Analysts worry that consumers will stop spending and this will wreck the economy. Funny, a few years ago they said that consumers were spending too much and that was going to wreck the economy.
To analyze consumers we need to analyze their two largest purchases minus food and energy. That is housing and transportation.
Over time they will stop spending on inefficient things and buy smart things. They stop buying Hummers to commute to work at 8 mpg and instead by something lighter that does 38 mpg. Instead of buying a $800,000 McMansion with all the amenities that had bid up, maybe they will opt for a smaller $400,000 home at fair value.
So who will suffer? High end luxury bonanaza boutiques. European luxury imports.
Who will not? Consumers. Because if energy goes up 20% then they will spend 20% less on homes and cars. There is a time lag because they don't switch right away. But in a short time the net effect on consumers will be zero.
I think what is important is consumer cashflow. Consumer will not be tapped out unless there is wild unemployment. With interest rates low, this is unlikely.
To analyze consumers we need to analyze their two largest purchases minus food and energy. That is housing and transportation.
Over time they will stop spending on inefficient things and buy smart things. They stop buying Hummers to commute to work at 8 mpg and instead by something lighter that does 38 mpg. Instead of buying a $800,000 McMansion with all the amenities that had bid up, maybe they will opt for a smaller $400,000 home at fair value.
So who will suffer? High end luxury bonanaza boutiques. European luxury imports.
Who will not? Consumers. Because if energy goes up 20% then they will spend 20% less on homes and cars. There is a time lag because they don't switch right away. But in a short time the net effect on consumers will be zero.
I think what is important is consumer cashflow. Consumer will not be tapped out unless there is wild unemployment. With interest rates low, this is unlikely.