DiMartino Booth Warns Pressure On US Households Is Intensifying

Tyler Durden's picture

Authored by Danielle DiMartino Booth,

Behind the rosy economic headlines, consumer stresses have continued to build and are likely to worsen...

Is the U.S. economy enjoying a honeymoon, or is this merely a hiatus? Although this isn’t a subject of discussion among most economists, there will be both good and bad associated with three hurricanes and the California wildfires.

In early summer, the economic data began to surprise to the upside and the momentum has gained traction. The Citigroup Economic Surprise Index recently hit its highest level of the current cycle.

But there are signs that beneath the veneer of healthy headlines, household stresses have continued to build and are likely to worsen as losses related to the storms begin to seep into future months’ data.

In tracking its internal debit- and credit-card data, Bank of America observed that much of the September upside surprise in consumption was propelled by building materials and gasoline. Immediate repairs, rushed deliveries of goods and supplies, and storm-victim relocations undoubtedly drove these sales.

In October, Bank of America’s data showed payback in these areas but strength in furniture stores and discretionary goods. That also makes sense given how many of those who were dislocated have begun to move back into their homes or outfit new, temporary living arrangements.

The Bank of America report also noted that “While the data are cleaner this month, we still see evidence of hurricane distortions, particularly due to Irma.”

It will be some time before the economic data can begin to reflect the full extent of the economic damage inflicted by Hurricane Maria. Puerto Rico remains in such dire straits, the unemployed have had to mail in their initial jobless claims forms, creating long lags in the reported weekly figures.

The full effects of Hurricanes Harvey and Irma are rapidly showing up in the data. In September, according to Black Knight, the number of mortgages either past due or in foreclosure rose by 214,000, or 9 percent, compared with August. At 5.1 percent, the combined rate is far off the previous month’s 4.7 percent and the most recent low of 4.5 percent recorded in March 2007.

October’s numbers have brought the picture more clearly into focus. More than 229,000 past-due mortgages are tied to the storms. Hurricane Irma accounted for 163,000 and Harvey, 66,000. To place the damage to households in context, before the storms, Florida and Texas ranked 22nd and 20th among non-current mortgage states. As of October, Florida has risen to second place and Texas is in fifth place.

The economy has also enjoyed a rush of car sales as sufficiently-collateralized and insured drivers immediately replaced vehicles destroyed by the storms.

According to the latest retail data, car sales slowed to a 0.7 percent growth rate in October, far below September’s blistering 4.6-percent pace.

Nonetheless, the next development could be a further deterioration in auto delinquencies attributed to storm victims. The most recent third-quarter data from the New York Fed suggest struggling households continue to buckle under the strains of their monthly payments.

The delinquency rate for subprime loans originated by auto-finance companies, as opposed to banks, hit 9.7 percent in the three months ended in September. With one in four auto loans outstanding going to subprime borrowers, the rate has been rising since 2013 and is at a seven-year high. What’s most notable is that these delinquency rates are being recorded outside recession, all but ensuring 2009’s peak of 10.9 percent will be breached in the next downturn.

And while credit-card delinquencies are nowhere near their crisis-era double-digit peaks, the New York Fed noted that serious delinquencies have been on the rise for one year. The serious delinquency rate hit 4.6 percent in the third quarter, up from 4.4 percent the prior quarter. Adjusted for inflation, the growth of U.S. credit-card spending has outpaced that of incomes for 26 straight months.

Without a doubt, the availability of credit has been a contributing factor. In its just-released Survey of Consumer Expectations, the New York Fed found that households’ perceptions of the availability of credit reached the highest level since the survey began in 2013. As for households’ “financial fragility,” the average probability of respondents needing $2,000 for an unexpected expense rose to 33 percent from 32 percent in the previous survey, their perceived ability to scrounge those rainy-day funds rose to 70 percent from 67 percent.

