Posts filed under “Consumer Spending”

Household Cash versus Debt

Yesterday, DF asked about the negative savings rate. I noted the RM column I wrote last June (Ignore Statistical Oddities at Your Peril) in response. Like all unsustainable things, they will continue until they no longer
can. This is often for far longer than expected, but not forever (an
admittedly large range of time).

Let’s look at the nitty gritty: In 2006, the US savings rate was minus 1%. The previous year in which the US "enjoyed" a negative savings rate was, well, the previous year — 2005. Prior to that loathsome twosome, we have to go wayback to the Great Depression (early 1930s) to find one single negative savings rate year.

As Abelson points out this morning, "the only time ever before that our worthy population had two years in a row of negative savings, as we did in ’05 and ’06, was in those heartbreak years, 1932 and 1933." He adds:

"The dismal disclosure of just how effectively Jane and John Q. are spending more than they earn has been greeted with the usual serious sophistry from the usual Panglossian pundits. Their contemptuous claim is that benighted worrywarts like ourselves who fret over such inconsequentials as a negative savings rate are just plain silly. And, it grieves us to confess, after carefully mulling their arguments, we do feel, well, just plain silly.

For how could we overlook the fact that savings as officially defined don’t include the equity in houses and investment in stocks. And, as we all know, it is decreed that house prices can go only one way — up. Pay no heed to minor variations in that sacrosanct trend; they probably won’t last more than five, six years at the outside."

A fresh take on the subject comes courtesy of MacroMaven’s Stephanie Pomboy (via Alan Abelson). Stephanie notes not just the negative national savings rate, but two other relevant data points: The ratio of cash to debt, and how that cash and debt is distributed in the country:

"THE PARADOX OF A LIQUIDITY-FUELED STOCK MARKET in a land rife with illiquid inhabitants is pointed up by the little chart on the right. The one that depicts cash as a percentage of household debt. Which, as is evident at a glance, is shrinking like the proverbial snowball in hell.

That highly graphic graphic comes to us from the excellent Stephanie Pomboy and her irreverent and invariably informative (block those alliterations!) MacroMavens commentary. As she observes, "For all the bragging about the $6 trillion in cash households have sitting on their balance sheets, relative to household debt, this cash cushion is at a record low!"

More disturbing still, Stephanie goes on, is that the households with the cash (and assets) "are not the ones with the debt." Rather, alas, the top 1% of householders hold 30% of the assets and 7% of the debt, while the bottom 50% hold a mere 6% of assets but a burdensome 24% of the debt.

What Stephanie envisions is that just as "the story in 2005-2006 was the cash buildup on corporate balance sheets," the story for 2007-2008 might very conceivably be "a similar increase in saving by households, as they endeavor to repair the damage inflicted by the burst of the housing bubble."

What might this mean? The precise timing is difficult to ascertain — but if the "great mass of consumers finally takes a deep breath and cuts back on their profligate spending," it would not be a particularly positive event for the economy or corporate earnings. And corporate earnings in Q4, we learn this morning, look like they have finally broken their streak of double digits gains

As to the stock market, it has been driven by liquidity and momentum, and that can continue for quite a while, regardless of the fundamentals. For those who question whether investing contra-to the fundamentals is the way to go, I suggest Ned Davis’ book, Being Right or Making Money.


UPDATE February 3, 2006 10:52 am

Lots more charts and graphs here:

We’re Swimming In Liquidity, Aren’t We?

Spendthrift Nation
Alan Abelson
Barron’s February 5, 2007   

Category: Consumer Spending, Economy, Psychology

Real Consumption versus NAHB Sentiment

Category: Consumer Spending, Economy, Psychology, Real Estate

Oil Plunge: Good for Retail, Bad for Earnings?

Category: Commodities, Consumer Spending, Earnings, Investing, Retail

Phantom Rebound in the Housing Market

Category: Consumer Spending, Investing, Markets, Psychology, Real Estate

Apple iPhone: Drool Worthy

Category: Consumer Spending, Digital Media, Film, Music, Technology, Television, Web/Tech

Retail Sales Roundup

Category: Consumer Spending, Retail

ICSC Retail Sales Data

Category: Consumer Spending, Economy, Psychology, Retail

The State of the Consumer, by the Numbers

Given our focus today on Retail sales this week, it is appropriate to reference another source of data on the consumer.

This commentary comes to us via Northern Trust’s Paul Kasriel. Paul is the Senior Vice President and Director of Economic
Research at NT, and I had the pleasure of meeting him (and Caroline Baum) at Bloomberg last month. He is the recipient of the 2006 Lawrence R. Klein Award for Blue
Chip Forecasting Accuracy.

His recent commentary focused on the Fed’s Flow-of-Funds data. It is rather insightful work into consumer debt and savings. Some of it might be a bit beyond the interest of many readers, so to make it more accessible, I did a little slicing and dicing. Here is my highly edited version, emphasizing The State of Consumer, by the Numbers:


Kasriel:  I love the Fed’s quarterly flow-of-funds report. It usually is the mother lode
of enlightening economic nuggets of information. And the Fed’s latest release on
December 7 of third-quarter data was rich with these nuggets.

The slowdown in
borrowing was due principally to the household sector: Chart 2 shows that after
hitting a post-WWII high of 14.6% in Q3:2005, household borrowing relative to
disposable personal income (DPI) dropped to 8.8% in Q3:2006 – the lowest since
7.6% in Q3:2001, when the economy was in a recession.

Notice in Chart 2 that
precipitous declines in this percentage tend to be followed by the onset of
economic recessions (indicated by the shaded areas in the chart).

Read More

Category: Consumer Spending, Economy, Inflation, Real Estate

Retail follow up

Category: Consumer Spending, Economy, Inflation, Retail

Holiday Sales Fall Short

Category: Consumer Spending, Economy, Psychology, Retail