US consumer spending has been fairly resilient this year against very slow employment income and an increasing savings rate. Transfer receipts have played their usual buffers up to now.
But, as David Rosenberg points out, unless employment picks up,
The looming expiry of the emergency unemployment benefits in the U.S. poses a very large risk to aggregate personal income over the next few quarters. Currently, combined with state programs, someone who loses their job is entitled to 99 weeks of unemployment benefits (a “99er”). However, the extended benefits are set to expire on November 30th, and our back-of-the-envelope calculations shows nearly a million 99ers will be cut off in December alone, with the remainder (about 3 to 4 million) falling off the rolls by April.
Given that the average weekly unemployment cheque is about $300/week, this amounts to nearly $80 billion (annualized) loss of aggregate income over the next few quarters. This means that personal income could fall by 1.0% QoQ annualized for each of the next three quarters, starting in Q4. The 2% QoQ real GDP estimates pencilled in for Q4 2010 to Q2 2011, will look far too optimistic if such a loss of income does occur.
No wonder recent Gallup polls suggest poor Christmas sales this year:
Lower-and-middle income groups spend significantly less than upper-income consumers but they have also materially cut their spending in recent months. Needless to say, the 99ers are in no spending mood at present.