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Consumers drawing their own conclusions

Updated: May 3, 2013 12:14PM

Originally published: October 31, 2005

There’s good news and bad news in the economic reports these days. And the stock and bond markets spend their days trying to sort out the blizzard of information. The picture is often conflicting, and if the markets can’t make heads or tails out of the latest data, what are you supposed to do with your own financial planning?

Friday’s report that the economy grew at a 3.8 percent annual rate in the third quarter, in spite of the impact of major hurricanes, shows that business conditions remain strong.

Consumer spending remained strong in the July though September period. But that was before gasoline prices really took off -- and before consumers have to face the prospect of much higher heating bills. Can we consumers continue to power the economic engine?

Home equity and credit cards

Household spending has been exceeding personal income since June. And that means, on average, Americans are financing their lifestyles on home-equity and credit-card debt. Last year, consumers withdrew home equity to live on -- to the tune of 7 percent of personal income. But now the housing market appears to be cooling a bit.

Growth in new-home sales has been flat, with a slight uptick in September offsetting a slight decline in August. And in many areas, home prices have leveled off. Year over year, prices for new homes climbed only 1.9 percent in September on a national basis, while sales of existing homes continued a strong annual pace of 7.28 million, the second best month on record.

Meanwhile credit-card delinquencies are nearing 5 percent, a level that causes banks to worry. And, of course, the next bankruptcy statistics will reflect the rush to file before a new, stricter law went into effect in October.

The Friday GDP report shows inflation is now running at a 4 percent annual rate -- significantly higher than a year ago. But many economists point out that the “core” inflation rate is still only 2.2 percent. Core inflation excludes food and energy.

Whatever the numbers, the Federal Reserve says inflation is still a problem. And it’s a sure bet that short-term rates will be increased at least another quarter of a percent when the Fed meets this week. As those increases get passed on to credit-card borrowers and homeowners with adjustable-rate mortgages, many budgets will be strained.

While the Fed controls short-term rates, the globally traded long-term bond market has awakened to the possibility of U.S. inflation as well. Longer-term rates are above 4.5 percent -- a signal that the rest of the world is worried about our budget deficits, and the potential impact of rising energy costs on prices. It might take even higher rates to keep foreigners investing in the dollar.

It didn’t help that the nominee for new Fed chairman, Ben Bernanke, was widely acclaimed by the Street as a man who would continue Alan Greenspan’s strong fight against inflation. Readers of this column might remember that I quoted his remarks back in the fall of 2002, when the economy appeared to be sliding into de-flation. Bernanke opined that the Fed could always run the printing presses -- and even drop dollars out of helicopters -- if the economy fell into a tailspin! The bond market obviously has questions about his inflation-fighting commitment.

The stock market liked the news of strong economic growth, and the Dow Jones industrial average rallied to close up 172.82 points to 10402.77 Friday. But it is still down 3.53 percent for the year, and the Nasdaq composite index down 3.93 percent.

On the one hand ...

This blizzard of economic numbers is issued every month, with mind-numbing regularity. It’s hard to sort out the good news from the bad. Is a strong economy good news? Yes. Will it incite fears of inflation, causing the Fed to push rates higher? Yes. Could that be bad news for an economy dominated by consumers who will feel the impact of higher rates? Probably.

It’s great to hear about economic growth, but if the outlook is so rosy, why did Consumer Confidence drop in October to a two-year low? Maybe consumers know what economists can only predict: that they’re caught in a crunch. And that’s The Savage Truth.

Terry Savage is a registered investment adviser and the author of the newly published The Savage Number: How Much Money Do You Need to Retire? (256 pages, Wiley, $24.95).

Instant messages

Last Monday, Terry Savage asked for your pet peeves in the financial services sector. Here’s a sampling of the responses.

It stretches credulity for a financial institution such as Chase to claim that mail deposits from Chicago to Kentucky will take five days to reach your account. And, why does an institution the size and breadth of Chase/Bank One find it necessary to send your deposits to Kentucky in the first place? No one in Chicago to process these deposits?


What makes me almost as mad at Bank One is the location of the branches in small malls with nowhere near enough parking. At one near my house, I have to park across the street at Osco and walk across the street to stand in line behind five or six people.

No name

The most irritating situation is having some teenager or 20-year-old address me by my first name, not showing respect for me as a customer or my age. I am 76 years old, gray-haired and mature appearing.


Why can’t banks offer bonuses to longtime customers once in a while instead of constantly reminding us in their ads that only new customers are entitled to cash bonuses or whatever? What’s our reward for remaining loyal for many years?

No name

I switched banks never thinking it would be the pain that it was. I have a few automatic deposits, and a number of automatic withdrawals, and I thought that would all be taken care of by the new bank. I started this all on Sept. 1, and this is going to take three months to complete.


Why are personal checks that I write taken out of my account immediately, but checks that I deposit (business/corporate checks) take days to be credited to my account? Surely a company with millions in the bank is less likely to bounce a check than I am!


My bank offered a free checking account with monthly direct deposit. So, I used this to have my Social Security check directly deposited each month. However, Bank of America changes my statement date from month to month, so about four times a year, the SS check deposit falls on a day before or after the statement date. Two deposits might be in one month, and none the next statement period, and they charge a service fee for that month.

Surely, you’d think the bank could count!

No name

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