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The American Recovery and the North American Economic Outlook
This is a continuation of the reporting yesterday on the American
consumer. You can find the earlier articles in this consumer mini-series
as follows:
- What We’re
Looking For To Go Splat! Part 1: macro arguments against the spike
in retail stocks - What We’re
Looking For To Go Splat! Part 2: A list of 147 retail stocks with
attributes that causes on to question their gain in prices, with a
shortlist of companies who may very well go “splat”! - Is
the Consumer Really Back? Well, It Depends On If You Believe What the
Government Tells You or Whether You’re An Indendent Thinker – The
American Recovery and the North American Economic Outlook.
Is sustainable spending back? Can we rely on the consumer to justify
those gains in retail, commercial real estate and casino stocks? Well
the most recent consumer spending data points have been released through
the pop media, and most of the mainstream is all abuzz with notions of
consumer recovery. We at the BoomBust aren’t wholly convinced, though.
We are still facing the same stalwart, stiff headwinds as last year
(housing/real estate, unemployment, credit, deflating assets), simply
blowing from a slightly different direction.
The continuous downturn in residential investment is easily
accessible from the recent BEA reports. Residential investment
expenditures fell 10.9% from the previous period, and have now been
negative for 14 of the past 16 quarters. From a straightfoward,
simple math, common sense perspective, the last thing we need in the US
is more housing with years of inventory being represented by the
foreclosure pipeline, shadow inventory, new construction and existing
housing sales. To top it off, we are at the bottom of the interest rate
cycle with no where for rates to go but UP!
Much of the general macroeconomic trend in housing has been covered
in articles discussed in Things we are
Looking to Go Splat! Part 1, particularly with consumers opting for
Chapter 7 bankruptcy over Chapter 11 proceedings. Further, Mark Zandi
of Moody’s has recently gone as far as stating the increase in retail
sales since the beginning of the year is merely a result of 6 million
homeowners who have no intention to pay their mortgages, freeing up $8
billion in cash. It would even be fair to expect problems in housing to
become worse as those participating in extended unemployment claims
programs continues to rise, putting more stress on durable goods as a
whole. With the effects of the stimulus beginning to wear off, and the
recovery in housing and consumption being incredibly overstated, the
likelihood of a downturn in discretionary consumer spending appear to be
fair.
Gross Domestic Income:
The measurement of Gross Domestic Product is the expense measurement
of Gross Domestic Income (GDI), so unless FASB loosened up more
accounting rules, expenditures should technically equal income on the
national scale. However, statistical discrepancies in BEA data for GDP
and GDI have continued to paint two different pictures about the US
economy. The graph above comes directly from the Atlanta branch of the
Federal Reserve, and if the Fed did not have the reputation of leaving
the printing press on while taking part in lavish Jackson Hole getaways,
one could say this helps explain unwillingness by the current Board of
Governors to raise interest rates in the face of a “V shaped recovery”.
Measures of GDI have shown a deeper recession than GDP indicates, and
stubbornness through the beginning of 2009 to show any signs of
recovery. More Federal Reserve data confirms fears at BoomBustBlog
about employment conditions failing to recover in 2010 and the near
future (reference Are
the Effects of Unemployment About To Shoot Through the Roof?).
The final graph, showing GDP and GDI measurements of unit labor costs
shows a declining wage, which has been confirmed by BLS data. As wages
have fallen, and the GDP price level for non-energy consumption has
stayed flat (0.6% growth in Q1 2010), it can (and probably should)
definitely be argued that the increases in discretionary consumption and
GDP contributions from PCE are coming at the expense of the housing and
mortgage industry as opposed to a consumer/worker pick up.
- advertisements -
It would be rather interesting to see what happens to old people in the new world.
Two words: "Death Panels"
THE ANNOTATED JIM JACKASSMAN--JP MORGAN:
http://williambanzai7.blogspot.com/2010/05/annotated-jim-jackassman-jp-m...
Reggie, your post was timely in showing the real state of things. Today I was reviewing BEA stats on unemployment disbursements and personal tax receipts. According to their stats, unemployment payments have increased from $30B to $140B from Q1 of 2007 to the same period in 2010. Personal taxe receipts are down 27% in the same period. We really live in a propaganda state.
Mutt .... you make some good points but fail to point out that another difference between 50's-60's (which I participated in and remember as a rather idyllic period) and later times is the amount of public and private debt. Lifestyle changes fueled by the increasing "buy buy buy" theme steadily eroded real income and greatly increased debt. We are now at a point where even two people working have a hard time making ends meet and we have an economy that can't function unless people continue to "buy buy buy".
