Thursday, August 13, 2009

Consumer retrenchment continues...

The US consumer remains in lock down mode as evidenced by the fact that retail sales actually fell in July despite the cash for clunker program that pushed car sales up 2.4% in July. I'd also note that despite the decline in gas prices from July 2008 (the peak), gas prices have inched up steadily this year and probably created an artificial boost to retail sales in July. Excluding gas sales and auto sales, retail sales were probably down around 1% in July.


It's important to remember that the consumer (unfortunately) represents 70% of all economic activity in the US and as job losses mount and unemployment benefits start to expire the ability of the US to experience a snap back recovery is limited.


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Twinkies are going to get pricey....


It doesn't get the headlines that oil does when it spikes, but you probably have more daily interaction with a little thing called SUGAR. Sugar prices have just about doubled in the last 6 mths and that's going to lead to another round of price hikes at the consumer level (remember the jump in grain prices last year that pushed up cereal prices, etc - prices never really retreated from those elevated levels).
Expect manufacturers to consider alternatives to sugar (High Fructose crack, I mean, corn syrup) and possibly consumers might change their consumption patterns if prices remain persistently high (remember miles driven fell last year at peak gas prices).
Something to watch.

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