Savings Up, Economy Down: Careful What You Wish For

It has long been our underlying thesis that the huge amount of household debt accumulated during the housing boom would inhibit consumer spending and economic growth for some time to come, and this is what has been happening over the last few years. The errors recently found in the famous Rogoff-Reinhart (RR) book do not change this view.

It has long been our underlying thesis that the huge amount of household debt accumulated during the housing boom would inhibit consumer spending and economic growth for some time to come, and this is what has been happening over the last few years.  The errors recently found in the famous Rogoff-Reinhart (RR) book do not change this view.

Kurt Brouwer submits: The chart below from Calculated Risk illustrates one of the big reasons why this economic recovery is so sluggish. We have the worst of both types of recent recessions. The chart shows job losses as a percentage from the peak employment period before a given recession began.

Kurt Brouwer submits: Compared to past economic recoveries, this one has not yet kicked into high gear. Now, I’m starting to wonder if it will. The U.S. economy is growing, but we need growth overseas if we are going to maintain our growth. Unfortunately, Europe is very sluggish and that is not likely to change. Some of the emerging markets such as China and India are still growing, but China’s efforts to dampen inflation will almost certainly slow its economy too.

The big news was the continuing expansion of employment in April, and the decline in the unemployment rate. Average hourly earnings increased, but the workweek decreased. As the manufacturing workweek is a component of the Index of Leading Indicators, this will be reflected in that compilation. April light vehicle sales declined. The ISM manufacturing index was barely positive, the Chicago PMI barely negative. ISM services were positive.

The figures go on to demonstrate that on a total basis, sales were up 4.4 per cent, against a 2.3 per cent rise in February 2012 and if you exclude distortions caused by the timing of Easter in previous years, total sales grew at the fastest rate since February 2010. Like-for-like sales growth was the fastest since December 2009. Online sales were up just under 11 per cent over February 2012, when they had risen by just under 10 per cent.

I am always suspicious of early holiday season reports of glowing sales around Thanksgiving and especially Black Friday. Then, right after Christmas I always wonder if retailers lowball estimates so they can beat-the-street on same-store-sales reports. That said, because of the souring economy I am not surprised by reports of Lackluster Holiday Sales.