Robert Reich: Consumers Are ‘Bummed Out’

Thursday, 31 Jan 2013 01:44 PM

By Michael Kling

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Consumers are “bummed out” and have every right to be, says Robert Reich, former Labor Department secretary.

Consumer confidence just fell to the lowest level in more than a year, even though the stock market is bullish and housing seems to be recovering.

So why are consumers pessimistic?

Editor's Note:
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“Because they’re deeply worried about their jobs and their incomes — as they have every right to be,” Reich, a professor at the University of California, Berkeley, writes on his blog.

Unemployment remains high, wages adjusted for inflation continue to drop, credit remains tight and loans are hard to obtain and the end of payroll tax cut has reduced income by about $100 a month for the typical worker.

Meanwhile, corporate profits are up and costs are down.

“Profits are the highest share of the U.S. economy on record. Wages are the lowest. But this imbalance can’t and won’t last,” Reich warns. “Investors: beware.”

Corporate profits cannot stay high if consumers are pessimistic and don’t spend, he says. And with Europe in a recession, Japan still in trouble and growth slowing in China, companies can’t look overseas for help.

“If the next showdowns over the fiscal cliff, government appropriations, and debt ceiling result in more deficit cuts this year, we’re in a recession,” Reich warns.

Consumer spending increased in December and incomes grew the most in eight years, according to the Commerce Department. Household purchases rose 0.2 percent following a 0.4 percent increase in November.

Lower fuel costs, job gains, holiday sales and early dividend payouts helped boost consumer spending even though low defense spending prompted a drop in gross domestic product, according to Bloomberg. However, higher payroll taxes will crimp spending.

“Consumers closed out the year on a relatively strong note,” Guy Berger, an economist at RBS Securities, told Bloomberg. “We have a fair amount of resilience in demand. But, this quarter doesn’t look great for spending as there will be some intense headwinds.”

Editor's Note: Use This Single Loophole to Pay Zero Taxes in 2013

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