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FRED
11-13-06, 06:52 PM
U.S. Consumers, Unfazed by Real-Estate Slump, Keep on Spending (http://www.bloomberg.com/apps/news?pid=20601103&sid=aKJIP3InpEeE&refer=news)
November 13, 2006 (Bloomberg)

Lynette Gutridge's house in Silver Spring, Maryland, is no longer rising in value as it did in recent years. That didn't keep her from looping by Westfield Wheaton Mall after she voted Tuesday.

"I've not modified my spending," said the 58-year-old psychologist, toting two new pairs of shoes from Ann Taylor as she headed for Macy's.

Like Gutridge, American consumers nationwide are continuing to make tracks for malls and shopping centers, defying the forecasts of some economists who predicted the yearlong housing slump would keep them at home.

Combined with falling energy prices and a pickup in job and income growth, the buying spree heralds robust holiday sales and economic momentum heading into the new year, economists say.

"Consumers have been reported to be dying time and again, and they've risen from the ashes," says Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh and a former Federal Reserve economist. "Housing is a major negative for the economy, but the consumer is still the best defense against recession in 2007."

Hoffman is among economists, including those at Bear Stearns Cos., Lehman Brothers Holdings Inc. and Credit Suisse Group, who are rethinking their forecasts for consumer spending. The median estimate has risen to 3 percent this quarter, according to Bloomberg's latest monthly survey of economists, up from the 2.8 percent estimate in October.

AntiSpin: Two words for Hoffman, et al, with respect to housing prices and consumer spending: "lag time."

As our John Serrapere points out in Escape from Normalville (http://itulip.com/forums/showthread.php?t=602), there is a strong correlation between declines in housing prices and declines in consumer spending–but with a one year lag.

According to a report by Eric Belsky & Joel Prakken, "Housing Wealth Effects: Housing’s Impact on Wealth Accumulation, Wealth Distribution and Consumer Spending," Joint Center for Housing Studies, Harvard University, December 2004, page 2: “Consumers spend about 5 cents (5.5%) out of every dollar increase in housing or stock wealth in the long run. It takes about one year for spending from housing to reach four fifths of this long-run effect compared with several years for stock wealth.”

For example, a $25,000 (11%) decline in median home values from $225,000 to $200,000 can be expected to result in a $1,250 (5%) reduction in per household consumption, or roughly $50 of reduced spending for every $1,000 in housing price decline, about a year after the housing price decline.

The ongoing decline in housing wealth will have a greater impact on real GDP than stocks because 1) fluctuations in home values are transmitted to household consumption more quickly than stock prices, and 2) housing wealth is three times as great as stock wealth in relation to household net worth.

The housing bubble peaked in mid-2005. The first stage is a dramatic drop in the number of transactions. Price declines do not start for another six to nine months after that, in this case Q2 2006. That puts our unstoppable consumer on the ropes around Q2 2007, more or less when the 2007 recession is likely due to arrive for other reasons, including the collapse of the private equity bubble.

Finster
11-13-06, 09:15 PM
U.S. Consumers, Unfazed by Real-Estate Slump, Keep on Spending (http://www.bloomberg.com/apps/news?pid=20601103&sid=aKJIP3InpEeE&refer=news)
November 13, 2006 (Bloomberg)

Is that supposed to be good? Though not in so many words, the whole tone of this article is laudatory. Consumer spending is somehow saving the day for the US economy.

If this were an economy that suffered an insufficiency of consumption relative to production, that case might be made. But our national imbalance is precisely the opposite. We consume too much and/or produce too little. Celebrating strong consumer spending in the US today is like celebrating a strong appetite in a 400 pound man.

spunky
11-14-06, 05:16 AM
He he he ; why is it so many professional ( I use this term loosely ) men/women in the financial industry have a problem with the concept of " lag " or are they just sticking their heads in the sand :confused:


Walmart slashing prices this early in the Christmas shopping season is a big red flag to me that the consumer is not confident, nor are they are flush with cash. The parking lots at all the chain restaurants ( Applebee's , Texas Roadhouse , Pizza Hut ) still seem to be fairly full.

BK
11-14-06, 04:28 PM
The woman interviewed in this article demonstrates the optimism/insanity of the Fifty-plus crowd.
This crowd had first row seats to the Biggest Bull Market in history (1982-2000). Money was pouring out of Fire hydrants and off the back of every pickup into the wallets of this older crowd during their peak earning years. This crowd has a very low cost of living (assuming they didn't ratchet up their housing too much). Meanwhile their Incomes have risen along with inflation during the 82-2000 Bull Market.
I think (perhaps Robert Shiller's book made meunderstand this dynamic) that these folks are INCREDIBLY Optimistic when it comes to their Finances. How could they ever get caught on the wrong side of a Trade.
Perhaps they saw som big losses during 2000-2003 - but, thats OK because their Nest Eggs are huge /and many recouped those losses or at least some. Most either have a Pension or will soon be receiving a Pension. Real Estate - yah, the Market is a little soft - they probably only paid $120K-$170K and even in a slow Market they'll walk away with a Killing.
The First Rule of Sale it ain't a Sale until you Ring the Register!

