Two interesting front page articles this morning expand on several of our favorite themes.

The first, the NYT’s A Reluctance to Spend May Be a Legacy of the Recession, treads over some well worn ground with anecdotes and data.  The anecdotal stuff is the usual mix of sad tales, and psychology, some signs of improvement and recovery.

Two data points worth noting are:

“Between 2003 and 2007 — prime years of the housing boom — the net worth of an American household expanded to about $540,000, from about $400,000, according to an analysis of federal data by Moody’s Economy.com.

Now, the wealth effect is working in reverse: by the first three months of this year, household net worth had dropped to $421,000 . . .

As recently as the middle of 2007, Americans saved less than 2 percent of their income, according to the Bureau of Economic Analysis. In recent months, the rate has exceeded 4 percent.”

What is omitted from the article is the why:  3 asset class collapses (Stocks, Housing, then Stocks again) will wreak havoc with yor psychology. Add to it shrinking Real Income, and voila! Consumers find frugality to be their new mantra.

The WSJ takes a different tack, looking at the advantages of larger versus smaller firms — but using the same anecdotal hooks to tell the story (I omit anecdotes for the obvious reasons):

The U.S. recovery is a tale of two economies. At one extreme of Corporate America is a cadre of companies and banks, mostly big, united by an enviable access to credit. At the other end are firms, chiefly small, with slumping sales that can’t borrow or are facing stiff terms to do so.

On Main Street, there are consumers with rock-solid jobs — but also legions of debt-strapped individuals struggling to keep their noses above water.

This split helps explain the patchiness of the recovery that appears to be taking hold after the worst recession in a half-century . . .”

Both of these are well worth your Saturday morning reading time . . .

>

Sources:

A Reluctance to Spend May Be a Legacy of the Recession
PETER S. GOODMAN
NYT, August 28, 2009

http://www.nytimes.com/2009/08/29/business/economy/29consumer.html

Halting Recovery Divides America in Two
CARI TUNA, LIZ RAPPAPORT and JULIE JARGON
WSJ, August 29, 2009

http://online.wsj.com/article/SB125150649639668499.html

Category: Economy, Employment, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

39 Responses to “Weak Consumers, Creditless Firms Impacts Recovery”

  1. Winston Munn says:

    The reason for the difference in recovery between the two economies is that there are two Americas – there is the Banana and then there is the Stan.

  2. Or, a different view of the Arc, and, thereby, Figured thusly–
    Aug 25, 2009
    By Lauren Schenkman
    Inside Science News Service

    WASHINGTON — A recent analysis of the 2007 financial markets of 48 countries has revealed that the world’s finances are in the hands of just a few mutual funds, banks, and corporations. This is the first clear picture of the global concentration of financial power, and point out the worldwide financial system’s vulnerability as it stood on the brink of the current economic crisis.

    A pair of physicists at the Swiss Federal Institute of Technology in Zurich did a physics-based analysis of the world economy as it looked in early 2007. Stefano Battiston and James Glattfelder extracted the information from the tangled yarn that links 24,877 stocks and 106,141 shareholding entities in 48 countries, revealing what they called the “backbone” of each country’s financial market. These backbones represented the owners of 80 percent of a country’s market capital, yet consisted of remarkably few shareholders.

    “You start off with these huge national networks that are really big, quite dense,” Glattfelder said. “From that you’re able to … unveil the important structure in this original big network. You then realize most of the network isn’t at all important.”

    The most pared-down backbones exist in Anglo-Saxon countries, including the U.S., Australia, and the U.K. Paradoxically; these same countries are considered by economists to have the most widely-held stocks in the world, with ownership of companies tending to be spread out among many investors. But while each American company may link to many owners, Glattfelder and Battiston’s analysis found that the owners varied little from stock to stock, meaning that comparatively few hands are holding the reins of the entire market.

    “If you would look at this locally, it’s always distributed,” Glattfelder said. “If you then look at who is at the end of these links, you find that it’s the same guys, [which] is not something you’d expect from the local view.”

