Monday, February 25, 2013

An interesting barometer for an economy is to see what the lower and middle income class people are buying. If their purchases fall, it clearly indicates that the larger part of the population is seeing tough times. This indicator is showing troubled times for the world's largest economy US. Wal-Mart, the largest retailer in US has given a subdued forecast for its sales. Given that Wal-Mart is the place where the lower and middle income groups shop, it indicates tough times in the US. The country has been gripped by the slowdown since the outbreak of the crisis. This has led pay levels to either remain flat or grow at a very slow rate. At the same time inflation and tax rates have been going up. Adjusted for inflation, household income has actually declined by 1.5% YoY in 2011. And the picture does not look too bright for 2012 either. As a result households have been cutting down on their consumption, which is clearly reflected in the lower sales forecast of Wal-Mart.

The US Fed and policymakers have been printing money through their numerous QE programs. The reason given by them has always been the same that this money will stimulate the economy. But all it has done is to stoke inflation and asset prices. And that is killing consumption, the essential requirement for a growing economy. There appears to be a disconnect between the policymakers and what is actually happening in the economy. If the US wants the economy to grow, then it needs to stop the sound of its printing presses and listen to its people. Unless it does that, things are not going to get better.

No comments:

Post a Comment