Early Holiday Spending Stats Lower

Perhaps bolstered by signs of an economic recovery, analysts who had been expecting strong pre-holiday consumer sales figures were disappointed to see a sharp decline in spending this year. Gallup reports that Black Friday numbers were considered fair, but that subsequent spending has not been as strong as the last three years based on American self-reported spending. Experts say the decreased sales could be linked to Cyber Monday deals and trepidation about the looming fiscal cliff and what it may means for the housing market as well as the broader economy. For more on this continue reading the following article from Iacono Research. 

The folks at Gallup threw a cat amongst the pigeons today with the release of this survey on how many American consumers opened their wallets last week and how big their December credit card bills might be. (Does anyone pay cash anymore?) Though spending was higher this year during the week before Thanksgiving, self-reported spending during the holiday week fell from averages of $79 per day in 2010 and $83 per day last year to just $67 per day last week, not even besting the level of $69 in 2009.



Such issues as Thanksgiving coming relatively early this year and growing “Cyber-Monday” sales could be behind the sharp decline and, of course, there’s lots of time between now and Christmas for Americans to spend more, though, with the “fiscal cliff” looming and financial markets shaky, that is by no means assured.

This blog post was republished with permission from Iacono Research.

Sandy Stalls Sales

The Commerce Department reported the first drop in consumer sales since June 2012 and analysts are blaming ‘Superstorm’ Sandy on the slip. The storm arrived at typically busy consumer period and auto sales in particular felt the brunt of the blow. Even so, insurance companies note that nearly 250,000 vehicles have been claimed as total losses, which automakers hope will boost sales in the near future. Meanwhile, REtail sales remained flat while gas station sales enjoyed a marginal 1.4% despite falling prices. For more on this continue reading the following article from Iacono Research. 

The Commerce Department reported(.pdf) that U.S. retail sales fell last month for the first time since June, down 0.3 percent in October following an upwardly revised gain of 1.3 percent in September, as Superstorm Sandy was cited as having both a positive and negative impact on the data.



Though the effects of the storm could not be isolated, it is believed that its arrival during the busy month-end period depressed East Coast auto sales leading to a decline of 1.5 percent in October auto sales nationally, this following a jump of 1.7 percent the month prior. Automakers said they expected lost sales to quickly be made up as nearly a quarter million vehicles were totaled during the storm.

Excluding autos, retail sales were flat last month after a gain of 1.2 percent in September as 8 of the 13 categories declined, paced by a surprising drop of 1.9 percent at home improvement stores. In the wake of the iPhone 5 launch the month before, electronic store sales fell 1.0 percent and nonstore retailers saw a drop of 1.8 percent. Gasoline station sales rose 1.4 percent even though pump prices fell throughout the month and food & beverage sales rose 0.8 percent, leading the advancing categories.

This blog post was republished with permission from Tim Iacono.

Commodity Price Shock Impacting Retail Margins

Large retail manufacturers like Newell Rubbermaid, Inc. – maker of storage containers, Sharpie pens, cookware and other items – are struggling with increased costs for raw materials, and some decided to pass those cost onto consumers. Now, as second-quarter profit margins are not being met, directors are wondering whether that was the best way to make up the difference caused by increased commodity costs. The pain is reflected in many retail stores, including even in the discount market, that are seeing sales drop as consumers choose to forgo purchasing typically economically-priced items rather than absorb the higher costs. For more on this continue reading the following article from The Economist's View.

One more from Tim Duy:

Consumer Update, by Tim Duy: I noticed this in the Wall Street Journal:

Newell Rubbermaid Inc.'s second-quarter earnings rose 13%, helped by fewer restructuring charges, but margins fell as the household-products company's price increases couldn't fully offset rising commodity costs.

It reminded me of this from the Beige Book:

For the most part, firms' ability to pass on price increases remained mixed.

