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June 7, 2001

Consumer Cool Down

Wall Street has been pointing to strong consumer spending numbers as the one reason the economy may begin to recover before the end of the year. But those hot retail sales numbers are starting to cool.

Waves of layoffs and high energy prices have been slowly draining consumers' wallets, and it is just a matter of time before consumers make more drastic cutbacks. Just last week, 13,000 Americans filed for unemployment benefits -- bringing the total number of Americans looking for work to 432,000.

And lower interest rates won't help. No matter how low rates go, Americans aren't going to be in a position to borrow more. After all, they're already up to their eyeballs in debt -- consumer credit debt totals $1.6 trillion; add in home mortgages and that total skyrockets to $7.2 trillion. Americans are clearly mortgaged to the hilt!

Without robust consumer spending, company earnings have a slim chance of recovering before next year. Investors are already starting to waver and are selling on disappointing earnings news. As the last bright spot in the economy fades, investors will dump their shares and run for cover.

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