By Jim Slagle | July 07, 2008 | 7:20 PM | 6 Comments
We have all heard the talk about a consumer-led recession in the financial media over the past several months. The logic behind a consumer-led recession makes perfect sense, especially on paper. Let's review some of the negative forces currently undermining the average American's balance sheet: Gas prices are ridiculously high, home equity values are dwindling, credit is much more difficult to obtain, food inflation is commonplace, and the stock market is now officially in a bear market....etc., etc. Sound familiar? These facts are all true and self-evident as the phrase goes.
So that being said, I am struggling to completely understand what I witnessed this weekend.
I ventured out around 7PM Saturday night with a friend to grab some dinner at a place called "The Irvine Spectrum." The Irvine Spectrum is located in Irvine (Southern) California and is your typical outdoor entertainment venue in the middle of suburbia consisting of restaurants, a movie theatre, and various retail stores. First stop, "P.F. Chang's", a fairly popular Chinese restaurant. I strolled in there thinking we would be able to sit right down and have a quick dinner. Not the case, I was politely greeted and told there would be a ninety minute wait. Ninety minutes? Ok, no problem, they weren't the only game in town. Next stop, "Javier's", a large Mexican restaurant around the corner. The wait there was sixty minutes. We eventually settled on a less popular restaurant, but still had to wait thirty minutes to be seated. Where are all of these people coming from? Aren't you folks supposed to be at home broke and watching television? Remember, we are in a consumer-led recession! Weaving through the Spectrum to our final destination, I couldn't help but notice the line at the movie theatre. There were about five or six neatly configured single-file lines leading up to the box office, each about forty people deep. Was "Star Wars" playing there? I was confused. I didn't see anyone in a Chewbacca costume so I doubt it, but it sure did remind me of those days. The point is, the place was completely packed. It was difficult to even walk through the masses due to the rabid commerce transpiring all around me.
So what can be deduced from this experience? Here are my thoughts: The first and most obvious inference is that we can simply chalk this up to the dynamics of the holiday weekend. This is plausible right? Not so fast. I've noticed this phenomenon at the same venue and others on non-holiday weekends of late. The second point of reason has to do specifically with energy costs. Since it costs so much to get out of town, the "staycation" is alive and well in the U.S. suburbs. Fair enough. However, I think there is still a better explanation.
Jobs. Yes, jobs. As long as Americans have jobs and feel good about their prospects for keeping their job, they will continue to spend money. The Orange County job market is relatively healthy. Factors like stock market depreciation and housing deflation are intangible and correlate more with the perception of wealth or the "wealth effect" than real and measurable consumer spending. Inflationary aspects are certainly at work in this economy but can be somewhat mitigated by consumers at the margin, whether it be by altering their driving habits and or modifying their food consumption. Remember, most Americans don't save. If they have it, they will spend it.
As an investor, I would pay careful attention to the job numbers going forward. Prior to April, I believe we had around 42 consecutive months of positive job growth in this country. However, the last 3 months have been negative which could be troublesome if the trend persists. I believe if we can keep unemployment at bay, we can turn the corner and begin to move back toward prosperity.
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