And those attempts to push through price increases where when the economy was "good." Imagine now. Those worried about runaway inflation vastly underestimate consumer's ability to absorb higher prices. Back to the Wall Street Journal:

Newell—whose lineup includes storage products, Sharpie pens and Calphalon cookware—warned last month that several of its large retail customers in the U.S. were beginning to reduce orders, pointing to weak consumer confidence. The Atlanta-based company's earnings have improved in recent quarters, though revenue fell in the first quarter, primarily because of fewer promotions and consumer purchases of less expensive products. Newell, like other consumer-product manufacturers, is also raising prices and trying to reduce spending in an effort to mitigate rising raw-materials costs.

Not surprising - spend less money on marketing while raising prices in a weak environment and sales growth struggles. Consumers can't absorb it as they can in a real wage-price spiral; instead they just downgrade or go without. Also note the role consumer confidence number are playing. Perhaps just a self- inflicted wound that will pass with the new debt deal?

Regarding the consumer, I don't know how many people caught this two weeks ago, also from the Wall Street Journal:

Sales and profit growth have started to slump at the deep-discount retailers called dollar stores, after a robust performance during the recession, a sign that even fairly cheap toys and other small indulgences now are a stretch for some consumers.

In the past several weeks, Dollar General Corp. and Family Dollar Stores Inc., the country's largest chains that sell sharply discounted food, household staples and other items in modest-size stores, missed their quarterly earnings targets. The two chains, as well as Dollar Tree Inc., also reported gross profit-margin declines.

Note the title of this story - "splurges" at dollar store's are drying up! At the dollar store! And note the price sensitivity:

"We have 228 items that are priced at $1 that we think are incredibly important to our customers that we elected not to take price increases on," Dollar General Chief Executive Rick Dreiling told analysts during a June 1 earnings conference call. "This sounds almost silly, but a $1 item going to $1.15 in our channel is a major change for our customer."

Fifteen cents or fifteen percent? It all depends on your perspective. But I think the bottom line is that the commodity price shock severely impacted consumers. Some corporate leaders thought they saw an opportunity to raise prices, and are now paying the price. And one wonders how many were driven to raise prices by the recent six month surge of warnings that runaway inflation is close at hand?

This blog post was republished with permission from The Economist's View.

Disposable Income And Consumer Spending Increase Yet Again

Looking for some positive economic news? Well, we have some. According to recent reports from the Bureau of Economic Analysis, personal consumption is up for the sixth consecutive month. Before you snicker at that, with your thoughts about American's turning back to their credit cards, it should also be noted that disposable income also rose for the third consecutive month. James Picerno from The Capital Spectator goes into further detail on the subject in his blog post below.

Disposable personal income (DPI) and personal consumption expenditures (PCE) increased in December, the Bureau of Economic Analysis reports. The update marks the sixth straight monthly rise in PCE and the third consecutive gain for DPI. In other words, if you’re looking for a reason to doubt the revival in consumer spending of late, you won't find it here.

Consumption’s 0.7% jump in December (the second-highest monthly gain in 2010) was largely driven by an acceleration in the purchases of goods rather than services. Goods-related PCE rose 1.2% in December, up from November’s 0.3% gain. Services-related PCE increased by a relatively spare 0.3% last month, about the same as November’s pace. Does the faster pace in goods-related purchases reflect growing consumer confidence? Or is it simply a temporary change bound up with the end-of-the-year holiday shopping?

One reason for thinking that sentiment may be improving for more than seasonal reasons can be found in the rise of private wages, which advanced 0.3% in December, up from November’s 0.1% rise. On an annual basis, private industry wage/salaries continue to increase at a 4% rate, the fastest in three years. That’s still well below the 6%-8% pace set back in 2005-2007, but apparently it’s high enough to keep consumer spending forging ahead.

Another sign that higher consumer spending is more than a glitch is the ongoing drop in the personal savings rate, measured as a percentage of DPI. Last month, the savings rate fell to 5.3% from 5.5% in November. In fact, the rate’s been dipping for most of the last six months. In June, the savings rate was 6.3%.

