TheFederalReservesstaunchlydovishstanceoninterestratessincethefinancialmeltdown

andensuingglobaldebtcrisishasdonelittletospur(small)businessdemandforloanable
funds,whichwould,accordingtoclassiceconomics,encouragebusinessestotakeoutcheap
loans.Thesecheaploanswouldideallybespentonrampingupproductionandthusincreasing
employment.This,however,hasnotbeenthecase,duetothestatus-quoliquiditytrap,which
hasameliorateddomesticdemandforloanablefundsasaresultofalackoftrustintheFedand
pessimismoverthenear-termaggregatedemandparadigm.

Theseextremelylowinterestrateshavealsodiscouragedhouseholdsfromkeepingcash,as
theyseeverylittlebenefit(nearlyzeropercentinterestrates)fromputtingtheirmoneyinto
bankaccounts.Individualconsumershavedecidedtospendtheirincomethroughoutthis
recession,ratherthansaveit,whichistheconverseofhowUSbusinesshavedecidedtotreat
thetrillionsthattheycurrentlysiton.

Quarter-on-quarter,seasonallyadjustedPersonalConsumptionExpenditurequotedinmillionsof
USdollars.Source:BureauofEconomicAnalysis.

TotalPersonalConsumptionExpenditures(PCE)hasincreasedbyabout3.7%fromthefirst
quarterof2009tothefirstquarterof2011,whereasconsumptionofClothingandFootwear,a
subsetofthetotal,increasedby8.6%.ExpenditureonServicesincreased1.4%,andFood&
Beverageexpenditureincreasedby5.4%.ExpenditureonGasolinedecreasedby3.8%.

Thesequarter-onquarterexpenditurechangesrevealsomeinterestinganomalieswhen
comparedtothequarter-on-quarterpercentagechangeinprices:

Line Series Name

2009 2009 2009 2009 2010 2010 2010 2010 2011
I II III IV I II III IV I

Personal consumption expenditures by major
type of product (From NIPA table 2.3.6):
BLANK
1 Personal consumption expenditures (PCE) DPCERX 9,040,884 8,998,541 9,050,293 9,060,177 9,121,193 9,186,916 9,247,087 9,328,389 9,376,739
2 Goods DGDSRX 3,082,584 3,064,334 3,120,715 3,124,564 3,173,307 3,202,864 3,240,813 3,306,005 3,344,410
3 Durable goods DDURRX 1,094,568 1,083,358 1,134,512 1,120,769 1,147,466 1,169,260 1,194,057 1,242,425 1,277,358
4 Motor vehicles and parts DMOTRX 316,237 312,420 344,549 316,728 315,923 321,353 328,031 354,925 368,217
5 Furnishings and durable household equipment DFDHRX 241,229 236,916 239,803 244,468 252,645 259,241 261,415 267,038 269,349
6 Recreational goods and vehicles DREQRX 401,609 396,670 411,816 426,856 441,985 452,142 465,838 478,543 495,861
7 Other durable goods DODGRX 144,599 145,824 147,168 146,367 152,166 152,886 156,414 158,141 161,413
8 Nondurable goods DNDGRX 1,980,332 1,972,821 1,982,657 1,997,673 2,021,125 2,030,761 2,045,835 2,067,432 2,075,433
9
Food and beverages purchased Ior oII-premises
consumption
DFXARX 646,989 654,751 660,817 666,806 671,628 667,219 672,810 680,772 682,090
10 Clothing and Iootwear DCLORX 324,334 318,385 321,619 325,126 334,334 339,643 339,982 350,058 352,753
11 Gasoline and other energy goods DGOERX 284,861 281,189 279,291 279,076 281,768 282,119 282,683 278,442 274,167
12 Other nondurable goods DONGRX 728,391 721,375 723,752 729,745 737,284 746,360 754,812 764,506 774,427
13 Services DSERRX 5,953,477 5,928,637 5,926,827 5,932,878 5,947,430 5,984,292 6,008,121 6,027,469 6,039,087
14
Household consumption expenditures (Ior
services)
DHCERX 5,676,346 5,657,048 5,653,532 5,655,164 5,668,116 5,702,586 5,730,617 5,754,730 5,765,938
15 Housing and utilities DHUTRX 1,649,999 1,651,323 1,656,634 1,661,529 1,663,578 1,665,707 1,675,297 1,672,213 1,666,045
16 Health care DHLCRX 1,409,109 1,421,574 1,429,062 1,432,828 1,424,063 1,438,150 1,446,910 1,462,284 1,464,348
17 Transportation services DTRSRX 251,846 248,460 246,186 245,894 247,624 249,904 251,557 251,643 251,353
18 Recreation services DRCARX 338,027 335,240 332,276 333,812 335,923 339,391 345,759 344,705 342,962
19 Food services and accommodations DFSARX 538,636 533,395 532,323 532,706 543,512 549,201 553,240 558,155 567,593
20 Financial services and insurance DIFSRX 693,105 679,744 670,561 660,965 667,046 670,773 665,922 667,581 674,683
21 Other services DOTSRX 796,063 787,644 786,688 787,619 786,565 789,607 792,389 798,327 798,804
22
Final consumption expenditures oI nonproIit
institutions serving households (NPISHs)
1

