The recession is only over if you ask the right people. While some sectors are starting to see the light at the end of the tunnel, consumers remain concerned. It may be tempting to listen to the experts over the average Joe, but the former don't control 70% of the U.S. economy. So, as long as people are worried abou unemployment (which continues to rise), the levels of debt they carry and whether they're at risk of foreclosure, the recession will live on in the hearts of those who write checks and swipe credit cards.
savings rate posts
FeedConsumer sentiment drops: savings and debt repayment are culprits
Continue reading Consumer sentiment drops: savings and debt repayment are culprits
Consumers: Income & savings up -- Gov't worried
We live in amazing times. Consumers are earning more; at least the ones with jobs. They are also saving more than they have in the last 15 years. The savings rate, which was hovering near zero in early 2008, surged to 6.9 percent, the highest level since December 1993. I think that is fantastic!Ben Franklin said, "A penny saved is a penny earned". If that is true, then people are improving their economic condition day by day. Strange as it might seem, the government is troubled by this.
The government and many economists are worried that without greater spending by consumers any economic recovery will be stalled that much further. During our recent manic economy, over the past decade, consumer spending was responsible for about 70% of the GDP.
I say to all my readers, let others spend -- YOU KEEP SAVING -- and reducing debt. You will be glad you did. The consumer led economy was a false economy. The world is mourning the sudden death of Michael Jackson who passed away yesterday from yet to be determined causes leading to cardiac arrest, reportedly $400 million in debt. You think he was under any stress?!
Continue reading Consumers: Income & savings up -- Gov't worried
Under the radar: U.S. savings rate rises to 5.7%, a 14-year high
Under the radar: Some trends are obvious enough and visible to all investors. Others are more subtle, but are just as potent, and these often slip "under the radar."Case in point: Almost every investor and citizen knows that Americans are saving more. But do you know the economic implications of that higher savings rate?
Continue reading Under the radar: U.S. savings rate rises to 5.7%, a 14-year high
Savings rate hits 14-year high
Here's a silver lining to that dark cloud some folks are calling the worst economic environment since the Great Depression: the savings rate is up. Nervous about the other shoe dropping, Americans are stashing away extra funds for a rainy day. In large part, cash collected from bonus payments, cost-of-living raises, or holiday gifts were saved rather than spent in January, lifting the personal savings rate to its highest since March 1995, at 5.0%. Just last year, the personal savings rate was hovering at an unimpressive 0.1%. From the 1950s through the early 1980s, however, the savings rate was closer to 10%. Viewed on an annual basis, the personal savings rate hit a new record of $545.5 billion.
Have the U.S., world economies entered the frugal consumer era?
Globalization is, at most, two decades old and few would deny its benefits, which include: the transfer of production to lower-cost centers, an increase in trade and interconnectedness between nations, and the more-efficient deployment of resources. But while the bulk of globalization research has focused on commerce and production changes and trends, the new world economy may also have ushered in another pattern that could be just as telling regarding national and regional economy GDPs: the era of the frugal consumer.
Has there been a consumption 'shift'?
Moreover, who better to ask about the above than economist David H. Wang, a macroeconomic modeler with more than 100 variables in his research arsenal.
Continue reading Have the U.S., world economies entered the frugal consumer era?
A bright side of the recession: Piggy bank sales are rising
Frustrated with poor returns from the stock market, investors are increasingly turning to a conventional strategy that can promise security at 0 percent interest rates. I am talking about piggy banks.According to Reuters, sales of the novelty banks are rising as the economy continues to worsen. Exact figures are hard to come by but several retailers report rising demand. Piggy Bank World.com reported a strong holiday season, according to Michael Gehi, one of the owners. Companies are also increasingly using the banks for promotions.
Though my wife and I don't own a piggy bank, we have taken our loose change to Commerce Bank (now owned by TD Bank (NYSE: TD), which for years has counted people's spare change for free in a nifty computerized machine.
Continue reading A bright side of the recession: Piggy bank sales are rising
Where have all the consumers gone?
A journalism professor of yours truly, Jon Sandberg, who also served in key positions for several Connecticut governors, had an interesting technique that he frequently deployed in seminars. A student would pose a question and Sandberg would say, "That's a good question. Is it acceptable and ethical to publish information that you know would show ethical and other lapses by the current president, if you know that information would also harm innocent individuals? That's a good question."Then Sandberg would grab his cup of coffee and walk to the window side of the classroom, and stare out the window, sipping his coffee, saying nothing, for an eternity. Eventually, a student or two would begin the discussion.
What's a good question for today? Maybe this: where have all the consumers gone in the U.S. economy? BloggingStocks had a chance to grill economist Peter Dawson on the matter, and he has a few theories.
The first concerns structural and technological factors, he said. The U.S. is in the midst of adjusting to globalization, which, as most investors know, has resulted in the transfer of millions of good-paying U.S. jobs overseas to lower-cost centers. "The U.S. has also gained some jobs from globalization, but the net is still a major loss of good-paying jobs in the United States," Dawson said. "Some economists argue that's at the root of declining consumption. We are net-negative in the good-paying jobs category, so far, in globalization, and there simply aren't enough citizens with incomes adequate to buy the products."
A global imbalance not likely to be repeated: dependence on U.S. consumption
Few economists deny that the global economic order that dawns following the financial crisis will be different from the pre-crisis order.
And a key difference is likely to be consumption patterns -- namely the development and expansion of middle classes in younger economies as a source of demand.
The export economy's downside
Emerging market economies have learned/are learning an all-too-painful lesson regarding the vulnerabilities -- or the downside -- of an export-based economy: if for some reason that foreign demand wanes or dries up, your economy has a problem. A big problem.
And a key difference is likely to be consumption patterns -- namely the development and expansion of middle classes in younger economies as a source of demand.
The export economy's downside
Emerging market economies have learned/are learning an all-too-painful lesson regarding the vulnerabilities -- or the downside -- of an export-based economy: if for some reason that foreign demand wanes or dries up, your economy has a problem. A big problem.
Continue reading A global imbalance not likely to be repeated: dependence on U.S. consumption
NYT's Krugman: A fiscal stimulus dollar in time could save nine
New York Times (NYSE: NYT) columnist and Nobel Prize-winning economist Paul Krugman argues that the recent statistics on consumer spending offer disappointing news for those who believe U.S. economic growth will resume via spontaneous generation.
Growth, Krugman argues, will not magically appear and the consumer pull-back provides testimony: real consumer spending fell at an annual rate of 3.1% in Q3, with major declines in durable goods purchases.
Further, as Krugman notes, the last time consumer spending fell as sharply was 1980, when the economy was enduring a severe recession with double-digit inflation.
Foreboding consumer spending
Consumers are in pull-back mode, Krugman states, and that fact, combined with general economic slowness - - U.S. GDP contracted in Q3 by 0.3% - - and the lending constraints stemming from the credit crunch, creates a climate that's not for the squeamish: consumers are belt-tightening for justifiable reasons, individually, but their collective belt-tightening could lead to a disaster - - a deeper recession.
That's because, as economist John Maynard Keynes taught, a savings rate is required for a productive, healthy economy, but if every citizen saved everything he/she could all the time, it would be a disaster.
Growth, Krugman argues, will not magically appear and the consumer pull-back provides testimony: real consumer spending fell at an annual rate of 3.1% in Q3, with major declines in durable goods purchases.
Further, as Krugman notes, the last time consumer spending fell as sharply was 1980, when the economy was enduring a severe recession with double-digit inflation.
Foreboding consumer spending
Consumers are in pull-back mode, Krugman states, and that fact, combined with general economic slowness - - U.S. GDP contracted in Q3 by 0.3% - - and the lending constraints stemming from the credit crunch, creates a climate that's not for the squeamish: consumers are belt-tightening for justifiable reasons, individually, but their collective belt-tightening could lead to a disaster - - a deeper recession.
That's because, as economist John Maynard Keynes taught, a savings rate is required for a productive, healthy economy, but if every citizen saved everything he/she could all the time, it would be a disaster.
Continue reading NYT's Krugman: A fiscal stimulus dollar in time could save nine
Which candidate, Obama or McCain, will favor $500 billion in fiscal stimulus, if needed?
With a home near the capital of the world, decades ago the parents of yours truly were able to locate and purchase the best and most effective books for their children during their grade school development years.
Dad usually chose books that emphasized cognitive development, while Mom emphasized books and exercises that stimulated creativity, and that had happy endings.
To be sure, Morgan Stanley economist Stephen Roach's macroeconomic reports would not have met Mom's requirement for happy endings.
Roach's post-bubble world
Roach, who now also serves as Morgan Stanley's (NYSE: MS) Asia Chairman, takes the pulse of the U.S. and global economies, the housing slump, the credit crisis, and the financial system, in his most recent report. (pdf)
And, consistent with Roach's reputation for sobering analysis, his economic forecast for the quarters and years ahead is not pleasant, and it differs markedly from the current consensus in financial circles.
That current consensus argues that the U.S. Federal Reserve's recently-established liquidity facilities, combined with the U.S. Treasury's back-up measures, will enable banks and others with bad mortgages and bad mortgage-backed bonds to muddle-through, slowly working-off these debts as revenues increase as the U.S. economy recovers. Likewise, the U.S. housing sector and consumer demand also will recover, as home prices stabilize and consumption returns to more-normal levels as U.S. GDP increases. It's a sort of 'end to the banking and housing crises by a growing U.S. economy better-able to service those bad debts' argument.
Dad usually chose books that emphasized cognitive development, while Mom emphasized books and exercises that stimulated creativity, and that had happy endings.
To be sure, Morgan Stanley economist Stephen Roach's macroeconomic reports would not have met Mom's requirement for happy endings.
Roach's post-bubble world
Roach, who now also serves as Morgan Stanley's (NYSE: MS) Asia Chairman, takes the pulse of the U.S. and global economies, the housing slump, the credit crisis, and the financial system, in his most recent report. (pdf)
And, consistent with Roach's reputation for sobering analysis, his economic forecast for the quarters and years ahead is not pleasant, and it differs markedly from the current consensus in financial circles.
That current consensus argues that the U.S. Federal Reserve's recently-established liquidity facilities, combined with the U.S. Treasury's back-up measures, will enable banks and others with bad mortgages and bad mortgage-backed bonds to muddle-through, slowly working-off these debts as revenues increase as the U.S. economy recovers. Likewise, the U.S. housing sector and consumer demand also will recover, as home prices stabilize and consumption returns to more-normal levels as U.S. GDP increases. It's a sort of 'end to the banking and housing crises by a growing U.S. economy better-able to service those bad debts' argument.
Can commodities serve as a reserve currency?
The financial sector, like the politic arena, can sometimes yield more heat than light, particularly during doldrums or other challenging economic periods. In economist Glen Langan's view, there's no better example of this than the current idea in financial circles that with a period of higher inflation likely ahead, commodities will become the world's new reserve currencies, displacing the U.S. dollar.
Commodities fascination
"Commodities are not reserve currencies, and never will be," Langan said. "Historically, the most precious, widely-traded metal, gold, has served as an inflation hedge, but even that has been cyclical, with major, long down-periods for the metal."
Langan recognizes that emerging market growth, particularly in Asia and Latin America, has created a long-term bull market in oil, commodities, and raw materials, and these are likely to outperform both inflation and selected investment classes, short-term, but to equate them as the new 'reserve currency' is an argument with little empirical support.
Continue reading Can commodities serve as a reserve currency?
Are U.S. consumers moving away from buying on credit?
American consumers, the pivotal factor in the consumer-dependent U.S. economy, may have modified their spending philosophy, The New York Times reported Tuesday.
Stung by the housing market correction, stagnant wage growth in certain job segments, above-average debt levels, and a slowing economy, Americans are saving more and using credit less -- a shift that some analysts argue is a cultural inflection point of sorts, with huge implications for the economy.
Economist Steve Affinito told BloggingStocks Tuesday that while The Times' interpretative report did not "cite a large enough sample size to meet my fancy," it nonetheless provided data points that support what macroeconomic indicators are saying about consumer choices.
"We know that the savings rate has increased in the last six months, and retail sales are sluggish, at best. Take these and combine them with much tighter credit terms for home equity loans and other credit and what you get is a pull back in purchases, particularly purchases on credit," Affinito said.
Continue reading Are U.S. consumers moving away from buying on credit?
China learned that yuan-dollar peg is a two-edged sword
China, which has kept its currency, the yuan, artificially low in order to keep the cost of its exports low and promote a domestic economic boom as its nation develops, is finding that the strategy has a negative effect: domestic inflation. Unlike market-based currencies characteristic of the foreign exchange, China's government sets the yuan's value -- allowing it to trade in a tight band, currently at about or near 7.2730 yuan to the U.S. dollar. China argues that the yuan/dollar peg is necessary to promote economic growth and protect young, developing businesses and sectors.
And the strategy is working: China has registered +10% GDP growth for more than four years; has the world's third-largest economy, in purchasing power parity terms, behind the European Union and the United States; and has generated massive trade surpluses, particularly against the U.S.
Still, the U.S. counters that the peg keeps China's goods at artificially low prices and hence gives China's companies an artificial competitive advantage in trade. China has turned aside those and other U.S. concerns, particularly the trade deficit, arguing that if the U.S. wishes to lower its trade deficit, its citizens should save more and consume less, and the U.S. government should eliminate its budget deficit.
Continue reading China learned that yuan-dollar peg is a two-edged sword
Consumer spending exceeds income in November 2007
Consumers spent more than they earned in November 2007, returning to near-decade long characteristic that has been responsible for driving a considerable portion of U.S. economic growth, the U.S Commerce Department reported Friday. Meanwhile, nominal income rose just 0.4% in November 2007, below the 0.5% estimate, the department announced. Nominal income gained 0.2% in October 2007.
Consumer spending rose 1.1% in November 2007, above the 0.9% estimate. Spending on durable goods -- such as autos, furniture and appliances -- increased 0.6%, after a 0.1% decline in October 2007. Non-durable goods spending also rose 0.6%, and services spending gained 0.5%.
Consumer spending rose 1.1% in November 2007, above the 0.9% estimate. Spending on durable goods -- such as autos, furniture and appliances -- increased 0.6%, after a 0.1% decline in October 2007. Non-durable goods spending also rose 0.6%, and services spending gained 0.5%.
Continue reading Consumer spending exceeds income in November 2007
Taj Mahal's dollar refusal symbolic of greenback's rough 2007
What international transaction perhaps best symbolizes the U.S. dollar's rough year of 2007? Giddy British tourists with more money to spend in New York than, seemingly, Donald Trump?
How about an international attraction that won't take dollars? In November 2007, India's Taj Mahal, one of the seven wonders of the ancient world and India's most popular shrine, announced it would no longer accept the dollar, citing the greenback's weak currency status, and accept only rupees, Bloomberg News reported Thursday.
Since January 2001 or during the past six years the dollar has fallen about 55% against the euro, 35% against the British pound, and about 10% against the Japan's yen. On Thursday the dollar was mixed against the world's major currencies. The dollar gained 0.62 cents to $1.4320 against the euro and 1.50 cents to $1.9831 against the British pound, but fell 0.25 yen against Japan's yen.
When a currency, such as the dollar, declines versus another currency, that means the purchasing power of those holding the dollar declines - - a sort of 'non-legislative' tax increase. It goes without saying that most citizens, and institutions, don't like to hold currencies that decline in purchasing power.
Continue reading Taj Mahal's dollar refusal symbolic of greenback's rough 2007
Struggling Playboy outsources business ops
J. Crew earnings preview: A strong Q3 all buttoned up?
Twitter to make acquisitions, generate revenue in 2010