Still, the holiday factor can’t be ruled out just yet. As Bloomberg reports, “Retailers’ 2010 holiday sales jumped 5.5% for the best performance in five years, according to MasterCard Advisors’ SpendingPulse.” Impressive, but it's debatable if the holiday gains will endure or evaporate in January and beyond. It's tempting to assume that the good news will travel, but it's hard to take anything for granted when the labor market's rebound remains sluggish.

The outlook for the January payrolls report (scheduled for release on Friday, Feb. 4) calls for more of the same. Private non-farm job creation is expected to rise by a net 163,000 in the government’s update, based on the consensus forecast of economists via Briefing.com. That would be an improvement over December’s meek 113,000 advance, but we’re still a long way from a strong recovery in job creation. Until and if that changes, one can only wonder if the rebound in wages, which is essential for elevating consumer spending, can hold its ground.

This post was republished with permission from The Capital Spectator.

Will Consumer Spending Grow Despite Shrinking Debt

Consumer spending growth is higher than expected at almost 4 percent although consumer borrowing is still contracting. The below average job growth and shift to austerity for many consumers may obstruct spending from giving the economy a boost. See the following post from The Capital Spectator.

This may be the age of austerity, but consumer spending has surprised the pessimists and rebounded sharply over the past year. That's no trivial revival, considering that personal consumption expenditures (PCE) represent 70% of GDP in the U.S. For good or ill, ours is a consumer-based economy. But is the consumer still up to the job?

For reasons that need no explanation, there's some doubt if Joe Sixpack can continue his spendthrift ways. For the moment, however, it's clear he's making a valiant effort. The year-over-year pace of growth in seasonally adjusted personal consumption expenditures has revived to almost 4%, as of last November. That compares with a roughly 2.5% decline in the depths of the Great Recession.



But it's also clear that PCE isn't growing as fast compared with the pre-recession gains, when 4% to 6% was typical. For the moment, those rates exist only in history. The next update on PCE is scheduled for release on January 31, when the government reports the December numbers.

Ultimately, consumption and the labor market are tightly connected. But if a robust employment trend is at the heart of spending, the latest jobs report leaves plenty of room for doubt about the future. Private payrolls are growing, but the trend appears to be stuck in a below-average range, which suggests that PCE will suffer headwinds in the year ahead.

One of those headwinds is the reluctance to borrow at anything close to the levels seen before the recession. Total outstanding consumer credit, for instance, is roughly 7% below the cyclical peak set in 2008, and the trend of late offers limited support for thinking new highs are coming any time soon. Total outstanding consumer credit is still contracting on a year-over-year basis, falling by a bit more than 2% for the year through last November. The self-imposed austerity is fading a bit, but it's an open question if this trend will sustain itself and run up borrowing to levels of yore.



Haver Analytics reports that over the past decade there's a 60% correlation between the annual rate of change in outstanding credit and consumer spending. By that standard, it's still too early to dismiss the austerity factor.

This post has been republished from James Picerno's blog, The Capital Spectator.

Foreclosures Provide Boost To Disposable Income

Tim Iacono discusses strategic defaults as a source of increased consumer spending as consumers are spending the money they would otherwise be using to pay a mortgage. He estimates that $1 billion per month could be freed up by individuals choosing not to pay their mortgage. See the following post from The Mess That Greenspan Made.

Zachary Scheidt filed this report at Seeking Alpha in which he wondered how much the wave of mortgage defaults has benefited consumer spending. That is, for those individuals who decide to stop paying their mortgage but stay in their house until someone comes and kicks them out, how big a boost is all that extra mortgage money giving personal consumption, the group that accounts for two-thirds of the U.S. economy.

But with all the headwinds, and with all the negative publicity… the consumer, it appears, is beginning to step up to the plate and once again spend us into recovery.
…
It’s been quite a mystery to me for some time now. Exactly where is all this pocket change coming from – especially considering the difficulties we are seeing in other areas (savings rates are once again headed lower, consumer credit hasn’t expanded by any material amount, and despite positive payroll headlines, the underlying report is full of holes).

