Personal income is putting a damper on consumer spending and on the markets in general.  Recent drops in consumer spending is hurting retailers and the banking industry as people are shopping less and paying less on their consumer debts.  We’ll analyze what these numbers mean and how they’ll affect the market going forward.

Personal incomes dropped by .7 percent in July, this comes with an expectation for a .1 percent drop.  A .6% difference is no small difference when it comes to government reports.  Consider that personal incomes had dropped six times greater than expected with oil prices at their highs and its no small wonder why a .6% drop in income plays such a huge role in the economy as a whole.  Consumer spending rose by .2% in July, even though personal incomes fell by 3 times that much.  This is probably the result of higher oil and food prices which have since fallen before the statistics were fully known.

We should also consider the amount of money that the government, and the federal reserve has pushed into the economy to keep growth numbers in the positive and recession fears in the back of minds rather on newspaper headlines.   With a hundred billion dollar stimulus package and a variety of loans made to banks to collateralize bad loans,  personal income numbers should have risen rather than fallen.  There is more money running around now than at any time in history, it seems almost impossible for personal income statistics to fall.

Retailers are possibly the worst sector to be buying when personal incomes are dropping.  As incomes fall, so do the profits, and profit margins, of large retailers which may only make a few dollars per large customer.  Wal Mart and Target are certainly at the top of this list.  Target is going to have a harder time monetizing its traditionally more wealthier clientele.  Likewise, WalMarts customers are typically blue collar workers that are having trouble finding jobs or even to have enough money to spend on the necessities or the gas to drive.

One of the most important factors that is certainly lowering retailers expectations is higher gasoline.  Not only do high gas prices take money out of the customers pocket, it also limit’s the number of shopping trips or spontaneous purchases that American consumers make.  67% of drivers in a recent survey stated that they had limited or changed their driving activities as a result of higher gas prices.  People go to places to spend money, not to spend money to go places.  A trip to Wal Mart for many families costs $5-6 just to get there, that’s $5-6 they’re less likely to spend.  Multiply that by the thousands that may make a weekly homage to the grocery store, and its easy to see how margins are so easily squeezed.