The recent income gains among the lowest-earners is probably seeping into households’ increased optimism. At the same time, at 3.4 percent, the personal saving rate implies many households have depleted a good portion of their safety cushions.The current rate is not only the lowest since 2007, but one of the lowest on record since 1900.

Hoisington Asset Management’s chief economist Lacy Hunt said that in real per capita terms, disposable income fell at a 0.2 percent rate in the third quarter, 0.5 percent below where it stood a year prior.

At the same time, the Federal Reserve is poised to raise interest rates by a quarter percentage point at its two-day meeting ending Dec. 13. This tightening will occur in conjunction with the Fed’s continued shrinking of its balance sheet.

“We have seen many instances where spending surges rapidly immediately after natural disasters, but the boost from disaster spending will fade quickly while the intensifying monetary restraint will persist,” Hunt warned.

Perhaps the markets are beginning to sniff out that what the storms giveth can just as easily be taken away.

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toady's picture

Lotsa pressure.... I can "feel" something big on the horizon. I think I'm gonna cash out and go underground for a while...

stinkhammer's picture

is that you Kevin Spacey?

Five Star's picture

The median house cost the median family twice as amy years of works as in the '60s


1 Alabama's picture

we are officially, a $20 trillion, broken window economy.

RafterManFMJ's picture

Come on dawg - women now work and that’s twice the income per household!

Do you not see how this shit sorts itself out in the end? ????

TheLastTrump's picture

Don't spend more then you make.

Problem solved.

In reality, spend at least 10% LESS then what you make & save that for a rainy day or an opportunity.

dchang0's picture

That is good advice, yet there is no protection against inflation. One could save and save and save, and the central banks can simply devalue one's savings towards zero.

ElTerco's picture

The real answer is to spend well below what you make. If you get used to a lifestyle well below your means, then inflation can't touch you before you are dead, unless it goes Zimbabwe style.

Endgame Napoleon's picture

The only possibility I see for saving in this budget is cutting back on food to below 1,000 calories per day, which is what I will do when I rent another apartment.

$1,400 take-home pay — typical, full-time insurance job

Rent for a one-room (not one bedroom) apartment anywhere remotely safe is $750 per month. That is MORE than half of monthly pay. You have to purchase heating, gasoline to get to work and state-required car insurance, but you can drop to liability and uninsured motorist only, assuming your car is paid off. A phone is pretty essential these days.

You can add and subtract all day long, trying to whittle down to the barest of necessities, but food is the place where you have the most leeway to cut.

A good motivational tool is imagining yourself in a “worse-off” situation. How oh how would you make ends meet if, in addition to your wages in a part-time job that keeps you below the income limit for welfare, you were a beleaguered single mom with free rent and groceries, monthly cash assistance from Uncle Sam and a $6,318 child tax credit.

How in the world you cut back?

HRH of Aquitaine 2.0's picture

I wouldn't. I would focus on increasing my income. Why waste time working full time? Work for yourself.

And stop hating women. Get a GF and get a fucking life.

ElTerco's picture

Endgame Napoleon is a woman.

BTW two very lucrative careers in the SF Bay Area are water heater installer and garage door spring replacement. They both pay about $160/hr and have way more customers than available labor. I don't get it since it is simple unskilled work, but whatever.

JRobby's picture

As long as you are not on an ACA policy

toady's picture

That shit is just killing me now... it was sweet when it first started and I could get insurance for a couple hundred a month... I just did next years paperwork and now they want a couple grand a month.... so much for "affordable"!

JRobby's picture

By design

Transferring tax $$$ from US Treasury to health insurers ( with a little help from Freddie & Fanni)

Endgame Napoleon's picture

Use the Nancy Reagan philosophy there: “Just say no” to the ACA.

JRobby's picture

What's going on today LT? No inflamatory anti-Semitic posts?

