Consumer Spending Falls

As oil prices rose and home sales started to fall off, it was only a matter of time before John & Jane Q. Consumer started rolling back some of their discretionary spending. That time has now arrived.

Home sales are down 4.3%, with prices stabilizing or falling. Inventory is creeping up and the average time a home is on the market is increasing. One of the forces behind the falling home sales is the higher mortgage rates that have become the norm over the past few months.

Oil prices have driven the cost of gasoline up, as well as the cost of home heating fuels – oil, kerosene, and propane. The high oil prices have increased the cost of electricity, adding yet another burden on businesses and consumers. The money to pay for the higher energy costs has to come from somewhere, and that usually means that consumers will tighten their belts and close their wallets, focusing their spending on the essentials and cutting back on the so-called luxuries.

Even here at the WP Manse we've been cutting back, reducing our spending where practical, looking closer at our expenditures, reducing our debt as much as possible, and making plans for the upcoming heating season.

One thing that we did this summer was install a wood stove insert in the living room's fireplace, to be used to help heat the manse. With the cost of propane being well above $2.35/gallon at this point, seeing how much we used last winter, and an abundant supply of firewood handy, it was a no-brainer to go this route. I have no doubt that others will be doing the same. Frankly, I have better things on which to spend our hard earned money, like food.

In general, growth in consumer spending will be lower in the second half of the year compared to the first half, which in turn will slow the growth of the economy. Will this lead to a recession? At the moment, nobody knows.