It wasn’t until this past week when a colleague mentioned the term strategic default did I realize what was likely occurring. Many consumers are spending their mortgage payments! It’s beginning to make sense in the most disturbing way. As homeowners face staggering payments on houses that have negative equity, a large number are simply deciding not to pay their mortgage bill, resigned to the fact that eventually they will lose their house.

And what happens with the money that would have been sent to the lenders? Well, an increasing mentality of “eat drink and be merry – for tomorrow we’re evicted” has set in.

Yes, one of the many oddities about our current economic situation in the wake of the burst housing and credit market bubbles is that many people are making more and more decisions that, ten years ago, would have sounded ridiculous.

This subject was discussed here in The New Foreclosure Trend – Non-Foreclosures not long ago. A back-of-the-envelope calculation revealed the amount of mortgage money freed up to spend on other things is in the billions of dollars per quarter.

This article has been republished from Tim Iacono's blog, The Mess That Greenspan Made.

Consumers Starting To Open Their Wallets Again

Although retail sales just finished their third month of increases with broad-based growth, the actual picture is not as rosy as the initial data may suggest. After adjusting for inflation, compensating for last year's weak numbers, and looking at who gained (gasoline retailers due to higher gas prices and the automobile industry which gained simply in comparison to the near shutdown 12-15 months ago) and who lost (electronics, home improvement, and furniture), it is clear that in our post-housing bubble economy, frugality will remain the rule moving forward. See the following post from The Mess That Greenspan Made.

The Commerce Department reported higher retail sales in January, the third increase in the last four months, as American consumers continue to open their wallets after one of the sharpest contractions in spending since the Great Depression.



Following an upwardly revised decline of 0.1 percent in December, overall sales adjusted for seasonal variations rose 0.5 percent in January and the gains were broad-based with a full nine of 13 categories posting increases.

After rising 0.1 percent in December, auto sales were unchanged last month and, excluding autos, overall sales were up 0.6 percent following a decline of 0.2 percent. Excluding both automobile sales and sales at gasoline stations, January saw an increase of 0.6 percent after a decline of 0.3 percent in December.

On a year-over-year basis, overall retail sales were up 4.7 percent and, excluding autos, sales rose 4.6 percent. As these figures are not adjusted for inflation and when considering the level of sales one year ago (see chart above), the recent data loses some of its luster, particularly when considering which components contributed most to the increase in sales over that time.

For example, from last January, gasoline station sales rose 29 percent and this was due exclusively to higher prices since the average price at the pump was about 50 percent higher than a year ago. Other categories posting the biggest gains were sales at nonstore retailers that rose 12.4 percent and auto sales that were 6.7 percent higher than immediately after the virtual shutdown of the auto industry in late-2008.

Leading the declining categories from a year ago were electronic store sales with a 7.0 percent drop, home improvement stores with a 6.3 percent decline, and 4.4 percent lower sales at furniture stores, these categories being mostly discretionary spending.

The new, more frugal, mood of the consumer in the wake of the burst housing bubble is perhaps best captured by a decade-long look a the Building Material and Garden Equipment category below, where retailers have seen higher receipts in just 11 of the last 46 months, total sales declining by almost 25 percent during that time.



Sales of food and clothing, aided by government assistance to a degree never seen before, continued to rise at about the rate of inflation, but, with unemployment still quite high, incomes flat or falling, and consumer credit collapsing as it has over the last year, it's hard to see how spending in the U.S. will rebound to anywhere near the levels seen during the middle of the last decade absent the hefty contributions from discretionary spending.

Moreover, as we move further into 2010, the year-over-year comparisons will become increasingly difficult since the worst of the spending slowdown occurred in late-2008 and early-2009.

This post has been republished from Tim Iacono's blog, The Mess That Greenspan Made.