Can't be the holiday spirit at work?

gatorengineer's picture

Put any more pressure on me and I will be shitting diamonds.   But yet, I have no idea where all of the 40k+ plus new cars are coming from on the road, the $500+ plus filled Costco shopping carts, the $100 a plate restaurants are full and  $225 plus gas and meals to take 5 people to a museum, in philly etc.....

theblackswancommeth's picture

Agreed gatorengineer. I don't know how Joe Six Pack can afford the payments on all the stuff. This feels eerily like 2006 to me.

ebworthen's picture

Sub-prime 0% down & 0% for 72 months auto loans, home equity loans, and credit cards.

FreeShitter's picture

75" LED tvs, New beds, anything over 1000.00 can easily be financed...someone said 2007.....yeah pretty close. Its like 05-07....remembr the hummer craze and every nigga had 22's on their car. 

SixIsNinE's picture

i saw the turkey day ads and dammmm, the 60"ers including Sony are going for 450ish.

that's prettty big.

40"ers can be had for 200s.


used cars are cheap. 


look at florida re-sale for luxury cars from the 2006-09 years and you can get a dream around $7k.

and i'm talking very well maintained. 


ItsOver's picture

Sounds like retired govt employees.

GubbermintWorker's picture

Nopt all of us .gov workers get cushy retirement benifits.

SantaClaws's picture

Or perhaps the number of persons on government disability is higher than reported.

Endgame Napoleon's picture

The Fake News is not reporting anything but unemployment numbers that count anyone working 1 hour per week for minimum wage as employed. They do not explain how many so-called employed people are working 20 hours per week or less and getting their major bills, such as rent and groceries, covered by Uncle Sam for reproducing, nor do they report on the other forms of unearned income. The expansion of disability recipients could explain some of the low workforce participation, but not anything like all of it. It does not explain the wage stagnation, but the socialism for some tied to womb productivity certainly drives wages down by pumping the labor market full of people who have an incentive to work part time for low pay.

Xena fobe's picture

Home equity loans.  Inheritances.  Stock or BTC gains. 


Endgame Napoleon's picture

It is mostly dual, high-earner couples — assortative mates — many of whom work at home with kids, often in managerial jobs. Some have technical jobs like programming. Of course, you always have the doctors and lawyers. They marry other high wage earners, concentrating non-business-generated wealth in fewer households.

Then you have the plastic-supported wealth display.

theblackswancommeth's picture

Is the Black Swan covered in middle eastern crude?

gatorengineer's picture

No but he has a Star of David pinky ring....  While it could have been Greece, Ukraine, North Korea, it looks like the shit this time around has the greatest potential to start in the middle east.....  Looks like the real long play was to get Iranian troops to the Isreali border....

wisehiney's picture

I live hundreds of miles away from any hurricane damage.

But I still got hit.

Just opened homeowner insurance renewal.

Twenty three fucking percent increase.

dchang0's picture

WTF! That's completely insane--I wonder if switching to another insurer will help or if they all raised their rates. It might be that just your insurer got hit especially hard and is trying to pass the screw-job on and that other insurers managed their risk better.

wisehiney's picture

Already left message for agent.

I am betting that all insurers will be trying this.

But my agent will figure something out.


Endgame Napoleon's picture

Agents do not have any control over the back end of insurance, although you can sometimes help insureds with payment-related issues, mostly involving timing not up-rates. Underwriters will give you an explanation in most cases. But some companies wall off the agents from the underwriters.

chestergimli's picture

Your insurance company has to make up all they had to pay out for those who were affected by the storm. Kind of like TARP-spreading the losses around. Any and all monetary systems have to go.

Seasmoke's picture

Get out there and buy and spend. Ir the terrorists will win !!!!

