White Christmas Will Dampen Consumer Spending
Posted by Michael A. Kamperman on December 24, 2009
Merry Christmas to everyone. The weatherman has decided to send a smile across the face of many children with snow. The great thing about snow is it is free and all the kids can play in it regardless of their family’s income. The snow will cause some people not to make it to the mall to buy that extra present for their loved ones. It will not deter someone like me from heading out to do all of my Christmas shopping in one day. By the way it is not expected to snow in Waco and the roads are in great shape. The snowy cold winter will raise the price of natural gas, coal, oil, and ultimately electricity bills. One of the hidden sources of extra cash for most families has been lower than normal electric bills due to depressed natural gas prices. Going forward this extra source of income will disappear and it will further dampen consumer spending, credit payments, and business bottom line profits. This is unfortunate because the economy clearly needs all the help it can get.
The originally reported third quarter GDP growth of 3.5% has been revised down to 2.2%, of which 1.8% represented cash for clunkers. Predictably new home sales which are based on contracts signed and not closings plunged 11% in November. This is because the first time home buyers tax credit required purchased homes to close by November 30. In December mortgage purchase applications for homes have dropped significantly and it looks as though the resurgance in home sales has faded. The bottom line is federal government support is the only thing holding up the economy. Unfortunately the Obama Administration believes they have succeeded in avoiding another great depression and are busy taking victory laps depsite an unemployment rate of 10%.
Going into 2010 the economy will face the headwinds of hundreds of billions of dollars of adjustabe rate mortgage resets, higher natural gas prices, and further cutbacks in state and local government spending. Additionally, if the healthcare bill passes in something close to its present form tax increases will hit consumers and businesses in 2010 and additional health insurance spending will not ramp up until 2014. For all of those furious about not having the health benefits in 2010 they can blame the deficit hawks. These same hawks are holding back any signficant further economic aid from the federal government. The Obama Administration is going to allow taxes to rise in 2010 and does not plan to offset it with corresponding spending. This is the same type of blunder FDR made in 1937 causing a big leg down in the economy. No matter how one feels about the health bill, from an economic standpoint it is imperative for any tax increases to be offset with federal spending or the economy will suffer. President Obama needs to quit playing budget games. If he is going to tax us in 2010 to provide health insurance for million of Americans, then those people need to get the insurance in 2010 and not 2014.
