ATLANTA -

Manheim chief economist Tom Webb pointed to a series of summertime reports and other consumer trends that show middle-class and lower-income individuals — the primary potential buyers of used vehicles — are continuing to be pinched by a wide array of economic conditions.

In this month’s Auto Industry Brief produced by Manheim Consulting, Webb recapped that July retail sales, which were released in mid-August, increased for the fourth consecutive month.

Webb said clothing sales made a strong gain even though state “tax holidays” for back-to-school tend to concentrate sales into August. He went on to mention that the positive news, however, was quickly offset by Wal-Mart’s report of weak second-quarter sales and, “more importantly, a downbeat near-term outlook.”

The Manheim economist explained Wal-Mart’s Q2 performance was followed by an unexpected five-point drop in the preliminary August reading of the University of Michigan Consumer Sentiment Index.

Furthermore, Webb noted the Gallup survey of consumer confidence, which is now 10 points off the peak reached in May, showed that confidence of upper-income households remains near a five-year high, but that confidence for lower-income households remains in negative territory.

The combination of all of those trends prompted Webb to ask a pair of questions, including:

—So are consumers retrenching?
—And, if so, is it out of caution or need?

“The truest summary is that certain segments of the population are slowing their spending and that they are doing so out of need. Evidence abounds,” Webb said.

“For example, the unemployment rate has fallen significantly over the past year, but the size of the average paycheck has also declined,” he continued. “There has been significant debt deleveraging in the household sector in recent years, but all of it has occurred in the higher-income groups. The budgets of lower- and middle-income households remain stretched.

“And, prospects for the long-term unemployed remain dismal even as overall labor market conditions improve,” Webb went on to say.

Webb revisited the topic again when he addressed a question in the Auto Industry Brief about who he thinks should be the next chairman of the Federal Reserve. (For the record, Webb said his No. 1 choice to replace Ben Bernanke “never made it on any of the short lists.”)

No matter who leads the Fed going forward, Webb insisted the growing income and wealth gaps within the U.S. may continue to dampen future growth.

“Recent monetary policy and market conditions have favored the asset-rich at the expense of the income-dependent,” Webb said. “For example, the biggest tool used to fight the financial collapse — quantitative easing — by its very nature favors asset-holders. Likewise, the recent benefits flowing from the housing recovery have mostly gone to the well-to-do.

“Investors and all-cash buyers had the advantage in acquiring the bargains made available through foreclosures and short sales. And, even today, many families are precluded from buying at today’s low mortgage rates because they are unable to meet the new standards for down payments,” Webb continued.

“For the economy, the income and wealth gaps will only intensify our major budget problem — entitlements. The trend is also zapping the energy and confidence of the middle class, who increasingly feel they are ‘giving bailouts to the rich, and handouts to the poor,’” he went on to say.

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