We apparently can't afford what we have and we are still banking on the "buy buy buy" scenario. We can limp and stagger along for a while but the situation we have cannot be corrected by more consumption fueled by more debt.
We may have a period of an inflation and easy-money induced bump but I think the ultimate cure has to be a rather severe deflationary and deleveraging era.
“”70 year olds may not be doing well, but as aggregate a lot better than 50 yrs olds, and 30 yrs olds””-----------------------------
As a 70 year old, I accept unemployment as normal; even WalMart does not want me. In 1962 a University Degree in ANYTHING got you a good job with free medical and retirement. Modest Homes were $5000 or $10000 in LA (where there were jobs). Auto insurance was not required. Any dope like myself could make it in those days. For those of us who bought a modest home and still live in it, having not refinances for dumb reasons---- we are there for the chillin to have a place to live. We, the children of the Great Depression, had a caution that caused our kids to laugh about. It may now look dead serious smart.
As a 70 year old, I agonize for my broke and freighted young friends and relatives (that means under 60 years old). It is indeed sad days, that all of my generation thought could not happen again.
Dont worry onlooker, the youngersters will get their time again once the ponzi collapses.
Good interview of John Williams at The Gold Report. Here is a sample (I won't clutter the post with long quotes, but the rest of the interview is worth reading):
http://www.theaureport.com/pub/na/6199
kudos to referring to it as wealth 'distribution, and not redistribution, which implies the status quo has legitimacy. the problem with the stimulus packages is that almost none of it made its way to main street, unless you count the wealth effect, stocks leviate, investors make withdrawals from their 401K plans to pay the bills. youi can be millionaire and apply for food stamps if you put your investments in a 401K.
Reggie,
Really appreciate your great work... Would you mind defining what "sustained/sustainable" is? Defining what the period/range is? (something can be called sustainable given the right context- e.g. a chemical reaction was sustained for 1 second [when perhaps previously it wouldn't work]) Our economy can be said to have a sustained rebound if one were to narrow the time slice down (maybe to 1 day).
China can see we have a comedian for a President.. we can't
stop printing Fiat Money.. Our Debt is out of control..
China will dump the Dollar and US Bonds... They want Gold..
China is still far too dependant on exports to make the transition away from holding dollars and euros.
How could China get rid of USD when what they want and need the most is denominated in USD mostly if not only?
No, China wants ENERGY! They cannot feed and control their population with gold. Gold is only a STORE of wealth waiting for investment (and investing in energy is becoming more and more important).
Goldschläger?
Kills two birds. They'll be too drunk to know how crappy the world just got.
These guys keep failing to factor in inheritance into their calculations. Medical care extended lifespans but nobody lives forever and people of the WWII Korean War time frame are dying in droves and passing a lot of buckage to their heirs. The effect is not trivial.
yeah that is a really crucial point, and inheritance, if not considered properly really muddies a lot of things. Like I am always struck by income charts that show a household with an total household income of say $120k being way up near the top percentile of income, but if you asked two 30 somethings making 60 each, raising two children, paying for house, trying to save for retirement and kids college and paying student loans if they felt like they were in the top 10 percent, I think they would laugh at you. So I'm thinking one) there must be a whole bunch more poor people than I realize and two) there must people that have wealth but not much income (like retired people only getting Soc Sec as income but house paid for, money in bank).
Also, much difference between wealth of black and white people is due to inheritance...earlier, black people were forced to buy in certain neighborhoods, and the house they lived in all their life is now worth nearly nothing while white people tend to have gained substantial real estate wealth form parents, grandparents.
I have also seen an interesting intragenerational phenomenon. My parents, aged in the mid 70s have all these friends their age that have only high school degrees that all raised families easily, in nice neighborhoods, decent solid house, nice schools. Most of them are living off pensions from the big corps they worked for and Soc Sec, health care from cheap Medicare.
Meanwhile some of their kids in their 30s and 40s are often struggling...so the older folks with their wealth from being amongst a very lucky economic generation are supporting the younger ones. Guy with HS degree worked for railroad and wife that worked as teacher made out like bandits with real estate wealth, great pensions that pay regardless of market performance etc..but now most of their "wealth" (middle class folks at best) goes to support their college educated daughter and son-in-law and children...son-in-law a professional, has been unemployed for over one year and will soon take a $10/fr job finding nothing in his field and daughter can't get job as teacher, just subbing..
How many old baby boomers have given their real estate wealth to there kids so they could actually afford a house. And if your parents weren't middle class how screwed are you? You could make much more than your peers but still be far behind them from wealth perspective.
My parents generation got no money from their parents, they were way way better off than their parents. Now its flipped.
