When growing up, we thought crushing cans was fun. We’re not sure why. Maybe it releases aggression from all that pre-pubescent angst. My Ritalin. Grade school is Washington meets Hollywood that causes pre-teens to bubble up inside like a concoction of Pop Rocks and Pepsi.
The week started with the National Association of Realtors Existing Home Sales report. Housing has been a mix of volatile and depressing lately, like Adderall meets Pop Rocks and Pepsi. Monday’s August report was no different. In a sign that investors are dropping out of the housing market, existing home sales fell 1.8 percent since July. Year-over-year sales dropped 5.3 percent. Supply, specifically the supply of distressed houses, is to blame.
This bad news was exacerbated when Tuesday’s Federal Housing Finance Agency (FHFA) House Price Index showed a deceleration to a 0.1 percent increase in July after June’s 0.3 percent increase. This should help consumers sitting on the sidelines waiting for house prices to come down, though.
Both weekly retail sales reports were released on Tuesday, the International Council of Shopping Centers (ICSC) – Goldman Store Sales and Johnson Redbook, were both up. ICSC – Goldman was up 0.1 percent week-over-week and 4.1 percent year-over-year, led in large part by electronic sales, specifically Apple iPhone’s. Johnson Redbook was up 3.7 percent year-over-year. Together they suggest consumers are consuming, despite their largest assets and incomes not rising.
Wednesday added to the week’s party mix of news. First came the Commerce Department’s New Home Sales report for August, which increased 18 percent from July. A 1.6 percent drop in median sale prices is responsible for the surge and is more good news for sidelined home buyers.
For our purposes, Thursday was like a day on Ambien or Lunesta, for sleepwalkers.
The non-Viagra induced climax of the week came Friday with the Commerce Department’s final second quarter Gross Domestic Product (GDP) estimate. Second quarter GDP officially expanded by a surprising 4.6 percent after a previous estimate of 4.2 percent and up from first quarter’s final GDP estimate of negative 2.1 percent. Increased capital spending by business and increased exports were the driving factors. Though we still find this dramatic pivot questionable, especially heading into a tough election for the party in power, we may be wrong.
Consumer spending, a component of the GDP, was steady as Lorazepam at 2.5 percent for the second quarter in a row. Though we’d like to see this drop, as consumers are still paying off debt and wages are stagnant, the steadiness is welcome news.
Friday’s final report was the final Thomson Reuters/University of Michigan Consumer Sentiment report for September, which came in at 84.6 points after August’s final reading of 82.5 points. The outlook component of the survey was attributed to the month-over-month gain, which means consumers feel the jobs market and wages will soon improve. The current conditions component fell 0.9 points. This may suggest that consumers are overdosing on Abilify and may explain why consumer spending, though steady at 2.5 percent, is still up.
As with the first GDP estimate for second quarter, we question this dramatic pivot. We believe the economy is improving, but not that much and that quick. Does this feel like 2007 to you? Next month should bring an end to the Fed’s $85 million per month bond buying program. We expect some market volatility consequently, but this shouldn’t affect the broader consumer.
Our three concerns (QE3, jobs and wages) remain. We advise consumers to cut spending and siphon additional money into savings and investments. Money is the best prescription in this volatile environment.
A continual recommendation of ours is to invest. When the economy turns around in real-life, we’ll still recommend investing. We know the thought of investing causes many to become as skittish as a whippet doped up on epinephrine. This doesn’t have to be the case, as passive investments should be the majority stake in any portfolio. This means you can invest with minimal, not zero, involvement.
If you’re new to investing, words such as ‘mutual fund’ and acronyms such as ‘ETF’ will possibly cause supplemental fears. There’s a ton of information online about starting investing. We have favorites, one which includes this post about the difference between ETFs and mutual funds.
One of our other consistent recommendations is to diversify your income stream. This requires, if you’re one of the employed lucky, to have a side-hustle. That spike in cortisol that many feel when they hear this recommendation is symptomatic of the fear of working 24/7/365. As we’ve said elsewhere, this doesn’t have to be the case in this day in age. A great side-hustle is blogging. Many bloggers have turned a mix of a diary and personal passion into revenue induced moonlighting. Use any extra income from this or any other part-time gig to add more money to your savings and investments.
That’s this week’s #MoneyConscious Mash Up where we attempt to turn an Ambien topic into a Zoloft topic. Come back every Saturday for your weekly fix. We promise that you won’t end up in the Betty for this dragon chase of consciousness expansion.