DNPIRX 279,283 273,365 275,340 280,311 282,045 284,554 279,526 273,928 274,324
23 Gross output oI nonproIit institutions
2
DNPERX 965,953 967,761 971,948 977,076 974,328 988,219 992,801 1,001,600 997,242
24
Less: Receipts Irom sales oI goods and services
by nonproIit institutions
3

DNPSRX 688,305 695,418 697,785 698,433 694,311 705,495 714,117 727,295 722,777
Addenda: BLANK
1 oI 5
Bureau of Economic Analysis
Table 2.3.6U. Real Personal Consumption Expenditures by Major Type of Product and by Major Function
|Millions oI chained (2005) dollars; quarters and months are seasonally adjusted at annual rates|
Last Revised on: November 23, 2011 - Next Release Date December 23, 2011

Quarter-on-quarterpercentagechangeinConsumerPriceIndex(CPI).Source:Bureauof
EconomicAnalysis.

Theexpendituresonmanygoodsincluding:gasoline,food&beverages,andpersonal
computershaveincreasedevenasquarter-on-quarterpricesofthosegoodswasfalling.Wecan
concludethatconsumer(discretionary)expenditurehasincreasedoverthepasttenquarters,
asthepricesofthegoodsbeingpurchasedasfallen,inmanycases,butalsointhecaseof
clothingandfootwear,wheretheincreasingcoreCPIstandsasapriceindicator.Thetakeaway
fromthisisthatconsumersarespendingrobustly,eventhoughtheeconomyremainslaggard.
Thisisevidentthroughrecentcorporateearnings,especiallythoseofthesummerof2010,
whereitbecamethenormforcompaniestoannounceexpectation-shatteringsalesnumbers.

RetailerslikeMacys($M),Costco($COST),andJCPenny($JCP)haveseensolidsalesfigures
andhavemovedintandemwiththemarketthroughout2009and2010,untiltheypulledaway
fromotherindustriesandbecameahigherbetaplayinthesummerof2010.Thiswasall
predictabletosomedegree,butlesspredictablehasbeenthemeteoricmovementinluxury
goodstockprices.

Lowinterestrateshavebeenthesparkforthenation-wideincreaseinexpenditure(savings
aversion),butsomethinglessconsideredbyWallStreethasbeentheaftermathoftheover-
leveragingoftheGreenspanEraintothepresenttime.

Inthepost-Techbubbleenvironmentofthe2000s,manyhouseholdsover-leveragedtheir
wealthwithcheaphomeloans.Aportionofthoseloansweredefaulteduponduring2007,after
itbecameclearthattherecipientswereterriblyundeservingofsuchcheapcredit,whichwere
primarilylowandmiddleincomehomes.Numeroushomeloans,though,weretoupperclassor
borderline-upper-classhomesthathoppedonthecheapcreditbandwagon.Theseupperclass
loanrecipientshavenotdefaultedontheirloans,butstillhavethebenefitofhavingover-
leveragedtheirsavingsandincomeastrongcasefortheincreaseddemandofluxurygoods.

Anotherdriverforluxurygoodshasbeenhealthyinternationaldemand.Countriessuchas
ChinaandIndiahavebeenhotsince2009(somewouldsayonfire)andhaveseenhighlevelsof
consumption-driveninflation.Luxurygoodsbeingnon-denominationalinnaturemeansthat
theyaredemandedbythewealthyworldwideandarenotdependentononeparticular
economyorsubjecttocountry-specificsubstitutes.