Gee, let's decompose it a little more:
What is radically different between the two generations? The older folks faced a higher set of tax brackets, but the younger ones are actually paying a far higher amount of actual taxes due to things like inflation. My father earned roughly $10k in 1970 and paid roughly $1k in federal taxes. A comparable wage in 2010 is $56k and the tax bite is roughly $7.6k. While not radically disproportionate, the tax bite of the feds alone has outpaced inflation. Then comes FICA, etc. and the rapacious state & local governments.
Oh, and dad had a generous pension, but only because his employer pretended to fund it ... turns out that over the years as accounting rules were changed that the fund was underfunded and the corporation had to start making it up. This of course had two unintended consequences, the first of which was that wage growth for successive generations has been dampened, and the second of which is that generous defined benefit plans have largely been terminated, especially since today's generation may end up having nearly 10 to 20 years more post-retirement life than dad's.
And as to the High School diploma ruse, very few of us kid ourselves that a High School diploma of today signifies anything more than a ghost of what it represented in 1970. The educational system has debased the quality of credentials to the point where the average baccalaureate degree is at best on par with a HS diploma from one or two generations ago, and those of us who are doing somewhat better generally needed to have Masters or better credentials just to keep pace with the baccalaureates of 1970.
Bottom line is that those of us now plodding along are struggling due to fewer resources at our disposal, one because we have an ever increasingly hungry political class reaching into our pockets at the same time they are debasing the services that they are supposed to provide for those hard earned dollars. So where do we go if we want to follow the road to riches?
In the 1960's the word was "Plastics," but in the 2010's the word is "Government."
You're kidding, right? The much-looked for inheritance of the younger baby boomers is evaporating in real-time. If the stock market doesn't take it down then enormous medical costs in the last few years of life will. My dad recently passed away and spent two years in a rest home. The monthly cost of his care was $7000. So my mom's inheritance, and ultimately mine decreased by about $170K over that time span. My parents are definitely in that top 3% demographic, but if my mom has enough money to last until the end of her life I will be happy.
70 year olds may not be doing well, but as aggregate a lot better than 50 yrs olds, and 30 yrs olds
This is also to say they did things right... saved, were conservative (by choice or by luck). You are talking about the generation that started the debt explosion. Most of them haven't known how to live within their means their entire lives. All they know is take and spend.. and take some more. Hell, how many of them can't afford to retire and need to keep working into the 70's? (keeping more jobs away from the 30-40 somethings) Sadly, just as they were in their productive years, Boomers won't go quietly into the night. There may be less inheritance money to go around than you think my friend.
You need to further break down gross domentic income to income distribution. seeing that the only reason the graph isn't worse is that gains are being made by the very wealthy. therfore the 70% that make up the economy are doing much worse. it is the fed reserve plan. help us by making us poor.
when the public figures it out I hope we see a "greek" behavior. Or at least public trials of those who manage the crazy policies
It's there on the GDP graph, but you've got to be real dedicated to see it
from the perspective of main street the continuation of the deflationary spiral must continue, from the perspective of the fed and wall street, reflation must reverse the process. imagine an economy in which labor costs bottom after consumer prices, and lag thereafter. the only real solution is the opposite, a rise in wages BEFORE consumer prices rise, which implies some version of a government subsidized living wage. i can't get over how obama really blew it by bailing out the banks and ignoring the working man.
Arguing about whether a politician made a good or bad decision is ultimately futile; they make whatever decision their told to make. Just follow the money.
Regarding deflation/inflation, reasonable arguments could be made either way as far as what helps the individual citizenry as a whole, the issue is mainly about the distribution of wealth. If people are looking starry eyed at "the way things used to be" (normally this points to around the early to mid 1950's for white folks), the way you get there is by implementing policies that get us back to a more reasonable level of compensation distribution. I know the very concept of wealth distribution sounds inherently socialist, so I normally just put it in work terms. How much more is a CEO making 50 million dollars in compensation worth, than a mid-career technical professional making $65,000 a year? In other words, if Jim the professional works hard in life, went to college and got a degree in network administration, continues to work hard at his job, is responsible with his money, raises a family, etc., is Jim worth 1/770th as much as Bob the CEO in our society? If so, why? If money is a measure of economic worth, than why is Bob understood to be 770 times as valuable to the United States of America than Jim? Note that this is based on an actual example, look up the compensation of the CEO of McKesson, and then look in Careerbuilder at jobs with McKesson.
A few points...
(*CHUCKLE*)
First of all, those halcyon days of "Leave it to Beaver" were the offshoot of the good old U.S. of A being "the last man standing" after WW2.
