COMMENTARY | According to Reuters, the Dow was up for a second day on Tuesday, November 29, 2011. They credit the two-day run with an increase in consumer confidence and in increased hope that the European debt crisis can be resolved. The Los Angeles Times reports that an estimated $11.4 billion was spent by consumers on Black Friday which is 6.6 percent more spent than last year. The Chicago Tribune reports that Cyber Monday sales were $1.2 billion. This is a record in online sales for one day. Lastly, the Conference Board issued a November U.S. Consumer Confidence Index (CCI) of 56 points which is 15 points higher than issued in October. Some economists are cautiously optimistic that these are all signs that the economy is turning around.
Not me. While I’m always thankful for a positive day on Wall Street, the two day uptick on the Dow needs to gain about 600 points to match what it was at the beginning of November 2011. It needs about 1300 points to get to where it was in May 2011. As far as the stellar Black Friday and Cyber Monday results, I think that Americans are just more comfortable with living with credit card debt. According to creditcards.com the average credit card debt carried per household is $15,799. Assuming an interest rate of 15 percent and the ability to pay $200 a month toward the debit, it would take each household 28 years to pay off that debt. Well, at least Americans still have their homes. S&P Indices released data that showed that U.S. home prices are down nationally by 3.9 percent from the same time last year.
To make things worse, things cost significantly more in 2011. The U.S. government lists the current inflation rate at 3.5 percent. That is a bundled number which encompasses a large list of consumer items. Looking at things we buy every day, milk has gone up 9 percent, cereal has gone up 6.2 percent, and eggs have gone up 7.4 percent since October 2010. Gas has gone up 23.5 percent. It is significantly more expensive to buy food and drive to work today as compared to 2010. The only way that my family is able to weather these price increases is to clip coupons, only buy things on sale, and simply to do without.
Perhaps our frugal spending pattern will change when we hear that the EPA is no longer closing down coal fired power plants or when they are allowing drilling to develop in the Gulf of Mexico. We might consider a cruise over a camping trip when the Supreme Court rules on Obamacare once and for all. While I hope for a ruling against it, a ruling one way or the other will allow businesses to figure out where they stand with health care and thus make long-term business decisions. Americans and American businesses will rebound as long as they have clear policy and rules to deal with.