Real wages and spending: I don’t think consumers will roll over that easily (part 2)
by New Deal democrat
Real wages and spending: I don’t think consumers will roll over that easily
This is the second part of a post about “hard data” and consumer spending. (Dan here…First part here)
Yesterday I noted that self-reported consumer spending, as measured by Gallup, has been running 10% or better YoY since the beginning of February, consistent with Amazon.com’s earnings growth, but in contrast to a small slump in retail sales as reported for the last two months.
In fairness, real personal consumption expenditures have turned down slightly in the last several months:
Since this measures spending, there is clearly a divergence between this measure and Gallup.
Another contrary argument that the slump in consumer spending is real, is that the cause has been the decline in real wages since last July:
But over the last 50 years, a downturn in real wages has frequently not meant recession. Consumers can cope by refinancing debt at lower rates (not available now), by cashing in appreciating assets, if they have them (e.g., stocks or housing equity), or saving less, before they cut back saving. While there was a slight downturn in the savings rate in 2016, it was less than half of that we saw in 1998 and 2004 (and similar downturns in earlier cycles not shown in the below graph):
In the past, consumers have not caved in without saving less first. It could always be different this time, but my suspicion is that we will see a much more substantial decline in the savings rate before we see a real, sustained downturn in spending.
(Note: not the same Bruce as Comtributer/Moderator)
Spending was running above trend until December 2016 so that sorta takes the “slowdown” in context. My bet is real personal spending began to reboost in March and will get a nice bump in April due to seasonal patterns in auto sales and late Easter.
The bigger question is whether a new housing bubble is forming. Clearly, if it has, it is in the early stages. Mortgage debt hasn’t turned up yet and New Home Sales/Starts will likely normalize back to cohort potential this year, representing the end of the 00’s housing bust. But as with the last one, prices eventually lead to the bubble. The late 90’s price surge in existing home sales and the end of the Y2K fixed non-residential investment boom caused a surge of liquidity into RE markets by late 2001. By the 2nd quarter of 2002, mortgage debt new home sales and starts began to accelerate and the rest is history.
Hope all is well.
How many other fake IDs do you have out here???
Only use one here: SocSec.defender which does display as Bruce Webb. (Others in e-mail to you and Dan)
Thanks Bruce. Got it.