Please recall, much of Europe and Japan lay in ruins - physical ruins - after the war and we were left as both "THE" industrial and financial engine of the world's economy in large measure.
As to the whole CEO vs. "man in the street" comparison... I'm with you there.
Regarding inflation/deflation...
(*SIGH*)
As I've been saying all along, everything (short term) depends upon oil prices.
Oil shoots up over $90/barrel... over $100/barrel... they'll be painful inflation.
Oil shoots up to $140/barrel... $150/barrel... more... we're back to the misery index - only this time folks might wanna take some of their remaining "assets" and use them to buy or barter for canned fruit and ammo!
Anyone who thinks that the shit can't hit the fan here in America because... well... we're America... has been watching too much TCM and not paying enough attention to "modern America."
The America which sent men to walk on the moon in 1969 is now the America that can't fill in two holes in the ground in downtown Manhattan.
BILL
Your comment is pathetic and utter nonsense. Go move to Europe where your socialist eutopia is going bankrupt one country at a time. Yeah, that wealth redistribution works great you idiot. Where I come from, you would be considered a looter.
the best of economic times in US occurred in 50s and 60s and it was a time of 1) big unions (developed during bearish 30s), 2) flat/well-distributed wages (guy with high school degree doing sweaty work could make as nearly as much as college guy running tech lab at manufacturer and both could afford house and easily support wife and two kids, get pension etc and CEO was making only single digit multiples of these guys) 3) high taxes for rich and big businesses. So to say we can't thrive without handing over vast majority wealth to a few rich ones, taxing rich and corporations, and have flat incomes (strong unions, corporate controls on compensation) flies in the face of the exact situation when US was doing the best.
However, 50s and 60s was also a time when 1) we benefited from being one of the few safe havens in the world to invest money before and during and after WW2 because even tho we fought, countries land was secure 2) other industrialized nations (our competition) had their economic/industrial institutions wiped out, so we had great technology and manufacturing capabilities advantages, and 3) it was a time of cheap resources, because we had essentially inherited Europe's and Japan's colonies, in Africa, Asia, Latin Am, 4) we inherited great brains from the world over due our intact education system and immigrants fleeing war ravaged zones including many European scholars, 5) a time when protection of a domestic labor pool, manufacturing or farming sector etc.. from global competition was doable 6) a time when cheap labor immigration from acceptable East Europeans was cut off due to cold war (example, Ford Motors turned from East Europeans (now behind iron curtain to Blacks from U.S. south for needed labor, and it wasn't hard to compete with share cropping income.)
With global wage arbitrage, vastly increased poverty and immigration from MX, US labor now has to compete with everyone.
I wonder if America alone could ever pull off the 50s and 60s again economically, given today's conditions regardless of what we do domestically.
I think there are ways whole world could do much better by distributing wealth from a country's natural resources to regular folks (ala Alaska, Norway - most oil money goes to pensions or individuals), and ensure better wages and conditions for labor.
However, I think American economy in 50s and 60s (and its declining but still quite nice due to past wealth 70s and 80s, and its last hurrah debt-fueled bubble times of 90s and 2000s) is an aberration. Maybe India or China can have a great run with a strong middle class somewhere down the line, who knows.
my reply posted above. but if CPI starts higher, and wages remain stagnant, we're in trouble.
I would suggest that we've been in the state you speak of (wages growing slower than consumer prices) since the early 1980's, hence the seeds of the current personal debt crisis. Funny how that exactly mirrors the government deficit crisis timeline.
Note, I'm actually a big fan of supply-side economics (the Jude Wanniski version, not the bullshit soundbite version) as long as it's in the context of a real balanced budget. I just wish we'd give this a try as a country.
Wages won't remain stagnant in the U.S., they will fall until they are in line with wages in the rest of the world. The last graph Reggie posted is the most telling by far.
Especially if Bob the Ceo actually damaged the company's true value (not market cap) and future prospects by pursuing short-term strategies designed to juice the stock price (& Bob's options). Meanwhile we can assume that Jim the Tech Guy's efforts added value to the enterprise proportionate to his cost of employment or he wouldn't be there.
Supposedly there is a system of check and balance between a company's executive officers and its board. At some point this became an incestuous relationship dedicated to bleeding the company's intrinsic value for their mutual enrichment.
Where 99% of his support is. What a strategic blunder. At what horrible cost to individulas and families. And this is the guy who is supposed to be so smart.
It does miss like that red dot that says on a map "YOU ARE HERE"...
Finally, Reggie put something up we didn't have to hit 66 links to get to. As usual, though, great analysis.
It looks weak to me....
It looks weak to me....