American Real Disposable Income Collapses in First Quarter of 2013

By Michael Lombardi, MBA for Profit Confidential

In the first quarter of 2013, real personal disposable income (the amount of money the average American has left after paying taxes) in the U.S. economy decreased 5.3% compared to the same period of 2012.

As consumers in the U.S. economy experienced a contraction in their income, their expenses increased. Personal outlays increased 4.1% in the first quarter of 2013 compared to the first quarter of 2012. As a result of contracting income and rising expenses, the personal savings rate compared to disposable income in the U.S. economy was only 2.6% for the first quarter of 2013.

Similarly, private businesses in the U.S. economy are seeing their inventories rise. Businesses increased their stockpiles by $50.3 billion in the first quarter of 2013, $13.3 billion in the fourth quarter of 2012, and $60.3 billion in the third quarter of 2012.

What all of these numbers show is that consumers in the U.S. economy are struggling and businesses are not selling. This phenomenon is further proven by the corporate earnings of companies in the key stock indices; while many are beating their profit targets, only a handful are meeting their revenue expectations.

The U.S. economy is consumer-focused—consumer spending makes up a huge chunk of our gross domestic product (GDP). Consumers in the U.S. economy are in pain. We have wages that are declining, expenses that are rising (thanks to the weakening value of the U.S. dollar and rising inflation due to too many new printed dollars in the system), savings that are falling, and an unemployment rate that remains high.

As I have been saying, real economic growth takes place in a country when the standard of living increases and its citizens are able to find work, save, and spend. The U.S. economy is in the complete opposite situation today. Take away the rising stock market, and the economy is pathetic.

Michael’s Personal Notes:

While the bears continue to report that gold bullion has no future, retail investors and central banks seem to be rushing to buy more. In fact, the decline in gold bullion prices has provided them with another buying opportunity.

The recent selling in gold bullion—the moment which separated the men from the boys—caused a panic. Those who were speculating in gold got out as their losses added up.

What I believe still holds true is the fact that the fundamentals that drove gold bullion prices are still in place. Central banks are still buying gold—they have not shied away from gold bullion as prices declined from their 2011 highs.

Consider the central bank of Russia. According to the International Monetary Fund (IMF), Russia increased its gold bullion holdings in March for the sixth month in a row, buying an additional 4.7 metric tons of the metal, bringing its total gold bullion holdings to 981.6 tons. Russian gold bullion holdings have increased 2.5% so far in 2013; in 2012 they increased 8.5%. (Source: Bloomberg, April 25, 2013.)

The central bank of Kazakhstan increased its gold holdings in March by buying 1.2 tons of gold bullion. In 2012, this central bank increased its gold reserves by 41%; this year, its holdings are up by 6.6% already.

Turkey’s central bank has been on a gold buying spree for nine months. In March, it bought 33.1 tons of gold bullion, brining its total holdings to 408.9 tons.

Many smaller central banks are buying gold bullion too. For example, the central bank of Azerbaijan has been buying gold and adding more to its reserves since the beginning of this year.

While world central banks keep buying gold, many central banks, like the Bank of Japan, are printing massive amounts of paper money. In its semi-annual report, Japan’s central bank stated that it will continue to print at a pace of about $600–$700 billion per year. (Source: Financial Times, April 26, 2013.)

Likewise, the Federal Reserve still hasn’t given any indication it plans to stop printing fiat money anytime soon. Ultimately, this phenomenon will force other countries to print more of their currencies (because every country wants a lower-valued currency than the next country). Because of this, I believe central banks will buy more gold bullion to shore up their reserves.

Dear reader, the bull market in gold bullion isn’t over yet! The selling we saw was just a mere pullback. Take a look at the monthly chart below of gold bullion prices going back 10 years.

  Chart courtesy of www.StockCharts.com

 Since 2002, the trend in gold bullion prices has been to the upside, and from a technical analysis point of view, that trend seems to be intact. I am as bullish as ever on gold bullion.

Where the Market Stands; Where It’s Headed:

Up, up, and up to…nowhere. Since 2009, we’ve experienced a rally in stock prices that has been largely fuelled by a massive increase in the number of dollars in circulation (due to paper money printing by the Federal Reserve)—that’s why I call the rally since March of 2009 a “bear market rally.”

The economy today paints a very different picture. Actually, take out the rally in stock prices, and the economy is in very bad shape. It’s only a matter of time before stock prices reflect contracting economic conditions.

What He Said:

“You’ve been reading my articles over the past few months and have seen how negative I’ve become on the U.S. economy. Particularly, I believe it’s the ramifications of the faltering housing sector which is being underestimated by economists. A recession doesn’t take much to happen. It’s disappointing more hasn’t been written on the popular financial sites and in the newspapers about the real threat of a recession happening in 2007. I want my readers to be fully aware of my economic opinion: I wouldn’t be surprised to see the U.S. economy in a recession sometime in 2007. In fact, I expect it.” Michael Lombardi in Profit Confidential, November 13, 2006. Michael was one of the first to predict a U.S. recession, long before Wall Street analysts and economists even thought it a possibility.

This article was first published at Profit Confidential.