    Matthew Jackson, an economist from Stanford University in Calif. who studies social and economic networks, said that Glattfelder and Battiston’s approach could be used to answer more pointed questions about corporate control and how companies interact…”
    http://www.insidescience.org/research/study_says_world_s_stocks_controlled_by_select_few
    ~~
    http://www.financialsense.com/stormwatch/geo/pastanalysis/2009/0828.html

  3. [...] Barry Ritholtz at The Big Picture also noted the WSJ article, and also an article in the New York Times that expands on the [...]

  4. torrie-amos says:

    wow, i obviously live in a different country, net worthwise, it has undeniably come to my attention, i am prudent, poor and stupid……dayum, i was hoping to avoid that

  5. beaufou says:

    Are we to believe like some politicians have pointed out already that the crisis is psychological.
    The famous recovery has a name, bailout, and it isn’t a recovery of anything worth saving, it has just failed miserably and practically nothing has been done to correct the wrongs.
    I also don’t get the 70% of the economy comments, of what economy? the one the financial sector uses to dump their garbage?
    It’s only jobs and people after all, this summer has proven they can live without it and still make tons of money.
    When the dancing horses come out this fall again asking for bailouts and more stimulus, I wonder if this will be a blood on the street moment.

  6. and, from, elsewhere, along the, previously alluded to, Arc..

    this: http://www.youtube.com/watch?v=I9q1oeMcoL0

    could be re-cut for better effect, though contains enough to be, more than, worthwhile — as a, de minimus, reflection point..

    additionally, this–
    http://gizmodo.com/5346964/ibm-takes-first-3d-image-of-molecule-atomic-bonds-using-crazy+powerful-microscope

    provides a different look into the Ties that Bind.

  7. alfred e says:

    MEH: Thanks for the info. Suspected as much.

    Used to have a link to a site that tracked the linkages between corporate boards. Can’t find it.

    The American mythology persists although we may be on the verge of piercing the veil.

    If we have the will.

  8. Winston Munn says:

    When a nation confuses profit with value as the motive for its actions, it eventually sees a polarization between owners and the workforce. We are seeing this play out in the health care debates right now. The value producing concept of the moral justice of providing universal health care is being undermined by a relative few power brokers intent on maintaining the profit motive.

    The end result is everyone loses.

  9. call me ahab says:

    meh-

    pretty powerful video link hoffer- a good percentage of the populace is exactly that- “debt slaves”

    willid-

    good link regarding investing in basic research- i think this country had dropped the ball on that for quite a few years now

  10. grandrews says:

    The net worth figures in the NY Times article look like they are off by a factor of 10. Plus how can a responsible reporter not define what household he is talking about: mean, median, family households? Bizarre.

  11. willid3 says:

    Ahab, I think that was really telling. we had a lot of ‘innovation’ PR by business, with really little real action. and it we used to do a lot, but that was stopped to save money, an extremely short sighted decision for which we are paying for now and will for many more years to come!

  12. Daffyorbugs says:

    Marketing, everything is marketed to death. Sell this crap any way you can. Sadly, the marketing
    profession has a much better track record than the economics profession. It seems the marketers are allowed to operate in a free market and the economists just say what they are told. Sham-wow.

  13. Winston Munn says:

    Rutters

    Washington, D.C.
    August 29, 2009

    Bernanke Announces End of Great Recession: Fed Out of Bullets.

    In a speech to the Daughters of Foreign Debt Investors, Federal Reserve Chairman Ben Bernanke explained that after trying quantitative easing and expansion of the Fed balance sheet to the size of Minnesota, the Fed simply had “no fucking clue as to what to do next” and thus had decided to end the recession a few years earlier than previously announced and convert the remainder to “notoriously poor growth bordering on stagnation.”

    The S&P rose 12 points on the news.

  14. I-Man says:

    @ BR:
    Worth considering…
    “Between 2003 and 2007 — prime years of the housing boom — the net worth of an American household expanded to about $540,000, from about $400,000, according to an analysis of federal data by Moody’s Economy.com.

    Now, the wealth effect is working in reverse: by the first three months of this year, household net worth had dropped to $421,000 . . .”

    Do you happen to know how they came up with these numbers? I and I feel poor as shit.

    The disparity, or speed of wealth loss seems about right at a glance… but the numbers seem high to me. Perhaps I am.

    @ MEH:

    As always, cool links, bro. Good to see a Hoffer post on my first trip back to TBP since vacation. Debt slace. Like it.

