July Personal Spending

2006-08-31
Today's Thought of the Day is a collective effort that I meshed together in a hopefully meaningful way.

It starts with comments on personal spending from John Succo andKevin Depew at Minyanville followed by my thoughts autos, a snip from a post on GDP by Nouriel Roubini, and an image of a mythical creature by CalculatedRisk.


John Succo:

TV is trumpeting the consumer as alive and well. Personal spending is up 0.8%!!

Let's use deduction instead of induction.

Personal spending rose 0.8% yet personal income only rose 0.5%. That is a negative savings rate of -0.3% for the month. That equates to an annualized negative savings rate of -3.6%.

We can say that the consumer continues to borrow to spend last month. That is quite different than saying the consumer is alive and well.

Kevin Depew:

Consumer spending doubled the 0.4% increase that had been expected in July, rising by 0.8%, while the personal savings rate was a -0.9% in July, compared to a -0.7% in June.

• The personal savings rate fell to -0.9% in July, the lowest since last August.
• It also marks the 16th consecutive month of a negative U.S. personal savings rate.
• That's the longest period of negative savings since the Great Depression.
• Meanwhile, good luck finding a news release on the Internet or the newspapers that is able to successfully report the personal savings rate.
• Here is an example of the Google News number one story on the personal savings data: "The personal savings rate fell to 0.9% in July, the lowest since August."
• It's too bad that is wrong.
• From the BEA news release: "Personal saving as a percentage of disposable personal income was a negative 0.9 percent in July."
• Yeah, that's NEGATIVE 0.9%. Not 0.9%.
• But so what. More than a few economists insist the personal savings rate understates real savings and wealth.
• What does the BEA say? "Negative personal saving reflects personal outlays that exceed disposable personal income. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods."
• Clearly, the government needs to change the way this data is collected.
• If for no other reason than to make us feel better about ourselves.

Mish:

It seems the article Kevin was referring to has been corrected but I do have this chart to show.



So far all we have seen is a slump in home sales and restaurants. I now have my eye on autos. To keep the ball rolling Ford and GM are both offering increased incentives.

0% Financing for 6 years

Ford is offering 0% 72 months on all Mercury vehicles.
The Wall Street Journal is reporting Chrysler will make the same deal.

Price Reductions

Ford is dropping the price of the 2007 Lincoln Navigator.
The suggested retail price for the 2007 Navigator ranges from $46,575 to $51,475, including destination and delivery - $4,100 less, on average, than the 2006 Navigator base models. Lincoln is estimating that the 36-month lease-end residual values of the 2007 Navigator will be as high as 48 percent, which is a seven-point improvement compared with the 2006 model.

The Detroit Free Press is reporting GM announces customer cash incentives on 2006 and 2007 models.

General Motors Corp. announced Tuesday that it will offer $500 to $1,500 in bonus cash on many of its 2006 and 2007 models. The offer is good until Sept. 5, and in most cases, comes in addition to previously announced low-interest loan and customer cash offers.

The company is offering $500 in bonus cash on many of its cars, $1,000 on many of its pickups and car-based sport utility vehicles, and $1,500 on some of its truck-based SUVs.

Company spokesman John McDonald said the incentives are merely the company's annual Labor Day sale and not a sign that it is backing away from its strategy of trying to bring sale prices closer to the sticker prices.

We will find out about auto sales and incentives as we head into the 4th quarter.
More information on jobs will be out on Friday. Will it be the 5th consecutive disappointment?
I am struggling to see how job numbers can't disappoint but perhaps the bar has been set low enough or perhaps the BLS pulls off some kind of birth/death miracle.
We will find that out soon enough.