Consumer Spending Shows No Signs Of Life

While we don't know whether monetary policies, fiscal stimulus, or the natural business cycle are the main cause of the rebound in GDP growth, we do know it is probably not consumer spending which has stayed relatively flat. The changing of spending habits and lack of job market improvement are keeping consumer spending growth at early recession levels. See the following post from The Capital Spectator.

The December update on personal income and spending isn’t terribly informative. Disposable personal income rose 0.4% in December, modestly above the monthly average rise during 2009 (0.3%). Meanwhile, personal consumption expenditures increased 0.2% in December, or slightly below average based on the monthly average for last year (0.3%). It all rounds out to a yawn in terms of what one month's numbers tell us. Par for the course.

Still, it’s a bit unnerving to learn that the pace of consumer spending growth in December is down substantially from the 0.6% and 0.7% levels for October and November, respectively. But that’s not terribly surprising, given the ongoing contraction in the labor market. Meantime, there's the general recognition that Joe Sixpack needs to save more than he has been doing over the past generation. That's not exactly an encouraging prescription for what ails the economy at the moment. But it is what it is. Balancing long-term needs with short-term fixes, it seems, is the general dilemma that await, and no one really has a persuasive solution.

As for the statistic du jour, if we step back and look at the 12-month rolling change in personal income and spending, it appears that we’ve reached a critical point. As our chart below shows, the annual pace of change for income and spending has nearly returned to the levels that prevailed just before the onset of the recession in December 2007. There’s some debate as to how much of this rebound is due the liquidity injections of monetary policy vs. stimuluative fiscal policy vs. the natural recovery process endemic in the business cycle. Meantime, the pressing issue is whether the bounce in spending and income will continue to climb or at least remain stable at current levels.



Ultimately, the answer resides with the labor market. The next installment of insight on the jobs front arrives this Friday, when the update on nonfarm payrolls is released. From our vantage, the stakes look unusually high (even by recent standards) on the news of whether the labor market is growing or not. If nonfarm payrolls can’t at least show a small net increase at this point, well, let’s not even go there...yet. Suffice to repeat what we said about the trend in nonfarm payrolls: the hour is late.

This post has been republished from James Picerno's blog, The Capital Spectator.

Consumer Spending Making A Comeback

Recent personal consumption numbers show that American's propensity for spending has not evaporated although the savings rate has increased slightly. While the economy appears wobbly, the rebound in consumer spending could be a sign that the recovery has legs. See the following post from The Capital Spectator.

Is there no way, said I, of escaping Charybdis, and at the same time keeping Scylla off when she is trying to harm my men?
Homer's Odyssey

We can argue if today’s encouraging numbers on consumer spending and personal income for November are skewed because it’s the holiday season (a.k.a. an excuse-to-spend season). We can also debate if yesterday’s downward revision in third-quarter GDP implies that the recovery will be unusually sluggish. And we can go back and forth over yesterday’s sharp rise in November sales of existing homes on whether that’s due a first-time buyer’s tax credit that expired last month. Of course, we can also throw around some ideas about how much if any of the government's stimulus deserves credit for keeping the country out of the black hole of economics. But for now, the recovery trend in post-apocalyptic America is intact.

Deciding if it’ll remain intact is the great unknown. More than likely this will be a debate over the degree of the recovery’s magnitude and duration. Never say never, but short of a new and unexpected negative of some consequence arriving on the economic scene in the weeks and months ahead, the U.S. recovery has legs. Exactly how wobbly those legs prove to be is the question. But if we step back and look at the broader trend in the statistical front line for economic fate—spending and income—there’s no denying the upward bias, as our chart below shows.



There’s still plenty to worry about, but most of the anxiety is related to how the growth in 2010 plays out. Yes, there's an expansion building, but it's not yet clear it'll suffice for the challenge ahead.

"I think we'll be 'driving sideways' in both the California economy and the U.S. economy," UC Berkeley economist Barry Eichengreen opines today. Meanwhile, Brian Bethune, an economist with IHS Global Insight, predicts the U.S. economy will expand by a modest 2.0% to 2.5% next year. "It's a half-speed recovery."

