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The disconnect: US consumer spending and subprime crisis

Even as the Wall Street continues to be dealt body blows from the sub-prime mortage man, the US consumer spending is increasing!

While Forbes ran a story (in late September) on the rising consumer spending, I recently also came across a comment by a senior executive at Sony North America who, while predicting increased demands for his company's products (especially the PS3), pooh-poohed the impact of sub-prime mortgage crisis.

Are the US consumers dodos that they do not understand the perils of the situation or is the impact of the crisis overblown?

In my personal opinion, a principal reason that the US consumer spending is increasing is mainly due to the uncertainty regarding the exact magnitude of the problem. When hordes of financial pros have not been able to come up with a definitive estimate of the probable losses, many people will tend to discard the discard prognoses.

The second, more logical, reason is the continuing weakness of the green back which is forcing people to spend more to maintain their normal lifestyles.

The third reason could be the approaching holiday season when parents are expected to present their children with the latest gizmos.

If the above reasons are valid, we can expect a severe downslide in the expendinture from December onwards when the peak winter season will eat away a lot of household budgets, the holiday spirit will be over, the sub-prime juggernaut will continue to steamroll, the USD will continue its slide, & so on. Not a very comforting thought :(

Note: As of now, I am not able to trace the exact comment of the Sony executive mentioned above; will continue to search for it. If, in the meantime, you too have read that particular comment, please share with us!

Update on 10-Nov-2007: Just today, I read two contrasting news:

1. The consumer spending index has risen for the first time in the past five months, as per the Discover Financial Services (CNN story)

2. The consumer sentiment index falls in Nov to 75, the lowest in two years (Bloomberg)


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