Middle Class Slams Brakes on Spending

By SARA MURRAY

Middle-class Americans made their deepest spending cuts in more than two decades, slashing spending on such discretionary items as restaurant meals and alcohol during the recession.



Households in the middle fifth of the population sliced their average annual spending to $41,150 in 2009, the Labor Department said Tuesday in its annual spending breakdown. That was down 3.1% from 2007 and 3.5% from 2008, the steepest one-year drop since records began in 1984. The drop came even as those households’ after-tax income remained relatively stable over the two years, at an average $45,199.

Meanwhile, the poorest Americans spent more as prices for necessities like food and rental housing climbed. Spending rose 5.6% from 2007 to 2009 for the poorest fifth of consumers, the most of any other income group, despite a 5.5% drop in after-tax income to an average $9,956 a household. In some cases, elderly people and others with low incomes dipped into savings or relied on credit to get by.

"What you’re looking at here is people at the bottom trying to hang on," said Timothy Smeeding, public affairs professor and director of the Institute for Research on Poverty at the University of Wisconsin in Madison. "You can’t go below a certain level."

Average annual expenditures for people in all income groups dropped 2.8% from 2008 to 2009, the first spending decline on record. The numbers don’t account for inflation, which has been significant in some areas such as food and rent. One consistently rising cost for all income groups was health care, where spending rose 9.6% from 2007 to 2009 as the cost of care climbed.

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Ouch!

Trader Dan’s Commentary

This is precisely what we have been warning would occur with the vicious cycle created by the Fed’s Quantitative Easing monetary policy. The result of that policy has been a huge influx of speculative money flows into the commodity sector pushing up food prices across the board. We have argued at some point soon, the rising cost at the wholesale level as indicated by the CCI and the futures boards would translate into higher retail prices for consumers, who are already being pinched by stagnant wages and falling net worth. The result – consumers are forced to retreat on spending with the next result – a slowing economy – with the next result – more Quantitative Easing – with the next result – more rising prices as currency induced inflation in essentials rises further compounding the problem as the cycle repeats itself.

As long as the market is convinced that the Fed is going to set off another round of QE, it will go after the Dollar driving it lower forcing money into commodities making life miserable for a large swath of the American citizenry. The decision by the monetary authorities to deliberately sacrifice the Dollar is going to come back and haunt all of us for years to come.






Oh MY!!

Same happening in my country!!