The US economy is a 70% retail and service economy, which means it is entirely reliant on continued growth in domestic consumption in order to maintain all other elements of the system. With manufacturing only a small part of overall employment (8%) and agriculture also limited (10%), our country is overly dependent on spending habits and ultimately consumer debt. If we produced more goods domestically and exported more overseas, then stagflation might not be as big a concern. However, as it stands now, the stability of the entire machine rests on people’s faith in the economy and their willingness to continue spending in the hopes that a return to normalcy is “right around the corner.”
In order to measure when our system will break, it’s important to track the health of the average consumer as well as their concerns for the future. Sadly, as soon as Americans stop spending and start saving, our economy goes down. That is the way the system has been designed.
The mainstream media was quick to jump on news this month of “increased” retail spending – overall retail sales climbed 1% for June. Of course, what they don’t mention is that official inflation is at 9.1% and REAL inflation is closer to 17%. OF COURSE retail sales are climbing, everything costs far more than it did a year ago.
But if we look at this data closer some alarms should go off. Why did retail only climb 1% when official inflation is at 9%? Sales should be much higher, but they are not. The 1% increase in retail in the midst of 40-year highs in price inflation is a sign of a sales implosion, not an improvement. A year ago in 2021, retail sales spiked by 7.73% in the middle of the inflation chaos. Inflation didn’t go away in the past year, it only got worse, and now the increase is only 1% in 2022.
What about consumer sentiment? Well, it has plunged 37% since last year, indicating that faith in the economy is rapidly devolving and that Americans are more likely to cut their expenses in order to protect themselves from potential fiscal shocks in the months ahead.
What is causing this consumer decline? There are numerous factors.