They won't believe the Rules of the Game in Real Estate have changed until they see some real wreakage/losses.

EJ
11-14-06, 04:44 PM
The woman interviewed in this article demonstrates the optimism/insanity of the Fifty-plus crowd.
This crowd had first row seats to the Biggest Bull Market in history (1982-2000). Money was pouring out of Fire hydrants and off the back of every pickup into the wallets of this older crowd during their peak earning years. This crowd has a very low cost of living (assuming they didn't ratchet up their housing too much). Meanwhile their Incomes have risen along with inflation during the 82-2000 Bull Market.
I think (perhaps Robert Shiller's book made meunderstand this dynamic) that these folks are INCREDIBLY Optimistic when it comes to their Finances. How could they ever get caught on the wrong side of a Trade.
Perhaps they saw som big losses during 2000-2003 - but, thats OK because their Nest Eggs are huge /and many recouped those losses or at least some. Most either have a Pension or will soon be receiving a Pension. Real Estate - yah, the Market is a little soft - they probably only paid $120K-$170K and even in a slow Market they'll walk away with a Killing.
The First Rule of Sale it ain't a Sale until you Ring the Register!

They won't believe the Rules of the Game in Real Estate have changed until they see some real wreakage/losses.

Payroll employment in construction appears to be rolling over...


http://www.itulip.com/images/payrollempconstruct.gif


It fell off a cliff in 1990. If Serrapere's right and this period is an echo of the 1990 period, we should keep a close eye on construction payroll employment over the coming quarters.

DemonD
11-16-06, 12:49 AM
Here is a factor I'm not seeing some people talk about: Increasing the minimum wage.

When the US minimum wage goes up, there will be more money at the bottom end of the food chain for people to spend, and there are a lot of people on that bottom rung. The Democrats winning the House and Senate will be a great thing for Wal Mart and other bargain-based stores, and I think will have a positive effect on keeping the economy and consumer spending up in 2007, at least until the recession hits. Might a minimum wage increase delay a recession?

But yes, the people at the low end of the pay scales of this country are generally good at spending the money they make, and they are now going to have some more money to spend.

spunky
11-16-06, 06:12 AM
Here is a factor I'm not seeing some people talk about: Increasing the minimum wage.

When the US minimum wage goes up, there will be more money at the bottom end of the food chain for people to spend, and there are a lot of people on that bottom rung. The Democrats winning the House and Senate will be a great thing for Wal Mart and other bargain-based stores, and I think will have a positive effect on keeping the economy and consumer spending up in 2007, at least until the recession hits. Might a minimum wage increase delay a recession?

But yes, the people at the low end of the pay scales of this country are generally good at spending the money they make, and they are now going to have some more money to spend.


I dont see/hear anyone talking about the real minimum wage either on this message board or in the mainstream media :confused: My best friend is a manager for Cargill. Sure you all heard of this company. He cant find enough , honkies to work the killing floor to slaughter hogs at 9.75 an hour. So mexicans come up to fill the positions. I have friend of mine, who is a loser and repairs copy machines ( he has 2 college degrees ) His wage is 9.75 an hour also and he is only one of three honkies . The rest of the workers are from Somolia, some fresh off the boat :eek: The local White castle burger doodle here advertises 10.75$ an hour for shift manager and 6.50 $ to start


My point is there is a real gap in the federal minimum wage and what is really being paid. How much is raising it really going to affect employment ???
Dont 23 states allready have a mandated wage that is at least 1.15 $ higher than the federal wage.

What bullshit propoganda from the mainstream media, and the wealthy owners of the factors of production :mad:


Oh yea, while I am on my friggin soap box. Why is the mainstream media, so liberal and biased ( of course not Fox Republician news channel) when it comes to politics, yet when it comes to financial news; it is blantly pro business :confused:

Of course CNBC is owned by GE

BK
11-16-06, 10:06 AM
Why doesn't the Media ever mention the origin of the Minimum Wage?

Believe it or not it was an attempt by New England Politicians to minimize OUTSOURCING of jobs to the Southern United States.
Textile Mill operators/owners realized that it was cheaper to manufacture in the South - the wages in New England were too High - in the 1920s-1930s Textil jobs started heading South.
The Politicians figured they could reduce this out sourcing by creating a National Minimum Wage - forcing Textile Mills in the South the pay higher wages.
To see the success of the Minimum wage had for the Textile Industry - take a stroll through downtown Lawrence, Massachusetts - or tour the Blackstone River Valley inMassachusetts - there are lots a great deals on Commercial property.
http://www.mackinac.org/article.aspx?ID=356

When we let Politicians solve Economic problems we often give them another weapon to fleece the Citizens.