MSN Money is reporting (via the Financial Times) that consumers continued to spend despite a worsening in the housing market. This supports the theory of some economists who argue that a drop in the housing market won’t affect the broader economy; our economy is more dependent on job availability. As long as there are jobs, consumers will continue to spend.
One thing that must be considered is that the housing ATM (home equity lines of credit or cash-out refinancing) has effectively been shut down with the credit crunch we’ve been hearing about the past few months. That was a major driver for consumer spending on high end items like luxury cars, vacations, electronics, etc. and we are seeing evidence that that spending has slowed down. Spending on regular nonessential consumer goods still appears to be strong however.
The surprisingly strong sales by retailers last month added to signs that expenditure was holding up and that the economy was drawing strength from other sectors. Fresh inflation data also suggested prices were in check.
That last statement is interesting - inflation is in check, though earlier in the week there was report that heating a home will be more espensive this winter, on the tune of 20% more for oil users and 10% more for natural gas users.
No comments yet.