Post-Holiday Blues

The December performance of retail
Was bullish in ever-y detail;
All the gifts that were sold
Decisively told
A surprisingly good Christmas tree tale.

But the 1st quarter figures & facts
Describe a consumer that lacks
A spending position,
Since broad imposition
Of 2% more payroll tax.

The US retail sales numbers for December were announced on Tuesday, and painted a picture of robust holiday consumption.  The 0.5% quarterly increase was much better than expected, and much faster than the rate for the previous two quarters.  However, it looks as though the momentum may not carry through to the 1st quarter of the new year.  Weekly retail reports in January have already fallen below expectations, and the reason seems clear: most US workers now have less take-home pay, thanks to the increase in the payroll tax by two percentage points to 6.2%, from the temporary, "stimulus" rate of 4.2%.  Other indicators appear less than bullish, as well: the Federal Reserve Bank of New York reports that manufacturers in its district (which is also my district) continue to reduce their activity.  The ongoing drama of the fiscal cliff and debt ceiling doesn't help, either.

Sales Slump

The heart of the market is rending
When retail is downwardly trending,
But is it a shock
When a nation in hock
Will at times prefer saving to spending?

The US government reported retail sales down 0.5% in June, making the first negative sales quarter since April 2008. These light sales figures will weigh on the reelection hopes of Pres. Barack Obama, confirming as they do the picture of a weak domestic economy. But: is it wise or realistic to expect an overly indebted, underemployed US consumer to reach out of his or her meager savings to jumpstart the economy? Better for Uncle Sam to use his still-first-class credit rating to fund the renewal of our national infrastructure, thereby picking up the economy and providing something useful at the same time.

Unqualified Interest

As a primary task of the Fed, it
Should cheapen the cost of our credit,
Which would help a lot more
If the mean credit score
Would qualify many to get it.

The Wall Street Journal's Jon Hilsenrath reports that the Fed's efforts to spread the stimulant of low interest rates throughout the US economy is stymied by the many borrowers who are over-leveraged, underwater and therefore unqualified to refinance at lower rates. Moreover, the fortunate few who can refi at will tend to reinvest rather than spend the proceeds, as they were already able to buy whatever they wanted. In a response that is short on verbiage but long on sarcasm and contempt, the Zero Hedge blog suggests that our national economic model - borrowing to fund consumer-driven growth - may not be sustainable.

Delayed Gratification

Said a young man without a home loan,
Back at home with his folks in Bayonne:
"While household formation
Is met with frustration,
My wild oats are sitting unsown."

Might there be demographic implications in the US economic data and outlook? A couple of current posts in The Wall Street Journal's Real Time Economics blog leave one to wonder if a "baby bust" may be developing. First, stagnant wages are limiting consumer spending; since October 2010, real wages have declined 1.2%, and consumers have limited capacity to tap their already tapped-out credit card lines to propel domestic spending. Secondly, RTE reports that the Conference Board has looked into the future of housing and seen a wave of renting and downsizing; actually, that sounds like the present if you add living at home with the parents. It all adds up to less room for the pitter-pattering of little feet, and less money to keep them in baby booties, in the foreseeable future.

More Thrift Is A Gift

When economists found more frugality,
They hoped it was no abnormality,
As the habit of saving
Is useful in paving
The road to financial reality.

Countering the notion that more US consumer spending is unambiguously good for the economy, The Wall Street Journal's Real-Time Economics blog asserts: "For the U.S. recovery to last, savings are just as important as spending." RTE has been hopefully following a recent development in the data on incomes, spending and saving, whereby, for the last three months, rising incomes have not led to rising spending. The 5% savings rate of the last two years has been holding fairly steady, in contrast to the 3.1% average savings rate of the previous ten go-go years. That's a good thing because, as RTE notes: "It’s been long known that baby boomers need to save more now to have spending money during their retirements–an imperative that may increase if social security benefits are altered."

For those looking to boost their own personal savings rate, the Marketplace Money website is a good place for information and advice.

Leveraging One's Education

A student had trouble believing
That the newspaper wasn't deceiving
In ascribing a sign
Of reversing decline
To his borr'wing to learn basket weaving.

Citing the latest Federal Reserve statistics that show consumer debt up in December, the Wall Street Journal sees "a sign that the credit freeze is thawing." Indeed, household debt rose at a seasonally adjusted 9.3% annual rate, following a 9.9% rise in November. But - is this a good thing? Two considerations rate mention. First: we're trying to exit a huge financial crisis brought about by excessive borrowing, so any conclusions based on consumer debt trends should at least consider what an optimal level of borrowing would be, and whether we are still above it. Second, the largest component of December's increased consumer debt comprised student loans, which is certainly a bad thing. Student loans have been growing faster than they can be repaid, in part because federal and state programs will fund unlimited amounts with no credit underwriting; there is no assessment of the likelihood of the student and program of study generating sufficient loan repayment in the future. This must change.