    To swing back to the the NYT piece, (the WSJ one I couldnt get full text, and wouldnt pay for their drivel anyways)…
    I certainly feel the pain of the wealth destruction and its affect on the psyche. It has made me more frugal, disciplined, and interested in paying down said debt. Having liberated myself from a few CC balances, and almost owning my car outright is a huge game changer attitude wise… not to mention some hefty trading losses. There is psychological healing that needs to take place for heads to get beyond these struggles and emerge stronger… more evolved with respect to these “material” things.

    I already was interested in gardening I self… so maxing it out was something I had planned on doing anyways. For sure, I have grown more food this summer than any summer before, and plan on pulling a late fall crop too… possibly even adding an indoor space for greens, beans, tomatoes and peppers this winter.

    These practices are good for America. I have the privilege of living across the street from a guy who is 95, still works in the yard all day, huge garden, walks a mile at 4am, and doesnt generate trash… sews his own clothes. Dude has mad stories to tell re: frugality, financial chicanery, and common sense. Virtues we have been losing in this country for awhile now as our society’s “commercialization” has taken hold… increased by the spread of credit like a virus.

    Great quote I read by the cash register at the old greasy spoon Mrs I-Man and I do breakfast at on Saturday’s… “Your best credit is cash.” Funny how Granny I-man used to say when I was growing up “Never titch any credit cards sun.”

  15. harold hecuba says:

    net worth reached 540k ? in what galaxy or was it the land of OZ. i’d say the majority of americans live paycheck to paycheck with little or no net worth whatsoever. most have at most 3 months living expenses.

  16. willid3 says:

    sec inspector general finds sec blew it on rating agencies
    http://www.nytimes.com/2009/08/29/business/29rating.html?ref=business\

  17. Onlooker from Troy says:

    Averages lie, lie, lie. Skewed terribly by the uber rich. The median would tell a much different tale. Or the average for the bottom 90% or so; maybe higher like 99% even. And as mentioned by someone else, terrible reporting as is all too often the norm. Defining the stats and using some critical thinking to explore them is too much to ask I guess.

  18. willid3 says:

    why small banks are failing?
    http://www.newsweek.com/id/214036

  19. call me ahab says:

    hh & onlooker

    “net worth reached 540k ? in what galaxy or was it the land of OZ.”

    “The median would tell a much different tale”

    no doubt

    willid-

    as you are alluding to- we have become a nation that looks for immediate pay-offs- this outlook is hurting us as we speak because that it is the way it has been for a couple decades-

    doubtful ground breaking discoveries will be coming from these shores any time soon

  20. Onlooker from Troy says:

    “Virtues we have been losing in this country for awhile now as our society’s “commercialization” has taken hold… increased by the spread of credit like a virus.”

    I Man
    Worse than just lost were those virtues. People who lived frugally and by the old fashioned values of thrift and financial modesty were scoffed at, sneered at, teased, etc. Of course most of those folks were/are emotionally secure enough to not be concerned about that, and not be susceptible to the immature peer pressure that drives so much our society in fashion and fad. But it was the driving force that kept all too many on the wrong track to financial self destruction and waste.

    By the way, you can read the entire article from the WSJ by searching the article title in Google. The link will take you to the full article. Nice back door. Works for Barrons too. I’m not sure about FT. I’ll have to try it.

  21. Onlooker from Troy says:

    ahab

    Yep, not many have the patience these days for research that won’t yield riches within in a few quarters, at most. The short sighted focus just doesn’t support it. And now our govt is broke and less able to help in that regard as well. Cash for Clunkers and it’s ilk is the epitome of short sighted, near term focus for immediate gratification (and largely political, of course). Not the perfect analogy, but it reflects the same mindset.

  22. jc says:

    Insider selling 31x insider buying and other bearish nuggets from Biderman of Trimtabs
    http://news.prnewswire.com/DisplayReleaseContent.aspx?ACCT=104&STORY=/www/story/08-28-2009/0005084471&EDATE=

  23. Mannwich says:

    I would venture to guess that for the majority of Americans, the true net worth somewhere closer to zero, maybe even negative. As Onlooker points out, averages are skewed by the uber-wealthy.

