So much for a consumer led ‘borrowing to spend’ credit expansion? 6 years of 0 rates from the Fed hasn’t done the trick. Same in Europe. Nor over 20 years of same in Japan.
But these are all exceptions…
:(
NY Fed: Household Debt decreased Slightly in Q2 2014, Delinquency Rates Lowest Since Q3 2007
Still anemic.
Looks to me there was a ‘dip’ and then ‘recovery’ and a recent return to the prior growth rate?
Doesn’t look like acceleration from this angle?
Just a dip and recovery, leveling off at a lower rate of growth?
And looking at both of these I’m not impressed, sorry!
This has been going the wrong way since the post winter April ‘surge’:
Highlights
Consumer credit rose $17.3 billion in June and was driven once again by the nonrevolving component, which rose $16.3 billion on vehicle financing and also the government’s continued acquisition of student loans from private lenders. The revolving component, which is key for retailers, did rise but not very much, up $0.9 billion following a revised $1.7 billion rise in May that followed a rare surge in this category of $8.8 billion April. Aside from vehicles, consumers remain reluctant to take on new debt.
Growth rate of student loans continues to slow:
Trade numbers resulted in upward Q2 GDP revisions, while today’s inventory report means downward revisions:
Wholesale Trade
Highlights
Wholesale inventories rose 0.3 percent in June, a modest rise in line with a modest 0.2 percent gain in wholesale sales that leaves the stock-to-sales ratio unchanged at a lean 1.17. Activity has been strong in the auto sector with wholesale sales of autos jumping 2.1 percent, following gains of 1.4 percent and 3.1 percent in the prior two months. The gain in sales made for a 0.3 percent draw in wholesale inventories of autos, one that will have to replenished which is a plus for auto production.
Outside of autos, inventory draws are scarce but do include a major 5.3 percent draw in farm products which follows prior consecutive monthly draws of 4.4 percent and 0.4 percent. How much the draws in farm products will be replenished is uncertain given an 8.1 percent drop in wholesale sales for farm products during the month, not to mention current concern over the Russian embargo of US food products.
Turning back to sales, paper products, professional equipment (including computers), lumber, and metals show strong gains, all matched by what are likely desired builds on the inventory side. Weakness in sales, outside of farm products, includes chemicals, hardware, groceries, and apparel, groups all showing on the inventory side what are likely to be unwanted builds.
Outside of autos, this report on net points to soft growth in the wholesale sector during June. Next inventory data will be the business inventories report next Wednesday.
“Inventories are a key component of gross domestic product changes. The component that goes into the calculation of GDP—wholesale stocks excluding autos—increased 0.4 percent.
A report this week showed stocks of nondurable goods at manufacturers rose far less than the government had assumed in its advance second-quarter gross domestic product estimate published last week.
In that report, the government said inventories contributed 1.66 percentage points to GDP growth, which expanded at a 4.0 percent annual pace.
Wholesale inventories in June were held back by a decline in automobiles and nondurable goods.
Sales at wholesalers rose 0.2 percent after increasing 0.7 percent in May. There were declines in sales of nondurable goods, hardware and apparel.”
Unit labor costs below expectations:
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Notice that the govt deficit and savings rate more pretty much together?
Car sales off of last months pace, but forecasts for this year are for a slower rate of growth than last year:
No sign of ‘consumer acceleration’ here?
Manufacturing continues chugging along at it’s usual 4% rate of growth:
PMI Manufacturing Index:
And Consumer Sentiment continues to bob around at levels that were the pretty much the lows of prior cycles:
Slipping a bit after the year end surge to beat expiring tax credits?
Bank lending flattening some after growing to fund unsold Q2 inventories?
Q2 could be revised to anything over the next couple of months, seems, as was Q1.
But at least for now the chart is what it is:
Highlights
The second quarter rebounded more than expected from the adverse weather impacted first quarter. While there were a number of strong components, the rebound was led by inventory growth.
NAR: Pending Home Sales Index decreased 1.1% in June, down 7.3% year-over-year
By Bill McBride
From the NAR: Pending Home Sales Slip in JuneThe Pending Home Sales Index, a forward-looking indicator based on contract signings, declined 1.1 percent to 102.7 in June from 103.8 in May, and is 7.3 percent below June 2013 (110.8). Despite June’s decrease, the index is above 100 – considered an average level of contract activity – for the second consecutive month after failing to reach the mark since November 2013 (100.7).
The PHSI in the Northeast fell 2.9 percent to 83.8 in June, and is 3.2 percent below a year ago. In the Midwest the index rose 1.1 percent to 106.6, but remains 5.5 percent below June 2013.
Pending home sales in the South dipped 2.4 percent to an index of 113.8 in June, and is 4.3 percent below a year ago. The index in the West inched 0.2 percent in June to 95.7, but remains 16.7 percent below June 2013.Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.
So manufacturing is chugging along at it’s usual 4% rate of growth, jobs are chugging along at a 1.9% rate of growth, and for the most part all the surveys are looking pretty good.
Yet GDP year over year looks to be trending down, with the consensus 2014 forecast now down less then 2%.
So why does housing matter?
Can’t spending simply go elsewhere?
The problem is the oldest of all macro constraints-
If any agent spends less than his income, another must spend more than his income for all of the output to get sold.
