I've got time on my hands and haven't mentioned the U.S. economy in a while. Some stuff is too good to pass up. I'll quote from Bloomberg's The $11 Trillion Advantage That Shields U.S. From Turmoil.
Call it America’s $11 trillion advantage: Consumer spending is likely to steer the U.S. economy safely through the shoals of deteriorating global growth and turbulent financial markets.
The combination of more jobs, falling gasoline prices and low borrowing costs will help lift household purchases. Such tailwinds probably matter more than Europe’s struggles or the slackening in emerging markets that caused the Dow Jones Industrial Average last week to erase its gains for the year.
“We’ve got a lot of things working in favor of the consumer right now,” said Nariman Behravesh, chief economist in Lexington, Massachusetts, at IHS Inc. “To have that kind of strength is the biggest asset for the U.S. It’s a pretty rock solid footing.”
Rock solid. So rock-solid that September retail sales were even worse than economists' lowest forecasts. But that's merely a quibble.
Household purchases make up almost 70 percent of the $16.8 trillion U.S. economy and have climbed an average 2 percent in the recovery that’s now in its sixth year. Spending growth will accelerate to 2.7 percent next year after 2.3 percent in 2014, according to the latest Bloomberg survey of economists.
The poll, taken from Oct. 3 to Oct. 8 in the midst of the meltdown in equities, showed little change in the median projections from the prior month. The economy is forecast to expand 3 percent in 2015 after 2.2 percent growth this year, according to the survey.
OK, you can call this the "2 then 3" rule. Every year the U.S. exhibits subpar growth (that's the "2") and every year economists predict that next year will be better (that's the "3"). Economists use this "rule" all the time.
Now, the interesting part — Americans are immune to what happens in the rest of the world (ROW).
“We’ve got the proverbial 800-pound gorilla — the consumer,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. “Households are more fixated on the good news here, and a big part of that is the labor market. The U.S. is going to be pretty immune to the rest of the world.”
And that's a good thing because the ROW is fucked.
Economic weakness in Europe, slowing growth in China and tensions in the Middle East sparked a $3.5 trillion loss in value for global equities through last week since a record in September. Brent crude oil yesterday sank to an almost four-year low and the dollar has climbed almost 5 percent since June.
The International Monetary Fund cut its forecast for international growth in 2015 and said the euro area faces the risk of a recession. The Washington-based lender trimmed projections for emerging markets including Brazil and Russia, while raising them for the U.S.
“In a slowing global growth environment, a consumer-dependent economy is a good thing,” said Dean Maki, chief U.S. economist at Barclays Plc in New York and a former Federal Reserve economist who specialized in researching household finances. “Resilient” spending is one reason “the U.S. outlook remains positive.”
OK, let's see if you've learned anything.
Rather than consumers, it’s U.S. companies that are more exposed to weakness overseas, said Behravesh, who was the top forecaster of personal income and third-best for consumer spending in the past two years, according to data compiled by Bloomberg. He projects consumption will grow 3 percent in each of the next three years following a 2.2 percent gain in 2014.
Short quiz: what rule did Nariman Behravesh apply here?
American consumption is once again the driver of global economic growth.
“With the U.S. more dependent on consumer spending in recent years, and growth slowing elsewhere, U.S. consumers are again a key driver of global growth,” Barclays’ Maki said.
For investors in such an environment, consumer discretionary stocks are attractive, said Brad McMillan of Commonwealth Financial Network, the nation’s largest closely held independent broker/dealer. Americans will largely go about “doing their own thing,” with “perceived threats” from abroad unlikely to drive purchasing decisions, he said.
“I just don’t see a link between economic troubles overseas and the notion that the consumer is not going to buy a TV,” said Waltham, Massachusetts-based McMillan, whose firm oversees $86 billion.
That's some very high quality bullshit, but here's the best quote of all.
“For the average American, the connection with these other concerns is very, very loose. They don’t live in the world, they live in the U.S.”
Precisely!!!
Unfortunately, Americans do indeed live in the United States, and in that "world' the cost of everything important goes up and up as incomes go nowhere at all. The geniuses at The Atlantic are wondering Why Can't People Feel the Economic Recovery?
Just 54 percent of Americans say they are satisfied with their opportunities to get ahead by working hard. In 2002, that number was 77 percent.
What's more, there is the troubling fact that wages barely grew faster than inflation in the past year, which is consistent with how they’ve been doing since the recession. Job rolls may be growing, but paychecks aren’t, which is bad news for the majority of Americans who rely primarily on wages for their income. Median household incomes are down about 8 percent since 2007.
And even for those Americans who are working for their stagnated wages, rising costs for crucial services that might enable them to get ahead—healthcare, childcare, education—may make the good life feel increasingly out of reach.
Costs for Americans (2005-2014)
Sure, college tuition, child care, and health care costs have soared, and the cost of food and vehicle repair have gone up, too. Still, the American consumer is poised to lead a global economic recovery. What did economist Brad McMillan say?
"I just don’t see a link between economic troubles overseas and the notion that the consumer is not going to buy a TV."
If you look at that graph, the cost of a new TV has plummeted! It's practically off the chart! And if you look at other stuff, you see the same trend: toys, computers, smartphones, cellphone service, etc., prices are decreasing for all of those. There's never been a better time to buy a new TV!
Hmmm ... doesn't that suggest that demand for all of those decreasing too? Sorry, nevermind!
So you can see it right there in that chart — the 11 Trillion Dollar Delusion Advantage.
I apologize for any negative things I may have said in the past.
The "2 then 3" rule. Love it. I'm going to go out and buy 5 tv sets now. That'll save us.
"Rather than consumers, it’s U.S. companies that are more exposed to weakness overseas, said Behravesh". Wait, if companies employ workers, and companies are exposed to weakness, and they usually respond to lower profits with cutting payroll, and consumers usually need money to buy things, then....
It's just magic, I guess.
Posted by: Jim | 10/15/2014 at 04:57 PM