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Friday, February 13, 2009


food spending down sharply

i've seen a steady stream of economic "analysis" which relies on as a fundament the idea that there is "pent-up demand" building behind a breakwall of fear and trepidation. once breached, it is said, demand will return and things will not be so bad as some believe.

i have a very difficult time swallowing that assessment, and this is a good illustration as to why.

In 2008's fourth quarter, consumer spending on food fell at an inflation-adjusted 3.7% from the third quarter, according to data from the Commerce Department's Bureau of Economic Analysis. That is the steepest decline in the 62 years the government has compiled the figure. The report is based on receipts from a sampling of food-oriented businesses across the country.

The big drop likely comes from two things, said Joseph Carson, an economist at AllianceBernstein who worked at the Commerce Department in the 1970s. First, consumers have been trading down to lower-priced items. Second, he thinks many households dug into their pantries for staples rather than going to the store, a trend that can't continue indefinitely. "You can't contract at this rate for long," he said. "It's just shocking."

more of said-same "analysis" there at the end. and it has no merit attached to it.

it seems to me that many analysts underestimate what a terrific component of consumer spending even on the staple level is entirely discretionary. 'trading down to lower-priced items' is only part of it.

to illustrate the idea -- my family, having yet to feel the more direct potential impacts of depression, still shops much as it did last year at this time. restaurants have been out for us since the kids came along, but the manner of foodstuffs we bring home reflect luxury and convenience. we only intermittently cook as our parents did, and when we do we take leftovers for lunch for the week in a very economical practice. the rest of the time, we eat some manner of frozen lunch in our workaday noonhours which are needlessly expensive but quite convenient. a lot of folks are trading down from that practice now -- and in that manner broadly.

even excluding restaurant spending, if i had to examine the discretionary component of our foodstuff expenses i imagine it must run nearly a quarter. between microwaveable prepacked lunches and silly little edibles for the kids, from quick-heating mac-n-cheese to gourmet frozen pizza (a contradiction in terms if ever there was one) to deli-counter meats and cheeses to fresh bakery to organic dairy, there is tremendous room for sustained compression that would cut a significant slice out -- vastly in excess of 3.7% -- of what would be considered staple spending.

moreover i expect that is true of most folks, and in more than just foodstuffs. the key realization is that convenience and luxury can represent more or less permanent reductions in consumption -- and that it has much further to run. there is no demand being "pent-up" behind such reductions. it represents instead the onset of that much-feared and oft-predicted downward adjustment in the american standard of living as we come off a thirty-year leveraging of the household.

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from perrone: it's a very convincing argument, gm, and it's absolutely right. rather than pent-up demand as the background story, what we should be reading here is really the antithesis of that. to use a term we're both fond of applying to basball sabermetrics, it's "reversion to the mean." but it's even worse than Jason Marquis running out of steam.

I won't say whether I'm indulging Apollo or Dionysius, but I will say this: reversion deferred has opened a nightmarish chasm -- the mean is a LONG way down.

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