In other words, there’s some debate about how quickly the labor market will recover. The jobless rate remains at a lofty 10%, the highest in 30 years. In past cycles, the peak in the jobless rate was followed by a sharp and swift decline. Will history repeat? There’s some skepticism this time.

"I'm cautiously optimistic that the unemployment rate won't get a lot worse," Charles Ballard, an economist with Michigan State University, told the Detroit Free Press last week. "That's not the same as saying it'll get dramatically better in coming months. The economy remains pretty weak."

One reason it may stay weak is the growing propensity to save. We should be cautious in assuming too much when it comes to Joe Sixpack’s inclination to renounce his spendthrift ways. Indeed, today’s income and spending report for November is hardly compelling evidence for thinking that the urge to consume has evaporated. But spending habits can and do change, although there’s no reason to think that change will come quickly. Consider the second chart below. Consumers are clearly saving more these days than they were when the Great Recession was just building a head of steam. Last month, personal saving as a percent of income was 4.7%, up sharply from the previous nadir of 0.8% in April 2008.



Saving is neither inherently bad nor good, although it does have economic ramifications depending on the time and context. The paradox of the moment is that America needs more saving to fund its mounting liabilities. Yet the same economy, which is overwhelmingly dependent on consumption, needs spending to bounce back and stay high to keep the rebound rolling and unemployment falling. There are no easy solutions for navigating the tight space between the economic Scylla and Charybdis that awaits. Even worse, evidence of success or failure will come slowly. It’s going to be a long 2010.

But, heck, Christmas is just two days away and it’s already been a long year. For the moment, we’re going to focus on Chart 1 and dream of sugar plums. There’ll be plenty of time to sober up in January.

This post has been republished from James Picerno's blog, The Capital Spectator.

Consumer Credit Has Fallen Off A Cliff

Consumers tend to spend significantly more when they pay with credit cards rather than cash, so it is bad news when consumer credit outstanding falls off a cliff. Black Friday reports suggest consumers are switching more to cash payments while Baby Boomers are shifting behavior and saving more. See the following post from Expected Returns.

Since the 1980's, credit has played an outsized role in funding our economic growth, and of course, the growth of banks' balance sheets. Prescient voices have been warning for years that the economic model of debt-financed consumption was unsustainable. Unfortunately, they have proven to be correct.

Here's a chart of consumer credit outstanding, which is expected to fall for the 9th straight month when reports come out later this week. This would mark the longest stretch of declining consumer credit in the post-WWII era. Judging from the precipitous decline in consumer credit, I think it's safe to say that this recession is of a totally different breed.



I find it hard to believe we have pulled ourselves out of this recession without an increase in consumer credit. The effects of contracting consumer credit are being reflected in preliminary Black Friday reports that suggest consumers used less credit to fund purchases. Even with heavily discounted items and unprecedented marketing efforts, retailers missed November sales estimates. Even if we sqeak out better year-over-year retail sales figures, keep in mind that last year's retail sales declined at the fastest pace in at least 38 years. In other words, nothing to celebrate.

Looking in the years ahead, the monumental shift of Baby Boomers from consumers to savers, which will be accentuated by the drastic decline in net worth this recession has brought about, will further strain aggregate consumption in the U.S. Like it or not, all the evidence points to prolonged weakness in consumer spending, and a protracted recovery that will be measured in years.

This post has been republished from Moses Kim's blog, Expected Returns.

Consumer Spending Hits A Speed Bump In September

Many experts believe the recession is past, but this optimism is not reflected in consumer spending. Unemployment concerns are still plaguing consumers and the persistent lack of public confidence in the economy is reflected by this month’s drop in consumer purchases. See the following from Expected Returns.

From Bloomberg, Consumer Spending in U.S. Declined in December:

Spending by U.S. consumers fell in September for the first time in five months after the government’s auto-rebate program expired.

The 0.5 percent decrease in purchases matched the median estimate of economists surveyed by Bloomberg News and followed a 1.4 percent jump in the prior month, Commerce Department figures showed today in Washington. Incomes were unchanged, while the savings rate climbed.