Seasmoke's picture

I feel the uneasiness. Nervousness. Pressure in the Holiday air. Some I know are actually starting to Speak about it.

gatorengineer's picture

its the seasonal pressure to give when you cant.  To buy food that isnt food anymore....  I bought what I thought was a decent holiday Turkey, and I swear to god it had to have been printed on a 3d machine in solyent green, a stick of butter and three hours later there werent enough pan drippings to marinate it.   I did everything else from scratch, but I actually grew up with and liked Stove Top (crap) stuffing.  Well what they are making it out of now that was my last box.....  Next year, gotta put in the garden (in my sick as part of the world that requires a permit for the deer fence).....

indygo55's picture

Got a fresh killed tom, injected it with a marinade and fried the thing. Best turkey I've had since I did the same thing last year.


HRH of Aquitaine 2.0's picture

Too much salt in that crap! I make decent stuffing. Still have enough for dinner, tonight. Cube stuffing with onion, celery, Italian sausage, quartered fresh button mushrooms, butter, stock, and wine. I make it the same way now, every year, in a casserole dish.

I don't put any fricking oysters in it. Or apples. Or raisins. I do add in extra poultry seasoning to the dry bread crumbs. Sauté the onion, mushrooms, and celery in butter and white wine. Brown the sausage. Melt the unsalted butter. Mix into the cubes. Place in oiled casserole dish (the size for lasagne) and cover with foil. 1 hour @ 375/385 and remove the foil the last 15 mintues. Turns out perfect every time now.

A permit for a deer fence? Jeez dude that has to suck!

The trick to roasting any type of fowl is to brine it for 24 hours prior to roasting. Basic brine is water with equal parts sugar and water. For a turkey a lot of water and 1 cup of sugar and 1 cup of salt. You can make it fancy by adding in broth, wine, bay leaves, peppercorns, all that crap. I keep it simple now. Water and equal parts sugar and salt.

My game hen was perfect. Brined for 24 hours. Cooked in 1 hour 15 mintues, nice crispy skin. Enough for two meals. I have draped it with bacon in the past. This year? Just did melted butter, salt, fresh ground pepper, poultry seasoning on top and stuffed with some garlic and fresh herbs. It worked.

Good luck with the garden. Deer. Good for one thing. Eating. Nothing like fresh roasted venison heart and liver grilled over a wood fire. Plant an apple tree. Hope your neighbor's don't live too close when you take a deer.

VWAndy's picture

 A big part of it is families being tricked into listening to the stupid people.

ElTerco's picture

The marketers are obviously not stupid if they can get people to compete with each other to spend on stupid shit.

VWAndy's picture

 Kinda sucks that just about every so called expert is playing their book. What with truth being a taboo and all. Sad really. You would think the market for truth would be a bit more robust.

homiegot's picture

People want fantasy, not truth.

HRH of Aquitaine 2.0's picture

True. People don't want the truth. Try speaking honestly to someone. Most will look at you like you are crazy. They all want the hustle. I like honesty. I appreciate the truth. Uncommon quality.

Drop-Hammer's picture

(((Marketers/Le Happy Merchants)))-  fixed it for ya.

wmbz's picture

You can bet that this years black Friday cyber Monday sales will be blockbusters.

Happens every year, Amerikans in general stay in perma-hock, all of their lives.

They never really pay off anything, but in the unlikely event that they do, they turn right around and jump back in...Right up to their eyeballs.

Ivan de beers's picture

Shes trying to sell her new book. All these people who are calling for market crashes and death of the dollar have one thing in common. A book to sell you for some dollars.

indygo55's picture

Which they promptly convert to Bitcoin.

Enginer01's picture

Interest is the price of rental for use of "money."  When interest is low, it reflects one of several conditions---One, no one can think of much worth investing in, or Two, there is too much money chasing limited opportunities.

I know, inflation is defined as "Too much money chasing too few goods."   I said opportunities, not goods.

The clincher is that banks are allowing loans for companies (or companies are using internal funds) to buy back their own shares.  We should remember that a company only buys back it's own shares when it cannot find any other more profitable use for its earnings.

We are now a Financial empire, not a Producing or Manufacturing empire.  Put it another way, the printing presses have been 'way too productive.

Don't even get started on P/E ratios out of sight and reason....