  24. Mannwich says:

    @Onlooker: Those people are STILL being sneered at. That hasn’t changed. I’m one of them.

  25. Onlooker from Troy says:

    I hear ya Mannwich. Me too. But I really could not care less. I’m far beyond worrying about what people think of me or chasing fashion and fad.

  26. Mannwich says:

    @Onlooker: Totally agree. Just pointing out that nothing’s really changed in that regard.

  27. DiggidyDan says:

    off topic, but since there wasn’t a link thread today, i suppose i shall contribute here. I found this link rather interesting:
    http://seekingalpha.com/article/158925-sobering-stat-arms-index-indicates-market-is-at-peak-not-bottom
    regarding the speculatory volume in the hail marry stocks at the moment, and the signal therein that would indicate we are close to an intermediate top as the fools rush in.

    thanks Elvis, and godspeed.

  28. Mike in Nola says:

    Agree about the net worth. Shows how many superrich there must have been.

    ZH has a very good succinct descriptions of the current relationship between the US and China. Ignore the title, as it is somewhat irrelevant to the content of the comment.

    http://www.zerohedge.com/article/ongoing-chinese-annexation-us-consumer

  29. Mike in Nola says:

    Interesting lesser known effect of the manufacturing downturn: Zombie suppliers.

    http://www.reuters.com/article/ousiv/idUSTRE57O5AA20090825

  30. DiggidyDan says:

    i think we started a proxy linkfest here

  31. Onlooker from Troy says:

    Mike

    Very interesting article about suppliers. Just another unforeseen consequence of outsourcing among other things. The big manufacturer is lean and mean and can downshift quite quickly, but the burden falls instead on their suppliers who are crushed. Boy, I bet it all sounded good in biz school. They didn’t quite think this one all the wy through though, eh?

  32. Onlooker from Troy says:

    One other thing they didn’t think through in biz school. All this reliance on just in time money, financing just about everything with debt, including pay rolls. It works real well not to have to have all that capital sitting around being unproductive, until just one thing hiccups. Then it’s a cascade of ill effects. It’s just a small problem.

  33. Bruce in Tn says:

    From willid’s post earlier Saturday:

    http://www.businessweek.com/magazine/content/09_36/b4145036681619_page_2.htm

    As a consequence of exporting good jobs that are not fully replaced, the U.S. demand engine is broken. Of the roughly 130 million jobs in the U.S., only 20% (26 million) pay more than $60,000 a year. The other 80% pay an average of $33,000. That ratio is not a good foundation for a strong middle class and a prosperous society. Rather than a demand engine, it’s a decay curve. As a nation, we have papered over our declining incomes by accepting the need for two incomes per household and by borrowing heavily, often against paper assets inflated by financial bubbles (dot-com and housing). In recent years, personal debt has grown much faster than personal income. In 1985 the ratio of household debt to household income was 0.7 to 1; in 2000 it was 1 to 1; in 2008, it was 1.7 to 1. We earned less, so we borrowed more. In 2007 we reached our limit.

    This cycle looks only to be getting worse. The effects of the massive scaling back of American science and engineering research in the 1990s and 2000s may just be beginning. Unless reversed, it is likely to have its greatest impact a decade from now, when the missing discoveries of a generation earlier would have been expected to come to commercial fruition. It’s time to identify—and fix—the root of the problem.

  34. Onlooker from Troy says:

    Bruce

    That Business Week article was certainly jarring. It puts all this shortsighted, quarter-to-quarter profit seeking behavior in context (a kind of scary one) and really reflects poorly on this era, especially on top of the shallow consumerism that has dominated. Wonderful, eh?

  35. Mike in Nola says:

    Bruce: v. good – we have been living off our capital, not the interest.

  36. “…This cycle looks only to be getting worse. The effects of the massive scaling back of American science and engineering research in the 1990s and 2000s may just be beginning…”

    We should Wonder. Then, Research.

    I’m not, at this juncture, going to bother with details, though, if we think that the majority of developed(read: Proven) Technologies that have been Developed, over the last interim, have made their Way, unmolested, into our Economy, it may behoove Us to start Thinking, you know, For a Change..

    http://www.thefreedictionary.com/interim