Line
2009 2009 2009 2009 2010 2010 2010 2010 2011 2011
I II III IV I II III IV I II
1 PCE Chain-type price index (percent change) -1.7 1.9 3.0 2.8 1.9 0.3 1.0 1.9 3.9 3.3
2 Less: Formula effect (percentage points) -0.02 -0.26 -0.36 -0.31 -0.05 -0.07 -0.08 -0.12 -0.24 -0.22
3 Gasoline and other motor Iuel 0.10 -0.05 -0.16 -0.06 0.00 0.01 0.00 -0.04 -0.10 -0.05
4 Personal computers and peripheral equipment -0.02 -0.02 -0.04 -0.01 -0.01 -0.01 0.00 -0.01 -0.03 -0.02
5 Video and audio equipment -0.07 -0.07 -0.09 -0.11 -0.05 -0.04 -0.04 -0.04 -0.03 -0.05
6 Tobacco -0.02 -0.09 -0.02 -0.01 0.00 0.00 -0.01 0.00 0.00 0.00
7 Health care 0.04 0.02 0.02 0.03 0.02 0.02 0.01 0.00 0.01 0.01
8
Electricity, gas, Iuel oil, and other household
Iuels
0.01 0.00 0.00 -0.01 0.01 0.00 0.00 0.00 -0.01 0.00
9 Housing 0.01 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
10
Food and beverages purchased Ior oII-premises
consumption
-0.01 0.00 0.00 -0.01 0.01 0.01 0.00 0.00 0.00 0.00
11 Other -0.06 -0.06 -0.08 -0.13 -0.02 -0.05 -0.03 -0.03 -0.08 -0.12
12
Equals: PCE fixed-weight price index (percent
change)
-1.65 2.15 3.37 3.09 1.90 0.40 1.06 2.07 4.14 3.52
13 Less: Weight effect (percentage points) 0.98 0.06 -0.74 -0.59 -0.50 0.36 -0.28 -0.70 -1.33 -0.89
14 Rent oI shelter -0.32 -0.25 -0.05 0.07 0.09 0.02 -0.09 -0.16 -0.23 -0.18
15
Imputed rental oI owner-occupied nonIarm
housing
-0.25 -0.20 -0.04 0.05 0.08 0.03 -0.07 -0.12 -0.17 -0.15
16 Rental oI tenant-occupied nonIarm housing -0.07 -0.04 -0.01 0.01 0.00 -0.01 -0.02 -0.04 -0.06 -0.04
17 Hotels and motels 0.22 0.14 0.08 -0.03 0.00 0.00 0.00 0.00 0.00 0.00
18 Gasoline and other motor Iuel 0.75 -0.28 -0.73 -0.25 -0.26 0.38 -0.15 -0.54 -0.85 -0.31
19
Electricity, gas, Iuel oil, and other household
Iuels
0.13 0.32 0.12 -0.11 -0.07 0.02 0.02 0.02 -0.03 -0.07
20 Other 0.20 0.11 -0.15 -0.26 -0.25 -0.06 -0.07 -0.01 -0.22 -0.33
21
Less: Scope effect - PCE price index items
out-of-scope of the CPI (percentage points)
-0.20 0.44 0.75 1.28 0.82 0.77 0.11 0.46 0.50 0.42
22 Physician services 0.11 0.10 0.09 0.09 0.08 0.10 0.12 0.06 -0.01 0.07
23 Hospital and nursing home services 0.29 0.26 0.27 0.35 0.21 0.21 0.12 0.08 0.17 0.22
24 Financial services Iurnished without payment -0.17 0.14 0.15 0.56 0.39 0.38 -0.31 -0.02 0.10 -0.08
1 oI 7
Bureau of Economic Analysis
Reconciliation of Percent Change in the CPI with Percent Change in the PCE Price Index
|Quarterly change is seasonally adjusted at annual rates; monthly change is seasonally adjusted at monthly rates|
Last Revised on: November 23, 2011 - Next Release Date December 23, 2011

TwoyearchartofTiffany($TIF),Coach($COH),Costco($COST),Gold&Silver($XAU),andthe
Dow,S&P500,&Nasdaq.

Thechartclearlyshowstheaforementionedoutperformanceofluxurygoodsasembodiedby
TiffanyandCoach.Thistrendwillprovetobeastellarplayin2012and/orwheneverwesee
anendtothefinancialrutinwhichwehavefoundourselves.TheFedhaspromisedtokeep
rateslowuntil2012,and,saveanear-termpullback,thereexistnoeminentthreatstothis
playunlessweactuallyseeaglobaldepression.

TheFedandtheIMF(will)haveprintedtrillionsbytheendofthisdebacle,andthoughweare
battlingdeflationrightnow,inflationwillbesuretorunrampantlyin2012andbeyondonce
saidmonetarypolicyworksthroughtheglobaleconomy.But,asaforementioned,consumers
expendituredoesnotseemtobeaffectedbyprices,solongasthereexistsnobetterwaytoget
abangfortheirbuck.

Keeponspendin

njb