Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Crash Edition - 26th Mar 19
Handy Ways to Boost Your Home Income - 26th Mar 19
US Treasury Bond Yield Inversion and Political Fed Cycles - 26th Mar 19
Golan Heights Oil all about the Shekels - 26th Mar 19
Falling Yields a Catalyst for The Gold Catalyst - 26th Mar 19
Can We Lock Up Rachel Maddow Now? - 25th Mar 19
Real US National Debt Might Be $230 Trillion - 25th Mar 19
Friday's Stock Market Sell-Off - New Downtrend or Just Correction? - 25th Mar 19
20 Days Left to Find Buying Opportunities In Gold - 25th Mar 19
Will the Historic Imbalance in Gold Stocks to Gold Price Resolve ? - 25th Mar 19
EasySMX Wireless Games Controllers Review - 25th Mar 19
Stock Market Short-term Top - 25th Mar 19
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Consumer Balance Sheet and Consumer Spending in Perspective Economic Recovery Implications

Economics / US Economy Apr 08, 2010 - 05:58 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleHere is an interesting chart on Consumer Balance Sheet, Savings Rate, and Debt Service Ratio posted by Barry Ritholtz.




Ritholtz also notes Consumers Climb Out of Their Bunkers

From the “It-Aint-That-Bad” file comes the most recent reports of consumer spending.

  • Luxury sales rose 22.7% (Mastercard SpendingPulse)
  • Furniture sales rose 13.8% and appliance sales rose 6.9%
  • Auto sales gained 24% from year ago levels (AutoTalk)
  • March was the 7th consecutive month of increasing retail sales growth
  • Cargo volume at major ports imports is trending towards an 8% increase in April
  • Commerce Department’s personal consumption expenditures was $34.7 billion in February, an increase of 0.3% over January — the fifth monthly gain in a row.
  • Gasoline demand continues to rise — +1.2% — before the summer driving season.

Ritholtz comments "It will be some time before we return to the peak levels of 2006-07, when Houses were used more as equity structures than shelter. But that does not mean we won’t see marked improvements over the coming quarters."

Fair enough. Here is an equally true and arguably more realistic way of saying the same thing: The anemic bounce to date "does not mean we will see marked improvements over the coming quarters."

State Sales Tax Revenues

State tax collections are a far better measure of spending than same store sales. Please consider Retail Sales Rise: Where? Let's Take a Look; Expect Nothing Less Than Panic

That report is from February 28, 2010, arguably a bit out of date. Nonetheless, state tax collections are horrid.

Moreover, same store sales are invalid because of store closings. Finally, improvements over horrendous numbers from a year ago are hardly unexpected.

Finally, please note that it took cash for clunkers, $8,000 tax credits, a $trillion in various Fed swap-o-rama programs, and the Fed monetizing a $trillion in mortgages to achieve this bounce in GDP.

What's next?

Consumer Balance Sheet Chart Brutally Misleading


In isolation, the balance sheet chart at the top of this post seems to indicate the problem with consumer debt is overstated.

For a different perspective, please consider Wealth, Income, and Power by Professor G. William Domhoff at the University of California at Santa Cruz.

In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.7%. Table 1 and Figure 1 present further details drawn from the careful work of economist Edward N. Wolff at New York University (2009).

Financial Wealth Distribution


Housing, Liquid Assets Distribution


Income and Wealth by Race


Besides illustrating the significance of home ownership as a measure of wealth, the graph also shows that Black and Latino households are faring significantly worse overall, whether we are talking about income or net worth. In 2007, the average white household had 15 times as much total wealth as the average African-American or Latino household. If we exclude home equity from the calculations and consider only financial wealth, the ratios are in the neighborhood of 100:1.
Extrapolating from these figures, we see that 70% of white families' wealth is in the form of their principal residence; for Blacks and Hispanics, the figures are 95% and 96%, respectively.

Table 5a: Concentration of stock ownership in the United States, 2001-2007


Table 5b: Amount of stock owned by various wealth classes in the U.S., 2007


Just as wealth can lead to power, so too can power lead to wealth. Those who control a government can use their position to feather their own nests, whether that means a favorable land deal for relatives at the local level or a huge federal government contract for a new corporation run by friends who will hire you when you leave government. If we take a larger historical sweep and look cross-nationally, we are well aware that the leaders of conquering armies often grab enormous wealth, and that some religious leaders use their positions to acquire wealth.

If the top 20% have 84% of the wealth (and recall that 10% have 85% to 90% of the stocks, bonds, trust funds, and business equity), that means that the United States is a power pyramid. It's tough for the bottom 80% -- maybe even the bottom 90% -- to get organized and exercise much power.

Summary of Key Points

  • The Bottom 80% have a mere 7% of financial wealth.
  • The Bottom 80% have a mere 8.9% of stock ownership
  • Only 31.6% of the population has more than $10,000 in stocks.
  • 70% of white families' wealth is in the form of their principal residence; for Blacks and Hispanics, the figures are 95% and 96%, respectively.
Economic Implications

That was an extremely well written article by Domhoff. Inquiring minds will want to give it a closer look.

The facts do not point to a robust recovery in spending. Indeed they do not point to any recovery in spending beyond the massive government intervention that we have seen to date.

This is not 2006. Homeowners cannot tap their houses for home equity spending. Moreover, some of the data for that report was from 2007. There have been millions more bankruptcies since then.

Millions of households are underwater in their mortgages. Banks are stuck with massive numbers of REOs via foreclosure.

The unemployment rate is hugely understated at 9.7%. Alternative measures show unemployment at 16.9% and even that number does not count Realtors and self employed persons on commission who have not had reportable income for months.

There is no driver for jobs except government stimulus.

A Record 39 Million Receive Food Stamps, the 14th Consecutive Monthly Increase.

Consumer credit does not give any hints of sustainable increases in spending or lending. Please consider Consumer Credit Drops $11.5 Billion, 5.6% annualized, 12th drop in 13 Months. The Increase In January was a Mirage related to Student Loans.

Also note that millions of boomers are headed into retirement severely underfunded. That fact alone shows how wrong it is to expect a huge bounce in consumer spending.

It is important to factor in the effects of increased cutbacks by cities and states in response to numerous fiscal crises. For example ....


That is just a small sampling of problems facing cities and states. Layoffs are coming. Those layoffs need to be factored into to consumer spending. So does the rise in mortgage rates now that the Fed has stopped monetizing treasuries.

Finally, consumer and bank attitudes play a key role.Consumer attitudes towards spending and consumption have changed for good. So have bank attitudes towards lending. Bernanke can cajole all he wants, but $1 trillion in excess reserves tells part of the story. Undercapitalization of banks tells much of the rest.

All thing considered, it is a mistake to extrapolate forward a continued recovery in spending from the depressed levels of 2009. It is far more likely, this is about all we get.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2010 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules