Recession fears are receding. At least, that’s what it says in the papers. The U.S. economy has been adding new jobs at an average rate of about 130,000 per month. That’s only about what it takes to stay even with increases in the population.
Still, it’s not bad. Because it seems to mean that the U.S. economy is not getting worse.
Or…does it? While jobs are looking better, income is looking worse. David Rosenberg is on the case:
A WAGE-LESS JOBS RECOVERY
It was interesting to see that from July to November, the U.S. economy managed to generate 653k net new jobs, and yet real personal disposable income fell in four of those five months and at a 1% annual rate through that period. What prevented an overall contraction in consumer spending was a drop in the savings rate from 5.0% to 3.5% and a benevolent 60 cent drop in gasoline prices. Absent these two effects, real consumer spending would have actually contracted at a 3% annual rate in the July-November period. (As an aside, did you know that there is a 70% inverse correlation between gasoline prices and consumer confidence?).
Unfortunately, the household net worth-to-disposable income ratio has fallen to a low enough level in the past two quarters to suggest a complete reversal in that savings rate decline in the months ahead, and our biggest concern as we head through the winter months is a renewed rise in the price of gasoline, which has already carved out a bottom. If you recall, last year at this time the consensus was looking for a 3.3% real GD growth rate for Q1 of 2011; instead we got 0.4% at an annual rate (the stock market actually peaked after the first release of that quarter primarily because of the run-up in prices at the pump (rising 60 cents).
People who still expect a full recovery of the U.S. economy have some explaining to do. Specifically, they should tell us where it will come from.
Either U.S. households are de-leveraging or they’re not. And if they are, they’ve got a long way to go. Household debt levels have come down from their peaks in ’06 – 07. But they are still far higher than they were in the ’80s and even the ’90s.
At least half…and maybe all…the “growth” of the 20 years leading up to 2007 came from increasing household and financial industry debt levels. And most of it depended on rising housing prices as collateral.
Do you see that happening again? Do you see another source of income or spending gains?
We don’t. And without income gains or another borrowing binge, we don’t see how a real “recovery” is possible.
But we don’t have any more time to think about it. Not today…
We’re on our way to South Africa. Stay tuned…
for Markets and Money