Nouriel Roubini

Nouriel Roubini's is taking a hard look at the GDP in Revised Q2 GDP Figures: Much Worse Than the Headline�Beware of the Spin Doctors

The revised Q2 figures are out and the headline figure � 2.9% growth � is better than the initial advance estimate of 2.5%. Right after the publication of these revised figures today the spin doctors have been in a frenzy to use this number to prove that the economy is fine. First in the line among these spin doctors is �Eighth Inning� Dallas Fed President Richard Fisher � yes the same Fisher who firmly predicted in June 2005 that we were at the �eighth inning� of the Fed tightening cycle and then went on voting another nine times for a Fed Funds raise. An hour after the release of the new Q2 figures he stated in a speech:

"We are slowing down, but this number may help us keep it in perspective," Federal Reserve Bank of Dallas President Richard Fisher said today after a speech in Dallas. "We could not have kept growing at the rate we were growing in the first quarter." He called the figures today "pretty healthy". This is also the same Fisher who � in a previous speech � called me and other realists who are worried about housing and the economy an Eeyore.

Beware of these spin doctors. Behind the headline figure, the numbers in the revised Q2 figures are much worse than the initial estimate. Essentially, almost all of the upward revision to the figures comes from a much larger increase in inventories of unsold goods, an ominous signal for future growth as firms saddled with unsold goods will soon start cutting production (as it is happening, for example in the auto sector). Indeed, if you exclude inventories and look at final sales, the figures are much worse: in Q2 final sales of domestic product grew only 2.3%.

The GDP growth improvement is also due in part to slightly better net exports but beware of this. The fact that now net exports are not anymore a drag on growth is also bad news, not good news: as the economy sharply slows down imports of consumption and investment goods are slowing down. Thus, the news from net exports is also lousy as it signals the coming recession: net exports improve when an economy slows down and worsen when the economy grows fast. Indeed, the figures about a fall in imports - a -0.1% in Q2 � are a clear indication that, as the economy is sharply slowing imports are falling.

The sharp increase in inventories is particularly worrisome since, as in any inventory cycle, an increase in such supply of unsold goods, is a leading indicators that firms will tend to reduce production when faced with slowing demand and rising inventories. So, higher GDP figures for Q2 via higher inventories means that � all equal � Q3 and Q4 figures for GDP growth will be worse than otherwise as a sharp inventory adjustment will occur; indeed, the Ford decision to cut production by over 20% in Q4 is a typical � if extreme - canary in the mine in terms of signaling how corporates will react to a sharp unexpected increase in inventories.

....

In summary the details of the new Q2 GDP figures are simply ugly and uglier than the initial estimate: much bigger inventories of unsold goods implying slower production and GDP growth in the second half of 2006; very slow growth of final sales that is down to 2.3%; actual falling investment in software and equipment; a modest trade improvement that is reflecting an economic slowdown; profit growth sharply down, sharp productivity growth slowdown and unit labor costs sharply up; anemic consumption growth and flat consumption of durables (and a worsening of consumer confidence based on current July-August data); negative growth of Federal consumption spending.

So let �Eighth-Inning� Spin-Doctor-In-Chief Fisher eat crow � as he did after he raised rates nine more times after his �eighth inning� speech � again once the actual real economy figures about the coming sharp slowdown and eventual recession will prove him soundly wrong again. Beware of perma-bull spin doctors with rose-tinted glasses who are totally blind to the extent of the current economic slowdown and are still talking about a soft landing of housing and an orderly economic slowdown. Soon enough the only thing orderly about the comatose housing market will be the undertaker carrying the coffin...and the rest of the economy will enter into a coma right after...

The Eeyore

I am sure enquiring minds are wondering what an Eeyore is.

Calculated Risk came through with this image and commentary.



What is an Eeyore? From Wikipedia:

'Eeyore is a fictional character from the book series and cartoon Winnie-the-Pooh. ... He is a pessimistic, gloomy, old donkey who is a friend of Winnie the Pooh. Eeyore is hardly ever happy and when he is, he is still sardonic and a bit cynical.'

Thanks to Nouriel Roubini, CalculatedRisk, Kevin Depew, and John Succo for material used in this post. Perhaps we are collectively just a sorry bunch of Eeyores. Perhaps just I am. Then again, compared to those who think gold is headed to 3000, the DOW to 2500, interest rates to 15%, and the dollar crash landing near zero, one might make a case that we are all optimists. Perhaps again we are more or less realists, to varying degrees, all trying to do our best making sense of the data that is now coming in.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/