Ominous Sign For The US Economy: Spending On Hookers, Drugs And Booze Tumbles

When it comes to the US economy, there is overall consumer spending, and then there is spending on vices – a true leading indicator of overall consumer confidence and discretionary spending as Americans generally won’t splurge on hookers, blackjack and blow until they are absolutely positive they won’t need the cash for something else. Conveniently SouthBay Research has a “Vice Index” that that tracks spending on gambling, alcohol, drugs, and prostitution. And as of February, the vice index just tumbled, suggesting that after a brief burst in late 2017 and 2018, the consumer-driven economy is again in trouble.

Or, as SouthBay Research writes, the “Vice Index Points to Tax Cut Hangover: Slower Pace of Consumer Spending for 1Q.”

Shown below is SouthBay’s proprietary Vice Index (lagged by 6 months) which tumbled in February to -2%, its worst print since 2012.

Here is the same Vice Index shown unlagged: it shows that the impact of the Trump tax cut was “short but sweet”, an ominous warning for the broader economy.

As Southbay notes, unlagged the Vice Index reflects two recent major swings:

The 2016 Reflation: The US and global economies rebounded in late 2016 with a firming up of oil and materials prices, as well as the Trump election. As a function of its leading indicator qualities, the Vice Index began surging July 2016.

Trump tax cut: The Trump tax overhaul was approved in December 2017 but consumers began spending before then. Meanwhile the Vice Index began to surge in October.

The point being that the Vice Index is a very reliable gauge of shifts in the economy as they impact consumer spending. And, as Zatlin writes, “it is pointing to a sharp downturn in consumer spending. As if the Tax cut never happened.” It’s very possible that the pace of spending will pick up over the year.But first some household financial healing needs to take place.