It’s also been expressed as ‘the paradox of thrift’- decisions to not spend income and to instead ‘save’ cause sales and income to fall with no increase in net savings.
And it shows up in this discussion- ‘if the banks charge interest, where does the economy get the money to pay it?’ With the response ‘the banks spend the interest income’.
And if the banks don’t spend their income it’s the same unspent income problem as with any unspent income.
Unspent income is also known as a demand leakage.
And in the normal course of business, the US has all kinds of demand leakages going on, many due to tax advantages, including pension contributions (and pension fund earnings), additions to IRA’s, insurance reserves, bank reserves, foreign central bank dollar reserves,
etc. etc. etc.
This means that much output won’t get sold unless other agents spend more than their incomes. This includes the US govt spending more than its income (the dreaded deficit), as well as corporations spending more than their earnings, and consumers borrowing to spend more than their incomes.
Which is where housing comes in. Historically it’s been the engine of ‘borrowing to spend’ to offset the demand leakages, driving the economy even as the automatic fiscal stabilizers work to bring down the govt’s deficit spending. This includes the borrowing to spend that turned into the sub prime fiasco, the Clinton housing boom that combined with the .com and y2k borrowing to spend, and the $1 trillion+ S and L financing/fraud that drove the Reagan years back when that was a lot of money.
Yes, the business sector can materially borrow to spend to close the output gap. It falls under ‘investment’, including construction, and many would argue it’s the preferred way to go. And this would include new equity issues as well as borrowings ‘further up the credit stack’, as long as it’s ‘borrowing to spend’ on real goods and services- the output- GDP. So yes, there’s some of that going on, which is encouraging, but not nearly enough to overcome the demand leakages they way it did in the late 90’s.
So again, historically, it’s been new housing that has been the prime channel for private sector agents to spend more than their incomes.
Yes, they can spend on other things, but it’s highly problematic for that spending to result in anything near the mortgage debt of prior cycles.
That is, instead of a 200,000 mortgage on a house, the same family would have to borrow 200,000 to spend elsewhere to similarly support the economy/accommodate the savings desires of those wishing to spend less then their incomes. Buying a car does some of that, and maybe a few appliances, or a student loan.
But overall, seems to me that kind of thing can’t ever be enough to ‘close the output gap.’
And with the politicians measuring success by their deficit reduction efforts, the macro constraint of unspent income only gets worse.
So housing matters a lot as it looks to be the only available avenue for the economy to spend more than its income in sufficient quantities to overcome the demand leakages.
Maybe just a bounce from a dip/shift from/to bank lending. We’ve been here before and turned down. And in the last cycle growth was much higher and lagged the end of the cycle:
Year over year- a relatively small blip up at the end, but in general looks boring to me:
Same here. The latest blip up looks like just a bit of vol.
And also note that it tends to go up before a recession?
Still looking like a macro constraint/fading aggregate demand. Strong auto sales, for example, coincides with less of something else:
And this is the so called retail sales ‘control group’ that excludes food, gas, building materials and autos:
This market for loans overall remains subdued indicating banks getting a share of what was the ‘shadow bank’ business.
And the growth rates are generally well below prior cycles:
Meanwhile, manufacturing, a relatively small part of the economy, keeps chugging along, with overall output/industrial production most often growing at about 3-4% year over year:
Highlights
Manufacturing activity is accelerating sharply, at least in the New York region based on the Empire State index which is at a very strong 25.60 in the July reading. New orders are very strong at 18.77, up from an already strong 18.36 in June, as are shipments at 23.64. Employment is a special positive, at 17.05 vs 10.75 in June.
Other readings, however, are less favorable with unfilled orders in contraction at minus 6.82. Price readings show some pressure with input prices at plus 25.00 and finished prices up about 2.5 points to 6.82. Optimism is also down as the 6-month general conditions index fell more than 10 points to 28.47.
Circled are the credit expansion from the ‘regrettable’ S and L expansion (over $1 trillion back when that was a lot of money), the ‘regrettable’ .com/Y2K credit expansion (private sector debt expanding at 7% of GDP funding ‘impossible’ business plans), and most recently the ‘regrettable’ credit expansion phase of the sub prime fiasco.
All were credit expansions that helped GDP etc. but on a look back would not likely have been allowed to happen knowing the outcomes.
So the question is whether we can get a similar credit expansion this time around to keep things going/offset the compounding demand leakages that constrain spending/income/growth.
Japan, for example, has been very careful not to allow a ‘regrettable’ private sector credit expansion since the last one came apart in 1991…
So yes, debt ratios look low, but without some kind of ‘regrettable’/fraudulent/etc. impetus this is about all we can expect given the demand leakages, etc?
And not to forget this an average of higher and lower income earners, with income being skewed upwards to those with lower propensities to spend. I had suspected the consumer would make a move, somewhat as in past cycles, but then FICA and sequesters took away a large chunk of the income/ammo needed to support it, while the demand leakages continued.
For what it’s worth- disputes latest ‘credit boom’ narrative
Evidence Shows Media Reports of Credit Card Spending Growth are Overhyped and Wrong
Consumer revolving credit has been in the news recently as the Fed’s data on consumer credit for April reportedly showed a record surge. However, we have more current data and it clearly shows that these reports are another case of hysterical media over reaction.
