Wes Moss: When will you tighten your purse strings?

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here Monday mornings.

Wes-Moss-032011I’m an optimist by nature, but I can’t help but wonder how consumers will hold up in the face of so many glaring issues around the world. Just last week the 25 mega-retailers tracked by Thomson Reuters reported a larger than expected jump in sales for the month of March. And companies like Macy’s and Limited Brands (which owns Victoria’s Secret) are predicting even stronger months ahead.

This consumer strength is interesting, and I wonder at what point that could change in the face of what I call the “Dirty Dozen.” Here are the 12 obstacles we face today.

1. Civil war and riots all over the Middle East and North Africa

2. Escalating oil and gas prices

3. Inflation beginning to erode the value of the dollars in your wallet.

4. Interest rates – both the current lows (check your money market or savings account rates), and worries that rising rates will drive up the cost of financing everything.

5. Housing. Could the numbers be any worse? (see my blog on housing from last week)

6. China – the world’s growing dependence on its economy

7. Japan – earthquakes, tsunamis, radiation and more earthquakes – all of which are hobbling the world’s third largest economy and interrupting the supply chain for U.S. manufacturers

8. Europe’s continued debt problem

9. Ballooning U.S. government debt, which expands by billions of dollars a day

10. Unemployment rates that are still near record highs

11. A “bond bubble”

12. A potentially overheated U.S. stock market poised for a fall

To date, the U.S. stock market has shaken off most of these scary headlines. Despite a brief hiccup in March, the Dow Jones is nearly 7 percent higher in 2011. And it’s not just the stock market that seems confident. Consumers, the main driver of the U.S. economy, are apparently upbeat about things, as evidenced by their willingness to open the spending spigot.

Here’s the “but” — and it’s a big one: This report could be yesterday’s news. The data was gathered just as most of these troubling developments were unfolding, possibly too early for consumers to react with their wallets. Now, we sit in mid-April with oil not hovering around $100 a barrel but at more than $110. That’s getting closer and closer to an economic red light, according to my chart:

  • Oil prices at less than $100 per barrel = green light (for the U.S. economy)
  • Oil prices $100-$120 per barrel = yellow light
  • Oil prices $120-and-higher per barrel = red light

When will the economic light turn red? The answer: whenever you and I start tightening our purse strings.

Have you cut back on your spending? Do you feel you will have to cut back soon? What impact are the climbing gas prices having on your spending decisions?

– By Wes Moss, for Atlanta Bargain Hunter

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13 comments Add your comment

TaxMan

April 11th, 2011
9:00 am

For me, the expensive gas prices, give me an excuse to double check myself when buying something….or my wife. It shouldn’t really matter for $5 extra at the pump, but really all the talk and the psychological $4/gallon level has me thinking about my spending a little more.

Mister Lauren Davidson

April 11th, 2011
9:06 am

whatever can get americans from spending to saving, i’m all for it!! it seems like 8 of the Dirty Dozen have to do with oil prices. no wonder it is the most relevant!

DW

April 11th, 2011
11:42 am

Its not the price of oil.. its the speed of the increase

atllaw191

April 11th, 2011
11:43 am

Absolutely do not go ANYWHERE on weekends (even tho I’d love to see my grandchildren), but I park it. I used to fill up the tank on $20, now its nearly $30 and if I don’t NEED IT, then it isn’t bought. Same for groceries – stopped buying all but NECESSITIES, no treats, no eating out (never did much of that), getting used to the longer length between haircuts and coloring (ugh)…but just not going anywhere I could see something that “before I saw it, I didn’t know I wanted it” mentality. Wish I lived closer “in” ’cause I’d be riding my bicycle..

The Anti-Gnostic

April 11th, 2011
11:48 am

1. A lot of people are still in firm denial of reality.
2. People equate cash flow with wealth.
3. The government is using every fiscal and monetary trick it can to keep asset values inflated.
4. The banks are playing ‘extend and pretend.’

Everything is in place for very sharp price increases in essential items. The economists will be crowing about how cheap iPads and ten-year old suburban McMansions are, but the average schlep is going to get hammered whenever he or she goes to the gas station or grocery store. In light of factors 1 thru 3 above, the American consumer will continue spending in a race to maintain his/her living standards. This is not a sustainable trend.

The Anti-Gnostic

April 11th, 2011
11:48 am

*1 thru 4 above

Wes Moss

April 11th, 2011
12:05 pm

atllaw191…those are serious cutbacks. It looks like the spending pinch has begun…
And DW, you are correct about the rate of increase. It does matter.
If oil prices double (as they have done multiple times since 1970) we would almost certainly see a recession and a bear market. The track record on this is clear. 6 “doubles in price” (in a relatively short period of time), causing 6 bear markets.

MM

April 11th, 2011
12:22 pm

I don’t need to tighten my purse strings. I’m very comfortable living a frugal lifestyle. Gas, eh, can’t do anything about it, I have to go to work. I’m not walking 17 miles one way…….

No credit cards here……no useless clothing….no fake nails, hair or tan to maintain…..

Grow my own veggies, or shop at the local farmer’s market, and keep $$ in my community.

Mortgage payment is $750/mo, PITI. I owe less than $85K on the house.

Car is 13 years old, with 175K miles on it.

One kid in college, second year, tutition paid with 529 funds that started at her birth.

Tons of money in a tax refund that gets “stashed” in the house for “pleasure” purchases.

5 – 6 vacations taken per year to various destinations, via car travel. No air travel for me thank you.

Woody

April 11th, 2011
12:24 pm

There are amazing apps now for both Android phones and Iphones (most of them free) such that you can walk into a store, scan the bar code of a product and it will instantly bring up any coupons that may exist for that product or show you comparable pricing for any nearby stores as its tied into the GPS on your phone. Time to penny pinch for sure.

Truth

April 11th, 2011
12:52 pm

I sure do love my Whole Life insurance policies right now with increasing death benefit and increasing cash value with a major New York based company that have paid dividends for over 100 years.

I sang Dixie as he died

April 11th, 2011
1:07 pm

I keep robbing Peter to pay Paul…just kidding. My wife and I work together in the real estate business and it’s not for “wimps.” it’s a tough gig for sure, but luckily we saved some money when things were good and the overhead has been cut to the bone. Sure, I wish it wasn’t so hard right now, but we call the shots and control our own destiny and we find that very satisfying. We will just keep on keeping on. People still move and buy and sell properties, so it’s all numbers. As for gas being high, I don’t care because I don’t drive much and don’t have car payments.

Fish Bisch

April 11th, 2011
2:36 pm

[...] Moss just mentioned rising oil prices as part of “The Dirty Dozen” in his blog this morning. And the costs continue to creep [...]