Consumer spending was off in May but not as badly as economists had predicted (but they are always wrong). If you exclude new car sales then spending was up substantially. Auto sales were off from a lack of supply after the Japan earthquake made parts unavailable and this allowed the price of the average new car to jump nearly a thousand dollars to nearly $30,000. Used cars are also up with some models up even more per unit than new cars. Early in the year used cars had been falling in value hinting at a general deflation of middle class assets.
Gasoline expenditures were up sharply of course even with reduced consumption. Building materials were more heavily purchased than the past year driven up mostly by natural disasters (see, global warming is good). Spending for clothing was up but entirely on higher prices. High oil prices are driving up costs for clothing manufacturers. Even natural fibers are going up with cotton breaking the record price set 150 years ago when Yankees were burning the cotton bales. Egyptian and Indian cotton was only starting to become available in 1861 and would keep prices low until rayon was invented and then prices went even lower.
Sales of durable goods and electronics were off sharply as stagnate and falling wages are making these purchases out of reach. Anecdotal reports of 10% pay cuts are becoming common and will start affecting wage numbers soon. Since consumer spending is 70% of GDP, wage cuts and the chronically under employed and the jobless feed the downward spiral. Nearly half of Baby Boomers report that they have at least one adult child living with them and many are taking care of an elderly parent as well.
American industry claims to need one million engineers, mathematicians and scientists but we only graduate 200,000 per year. Their solution is to outsource these jobs of course and even as they claim a shortage of workers wages of recent college graduates average only 30,000 per year and is falling. College tuition on the other hand has doubled in the past ten years ago. Thirty years ago a student could work fulltime at minimum wage during summer break and pay for 48% of college. Today a minimum wage job, if one can be found, will only cover 17% of a year of state college.
Republican candidates are becoming desperate to come up with a plan to fix the economy that Obama completely wrecked in only two years. Pawlenty of the falling bridges wants to slash corporate taxes to 15% and the top rate of income tax to 25% and eliminate all taxes on the super rich by doing away with inheritance, capital gains, dividends and interest income taxes. His plan to pay for this is to guarantee that this extreme trickle down scheme will produce 5% steady growth for ten years uninterrupted. The only time this ever happened was during the New Deal and WWII (which was the New Deal on steroids). At that time the top rate on income taxes was 93%. FDR wanted 100% for the top rate on incomes over 3 million in today’s dollars but compromised.
Michelle Bachman who is not to be out crazy’ed will cut the top corporate rate to 8%, but she has a plan to pay for it. She has noticed that 47% of Americans don’t make enough money to pay any income taxes and that has to end. Those deadbeats must start paying big time to make up for the free ride they have been getting on the backs of the rich. No mention that the poor and middle class already pay a far higher percentage of their income in taxes. In fact Ronald Reagan doubled their taxes and started the massive transfer of wealth to the top 2% and this generation of Republicans are determined to finish the job. www.prairie2.com