Depositing or De-Leveraging?

Said a banker named Old Ebenezer:
"Don't think me a miserly geezer;
Though to work is a gift,
I must still practice thrift,
As my paycheck is going to Visa."

The Wall Street Journal reports that US personal income was up for the month of December, but spending was down ("Rising Income Is Saved, Not Spent"). This fresh statistic, which reverses the previous three months' higher spending, is cited – perhaps hopefully – as a break in the long-term pattern of Americans' spend-thriftiness. Conspicuous by its absence is any mention of the level of consumer debt, which was ruinously high before the crisis and, though since reduced, remains high today. In any discussion of the trends of American income and spending, one must take care to distinguish between actual saving and de-leveraging. I suspect that our thrift is really debt repayment.
Infographic courtesy of The Wall Street Journal.

US 4th Quarter Growth Forecast

America's merry 4th quarter
Has economists caroling (sorter),
But growth that's depending
On holiday spending's
Reversing again in short order.

The Wall Street Journal reports that a number of economic forecasters have raised their estimates of US 4th quarter growth to a robust 3.5%, compared to average forecast of 2% when the Journal surveyed economists in October. Among other things, consumer sentiment has improved, and shoppers are dipping into savings to make purchases, while companies are replenishing inventories. Of course, using one's savings for consumption is not a sustainable trend, which may be one reason why the forecasts for the 1st quarter of 2012 average only 2.1%.

Black Friday

When consumers queued up in a quorum,
To do as investors implore 'em,
They bought quite a bit
Of Holiday sh*t,
And forgot all their debts and decorum.

It's all over but the counting: Black Friday 2011 will go down as the all-time greatest, as sales rose 6.6% to a record $11.4 billion. Still, the salient facts suggest that, as the Zero Hedge blog put it, we are literally "shopping like there is no tomorrow." Both the savings rate and consumer credit continue to contract, leading one to question the sustainability of our one-day shopping surge. Curiously, the second-best Black Friday on record was that of 2008, suggesting that this day may not correlate to a vibrant US economy.
Meanwhile, the social networking analysis firm Mashwork analyzed 270,000 Black Friday related tweets to predict that:

• The greatest numbers would shop at Wal-Mart and Best Buy;
• 18% of all purchases would be computers or tablets;
• The iPad would outsell the Kindle Fire by 10-1;
• 46% of shoppers would be purchasing for themselves.

Need we say more?  (Hat tip to Barry Ritholtz.)

The Expressway's Not The Best Way

The Highway to Credit Perdition
One may exit with acts of contrition;
One may also backslide
In a shiny new ride,
When a loan is the key to ignition.  

The Federal Reserve reported that US consumer debt increased at an annual rate of 2.5% in January. While credit card balances continued to fall, as they have for the last two years, non-revolving consumer loans - especially auto financing - were up sharply.

The Week Before Christmas

'Twas the retailing week before Christmas,
And surprisingly up-trending business
Had retailers singing:
"May next year's cha-chinging
Be ever so cheery as this was."    


Reports from the UK show early holiday sales strong enough to give concern that the momentum can't last into the first quarter of 2011, perhaps robbing St. Patrick to pay St. Nicholas, as it were. 
Thanks to Alexandria Lefkovits for inspiration and assistance - Happy Christmas shopping to all, and to all a good buy!

Deleveraging or Defaulting?

US consumer debts' lightening
Has been thought to result from belts' tightening,
But those falling exposures
Have tracked loan foreclosures,
Which leads to conclusions more frightening. 


Thanks to Mark Whitehouse of the Wall Street Journal's Real Time Economics for his timely analysis of an uncomfortable truth.

Let's Deleverage First

The analysts watching obsessively 
For consumers to spend more aggressively 
May sometimes forget 
We've got most of the debt 
That we borrowed and spent so excessively.

The Tao of Banking

"We're flush," said China's AgBank, 
"And the US consumer's to thank, 
But sustainable lending 
Needs more Chinese spending, 
To balance the Yuan and the Yank."

US Spending Rises, US Incomes Don't

When the fear of depression engendered it,
We saved 'til we learned the extent of it,
But an outlook that's flat
Isn't bad as all that,
So we've loosened up lately and spent a bit.

The Holiday Season Begins

Today retailers wonder suspensefully:
Is Black Friday concluding successfully?
While economists fret,
"We're already in debt;
This business plan doesn't make sense to me!"