While the November U.S. retail sales figures released this morning seem to suggest that consumer spending actually surged by 1.2% last month, others aren’t so sure.
One of them no doubt would be Warren Buffett
That’s because in an interview with Becky Quick yesterday on CNBC, Buffett said that the daily figures from his own outlets, which include a broad range of companies in sectors ranging from food to furniture, indicated the season was "looking soft."
The culprit according to the Oracle of Omaha? A worsening housing market.
Here’s a perfect example from Nevada of exactly what he was talking about.
From the Associated Press entitled: Have yourself a sub prime little Christmas
"Jackie Castleberry won’t be playing Santa Claus this year.
The interest rate on her four-bedroom home loan shot up in October and she is $6,000 behind on her payments. She now owes $168,000 on her home, which once was worth $220,000 but is now worth about $150,000.
In the past, when times were tough, she would borrow against her home’s equity — that’s no longer possible.
"I was always seen as the person that’s giving, but it’s kind of affected this year," said Castleberry, a former casino buffet supervisor who now makes $11 an hour, 30 hours a week, supervising children before and after school. "This year, I can’t see anything right now as far as gifts."
Castleberry is just one of thousands of homeowners nationwide who can no longer finance their spending by tapping into their once inflated, now depreciating home equity. Others can no longer afford their higher monthly payments due to a reset in their adjustable rate mortgages and have been foreclosed.
The subprime lending crisis is taking a toll on consumer spending, particularly in areas that have been hit hardest like Florida, California and Nevada. And it is one of the biggest factors behind what is expected to be the weakest holiday season in five years.
Money’s also tight for Deborah Vick, a Las Vegas home loan officer who says she’s cut back on spending since the housing slowdown took hold and cut her salary in half. She used to have a BMW and a Land Rover, but had to give up the BMW to a company that took over her $600 a month lease.
"If you have to give up a luxury item, which you probably shouldn’t have purchased in the first place, you know, for me it was a learning experience," she said.
"My daughter’s having a fabulous holiday. She always does," Vick said. "Am I going to go buy myself another car this year? No."
Never has the good of so many ever depended on the spending power of so few.
By the way: Within all of that "good" consumer news, there was also a giant lump of coal among the presents.
A record jump in gasoline prices has pushed wholesale inflation up by the largest amount in 34 years. In the report, The Labor Department said today that wholesale prices soared by 3.2 percent last month, propelled by a record 34.8 percent rise in gasoline costs.
