs). And that's without calculating SS payments. My chances of surviving until 90 are really slim so I basically could cash 70% of my equities now. And sleep well. Perhaps that's where OP is coming from: sometimes more money is just meaningless.

 

[brewer12345]

But they will spend it once they are more confident in the future. They always do.

Of course,. But I imagine consumer spending will be reduced for years even if we avoid something like a depression.

For those of you playing at home, the Atlanta fed gdp now model is forecasting a negative 51.2 percent annual pace for 2q gdp.

 

[Sunset]

Latest data is out on consumer spending today. It dropped heavily and with the stimulus money coming in, the savings rate hit a record 33 percent. Some may have spent it, but not most.

Wow, I'm not the only one that decreased spending...

This graph goes back to 1960

 

[REWahoo]

YTD our spending is down 28% from planned.

 

[OldShooter]

Wow, I'm not the only one that decreased spending...

Yeah, but be careful. That graph is not zero-based; the left axis scale is chosen to dramatize the event. Down 13.6% is made to look like down almost 100%.

The other thing to remember is that the reduction in consumer spending is due to a new and previously-unseen cause (just like the increase in unemployment.) So, are they not spending because they are shut down and the places they would be spending are also shut down? Is this bottled-up demand that will spike consumer spending when the constraints are removed? Will the money saved by not buying gas and not crashing cars (i.e., insurance co. rebates) be spent on other things once the constraints are removed? Or will this unspent money go into savings and historical spending levels be seen almost immediately? Or will the events cause a semi-permanent attitude change towards household saving?

As always, nobody knows nuthin', including me. But it is an interesting situation to watch.

 

[Dtail]

YTD our spending is down 28% from planned.

Yep, down 35% spending YTD from budget with Entertainment and Travel representing 50% of that number.

 

[Sunset]

Yeah, but be careful. That graph is not zero-based; the left axis scale is chosen to dramatize the event. Down 13.6% is made to look like down almost 100%.

The other thing to remember is that the reduction in consumer spending is due to a new and previously-unseen cause (just like the increase in unemployment.) So, are they not spending because they are shut down and the places they would be spending are also shut down? Is this bottled-up demand that will spike consumer spending when the constraints are removed? Will the money saved by not buying gas and not crashing cars (i.e., insurance co. rebates) be spent on other things once the constraints are removed? Or will this unspent money go into savings and historical spending levels be seen almost immediately? Or will the events cause a semi-permanent attitude change towards household saving?

As always, nobody knows nuthin', including me. But it is an interesting situation to watch.

What I found to be the "Wow" was it looks roughly like consumer spending since 1960 goes up and down 2% from the 0% line. Now it's a big drop.
I do think it's pretty clear it's only 13.6%
I also find it amazing consumer spending is so constant over the decades, as I would have expected a bigger drop during past recessions.

You are correct, a bunch of spending is because we can't, but some of that will never come back. Example I didn't buy any gas this month, once this is all over, I'm not going to be buying twice as much gas as normal, so will never make up the missing purchase.

 

[brewer12345]

Yeah, but be careful. That graph is not zero-based; the left axis scale is chosen to dramatize the event. Down 13.6% is made to look like down almost 100%.

The other thing to remember is that the reduction in consumer spending is due to a new and previously-unseen cause (just like the increase in unemployment.) So, are they not spending because they are shut down and the places they would be spending are also shut down? Is this bottled-up demand that will spike consumer spending when the constraints are removed? Will the money saved by not buying gas and not crashing cars (i.e., insurance co. rebates) be spent on other things once the constraints are removed? Or will this unspent money go into savings and historical spending levels be seen almost immediately? Or will the events cause a semi-permanent attitude change towards household saving?

As always, nobody knows nuthin', including me. But it is an interesting situation to watch.

I am sure they will all be buying dune buggies by the end of the year...

 

[aja8888]

I am sure they will all be buying dune buggies by the end of the year...

Don't forget the boats! Here in south Texas the used boat lots are running over and they are parking their excess used inventory in open lots.

 

[OldShooter]

... you are correct, a bunch of spending is because we can't, but some of that will never come back. Example I didn't buy any gas this month, once this is all over, I'm not going to be buying twice as much gas as normal, so will never make up the missing purchase.

Yup. My haircuts are another example. I'm not going to run out and get the three haircuts I've missed. In the not-very-typical case of the people on this board, those unspent, now unneeded, dollars will probably just stay in savings and investments. But for the majority of consumers the money will probably be spent some other way.

The purpose of economic forecasting is to make astrology look good. (old quotation)

 

[PatrickA5]

My spending "was" way down - and then the AC died. After replacing the AC/Furnace my spending is way up. Oh well. Won't have to worry about replacing that one for 15-20 years. I probably won't be around.

 

[Dawg52]

My spending hasn't been reduced much at all. Less on haircuts and eating out. But I have bought more food at the grocery store. Don't have a % on it but it can't be much. But I didn't have any world trips planned anyway.

 

[JustVisitingThisPlanet]

I left market entirely in Jan of this year after transitioning to private equity over last several years. PE has its own risks but they're better informed risks. Converting 401K/IRA to Self-Directed IRA has allowed getting my IRAs into private world. Am done with the emotional market.

 

[harllee]

I had to cancel 3 trips that will not be rescheduled any time soon--so about $10,000 in savings. I have also found I can cut my own hair just fine so I may never go back to the salon. We are also cleaning the house OK so maybe no more housekeeper for a while. I have also figured out DH is a pretty darn good cook on the grill so maybe no more expensive steaks in a restaurant ever. The virus will probably lower our spending permanently or at least for a long long time.

 

[clobber]

Thanks for the clarification. I don’t buy the premise that they will spend it, not for an income stream that is temporary. Odds are higher that they will wait to see what happens.

I guess my point was that I think there are a lot of unemployed people out there that live paycheck to paycheck and are scared that eventually that they won't be able to pay their bills and are preserving what little that they have rather than spending

You fiscally conservative ER types give WAY too much credit to the average Joe. Look at the significant increase in people wanting (and actually purchasing) sea-doos and Polaris.

 

[pb4uski]

^^^^ I sense a whole lot of cherry-picking going on!

 

[Mr._Graybeard]

I guess my point was that I think there are a lot of unemployed people out there that live paycheck to paycheck and are scared that eventually that they won't be able to pay their bills and are preserving what little that they have rather than spending like they would when they had a steady paycheck coming in and that will have an adverse impact on the economy and in turn, corporate earnings.

I think it will come back, but it'll take a couple years.

IMO, people at the bottom of the income pyramid are more likely to spend any windfall, no matter how small, than people at the top of the pile.

 

[brewer12345]

IMO, people at the bottom of the income pyramid are more likely to spend any windfall, no matter how small, than people at the top of the pile.

Yeah. Filthy buggers, they should know better.

 

[Elbata]

I sold some of my equities pre Covid. Got back in within a few months and saw markets rise. Today and yesterday, I again sold most of my equities.

I just have a bad feeling about China. Seems like they're making enemies all over the world. With their intrusion in India, the South China Sea, Taiwan, Hong Kong, the list goes on--China has a huge chip on its shoulder going back over a century. This could get real messy.

Might sound strange, but I'm normally long term buy and hold.

Don't like paying short term cap gains, but so be it.

 

[frayne]

Wonder how many people bailed out when the market was falling, didn't buy back it and are now kicking themselves? Just wondering and probably no one would admit to it as everyone is a market Samurai these days.