Stagnant wages and concern over mounting unemployment are causing confidence to wane, raising the risk that consumers will retrench in coming months as government assistance programs run out. The report also showed inflation was lower than the Federal Reserve’s long-term projection, indicating the policy makers can keep rates low.

The persistently weak unemployment picture and stagnant wages help explain the "surprising" slide in confidence in October and the drop in consumer spending. With the recession now apparently over, shouldn't consumer spending be rising dramatically?

The Keynesian economists that champion the usage of debt to stimulate economic activity using esoteric, but flawed, arguments about stimulating "aggregate demand" are not focusing on the tremendous debt overhang that is inherent in our system.

Hangover Effect

Autos in October probably sold at a 9.85 million pace, down from an average 11.5 million rate in the third quarter than reflected the boost from ‘cars-for-clunkers,’ according to the median estimate of analysts surveyed by Bloomberg News. Purchases averaged 13.15 million in 2008.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, fell 7.2 percent last month after increasing 6.7 percent in the prior month.

So essentially, even with all this government stimulus, consumer spending has been flat the past couple of months. In a genuine recovery, the government wouldn't even have to think about stimulating the economy since private economic activity would, by definition, be growing. The only thing that is growing right now is government spending, and I will continue to say that this trend is not sustainable.

This post has been republished from Moses Kim's blog, Expected Returns.

America's Desire To Save Money Getting Stronger

As Americans continue to reduce their consumer debt by billions of dollars and with personal savings rates rising to the highest levels since 1998, Tom Dyson says that cash may be the best investment opportunity in the U.S. right now. By the end of 2010, it is estimated that Americans will have paid off approximately 13% of their outstanding credit card debt. See the following article from Daily Wealth for more on this.

"We've never seen this aggressive paying down of debt before," said a banker in the Financial Times last week. "Once you slap households in the face... it sticks."

Each month, the Federal Reserve calculates and reports the total amount of consumer credit outstanding in America. This is the money Americans have borrowed to pay for cars, vacations, education, and refrigerator-freezers at Wal-Mart.

When this number rises, it means credit is easy and Americans are in consumption mode. They're buying SUVs, houses, flat-screen TVs, granite countertops, and stainless-steel appliances. And they're borrowing money to make these purchases – often using credit cards – so they're not worried about finances.

When this number falls, Americans are in thrift mode. They prefer saving money and paying off debt to shopping at the mall and going on vacation.

Despite the improvement in the economy and the bounce in the stock market, the American desire to save money seems to be getting stronger...

In the last year, American consumers have reduced their outstanding debt by more than $100 billion, according to the Federal Reserve's data.

In July, Americans reduced their consumer debt by $21 billion... the sixth monthly decline in a row and the largest monthly drop in borrowing ever recorded.

The report for August came out earlier this month. It showed American consumers paid back another $12 billion of their outstanding credit, the seventh monthly decline in a row. At this rate, Americans will have paid off 13% of their outstanding credit-card balances by this time next year.

Not only are Americans paying off debt, but they're saving more money...

Each month, the St. Louis Fed publishes America's savings rate. This is the percentage of disposable income Americans choose not to spend.

In 2005, the personal savings rate fell to less than 1%. This year, it has averaged 4.1%. The last time it averaged more than 4% for the year was in 1998.

Here's the thing: While demand for cash in America soars, investors have been dumping it from their portfolios as if it were venom...

This year, cash has fallen...

60% in terms of Russian stocks
55% in terms of lead
53% in terms of coal
50% in terms of copper
40% in terms of Internet stocks
33% in terms of sugar
17% in terms of gold
16% in terms of the S&P
13% in terms of cotton

The terrible sentiment and Americans' new attitude toward saving make cash the most contrarian investment opportunity in America right now.

In tomorrow's essay, I'll show you one of my favorite ways to invest in cash...

This post has been republished from Daily Wealth, an investment analysis site.